...On July 13, 1937, Vernon Rudolph opened the doors to a doughnut shop he called Krispy Kreme in Winston Salem, NC. He had a vision to be the worldwide leader in sharing delicious tastes and creating joyful memories. Known for their “hot now” doughnuts, Krispy Kreme’s mission is to touch and enhance lives through the joy that is Krispy Kreme. In 1973 the founder died but the values remain the same. Krispy Kreme believes: • Consumers are our lifeblood, the center of the doughnut • There is no substitute for quality in our service to consumers • Impeccable presentation is critical wherever Krispy Kreme is sold • We must produce a collaborative team effort that is unexcelled • We must cast the best possible image in all that we do • We must never settle for "second best;" we deliver on our commitments • We must coach our team to ever-better results In 1999, Krispy Kreme announced its consideration to sell public stock and later did just that. Once registered with the Securities and Exchange Commission (SEC), the companies stocks where one of the second best performing initial public offerings of the year ("Krispy kreme mulls," 1999). John McAleer, a vice chairman; Robert McCoy, a director; and 40 others including shop owners and their brothers, sisters, mothers, daughters, sons and even former wives, sold $141 million of the stock as of January 30, 2001 ("Krispy kreme gains," 2001). Krispy Kreme Doughnuts Inc. reported an increase of nearly 89 percent in its first-quarter profit...
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...Krispy Kreme Case Study Summarize In early 2004, Krispy Kreme’s prospects appeared bright. With 357 Krispy Kreme stores in 45 states, Canada, Great Britain, Australia, and Mexico, the company was riding the crest of customer enthusiasm for its light, warm, melt-in-your-mouth doughnuts. In 1933, Vernon Rudolph bought a doughnut shop in Paducah, Kentucky, from Lou LeBeau. His purchase included the company’s assists and goodwill, the Krispy Kreme name, and rights to a secret yeast-raised doughnut recipe that LeBeau had created in New Orleans years earlier. Several years after, Rudolph and his partner, were looking for a larger market, and moved their operations to Nashville, Tennessee. In the early 1990s, with interest rates falling and much of the buyout debt paid down, the company began experimenting cautiously with expanding under Scott Livengood, the company’s newly pointed president and COO. Livengood, 48, joined Krispy Kreme’s human relations department in 1978. By the mid-1990s, with fewer than 100 franchised and company-owned stores and corporate sales stuck in the $110-$120 million range for six years, company executives determined that it was time for a new strategy and aggressive expansion outside the Southeast. Beginning in 1996, Krispy Kreme began implementing a new strategy to reposition the company, shifting focus from a wholesale bakery strategy to a specialty retail strategy that promoted sales at the company’s own retail outlets and emphasized the “hot...
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...Running head: KRISPY KREME DOUGHNUTS, INC.: A CASE ANALYSIS Krispy Kreme Doughnuts, Inc.: A Case Analysis Presented to By October 09, 2009 Table of Contents II. Table of Contents 2 III. Executive Summary 3 IV. Situational Analysis 5 A. Environment 5 B. Industry Analysis 5 C. The Organization 7 D. The Marketing Strategy 9 V. Problems Found in Situational Analysis 10 A. Statement of primary problem. 10 B. Statement of secondary problem 12 C. Statement of tertiary problem. 13 VI. Formulate, evaluate, and record alternative course(s) of action 14 A. Strategic Alternative 1 14 1. Benefits 14 2. Costs 15 B. Strategic Alternative 2 16 1. Benefits 16 2. Costs 19 C. Strategic Alternative 3 19 1. Benefits 19 2. Costs 21 VII. Selection of Strategic Alternative and Implementation 22 A. Statement of Selected Strategy 22 B. Justification of Selected Strategy 23 C. Description of the implementation of strategy. 23 VIII. Summary 28 IX. Appendices 29 A. Financial Analysis and Selected Tables 29 B. Reference List 32 Executive Summary Krispy Kreme Doughnuts, Inc., began as a family-owned business back in 1937, as an expansion of a pre-existing business, when Vernon Rudolph purchased a doughnut shop along with the now-famous secret recipe for making yeast-raised doughnuts. His doughnuts, which he delivered to grocery stores in the Winston-Salem, North Carolina area, quickly became...
