Shares of Krispy Kreme (NASDAQ: KKD) tanked more than 38% today after the beleaguered donut chain reported a terrible quarter.

Revenue fell 7.5%, and the company lost $27 million, compared with $4.6 million in the same quarter of last year. Results were hurt by impairment charges and lease termination costs as the company closes underperforming locations. The shares closed at their low for the day, $3.91, which is roughly the lowest the shares have traded in the company' history. The stock had traded at over $12 as recently as January.

Analysts quoted in the latest AP coverage of this mess have a hard time being optimistic. As BB&T Capital Markets analyst Andrew P. Wolf said, "the nascent turnaround at the company has (at best) stalled."

Hmm. Krispy Kreme's CEO Daryl Brewster talked about the company's turnaround plans, and added that "The only things nonnegotiable are our consumers, our brand and our quality."

But the company's overly-aggressive expansion may have hurt its brand and quality: Are donuts available at grocery stores and kiosks really something you associate with a premium brand?

It's great that the current management is focused on the brand, but overexpansion may hurt that image beyond repair. And although takeover rumors have surrounded the company since its decline began, it really doesn't look all that cheap, even after the decline.

In a blog post today, MarketWatch's Herb Greenberg wonders about the company's solvency: "Especially troubling is the company's concession that for the six months it's not in compliance with EBITDA covenants with its lenders -- not good when cash and cash flow are going down, as is the case at Krispy Kreme."

Restructuring would appear to be a real possibility at some point, and dieters as well as investors would do probably do well to avoid Krispy Kreme for now.