KRISPY KREME REPLACES TOP BOSSES

LYNNE MILLER

WINSTON-SALEM, N.C. -- As part of a management shake-up, troubled Krispy Kreme Doughnuts has appointed executives from a consulting and crisis management firm to top management posts in an effort to turn the company's fortune around.

Last week, Krispy Kreme announced Stephen F. Cooper has been named chief executive officer, replacing Scott A. Livengood, a 28-year veteran of the company. Livengood had been criticized for his handling of the company's financial problems.

He retired as chairman of the board, president, CEO and a director of the company. Livengood will serve as a consultant on an interim basis, the company said. Steven G. Panagos, who was named president and chief operating officer for Krispy Kreme, recently worked in a consulting capacity for Penn Traffic, the 109-store, Syracuse, N.Y.-based chain. There he served as interim CEO and continues as chief restructuring officer. Penn Traffic filed for Chapter 11 bankruptcy in May 2003.

Panagos' relationship with Penn Traffic began in the spring of 2003, two weeks before the retailer entered Chapter 11. As a managing director of Kroll Zolfo Cooper, Panagos was retained in a consulting capacity to serve as chief restructuring officer at Penn Traffic. In August 2003, after the resignation of Joseph Fisher, Panagos was named interim president. He served in that role until Robert Chapman became president in March 2004, a spokesman for Penn Traffic said.

"With Penn Traffic so close to exiting Chapter 11 as a stronger, more competitive company, Steve Panagos is winding down his role as chief restructuring officer," said Marc Jampole, spokesman for Penn Traffic. "We've developed a strong internal team." Cooper and Panagos come from Kroll Zolfo Cooper, a high-profile consulting and crisis management firm.

Cooper brings more than 30 years of experience leading companies through operations and financial restructurings; he served as interim CEO, president and chief restructuring officer of Enron Corp.

Panagos has more than 20 years of experience leading companies through operational and financial restructurings, Krispy Kreme said.

Together, they will be joined by a team of KZC associates who will assist Krispy Kreme's management "in strengthening Krispy Kreme's position as a leading provider of premium quality doughnuts," the company said in a statement.

Krispy Kreme, the country's second-largest doughnut chain, became a high-profile, closely watched darling in retail and investor circles after opening dozens of freestanding stores around the country.

The company, known best for its Hot Original Glazed doughnut, developed a cult-like following offering hot doughnuts and operating factory stores. Krispy Kreme also offered retailers an easy, branded solution for their in-store bakeries. Packaged Krispy Kreme doughnuts have become ubiquitous in many supermarkets and convenience stores.

In recent times, however, the company's popularity started to decline, along with profits. Livengood at first blamed the low-carb craze for hurting Krispy Kreme's sales. Yet experts said the decline more likely resulted from opening too many stores too quickly without the necessary support and planning.

The company's broad distribution of doughnuts to retail outlets also may have caused the brand to lose some of its luster. The company operates 435 stores in 45 states, as well as in Australia, Canada, Mexico and the United Kingdom.

In announcing the management changes, the company also noted Krispy Kreme's results for the fourth quarter that will end Jan. 30 will be impacted by significant sales declines. For the eight weeks ended Dec. 26, 2004, systemwide and company average weekly sales per factory store have gone down about 18% and 25%, respectively, compared to the corresponding weeks the year prior, the company said.

Livengood's ouster was expected. Earlier this month, media reports said a number of shareholders had been seeking his removal. Krispy Kreme was rocked by a recent shareholders lawsuit, and faces an ongoing investigation by the Securities and Exchange Commission into the company's accounting practices.