Krispy Kreme shares hit

Shares in Krispy Kreme Doughnuts have taken a dunking on Wall Street after the firm revealed it would have to restate its 2004 financial reports.

The company warned the move would cut its profits by $3.8m to $4.9m (£2m to £2.6m) - or between 6.6% and 8.6%. Krispy Kreme said accounting errors had forced the move, adding that its board of directors made the decision to restate its accounts on 28 December. However, the company was unavailable to comment on why it had delayed the news.

It also warned it might have to further restate results for 2004 and 2005.

Shares in Krispy Kreme sank 14.87% - or $1.83 - to close at $10.48 on the news. The revelation comes just a month after the firm warned earnings would be cut by as much as 7.6% as a result of accounting errors. Krispy Kreme said the latest adjustments involved the way it accounted for the repurchase of three franchise restaurants. It added it would now be reviewing how it accounts for its leases. In a further blow, the firm said it had been advised that some of its franchise owners were not in compliance with their loan agreements, and warned it might need to borrow extra money if it was required to honour agreements on franchisee debts or operating leases.

Krispy Kreme added that it had enough cash to fund its current operations, but it could not borrow any more under its existing agreements. "There are many more questions than answers, especially given increased concerns regarding company liquidity," JP Morgan Securities analyst John Ivankoe said in a research note on the firm. The announcement is the latest blow for the one-time darling of Wall Street, which has lost 80% of its stock value in just over a year. The firm is currently facing Securities and Exchange Commission investigation of its accounts. Shareholders have also launched lawsuits against the group, claiming it made false statements and inflated sales.