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On the heels of Krispy Kreme's announcement that it had lowered earnings expectations for the first time since it went public four years ago, a class action lawsuit has been filed against the donut concern and executives Randy Casstevens, Scott Livengood, Michael Phalen, and John Tate.
The complaint alleges that Krispy Kreme failed to disclose that the low-carb craze was having a negative impact on Krispy Kreme's sales. It also alleges that Krispy Kreme operated on a "fad appeal" business model that relied heavily on creating hype when the company entered new markets, rather than cultivating a steady base of customers. This, according to the suit, "resulted in unsustainable surges in sales that fell off once the hype ceased and the novelty of the new store wore off."