...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 #6: KRISPY KREME DOUGHNUTS, INC. Synopsis and Objectives 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 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. Questions 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 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise? 3. Is Krispy Kreme financially healthy at year-end 2004? 4. In light of your answer to question 3, what accounts for the firm’s recent share price decline? 5. What is the source of intrinsic investment value in this...
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...Krispy Kreme Doughnuts ACCT 6334. Taiwan – Auditing Fall 2013 Class Research Project STUDENT: Chien-Yun Tseng UTD ID# 2021195349 Table of Contents INTRODUCTION................................................................ 3 CHAPTER1. THE CLIENT ACCEPTANCE /CONTINUATION PROCESS, INCLUDING ESTABLISHING AN UNDERSTANDING WITH THE CLIENT ... 4 CHAPTER2. OBTAINING AN UNDERSTANDING OF THE ENTITY AND ITS ENVIRONMENT, INCLUDING INTERNAL CONTROL .................................. 5 CHAPTER3. PRELIMINARY ENGAGEMENT ACTIVITIES ....................... 8 CHAPTER4. ASSESS RISKS AND ESTABLISH MATERIALITY ................. 9 CHAPTER5. CONSIDER INTERNAL CONTROL .................................... 10 CHAPTER6. PLAN THE AUDIT ............................................................ 13 CHAPTER7. COMPLETE THE AUDIT ................................................... 16 CHAPTER8. EVALUATE RESULTS AND ISSUE AN AUDIT REPORT .... 17 REFERENCE ............................................................................................. 18 INDEPENDENT AUDIT REPORT................................................................ 19 ENGAGEMENT LETTER………………………………………………………..20 FINANCIAL STATEMENT .......................................................................... 22 2 INTRODUCTION The history of the Krispy Kreme began in the mid 1930s...
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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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...Healthy Fast Food? Women Are Buzzing About McDonald’s Jan. 27 2011 - 1:24 pm | 3,391 views | 0 recommendations | 3 comments By JENNA GOUDREAU While many may deem “healthy fast food” an oxymoron, a recent report finds that fast food and sugary brands with new health initiatives are gaining women’s approval. Marketing research group Women at NBCU tracks the top 500 brands that are most important to women each month by following what they search for and talk about online. In the last six months, several fast food brands shot up in the rankings. Burger-and-fries chain McDonald’s climbed 10 places to become the 14th most popular brand among women. The surge comes after a partnership with social game FarmVille, likely an effort to align the brand with fresh farm produce. Meanwhile, fast-food company Wendy’s ascended into the top 100 brands, taking the No. 96 spot, after rolling out four new salad options. Domino’s Pizza leaped up 140 notches in December alone following a major ad push about its fresh ingredients, like farm-grown tomatoes and real cheese. Chocolate-maker Nestle and syrupy soda Sierra Mist also shot up the index after announcing new health initiatives. “With the national obesity crisis at an all-time high, women are clearly taking notice,” said Melissa Lavigne-Delville, VP of trends and strategic insights for Women at NBCU, in a statement. The news comes on the heels of this week’s release by The National Academy of Sciences that links obesity with America’s...
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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 Case Analysis Anthony Jachera, Salma Saeed, Chris Westendorf October 20th, 2014 Executive Summary This case analysis considers the sudden and very large drop in the market value of equity for Krispy Kreme Doughnuts (KKD) and pinpoints the causes behind the downfall of one of the hottest brands in America. Beginning with their highly successful IPO in April of 2000, KKD quickly rose to become one of the most successful companies in the United States. Customers and Wall Street simply could not get enough of the KKD brand and the company experienced significant growth and financial success from 2000 to 2003. The sudden downfall of KKD began when the company first announced adverse financial results in May of 2004. In July of 2004, the U.S. Securities and Exchange Commission announced they were launching an informal investigation into the company’s accounting practices. Both of these events caused investors and Wall Street to begin to change their opinions on KKD and brought to light several significant structural issues within the company. The following analysis reveals the root causes of KKD’s downfall which included overly aggressive growth goals, a poor operating structure, questionable accounting practices, and poor management decisions. Through analyzing KKD’s financial statements, key financial ratios, peer group benchmarking, and business plan, we can begin to clearly see several problems facing the company. Through our in-depth analysis, we have proposed...
