Krispy Kreme Doughnuts, Inc.: A Hot Brand in America
KRISPY KREME DOUGHNUTS, INC.
As the millennium began, the future for Krispy Kreme Doughnuts, Inc., smelled sweet. Not only could the company boast iconic status and a nearly cultlike following, it had quickly become a darling of Wall Street. Less than a year after its initial public offering, in April 2000, Krispy Kreme shares were selling for 62 times earnings and, by 2003, Fortune magazine had dubbed the company "the hottest brand in America." With ambitious plans to open 500 doughnut shops over the first half of the decade, the company's distinctive green-and-red vintage logo and unmistakable "Hot Doughnuts Now" neon sign had become ubiquitous.
At the end of 2004, however, the sweet story had begun to sour as the company made several accounting revelations, after which its stock price sank. From its peak in August 2003, Krispy Kreme's share price plummeted more than 80 percent in the next 16 months. Investors and analysts began asking probing questions about the company's fundamentals, but even by the beginning of 2005, many of those questions remained unanswered. Exhibits 1 and 2 provide Krispy Kreme's financial statements for fiscal-years 2000 through 2004. Was this a healthy company? What had happened to the company that some had thought would become the next Starbucks? If almost everyone loved the doughnuts, why were so many investors fleeing the popular doughnut maker?
Company Background
Krispy Kreme began as a single doughnut shop in Winston-Salem, North Carolina, in 1937, when Vernon Rudolph, who had acquired the company's special doughnut recipe from a French chef in New Orleans, started making and selling doughnuts wholesale to supermarkets. Within a short time, Rudolph's products became so popular that he cut a hole in his factory's wall to sell directly to customers—thus was born the central Krispy Kreme retail concept: the factory store. By the late 1950s, Krispy Kreme had 29 shops in 12 states, many of which were operated by franchisees.
After
As the millennium began, the future for Krispy Kreme Doughnuts, Inc., smelled sweet. Not only could the company boast iconic status and a nearly cultlike following, it had quickly become a darling of Wall Street. Less than a year after its initial public offering, in April 2000, Krispy Kreme shares were selling for 62 times earnings and, by 2003, Fortune magazine had dubbed the company "the hottest brand in America." With ambitious plans to open 500 doughnut shops over the first half of the decade, the company's distinctive green-and-red vintage logo and unmistakable "Hot Doughnuts Now" neon sign had become ubiquitous.
At the end of 2004, however, the sweet story had begun to sour as the company made several accounting revelations, after which its stock price sank. From its peak in August 2003, Krispy Kreme's share price plummeted more than 80 percent in the next 16 months. Investors and analysts began asking probing questions about the company's fundamentals, but even by the beginning of 2005, many of those questions remained unanswered. Exhibits 1 and 2 provide Krispy Kreme's financial statements for fiscal-years 2000 through 2004. Was this a healthy company? What had happened to the company that some had thought would become the next Starbucks? If almost everyone loved the doughnuts, why were so many investors fleeing the popular doughnut maker?
Company Background
Krispy Kreme began as a single doughnut shop in Winston-Salem, North Carolina, in 1937, when Vernon Rudolph, who had acquired the company's special doughnut recipe from a French chef in New Orleans, started making and selling doughnuts wholesale to supermarkets. Within a short time, Rudolph's products became so popular that he cut a hole in his factory's wall to sell directly to customers—thus was born the central Krispy Kreme retail concept: the factory store. By the late 1950s, Krispy Kreme had 29 shops in 12 states, many of which were operated by franchisees.
After