In this case study, our main purpose is to analyze the company financial statements and investigate the effects of financial analysis announcements on the stock price from 2000 to 2004. Besides that, we concerned about the financial management or strategy in the company and how are they sustaining their company growth and expected earnings in the stock market. We also discuss about the company financial analysis and competition in the industry. 2. 0Case Study Summary Krispy Kreme Doughnut operation was started in 1937 when the founder of Kripsy Kreme, Vernon Rudolph began making doughnuts from a special recipe he bought from a French chef.
Then, Krispy Kreme was so well-known and it expanded from a wholesale enterprise to an addition of Krispy Kreme’s retail operations and franchising. Rudolph focused on excellent quality of doughnuts and customer service. The result was always good when it was under the control of Rudolph. After Rudolph’s death, Krispy Kreme was acquired by Beatrice Foods and its priority was to earn profit.
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Beatrice encouraged additions to the menu and changed the original recipe and logo of Krispy Kreme to cut cost. Unfortunately, the business went down Beatrice decided to sell it.
In 1982, the new owner of Krispy Kreme, Joseph McAleer bought Krispy Kreme by using leverage. Joseph maintained back the original logo and recipe of Krispy Kreme. One of the priorities of Joseph and Krispy Kreme focused on hot and fresh doughnut. In 1989, Kripsy Kreme was free from debt and began to expand. In 1996, doughnuts and added branded coffee were their main focus. In year 2000, Kripsy Kreme went public and the initial share price reached $40. 63. After going public, the corporation was planning aggressively to increase the number of stores and enter international markets. The revenues of Krispy Kreme Doughnuts were generated from n-premises sales, off-premises sales, manufacturing and distribution of product mix and machinery and franchise royalties and fees. In May 2004, Krispy Kreme announced three major adverse results for the first time as a public company. Firstly, the company suffered loss due to the trend of low-carbohydrate diet. Secondly, it planned to divest Montana Mills and would be charged. Thirdly, the company planned to close three of its new Hot Doughnut and Coffee Shops. These announcements made the shares closed down by 30%. In year 2003, SEC announced that Kripsy Kreme was too aggressive in acquiring franchise.
The practice of Krispy Kreme acquiring Michigan franchise was so wrong. The company recorded the interest income on past-due loan from Michigan as immediate profit and the purchase cost on Michigan as intangible asset and did not pay off. In the same time, the company was being charged due to the quitting of the Michigan’s top executive. The shares of Krispy Kreme fell for another 15% due to the announcement from SEC. SEC published another report stated that Krispy Kreme was facing the problem of growing too fast and the company was too rely on the profits made from manufacturing and distribution of franchise equipment.
Strengths Krispy Kreme is a well-established and long running company. It has a strong and consistent consumer base in United State and abroad.
Krispy Kreme is a nationally well known consumer brand because the company offers product that is second to none regarding on the taste, freshness and the finest ingredients. The company has consistent expansion and growth. Currently, the corporation has 395 stores with the presence in 40 states in United State and in 16 foreign countries. Krispy Kreme gains the most popularity in grocery, convenience stores and retail outlets due to easy accessibility to the product. The corporation offers more than 20 different types of doughnuts and other menu items including of coffee and bakery items.
They are also selling those collectable memorabilia such as mugs, hats and toys. Besides that, Krispy Kreme introduced the neon sign of “Hot Doughnuts Now” because it offers variety of freshly made doughnuts with high quality everyday. Krispy Kreme is also the first corporation that cut a hole in its factory’s wall to sell its fresh doughnuts directly to the customers. Krispy Kreme is a vertically intergrated company with three business units which are company store operations, franchise operations and supply chain operation. They produce doughnuts in a cost effective manner because of the using of an accelerated approach.
Thus, Krispy Kreme has a high capacity of production because each factory stores could produce 4000 dozen to 10000 dozen of doughnuts in a single day. In addition, Kripsy Kreme also differentiated itself with the others by offering customers an experience to see the production of doughnuts. 3. 1. 2Weaknesses Krispy Kreme has the following weaknesses which is the low inventory turnover ratio. If not attended to quickly the firms supply line will continue to cost more money and reduce future profits. Next, the financial condition of Krispy Kreme is better compared to its competitors but does have some areas that need improvement.
Krispy Kreme’s young management is showing that they want to be alert and have employed an almost zero tolerance policy regarding debt. Poor management or financial practices hurt reputation and stock prices of this company. Limited amount of “healthy” menu selections, limited “non-breakfast” menu items 3. 1. 3Opportunities International expansion gives better returns to company. Krispy Kreme can grab the chance to expand its business and enter into new markets like Asia countries because Asians love sweet goods and they are open to trying foreign foods. The popularity of Western brands in these markets is quiet high.