Krispy Kreme hits all-time low on quarterly loss

The company, which has lost more than 80 per cent of its market value since last year…The company said its outside auditor will not be able to sign off on its second- and third-quarter financials until an internal review of its accounting practices is completed. Krispy Kreme expects to miss deadlines to file those results with the U.S. Securities and Exchange Commission.

The Globe and Mail
November 23, 2004

Krispy Kreme hits all-time low on quarterly loss
Nichola Groom

LOS ANGELES — Struggling doughnut shop chain Krispy Kreme Doughnuts Inc. yesterday reported an unexpected quarterly loss as a result of disappointing sales and charges for store closings, sending its stock down 18 per cent to an all-time low.

The company, which has lost more than 80 per cent of its market value since last year and is the subject of an accounting probe by securities regulators, also withdrew its forecast for system-wide sales to rise 15 per cent for the year ending in January.

It gave no new forecast and declined to give earnings or sales outlooks for the current quarter or the coming year.

Krispy Kreme posted a loss of $3-million (U.S.), or 5 cents a share, for the third quarter ended Oct. 31, compared with a profit of $14.5-million, or 23 cents, a year earlier.

Revenue was $170.1-million, well below analysts' average estimate of $180.7-million as compiled by Reuters Estimates.

The company said its outside auditor will not be able to sign off on its second- and third-quarter financials until an internal review of its accounting practices is completed. Krispy Kreme expects to miss deadlines to file those results with the U.S. Securities and Exchange Commission.

"We only see negatives in the Krispy Kreme earnings release," J.P. Morgan analyst John Ivankoe, who has an "underweight" rating on the shares, said in a report. "We don't view current earnings or cash valuation as compelling from either a public or private investor perspective."

Yesterday's dour announcement is the latest in a string of troubles for Krispy Kreme that began in May, when the company posted its first quarterly loss since going public and cut the number of planned new stores. It blamed the low-carb diet craze for curbing consumers' appetite for doughnuts.

Some investors have said the company expanded too quickly and that its doughnuts lost some of their cachet once they were sold in places like supermarkets and convenience stores.

On a conference call with Wall Street analysts, Krispy Kreme chief executive officer Scott Livengood reiterated the company's view that increased consumer interest in healthier foods was taking its toll on sales of Krispy Kreme doughnuts.

"There is a group of consumers who have altered their purchasing habits because of dietary concerns," he said.

The company expects to begin testing a sugar-free doughnut in some stores by the end of the current quarter, he said.

In a departure from the company's usual practices, Mr. Livengood declined to take questions on the call, citing the "need for prudent restraint" during the continuing SEC probe.

Shares of the one-time darling of Wall Street, which went public in 2000, fell to an all-time low of $9.37 on a split-adjusted basis yesterday morning. The stock hit a lifetime high of $49.74 in August, 2003.

Krispy Kreme shares closed down $1.86, or 16.2 per cent, to $9.64 on the New York Stock Exchange.


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