Monday, August 01, 2005

Low-Carb Pioneer Atkins Files Chapter 11

Projecting sales is difficult. Indeed, it is probably the hardest part of valuation and it can have large implications if we are wrong. Therefore, it is covered in virtually all investment and corporate finance classes at least to some degree. Well we now there is a new example to use: Atkins Nutritionals.

As the low carb diet fad cooled, not only have grocery stores left with unsold product, but Atkins Nutritionals itself has found itself in financial trouble. Atkins Nutritionals after having projected the sales to grow significantly had increased their capacity in part with increased debt. When sales suffered, so did the firm's financial health and has now lead to Atkins filing for bankruptcy.

AOL News - Low-Carb Pioneer Atkins Files Chapter 11: "The company started by the late nutrition guru Dr. Robert C. Atkins to promote a low-carb lifestyle has filed for bankruptcy court protection, a further sign of the waning popularity of the diet"

I know this will be used as in class example in my classes. It should spur an interesting discussion as many students will have experience with the diet and therefore better understand the difficulty in predicting sales. With luck, the discussion will also include coverage of why firms facing greater business uncertainty opt for less debt in their capital structure.

Other links: CNN, Bloomberg (which also has a useful timeline), and the NY Times

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