Case Study of Krispy Kreme

The Beginning

On July 13, 1937, Vernon Rudolph opened the doors to a doughnut shop he called Krispy Kreme in Winston Salem, NC. He had a vision to be the worldwide leader in sharing delicious tastes and creating joyful memories. Known for their “hot now” doughnuts, Krispy Kreme’s mission is to touch and enhance lives through the joy that is Krispy Kreme. In 1973 the founder died but the values remain the same. Krispy Kreme believes: • Consumers are our lifeblood, the center of the doughnut • There is no substitute for quality in our service to consumers • Impeccable presentation is critical wherever Krispy Kreme is sold • We must produce a collaborative team effort that is unexcelled • We must cast the best possible image in all that we do • We must never settle for "second best;" we deliver on our commitments • We must coach our team to ever-better results In 1999, Krispy Kreme announced its consideration to sell public stock and later did just that. Once registered with the Securities and Exchange Commission (SEC), the companies stocks where one of the second best performing initial public offerings of the year ("Krispy kreme mulls," 1999). John McAleer, a vice chairman; Robert McCoy, a director; and 40 others including shop owners and their brothers, sisters, mothers, daughters, sons and even former wives, sold $141 million of the stock as of January 30, 2001

a year prior ("Krispy kreme posts. or 38 cents a share. 2001 ("Profit increases 89%. Unsold doughnuts were shipped back after the quarters ended ("Krispy kreme to." 2005). Consumers of the popular doughnut were concerned with the unhealthy affects eating doughnuts could have on their health. also known as the Atkins Diet. in the same quarter a year ago. in contrast to a profit of $13. or 22 cents a share. or 13 cents a share. The Problems Begin In 2005." 2005). The results compared with a profit of $3 million." 2005). The charge was leveled by two unidentified “confidential witnesses” who were former employees of the company. when Krispy Kreme reported its first-ever quarterly loss ("Krispy kreme to." 2001).4 million. a filing in a shareholder lawsuit against the company alleged the company routinely padded sales by doubling doughnut shipments to wholesale customers at the end of fiscal quarters. Krispy Kreme Doughnuts Inc. hurt the sale of doughnuts. or 20 cents a share. Krispy Kreme encountered their first quarterly loss in May 2004 after the low-carbohydrate diet craze.("Krispy kreme gains. Krispy Kreme’s stock went into a tailspin and dropped by 66% after the earnings report. This lawsuit was one of the many consolidated group of shareholder lawsuits that claim executives at the once-trendy doughnut maker knew sales were slowing by at least January 2003 but hid that fact until May.7 million." 2004)." 2001). reported an increase of nearly 89 percent in its first-quarter profit a day before moving to the New York Stock Exchange on May 17. Analysts' estimates ranged from 17 cents to 18 cents.1 million. which was followed by the revelation that the company was under investigation by the Securities and Exchange Commission ("Krispy kreme to. The company lost $24. . The company posted earnings of $5. for its first fiscal quarter ending May 2.

The plaintiffs in the case sought a class-action status for investors who bought Krispy Kreme shares between January 2003 and May 2004." 2005). Ohio." 2005). the local community braced for a verdict that some analysts thought could drive the company into bankruptcy. The SEC ordered that three former top executives (Scott . The suit sought a jury trial and unspecified damages.” The witness said the manager explained that the doughnuts would be returned for credit the following week once the 2005 fiscal year was under way." 2005).8 million. 2005. or worse. A former sales manager at a Krispy Kreme plant in Ravenna.” according to the complaint("Krispy kreme to. said a regional manager demanded that customers be sent double orders on the last Friday and Saturday of the 2004 fiscal year. critics have argued that the company expanded too quickly and saturated its market by making its product available in grocery stores and convenience stores ("Krispy kreme to. Krispy Kreme has blamed its problems on popularity of low-carbohydrate diets and high oil prices.” the suit charges. former chief operating officer John W. explaining “that Krispy Kreme wanted to boost the sales for the fiscal year in order to meet Wall Street projections. According to one witness cited. The Verdict On March 4. The witness “understood that it was commonplace at Krispy Kreme to channel stuff in order to meet Wall Street expectations.The three top officers named in the lawsuit were chief executive officer Scott Livengood. On the contrary. Casstevens “unloaded more than 475. Tate and former chief financial officer Randy S.000 shares of Krispy Kreme stock for proceeds of $19. Krispy Kreme double-shipped wholesale customer orders at the end of quarters on four separate occasions while the witness worked for the company ("Krispy kreme to.

Chapter closes as reality settles in on krispy kreme.000 in cash from Casstevens and Tate. (2001. 2001. 2005 (Craver. the chief financial officer) pay a combined $783. and April 18. (2009. Krispy kreme gains realized.Livengood. the chief operating officer.S. (1999. Winston-Salem Journal. References Craver. . John Tate. Neither the executives nor the company admitted or denied wrongdoing in agreeing to resolve the SEC civil lawsuit in the Middle District of U. Krispy kreme mulls issue. Another settlement in October 2006 resolved a lawsuit that included a cash payment of $34.8 million in common stock and warrants to purchase common stock to be issued by the company. August 13). March 15). The New York Times.9 million from the insurers of the company's directors and officers. chief executive and president. and $100. and Randy Casstevens. 2009). The New York Times. January 31). the company received only a ceaseand-desist order from committing or causing violations of several provisions of the Securities Act (Craver. However. That settlement covered all investors who bought Krispy Kreme's securities between March 8.000 for violating accounting laws and for fraud. $35. Livengood was not a party to the deal. 2009). District Court of North Carolina. SEC officials said one reason for the leniency was the cooperation by subsequent Krispy Kreme management in the probe (Craver. the chairman. 2009). R.

(2005.msn. The New York Times. Retrieved from http://www. . May 26). (2001. May 17).Krispy kreme posts first loss.msnbc. Krispy kreme to restate some 2004 earnings. ( Profit increases 89% at krispy kreme. The New York Times. July 5).

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