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Krispy Kreme Will Dump Montana Mills

May 7, 2004 |

Krispy Kreme will sell the Montana Mills chain of bakery-cafes just a year after buying the business as a second growth vehicle, the company announced today. The donut giant said it would take a related charge of $40 million because of the divesture.

The surprising move came in conjunction with the lowering of earnings guidance for the rest of the fiscal year. Krispy Kreme cited weaker sales in grocery store channels and heightened interest in low-carb diets.

Six Krispy Kreme factory stores and three smaller units will be closed, the company noted.

Krispy Kreme will also shutter the majority of the 21 existing Montana Mills locations, "which are underperforming," according to the company. The rest of the stores will be sold.

Krispy Kreme purchased Montana Mills last year and said it would spend two years enhancing the concept, raising the specter of a viable competitor to Panera Bread, Au Bon Pain and others in the bakery-cafe category.

But now, the company says it needs to focus all of its efforts on its core brand, which is seeing a slowdown in sales.

Krispy Kreme said that earnings per share in fiscal 2005 will come in 10% lower than previously expected.

"Recent market data suggests consumer interest in reduced carbohydrate consumption has heightened significantly following the beginning of the year and has accelerated in the last two to three months," said Krispy Kreme chief Scott Livengood.

"Needless to say, we are disappointed that external forces have caused us to revise our first quarter and fiscal 2005 earnings guidance," he added.

Investors weren't sympathetic, quickly bidding down Krispy Kreme's stock by almost 21%, to about $25 a share.

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