Krispy Kriem Doughnuts

Prepared by: Sanae DRISSI

Sofia SBITIAlae eddine ALAMI

Sara HAFYANE

Summary

1.About Krispy Kreme.2.The Case Isssue.3.SWOT Analysis.4.KK Financial Statements.

5.The Financial Health of KK.6.Financial Ratios.7.Krispy Kreme Vs Competitors.8.Conclusion.

• Founded by Vernon Carver Rudolph in 1933

• First donut shop (partnered) was in Paducah, KY

• Operations were moved to Nashville, TN

• Focused on selling to grocery stores • Rudolph opened his own shop in

Winton-Salem,NC in 1937 with $25 dollars and a 1936 Pontiac

Krispy Kreme U.S.

Krispy Kreme Worldwide

Case IssueCase Issue This case considers the sudden and very large drop in the market value of equity for Krispy Kreme Doughnuts, Inc., associated with a series of announcements made in 2004.

Those announcements caused investors to revise their expectations about the future growth of Krispy Kreme, which had been one of the most rapidly growing American corporations in the new millennium.

• Strengths Great brand recognition. Centralized manufacturing. The “donut theatre” experience.

• Weaknesses. Heavy debt to equity ratio. The single product focus.

The idea of rapid expansion.

• Opportunities : One of them being offering premium coffees and beverages.

Threats:

• Dunkin’ Donuts, Tim Horton’s, Starbucks, and other National Chains/Specialty Eateries

• KK stores went up too fast.• Store locations too scattered• Increasing cost of ingredients• Increasing utility and fuel costs

Krispy Kreme Finance–Income Statement

　 2007 2006 2005 2004 2003

Revenue 461.2 543.36 707.77 649.35 490.73

Total Revenue 461.2 543.36 707.77 649.35 490.73

Cost of Revenue, Total 389.38 474.59 598.28 493.65 380.64

Gross Profit 71.82 68.77 109.49 155.7 110.08

Selling/General/Administrative Expenses, Total 48.86 67.73 55.3 45.23 30.07

Depreciation/Amortization 21.05 28.92 31.93 22.31 14.68

Unusual Expense (Income) 28.49 90.9 161.85 -0.53 9.08

Operating Income -26.58 -118.77 -139.6 88.68 56.26

Interest Income (Expense), Net Non-Operating -19.55 -23.44 -7.72 -5.85 -2.01

Other, Net 5.11 5.67 -0.06 0.16 -3.47

Income Before Tax -41.03 -136.54 -147.38 82.99 50.78

Income Tax - Total 1.21 -0.78 9.67 33.15 19.72

Income After Tax -42.24 -135.76 -157.05 49.85 31.06

Total Extraordinary Items 0 0 -41.29 -1.28 0

Accounting Change 0 0 -1.23 0 0

Discontinued Operations 0 0 -40.05 -1.28 0

Net Income -42.24 -135.76 -198.34 48.56 31.06

　 2007 2006 2005 2004 2003

Assets 　 　 　 　 　

Cash and Short Term Investments 36.24 16.98 27.69 21.03 55.18

Cash & Equivalents 36.24 16.98 27.69 21.03 32.2

Short Term Investments 0 0 0 0 22.98

Total Receivables, Net 62.57 73.8 45.71 71.82 48.28

Accounts Receivable - Trade, Net 27.6 37.68 44.77 63.09 45.44

Accounts Receivable - Trade, Gross 29.51 39.18 40.64 46.09 35.83

Provision for Doubtful Accounts -2.75 -13.66 -11.38 -1.27 -1.45

Notes Receivable - Short Term 0 1.15 0.94 0.75 0

Receivables - Other 34.97 34.97 0 7.97 2.85

Total Inventory 21.01 23.76 28.59 29.82 24.37

Prepaid Expenses 0 0 0 0 3.48

Other Current Assets, Total 12 32.49 17.38 14.83 9.82

Total Current Assets 131.82 147.03 119.36 137.5 141.13

Property/Plant/Equipment, Total - Net 168.65 205.58 309.21 287.49 202.56

Goodwill, Net 28.09 29.18 32.69 197.16 0.2

Intangibles, Net 0.84 1.11 1.69 0 49.15

Long Term Investments 3.22 8.6 5.97 14.58 11.22

Note Receivable - Long Term 0 0.04 2.12 6.56 1

Other Long Term Assets, Total 16.86 19.32 9.23 13.31 5.23

Other Assets, Total 0 0 0 0 0

Total Assets 349.49 410.86 480.28 656.6 410.49

KK Finance–Balance Sheet (Asset)

KK Finance – Balance Sheet (L+S)

　 2007 2006 2005 2004 2003

Liabilities and Shareholders' Equity 　 　 　 　 　

Accounts Payable 7.87 8.9 17.44 19.11 14.06

Accrued Expenses 125.25 140.48 43.62 23.3 20.98

Notes Payable/Short Term Debt 0 0.11 8.48 8.12 12.28

Current Port. of LT Debt/Capital Leases 1.73 4.43 48.1 8.14 3.3

Other Current Liabilities, Total 0.02 0 0 0 9.08

Total Current Liabilities 134.87 153.92 117.64 58.67 59.69

Total Long Term Debt 105.97 118.24 90.95 137.11 57.19

Long Term Debt 105.97 118.24 90.95 137.11 57.19

Deferred Income Tax 0 0.85 3.91 0 9.85

Minority Interest 0 0 0.39 2.15 5.19

Other Liabilities, Total 29.69 29.18 26.45 22.26 5.22

Total Liabilities 270.53 302.18 239.34 220.19 137.14

Redeemable Preferred Stock 0 0 0 0 0

Preferred Stock - Non Redeemable, Net 0 0 0 0 0

Common Stock 310.94 298.26 295.61 294.48 173.11

Additional Paid-In Capital 0 0 -0.2 -0.38 -0.56

Retained Earnings (Accumulated Deficit) -233.25 -191.01 -55.25 143.09 102.4

Other Equity, Total 1.27 1.43 0.78 -0.77 -1.61

Total Equity 78.96 108.67 240.94 436.41 273.35

Total Liabilities & Shareholders’ Equity 349.49 410.86 480.28 656.6 410.49

Firms in financial difficulty display several of the following conditions: 1) Low or negative earnings.

