Shares of Krispy Kreme Doughnuts Inc., which is under a federal accounting probe, fell 13 percent as investor concern intensified that the company’s largest franchisee may falter. The decline was the biggest in nine months.
Krispy Kreme last week disclosed that Great Circle Family Foods LLC, a Southern California franchisee that operates 32 stores, had sued the doughnut chain. Great Circle claimed Krispy Kreme is trying to force it into bankruptcy with unreasonable charges for supplies.
Great Circle also said Krispy Kreme is preparing a bankruptcy filing for Glazed Investments, the Colorado, Wisconsin and Minnesota franchisee.
“If this particular franchisee is having serious trouble, there really is a deep-rooted problem,” said Peter James Hall about Great Circle. Hall oversees about $1 billion at Sydney, Australia-based Hunter Hall Investment Management, which has sold its Krispy Kreme stake. “It’s not just one or two problems. It’s a systemwide issue.”
Shares of Krispy Kreme, the second-biggest U.S. doughnut chain, closed down 72 cents on the New York Stock Exchange Wednesday. Earlier in the day the shares fell as much as 28 percent. The stock has declined 62 percent this year.
Tom Lallas, an attorney for Great Circle, said the franchisee has no plans to file for bankruptcy protection.
Krispy Kreme, based in Winston-Salem, N.C., said in a statement today it is “unaware of what has triggered the unusually high trading volume and decline in its stock price today.”
Company spokeswoman Laura Smith said it will “vigorously defend” the lawsuit. She declined to comment on the Glazed Investments allegation.
Krispy Kreme was sued on Sept. 29 in Los Angeles. Great Circle’s complaint said Krispy Kreme increased prices and billed the franchisee for millions of dollars more than it had promised to charge.
“Krispy Kreme has already caused Great Circle extreme financial distress,” the complaint said. “It is now exploiting that distress by imposing onerous trade terms which are totally inconsistent with customary trade practices,” such as forcing Great Circle to pay for all supplies in advance.
