updated 1/7/2008 10:25:24 AM ET 2008-01-07T15:25:24

Krispy Kreme Doughnuts Inc. chief executive Daryl Brewster has resigned amid a sputtering turnaround effort.

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The Winston-Salem-based company said Monday that Brewster left his position for personal reasons but will stay with the company until the end of January.

The board of directors has elected James Morgan to replace him.

“This is not a divorce, this is more of a situation where the board is saying let’s re-evaluate things,” said Harlan Platt, a professor at Northeastern University who follows corporate turnarounds. “They have fired him as head coach, but he’s staying on the sidelines.”

Brewster was named CEO in March 2006 to help lead Krispy Kreme through a turnaround, but the company has continued to struggle. In December, the company said its quarterly sales tumbled and it expected more franchised store closures ahead.

Morgan, 60, has been a Krispy Kreme director since 2000, and he was elected chairman of the board in 2005. In the past, he has worked for or been in charge of various entities, including investment firm Covenant Capital LLC, Interstate/Johnson Lane and Wachovia Securities Inc.

Investors sent Krispy Kreme’s battered shares up more than 12 percent in midday trading. Krispy Kreme shares rose 35 cents to $3.18.

Krispy Kreme, which sold its first glazed doughnut in 1937, has been hurt over the past couple of years by allegations of misconduct by former management, healthier eating trends, bankruptcy filings by several of its franchisees and competition from larger rival Dunkin’ Donuts.

A stock that once traded at more than $50 bottomed out at about $4 in late 2005, and the company’s board forced out two former executives it said were trying to “manage earnings” to meet Wall Street expectations.

Brewster’s departure appears to be yet another blow for the embattled doughnut maker.

Over the past year, the company has been touting a turnaround, and in October Krispy Kreme shuffled executive slots and said it would realign its franchise and company store operations. The reorganization would help Krispy Kreme improve sales and cut costs, executives said at the time.

Also on Monday, Krispy Kreme said all of its products sold in the United States now have zero grams of trans fat. The company said it has been piloting zero grams trans fat products across the country for the past several months.

The chain’s decision mirrors a move to erase trans fat by many fast-food and quick service restaurant chains last year.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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