A class-action shareholder lawsuit against Krispy Kreme Doughnuts Inc., Winston-Salem, N.C., alleges that the company knew of sales declines more than a year before a May 2004 earnings warning and misled investors about its finances, according to court papers. Lead plaintiffs in the suit are the $1.37 billion Alaska Electrical Pension Fund, Anchorage; the $152 million Pompano Beach (Fla.) Police & Firefighters Retirement System; the $105 million Sterling Heights (Mich.) General Employee Retirement System and the $95 million St. Clair Shores (Mich.) Police and Fire Retirement System, as well as individual investor Jason Hennessy.
Attorneys for the lead plaintiffs filed the complaint in U.S. District Court in Greensboro, N.C. Krispy Kreme Chairman and CEO Scott A. Livengood, former CFO Randy S. Casstevens, current CFO Michael C. Phalen and former COO John W. Tate are also named as defendants in the suit.
Unidentified former company managers said that throughout fiscal 2004, Krispy Kreme ordered employees to ship double the amount of doughnuts ordered "in order to meet Wall Street expectations, knowing the over-shipments would be returned," the filing said.
The Pompano Beach, Sterling Heights and St. Clair Shores plans held 13,100, 10,500 and 6,700 Krispy Kreme shares, respectively, at the time an initial complaint was filed earlier in 2004. The Alaska Electrical fund's holdings weren't immediately available.
Amy Hughes, Krispy Kreme spokeswoman, said the company does not comment on pending litigation.
Krispy Kreme officials said in a news release that the company will restate earnings for the fiscal year ended Feb. 1, 2004, and the three preceding quarters as a result of accounting errors.