Krispy Kreme Doughnuts Inc. (KKD) said on Monday that its chief operating officer is leaving the company for another job, the latest setback for a company that is trying to recover from sluggish sales and an accounting probe.

The executive, John Tate (search), is leaving to take the same post at home furnishings retailer Restoration Hardware Inc. (RSTO), a source familiar with Tate's intentions said. A Restoration Hardware official could not be reached for comment.

Shares of Krispy Kreme. which had been down earlier in the day after J.P. Morgan lowered its earnings estimates for the company, fell even further after the Tate announcement, ending down almost 4 percent.

"The selling started to accelerate as that news came out," said Skip Carpenter, analyst at Thomas Weisel Partners (search). "Given that it was really John Tate that was spearheading the operational turnaround, one would believe that it is obviously a setback." Carpenter rates Krispy Kreme "peer performer."

Krispy Kreme (search), the one-time Wall Street darling that has seen its business hurt by the low-carb diet craze and what some analysts called an overly aggressive expansion, said Chief Executive Scott Livengood will take over the COO job from Tate, effective immediately.

Tate, who came to the company as COO after holding the same post at San Francisco based Williams-Sonoma Inc., would be returning to California and the home furnishings retail business with Restoration Hardware, which is based in Corte Madera.

Rough Patch

In May, Krispy Kreme posted its first quarterly net loss since going public four years earlier and cut the number of planned new stores.

The stock has fallen further in recent weeks as the company also faces a probe by the U.S. Securities and Exchange Commission into how it accounts for the repurchase of restaurants from franchisees.

Earlier Monday, J.P. Morgan analyst John Ivankoe lowered his earnings estimate to 92 cents a share for the fiscal year ending in January from a previous estimate of $1.00. He also lowered the fiscal 2006 estimate to 91 cents a share from $1.18.

"Our earnings reduction stems from the need in our opinion for the brand to rationalize its development model -- that is, open fewer stores with significantly smaller equipment at a lower investment," Ivankoe said in a research note prior to the announcement that Tate was leaving. "Additionally, we believe the company must reduce its fees charged to its franchisees for raw ingredients. Ivankoe rates the stock "underperform."

Krispy Kreme shares were down 53 cents, or 3.9 percent, to close at $13.04 on the New York Stock Exchange, after earlier trading as low as $12.86. In the past 52 weeks, the shares have traded in a range of $13.20 to $49.74.