Krispy Kreme Doughnuts, Inc.

Krispy Kreme Doughnuts, as discussed in Darden Business Publishing Case UVA-F-1479, appears to be at a crossroads. After years of astronomical growth, the company find its share price plummeting in the midst of discoveries about faulty accounting practices. The following paper examines several issues behind the sudden decline First, the historical income statements and balance sheets are examined to determine the financial health and current condition of the company. This is followed by an analysis of key financial ratios across time and versus industry standards. Next, the paper addresses if Krispy Kreme is financially healthy at year-end 2003 and, if so, what accounts for the firm’s recent share price decline. The paper concludes with a discussion of the intrinsic investment value in the company.

Income Statement and Balance Sheets
Close review of the income statement leads to some noteworthy conclusions. The first quarterly column of the 2004 income statement shows that the company gained thirty-four million dollars in discontinued operations from the sale of the Montana Mills venture. In the same quarter the firm lost approximately twenty-four million dollars. It is likely that this maneuver was made to deflect attention from or make up for the company’s poor performance and mounting losses. Generally, this is not a sign of a healthy company but rather signals an alarm since the loss in that quarter was closer to fifty-eight million dollars when not considering the sale. Krispy Kreme may have been struggling to make ends meet through its operations, and perhaps the company hoped to make up lost income through the sale of a venture.
Furthermore, operating expenses were increasing while net income was decreasing. In May 2004, the company had seven million dollars in closing costs and still showed losses. An aggressive expansion strategy did not result in enough income to cover these costs. Additionally, quarterly comps decreased