Struggling US doughnut maker and retailer Krispy Kreme saw its shares fall 16% to a new low yesterday [Thursday] due to investors’ fears that the chain is heading for bankruptcy.
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The company, which has previously blamed poor sales on the popularity of low-carbohydrate diets, announced earlier this week that it plans to reduce the number of employees in its corporate, mix plant, equipment manufacturing, and distribution facilities by approximately 25% and has divested a corporate aeroplane in a bid to cut costs.
Morningstar Inc analyst Carl Sibilski told Reuters that the threat of bankruptcy was “definitely on the table”.
Krispy Kreme announced recently that the lenders under its credit facility have agreed to defer until 25 March 2005 the date by which it is required to deliver financial statements for the quarter ended 31 October 2004 in order to avoid defaulting. It also announced that it is currently unable to borrow funds under the credit facility.
In light of this, together with unfavourable sales trends and costs associated with ongoing litigation, regulatory and restructuring matters, Krispy Kreme said it believes that it will need to obtain additional credit by the end of March to fund its operations.
“There can be no assurance that the company will be able to reach any agreement with the banks or that funding will be available when and in the amounts needed,” the company warned this week.
