(Cost management; product life cycle) In May 2004, Krispy Kreme Dough¬ nuts issued a profit warning to investors. In the warning, the company indi¬ cated full-year earnings would be 10 percent below previous expectations.

In the weeks immediately following the profit warning, the stock price of Krispy Kreme (ticker symbol KKD) dropped by more than 33 percent.

a. Using Internet resources, identify the economic reasons cited by Krispy Kreme management for the profit warning issued in May 2004.

b. Applying your understanding of product life cycle, explain why Krispy Kreme’s stock price dropped so significantly following the profit warning.

c. Following the profit warning in May 2004, what specific actions did managers take to improve profitability? Do any of these actions suggest that Krispy Kreme had revised its strategy in May 2004?

d. Discuss your evaluation of Krispy Kreme’s CMS based on the events oc¬ curring in May 2004.

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