Krispy Kreme Names Stephen Cooper CEO

WINSTON-SALEM, N.C. – Stephen Cooper, the veteran turnaround specialist who stepped in to run Enron Corp. during its bankruptcy, has been tapped to restore the glaze at the troubled Krispy Kreme Doughnuts chain.

Krispy Kreme’s board ousted Chief Executive Scott Livengood on Tuesday and turned to Cooper, who will try to reverse the Winston-Salem company’s string of missteps, including sinking profits, a widening federal securities probe and allegations of corporate deceit.

Bill Brandt Jr., a turnaround specialist with Development Specialists Inc. in Chicago, said he views Cooper’s selection as a signal that there’s more problems at Krispy Kreme than just the menu.

“It ain’t just the food,” he said. “If that were the case, they would go out and get a food guy. But the fact that they called him in makes me suspect that their problems are more substantial than just having to fix the menu.

“It might be more than what a food guy can handle,” Brandt said.

The 58-year-old Cooper has his work cut out for him.

The maker of the famous “Hot Now” doughnuts also issued a warning Tuesday that its fourth-quarter could be another dismal chapter in its history. Krispy Kreme has posted losses in two of the last three quarters.

Cooper was instrumental in restructuring Golden, Colo.-based Boston Chicken, which declared bankruptcy in 1998. That was just five years after going public with fanfare similar to the investor fervor that surrounded Krispy Kreme.

Boston Chicken and its homestyle Boston Market restaurants filed for bankruptcy after what analysts cited as too-rapid expansion. Critics have said the same of Krispy Kreme since it went public in 2000.

Cooper has about 30 years of experience in restructuring and rehabilitating troubled businesses, including Polaroid Corp., TWA, and Pegasus Gold Corp.

His most high-profile project was Enron, which filed for bankruptcy protection in December 2001 after revelations of fraudulent accounting, hidden debt and inflated profits, leaving thousands of employees out of work.

Cooper was hired by Enron on Jan. 29, 2002, six days after Ken Lay resigned as CEO and chairman and six days before Lay left the board.

Cooper and his partner, Stephen Panagos, who takes over as president of Krispy Kreme, are both associated with Kroll Zolfo Cooper LLC, which Krispy Kreme retained as its financial adviser and interim management consultant.

Kroll Zolfo Cooper spokeswoman Rebecca Randall said Cooper will not quit his job with Enron to take on the added duties at Krispy Kreme.

Krispy Kreme’s shares jumped with word of Livengood’s retirement.

Shares of the company, which reached almost $50 a share a year and a half ago, dropped to an all-time low of $8.72 last week. The price jumped more than 10 percent, or 89 cents, to $9.61 Tuesday on the New York Stock Exchange.

For the next six months, Krispy Kreme said, Livengood, 52, will be paid $45,833 a month as a consultant, under a contract that is renewable for another six months.

The company said Livengood will not receive any severance package, although his departure triggers an option to purchase 330,125 shares of Krispy Kreme stock. He now has vested options to purchase more than 1.3 million shares.

Livengood did not comment in the news release announcing his departure and did not respond to efforts to reach him Tuesday through a speaker’s bureau that represents him.

Livengood, who has been with Krispy Kreme for 28 years, was instrumental in the company’s rapid growth in the 1990s and early this decade. As president, he led the chain into markets well outside the company’s traditional Southeastern base, debuting in New York in 1996 and in Los Angeles three years later.

In warning of a possible fourth-quarter loss, Krispy Kreme noted that for the eight weeks ending Dec. 26, average weekly sales per factory store throughout the Krispy Kreme system were 18 percent lower than the same period a year earlier.

The company said quarterly results also will be harmed by the costs of dealing with its current legal and regulatory troubles.

Analysts surveyed by Thomson First Call had projected a profit of 5 cents per share for the fourth quarter.

In 2000, the company went public at $21 a share and the stock price shot up from there. Each time Krispy Kreme opened a new store, it seemed, lines curled around the block.

But sales began to sag by early 2003, according to a recent filing in a shareholder lawsuit. Officials knew of the problems, but attempted to hide them by routinely padding sales figures by doubling doughnut shipments to wholesale customers at the end of fiscal quarters, the suit alleges.

In May, Krispy Kreme reported its first-ever quarterly loss, blaming it on the popularity of low-carbohydrate diets like Atkins and South Beach.

Store closings, the shareholder lawsuit and word of a formal probe by the Securities and Exchange Commission soon made it apparent Krispy Kreme’s problems ran deeper than a diet fad.

The SEC is probing Krispy Kreme’s accounting for franchise buybacks and its earnings outlooks. In November, Krispy Kreme posted a $3 million third-quarter loss.

The company said creditors have agreed to extend until Monday a deadline for the company to provide the lenders with a revised earnings report for the third quarter. Otherwise, $91 million in outstanding loans could be called.