Krispy Kreme Case Study

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Krispy Kreme Donuts Case

Summary / Key points

Would KK be able to sustain its recent revenue and earnings growth? •What working capital and other resources would the company require? •What is KK’s growth strategy?
What is the nature of the competition in the doughnut industry?

KK generates revenue from 3 different sources:
1.owns and operates doughnut stores
2.it receives royalties from franchise associates and area developers. 3.it receives revenues from the sale of doughnut mixes and doughnut making equipment to franchise associates and area developers.

The doughnut industry was highly fragmented.

Growth Plans
KK expected to open 62 new stores in 2003 to 2006.

Important points:

Last night, when the company released its latest financial results to Wall Street, it was braving a conference call with analysts for the first time in almost three years. In the interim, the company has confessed to a string of underhand tactics that inflated earnings, admitted that large chunks of its previously reported profits were illusory, and shut down one in four of its outlets.

Talk about the reputation that it has and will continue to have When things began to go wrong, the company blamed the no-carbs dieting fad, but really it was a combination of losing its status as the Next Big Thing and increasingly incompetent management. Desperate to wow Wall Street, managers shipped unwanted doughnuts to stores to inflate year-end financial figures, only to have them returned, uneaten and written off in the following year's results.

Stock performance seems to be on a steady rise since 2000.

Company executives blamed the popularity of low-carb diets like Atkins and South Beach for driving down sales of its deep-fried, high-carb treats. But analysts say there's more than just a diet trend to blame for the hole-in-the-middle feeling plaguing Krispy Kreme investors.

He said Krispy Kreme's increased reliance on sales in grocery stores and other...
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