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Krispy Kreme Case Study

1613 words - 6 pages

Krispy Kreme Doughnuts, Inc.What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financial health and current condition of Krispy Kreme Doughnuts, Inc.?The company's financial performance looks quite good at the end of Feb 1, 2004. From the exhibit 1, income statement, we can see that Krispy Kreme was growing from the year ended Jan 30, 2000 to the year ended Feb 1, 2004. Total revenue increased significantly 202% from US$ 220,243 thousands in Jan 30, 2000 to US$ 665,592 thousands in Feb 1, 2004. Net income increased 858% from US$ 5,956 in Jan 30, 2000 to US$ 57,087 thousands in Feb 1, 2004. The balance sheet in exhibit 2, looks as good as the income statement in exhibit 1. The total assets increased significantly around 529% from US$ 104,958 thousands in the fiscal year ended Jan 30, 2000 to US$ 660,664 thousands in the fiscal year ended Feb 1, 2004. Long-term liabilities increased 453% from US$ 27,617 thousands in the fiscal year Jan 30, 2000 to US$ 152,641 thousands in the fiscal year ended Feb 1, 2004. Total shareholders' equity increased 847% from fiscal year ended Jan 30, 2000 to fiscal year ended Feb 1, 2004. Increasing in total assets, total liabilities and shareholders' equity because the company expanded its business. We can see in exhibit 3 that the factory stores have increased more than two fold.However, the company's financial performance became worse for three months period ended May 2, 2004. If we see the income statements for three months period ended May 5, 2003 compare to ended May 2, 2004, we see that in 2004 they had losses. We can see that the losses mainly because of the discontinued operation resulting from divestiture of Montana Mills amounting to US$ 34,285 thousands and also the impairment charges and closing costs of Hot Doughnut and Coffee Shops amounting to US$ 7,543 thousands which cumulatively accounted for 22.69% of the total revenues for three months period ended May 2, 2004 ((34,285+7,543)/184,356). As Wall Street Journal stated, Krispy Kreme grew too quickly and diluted its cult status by selling its doughnut in too many outlets. They could not anticipate when the demand decreased due to low-carbohydrate diet trend issues. It can be seen clearly that interest expenses also increased for the year ended Feb 2, 2003 to the year ended Feb 1, 2004 as the debt increased.From the balance sheet, we see that account receivable and account receivable from affiliates had risen significantly since 2000. In my opinion it was caused by deteriorating financial performance of Krispy Kreme's affiliates so that Krispy Kreme gave them extension to repay their bills. We can also see that inventory increased since 2000. In my opinion, it was not good since inventory could be obsolete. It would decrease inventory turnover. For asset held for sale, there was a significant decreased from Feb 1, 2004 to May 2, 2004 due to the disposal of Montana Mills. This was the main...

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