Harvard Business Case Krispy Kreme Doughnuts

Seminar paper from the year 2003 in the subject Business economics - Investment and Finance, grade: 2,0 (B), University of Applied Sciences Essen (MBA International Financial Management Program), course: Financial Management II, language: English, abstract: Krispy Kreme Doughnut is an American corporation, which started business in1937 as a small regional company. It developed quite well in the first years butstarted it s big push end of the 90ies. Currently the concept is based oncompany stores, which produce doughnuts and sell them to supermarkets andbakeries but also within the production facilities. To realise the growth of thepast Krispy Kreme offered the business concept as a franchise to interestedentrepreneurs within the whole US. The franchise concept has recentlychanged to an area developer concept under which entrepreneurs have theright to open a defined number stores in a designated area. Krispy Kreme is onone hand equity stakeholder in the franchises to participate in the positiveresults and on the other hand they request royalties from the area developerand franchisees for every store based on the sales figures. For additionalgrowth the franchise concept will be replaced by the area developer concept inthe future. The third profit area is the sales of equipment to the area developerstores, which guarantees a constant quality of the products. Krispy Kreme Doughnuts went public in April 2000 and had a follow-on publicoffering in February 2001. Compared with the development of the S&P 500 thestock of Krispy Kreme performed much better and won 375% whereas the S&P500 lost about 20% in the same time period. The company has ambitious growth plans for the years 2003 and 2004. Basedon these plans of the company, on the business concept, on the opportunitiesand on the competitive situation two analysts from CIBC World Markets haveforecasted the business performance and financial situation of Krispy KremeDoughnuts in 2003 and 2004. They have developed an Income Statement forthese years; the purpose of this paper now is to analyse this forecast statementand give the management of Krispy Kreme Doughnuts an advise regarding theirdesired financial strategy and on the consequences this strategy might have forthe overall strategy of the company.