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Krispy Kreme Expects Loss, Late Filings

Posted June 13, 2006

— Krispy Kreme Doughnuts Corp. expects a net loss for the first quarter of 2007 because of declining sales and revenues, the company said Tuesday.

Krispy Kreme also said it won't be able to file a quarterly report for the first quarter of fiscal 2007 that ended in April because it hasn't completed reports for previous periods.

The company said it expected a decline in revenue from $153 million in the first quarter of 2006 to $116 million for the same period in 2007 ending in April, largely due to cuts in company-owned stores and lower sales to and royalties from franchisees.

Sales dropped 17 percent in the first quarter of 2007 because of a 19 percent drop in the number company stores.

"The company's financial results continue to be adversely affected by the substantial costs associated with the legal and regulatory matters," said the company's filing with the Securities and Exchange Commission.

The company said the delay was because it "devoted substantial resources" to its annual report for fiscal 2005. That report was filed April 28. The company also said there will be delays in the first three quarterly reports for 2006 because of work on its 2006 annual report, which hasn't been filed.

In April, the company restated pretax income for 2005, reducing the amount by $34 million from fiscal 2003 to 2005.

Once a Wall Street favorite, Krispy Kreme's troubles began in May 2004, when the company warned of a coming earnings drop that it blamed on the popularity of low-carbohydrate diets. The company's stock sank.

The stock plunge began a downward spiral that led to store closings and the ouster of longtime CEO Scott Livengood. A report by a special committee of independent directors blamed Livengood and former Chief Operating Officer John Tate for most of the company's problems, saying they tried to "manage earnings" to meet Wall Street expectations.

Krispy Kreme shares fell 5.2 percent, or 46 cents, to close at $8.42 on the New York Stock Exchange.

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