Krispy Kreme facing lawsuits
Misleading on prospects, mismanagement of threat of low-carb diets alleged
NEW YORK -- Krispy Kreme Doughnuts Inc., which said last week that the low-carb diet trend has hurt sales, faces shareholder lawsuits alleging it misled investors about the direction its business was headed.
Krispy Kreme, based in Winston-Salem, N.C., last Friday warned that consumer fascination with low-carbohydrate diets such as the Atkins and South Beach would dampen profits and cut its expansion plans. Shares in the Winston-Salem, N.C., company have lost a third of their value since then.
Bala Cynwyd, Pa.-based law firm Schiffrin & Barroway LLP said yesterday that it had filed a suit in US District Court in North Carolina for purchasers of Krispy Kreme shares from Aug. 21, 2003, through May 7, 2004.
The complaint names Krispy Kreme senior executives as defendants, and accuses them of disregarding signs that the firm had expanded too quickly, that its wholesale business undermined sales at its retail stores, and that it faced stiff competition from doughnut chain Dunkin' Donuts.
According to the statement, the suit also alleges that ''the company ineptly accounted for how their bottom line would be affected by the popular low-carbohydrate diets; first by claiming that the trend would have no influence, and then by over-exaggerating the effect of the diet fad."
New York-based law firms Geller Rudman PLLC and Milberg Weiss Bershad & Schulman LLP also said they filed lawsuits on behalf of Krispy Kreme shareholders.
Krispy Kreme said it has not yet received the complaints, but denied the allegations, saying that it will ''aggressively defend" against the charges.