Krispy Kreme Doughnuts Essay

769 words - 4 pages

Case Analysis
Krispy Kreme Doughnuts, Inc.
Thadavillil (Nathan) Jithendranathan
Professor of Finance
Opus College of Business
University of St. Thomas
St. Paul, Minnesota, U.S.A.

Context
This case considers the sudden and very large
drop in the market value of equity for Krispy Kreme
Doughnuts, Inc., associated with a series of
announcements made in 2004. Those
announcements caused investors to revise their
expectations about the future growth of Krispy
Kreme, which had been one of the most rapidly
growing American corporations in the new
millennium.

Objective
• To gradually gain back analysts’,
investors’ and lenders’ confidence in the
company in the succeeding ...view middle of the document...

The
company told investors to expect earnings to be 10% lower than
anticipated, claiming that the recent low-carbohydrate diet trend in
the United States had hurt wholesale and retail sales.
The company also said it planned to divest Montana Mills and would
take a charge of $35million to $40 million.
According to the Wall Street Journal, the company recorded the
interest paid by the franchisees as interest income and, thus, as
immediate profit; however, the company booked the purchase cost
of the franchise as an intangible asset which the company did not
amortize.
Only 25% of the analysts were recommending the company as a
buy; 50% had downgraded to a hold.

Analysis
Growth
• Rapid growth in revenues and earnings over the
past five years.
• Significant asset growth in the past five years.
• The bulk of this growth, however, has occurred
in accounts receivables from affiliates and from
reacquired franchise rights.

DuPont Analysis
2000

2001

2002

2003

2004

Return on
equity

12.47%

11.72%

14.06%

12.25%

12.62%

Profit
margin

2.70%

4.90%

6.69%

6.81%

8.58%

Asset
turnover

2.10x

1.75x

1.54x

1.20x

1.01x

Equity
multiplier

2.20x

1.36x

1.36x

1.50x

1.46x

Asset
turnover

5.67%

8.59%

10.33%

8.16%

8.64%

Liquidity, Leverage, and
Profitability
• The firm’s liquidity ratios are strong and continued to
improve over the five-year period.
• The leverage ratios show that the firm has been
increasing its proportion of debt,...

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