Krispy Kreme back on track

Jim Morgan

SUMMERVILLE -- Krispy Kreme Doughnuts tasted sweet success. It also nearly choked on bitter business decisions earlier this decade.

Today, the North Carolina-based company is nibbling its way back from near-financial ruin that had nothing to do with the recession.

"We are going to crawl before we walk, but we are never going to run again I hope," Jim Morgan, the doughnut giant's president and chief executive officer, said Thursday after delivering the keynote speech during the Summerville Family YMCA-sponsored National Day of Prayer breakfast.

Of the overall economy, the Krispy Kreme boss said it's a bit stronger and people have a little more confidence, but that there's still cause for concern.

"I remain concerned that high oil prices will have a negative effect, and the easy monetary policy will have a flip side at some point," he said. "Over the next couple of years, we still have some risks."

During the breakfast, Morgan, a Sunday school teacher, urged attendees to pray and to arm themselves with the word of God even more so now that the National Day of Prayer has come under attack as being unconstitutional.

"I do know prayer makes a difference," he said. "As you pray, do not be afraid. Simply believe."

He also spoke openly afterward about Krispy Kreme's business problems, where the company stands and what lies ahead.

First made from a secret recipe in 1937, the sweet treat grew so fast and became so popular by the turn of the century when it first was traded publicly that people camped out days before a new store opened.

"The numbers were astronomical," Morgan said of sales.

Blinded by the earnings potential, the company took minority ownerships in new franchisees and by 2004 paid premium prices to buy back several franchise markets in the U.S. The fever pitch of investing in its shops was so high, balance sheets eventually became unbalanced.

"There was no way those sales levels would hold up," Morgan, who was on the board of directors at the time, said in hindsight.

Sales tumbled, and the overextended company closed 240 U.S. stores from 2004 to 2009 and lost more than $300 million.

Questions about accounting practices led to lawsuits and federal investigations. The company was perilously close to serving its last doughnut.

Morgan took the helm in January 2008, focused on the core product's uniqueness as a treasured pleasure that elicits smiles and has steered the baking company out of the frying pan.

Krispy Kreme settled its last lawsuit over the financial debacle in April and added more stores than it closed last year. It plans to add between seven and 10 company-owned stores this year, and franchisees are looking to expand for the first time since problems unfolded in 2004, he said.

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"We've gone from a threatened company to one with a balance sheet that's very strong," Morgan said. "We have turned the corner this most recent year."

When gasoline prices approached $4, Morgan said the company noticed a dip in purchases, but he said the recession has not affected sales. "We are viewed as an affordable indulgence."

The vast majority of the company's 582 stores are in other countries, where it experienced strong franchise growth during the domestic upheaval. Just 224 are in the United States.

The successful overseas hub-and-spoke model of having a factory store supplying smaller shops will now serve as the prototype for the U.S. market, Morgan said.

Charleston area Krispy Kreme franchise owner Miles Herring announced in March he is scouting sites in Mount Pleasant and Summerville for new stores and didn't rule out expanding into North Charleston or Goose Creek.

Currently, the local market has only one Krispy Kreme outlet, on Savannah Highway.

"There is growth potential in the Charleston area," Morgan said.