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...TO: John Ivankoe FROM: Gussie Rhodes DATE: January 5, 2005 SUBJECT: Krispy Kreme Doughnuts Financial Analysis and Stock Recommendation Krispy Kreme Doughnuts, Inc. recently announced a restatement of last year’s financial statements. Since its peak in August 2003, KKD stock has declined more than 80% in price as the result of the restatement announcement and allegations of accounting misrepresentations. It seems that this would be a good opportunity to buy KKD stock while the price is below $10 for such a fast-growing company. However, careful examination of the company’s financial data and its business strength reveal that this stock is not superior enough to other investments or in a position to continue to grow at a rate to make it an attractive investment for J.P. Morgan. Krispy Kreme’s financial statements report extremely strong growth from 2000 to 2004; revenue grew 31.8% annually, and net income grew 71.6% annually. Although overall sales increased from 2003 to 2004, this growth was largely from new stores. The income from operations in quarters ending May 2, 2004 and August 1, 2004 indicate a $79.6 million run rate, which is a 22% decline from $102.1 million for year ending February 2004. Income from existing stores continues to decline, as new growth comes from new store openings. The number of new store openings cannot remain high forever; Krispy Kreme’s strategy does not provide for sustainable growth. The balance sheet shows an increase of long-term...
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...case teaching note | 14 Krispy Kreme Doughnuts, Inc. Overview With 181 Krispy Kreme stores in 28 states, Krispy Kreme Doughnuts in 2001 was rapidly building something of a cult following for its light, warm, melt-in-your-mouth doughnuts. Sales were on an impressive climb, exceeding 3.5 million doughnuts a day. The company’s business model called for 20 percent annual revenue growth, mid-single digit comparable store sales growth, and 25 percent annual growth in earnings per share. Krispy Kreme had created a flurry of excitement with its expansion into metropolitan markets outside the Southeast—its grand openings in newly entered markets attracted long lines of customers and created traffic jams around its store sites. The first new store in San Diego racked up $365,000 in sales the first week, with 5 TV crews covering the opening day event. The first store in Denver produced first-week revenues of $369,000, drew 50,000 visitors, and had $1,000,000 in sales the first 22 days; the crowds were so large that three off-duty deputy sheriffs were hired to direct traffic from 5 a.m. to 11 p.m. during the Tuesday-Saturday period of grand opening week—one night there were 150 cars in line at the drive-thru window at 1:30 a.m. But despite the enthusiastic reception that Krispy Kreme stores were getting, a number of securities analysts were dubious whether the company’s strategy and growth potential merited a stock price nearly 70 times projected 2002 earnings...
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...Case Study: Krispy Kreme Doughnuts, Inc. Case Study: Krispy Kreme Doughnuts, Inc. Problem The problem in this case deals with the loss in value of Krispy Kreme Doughnuts’ stock. Was the main reason for the fall in stock price due to article posted in the Wall Street Journal about the SEC investigation? Were there deeper issues within the company that caused the loss in earnings per share? Analysis In April of 2000, the CEO of Krispy Kreme Doughnuts took the company public and had one of the largest IPO’s in recent years. After Krispy Kreme went public, they stated that they were planning to expand from 144 to 500 stores over the next five years. The company grew rapidly for the next few years, and stock prices rose well above the S&P 500. On May 7, 2004 the company reported adverse results and told investors to expect earnings to be 10% lower than originally anticipated. Krispy Kreme’s reasoning for the decrease in expected earning was the growing trend in America toward a low-carbohydrate diet. On May 25, 2004 the Wall Street Journal published an article on the aggressive accounting treatment used by Krispy Kreme during a franchise acquisition. A franchisee owning seven stores in Michigan owed the company several millions of dollars. They asked him to close two underperforming stores and pay Krispy Kreme accrued interest on past-due loans. In return, the franchisor promised to raise the purchase price of the franchise. Krispy Kreme accountants recorded the interest...
