Krispy Kreme DoughnutsQuestion 1:
Analysts are predicting that Krispy Kreme will be able to perform highly effectively andcontinue to grow rapidly in the coming two years. Do you agree with their analysis? If so, why? If not,why not?
Key factors underlying growth:
1.Brand based on high quality product, highly differentiated products, high-volume production2.Fragmented (regional) competition with less brand recognition3.Strong opportunities to extend network of stores geographically.4.Great steps to insure customer satisfaction from the use of their proprietary flour recipe totheir automated doughnut making machines.
Question 2:
What factors did the CIBC analysts examine to forecast sales growth for KKD in the yearsended January 2003 and 2004? What assumptions did they implicitly make about number of new storesand weekly sales per store (for both company and franchise stores)? What are their implicitassumptions about revenue growth from franchise operations and KKM&D? Do you agree with theseforecasts?
Revenue Forecasts The CIBC analysts’ forecasts were constructed using per store information.
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Company plans to add 62 new stores in 2003, mostly through area developers.
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Revenues per new store: Initial boom, followed by leveling off. Also, not all new stores areopen for full year.
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Revenue growth per new store has been impressive. Franchise store revenue growth is stillhigh, as the number of area developers increase, with store revenue patterns comparable tocompany stores. This is likely to persist for several years until revenues per store are similar for company and franchise stores.
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Royalty revenues have been increasing over time since area developers pay higher royaltyrates than old associates (5.5% versus 3%).
Question 3:
What are the NOPAT margins that the CIBC analysts have forecasted for KKD for theyears ended January 2003 and 2004?