Krispy Kreme Scales Back Expansion Plans

Krispy Kreme Doughnuts Inc., which has been transformed from Wall Street’s darling into the bane of carb-conscious consumers, scaled back its expansion plans Thursday after posting second-quarter profit that fell far short of expectations.

Shares in the doughnut maker fell more than 10%, a slide that began almost immediately after Krispy Kreme announced that it earned $5.7 million, or 9 cents a share, in the three months ended Aug. 1, compared with $13 million, or 21 cents, a year earlier.

Excluding discontinued operations and other items, the Winston-Salem, N.C.-based company posted earnings of $7.3 million, or 12 cents a share. Analyst expectations compiled by Thomson First Call were for profit of nearly twice that, or 22 cents a share.

Until this year, meeting or surpassing Wall Street’s expectations was all but inevitable for Krispy Kreme, which went public in 2000 and posted quarter after quarter of ever-increasing profit. Krispy Kreme said Thursday that it expected slower sales for the remainder of the year. It declined to project earnings for the third quarter or for 2005.

The company said it was reducing its systemwide sales guidance for 2005 by about 15%. Krispy Kreme now plans to open about 75 new stores next year, down from the 100 openings it previously anticipated.

Despite company efforts to blame diet trends for its woes, “they are facing bigger issues than just the low-carb phenomenon,” said Skip Carpenter, an analyst at Thomas Weisel Partners.

For one, as Krispy Kreme continues to expand, Chief Executive Scott Livengood and his management team must find a retail format that works in smaller markets, Carpenter said. To that end, Krispy Kreme is developing a shop that will be much smaller than the typical outlet.

The company’s shares fell $1.59 to $13.77 on the New York Stock Exchange.