...1 ' 7 I I I l-*--*** I I ___i Krispy Kreme Doughnuts,Inc. As the millennium began, the future for Krispy Kreme Doughnuts,Inc., smelled sweet.Not only could the company boast iconic statusand a nearly cultlike following. it had quickly become a darling of Wali Street.Less than a year after its initial public offering, in April 2000, Krispy Kreme shareswere selling for 62 times earnings and, by 2003, Fortune magazinehad dubbed the company "the hottestbrand in America." With ambitiousplans to open 500 doughnutshopsover the frrst half of the decade,the company'sdistinctivegreen-and-red "Hot vintage logo and unmistakable Dor.rghnr-rts Now" neon sign had becomeubiquitous. At the end of 2004, however,the sweet story had begun to sour as the company made severalaccountingrevelations,after which its stock price sank. Frcm its peal. in August 2003, Krispy Kreme's stock price plummeted more than 807c in the next l6 months.Investorsand analystsbegan asking probing questions aboLitthe con-ipany's fundamentals, even by the beginningof 2005, many of those questions but remainedunanswered. Exhibits 1 and 2 provide Krispy Kreme'sfinancialstatements for fiscal-years 2000 throLrgh 2004. Was this a healthy company?What had happened to the companythat some had thought woLrldbecomethe next Starbucks? almost If everyone loved the doughnuts.why were so many investorsfleeing the popLrlar doughnutmaker? Company Background Krispy Kreme beganas a single doughnutshop in Winston-Salem...
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...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 derived from the company’s signature product, the glazed doughnut. • On May 7, 2004, Krispy Kreme announced adverse results. The company told...
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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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...Forecast Krispy Kreme Doughnuts, Inc periode 2003-2004 oleh CIBC World Markets Krispy Kreme Doughnuts, Inc adalah perusahaan donat dan kedai kopi global Amerika yang berbasis di Winston-Salem, North Carolina. Pendiri Krispy Kreme, Vernon Rudolph dan pamannya membeli toko donat Joseph LeBeouf di Broad Street di Paducah, Kentucky bersama dengan resep rahasia untuk donat ragi diperoleh dari Chef Perancis di New Orleans. Rudolph mulai menjual donat ragi di Paducah dan mengirimkan donat itu dengan sepedanya. Operasi itu pindah ke Nashville, Tennessee dan anggota keluarga lainnya bergabung untuk memenuhi permintaan pelanggan. Rudolph menjual minat di toko Nashville pada tahun 1937 dan membuka toko donat di Winston-Salem, North Carolina menjual donat ke toko dan kemudian langsung ke pelanggan individu. Toko pertama di North Carolina terletak di sebuah gedung sewaan di South Main Street di Winston Salem dalam apa yang sekarang disebut bersejarah Old Salem. The Krispy Kreme logo dirancang oleh Benny Dinkins, arsitek lokal. Ekspansi terjadi pada 1950-an, termasuk sebuah toko awal di Savannah, Georgia. Pada tahun 1960, Krispy Kreme dikenal di seluruh daerah Amerika Tenggara, dan mulai ekspansi ke daerah Amerika lainnya. Pada tahun 1976, Krispy Kreme Doughnut Corporation menjadi anak perusahaan yang sepenuhnya dimiliki oleh Beatrice Foods of Chicago, Illinois. Pertengahan tahun 1990 Krispy Kreme tumbuh secara geografis melalui franchise. Produk yang dijual di Krispy Kreme store, toko...
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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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...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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...5600 Webster University History In 1937 Vernon Rudolph bought a doughnut recipe from a New Orleans French chef and began selling Krispy Kreme doughnuts to local grocery stores in Winston Salem, N.C. People would pass by these stores smelling the delicious scent of Rudolph’s doughnuts and ask to buy hot doughnuts, so Rudolph cut a hole into the wall of his rented building and began selling the Original Krispy Kreme doughnuts to customers who walked by on the sidewalk (History, 2012). By the 1950s Rudolph and Krispy Kreme were doing well with a few family owned chain stores but the business was not consistent. The doughnuts were made from scratch which took up a lot of time and therefore Rudolph decided to invest in technology that would make the doughnuts for them using a dry doughnut mix that would prove to make the perfect doughnut every time. This innovation sustained the company through the 1960s and 70s until Rudolph died in 1973. After Rudolph’s death, Krispy Kreme took a downturn as the company reorganized for sale to the Beatrice Foods Company in 1976 (History, 2012). In 1982, a few of the first franchisees bought Krispy Kreme back from Beatrice Foods and decided to put focus back on the hot doughnut experience. These business owners also branched outside of the southeast region and opened the first store in New York 1996. Krispy Kreme became an American icon having been in business for 60 years in 1997 and donated artifacts...
