NYT -- Krispy Kreme Runs Head-On Into a Low-Carb Wall.
May 8, 2004
Krispy Kreme Runs Head-On Into a Low-Carb Wall
By FLOYD NORRIS
Krispy Kreme Doughnuts, the hot new stock offering of 2000
that stayed hot even as other new offerings plunged, has
suddenly chilled. It blames the Atkins diet.
Shares in the company - whose stores use flashing lights to
notify customers when a fresh batch of doughnuts is ready -
plunged 29 percent yesterday, closing at $22.51, down
$9.29. The stock has lost more than half its value since it
peaked last August at $49.74.
"For several months, there has been increasing customer
interest in low-carbohydrate diets," said Scott A.
Livengood, the chairman and chief executive, adding that
the most serious effect on Krispy Kreme had come in grocery
store sales, where it has been expanding its business.
As a result, the company said, it did not earn as much as
it had expected in its first quarter, which ended May 2,
and was cutting its forecasts for the fiscal year by about
10 percent. The company is to report quarterly results on
May 25.
"I hope it's a fad," Mr. Livengood said of low-carbohydrate
diets. But if the trend accelerates, company officials
said, profit forecasts might have to be reduced further.
Krispy Kreme itself was viewed by some as a fad, with long
lines outside new stores as it expanded from its base in
the Southeast United States to most of the United States,
as well as Canada, Mexico, Britain and Australia.
But now Krispy Kreme is closing a handful of company-owned
stores and reducing plans to open new ones. "For the first
time in recent memory, retail customer counts have
declined," said John W. Tate, the chief operating officer.
Krispy Kreme doughnuts have been around since 1937, but it
was only in the 1990's that they became a phenomenon. The
company opened its first store in New York in 1996 and
promptly gained a cult following.
But New York now appears to be a problem for Krispy Kreme.
Mr. Tate said yesterday that the company was trying to
renegotiate its arrangement with a joint-venture partner to
reduce its risks in the city.
"I consider New York to be a very special geography," he
said. "It is best for us and our shareholders if we do not
participate heavily in the development costs." He did not
elaborate.
Krispy Kreme also said it was closing its Montana Mills
Bread stores, an operation that it bought a year ago and
that as recently as mid-April it said it planned to
continue refining and expanding. It said it would take a
write-off of as much as $40 million on the venture.
Until recently, the company appeared to be nearly
unstoppable. When the shares were first sold to the public
in April 2000, during the boom in high-technology public
offerings, Krispy Kreme was hailed as an old-economy growth
story. The shares rose 76 percent the first day of trading,
and did not look back.
Even as the new high-technology issues lost most of their
value, Krispy Kreme surged ahead. Short-sellers criticized
the company's high ratio of price to earnings. Even after
yesterday's fall it is selling at more than 20 times its
estimate of operating earnings, before charges, of $1.04 to
$1.06 for the current fiscal year. But its profits grew,
and so did its share price.
Even including the big decline yesterday, investors who got
in at the offering or within a few months of it have good
profits. The offering price, adjusted for two stock splits
in 2001, was $5.25 a share. But the stock price yesterday
was the lowest in three years.
Until yesterday, the company had never reported profits
that failed to meet its forecasts, but there had been signs
that its business was not the growth engine it had seemed
to be. Just two months ago, it told investors it had not
seen "a measurable impact" from low-carbohydrate diets, but
it also reported a decline in average weekly sales per
store, sending the stock down 10 percent in a day, to
$34.22 a share.
Volume yesterday came to 20.5 million shares, the largest
ever for Krispy Kreme and amounting to a third of the
shares outstanding. The volume yesterday was greater than
the number traded during the entire month of April.
Mr. Livengood told investors on the conference call that
despite the problems, there was plenty of growth left for
the company. "We are only beginning to scratch the surface
of our potential," he said. He added that the company's
franchisees "remain extremely successful" and said in
answer to a question that "there are no plans to reduce
royalties, or no need to even consider anything of that
sort."
Copyright 2004 The New York Times Company. |
