Krispy Kreme reports 79% drop in third quarter earnings

Monday, November 22nd 2004, 10:01 am
By: News On 6

CHARLOTTE, N.C. (AP) _ Krispy Kreme Doughnuts Inc.'s third quarter earnings plunged 79 percent as the North Carolina company discontinued operations and closed more stores amid a federal investigation into its bookkeeping.

The Winston-Salem company's stock tumbled more than 15 percent in early trading Monday on the New York Stock Exchange. The company withdrew its sales forecast and said it would not provide an outlook for the current quarter and 2005.

Losses for the quarter were 5 cents per share, down from profit of $14.5 million, or 23 cents per share, a year ago. Excluding the one-time charges related to discontinued operations, the company earned $2.4 million, or 4 cents per share, in the latest quarter.

Analysts surveyed by Thomson First Call had expected Krispy Kreme to post earnings of 13 cents per share.

In morning trading, Krispy Kreme shares were down $1.82, or 15.8 percent, at $9.68 _ meaning the shares are off more than 70 percent since the beginning of the year.

``Clearly we are disappointed with our third quarter results,'' chairman and chief executive officer Scott Livengood said in a statement. ``We are focused on addressing the challenges facing the company and regaining our business momentum.''

Those challenges include a federal investigation into its accounting practices. The company said earlier this year that the Securities and Exchange Commission was looking into its franchise reacquisitions and its future earnings outlooks.

Krispy Kreme said in its earnings report it incurred about $3 million in fees from the SEC probe and other matters. The company also said it expects to continue to have to pay the fees.

During the third quarter, the company also incurred a $2 million allowance for potential exposure in connection with two of its franchisees.

On a conference call with analysts, Livengood did not answer any questions in a live format. Instead, the company asked them to submit their questions to the company's investor relations department and the company would post its responses on its Web site.

``I enjoy the exchange and the openness of these sessions,'' Livengood told the analysts. ``I hope to return soon to our usual dialogue.''

Total sales for the quarter ended Oct. 31 increased 1.4 percent to $170.1 million from $167.8 million in the third quarter of last year. Company store sales overall were up 9.6 percent to $121.2 million, though sales at company stores open at least one year fell 6.2 percent.

The company's net loss for the first nine months was $21.7 million, or 34 cents per share, compared with net income of $40.7 million, or 66 cents per share, in the year-ago period.

Fifteen new Krispy Kreme stores _ 13 factory stores and two satellites _ opened during the quarter. Nine stores, comprised of seven stores and two satellites, were closed.

That brought the number of stores systemwide at quarter-end to 429.