Krispy Kreme
Krispy Kreme Doughnuts
Question 1: Analysts are predicting that Krispy Kreme will be able to perform highly effectively and continue to grow rapidly in the coming two years. Do you agree with their analysis? If so, why? If not, why not?
Key factors underlying growth: 1. Brand based on high quality product, highly differentiated products, high-volume production 2. Fragmented (regional) competition with less brand recognition 3. Strong opportunities to extend network of stores geographically. 4. Great steps to insure customer satisfaction from the use of their proprietary flour recipe to their automated doughnut making machines.
Question 2: What factors did the CIBC analysts examine to forecast sales growth for KKD in the years ended January 2003 and 2004? What assumptions did they implicitly make about number of new stores and weekly sales per store (for both company and franchise stores)? What are their implicit assumptions about revenue growth from franchise operations and KKM&D? Do you agree with these forecasts?
Revenue Forecasts
The CIBC analysts’ forecasts were constructed using per store information. * Company plans to add 62 new stores in 2003, mostly through area developers. * Revenues per new store: Initial boom, followed by leveling off. Also, not all new stores are open for full year. * Revenue growth per new store has been impressive. Franchise store revenue growth is still high, as the number of area developers’ increase, with store revenue patterns comparable to company stores. This is likely to persist for several years until revenues per store are similar for company and franchise stores. * Royalty revenues have been increasing over time since area developers pay higher royalty rates than old associates (5.5% versus 3%).
Question 3: What are the NOPAT margins that the CIBC analysts have forecasted for KKD for the years ended January 2003 and 2004? What assumptions were made about specific expense
Question 1: Analysts are predicting that Krispy Kreme will be able to perform highly effectively and continue to grow rapidly in the coming two years. Do you agree with their analysis? If so, why? If not, why not?
Key factors underlying growth: 1. Brand based on high quality product, highly differentiated products, high-volume production 2. Fragmented (regional) competition with less brand recognition 3. Strong opportunities to extend network of stores geographically. 4. Great steps to insure customer satisfaction from the use of their proprietary flour recipe to their automated doughnut making machines.
Question 2: What factors did the CIBC analysts examine to forecast sales growth for KKD in the years ended January 2003 and 2004? What assumptions did they implicitly make about number of new stores and weekly sales per store (for both company and franchise stores)? What are their implicit assumptions about revenue growth from franchise operations and KKM&D? Do you agree with these forecasts?
Revenue Forecasts
The CIBC analysts’ forecasts were constructed using per store information. * Company plans to add 62 new stores in 2003, mostly through area developers. * Revenues per new store: Initial boom, followed by leveling off. Also, not all new stores are open for full year. * Revenue growth per new store has been impressive. Franchise store revenue growth is still high, as the number of area developers’ increase, with store revenue patterns comparable to company stores. This is likely to persist for several years until revenues per store are similar for company and franchise stores. * Royalty revenues have been increasing over time since area developers pay higher royalty rates than old associates (5.5% versus 3%).
Question 3: What are the NOPAT margins that the CIBC analysts have forecasted for KKD for the years ended January 2003 and 2004? What assumptions were made about specific expense