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Krispy Kreme's Failings Tough To Glaze Over

By Jerry Knight
Monday, August 30, 2004; Page E01

Investors are finally figuring out that Krispy Kreme Doughnuts' shares are just like its doughnuts: Get 'em while they're hot because they can go stale in a hurry.

So stale, so fast that Krispy Kreme stock is now priced like the products in those old-bread outlets, selling Friday for a third of what it cost last summer, when Fortune magazine proclaimed Krispy Kreme "the hottest brand in America."

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Krispy Kreme was the second-best performing initial public offering of 2000, according to calculations by Bloomberg. The price of the stock had jumped eightfold, to $44.59, by last summer, more than 50 times the profits the company earned last year.

Last week, the stock hit an all-time low of $12.75 as Krispy Kreme was opening its first District store with a brilliantly conducted chorus of hype while offering not-so-sparkling explanations for a 56 percent plunge in second-quarter profits.

Gasoline prices have gotten so high that people are no longer willing to drive to the doughnut shop, Krispy Kreme executives said in a conference call with investors Thursday. Executives also said gas prices were driving up the company's transportation costs and driving down profits.

Doughnut sales in grocery stores are falling, too, because the supermarket chains that sell Krispy Kremes are losing shoppers to Wal-Mart, the company said. But Wal-Mart also sells Krispy Kremes in some of its stores.

And the Atkins diet is causing people to give up doughnuts, they said, repeating an explanation they used when Krispy Kreme stock dove from $32 to $20 over three days in the spring.

Thursday's announcement was a wake-up call to investors who've been enjoying the Krispy Kreme dream, so tastily described by Washington songwriter and former Post columnist Eric Brace:

"She stood at my door

With a bag from Krispy Kreme

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