Krispy Kreme Doughnuts, Inc.

KRISPY KREME DOUGHNUTS, INC.

Case Summary

Krispy Kreme Doughnuts, Inc. (KKD) is one of the world's leading retailers and wholesalers of doughnuts and packaged sweets. The company owns and franchises Krispy Kreme doughnut stores which make and retail varieties of doughnuts and a wide range of coffees and other beverages.

Krispy Kreme Doughnuts (KKD), Inc. became a publicly traded company in April 2000. The company rapidly expanded over the next few years, and the stock price hit an all-time high of $40.63 giving the firm a market capital of nearly $500 million.

During 2004 through 2005, Krispy Kreme Doughnuts, Inc. made several announcements, and its stock price subsequently sank form $22.51 to below $15.71 per share.

Analysis of the Case

KKD’s Main Problem:

• KKD grew too quickly after its IPO
• KKD aimed to sell through too many outlets
• Oversaturated the market; unable to control costs
• Questionable accounting practices may have been used to hide losses
• Financial distress
• Incorrect financial statements and other scandal have caused the value of shares to fall drastically

Income Statement and Balance Sheet Analysis

Based on the historical income statement and balance sheets provided in Exhibits 1 & 2, the company’s financial performance appears to be quite good at the end of 2003.

In the income statement, total revenues have grown from $220,243,000 to $665,592,000 with a percentage increase of 202%. Expenses grew proportional to sales at 214% ($190,003,000 to $507,396,000). Income from operations increased by 842%, from $10,838,000 to $102,086,000. And net income grew by 858%, from $5,956,000 to $57,087,000.

The company’s balance sheet from January 2000 up to January 2004 shows that the total assets increased by 529% over the period. Current liabilities increased at a more modest 81%. Long-term liabilities, retained earnings, and total shareholders’ equity also increased by 264%, 358% and 847%, respectively.

However, balance sheet from January 2004 to August 2004 shows that the Cash and Accounts Receivable fell slightly and assets held for sale decreased by 91%. Current liabilities were up to 30%. Revolving line of credit was down by $25,000,000 and retained earnings and total shareholders’ equity were also down. Therefore, we can say that Krispy Kreme was doing well at the end of 2003 but experienced a financially unhealthy period at year-end 2004 for its loss.