Krispy Kreme Seeks to Regroup Amid Woes

At about the same time that Krispy Kreme Doughnuts hired the search firm James Mead & Co. to find a new permanent top executive, the once high-flying company was removed from the Standard & Poor’s MidCap 400 Index in late October.
Over the last two years, the Winston-Salem, N.C.-based company has been forced to shake up its management team amid a series of scandals and financial misdealings. During that same period, it has seen its share price drop approximately 90% in value.
Because of its low market capitalization, the S&P replaced it on its index with Cathay General. For some investors, the move was the last straw as they abandoned the speculative stock. For many index funds, removing Krispy Kreme from the S&P MidCap 400 Index got rid of a laggard on performance.
In another effort to short up its management team, Krispy Kreme named Jeff Jervic as its executive vice president of operations.
In other news, the company’s wholly owned subsidiary in Philadelphia, Freedom Rings, filed for Chapter 11 protection. Freedom Rings operates six stores in Philadelphia, Delaware and New Jersey, but it had been expected to open more than twice that number.
According to published reports, Krispy Kreme had owned 70% of Freedom Rings, but it purchased the remaining 30% right before new strict bankruptcy rules took effect in October.
Krispy Kreme and its franchisees have experienced a number of financial difficulties as sales of its donuts continue to slag. Some disgruntled franchisees even have filed lawsuits against the donut maker. The latest was its Los Angeles franchise, Great Circle Family Foods LLC, which claims that Krispy Kreme misappropriated funds and inappropriately billed them. The donut maker noted that it would vigorously defend itself against the lawsuit.