Krispy Kreme Settles Case With Great Circle Franchisee

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Krispy Kreme Doughnuts Inc. and its biggest franchisee, Los Angeles-based Great Circle Family Foods LLC, settled a dispute last week that neither company had been able to glaze over.


Under the agreement, a Krispy Kreme subsidiary christened Southern Doughnuts LLC will buy back three Great Circle Krispy Kreme stores in Burbank, Ontario and Orange, along with the related franchisee rights, for $2.9 million. The companies are also discussing an option agreement under which Krispy Kreme could acquire 100 percent of Great Circle.


Great Circle was unable to comment under the terms of the settlement.


The chain and its franchisee have had a long-running feud.


Great Circle sued the Winston Salem, N.C.-based doughnut maker last September, claiming executives misappropriated marketing funds and that the franchisee was billed for fake charges.


Great Circle Partners Richard Reinis and Roger Glickman additionally alleged that the chain was trying to force them into bankruptcy, made false representations, inflated prices and engaged in deceptive business practices.


In January, Krispy Kreme terminated Great Circle’s license for one day, alleging that Great Circle neglected to make royalty payments and make contributions to the company’s marketing and advertising fund. The license termination shut down all 28 Great Circle stores in California. At the time, they had 750 employees. They now operate 23 stores and have 600 employees. The deal is expected to close in mid-to-late August.


Once a hot stock, Krispy Kreme sales have been sluggish since 2004, when the company cited the low-carb craze as the source of its malaise. Former Kraft Foods Inc. executive Daryl Brewster took the helm in March.


In addition to the settlement, Krispy Kreme last week announced that it was delaying the filing of its fiscal 2006 annual report by three months, to October 31. The company said the delay was caused by its shifting of accounting resources to complete its overdue 2005 annual report, which was filed in April to avoid a de-listing from the New York Stock Exchange.



Shoe Business


If the shoe fits, sell it with your patented images.


Walt Disney Co. has partnered with Crocs Inc., which will produce a line of its lightweight clogs featuring Mouse House characters just in time for the holidays.


Disney characters including Mickey Mouse and Winnie the Pooh as well as images from hit films “Cars” and “Pirates of the Caribbean” will adorn the popular, multi-colored shoes.


“Disney characters symbolize fun and magic, and we think they are a particularly good fit with the Crocs brand,” said Crocs Chief Executive Ron Snyder, whose firm is based in Niwot, Colo.


The announcement didn’t provide either company with much traction on Wall Street in what was a difficult week for both. Shares of the companies traded in the $27-$30 range.


Crocs was sorting through legal response from the 11 companies it has sued for patent infringement.


Disney was busy defending its decision not to pull Mel Gibson’s upcoming film “Apocalypto” following the star’s drunken post-arrest outburst.


An expanded product line is expected for spring 2007.



Burgers to Go


CKE Restaurants Inc. trimmed some fat at Carl’s Junior last week.


That’s from its holdings, not its menu, which features its famously fatty jumbo cheeseburger topped with sliced steak. The Carpinteria-based company agreed to sell off 38 Carl’s Junior Restaurants in Oklahoma and Texas and estimates the value at nearly $11 million.


“This transaction is a very positive move for the company and the Carl’s Jr. brand,” said CKE Chief Executive Andrew F. Puzder. “We are transferring our Oklahoma market to a group of well respected operators who are committed to grow the Carl’s Jr. franchise in the region.”


The buyers are Star Chasers Oklahoma Inc. and Oklahoma Territories LLC.


CKE, which also owns the Hardee’s and La Salsa Fresh Mexican Grill restaurant brands, said it does not expect the sale to affect future earnings.


CKE Restaurants rose 24 cents on the announcement to close at $15.35 on the New York Stock Exchange.


California Pizza Kitchen Inc., meanwhile, opened two locations last week, one in Alabama and another in San Luis Obispo. The company also opened the first CPK/ASAP restaurant in Chicago in late July.



By the Numbers


It was a mixed earnings week for L.A.-based public companies. Clothes were hot, hotels were not.


Guess Inc.’s second-quarter profit more than tripled on its stronger performance in Europe and North America. Second-quarter net earnings skyrocketed to $14 million from $4 million a year ago and revenue jumped to $231 million from $178 million. Sales at stores opened more than one year, an important indicator in the retail industry, jumped 11 percent. The company boosted third-quarter guidance to a 20 percent increase in sales.


Guess stock shot up to $48.48, near its 52-week high of $48.79, in trading the day following the earnings announcement.


Hilton Hotel Corp.’s second quarter earnings missed Wall Street expectations, which the company attributed to the cost of renovations at key locations. Still, shares rose in trading following the announcement, bolstered by a rosier outlook on the balance of the year.


Net income in the second quarter dropped 29 percent to $144 million, but revenue nearly doubled, up to $2.2 billion from $1.2 billion. Renovations have been underway at the Hilton New York, the Waldorf-Astoria in New York and the Hilton Hawaiian Village in Honolulu.



Staff reporter Emily Bryson York can be reached at (323) 549-5225, ext. 235, or at

[email protected].

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