Krispy Kreme Case Study

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KRISPY KREME DOUGHNUTS IN 2005
ARE THE GLORY DAYS OVER?
CORPORATE BACKGROUND
Company History
First getting its corporate bearings on July 13, 1937 in Winston-Salem, North Carolina, Krispy Kreme Doughnuts have seen the many stages of financial gain and loss. Through the 1930’s and 1940’s the company saw regional growth and by the late 1950’s Krispy Kreme had opened 29 shops in 12 states. 1960 marked an era where management Vernon Rudolph and Mike Harding began to emphasize corporate standardization through its brand image. All Krispy Kreme shops were made with a green roof, a red-glazed brick exterior, a viewing window inside, an overhead conveyer for doughnut production, and bar stools. Original owner Vernon Rudolph in 1973, so
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In 2003, 18 employees attended the Krispy Kreme Leadership Institute to increase their capacities in senior management areas. In 2003, the company acquired Montana Mills Bread Company for 1.2 million shares of Krispy Kreme stock (worth roughly $50 million). In 2004, Krispy Kreme management expressed confidence in their company’s potential. However, the management failed to foresee the future.
The Yeast Fails to Rise (Weaknesses)
The second half of 2004 failed to meet the managements expectations made earlier in the year. The company estimated diluted earnings per share of $1.16 for fiscal 2005; actual diluted earnings were $0.93. The company expected sales would increase 25% in fiscal 2005; actual systemwide sales increased 14.8%. The company divested the recently acquired Montana Mills operation. It also closed six underperforming factory stores. In the hours following the announcement of the financial loss, the company’s stock dropped 20%. On May 25, 2004, Krispy Kreme reported a $24.4 million loss for the first quarter of fiscal 2005. According to the company, the poor performance was because of trendy low-carb diets, and a $34 million write-off of its investment in Montana Mills. The stock was now down 37%. To make matters worse, the company announced that the SEC was investigated shady accounting practices due to franchise buybacks.
COMPETITIVE ANALYSIS
Porter’s Five Forces Model (Appendix 1)
INDUSTRY

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