Time to Buy Krispy Kreme?

Is it time to buy KrispyKreme (NYSE: KKD  ) ? For many investors today, the answer appears to be an emphatic "yes." The stock shot up 12% on the word that Chairman, President, and CEO Scott Livengood would be "retiring." Let's give the troubled firm a little bit of credit for not trying to convince us that the departure was owed to the ousted chief's desire to "pursue other interests."

Of course, they also didn't come out and say what they should have. How about a little truth, guys? Something like, "Livengood has been getting paid $830,000 a year plus a quarter of a million options to preside over a train wreck. There have been SEC investigations, sweetheart franchise sales, drastically slowing sales, big earnings misses, financial restatements, and lawsuits over alleged channel stuffing. Sorry y'all lost 3/4 of the firm's value."

Stepping in for the triage are corporate EMTs Stephen Cooper and Steven Panagos, who run turnaround outfit Kroll Zolfo Cooper. This is what has investors cheering? As my colleague Bill Mann -- who has plenty to say about his hometown doughnut -- remarked, "They're like Dr. Frankenstein. They specialize in bringing the dead back to life."

He's not the only Krispy Kreme watcher to wonder. Herb Greenberg pointed out, with his usual sunny pessimism, the success stories cited by the Krispy Kreme press release include firms that went belly-up in order to right the wrongs: Enron (OTC BB: ENRPQ), Penn Traffic Co. (OTC BB: PNFTQ), Polaroid (OTC BB: POHC), and NRG Energy (NYSE: NRG  ) .

Today's big bounce looks unwarranted to me. Consider that the second-best news of the day is a brief extension on loan defaults owing to delayed financials; there are still plenty of problems to be resolved before any lingering value in Krispy Kreme can be realized.

Buried at the bottom of the release were the latest financial results, even more gruesome than November's screwups. For the eight weeks ended Dec. 26, systemwide average weekly sales flopped 18%, with a negative 25% at company-owned locations. Management hinted that there may be losses coming next quarter. Sure, the new blood in the executive suite is a good step, but it's just a first one. For this, investors are willing to pay 20 times trailing earnings? Until we see details that actually hint at sustainable payoffs for shareholders, this looks to me like an excellent way to get fried.

For related Foolishness:

Seth Jaysonlikes a good bit of deep-fried sugary bread, but at the time of publication, he had positions in no company mentioned. View his stock holdings and Fool profilehere. Krispy Kreme is aMotley Fool Stock Advisorrecommendation. Fool rules arehere.


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