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...Krispy Kreme was the hottest brand in America in 2003, however, its stock price plummeted more than 80% in the next 16 months. What had happened to this company? Why investors suddenly fleeing the popular Krispy Kreme? Answer following questions will help us find the solutions. From the historical income statement and balance sheet, we notice that, from 2000 to 2004, the KK grew very fast and its net income increased substantially. For example, form 2003 to 2004, KK’s net income increased by 71%. In turn, the company experienced an increasing EPS which was rose from 0.15 to 0.92, and the price of company’s share jumped up by 120%. The historical income statement indicates that Krispy Kreme has a good profitability, a high market value and a high return. At the same time, the balance sheet reflects that the total asset grew very fast which was caused by the increase in accounts receivable, inventories and intangible asset. The company’s equity increased in an astonishing speed. In Feb. 2004, the shareholders’ equity is almost 10 times the equity in Jan.2000. The increasing equity and also indicates that Krispy Kreme was hot and successful in stock market. However, according to the recent income statement, KK’s profitability turned down sharply. Compared with the same periods in 2003, KK’s net income was deducted drastically by increased expense, discontinued operations and impairment charges &closing costs which arose in 2004. For instance, the company even had a 24 million...
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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 oversaw...
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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 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 per share of $0.69 and 85 times...
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...Krispy Kreme’s Dilemma Preston Bass David Braziel Tyler Bullock Adam Hefton Ryan Tarrant Corporate Finance 4360 Dr. Steve Rich Table of Contents Executive Summary 3 Introduction 4 Purpose, Scope and Limitations 4 Sources and Methods of Literary Search 5 Report Organization 5 Krispy Kreme’s Dilemma 6 Krispy Kreme’s Current Solutions 9 Recommendations 11 Appendix 1: Corporate Overview 14 Appendix 2: Graphs 17 Appendix 3: Income Statement 18 Appendix 4: Revenue Chart 19 Bibliography 20 EXECUTIVE SUMMARY The purpose of this report is to evaluate the current situation of Krispy Kreme Doughnuts, Inc. and to discuss the reasons for such status. We will also look at current strategies the company is taking to better the situation, and finally, submit some of our own recommendations for ways to maximize potential at Krispy Kreme. Currently, Krispy Kreme faces many obstacles in operations and capital structure. Recent SEC filing discrepancies have added to the existing lack of optimism among stockholders. In addition, it appears that the money from loans made by the company to franchises has not been repaid at any type of acceptable rate. One major reason for the decline in franchise sales is that Krispy Kreme has oversaturated the market. This is made evident by nearly a 20% decrease in same store sales for the last quarter of fiscal 2004. Also, the company has doubled...
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...KRISPY KREME DOUGHNUTS, INC. Teaching Note Synopsis and Objectives Suggested complementary cases in financial statement analysis: “The Financial Detective, 2005,” (UVA-F-1486); “Deutsche Brauerei,” (UVA-F-1355); “The Battle for Value, 2004: FedEx Corp. vs. United Parcel Service, Inc.,” (UVA-F-1484) This case considers the sudden and very large drop in the market value of equity for Krispy Kreme Doughnuts, Inc., associated with a series of announcements made in 2004. Those announcements caused investors to revise their expectations about the future growth of Krispy Kreme, which had been one of the most rapidly growing American corporations in the new millennium. The task for the student is to evaluate the implications of those announcements and to assess the financial health of the company. This case is intended to be introductory as it can provide a first exercise in financial statement analysis and lay the foundation for two important financial themes: the concept of financial health, and the financial-economic definition of value and its determinants. Suggested Questions for Advance Assignment to Students 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.? 2. How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit...
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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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...The popular Krispy Kreme Company went public in 2000, with a market capitalization of approximately $500 million and share price above $40. The US had the world’s highest GDP of $10.9 trillion. Krispy Kreme had expanded internationally to other markets outside of the U.S. for example, the United Kingdom, Mexico, Australia, and Canada. One factor that began to impact the industry and the Krispy Kreme company would be the emerging low- carbohydrate diet trend in the United States. This created new eating and spending habits across the country. Subsequently Krispy Kreme blamed its declining sales and overall financial position on this dilemma. Krispy Kreme also flooded the market with doughnuts. One analyst stated that “the biggest problem for Krispy Kreme may be that the company grew too quickly.” This means they saturated the market with excessively product availability. It had become a kind of franchise, as a lot of those shops were under the control of franchisees. After Vernon passed away in 1973, Beatrice Foods purchased Krispy Kreme Doughnuts, Inc. and the company had increased to more than one hundred locations. However, it was becoming weaker and eventually a group of franchisees had bought it in 1982. Fortunately, the company became debtless by 1989. In terms of market share, it had a big initial public offering in April of 2000, and, right after, its share price of $42.63 gave it a market capitalization of roughly $500 million dollars. By 2004,...
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