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Krispy Kreme Stock Continues Tailspin

May 11, 2004 | AP

Shares of Krispy Kreme Doughnuts tumbled nearly 10 percent on the first day of trading this week on top of a 29 percent plunge following the company's revelation that low-carbohydrate diets were hurting profit.

The Winston-Salem-based company said it was taking steps to improve performance, including getting rid of its Montana Mills bakery chain, examining its distribution and ordering system, and closing under-performing outlets.

The company is closing its doughnut and coffee shop on Knollwood Street in Winston-Salem, which opened in 2001, said Amy Hughes, the company's communications director.

Shares of Krispy Kreme closed Monday $2.21 lower at $20.30 on heavy volume, on a day when the stock market overall dropped sharply. About 9.6 million shares were traded, well above the stock's average volume of about 1 million shares.

Krispy Kreme declined to comment on the movement in its stock price.

The company is closing two other doughnut and coffee shops in Charlotte and Atlanta, which are smaller than its regular factory stores. The company has been testing the format of the doughnut and coffee shop since late 2001, but said the format that works best is a store with a drive-through or one with heavy foot traffic.

Analysts said it appears some investors are unsure how Krispy Kreme's short-term plans to increase profit will turn out and they're not holding on to see. But other analysts said they thought the sharp sell-off Friday provided an opportunity to buy the stock at a discount.

Friday's profit warning was the company's first since going public in 2000. Despite regular criticism by some investors and analysts that its stock was overpriced, Krispy Kreme has consistently beat Wall Street profit estimates since it went public.

In light of the low-carb craze, company chief executive Scott Livengood said Krispy Kreme planned to develop a sugar-free glazed doughnut, expected by the end of the year.

Livengood said he hopes low-carb diets aren't a permanent change in consumer behavior. "That's the $64,000 question," said Kenneth Herbst, an assistant professor of food marketing at St. Joseph's University in Philadelphia. "My opinion is that it's a fad. It's the diet of the day."

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