Krispy Kreame

Florida Atlantic University

FIN 6806 – Summer 2011

Dr. Rainford Knight

Larry Kreger

Krispy Kreme

Case Summary

Krispy Kreme Doughnuts, Inc as known today started in 1982. The quick service doughnut shop is known for its “Hot Doughnuts Now” neon sign and in store experience of watching the doughnuts being made on in-house equipment. The company went public in 2000 and had a highly successful initial public offering (IPO).

An aggressive three pronged growth plan was established after the IPO. First, the company would grow the number of stores over a five year period from 144 to 500. Secondly, international expansion would take the company to Canada, the United Kingdom, Mexico, and Australia. Finally, the company would introduce smaller satellite stores that were supplied doughnuts from the factory stores.

The company’s sweetness began to sour in 2004. There was an announcement of 10% lower than anticipated earnings report, a plan to divest 28 bakery cafes and close three stores. The stock price fell 30%. More bad news came as the Wall Street Journal reported questionable accounting practices related to franchise acquisitions. This was followed by a U.S. Securities and Exchange Commission (SEC) informal investigation. The stock price fell another 15% when the SEC announced their findings. Furthermore, analysts were not advising investors to purchase Krispy Kreme stock.

Later in 2004, a reduction of new store openings was announced. Early 2005 came with an announcement from Krispy Kreme’s board of directors that 2004 financial statements would be restated. Stock prices fell to under $10 and had lost almost $2.5 billion in market value of equity in the past two and a half years.

Case Analysis

At year end 2004, the firm appears to be healthy but has external signs of infection. Analyst’s positions, bad press, an SEC investigation, management turmoil, and restated financial statements made Krispy Kreme diseased....