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...Case Analysis Krispy Kreme Doughnuts, Inc. Thadavillil (Nathan) Jithendranathan Professor of Finance Opus College of Business University of St. Thomas St. Paul, Minnesota, U.S.A. Context 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. Objective • To gradually gain back analysts’, investors’ and lenders’ confidence in the company in the succeeding months. • To increase sales and profitability in terms of its core business, which is selling doughnuts. • To increase stock price to the previous levels and thereby increase shareholder value. Objectives (continued) • To correct inaccurate entries in the financial statements and to present a clean and unbiased report. • To extend further reach to consumers strategically to achieve significant growth in the next five years. • To implement extensive marketing measures for its brand and products and investment strategy for both on and off premise operations. Background • 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...
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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...
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...Krispy Kreme Doughnuts Going Global? The American doughnut was born in 1847, so the lore goes, when a Maine seaman urged his mother to shove a fork through the center of her "fried cakes." That solved the problem of the cakes' soggy middle and created the doughnut's trademark hole. Today, perhaps the most celebrated of the sweet treats are those fried up by Krispy Kreme Doughnuts Inc., whose hot "original glazed" doughnuts have earned a cult-like following. With virtually no advertising, but an uncanny knack for creating free publicity through the media, the company keeps racking up double-digit gains in sales and profit. Skeptics keep trying to poke holes in the Krispy Kreme mystique-questioning whether the company can maintain its remarkable growth. Some analysts believe its growth rates already are beginning to ease. They also contend that the company's stock remains too rich for most tastes. Their argument appears to hold some water. Krispy Kreme's stock, after skyrocketing at first, trades for less than it did two years ago despite the company's consistent growth record. But the company is unmoved by the pessimists and has no intention of scaling back its aggressive expansion plans, which include Southern California. "We may be in the first or second inning of our market penetration opportunities around the world, including the United States," said Scott Livengood, Krispy Kreme's chairman and chief executive. With 288 stores in 38 states and Canada, Krispy Kreme...
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...Krispy Kreme Doughnuts Going Global? The American doughnut was born in 1847, so the lore goes, when a Maine seaman urged his mother to shove a fork through the center of her "fried cakes." That solved the problem of the cakes' soggy middle and created the doughnut's trademark hole. Today, perhaps the most celebrated of the sweet treats are those fried up by Krispy Kreme Doughnuts Inc., whose hot "original glazed" doughnuts have earned a cult-like following. With virtually no advertising, but an uncanny knack for creating free publicity through the media, the company keeps racking up double-digit gains in sales and profit. Skeptics keep trying to poke holes in the Krispy Kreme mystique-questioning whether the company can maintain its remarkable growth. Some analysts believe its growth rates already are beginning to ease. They also contend that the company's stock remains too rich for most tastes. Their argument appears to hold some water. Krispy Kreme's stock, after skyrocketing at first, trades for less than it did two years ago despite the company's consistent growth record. But the company is unmoved by the pessimists and has no intention of scaling back its aggressive expansion plans, which include Southern California. "We may be in the first or second inning of our market penetration opportunities around the world, including the United States," said Scott Livengood, Krispy Kreme's chairman and chief executive. With 288 stores in 38 states and Canada, Krispy Kreme...
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...Colton Higgins Case #7 Krispy Kreme Krispy Kreme Doughnut Inc. in 2000 was soaring high. The company was looking promising as the company stock was up after its IPO and the company was listed in Fortune Magazine. With a very ambitious goals in expansion the company seemed to be going in the right direction. The underlying problem in this case is that in 2004 the company began to reveal some discrepancy’s in their accounting department. KKD stock price tumbled which lead investors to start asking questions on what was going on within the company. Upbringings of Krispy Kreme Doughnuts show that the company has not always had immediate success. The original founder Vernon Rudolph created the first sales of doughnuts and thus the franchise was born. The company was bought out and the doughnuts redeveloped but this did not last long as the right of Krispy Kreme were soon sold to a group of franchisees. Success was not right off the bat after being reformed but eventually business started generating and the IPO in April of 2000 was one of most Impressive of its time. Growth and expansion was the biggest mission for KKD one they became public. They planned on having three times the amount of store they currently had open in the next five years. Continuing this further the company’s plan was to expand globally into Canada, Mexico, UK and Australia. The profits of the company came from four major areas in on premise sales, off premise sales, manufacturing and distribution, and...
