Krispy Kreme
INTRODUCTION
First, I will discuss the environment of Krispy Kreme and my analysis as to what led to the company’s position in 2004. Second, I will discuss the financial health and current condition based upon the historical income statements and balance sheets. Third, I will discuss the financial ratios in relation to the financial statements. Fourth, I will discuss if Krispy Kreme was financially healthy at the end of 2004. Fifth, I will discuss my assessment of Krispy Kreme’s health and why I think the stock price dropped by 80% between 2003 and 2004. Sixth, I will discuss why I think the market reacted so negatively to the disclosures about adverse results and the revelations in the Wall Street Journal regarding the firm’s accounting methods for the franchise rights. Lastly, I will provide my recommendations for turning around Krispy Kreme Doughnuts’ business.
COMPANY POSITION
Krispy Kreme Doughnuts started small by selling directly to grocery stores. Their doughnuts became so popular they began selling directly to customers. They sold a delicious doughnut and a viewing experience. When Beatrice Foods bought the company, her business model did not succeed because it expanded the product line in the opposite direction of what consumers wanted and she inputted cheap ingredients into a popular recipe which sacrificed taste. When she sold the company to the group of franchisees, it pushed the company back into a positive direction by bringing back the original recipe. Krispy Kreme was debt-free by 1989 and their IPO left them with a market capitalization of nearly $500 million in 2000. They appeared to be on the right track but, it seemed they were expanding too rapidly. They allowed franchisees to place their stores in locations that were not favorable, resulting in the franchises not doing well enough and owing Krispy Kreme Doughnuts millions. Krispy Kreme relied on the income from franchised stores purchases of equipment and mixes too much. They
First, I will discuss the environment of Krispy Kreme and my analysis as to what led to the company’s position in 2004. Second, I will discuss the financial health and current condition based upon the historical income statements and balance sheets. Third, I will discuss the financial ratios in relation to the financial statements. Fourth, I will discuss if Krispy Kreme was financially healthy at the end of 2004. Fifth, I will discuss my assessment of Krispy Kreme’s health and why I think the stock price dropped by 80% between 2003 and 2004. Sixth, I will discuss why I think the market reacted so negatively to the disclosures about adverse results and the revelations in the Wall Street Journal regarding the firm’s accounting methods for the franchise rights. Lastly, I will provide my recommendations for turning around Krispy Kreme Doughnuts’ business.
COMPANY POSITION
Krispy Kreme Doughnuts started small by selling directly to grocery stores. Their doughnuts became so popular they began selling directly to customers. They sold a delicious doughnut and a viewing experience. When Beatrice Foods bought the company, her business model did not succeed because it expanded the product line in the opposite direction of what consumers wanted and she inputted cheap ingredients into a popular recipe which sacrificed taste. When she sold the company to the group of franchisees, it pushed the company back into a positive direction by bringing back the original recipe. Krispy Kreme was debt-free by 1989 and their IPO left them with a market capitalization of nearly $500 million in 2000. They appeared to be on the right track but, it seemed they were expanding too rapidly. They allowed franchisees to place their stores in locations that were not favorable, resulting in the franchises not doing well enough and owing Krispy Kreme Doughnuts millions. Krispy Kreme relied on the income from franchised stores purchases of equipment and mixes too much. They