Krispy Kreme Case Study

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Date Submitted: 10/01/2012 02:45 PM

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Krispy Kreme |

A Case Study |

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Nicola Elvy |

9/12/2012 |

About Krispy Kreme      

“Krispy Kreme is an international retailer of premium-quality sweet treats, including its signature Original Glazed(R) doughnut. Headquartered in Winston-Salem, N.C., the Company has offered the highest-quality doughnuts and great-tasting coffee since it was founded in 1937. Krispy Kreme is proud of its Fundraising program, which for decades has helped non-profit organizations raise millions of dollars in needed funds. Today, Krispy Kreme can be found in approximately 711 locations around the world and approximately 10,000 grocery, convenience and mass merchant stores in the U.S. Krispy Kreme Doughnuts, Inc. (KKD) is listed on the New York Stock Exchange”. 

Source: www.krispykreme.com

Krispy Kreme was a very quick and rising star in the donut industry, but with their off base accounting standards they saw their rising star turn into a quickly falling one that also was under scrutiny of the SEC and the value of their stock was greatly affected. First and foremost, the background of their accounting in the franchise is needed and to be fair a look at how they justified the use of such an accounting practice. Many things need to be identified in order to come to a conclusion of the revelations about the company’s franchise accounting practices sufficient to drive that much value out of the stock.

First we must look at the financial health of the company in order to complete the analysis of the devaluation of the stock. From January 30, 2000 until February 1, 2004 the company saw revenue go from $220,243 to $665,592 which was a substantial increase in such a short period of time. This remarkable growth comes from the need for companies that go public to grow quickly as possible and outperform what the analysts expect. Aggressive growth was the first and main contributor to the devaluation of Krispy Kreme’s stock. They were growing at a rate of about 20% percent a...