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...1. งบกำไรขาดทุนและงบดุลของ Krispy Kreme Doughnut แสดงให้เห็นถึงฐานะและผลการดำเนินงานอย่างไร สื่อถึง ผลและฐานะที่แท้จริงของ Krispy Kreme Doughnut หรือไม่ คำตอบ รายการในงบกำไรขาดทุนและงบดุลของ Krispy Kreme Doughnut เป็นเพียงการบันทึกสิ่งที่ผ่านมาในอดีต ไม่ใช่การ แสดงมูลค่าที่แท้จริงหรือไม่สามารถแสดงให้เห็นถึงฐานะและผลการดำเนินงานที่แท้จริงของบริษัทได้ นักลงทุนใช้ข้อมูลจากผล ประกอบการเพื่อวิเคราะห์และคาดการณ์เกี่ยวกับอนาคตของบริษัท เนื่องจาก Krispy Kreme Doughnut เป็นบริษัทที่จดทะเบียนในตลาดหลักทรัพย์ จุดประสงค์ผู้บริหารต้องการทำผล ประโยชน์ให้กับผู้ถือหุ้น โดยสะท้อนจากผลประกอบการและฐานะทางการเงินที่เข้มแข็ง ราคาหุ้นจะสูงขึ้นถ้าผลประกอบการสูง กว่าที่คาดการณ์ไว้ ดังนั้นผู้บริหารของ Krispy Kreme Doughnut ต้องทำราคาหุ้นให้สูงขึ้น โดยทำให้กำไรสูง ทำรายได้ให้้สูง และ ค่าใช้จ่ายต่ำ เพราะฉะนั้นสิ่งที่เห็นในงบกำไรขาดทุนสามารถทำให้สูงกว่าความเป็นจริงได้ จึงเป็นที่มาที่ทำให้ SEC (The U.S. Securities and Exchange Commission) เกิดความสงสัยในตัวเลขการรับรู้รายได้และค่าใช้จ่ายในงบการเงินของ Krispy Kreme Doughnut จึงขอทำการ Restatement หรือขอตรวจสอบงบการเงินย้อนหลังของ Krispy Kreme Doughnut วิเคราะห์ ข้อมูลที่ทำให้ SEC สงสัยในงบการเงินของ Krispy Kreme Doughnut ยอดสินทรัพย์ที่สูงขึ้น ส่วนหนึ่งมาจาก Goodwill และสินทรัพย์ไม่มีตัวตน เกิดขึ้นตั้งแต่ปี 2002 ถึงปี 2004 เป็นช่วงของการซื้อคืนเฟรนไชส์ มียอดในงบดุลสูงขึ้นมากอย่างต่อเนื่อง ทุกปี ผู้บริหารของ Krispy Kreme Doughnut ชี้แจงว่าบริษัทมีการซื้อกิจการคืนในสาขาเฟรนไชส์ที่ไม่ประสบความสำเร็จ ตอนซื้อ คืนมีการตีราคามูลค่าสินทรัพย์รวมมูลค่าลูกหนี้ได้ 500...
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...of Krispy Kreme Donuts MBA 6154 - Dr. Plath By: Jon Plyler Luke Sagur Introduction Since its IPO in April 2000, Krispy Kreme grew to be a top pick of Wall Street Analysts. The company’s growth seemed unstoppable and Krispy Kreme was able to beat Wall Street’s expectations. Krispy Kreme continued to outperform until 2004 when some accounting woes were brought to light and analysts starting noticing other anomalies that indicated that things were not quite as good as they seemed. The firm’s stock price quickly plummeted from its peak and lost more than 80 percent of its value in only 16 months. This case study focuses on the use of financial statement analysis, and other factors that an equity analyst would use to gauge the health of a firm, to help identify symptoms that demonstrate things where not as good as they seemed at Krispy Kreme. The report starts by introducing Krispy Kreme, their history, structure and strategy. We will then discuss Krispy Kreme's financials and other tell tales that were available to predict the demise of the firm. To wrap up the report we will conclude by summarizing all the signs that demonstrated things were amiss and answer the question: "Can financial statement analysis predict the future?" Krispy Kreme History Krispy Kreme began as a small business in Winston Salem, North Carolina in 1937 shortly after the company’s founder, Vernon Rudolph, purchased a doughnut recipe from a French chef from New Orleans. Krispy Kreme...
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