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New York (PrimeZone) May 27, 2004

Murray, Frank & Sailer LLP announces a class action lawsuit on behalf of purchasers of the securities of Krispy Kreme Doughnuts, Inc. ("Krispy Kreme" or the "Company") (NYSE: KKD) between August 21, 2003 and May 7, 2004, inclusive (the "Class Period"). The action is for remedies under the Securities Exchange Act of 1934 (the "Exchange Act").

The action is pending in the United States District Court for the Middle District of North Carolina against defendants Krispy Kreme, Randy S. Casstevens, Scott A. Livengood, Michael C. Phalen and John W. Tate.

The complaint alleges that Krispy Kreme is a specialty retailer of doughnuts and charges Krispy Kreme and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint further alleges that, during the Class Period, Krispy Kreme touted its strong operational growth, reporting substantial increases in revenues, income, earnings per share, and representing that the Company would continue to grow. Moreover, the complaint also details allegations that unbeknownst to investors, defendants failed to disclose that, as a result of the trend toward low-fat, low carbohydrate diets (the South Beach and Atkins diets, for example), Krispy Kreme had been suffering from increasingly poor sales performance.

The complaint alleges that there were also other undisclosed reasons for the Company's poor performance: While the opening of new Krispy Kreme stores created initial consumer excitement and a corresponding surge in sales, sales at those newly-opened stores quickly tapered off. This was especially damaging to the Company in smaller markets with a limited number of potential new customers. Rather than cultivate a base of steady customers, the Company instead attempted to capitalize on Krispy Kreme's "fad appeal" and adopted a business model and strategy for increasing sales that was predicated on the perpetual addition of new stores and the hyping of the Company's entry into new markets-a tactic that resulted in unsustainable surges in sales and fell off once the hype ceased and the novelty of the new store wore off. The complaint further alleges that the Company's strategy of offsetting slowing retail sales with wholesale shipments to supermarkets was not working because the Company's wholesale business was more expensive to operate and, therefore, resulted in a lower profit margin than in-store sales. Additionally, the Company's wholesale business was saturating the market with Krispy Kreme products, cannibalizing the Company's retail operations, perhaps undermining them as well, and decreasing the Company's overall profit margin.

On May 7, 2004, defendants issued a news release in which they announced that Krispy Kreme's expected fiscal 2005 diluted earnings per share from continuing operations, excluding charges, to be 10% lower than previously announced, and that Krispy Kreme was closing certain company-owned stores and reducing plans to open new ones. Krispy Kreme also announced that it was closing its Montana Mills bread stores, an operation that it had bought a year ago, and that it was going to write-off as much as $40 million on the venture; as recently as mid-April, defendants had said they intended to refine and expand the operation.

On this news, shares of Krispy Kreme fell $9.29, or 29%, to close at $22.51, a new 52-week low, and more than 50% below Krispy Kreme's 52-week high of $49.74. The trading volume was 20.5 million shares, the largest ever for Krispy Kreme, and amounted to a third of the shares outstanding. Murray, Frank & Sailer LLP and its predecessor firms have devoted its practice to shareholder class actions and complex commercial litigation for more than thirty years and have recovered hundreds of millions of dollars for shareholders in class actions throughout the United States.

If you purchased or otherwise acquired any of the Funds described above, between August 21, 2003 and May 7, 2004, and sustained damages, you may, no later than July 11, 2004, move the Court to serve as lead plaintiff. Shareholders outside the United States may also join the action, regardless of which exchange was used to purchase the securities. To serve as lead plaintiff, however, you must meet certain legal requirements. You can join this class action as lead plaintiff online at If you would like to discuss this action, this announcement, or your rights and interests, please contact plaintiff's counsel Eric J. Belfi or Aaron D. Patton of Murray, Frank & Sailer LLP.


Murray, Frank & Sailer LLP
Eric J. Belfi
Aaron Patton
(800) 497-8076
(212) 682-1818
Fax: (212) 682-1892
Email: [email protected]

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