Krispy Kreme Doughnuts, Inc.

MBA-1 (BA 115-WAC)

Dr. Virginia Lourdes Yacapin

Case:

Krispy Kreme Doughnuts, Inc.

Point of View:

Problem:

Objective/s:

Areas of Consideration:

1. Roughly 60% of sales at a Krispy Kreme Store were derived from the company’s signature product, the glazed doughnut. This differed from Dunkin’ Donuts, the company’s largest competitor, for which the majority of sales came from coffee.

2. On May 7, 2004, for the first time in its history as a public company, 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.

3. Krispy Kreme 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, under reacquired franchise rights, which the company did not amortize.

4. Krispy Kreme had recorded $174.5 million as intangible assets (reacquired franchise rights), which the company was not required to amortize.

5. On May 2004, only 25% of the analysts following Krispy Kreme were recommending the company as a buy; another 50% had downgraded the stock to a hold.

6. The biggest problem for Krispy Kreme may be that the company grew too quickly and diluted its cult status b selling its doughnuts in too many outlets, while trying to impress Wall Street.

7. Another issue is that Krispy Kreme has relied for a significant chunk of profits on high profit-margin equipment that it requires franchisees to buy for each new store.

8. Krispy