Krispy Kreme

Krispy Kreme Doughnuts, Inc. Case Analysis

Seminar in Finance

Introduction

Krispy Kreme is a public company established in 1937 as a doughnut shop. It had quickly developed to become the hottest brand in America by 2003. The company became public in April 2000 and peaked in August 2003. The business has four primary sources: sales at company-owned stores (27% of revenues), sales to grocery and convenience stores (40%), manufacturing and distribution of product mix and machinery (29%), and franchisee royalties and fees (4%).

The company started to face problems on the first quarter of 2004. It had to divest Montana Mills and close several shops due to low expected earnings, lowering 30% of the share price. Krispy Kreme also had to face SEC investigation regarding its practice with the franchisee, lowering the shares for another 15% and causing analysts to be pessimistic about the stock.

This paper will answer several questions regarding the problems in the company. The questions will be answered systematically by using only the information within the case.

1. What can the historical statements and balance sheets tell you about the financial health and current conditions of Krispy Kreme Doughnuts, Inc.?

According to the historical income statements, we can tell that Krispy Kreme has made rapid improvement during the past 5 years .Total revenues have been increased from $220 million to $666 million, and net income has grown from about $6 million to $57 million from the fiscal year of 2000 to 2004. Obviously, the business of Krispy Kreme was doing very well. The balance sheet of Krispy Kreme looks very well as income statement. The total assets have been increased constantly. In the fiscal year of 2000, the total assets were only around 105 million, and total assets were around 662 million in the fiscal year of 2004.

Looking at the historical income statements, we can see that income from operations is down, interest expense is up, interest income...