Krispy Kreme Doughnuts, Inc. Krispy Kreme Doughnuts began as a single doughnut shop in Winston Salem, North Carolina in 1937. By the start of the new millennium, Krispy Kreme was not only able to boast iconic status but nearly had a cult-like following. Less than a year after its initial public offering in April 2000, Krispy Kreme shares were selling for 62 times earnings. As it had a tremendous increase in bottom line and brand recognition, it formulated an aggressive strategy to expand. Its shops tripled from 2000 to 2004, with 427 stores in 45 states and four foreign countries.
Fifty five percent of advertising and sales promotion dollars are allocated to cooperative advertising programs with retail accounts. Jones Blair brand accounted for about 25% of the DFW population that was aware of paint brands and purchased paint in the last 12 months. JBC was second to last on this percentage list. However, 75% of JBC audience is not buying paint. The
Krispy Kreme Doughnuts, Inc. From the income statement from Krispy Kreme Doughnuts, we can understand that the annual results show a consistent, rapid growth from the Jan 2000 statement through the Feb 2004 statement, with a final net income for the 2003 fiscal year at nearly ten times that of the 1999 fiscal year and a final EPS for the 2003 fiscal year at more than 6 times that of the 1999 fiscal year. Looking at the first quarter and second quarter comparisons for 2003 and 2004, we can clearly see that “discontinued operations and impairment charges and closing costs” are major factors that dragged net income down significantly. The large amount of these two types of costs, especially discontinued operations, is signs of corporate strategy problems and operational inefficiencies. In addition, the decrease in income from operations is larger in the second quarter than it was in the first quarter of 2004, suggesting that Krispy Kreme Doughnut’s financial difficulties may be worsening. In addition, “equity loss in joint ventures” has increased in negative figures for four consecutive years from 2001.
The income statement’s total revenues doubled in two years due to their unusual growth. The problem to behind income statement and balance sheets stems from their company owned and franchised factories; instead of selling the donuts, the company sold machinery to make their products. The goodwill and required franchise rights doubled each year until 2004 which raised questions and concerns as to whether Krispy Kreme improperly implemented accounting treatments. Compared to the industry, Krispy Kreme was apparently a very high performing company, but we questioned the performance data. First problem we encountered were the current and quick ratios were unusually high due to the amount of cash, receivables and short term investments that Krispy Kreme held.
Folks were waiting in line for almost an hour to get their doughnuts. When that store opened Sherriff’s deputies had to be brought to control traffic jams for almost a week after its grand opening. Furthermore, according to a local newspaper report, on one particular night, Krispy Kreme had 150 cars waiting to get their doughnuts in the drive through lane. To exploit the thrilled and excited customers that like hot and fresh doughnuts, Krispy Kreme opened additional stores at record pace throughout 2002-2003. Krispy Kreame’s key business strategy and model were designed to add plenty of new stores and to increase sales at existing stores to achieve 20 percent annual revenue growth and 25 percent annual growth in earnings per share.
In the 1990s, Krispy Kreme grew rapidly to the national phenomenon with 366 stores in 44 states. In addition to Krispy Kreme stores, their premium quality doughnuts are sold in supermarkets, convenience stores and other retail outlets throughout the country. Best known for their fresh, glazed, yeast-raised doughnuts, known as "Hot Original Glazed”, Krispy Kreme also make more than a dozen other varieties of yeast-raised and cake doughnuts. Krispy Kreme doughnuts are sold in supermarkets, grocery stores, convenience stores, gas stations, Wal-Mart and Target stores in the US; Loblaws supermarkets and Petro-Canada gas stations in Canada; Woolworths supermarkets in Australia, and Tesco supermarkets, Tesco Extra and Moto service stations in the UK. The operational plans of Krispy Kreme such as a pilot project in Mountain View, California, to sell doughnuts through car windows and sunroofs at a busy intersection (with wireless payment) in 2003.
The introduction of Haagen-Dazs in the UK-helped by world-beating Mars count line extensions (Mars, Bounty, Galaxy, Milky, Milky Way and Snickers) into the ice-cream market in 1988 – had increased the profile of luxury ice-cream in the UK and Europe, making it the fastest-growing sector of the ice-cream market . Moreover, taking the U.S as an example, the prospects for Haagen-Dazs look good. In 1991, luxury ice-creams had taken a 47.6% share of the U.S market (as against around 16% in the UK in 1991, up from 5%in 1988), with standards and economy ice-cream accounting for 38.1% and 14.3%, respectively. Thus, Haagen-Dazs could expect many Europeans to upgrade into the luxury ice-cream market. According to experts, the brand value of Haagen-Dazs had risen steeply, from $ 250 million in 1988 to $782 million in 1993.
When looking at earnings per share, we can see that between May 2003 and August 2004 they issued more shares, probably because of their expansion. It appears they took on too much debt and tried to expand too quickly, based on their increase in interest expense and increase in debt. Looking at the balance sheet, in 2004 there were no more short-term investments, they probably expect accounts receivable to increase with growth in sales. This is probably because KK began to get desperate and turned their investments into cash. Concerning that notes receivable from affiliates is significant in 2004, problems with associates being able to cover cost of equipment and supplies.
It has been reported that less than 1 percent of new products generate more than $25 million in first year of sales. Snack chip competitors rely heavily on electronic and print media advertising, consumer promotions, and trade allowances to stimulate sales and manufacturers often rely on price deals to attract consumers. The technology used to produce snack chips allows manufacturers to react quickly to new products introduction by competitors. Extensive sales and distribution systems employed by national brand competitors also allows them to monitor new product and promotion activities and place competing products quickly in the supermarkets. Snack chips are sold by national brand firms, regional brand firms, and private brand firms.
Wal-Mart - Strategic Audit I. Current Situation A. Current Performance In the past year Wal-Mart’s performances in market share, profitability, and return on investment have had significant changes compared to past years performance. * Return on investment now compared to previous years: they are paying out $63.079 billion to their shareholders compared to last years $58.763 billion and an average of $3.09 earnings per share of the 4.068 billion shares out. * Market share today: Out of 2,000 big companies Wal-Mart is at 17 with 201.36 billion in market value and in its industry of retail, Wal-Mart is ranked #1 with Home Depot and Target behind.