Krispy Kreme Case Analysis
KRISPY KREME DOUGHNUTS, INC.
CASE ANALYSIS
Executive Summary Krispy Kreme doughnuts, Inc is facing a crisis of a drop in share price like never before since its initial public offering in the year 2000. The situation of Krispy Kreme does not look so bright after it has reacquire the underperforming franchisees’ stores worth of 170$ million. In the end of 2004, the company has some problem related with its accounting for the acquisitions of certain franchisees that it has to restated its financial statement, which would lower the pretax income by 6 to 8 million. The company fails to file the report on time. This puts the company at risk of being delisted out of NYSE, moreover there’s a low carbohydrate diet trend coming. All those storms have put the company’s share to sell at less than $10 a share. Therefore we recommended Krispy Kreme consider buying back its share
Problem Statement
After Krispy Kreme’s share (KKD) reaching its peak in Aug, 2003, at nearly $50, only a year after that, KKD was trading only at $14 on the New York Stock Exchange. Company stated that the breathtaking fall was the result of the impact from the diet trend in the US. However, the gospel truth was the poor performance in their expansion strategy and the aggressive reacquisition plan. But, the most unforgivable failure was to unable timely file its FY2004 financial report. As a result, KKD could constitute a default under their $150 million credit facility, and has lost nearly $2.5 billion in its market value of equity.
A False Step in the Expansion Strategy
Over one-fourth of revenue generated by Krispy Kreme had been tied to the growth in the number of franchised stores because in addition to the franchise fee and loyalty payments, the company also requires franchisees to buy equipment and ingredients from headquarters at marked-up prices. So, the company almost tripled its unit base since 2000 to 2004 (company factory store from 58 units to 141 units and franchised factory
CASE ANALYSIS
Executive Summary Krispy Kreme doughnuts, Inc is facing a crisis of a drop in share price like never before since its initial public offering in the year 2000. The situation of Krispy Kreme does not look so bright after it has reacquire the underperforming franchisees’ stores worth of 170$ million. In the end of 2004, the company has some problem related with its accounting for the acquisitions of certain franchisees that it has to restated its financial statement, which would lower the pretax income by 6 to 8 million. The company fails to file the report on time. This puts the company at risk of being delisted out of NYSE, moreover there’s a low carbohydrate diet trend coming. All those storms have put the company’s share to sell at less than $10 a share. Therefore we recommended Krispy Kreme consider buying back its share
Problem Statement
After Krispy Kreme’s share (KKD) reaching its peak in Aug, 2003, at nearly $50, only a year after that, KKD was trading only at $14 on the New York Stock Exchange. Company stated that the breathtaking fall was the result of the impact from the diet trend in the US. However, the gospel truth was the poor performance in their expansion strategy and the aggressive reacquisition plan. But, the most unforgivable failure was to unable timely file its FY2004 financial report. As a result, KKD could constitute a default under their $150 million credit facility, and has lost nearly $2.5 billion in its market value of equity.
A False Step in the Expansion Strategy
Over one-fourth of revenue generated by Krispy Kreme had been tied to the growth in the number of franchised stores because in addition to the franchise fee and loyalty payments, the company also requires franchisees to buy equipment and ingredients from headquarters at marked-up prices. So, the company almost tripled its unit base since 2000 to 2004 (company factory store from 58 units to 141 units and franchised factory