Case Summary for Krispy Kreme

Krispy Kreme

The case of Krispy Kreme gives us a narration of how this company grew into today's scale from a doughnut shop, and how its stock price sharply rose and tumbled as its decisions affected the performance. Referring to the financial statements, we can have an intuitive knowledge of these dramatic changes.

Krispy Kreme was originally a single doughnut shop. Thanks to Vernon Rudolph who introduced the concept of "factory store" into its business mode, the company attained a significant growth and won popularity among the customers. After 2 acquisitions, the company was controlled by one of its former franchisees and finally stepped into the stock market.

Although the initial upward trend of its stock price amazed many people, its downhill came soon after the IPO. Positive about the future, the company started to expand intensively from 144 branches to 500 branches. And as it extremely relied on the glazed donut, its signature product, in 2004 the company had to proclaim that the profitability would decline due to the advent of low-carbohydrate diet trend in the market. This news hammered down the stock price to $22.51. Thereafter, WSJ reported that the company's accounting practice didn't comply with GAAP, as a result, the stock price dipped again despite that the company denied any mistake. Since people's attitude was negatively influenced by those adverse information, more and more people began to see Krispy Kreme as a bad choice of investment.

In year 2005, the company finally announced that it would restate its financial report to correct some mistakes, but this action would expose it to the risk of being delisted. Moreover, the announcement of restatement would bring more questions about the company.