Lady M Confections [PDF]

Zitiervorschau

Lady M Confections Lady M is a specialty bakery store, which was founded in 2001 as a cake whole sale business and in a span of 13 years opened 3 boutiques in New York and Los Angeles. They specialize in Japanese and French inspired less sweat, delicate and aesthetically pleasing cakes. Their signature dish of Mile crepe has been praised by many celebrities like Oprah Winfrey, Martha Stewart and critics such as Amanda Hesser of New York Times. The success of the chain was seen in the net profit margins as high as 11.4% which was uncommon in restaurant business. The founder had the plan to expand locally as well as take the business international and licensed in both Singapore and South Korea. The success of the business attracted many investors who were more than willing to invest in the business. One such investor in china offered 10 Million credit in return for stake in the company and franchising rights in China. Though the credit would be useful to open up a new boutique in world trade center, but they were unsure regarding the value of the company? Was the offered amount in return of the stake and franchising rights appropriate? From the case the costs of setting up shop in World trade center was Construction costs $ 10,00,000.00 -

Year1 Year2 Year3 Year4 Year5

Annual Costs $3,10,600.00 $3,19,918.00 $3,29,515.54 $3,39,401.01 $3,49,583.04

Annual Utiility Cost $ 38,644.00 $ 39,803.32 $ 40,997.42 $ 42,227.34 $ 43,494.16

Labour costs $ 5,94,750.00 $ 6,24,487.50 $ 6,55,711.88 $ 6,88,497.47 $ 7,22,922.34

Sales $ 1,15,21,001.00 $ 1,29,61,126.13 $ 1,45,81,266.89 $ 1,64,03,925.25 $ 1,84,54,415.91

The founder and CEO had estimated the sales based on the sales one of their similar boutique and the cost of goods consumed would be 25% of the sales. Their aim was to find the number of cakes to sell at the boutique to make profit and the growth rate of sales to pay back the credit as start-up cost. Some of the assumptions made by the founder and CFO are: I. II. III.

Annual sales would be over 40% in the year of 2016 with the opening of World trade center boutique Many of the costs such as cost of goods sold, R&D would remain same No cannibalization of the sales of other stores

Based on the above calculations they should take a decision to open the store or not and if yes how should they go about financing it.