Krispy Kreme Replaces Its CEO

Krispy Kreme Doughnuts Inc. replaced its chief executive Tuesday with a turnaround expert, sparking a rebound in its shares, which had been battered by a long-running government probe into faulty accounting.

The struggling doughnut chain operator named Stephen Cooper, chairman of financial consulting group Kroll Zolfo Cooper, as interim CEO. Cooper is currently interim chief executive at Enron Corp., where he has overseen the dismantling of the scandal-ridden company.

Krispy Kreme, which has said it would restate 2004 financial reports because of errors in how it accounted for repurchases of franchises, also named Kroll Zolfo as its advisor and interim management consultant.

Cooper replaces Scott Livengood, whom the company said has retired as chairman, president, CEO and a director. Livengood, who started at Krispy Kreme in 1977, became CEO in 1998 and led the company in its initial public offering in 2000.

The company also named Steven Panagos, a managing director of Kroll Zolfo, as president and chief operating officer.

Cooper’s first job at Krispy Kreme will be to stabilize falling sales, analysts said. The company, once a Wall Street darling, expanded too quickly in recent years, cutting into sales and profit at existing stores, analysts said.

Krispy Kreme said its lenders have agreed to defer to Monday the day on which it would be declared in default of its credit agreement because it has not filed financial statements for the quarter ended Oct. 31.

The company, which in a May profit warning blamed the low-carb diet craze for slowing doughnut sales, also faces a Securities and Exchange Commission probe of its accounting and shareholder lawsuits charging that it made false statements.

The company said sales were down 18% in the eight weeks ended Dec. 26 and that results might continue to be affected by significant sales declines. It said the fourth quarter ending Thursday is also being hurt by “substantial costs” related to the company’s legal and regulatory matters that could result in a loss for the quarter.

Krispy Kreme shares rose 89 cents, or 10.2%, to $9.61 on the New York Stock Exchange.