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Annual Report Analysis: Krispy Kreme Doughnuts Gillian Williams Professor ______ HTM 100 May 19, 2011

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Krispy Kreme Doughnuts Inc. (NYS: KKD) is a hospitality company that specializes in selling high quality doughnuts, complementary beverages, and assorted treats and other sweets. The company was founded in 1937 in the small town of Winston-Salem, North Carolina with a secret yeast-raised doughnut recipe from a French chef. Today, Krispy Kreme generates its revenues from four business segments: company owned stores, domestic franchise stores, international franchise stores, and the Krispy Kreme supply chain. As of January 30, 2011, there were 229 Krispy Kreme stores operated domestically in 37 states and in the District of Columbia, and there were 417 shops in 20 other countries around the world. Provide a brief overview of the Chairmans and CEOs reports The Chairmans and CEOs reports discuss quite a few subjects. The first important aspect of the report is the overview of Krispy Kremes competitors in the same quick service restaurant arena: Dunkin Donuts, which has the largest number of outlets in the doughnut retail industry and Tim Hortons. There are also regionally and locally owned doughnut shops and bakeries that are competitors on a smaller level. The report makes note that both Dunkin Donuts and Tim Hortons have considerably greater financial resources than Krispy Kreme and that the competitors are trying to expand into Krispy Kremes traditional geographic areas. This is an important facet of the reports because recognizing competition and future influences on the market are crucial to future success. Acknowledgement of the falling revenue from roughly 2004 through 2009 is clearly examined in the reports as well. That is blamed on Krispy Kreme opening too many domestic stores in too short an amount of time, leading to many of them closing due to insufficient business, poor support and long-term strategic plans. The corner was turned in 2011 and for the year ending on January 30th, growth returned to Krispy Kremes domestic business. The revenues

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from domestic customers and the total number of Krispy Kreme shops operating in the United States each rose for the first time since fiscal 2005. One other aspect of the reports is that they recognize the role the economic downturn has had on the company. Krispy Kreme believes that they are better insulated from the downturn than full service restaurants due to the fact that their prices are an affordable indulgence. With that being said, relatively high unemployment and low consumer confidence in Krispy Kremes domestic geographic areas have taken a toll on consumers and their ability to spend. This leads to fewer visits out to restaurants and related growth. Access the Mission Statement of the company in terms of how it aligns with what the company actually does Krispy Kremes Mission Statement is To touch and enhance lives through the joy that is Krispy Kreme. The statement itself is quite simple and brief but allows it to be applicable to many aspects of the business with the ultimate goal of making the customer happy. Krispy Kremes doughnuts are their signature product and sold to customers around the world, along with their coffee drinks and frozen beverages. By branding their doughnuts as a sweet indulgence, they become associated in a customers mind with happiness. Their ultimate goal is be the worldwide leader in the quick service doughnut market and provide their sweet treats to as many consumers as possible. I believe it is also important to discuss the companys values because Krispy Kreme keeps a strong link to its past and founder Vernon Rudolph. The values extolls a belief in several ideals. For example, the values state that consumers are the lifeblood of Krispy Kreme and there is no substitute for quality in service to those consumers. The presentation of the doughnuts are critical wherever Krispy Kreme is sold and includes certain new doughnut designs in honor of

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holidays such as hearts for Valentines Day to encourage purchases. Lastly, Krispy Kremes values include never settling for second and always striving to be better. Describe in detail the financial health of the company based on an examination of its Balance Sheet, Income Statement, and Cash Flow Statement As mentioned previously growth returned to the domestic side of Krispy Kreme in fiscal year 2011. Additionally, the revenues from domestic customers and the total number of Krispy Kreme shops operating in the United States both rose for the first time since fiscal 2005. The income statement shows that Krispy Kreme had revenues in the amount of 361 million dollars in 2011 with a net income of roughly 7.5 million dollars. The balance sheet shows the company had total assets of 170 million compared to 93 million in liabilities which is a strong and enviable position to be in, though much of this is due to the international stores. The Cash Flow statements tell a different story. In the year ending January 30, 2011, Krispy Kreme earned 21 million in cash from operations; however, the company lost 9 million in investing and 10 million in financing. The global economic crisis hit all segments of the population, including businesses and their investments so this is not a big surprise to see but it is something that should be controlled by making more conservative investing decisions. Moving away from an aggressive investing strategy would serve Krispy Kreme well and provide a more steady, if not consistent income. Predict the performance of the company in the next five years, providing a detailed analysis of the annual report and other resources in support of your prediction Krispy Kremes future performance is dependent on its ability to distinguish itself from the competition and make strides into new geographical areas. Their annual report recognizes this and describes its competitors as general retailers of doughnuts, coffee shops and snacks sold through convenience stores, supermarkets and retail stores. Krispy Kreme believes that the

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uniqueness of their Original Glazed doughnuts are the major factor that distinguishes the brand from competitors, both in the doughnut category and in sweet goods generally. There is a trend in the industry moving towards expanded fresh product offerings at convenience stores during morning and evening drive times which is a good idea for Krispy Kreme as well. Iced coffees, a selection of teas, and fruit smoothies are all examples of products that Krispy Kreme should begin to offer in order to compliment the current selection of sweet treats. Historically, there have been a number of factors that influence sales by Krispy Kreme. Consumer preferences and their amount of disposable income, the level of competition, general regional and national economic conditions, an even seasonality and weather conditions have all played a role in sales. None of these factors can be controlled by Krispy Kreme but the level of competition is only going to increase. Dunkin Donuts has already expressed the plan to expand more into areas traditionally dominated by Krispy Kreme like its home state of North Carolina and other southern states. I believe that if Krispy Kreme can take advantage of their signature product and stress the differences between their doughnuts and those from other sellers, they can have a bright and prosperous future in the long term.

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Reference Annual Report. (January 30, 2011) Krispy Kreme Doughnuts Inc: Committee. Retrieved from http://www.mergentonline.com Dunkin Donuts sugar-rush IPO. (May 4, 2011). MarketWatch. Retrieved from http://www.marketwatch.com/ Krispy Kreme Doughnuts Corporation. (2011). Krispy Kreme Doughnuts: Hot and Fresh. Retrieved from http://www.krispykreme.com/ Ovide, S. (May 4, 2011). Dunkin Donuts IPO vs. Krispy Kreme IPO: Bubble-icious. Wall Street Journal. Retrieved from http://blogs.wsj.com/