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...Case Study: Krispy Kreme Doughnuts, Inc. Problem The problem in this case deals with the loss in value of Krispy Kreme Doughnuts’ stock. Was the main reason for the fall in stock price due to article posted in the Wall Street Journal about the SEC investigation? Were there deeper issues within the company that caused the loss in earnings per share? Analysis In April of 2000, the CEO of Krispy Kreme Doughnuts took the company public and had one of the largest IPO’s in recent years. After Krispy Kreme went public, they stated that they were planning to expand from 144 to 500 stores over the next five years. The company grew rapidly for the next few years, and stock prices rose well above the S&P 500. On May 7, 2004 the company reported adverse results and told investors to expect earnings to be 10% lower than originally anticipated. Krispy Kreme’s reasoning for the decrease in expected earning was the growing trend in America toward a low-carbohydrate diet. On May 25, 2004 the Wall Street Journal published an article on the aggressive accounting treatment used by Krispy Kreme during a franchise acquisition. A franchisee owning seven stores in Michigan owed the company several millions of dollars. They asked him to close two underperforming stores and pay Krispy Kreme accrued interest on past-due loans. In return, the franchisor promised to raise the purchase price of the franchise. Krispy Kreme accountants recorded the interest paid as interest income resulting in...
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...Krispy Kreme Doughnuts, Inc. I. POINT OF VIEW This case is analyzed from the point of view of a third party consultant. II. PROBLEM There is inefficiency in the management of Krispy Kreme Doughnuts, Inc. in terms of its operations, marketing, accounting, and investment planning. III. OBJECTIVES a. To gradually gain back analysts’, investors’ and lenders’ confidence in the company in the succeeding months. b. To increase sales and profitability in terms of its core business, selling of doughnuts. c. To regain and increase stock price therefore increasing shareholder value. d. To correct inaccurate entries in the financial statements of KKD and to present a clean and unbiased reports. e. To extend further reach to consumers strategically to achieve significant growth in the next five years. f. To implement extensive marketing measures for its brand and products and investment strategy for both on and off premise operations. IV. AREAS OF CONSIDERATION • Fortune magazine had dubbed Krispy Kreme Doughnut, Inc. “the hottest brand in America.” With ambitious plans to open 500 doughnut shops over the first half of the decade. • The company generated revenues through four primary sources: on-premise retail sales at company owned stores (27% of revenues), off-premises sales to grocery and convenience stores (40%); manufacturing and distribution of product mix and machinery (29%); and franchise royalties and fees (4%). • Roughly 60% of sales at a Krispy Kreme store were...
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...Krispy Kreme was a successful manufacturer of Doughnuts that was established in 1937 by a young entrepreneur named Vernon Rudolph. Rudolph was an industrious man who found clever ways to market and sell his unique confections to the American public. By the 1950’s Rudolph’s business had expanded to twenty-nine shops within twelve different states. Each shop featured pick-up windows (early versions of drive thrus) and possessed the capability of producing 500 dozen doughnuts per hour. In 1954, Mike Harding joined Rudolph as business partner in order to facilitate the expansion of the company. Both men realized that the quality of their products stemmed from having control over each aspect of the doughnut making process. If each item included the set amount of ingredients, was baked to perfection, and served hot to hungry customers, then all Krispy Kreme shops were to meet great success. Harding became the company’s president in 1958, and then went on to become chief executive officer after Rudolph’s death in 1973. Under both men, Krispy Kreme’s revenues grew from less than $1 million in 1958 to $58 million by 1974. In 1976, the company was bought by Beatrice Foods who decided to change the recipe, the 1950’s look of the doughnut shops, of course, the logo. Beatrice foods decision to modernized Krispy Kreme was received negatively by customers. In an effort to revive the company, a group of franchisee’s bought Krispy Kreme from Beatrice Foods for $22 million in a leveraged buyout...
