Financial Statement Analysis: Krispy Kreme

1349 words 6 pages
Financial Statement Analysis

Case Analysis: Krispy Kreme Doughnuts

1. Analysts are predicting that Krispy Kreme will be able to perform highly effectively and continue to grow rapidly in the coming two years. What are the key factors underlying the growth (at least 2)? Do you agree with their analysis? What are some potential concerns (at least 2)?

Analysts are predicting that Krispy Kreme will be able to perform highly effectively and continue to grow rapidly in the upcoming two years. Several factors can be the result of this rapid growth. Krispy Kreme’s brand is based on high quality products. They continue to excel in their field of providing top quality doughnuts to satisfy the needs of the consumer. Furthermore the
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- Baring in mind that the revenues per new store may vary from store to store. Essentially it begins with an initial boom followed by a constant state of where they level off.

- Not all of their new stores are fully open and operational throughout the whole year

- Company store growth is found to be stable dropping significantly from 28% to 4% just in their last year. Franchise store revenue growth is yet to be regarded as high, as the number of area developers increase, with store revenue patterns comparable to company stores. This is inclined to continue and go on for several years up to until revenues per store are similar for the company and franchise stores.

- Royalty revenues have been increasing significantly since area developers pay higher royalty rates as opposed to old associates (5.5% vs. 3%). Hence they averaged a sum of 4% for the last 2 years.

- KKM&D revenues are found to be derived by franchise revenues, seeing that sales are to franchisees and thus would vary based on their volume. They have found to have averaged 33% of franchise sales found in the last two years.

Figure A

Figure B

3. What assumptions were made about specific expense items? (eg margins, G&A, D&A and taxes? Do you agree with these forecasts? Explain.

- Forecast Gross Profits per store: Such figures vary from company to company; however, in the case of Krispy Kreme the

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