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Krispy Kreme Cuts Back on New Stores

By Nichola Groom
/ Source: Reuters

By Nichola Groom

NEW YORK (Reuters) - Krispy Kreme Doughnuts Inc. on Tuesday reported its first quarterly net loss since going public four years ago and cut the number of planned new stores as the low-carb diet craze curbs appetites for doughnuts.

The company, which earlier this month slashed its profit forecast for the year, triggering a huge sell-off in its stock, said it now will open 100 new stores this year, about 17 percent fewer than planned previously.

For its first quarter ended May 2, the Winston-Salem, North Carolina-based doughnut chain posted a net loss of $24.4 million, or 38 cents per share, after recording charges for shutting down its Montana Mills Bread Co. chain and restructuring other operations.

The loss reversed a profit of $13.1 million, or 22 cents per share, a year earlier.

During a conference call to discuss the results, Krispy Kreme executives blamed the rapid proliferation of low-carbohydrate packaged foods aimed at consumers following popular diets such as the Atkins and South Beach for weakening sales, particularly in supermarkets.

"You can't walk down a grocery aisle today without -- on every level, on every shelf, every five feet -- seeing 'low-carb' on a package," said Krispy Kreme Chief Operating Officer John Tate. "People are going to try new things in lieu of what they are used to buying."


To compete more effectively with innovative products, Krispy Kreme will introduce several new incarnations of its signature doughnuts later this year, including a sugar-free doughnut, doughnut holes, and mini doughnut rings.

The company is also in the process of launching a new line of frozen drinks and will soon begin selling its own brand of coffee beans in supermarkets.

"To the extent that we can go out there with newness then we will compete effectively for those eyeballs," Tate said.

Krispy Kreme shares, which have lost more than a third of their value since the profit warning on May 7, rose 3 cents to close at $19.88 Tuesday on the New York Stock Exchange.

One analyst said investors were encouraged that Krispy Kreme management is positioning the company for growth in an environment where its brand is no longer seen as a hot new commodity.

"The are beginning to understand that they are at a critical juncture in their growth evolution," said U.S. Trust analyst Herb Achey. "Some of the swagger is gone from how they portray their growth plans. They want to execute now."

Excluding one-time items, Krispy Kreme reported a profit from continuing operations of $14.3 million, or 23 cents per share, up slightly from last year and in line with analysts' lowered expectations, according to Reuters Estimates.

Krispy Kreme estimated fiscal 2005 earnings from continuing operations of between $1.04 and $1.06 per share. Analysts, on average, are expecting $1.00 per share, according to Reuters Estimates.

The forecast is consistent with the profit warning earlier this month, when the company shaved 10 percent off its previous range of $1.16 to $1.18 per share.

Krispy Kreme said it now estimates full-year systemwide sales will increase 20 percent to 25 percent, and that systemwide comparable-store sales will rise by a low- to mid-single digit percentage.

(Additional reporting by Jean Scheidnes)