Krispy Kreme Doughnuts, Inc

16 Pages Posted: 21 Oct 2008

See all articles by Robert F. Bruner

Robert F. Bruner

University of Virginia - Darden School of Business

Sean Carr

University of Virginia - Darden School of Business

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Abstract

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 in 2004. These 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. This case is intended to be introductory: it can provide a first exercise in financial statement analysis and lay the foundation for two important financial themes, the concept of financial "health" and the financial-economic definition of "value" and its determinants.

Excerpt

UVA-F-1479

Rev. Apr. 9, 2014

KRISPY KREME DOUGHNUTS, INC.

As the millennium began, the future for Krispy Kreme Doughnuts, Inc. (Krispy Kreme), smelled sweet. Not only could the company boast iconic status and a nearly cult-like 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 stock price plummeted more than 80% over 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

. . .

Keywords: financial statement analysis, financial reporting, economic value added (EVA), assessing financial health disclosure

Suggested Citation

Bruner, Robert F. and Carr, Sean, Krispy Kreme Doughnuts, Inc. Darden Case No. UVA-F-1479, Available at SSRN: https://ssrn.com/abstract=909911

Robert F. Bruner (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-3823 (Phone)
434-924-0714 (Fax)

HOME PAGE: http://faculty.darden.edu/brunerb/

Sean Carr

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4812 (Phone)

HOME PAGE: http://www.batteninstitute.org

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