Krispy Kreme Discloses Investigation by SEC

Krispy Kreme Doughnuts Inc. disclosed Thursday that the Securities and Exchange Commission was investigating its earnings forecasts and how the company accounted for the repurchase of franchises.

Shares of the Winston-Salem, N.C.-based company fell 16% on the news of the informal probe.

Chief Executive Scott Livengood has been buying stores back from franchisees in some markets, including Northern California and Michigan. However, some investors and analysts have questioned the prices paid for those franchises. Krispy Kreme, which had its first loss as a public company in the last quarter, cut its annual profit forecast in May, triggering its biggest share drop ever.

“It’s just one more blow to their credibility,” said Joe Bonner, an analyst at Argus Research in New York, who has a “hold” rating on the stock. “Now that it seems there is some fire with the smoke it makes it worse. This is the kind of thing that puts management at risk.”

Livengood said in the statement that Krispy Kreme was “confident in our practices” and that the firm would “cooperate fully” with the SEC inquiry.

Shares of Krispy Kreme fell $2.95 to $15.71 on the New York Stock Exchange. They have fallen 57% this year.