Master Case Assignment 6

Master Case Assignment 6 - CEG GSB 703 Master Case...

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CEG GSB 703 Master Case Assignment #6 Adam Ohanesian Email: Adam.Ohanesian@nichols.edu Table of Contents I. Company Background II. Analysis a. Factors underlying growth b. Potential concerns III. Factors examined by CIBC a. Assumptions b. My position on assumptions IV. NOPAT margins a. Assumptions b. My position on forecasts V. Balance sheet forecasts VI. Analysts forecasts expectations a. Optimistic forecasts Background
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Krispy Kreme has achieved spectacular growth in the last few years using an area developer model to expand geographically. This case examines the factors that have driven its growth and their sustainability in the coming two years. 1. Analysts are predicting that Krispy Kreme will be able to perform highly effectively and continue to grow rapidly in the coming two years. Do you agree with their analysis? If so, why? If not, why not? I was able to identify five key factors underlying growth as shown below. Brand based on high quality product. Fragmented regional competition with less brand recognition. Strong opportunities to extend network of stores geographically. Area developer model seems to be working. Company store data suggests that model probably works for area developers. Revenues ($70 per week * 52) $3,640 Gross profit at company rate (18%) 655 Royalties (5.5%) -200 Mark up on KKM&D (8.2*royalties*17%) -280 Capital charge (10%*$1.4m cost of a store) -140 Net 35 Further, if area developer models go broke, Krispy Kreme seems to be able to operate them profitably.
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Small store growth with new technology and international growth hold promise, although untested. Beginning to compete with Starbucks. Will donuts appeal to non Unites States markets? There are two potential concerns I thought of. First being the chance this is a fad and that consumers will get tired of donuts however they have been popular for many years. Second is the threat of competition in the future. 2. What factors did the CIBC analysts examine to forecast sales growth for KKD in the years ended January 2003 and 2004? What assumptions did they implicitly make about number of new stores and weekly sales per store (for both company and franchise stores)? What are their implicit assumptions about revenue growth from franchise operations and KKM&D? Do you agree with these forecasts? The CIBC analysts’ forecasts were constructed using per store information.
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This note was uploaded on 09/02/2011 for the course GSB 703 taught by Professor Girardin during the Summer '09 term at Nichols.

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Master Case Assignment 6 - CEG GSB 703 Master Case...

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