Krispy Kreme has replaced its chief executive of less than two years amid worries on Wall Street over whether the troubled doughnut company can halt its decline.

Shares in the group rose 10 per cent yesterday when the company said that it had appointed James Morgan, its chairman, as chief executive.

Daryl Brewster, who joined as chief executive in March 2006, will step down at the end of January. While Mr Brewster cited “personal reasons” for his departure, a spokesman for the group failed to return calls to elaborate.

Krispy Kreme – the home of such treats as lemon meringue and apple crumble doughnuts – has struggled for two years to resist the challenge of its bigger and more aggressive rival Dunkin’ Donuts, and to continue to attract increasingly health-conscious Americans. Mr Brewster’s resignation marks the third high-profile executive to leave in that period. At the end of 2005, two executives were ousted, accused by the board of trying to “manage earnings” to meet Wall Street expectations.

The company, which was founded as the United States was emerging from the Great Depression, floated on Wall Street seven years ago, hitting $50 a share in late 2003. Yesterday, the shares changed hands at $3.09.

In December, as Mr Brewster sought to reshuffle executives and restructure its franchise and company store operations to cut costs and boost sales, Krispy Kreme was forced to admit that sales had shrunk by a sixth.

Wall Street has serious concerns about the future of Krispy Kreme. In September Moody’s, the debt rating agency, gave warning that the company might have difficulty meeting its banking covenants because its shrinking store base would drag down sales. The agency said: “Krispy Kreme will need to obtain covenant relief or a waiver from its creditors to avoid a breach in the next 12 months in the absence of a significant improvement in cashflow generation.”

The company has been trying to move on from its recent past, having been investigated by the US Securities and Exchange Commission for accounting irregularities and for restating its financial statements.

The group tried to lure back Americans by developing a “zero-trans-fat doughnut” and it managed to exploit the emerging sweet tooth of the Far East by opening stores in Japan, South Korea, Taiwan and Indonesia.

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