2) High financial leverage 3) Low liquidity. 4) Low stock prices

2000 2001 2002 2003 2004

Return on Equity 12.47% 11.72% 14.06% 12.25% 12.62%

Profit/Sales 2.70% 4.90% 6.69% 6.81% 8.58%(profit margin)

Sales/Assets 2.10x 1.75x 1.54x 1.20x 1.01x(asset turnover)

Assets/Equity 2.20x 1.36x 1.36x 1.50x 1.46x(leverage)

Return on Assets 5.67% 8.59% 10.33% 8.16% 8.64%

Source: Case Exhibit 7

2000 2001 2002 2003 2004

Debt to equity

47.96% 0.00% 2.47% 19.46% 11.26%

Debt to capital

32.41% 0.00% 2.41% 16.29% 10.12%

Current Ratio

1.39 1.77 1.94 2.36 3.25

Turnover of Acc REC

10.81 12.16 10.19 10.61 9.70

Price Earning Ratio

16.22 39.85 30.41 35.64

Krispy Kreme Finance 2005KrispyKrispyKremeKreme

DoughnutsDoughnutsStarbucksStarbucks TimTim

Horton’sHorton’s CaribouCaribou RestaurantsRestaurantsIndustryIndustry

SpecialtySpecialtyEateriesEateriesIndustryIndustry

Market Cap:Market Cap: 201.84M201.84M 12.81B12.81B 6.29B6.29B 53.85M53.85M 204.46M204.46M 1.29B1.29B

Employ ees:Employ ees: 3,8753,875 172,000172,000 525525 1,6031,603 4.70K4.70K 759759

Qtrly Rev Growth (yoy):Qtrly Rev Growth (yoy): -11.70%-11.70% 17.50%17.50% 10.50%10.50% 5.20%5.20% 7.10%7.10% 20.90%20.90%

Revenue (ttm):Revenue (ttm): 430.56M430.56M 9.82B9.82B 1.86B1.86B 256.83M256.83M 402.90M402.90M 1.07B1.07B

Gross Margin (ttm):Gross Margin (ttm): 11.21%11.21% 57.24%57.24% 26.82%26.82% 16.13%16.13% 28.56%28.56% 32.41%32.41%

EBITDA (ttm):EBITDA (ttm): 19.00M19.00M 1.47B1.47B 461.55M461.55M 25.57M25.57M 41.75M41.75M 147.18M147.18M

Oper Margins (ttm):Oper Margins (ttm): 0.10%0.10% 9.72%9.72% 20.42%20.42% -3.47%-3.47% 5.72%5.72% 1.14%1.14%

Net Income (ttm):Net Income (ttm): -59.65M-59.65M 675.74M675.74M 264.34M264.34M -30.66M-30.66M 8.81M8.81M -22.36K-22.36K

EPS (ttm):EPS (ttm): -0.944-0.944 0.8880.888 1.4001.400 -1.586-1.586 0.590.59 N/AN/A

P/E (ttm):P/E (ttm): N/AN/A 19.8919.89 24.2224.22 N/AN/A 19.9219.92 23.9123.91

PEG (5 yr expected):PEG (5 yr expected): N/AN/A 11 1.471.47 N/AN/A 1.101.10 1.211.21

P/S (ttm):P/S (ttm): 0.470.47 1.311.31 3.453.45 0.200.20 0.540.54 1.211.21

Latest Full Context Quarter Ending Date 2009/10

Gross Profit Margin 13.9%

EBIT Margin 3.6%

EBITDA Margin 7.2%

Pre-Tax Profit Margin 0.3%

Interest Coverage 1.1

Current Ratio 1.5

Quick Ratio 0.9

Leverage Ratio 2.8

Receivables Turnover 17.1

Inventory Turnover 18.7

Asset Turnover 1.9

Revenue to Assets 2.0

Return on Invested Capital -0.9%

Return on Assets -0.6%

Debt/Common Equity Ratio 0.79

Price/Book Ratio (Price/Equity) 4.67

Book Value per Share $0.90

Total Debt/ Equity 0.81

Long-Term Debt to Total Capital 0.44

SG&A as % of Revenue 6.6%

R&D as % of Revenue 0.0%

Receivables per Day Sales $19.34

Days CGS in Inventory 19

Working Capital per Share $0.33

Cash per Share $0.27

Cash Flow per Share $0.11

Free Cash Flow per Share $0.20

Tangible Book Value per Share $0.55

Price/Cash Flow Ratio 39.4

Price/Free Cash Flow Ratio 21.1

Price/Tangible Book Ratio 7.67

Most recent data

Current Ratio 1.5Quick Ratio 0.9Leverage Ratio 2.8Receivables Turnover 17.1Inventory Turnover 18.7Asset Turnover 1.9Return on Invested Capital -0.9%Return on Assets -0.6%Price/Book Ratio (Price/Equity) 4.67Book Value per Share $0.90Total Debt/ Equity 0.81%Receivables per Day Sales $19.34

We Can notice that Krispy Kreme could catch up after the crises faced in the previous years.