Storytelling In The News: #143

No sugar high for Krispy Kreme doughnuts

May 8, 2004

One story having a massive impact on financial markets is that high-carb diets are bad for the waistline.

The latest victim is former market sweetheart Krispy Kreme which yesterday saw its shares tumble massively -- 29% -- after it warned that its operating earnings in the current fiscal year will be 10% lower than its previous estimate. The doughnut maker said the increasing consumer interest in low-carbohydrate diets hurts its off-premises sales, mostly packaged doughnuts to grocery stores.

Krispy Kreme Doughnuts Inc., blaming a slowdown in business on carbohydrate-conscious dieters buying fewer of its glazed treats, issued its first profit warning since going public four years ago and added fuel to existing investor worries about its growth prospects.

"I hope it's a fad," Scott Livengood, Krispy Kreme's chairman and chief executive officer, said in a conference call Friday morning, referring to the low-carb trend and its impact on the doughnut maker's bottom line. He added that the company assumes the situation will remain "static" for the rest of the company's current fiscal year, though he cautioned that the consequences could get worse.

The scientific basis for the widely believed story that carbohydrates are the key to weight-loss is questionable at best. But once a story like this gains wide currency the financial impact that it can have is massive.

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