Case Analysis Krispy Kreme Doughnuts: Is a Turnaround Possible? Until May 2014, Krispy Kreme's prospects appeared bright

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Case Analysis Krispy Kreme Doughnuts Is A Turnaround Possible Until May 2014 Krispy Kreme S Prospects Appeared Bright 1 (76.48 KiB) Viewed 33 times

Case Analysis Krispy Kreme Doughnuts: Is a Turnaround Possible? Until May 2014, Krispy Kreme's prospects appeared bright With 357 Krispy Kreme stores in 45 states, Canada, Great Britain, Australia, and Mexico, the company was riding the crest of customer enthusiasm for its light, warm, melt-in-your-mouth doughnuts. During the past 4 years, consumer purchases of Krispy Kreme's doughnut products had taken off, with sales reaching 7.5 million doughnuts a day. Considerable customer excitement often surrounded the opening of the first store in an area. For instance, when a new Krispy Kreme opened in Rochester, N.Y. in 2010, more than 100 people lined up in a snowstorm before 5 a.m. to get some of the first hot doughnuts coming off the conveyor line within an hour there were 75 cars in the drive-through fane. Three TV stations and a radio station broadcast live from the store site. At the initial Krispy Kreme store in Denver during its first 3 weeks of operation commonly had lines running out the door with a one-hour wait for doughnuts, and, according to local newspaper reports, one night had 150 cars in line for the drive-through window at 1:30 am-off-duty Sheriff's deputies were brought in to help with traffic jams for a week. To capitalize on all the buzz Tand customer excitement, Krispy Kreme had been adding new stores at a record pace throughout 2012-2013. The company's strategy and business model were aimed at adding a sufficient number of new stores and boosting sales at existing stores to achieve 20 percent annual revenue growth and 25 percent annual growth in earnings per share. Total company revenues rose by 35.4 percent, to $665.6 million in fiscal 2014 compared with the $491.5 million in fiscal 2013; net income increased by 70.4 percent, from $33.5 million to $57.1 million, Krispy Kreme's stock price had increased eightfold since it went public in April 2010 and in February 2014 was trading at 30 times the consensus earnings estimates for fiscal 2015, a price/earnings ratio that was justified" only if the company continued to grow 20-25 percent annually But in May 2014, with few advance warning signs, the sky began to fall in Krispy Kreme was besieged with declining doughnut sales, falling revenues, the prospect of store closings and failed franchises, problems with the Securities and Exchange Commission over false and misleading financial statements, and lawsuits from shareholders and franchisees. Top executives were dismissed under the cloud of scandal and a new management team was brought in the stock price in late 2015 was trading at around $6 per share, down 88 percent from its all time high of close to $50 per share Assignment Questions 1. On the basis of your competitive strength assessment above, what do you think of Krispy Kreme's turnaround prospects? Just how good are they? Is a comeback feasible? What evidence supports your answer? 2. Do you think top management was employing aggressive' accounting tactics to try to cover up disappointing earnings problems and keep the stock price pumped up? Do you see anything unethical going on here? Why or why not? What evidence supports your views? 3. What does a SWOT analysis reveal about Krispy Kreme's overall situation What is your assessment of Krispy Kreme's competitive strengths and weaknesses in comparison? What recommendations would you make to Krispy Kreme management to return Krispy Kreme to profitability?