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|  | AUGUST 17, 2004
By Christopher Palmeri Inside the Hole at Krispy Kreme COO John Tate may be seen as a sacrifice to Wall Street, but his departure isn't likely to be the end of the doughnut maker's woes It's a time-honored strategy. If your company screws up, offer a sacrifice to the gods of Wall Street. In this case the company is Krispy Kreme Doughnuts (KKD ), and the calf on the plate is Chief Operating Officer John W. Tate. Krispy Kreme announced on Aug. 16 that Tate will be leaving to pursue an undisclosed position in Northern California. But Tate's departure may involve more than just a desire to appease investors. A source close to the company tells BusinessWeek Online that Tate had championed Krispy Kreme's disastrous acquisition last year of Montana Mills Bread, a bakery/restaurant chain based in Rochester, N.Y. Krispy Kreme bought Montana Mills in January, 2003, for stock worth $36 million at the time. Tate had sat on the Montana Mills board prior to the acquisition. But the low-carb diet craze, coupled with Krispy Kreme management's desire to focus on its weakening core business, prompted the company to write off $34 million of its Montana Mills investment in this year's first quarter. That was a big reason for Krispy Kreme's earnings disappointment in May. Krispy Kreme says it plans to divest the business. SEC INQUIRY. A company spokesperson declined to comment on Tate's departure. His duties are being assumed by company Chairman, Chief Executive, and President Scott A. Livengood, who said in a press release: "We appreciate all of John's contributions to Krispy Kreme over the last four years and wish him well in his new opportunity." Tate, 53, did not return a call seeking comment. He is believed to be taking a job as chief operating officer at Restoration Hardware (RSTO ), another company on whose board he sits. A message left with that company was not returned. Tate's departure comes a little more than two weeks after Krispy Kreme disclosed that the Securities & Exchange Commission had begun an informal inquiry into the earnings shortfall announced in May and the acquisitions of franchisees. Although details of the SEC inquiry aren't known, Krispy Kreme has come under fire from some financial analysts for what it paid for acquisitions and the large percentage of the purchase prices that it booked as intangible assets. Booking purchase prices in that way can have the effect of making a company's earnings look stronger. As accounting issues were raised and Krispy Kreme's once-stellar growth slowed, the stock has fallen 70% from its high of nearly $50 in August, 2003. On news of Tate's departure, it fell an additional 4%, to $13. With the SEC inquiry continuing and Krispy Kreme's stock looking stale, Wall Street is sending the message that is doesn't expect Tate's departure to end the company's woes.  Palmeri is a correspondent in BusinessWeek's Los Angeles bureau Edited by Patricia O'Connell Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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