September 30, 2013
FIN 3717 Case 3 Executive Summary

“Krispy Kreme Doughnuts, Inc.” Executive Summary: * As the millennium began, the future for Krispy Kreme Doughnuts, Inc, looked very promising. * Not only had the company created an iconic status for themselves and gained a cult-like following, it had quickly become a darling of Wall Street. * Less than a year after its IPO, in April 2000, Krispy Kreme shares were selling for 62 times earnings and, by 2003, Fortune magazine dubbed the company “the hottest brand in America.” * With plans to open 500 stores over the first half of the decade, the company’s brand name had become internationally known. * At the end of 2004, however, reality began to sink in as the company made several accounting revelations, after which its stock price sank; from it’s peak in August 2003, stock price plummeted more than 80% in the next 16 months. * Investors and analysts began asking probing questions about the company’s fundamentals but many of their questions remained unanswered… * Was this a healthy company? What had happened to the company that some had thought would become the next Starbucks? If almost everyone loved the doughnuts, why were so many investors fleeing the popular doughnut maker?

Problem: This particular case investigates the factors that caused this “darling of Wall Street’s” stock to drop more than 80% suddenly in 2004. Just 4 years earlier, Krispy Kreme went public and became one of the hottest brands in America. Less than a year after its IPO, the shares were selling for 62 times earnings. What could have caused this dramatic decline in share prices? We also look at Krispy Kreme’s lack of consistency with their accounting, and whether or not what they did was unethical.

Analysis: Personally I think one major cause of the decline of Krispy Kreme is their aggressive