Krispy Kreme Doughnuts Inc.
In 2000 Krispy Kreme Doughnuts had one of the most successful initial public offerings to date, and was considered to be a "can't miss" opportunity for investors A company beloved by its customers, with a brand name which seemed to be gaining popularity among people who had never even tried its products. But in only five short years following Krispy Kreme went from a company with huge potential and high expectations to one with serious going concern issues and a total lack of investor confidence. What happened was not due to any huge market shift or economic problem but mainly due to a company that got too far ahead of itself too fast, and couldn't keep up with its own expectations.
At the turn of the century Krispy Kreme was a company which was doing fairly well financially; they were low in debt and high in liquidity, showed comparatively good returns on assets and equity, and had shown consistently increasing earnings year over year.
At this point in time investors and analysts were becoming increasingly bullish on the company not because of anything special about the company's current financial situation, but because of the growth potential they believed existed. The doughnut industry of course was not expected to grow much if it all, but because of the strong brand image Krispy Kreme had built in regions where Krispy Kreme doughnuts weren't even sold there was a general consensus that the company could use the cash from its IPO to expand into new markets and simply take over market share. The biggest problem with this expectation is that it totally discounts local markets and doesn't evaluate Krispy Kreme against other regional brands such as Dunkin' Donuts. From what occurred over the next five years it appears the...