Winston-Salem, N.C. (July 30, 2004)  — The Securities and Exchange Commission has begun an informal probe into doughnut concern Krispy Kreme Inc., investigating the company’s repurchase of several of its franchises in addition to its lowered earnings targets.

The 390-unit chain, headquartered here, said it is fully cooperating with the investigation.

Specifically, regulators are looking into Krispy Kreme’s recent effort to repurchase franchises from its licensees.

In May, The Wall Street Journal reported two recent franchise buybacks that in particular have come under scrutiny — one in which the company may have used “aggressive bookkeeping” to boost earnings when it acquired a Michigan franchise. In the other repurchase, the company didn't disclose that one of the sellers was the ex-wife of Krispy Kreme chief executive Scott Livengood.

Recently, the company lowered its earnings forecast by 10 percent — citing the skyrocketing popularity of Atkins and similar low-carb diets.

That announcement subsequently sent the company’s shares into a tailspin, plunging about 40 percent.

For its first quarter, Krispy Kreme reported a $24.4 million loss, its first quarterly loss since going public in 2000.


— WebCPA staff

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