Intermediate Financial Management
FIN 362 A – Spring 2014
Krispy Kreme Doughnuts, Inc.
Written Case 1
I. Assume the manager’s role:
1. Understand the environment in which the company operates –
i. On May 7, 2004, 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 sale.
ii. “The Atkins Nutritional Approach gained widespread popularity in 2003 and 2004. At the height of its popularity one in elven North American adults on the diet. This large following was blamed for large declines in the sales of carbohydrate-heavy foods like pasta and rice: sales were down 8.2 and 4.6 percent, respectively, in 2003. The diet’s success was even blamed for a decline in Krispy Kreme sales”’1
iii. On July 29, 2004, the United States Securities and Exchange Commission (SEC) launched an informal investigation into the companies “franchise reacquisition’s and company’s previously announced reductions in earnings guidance.”
iv. The economic environment contracted due to the dieting trend, but Krispy Kreme was developing a plan to expand their company.
v. Although the low carb diet destroyed Krispy Kreme’s sales, Dunkin’ Donuts had a competitive advantage over Krispy Kreme because their majority of sales came from coffee.
2. Krispy Kreme’s History, current conditions and future prospects -
i. Krispy Kreme is an international retailer of premium-quality sweet treats, including its signature hot Original Glazed® doughnut. Headquartered in Winston-Salem, NC, the company has offered the highest-quality doughnuts since it was founded in 1937. Their vertically integrated, automated system is designed to create high quality, consistent doughnuts in an efficient manner. Quality control starts with their manufacturing plant, which produces proprietary Krispy Kreme mixes—state-of-the-art laboratory runs quality tests on all key ingredients and...