<P> In May 2004, the company missed quarterly estimates for the first time and suffered its first loss as a public company . Chairman and CEO Scott Livengood attributed the poor results to the low - carbohydrate diet craze . This explanation was viewed with skepticism by analysts, as "blaming the Atkins diet for disappointing earnings carried a whiff of desperation", and as rival donut chain, Dunkin' Donuts has not suffered from the low - carb trend over the same compared period . </P> <P> Analysts suggested that Livengood had expanded the chain too rapidly after the IPO, which concentrated certain markets with too many stores . While this approach initially grew revenues and profits at the parent - company level, due to royalty payments from new franchisees, which also increased sales, this reduced the profitability of individual franchisees in the long run as they were forced to compete with one another . For the 2003 - 04 fiscal year, while the parent enjoyed a 15 percent increase in second - quarter revenues, same - store sales increased only a tenth of a percent during that time . By contrast, McDonald's focused on profitability at the franchise level . Krispy Kreme also had supermarkets and gas stations carry their donuts, which soon contributed up to half of the chain's sales, creating further market saturation as well as increasing competition to its franchisees . All this expansion devalued Krispy Kreme brand's novelty, by making the once - specialty donuts ubiquitous, particularly as the newer sales outlets required pre-made donuts as opposed to the ones made fresh in factory stores, which alienated brand devotees . </P> <P> Besides royalty payments from new stores, the parent company also enjoyed significant profits by requiring franchisees to purchase mix and doughnut - making equipment from the parent's Krispy Kreme Manufacturing and Distribution (KKM&D) division . KKM&D earned $152.7 million in 2003, which made up 31 percent of sales, with a reported operating margin of 20 percent or higher, but these mark - ups were largely at the expense of its franchisees . By comparison, rival chain Dunkin' Donuts generally avoids selling equipment or materials to its franchisees which "keeps company and franchisee interests aligned", as well as having a royalty stream based on same - store sales . </P> <P> Krispy Kreme has been accused of channel stuffing by franchisees, whose stores reportedly "received twice their regular shipments in the final weeks of a quarter so that headquarters could make its numbers". The company was also dogged by questionable transactions and self - dealing accusations over the buybacks of franchisees, including those operated by company insiders . A report released in August 2005 singled out then - CEO Scott Livengood and then - COO John W. Tate to blame for the accounting scandals although it did not find that the executives committed intentional fraud . </P>

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