Krispy Kreme Doughnuts Inc. is working to avoid a financing crunch this spring, cutting about 125 jobs and jettisoning its corporate jet as it aims to conserve cash.
The moves announced Tuesday were among the first major decisions from the struggling doughnut chain’s new management.
Krispy Kreme said the cuts would affect workers about one quarter of the workers at its Winston-Salem headquarters and at plants where doughnut mix is made, equipment is manufactured and doughnuts are distributed.
“Krispy Kreme is a great brand, and we are working very hard to help the company rediscover its potential,” said Steve Panagos, president and chief operating officer.
Panagos and Stephen F. Cooper, the company’s chief executive, were brought in last month after former CEO Scott Livengood was forced out by the company’s board.
Krispy Kreme’s 360 United States stores are owned and operated by franchisees; as such, they are not affected by the corporate cuts announced Tuesday. Spokeswoman Amy Hughes said affected workers were notified of the layoffs Tuesday.
Krispy Kreme’s “Hot Now” doughnuts were once a trendy snack and its stock was a Wall Street darling early this decade after an initial public offering in 2000.
But the company has lost money in two of the last three fiscal quarters and is the target of shareholder lawsuits and a federal probe.
Krispy Kreme said in a news release it anticipates the job cuts will mean annual pretax savings of approximately $7.4 million and a cash restructuring charge of about $600,000 in the first quarter. Getting out of a lease on its business jet would result in a net savings of about $3 million.
Krispy Kreme said the moves are necessary to avoid a cash crunch. The company said it also will need additional credit to fund operations and capital expenditures by March 25, when a waiver from its primary lenders expires.
“There can be no assurance that the company will be able to reach any agreement with the banks or that funding will be available when and in the amounts needed,” the company said.
Last month, the company’s lenders agreed to push back to March 25 a deadline under which the company would be in default of its credit line because it has not filed quarterly financial statements for the period that ended Oct. 31.
In the agreement, Krispy Kreme agreed not to borrow any more cash without its lenders’ consent.
As of the end of October, the company had borrowed about $91 million under the credit line.
Krispy Kreme’s board turned to Cooper in an effort to reverse problems that include sinking profits, a federal securities probe and allegations of corporate deceit.
Cooper, 58, is head of Kroll Zolfo Cooper LLC, a corporate recovery and advisory firm Krispy Kreme retained as its financial adviser and interim management consultant. Cooper has about 30 years of experience in rehabilitating troubled businesses, including Enron Corp., Polaroid Corp., TWA, and Malden Mills Industries.
Cooper is also serving as interim chief executive of bankrupt Enron.