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FM - 1
GROUP ASSIGNMENT
KRISPY KREME DOUGHNUTS
(“KKD”)
KRISPY KREME CASE
Question #1:
CIBC and other analysts are predicting that Krispy Kreme will continue to perform effectively and grow rapidly in the next two years. Do you agree? Why or why not?
Answer:
Based on historical data, Krispy Kreme Doughnuts (“KKD”) has consistently showed both strong growth in revenues & financial performance. For example, for the FY2001-02, both company and system-wide sales growth significantly above 30%, earning growth was 80%, and return on equity was well above 12%. KDD’s Long-term Debt to Equity Ratio (DER) also considered very low of below 10%, meaning that KDD still have broad room to increase their leverage to finance its growth, while maintain healthy capital structure.
In addition to that, KKD’s in its 10-K document submitted to US SEC has stated its strategic growth plans as follow:
• Domestic store development: KKD believes that 222 factory stores (stores which contain a full doughnut-making production line) as of April 2002 represent less than one-third of the total factory stores it can ultimately builds in North America.
• International store development: KKD also intends to explore international growth opportunities and its initial focus is on five countries: Japan, South Korea, Australia, Spain, and the United Kingdom. Based on its initial experience with the first store in Canada, it seems to believe that these countries represent attractive expansion opportunities for the KKD concept.
• Expanded beverage offerings: One of KKD’s focus areas has been on creating a best-in-class bever ...