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Business - Reuters


Krispy Kreme Profit Plunges, Stock Sinks

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By Ellis Mnyandu

NEW YORK (Reuters) - Krispy Kreme Doughnuts Inc.(NYSE:KKD - news) on Thursday reported a sharp drop in quarterly profit and signaled that business may not recover any time soon, sending its shares down more than 17 percent in pre-market trading.

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The company, whose business is being assailed partly by the growing popularity of low-carbohydrate diets, said it has decided to cut new store openings for this year and would not offer any projections on third-quarter or fiscal 2005 results.


The latest profit shortfall, for which there was very little explanation in the company's earnings release, marks another sour episode in a string of negative developments that have recently cast a shadow on the Winston-Salem, North Carolina-based doughnut chain.


Krispy Kreme, which earlier this month saw its chief operating officer defect for another job elsewhere, said it now expects to open about 75 new stores, including about 60 factory and 15 satellite stores, systemwide in its current fiscal year.


Back in May, it had said it planned 100 new stores this year, about 17 percent fewer than planned initially.


Chief Executive Scott Livengood called the company's latest results "disappointing," but at the same time sought to reassure investors that Kripy Kreme was confident about its long-term prospects.


In the near-term, however, the company forecast sales growth to be slower than previously planned. It said systemwide sales would likely grow by about 15 percent during fiscal 2005 and about 10 percent in the second half of the year.


In May the company had forecast systemwide full-year sales growth between 20 percent and 25 percent. Systemwide sales for the first half of the year jumped 19.4 percent.


Skip Carpenter, an analyst at Thomas Weisel Partners, said it appeared that Kripy Kreme's business was "in turmoil."


"Obviously the second quarter is exceptionally disappointing and it looks like they continue to have difficulties in front of them, but I'd rather listen to what management has to say given the turmoil that the business is in before I have official comment," said Carpenter.


Livengood did not cite a specific reason for the second-quarter shortfall in the company's release, but in the past the company has blamed the low-carb craze as a problem for its business.


Krispy Kreme, which in July said federal investigators were investigating its repurchase of franchises, said it earned $5.8 million, or 9 cents per share, on a reported basis in its second quarter, compared with $13 million, or 21 cents per share, a year earlier.


Six analysts on average had expected profit of 22 cents a share, with estimates ranging from 19 cents to 24 cents a share, according to Reuters Estimates.


Total revenue, which includes sales from company stores, franchise operations and Krispy Kreme Manufacturing and Distribution, climbed 11.5 percent to $177.4 million in the quarter. On a comparable-store basis, systemwide sales were up 0.1 percent and company store sales rose 0.6 percent, Krispy Kreme said.


The company's stock sagged to $12.65 on INET electronic brokerage system, down from its close of $15.36 on the New York Stock Exchange (news - web sites) on Wednesday.