Hand-Holding Ends at Krispy Kreme

Updated from 10:14 a.m. EST

Krispy Kreme (KKD Quote - Cramer on KKD - Stock Picks) threw in the towel on conventional reassurance Tuesday, hiring a turnaround specialist from the distinguished rubble of Enron while warning that sales trends continue to deteriorate.

The result was a 13% pop in the doughnut maker's stock.

Krispy Kreme announced Tuesday it was replacing its own much-maligned chief executive, Scott Livengood, with the same man who replaced Ken Lay after Enron's spectacular flameout.

Stephen Cooper, chairman of the consulting company retained by Krispy Kreme to revive its fortunes -- Kroll Zolfo Cooper LLC, or KZC -- will take over as the pastry purveyor's new chief executive. In his role at KZC, Cooper specializes in leading companies through operational and financial restructurings and currently acts as interim chief executive, president and chief restructuring officer for Enron.

"I am looking forward to working with all of the company's employees, franchisees, vendors and other business partners to strengthen Krispy Kreme," Cooper said in a statement.

Wall Street liked the idea and the stock was recently adding $1.11, or 12.7%, to $9.83. Still, Krispy Kreme shares remain more than $2 below their level the day before the company detailed its accounting issues on Jan. 4. And Tuesday's reports of falling sales and expectations for a fourth-quarter loss serve as a reminder that the company has yet to plug any holes.

Krispy Kreme's predicament was neatly summarized by an analyst named Peter Kyviakidis in a Reuters story on Jan. 5.

"The pattern is fairly clear," he said. "The company was once doing very well, they just wanted to maintain their reported operating results even in the face of a declining business." Kyviakidis' employer? Kroll Zolfo Cooper.

Livengood, a 28-year veteran of the company who took the helm in 1998, has been roundly criticized for his handling of Krispy Kreme's misfortunes last year. He tried to blame the sales collapse on the low-carb dieting trend, while Dunkin' Doughnuts (a subsidiary of Allied Domecq PLC (AED Quote - Cramer on AED - Stock Picks)), remained prosperous in the same environment.

A series of accounting issues under his watch have been brought to light, leading to an announcement earlier this month that the company will restate its 2004 earnings lower, in part to reclassify as compensation some of the money it paid to managers to buy back their store franchises.

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