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Brewster Resigns As Krispy Kreme CEO

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IEVA M. AUGSTUMS | January 7, 2008 04:42 PM EST | AP

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CHARLOTTE, N.C. — After years of trying to get its recipe right to run a profitable company, Krispy Kreme Doughnuts Inc. on Monday added yet another ingredient: A new CEO.

The Winston-Salem-based doughnut chain announced that Chief Executive Daryl Brewster has resigned and will be replaced with the company's chairman, James H. Morgan.

Brewster left his position for personal reasons but will stay with Krispy Kreme until the end of January, the company said.

"This is not a divorce, this is more of a situation where the board is saying let's re-evaluate things," said Harlan Platt, a professor at Northeastern University who follows corporate turnarounds. "They have fired him as head coach, but he's staying on the sidelines."

Brewster's departure comes amid a sputtering turnaround effort, after years of mismanagement and stronger competition from larger rival Dunkin' Donuts.

Investors cheered the news and sent the company's battered shares up more than 11 percent. Krispy Kreme shares rose 32 cents to $3.15.

In March 2006, Brewster was named CEO to help Krispy Kreme get back on track, but the company, which has posted weak sales and persistent losses under Brewster's leadership, has continued to struggle.

In December, the company said its quarterly sales tumbled and it expected more franchised store closures ahead. In the first nine months of fiscal 2008, franchisees closed 25 stores, the company said.

"They've been trying to make things work, but it's just been a battle and a struggle to build up the brand to where it was five years ago," said Darren Tristano, executive vice president of the Chicago-based Technomic Inc., a research and consulting company that serves the food industry. "It doesn't appear that leadership has been an issue."

Morgan, 60, has been a Krispy Kreme director since 2000, and he was elected chairman of the board in 2005. In the past, he has worked for or been in charge of various entities, including investment firm Covenant Capital LLC, Interstate/Johnson Lane and Wachovia Securities Inc.

"They seemed to have very qualified individuals, all trying to right the ships course," Tristano said.

Krispy Kreme, which sold its first glazed doughnut in 1937, has been hurt over the past couple of years by allegations of misconduct by former management, healthier eating trends, bankruptcy filings by several of its franchisees and increased competition.

A stock that once traded at more than $50 bottomed out at about $4 in late 2005, and the company's board forced out two former executives it said were trying to "manage earnings" to meet Wall Street expectations.

Brewster's departure appears to be yet another blow for the embattled doughnut maker.

Over the past year, the company has been touting a turnaround, and in October, Krispy Kreme shuffled executive slots and said it would realign its franchise and company store operations. The reorganization would help Krispy Kreme improve sales and cut costs, executives said at the time.

Platt said Krispy Kreme will pull through this transition, "it will just be a much smaller, focused company."

"I don't believe Krispy Kreme will ever find itself again on the fast track," Platt said. "I believe they will be a stayed company, with a loyal customer base, with the potential to earn a steady profit. But that is it."

Also on Monday, Krispy Kreme said all of its products sold in the United States now have zero grams of trans fat. The company said it has been piloting zero grams trans fat products across the country for the past several months.

The chain's decision mirrors a move to erase trans fat by many fast-food and quick service restaurant chains last year.


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