Shareholders Sue Krispy Kreme, Say Misled About Strategy

NEW YORK – Krispy Kreme Doughnuts Inc. (KKD), 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.

In a statement Friday, Bala Cynwyd, Pa.-based law firm Schiffrin & Barroway LLP (search) said it filed a suit in the U.S. District Court for the Middle District of North Carolina on behalf of all purchasers of Krispy Kreme shares from August 21, 2003 through May 7, 2004.

The complaint names members of Krispy Kreme's senior management as defendants; it says they disregarded signs that the company had expanded too quickly, that its wholesale business undermined sales at its retail stores, and that it faced stiff competition from rival 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 firm Geller Rudman PLLC (search) also said on Friday that it filed a similar lawsuit. And, earlier this week New York law firm Milberg Weiss Bershad & Schulman LLP (search) also said it filed a lawsuit on behalf of Krispy Kreme shareholders.

Krispy Kreme, based in Winston-Salem, N.C., last week warned that consumer fascination with low-carbohydrate diets such as the Atkins and South Beach would dampen profits and cut its expansion plans.

Krispy Kreme could not immediately be reached for comment on the lawsuits.

Krispy Kreme shares edged down 34 cents, or 1.6 percent, to $20.98 Friday on the New York Stock Exchange (search). The stock has lost over a third of its value since the company's profit warning last week.