The Valuation and Financing of Lady M Confections Harvard Case Solution & Analysis

The Valuation and Financing of Lady M Confections .  Case Solution

Introduction:

Lady M Confections is a confectionery company that deals in premium cakes and other bakery items. Lady M Confections was founded in May 2001; the company started its operations as a cake whole seller and sold cakes to upscale restaurants and luxury hotels in New York City. In December 2004, Lady M Confections opened its first franchise in the Upper East Side of New York. Due to the sleek white and silver appearance of the franchise of Lady M Confections, the franchise won a design award in the May 2006 issue of Interior Design Magazine.

Lady M Confections is different from its competitor bakeries; rather than serving the traditional, sugar-laden cakes that Americans are used to, instead Romaniszyn looked to emulate the bakeries of Japan. While influenced by the French, the Japanese bakeries focused on a delicate, less sweet taste and a careful attention to aesthetics. Lady M Confections’ signature dessert was their Mille Crepes, a minimum of 20 layers of French crepes layered with pastry cream. Due to the high quality and taste of the premium cakes of Lady M Confections, on the opening day of the franchise, Lady M Confections’ entire collection of the Mille Crepe cakes sold out within hours.
After the successful launch of first Lady M Confections boutique, Romaniszyn decided to open two more franchises in the New York City: one in the Plaza Food Hall in the year of 2012, and one in Bryant Park in the year 2013. One franchise was also launched in Los Angeles in August 2013.In April 2014, Lady M employed approximately 120 total workers in their domestic operations: around one-third in the kitchen, 10 in corporate, and the rest working in retail. The kitchen workers churn out approximately 7,000 crêpes per day and go through one imported crêpe pan approximately every four weeks. Romaniszyn understood the importance of keeping the kitchen staff happy, since it could take three to six months to find and train a new pastry chef.

Since 2010, Lady M experienced considerable growth with sales growing at the rate of 81% in 2013. In addition, Lady M had seen net margins atypical of the restaurant industry; typically they were in single digits however in 2013, Lady M had profit margin of 11.4%. Lady M had been featured in many magazines including Oprah Magazine, Harper’s Bazaar, and Vogue, and had many celebrity fans, including Oprah and MarRomaniszyn viewed Lady M as occupying a unique position in the market.
Problem Statement:

Ken Romaniszyn and Daisy Tom, the newly appointed CFO at Lady M Confections were facing challenges for which they have to make decision. They have two things on their mind: the World Trade Center location and the Chinese investor’s offer. Whether the World Trade center location will be financially feasible for Lady M Confections and whether the investment in this franchise will give enough returns to the company. Additionally,another question that rose was the number of cakes they would have to sell to make the location viable and get their initial investment back in a reasonable amount of time was another question that arose. If they chose to open the World Trade Center location, how should Lady M Confections finance the expansion? On the other hand, both would have to decide that whether they should take the ten-million dollar offer from the Chinese investor?

Finally, Ken and Tom want to know the worth of their fast growing confectionery company. For this reason, they want to make the valuation of the company through different valuation models...................

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