Tuesday, June 14, 2005

Can Anyone Figure Out Krispy Kreme's Financials?

Krispy Kreme doughnuts remain a sinful pleasure, but the company's financial statements are turning into pure torture for investors as the corporation again delayed filing its quarterly report.  Krispy Kreme Doughnuts Inc. has not filed a quarterly report since the period ending July 31, 2004, and in April it delayed filing its annual report.  In an NT 10-Q filing (here), the company states that "because there are ongoing analyses related to the proper application of generally accepted accounting principles to certain transactions which occurred in fiscal 2005 and earlier years. Until such analyses are complete, the Company is unable to finalize its financial statements for the first quarter of fiscal 2006."  Krispy Kreme has significant problems related to its accounting for certain franchisee transactions, and is the subject of an SEC formal investigation.  The question with the Commission is a matter of when-- not if -- the enforcement action will come, and how much of a civil penalty it will have to pay to settle.  If the accounting issues involve intentional misstatements, then it becomes a question whether there are any criminal charges against corporate officers being cooked up (I just couldn't resist!). 

Krispy Kreme's disclosure also informed investors that "[r]esults for the first quarter of fiscal 2006 were adversely affected by significant sales declines compared to the first quarter of fiscal 2005. For the quarter ended May 1, 2005, systemwide and Company average weekly sales per factory store decreased approximately 21% and 25%, respectively, compared to the first quarter of fiscal 2005, which ended May 2, 2004."  The shareholder lawsuits filed last year when Krispy Kreme blamed its declining sales on low-carb diets will only get worse with these continuing declines in its sales. (ph)

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