Krispy Kreme to Face Shareholders: Experts: It Will Have to Show Vision
By M. Paul Jackson, Winston-Salem Journal, N.C.
Jan. 31–At Krispy Kreme Doughnuts Inc.’s last shareholders meeting, then-chief executive Scott Livengood told shareholders that “the best years of Krispy Kreme are ahead of us.”
Today, his successor, Darryl Brewster, hopes to convince shareholders that the company’s best years still lie ahead.
Today’s annual meeting at the Benton Convention Center in Winston-Salem will be the company’s first since 2004, and it’s likely to be a more subdued affair than the celebratory programs of years past.
Cheerleader Livengood is long gone. The company is still a shadow of its former self.
Despite restructuring of its U.S. operations and recent international expansion, some big questions remain.
“What shareholders and investors want to hear and want to see is evidence that Krispy Kreme can grow its core business domestically and grow new business,” said Mike Lord, a professor of corporate strategy at Wake Forest University. “Everyone is wondering about whether or not they can demonstrate growth.”
Brewster, a former executive of Kraft Foods Inc., took over the doughnut-maker last year. He replaced interim chief executive Stephen Cooper, who was hired in January 2005 to turn around the company after Livengood was ousted. Livengood became the chief executive of Dewey’s Bakery in June 2006.
Brewster inherited a company that had been a darling of Wall Street but has struggled in recent years under falling sales, concerns over high-carb foods and lawsuits from shareholders.
The company’s past accounting practices are also under investigation by the Securities and Exchange Commission, and federal investigators in New York are investigating the company for possible criminal wrongdoing.
Krispy Kreme reported a net loss of about $135 million during its 2006 fiscal year, which ended Jan. 29. It narrowed those losses from the $157 million that it reported at the end of the previous year.
The narrowed losses could be a sign of Krispy Kreme’s turnaround, experts said. Over the past month, the company filed a series of long-overdue quarterly reports with the government, bringing it into compliance with its financial-reporting obligations.
The company’s stock price has improved, as well. Its stock closed on the Nasdaq at a 52-week low of $5.30 on Jan. 30, 2006. Last Wednesday, just one year later, the company’s stock price closed at $13.93. Yesterday, its stock price slipped 4 cents to finish at $12.86.
Krispy Kreme has restructured operations and reduced its number of stores in the United States by about 100 to 330 stores. Although it is pushing into new markets overseas, it is doing so through development groups to conserve capital and limit its financial risk.
“Going forward, we would like to know what the new business model for Krispy Kreme will look like. Specifically, we will be looking for what the future holds for non-core businesses like coffee, manufacturing and distribution,” Howard Penney, an analyst for Prudential Equity Group LLC, said in a report.
Penney also said that the company could refinance its debt with Credit Suisse, a financial-services group. The company has about $35 million in cash on hand but nearly $120 million in debt, according to analysts.
Krispy Kreme officials will have to assure shareholders and the public that the company is still viable, experts said.
“Shareholders want to know that there’s some kind of a light at the end of the tunnel,” said Bob Goldin, the executive vice president for Technomic Inc., a restaurant consulting company in Chicago. “The company has obviously lost its buzz, and it’s hard to be optimistic.”
He added: “If you talk about going from the proverbial penthouse to the outhouse, that’s a classic case.”
Despite Krispy Kreme’s recent share gains, a shift in the way Americans prefer their food could impact the company. The Department of Health and Mental Hygiene in New York voted early last month to ban trans fat in all of the city’s restaurants.
Krispy Kreme has two stores in New York. The ban could make it difficult for the company to make its products with the same taste, shelf life and consistency. The company hasn’t said how the ban would affect its production and how it plans to overcome the growing trans fat opposition.
Analysts said that shareholders will also want to hear detailed updates on the status of the company’s federal investigations, as well as ideas for new products.
“Many of the company’s competitors in the breakfast segment have been able to expand their brand name beyond the normal distribution channels,” Penney said. “We believe the company has a significant opportunity to take the Krispy Kreme brand name into other beverage and package-good distribution channels.”
–M. Paul Jackson can be reached at 727-7473 or at mjackson@wsjournal.com.
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Copyright (c) 2007, Winston-Salem Journal, N.C.
Distributed by McClatchy-Tribune Business News.
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