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...638130 José Luis Domínguez Damas 809448 Santiago De Hoyos 795568 Héctor Guerrero Pacheco 945840 May 4, 2011 WORLDWIDE PAPER COMPANY Brief Description: In December 2006, Bob Prescott, controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. This will bring two benefits: Eliminate the need to purchase shortwood from an outside supplier, and the company will have the opportunity to sell shortwood to the open market. Also, this addition will reduce its operating costs and will increase it revenues. Prescott would no longer need to use the Shenandoah Mill as a short supplier and that the Blue ridge Mill would instead compete with that company by selling on the shortwood market. Case Information: The new woodyard would begin operating in 2008 and the investment would be spent over two calendar years: $16 million in 2007 and the remaining $2 million in 2008. After 2008, when the woodyard began operating it would reduce the operating costs of the mill by the difference of the cost of producing shortwood on-site versus buying it on the open market. This is traduced to $2 million for 2008 and $3.5 million for 2009. Prescott also planned to sell the excess production capacity on the open market as soon as possible. Prescott estimated to have revenues of $4million in 2008 and $10 million per year for 2009 through 2013. The cost of goods sold is 75% of revenues and SG&A would be 5% of revenues. If the revenues increase,...
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... Ethics-Krispy Kreme Introduction The purpose of this case study is to analyze the accounting scandal at Krispy Kreme. "The Krispy Kreme story is one of a newly public company, experiencing rapid growth, that failed to meet its accounting and financial reporting obligations to its shareholders and the public,"(as cited in Maremont & Brooks, 2005). The senior managers were the ones who profited from this accounting scandal and the shareholders and the public suffered as a result. There are several prevention methods that can be taken to prevent this from occurring in the future. It will benefit Krispy Kreme to hire internal auditors who can report to management any regulations. Analysis Company Overview Krispy Kreme opened its first store July 13, 1937 in Winston-Salem, NC (Krispy Kreme). According to the Krispy Kreme website, “Vernon Rudolph bought a secret yeast-raised doughnut recipe from a New Orleans French chef, rented a building in what is now historic Old Salem in Winston-Salem, NC, and began selling Krispy Kreme doughnuts to local grocery stores”(Krispy Kreme). Krispy Kreme donuts can be found at many grocery stores with sixty personal stores around the United States. Krispy Kreme offers a fundraiser program for schools and churches. Krispy Kreme has expanded its business internationally “celebrating the 100th shop in Mexico” in 2013 (Krispy Kreme). Accounting Scandal “Former executives at Krispy Kreme Doughnuts Inc. who...
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...Journal of Business Case Studies – April 2008 Volume 4, Number 4 Lessons From Krispy Kreme J. Richard Anderson, Stonehill College ABSTRACT The recent decline of Krispy Kreme Doughnuts, Inc. raises a natural question: shouldn’t investors (and auditors) have been more wary of this Wall Street darling? Weren’t there tipoffs that would have allowed investors to avoid another franchisor “crash and burn” situtation like Boston Chicken or TCBY frozen yogurt? This paper traces the meteoric rise and fall of Krispy Kreme and discusses a number of advance indicators of future problems: insider share-dumping, conflicts of interest within the Board of Directors and senior management, turnover in the CFO position, the use of synthetic leases, repurchased franchises, disappointing join venture results, and the problems of earnings management in the quarterly reports of a fairly small publicly-owned business. Keywords: Corporate Financial Reporting, Investor Awareness, Reading Financial Reports INTRODUCTION S hould we be surprised when a Wall Street darling like Krispy Kreme Doughnuts crashes and burns? Shouldn’t there be warning signals when a company ranked as the best IPO of the 2000-02 period with a 711% stock price runup in three years loses all of that appreciation over the next 18 months? What causes a company to go from a market capitalization of just under $3 billion to little more than $300 million in such a short period? This paper argues that there were numerous...
