Krispy Kreme crisis increases losses

Related tags Krispy kreme

Alarm bells are ringing at the Krispy Kreme doughnut company after
it announced a further $3 million loss in its third quarter amid
fears that the company may have been permanently damaged by
consumer health trends and over-expansion, reportsChris
Mercer .

Krispy Kreme, which saw its share price plummet by almost 20 per cent after publishing the results, also posted a loss of $21.7 million for the nine months to 31 October compared to a net income of $40.7 million for the same period last year.

Scott Livengood, company chief executive and chairman, said he was "disappointed"​ with the results and that although Krispy Kreme was determined to address the challenges it faced, a number of consumers had abandoned its doughnuts because of dietary concerns.

New store openings actually pushed up Krispy Kreme's total store sales by 9.6 per cent to $121 million in the third quarter, but average weekly sales at individual stores dropped by almost 20 per cent compared to last year.

The 67-year-old company has now pulled back from its forecast of a 15 per cent rise in systemwide sales by the end of the year, without issuing a new prediction - a move which led JP Morgan analyst John Ivankoe to say he saw nothing but negatives in Krispy Kreme.

In a show of defiance, another 10 Krispy Kreme stores are due to open in the next three months as the company tries to concentrate on sales growth. However, some analysts have cited over-expansion as a major contributing factor in the company's woes after it opened 32 new stores in its first half.

Krispy Kreme's expansion has also come at a time when a number of US retailers began cutting down on the number of doughnuts in their stores to accommodate more foods making healthy diet claims, including low-carb products. There is no sign that the well-documented healthy eating concerns of American consumers are about to disappear, but the company has yet to break in to this trend.

Back in May 2004, Krispy Kreme said it was aiming to launch a low-calorie, sugar-free doughnut by the end of the year. Judging by current results, this innovation could not come soon enough.

To make matters worse, the Securities and Exchange Commission is also conducting a formal investigation into the way Krispy Kreme accounted for the repurchase of some of its franchises from individual franchisees.

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