| Company Profile | Financial Data | Revised:June 25, 2004 | SAMPLE

Krispy Kreme has continued its growth initiative by expanding into new geographical areas, opening new retail concepts, retail kiosks, and expanding its existing store base. Krispy Kreme has expanded its franchise in more mid-sized cities. In addition, the company has opened combination donut/coffee shops with more scheduled in 2004. Krispy Kreme, like some other notable restauranters such as McDonald's and Pizza Hut, have opened retail kiosks units in Walmart stores. Indeed, there's less capital overlay needed with this strategy but results in less revenue growth as well. The company has even sold its donuts through stadium sales at major sporting events.

Earnings growth in the first quarter of 2004 was weak.The company has continued to expand its franchise through existing store units -- especially through its wholesale accounts through grocery stores. This has contributed to an abrupt slow down in store revenue growth. The problem appears to be cannibalization between the stand-alone store units and the wholesale bakery operations. In addition, we do not feel the market, at this time, is heavily saturated but there are competing distribution forms (i.e in-store bakery kiosks versus wholesale bakery through grocery stores versus stand-alone bakery format units). Many donut shops are largely owned by mom- and-pop operations that do not have the same market power, brand recognition, and logistical systems as Krispy Kreme. KKD has announced plans to open 500 to 700 new store units in big cities over the next several years. We believe the company will curtail its robust expansion plans and focus or building its existing same-store growth.

Fundamental Review

We view these shares with caution given the company's wild expansion and uncertain plans for generating higher store sales from existing units. The company's lofty P/E ratio is not warranted given its murky same store sales outlook

USBR Equity Research Team
U.S. Business Reporter
June 25, 2004