I. POINT OF VIEW
This case is analyzed from the point of view of a third party consultant.
There is inefficiency in the management of Krispy Kreme Doughnuts, Inc. in terms of its operations, marketing, accounting, and investment planning.
a. To gradually gain back analysts’, investors’ and lenders’ confidence in the company in the succeeding months.
b. To increase sales and profitability in terms of its core business, selling of doughnuts.
c. To regain and increase stock price therefore increasing shareholder value.
d. To correct inaccurate entries in the financial statements of KKD and to present a clean and unbiased reports.
e. To extend further reach to ...view middle of the document...
• Roughly 60% of sales at a Krispy Kreme store were derived from the company’s signature product, the glazed doughnut.
• On May 7, 2004, Krispy Kreme announced adverse results. 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 $35 million to $40 million.
• According to the Wall Street Journal, the company recorded the interest paid by the franchisee 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.
• Over the previous 3 years, the company had recorded $174.5 million as intangible assets (reacquired franchise rights), which the company was not required to amortize. Kripy Kreme’s shares fell another 15%, closing at $15.71 a share.
• By the time the Wall Street Journal published the article in May 2004, only 25% of the analysts were recommending the company as a buy; 50% had downgraded to a hold.
• Another issue is that the company has relied for a significant chunk of profits on high profit-margin equipment that it requires franchisees to buy for each new store. Its profits have also been tied to growth in the number of franchised store.