Executive Summary `Being one of the “sweetest” and fastest growing corporation in America in the

early 2000’s, Krispy Kreme Doughnuts, Inc. has been considered by wall street the “hottest” brand in America. By early 2003, 276 Krispy Kreme stores have been set up out which 270 are located in the U.S and each of them has their own doughnut factory to produce their 10 different variety’s including the signature original glaze. Although with many future goals and plans, the doughnut brand at the end of 2004 has started to see a series of unfortunate events forcing the market value of equity to dropping which will later effect the company from not only the investor’s point of view, but from the customers’ as well. This report will look at how Krispy Kreme success has started to decline with accounting revelations. The stock price has gone down 80% from August 2003 to December 2004. There will be focus on Krispy Kreme’s financial statements from 2000 through 2004 and some explanation of why it has gone from being the fastest growing corporation to seeing investors and analysts flee. Reasons for the challenges being faced and questions on why competitors in the same industry are taking the business away from Krispy Kreme will be addressed along with steps required to implement strategies for the corporation.

History & Background

Not only are the doughnut’s “sweet” and “rich”, but the history of this marvelous corporation is

as well. Krispy Kreme is an American global coffee house and doughnut chain, found by Vernon

Rudolph in 1937 based in Winston-Salem, North Carolina because his favorite brand of

cigarettes was headquartered in North Carolina. Before opening his own store in 1937 located in

a rented building on South Main which is now an historic piece called Old Salem, Mr. Rudolph

began working for his uncle Ishmael Armstrong in Paducah Kentucky in 1933. Vernon and his

uncle purchased a secret recipe for yeast-raised doughnuts and Rudolph began to sell the yeast

doughnuts in Kentucky. Although business was struggling during the great depression, they

decided to move to a bigger city where their success started to rise and began to expand outside

North Carolina in 1939.

In 1939 Krispy Kreme expanded outside the south for the first time in Akron Ohio seeing a lot of

potential for the company that by the late 1950’s had 29 shops in 12 states which were all

operated by franchisees. Beatrice Foods bought the company in 1973 after Rudolph’s death who

didn’t hesitate to expand it to more than 100 locations. With Beatrice Foods in charge they

decided to expand their menu with sandwiches and soups as well as remolding the store to cut

costs, which didn’t turn out well and by the early 1980’s Beatrice put the company for sale.

Joseph McAleer, leader of a group of franchisees decided to take Beatrice’s offer and completed

a leverage buyout for $24 million in 1982. Bringing back the original recipe and the company’s

traditional doughnut left Krispy Kreme’s future looking bright. By 1989 it became debt free and

began to expand even more. By 1998 Scott Livengood became the new CEO and decided to take

the company public in April 2000 which was one of the largest public offering in recent years

with a share price of $40.63 and a capitalization of nearly $500 million.