Krispy Kreme Doughnuts has lowered its earnings expectations for fiscal 2005 by 10 percent. Scott Livengood, chairman, president and CEO noted in a statement that KK is seeing the effects of the low-carb craze. “For several months,” he said, “there has been increasing consumer interest in low-carbohydrate diets, which has adversely impacted several flour-based food categories, including bread, cereal and pasta. This trend had little discernable effect on our business last year. However, recent market data suggests consumer interest in reduced carbohydrate consumption has heightened significantly following the beginning of the year and has accelerated in the last two to three months. This phenomenon has affected us most heavily in our off-premises sales channels, in particular sales of packaged doughnuts to grocery store customers.”

For the first fiscal quarter ended May 2, 2004, KK said it expects to report an approximately 24 percent increase in systemwide sales, including sales of Krispy Kreme company and franchise stores. It also expects to report company store sales of approximately $124 million, representing an approximately 21 percent increase from the prior year’s first quarter.

Livengood also said in the statement that KK will divest the Montana Mills bakery/cafe operation it purchased less than a year ago. “We plan to close the majority of the existing Montana Mills locations, which are underperforming, and will pursue a sale of the remaining Montana Mills stores,” Livengood said.

Krispy Kreme will also close “approximately six underperforming factory stores.”

This is the first time KK has lowered its guidance in its four years as a public company.