Krispy Kreme Case Study Essay

2706 Words Jun 28th, 2008 11 Pages
Krispy Kreme

SCOPE The scope of this report is to analyze Krispy Kreme Dounghnuts’ (KKD) financial statements, supported exhibits, and business plan to evaluate the impact of earnings analysis announcements on the stock price for 2003-2004.

KRISPY KREME’S COMPANY BACKGROUND In 1937, KKD began as a single doughnut shop in North Carolina, selling doughnuts wholesale to supermarkets. The popularity of the product not only caused KKD to become a factory-like retail store but also led to the franchise of more stores to mostly franchisees. It was later purchased by Beatrice Foods, in 1973, who expanded it to 100 locations. Beatrice Foods also “introduced other products such as soups, sandwiches, and cut costs by changing the appearance
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INDUSTRY ANALYSIS The quick service restaurant industry has been around for many decades and it only seems to be getting stronger, especially with standardized efficient chains such as MacDonalds, Starbucks, Dominos, etc. Not only have locations increased year after year, but they have also gone global. There are critics who think the industry may slow down or even shrink due to the health eating awareness that has been growing. However, many quick service restaurants are challenging such challenges by adding healthier foods and eliminating or reducing unhealthy ingredients. The industry may also be striving as our society has become a ‘right now’ environment, where time has become a shortened commodity due to longer work days or other commitments. The market for quick service restaurants has become so lucrative that franchises have been popping up all over the place, including inside retail store, such as MacDonald’s in Walmart stores.
ACCOUNTING SUMMARY Accounting summary is not usually part of a financial statement analysis, however in the KKD case it may be the answer to why the stock price sank rapidly, rather then gradually. KKD’s accounting procedures was first criticized by Wall Street Journal for its aggressive accounting treatment for franchise acquisitions made by KKD. Such allegations were further reviewed by the SEC and mostly verified. The SEC also sited many other accounting irregularities compared to other franchising practices. The major

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