Krispy Kreme Accounting Scandal Explained, DNUT to Go Public Again

By

Jun. 2 2021, Published 12:00 p.m. ET

The American motif that surrounds Krispy Kreme is strong, but just a few years ago, it wasn't strong enough to keep the donut brand from nearly falling apart. An accounting scandal that came to light shortly after the first IPO in the early 2000s contributed to the downfall. 

Article continues below advertisement

With Krispy Kreme gearing up for a new IPO, this time under the ticker "DNUT," what's different this time around?

Krispy Kreme's latest IPO differs from the first

Krispy Kreme changed its ticker from "KKD" to "DNUT," which is a slightly trendier take. The company is also switching from the NYSE to the Nasdaq. The executive board has shifted given the company's accounting scandal history.

Article continues below advertisement

In the same breath, executive compensation is front and center on the S-1 registration statement, even ahead of the company's 17 percent sales growth YoY.

What investors should know about the Krispy Kreme accounting scandal

The Krispy Kreme accounting scandal is a prime example of a public company using shareholder funds to propel an increasingly dramatized bottom line. Former CEO Scott A. Livengood started altering accounting reports in the 1990s and continued the practice into the new millennia, even after the company went public for the first time in 2000.

Article continues below advertisement

While they weren't accused of outright fraud, Livengood and his cohorts were independently profiting off of the company's accounting. Once the company went public, they manipulated the EPS by setting target prices with analysts and beating them by a cent in the earnings report. This leads to increased interest in the stock and was a key reason why Krispy Kreme stock (formerly "KKD") ballooned early on. Executives received monetary bonuses for a successful attempt.

Also, the SEC requires certain documentation to remain a public company. Krispy Kreme's filings hid the fact that Livengood exceeded his personal flight budget by $320,000 in one year, among other misdeeds.

Article continues below advertisement

The consensus on the new Krispy Kreme IPO is mixed

In the past, Krispy Kreme oozed desperation for Wall Street approval. Livengood was officially dismissed from the company in 2005. Michael J. Tattersfield came on board as CEO in 2017, a year after the company went private.

JAB Holding Company bought Krispy Kreme out in 2016 for $1.4 billion. Meanwhile, Krispy Kreme reacquired half a billion dollars worth of franchise locations to garner greater control over its brand. This rebuilding is impressive given the harsh image Krispy Kreme drew for shareholders and franchise owners in years past.

Article continues below advertisement

JAB has already taken the JDE Peets coffee shop brand public and expects to do the same with Panera shortly after the Krispy Kreme deal debuts.

Ultimately, the Krispy Kreme accounting scandal has set a precedent that the company will have to overcome. Like many companies that strive for a second IPO (see WeWork for a recent example), this has the potential to be a rebirth more than just a republicizing of the same entity. It's up to the corporation to convince shareholders of that heading into the IPO.

Advertisement

More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.