Krispy Kreme Doughnutes

Krispy Kreme began as a single doughnut shop in 1937 and grown quickly into a large public firm with franchise over the country in 2000 forward. It generated revenues through four major sources: on-premise retail sales (accounting for 27% of revenues), off-premises sales to grocery and convenience stores (40%), manufacturing and distribution of product mix and machinery (29%), and franchisee royalties and fees (4%). Roughly 60% of sales at a store were derived from its signature product, the glazed doughnut.
In general, the business life of Krispy Kreme could be divided into three parts, before the IPO in 2000, peak in 2003, trough after 2004. Before 2000, Krispy Kreme had been owned by three different groups. Overall, the recipe of making doughnut kept them outstanding from the other competitors. In April 2000, the company went public and the stock price peaked in Aug 2003 with high recognition in the market. However, the Krispy Kreme empire languished after the first adverse result announcement in May 2004. Wall Street analysts slammed the brakes on and began to doubt the company, including the franchise accounting practices and executive compensation. They said that Krispy Kreme had been expended too fast and its profit was highly related with the number of franchised stores. What’s worse, in Jan 2005, Krispy Kreme announced that they were going to restate the financial statement and delayed the SEC filing for the first and second quarter of 2005, which could constitute the default of credit facility and face the delisting from NYSE. By Jan 2005, the stock price of KK dropped down significantly from $48.90 to a price less than $10. Were these events sufficient enough to drive that much value out of the stock? I don’t think so. The comparable companies were growing faster than Krispy Kreme. All of them have chains or franchise over 700 while KK had less than 500. But they were all in good conditions. Besides, the revenue from equipment only consisted of 29%