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Case Analysis Krispy

In: Business and Management

Submitted By fefe1015
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Journal of Business Case Studies – April 2008

Volume 4, Number 4

Lessons From Krispy Kreme
J. Richard Anderson, Stonehill College

The recent decline of Krispy Kreme Doughnuts, Inc. raises a natural question: shouldn’t investors
(and auditors) have been more wary of this Wall Street darling? Weren’t there tipoffs that would have allowed investors to avoid another franchisor “crash and burn” situtation like Boston
Chicken or TCBY frozen yogurt? This paper traces the meteoric rise and fall of Krispy Kreme and discusses a number of advance indicators of future problems: insider share-dumping, conflicts of interest within the Board of Directors and senior management, turnover in the CFO position, the use of synthetic leases, repurchased franchises, disappointing join venture results, and the problems of earnings management in the quarterly reports of a fairly small publicly-owned business. Keywords: Corporate Financial Reporting, Investor Awareness, Reading Financial Reports



hould we be surprised when a Wall Street darling like Krispy Kreme Doughnuts crashes and burns?
Shouldn’t there be warning signals when a company ranked as the best IPO of the 2000-02 period with a
711% stock price runup in three years loses all of that appreciation over the next 18 months? What causes a company to go from a market capitalization of just under $3 billion to little more than $300 million in such a short period? This paper argues that there were numerous warning signals in the doughnut franchisor’s accounting and managerial decisions that investors refused to take seriously as they bid the stock from its (split-adjusted) IPO price of $5.25 to its eventual peak of $49.50. The lessons that can be learned from an autopsy of the Krispy Kreme fiasco might well make investors more wary about jumping on the next IPO bandwagon.…...

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