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Krispy Kreme Stock Not As Sweet

May 17, 2004 | UPI

Krispy Kreme shares aren't such a sweet deal anymore, and shareholders are taking matters into their own hands. Last Friday, two lawsuits were filed against the North Carolina doughnut maker as disappointed investors blamed the company for misleading them about Krispy Kreme Doughnuts' future

The company's shares have lost over a third of its value since the company released their profit warning the previous week.

"For several months, there has been increasing consumer interest in low-carbohydrate diets, which has adversely impacted several flour-based food categories, including bread, cereal, and pasta, said Krispy Kreme's chief executive Scott Livengood, as the company slashed its profit projection for this year by 10 percent.

"The popularity of low-carb diets has captured the consumer's attention it's impossible to predict if low-carb is a passing fad or will have a lasting impact," he added.

As a result, even plans unveiled in March of introducing a lower-calorie doughnut with a reduced sugar content might not rekindle consumers' appetites for doughnuts.

That will be a major blow to Krispy Kreme, which has been a darling of Wall Street since it went public four years ago. Profits continued to climb steadily and so too did its share price, even as the tech bubble burst and stock prices tanked across the board.

So it was a particularly big blow to Krispy Kreme shareholders to be told that their investment may not only have hit the ceiling, but their value could actually fall considerably.

But whether or not the low-carb diet is the biggest culprit is debatable. For one, analysts estimate that only about 10 percent of the U.S. population is on the diet at any given time, and it is unlikely that those who are religious about their carbohydrate intake were avid doughnut-eaters in the first place.

Even the company is admitting that it may not be the primary reason for the decline in profitability.

"We are not using (the low-carb trend) as a blanket excuse for everything," said company spokeswoman Amy Hughes.

Rather, industry analysts argue that the novelty of the doughnuts has cooled off considerably. Once available only at Krispy Kreme stores which were few and far between outside its home town, the company has expanded rapidly over the past few years, not just by increasing their own retail stores to over 360 nationwide, but also by selling the treats in major grocery stores, gasoline stations, and other outlets.

The ready availability of the honey-glazed doughnut has certainly decreased the allure of the product for many. But whether that decrease in popularity will lead shareholders to win in a lawsuit against the company is debatable.

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