Krispy Kreme Stock Sustains Sharp Loss

Krispy Kreme Doughnuts Inc.’s quarterly earnings fell sharply for the third consecutive quarter, as sluggish sales and an intensifying government investigation raised concerns Monday about whether the glaze was permanently off the once-hot pastry maker. The company’s shares fell 16%.

Losses for its third quarter ended Oct. 31 were $3 million, or 5 cents a share, contrasted with a profit of $14.5 million, or 23 cents, a year earlier.

Excluding one-time charges related to discontinued operations, the company earned $2.4 million, or 4 cents a share, in the latest quarter. Third-quarter sales were nearly flat at $170.1 million, compared with $167.8 million a year earlier.

Analysts had expected Winston-Salem, N.C.-based Krispy Kreme to earn 13 cents a share, and Wall Street was quick to hammer its already beleaguered stock.

Krispy Kreme shares closed down $1.86, or 16.2%, at $9.64 on the New York Stock Exchange. The shares are off more than 70% since the beginning of the year.

In a conference call with analysts, Chief Executive Scott Livengood said that the low-carbohydrate Atkins diet fad, which the company had blamed for much of its problems earlier this year, appeared to be easing.

It’s been a nightmare year for Krispy Kreme, once an investment community darling.

The problems started with the first-quarter earnings report, the first time since going public four years ago that Krispy Kreme had reported a loss. Livengood told analysts that the low-carb diet craze -- and not poor management -- was to blame.

The “blame Atkins” tactic made headlines, but proved only a temporary distraction from the company’s mounting problems.

Shareholder lawsuits followed, with allegations that Krispy Kreme was too aggressive in its accounting of the buyback of franchises and did not disclose that one of the sellers in another buyback was Livengood’s ex-wife.

Over the summer came word of an informal inquiry into Krispy Kreme’s accounting practices by the Securities and Exchange Commission; last month, the company disclosed that the SEC had escalated the probe to a formal inquiry.

The company has said the SEC is looking into its franchise reacquisition and its future earnings outlooks.

Krispy Kreme also has scaled back its ambitious growth plans.

Krispy Kreme now operates 429 stores.