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...CASE STUDY OF KRISPY KREME Just like their Donoughts the Krispy Kreme stock seemed irresistible when they went public in 2000. It was even named as IPO of the year and the Forbes named it as the company to look out for. But now it is just a firm with a market capitalization over 300 million. So what did Krispy Kreme did wrong to be in a situation like this. The decline of Krispy Kreme Donoughts Inc. with a market capitalization of over 3 billion to just over 300 million was due to the use of synthetic leases, repurchased franchises, disappointing joint venture results and due to the problems of earnings management. This paper argues that there were numerous warning signals in the doughnut franchisor’s accounting and managerial decisions that investors refused to take seriously as they bid the stock from its IPO price of $6 to its eventual peak of $50 on NYSE. There are lots of lessons that can be learned from this autopsy of the Krispy Kreme and might well make investors and auditors more wary about jumping on the next IPO bandwagon. They bought out a struggling Michigan franchisee and agreed to raise the purchase price from $26 million to $32 million so that the franchisee could afford to close two stores and to settle its overdue debts owed to Krispy Kreme, thus avoiding a bad debt loss. Why would so many large franchisees of a supposedly-successful chain want to get out of their investment when operations seemed to be going so well? As we see in the exhibit...
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...Thompson−Strickland: Strategic Management: Concepts and Cases, 13th Edition 14. Krispy Kreme Doughnuts, Inc. Case © The McGraw−Hill Companies, 2002 case 14 Krispy Kreme Doughnuts, Inc. Arthur A. Thompson The University of Alabama “We think we’re the Stradivarius of doughnuts.” —Scott Livengood, President and CEO, Krispy Kreme Doughnuts, Inc. With 181 Krispy Kreme stores in 28 states, Krispy Kreme Doughnuts in 2001 was rapidly building something of a cult following for its light, warm, melt-in-your-mouth doughnuts. Sales were on an impressive climb, exceeding 3.5 million doughnuts a day. The company’s business model called for 20 percent annual revenue growth, midsingle-digit comparable store sales growth, and 25 percent annual growth in earnings per share. But a number of securities analysts doubted whether Krispy Kreme’s strategy and growth potential merited a stock price nearly 70 times projected 2002 earnings per share of $0.69 and 85 times actual 2001 earnings of $0.55 per share. The company’s stock, which was trading in the $46–$50 range and had been as high as $54, had been a favorite of short sellers for several months—the 2.5 million shorted shares in May 2001 represented nearly 10 percent of the company’s outstanding shares. According to one analyst, “It [the stock] has had a good run, but the numbers just don’t work”; another analyst commented, “The odds are against this stock for long-term success.” A third said, “Single-product concepts...
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...Krispy Kreme Doughnuts, Inc. 1. What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financial health and current condition of Krispy Kreme Doughnuts, Inc.? The company’s financial performance looks quite good at the end of Feb 1, 2004. From the exhibit 1, income statement, we can see that Krispy Kreme was growing from the year ended Jan 30, 2000 to the year ended Feb 1, 2004. Total revenue increased significantly 202% from US$ 220,243 thousands in Jan 30, 2000 to US$ 665,592 thousands in Feb 1, 2004. Net income increased 858% from US$ 5,956 in Jan 30, 2000 to US$ 57,087 thousands in Feb 1, 2004. The balance sheet in exhibit 2, looks as good as the income statement in exhibit 1. The total assets increased significantly around 529% from US$ 104,958 thousands in the fiscal year ended Jan 30, 2000 to US$ 660,664 thousands in the fiscal year ended Feb 1, 2004. Long-term liabilities increased 453% from US$ 27,617 thousands in the fiscal year Jan 30, 2000 to US$ 152,641 thousands in the fiscal year ended Feb 1, 2004. Total shareholders’ equity increased 847% from fiscal year ended Jan 30, 2000 to fiscal year ended Feb 1, 2004. Increasing in total assets, total liabilities and shareholders’ equity because the company expanded its business. We can see in exhibit 3 that the factory stores have increased more than two fold. However, the company’s financial performance became worse for three months period ended May...
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