...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 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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...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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...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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...9-913-574 JUNE 11, 2013 FRANK V. CESPEDES HEATHER BECKHAM Launching Krispy Natural: Cracking the Product Management Code “Krispy Natural will provide Pemberton with its next generation blockbuster product and provide the foothold we need to dominate the salty snack market. I am counting on you to make sure our roll-out is a success.” The words of Ashley Marne, executive vice president of sales and marketing at Pemberton Products, echoed in Brandon Fredrick’s mind. It was January of 2012 and Fredrick, a marketing director for Pemberton, was reviewing test market results for a new cracker product, Krispy Natural. Pemberton had just concluded market tests in Columbus, Ohio as well as three cities in the Southeast. Fredrick was delighted that the Columbus market share results were double what the company had projected. However, the Southeast results fell well below management’s expectations. It was a late Monday night and Fredrick sat in his office preparing for a meeting with Marne, his boss. She had asked for summary analysis of the test market results and a recommendation for taking Krispy Natural to market. As Fredrick sketched out his proposal, he worried how he would draw conclusions from test market data that was so disparate. Equally as troublesome was the fact that he questioned if Marne’s high expectations were realistic. Pemberton Products Pemberton was the snack food division of Candler Enterprises, a multinational beverage and snack goods manufacturer. The...
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...I 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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...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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...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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...Krispy Kreme Case Study FINA 470-01 Strategic Financial Management Company Overview: Krispy Kreme is a retailer and wholesaler of “high quality doughnuts and packaged sweets” (2010 10-K report) as well as various beverages. Krispy Kreme consists of stores and franchises that include domestic and international franchises, company stores and the KK Supply Chain. Krispy Kreme is also the sole provider to all their stores and franchises of the ingredients and equipment needed for store operations via the KK Supply Chain. Notably, neither equipment nor ingredients can be purchased from any other vendor and thus the franchises/stores are completely dependent upon Krispy Kreme. Vernon Rudolph acquired the Krispy Kreme recipe from a New Orleans chef and moved to Nashville and opened his own doughnut shop in 1937. Initially selling to grocery stores, he ended up cutting a hole in the building to sell to passersby who inquired about buying hot donuts directly from the bakery. Mr. Rudolph patented Krispy Kreme in 1939. Family members joined the bakery to help Rudolph meet rising demand for his doughnuts. Rudolph invented and built all his donut making equipment. To date, the company still uses only company made equipment. Other stores started popping up around the south in the 1950s and 1960s as the company quickly expanded. Rudolph died in 1973 and as the company began to flounder, it was sold to Beatrice Foods in 1976. Original franchisees repurchased the company...
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...hgdsthyjuyktuikthgfhfghnyukmkmyuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuunnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuKrispy Kreme is an international chain of doughnut stores that was founded by VernonRudolph in 1937 in Winston-Salem, North Carolina, United States. The parent company isKrispy Kreme Doughnuts, Inc. (NYSE: KKD), which is based in Winston-Salem.While selling assorted types of doughnuts, Krispy Kremes signature item is a glazed doughnutthat is traditionally served warm.Products are sold in Krispy Kreme stores, grocery stores, convenience stores, gas stations, Wal-Mart and Target stores in the United States. Internationally, Loblaws supermarkets and Petro-Canada gas stations in Canada along with BP Service Stations and BP Travel Centres inAustralia carry Krispy Kreme. In the United Kingdom Tesco supermarkets, Tesco Extra andmost service stations carry Krispy Kreme products.The companys growth was steady prior to its initial public offering but profits have decreased inrecent quarters. However, new branches have opened in downtown Philadelphia and otherlocations.HistoryKrispy Kremes founder Vernon Rudolph and his uncle purchased Joseph LeBeoufs donut shopon Broad Street in Paducah, Kentucky along with a secret recipe for yeast-raised doughnuts in1933 acquired from a Buffalo, New York businessman. Rudolph began selling the yeastdoughnuts in Paducah and delivered them on his bicycle...
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...Krispy Kreme Doughnuts “It ain’t just the doughnuts that are glazed!” Matt Gnau Leslie Lee Yves de Parseval Bharat Poddar Accounting 712, Section 3 April 15, 2003 1. Business Strategy Krispy Kreme is a branded premium quality doughnut retailer. It has three sources of revenue. • On- and off-premise sales from 99 company owned and operated doughnut stores. Off-premise sales constitute doughnut sales to supermarkets, gas stations, etc. • Royalties from franchisees (3% royalty, 57 stores) and area developers (4.5% royalty, 120 stores) • Sales of doughnut mixes and doughnut-making equipment to franchisees and area developers through Krispy Kreme Manufacturing and Distribution (KKM&D) commissaries Industry and Competition: Krispy Kreme serves primarily in the doughnut industry (a subset of SIC Code 5812). It’s a highly fragmented industry characterized by low-volume outlets with undifferentiated product quality. Krispy Kreme competes primarily on its quality, brand and unique way of manufacturing and selling doughnuts on-premise. Its competitors include nation-wide companies, like Dunkin’ Donuts and AFC Enterprises [AFCE] (Cinnabon, Seattle’s Best Coffee, Popeye’s), and many regional companies. A secondary market is the packaged doughnut market (a subset of SIC Code 2051). Krispy Kreme’s secondary market is a result of its off-premise sales, which are used to extend its brand equity and sales in supermarkets. Competitors include Interstate Bakeries...
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...KRISPY KREME DOUGHNUTS INC (KKD) DEF 14A Definitive proxy statements Filed on 05/11/2012 Filed Period 06/12/2012 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Under Rule 14a-12 KRISPY KREME DOUGHNUTS, INC. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction a 2) 3) Aggregate number of securities to which transaction Per unit price or other underlying value of transactio Exchange Act Rule 0-11 (set forth the amount on wh calculated and state how it was determined): Proposed maximum aggregate value of transaction: Total fee paid: 4) 5) [ ] [ ] Fee paid previously with preliminary materials: Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)...
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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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...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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