Page 153 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Koutons’ performance on bourses, over a longer period, has been consistently bad. For
instance, in the past three months, returns on the stock were a negative 5%. And over a six-
month period, it was negative 11% whereas the Sensex reported a return in excess of 30%
during this period. On an annual performance basis also, the stock underperformed the
benchmark index Sensex as well as the ET Retail index that gained 92% and 90%, respectively.
Koutons, which grossed ` 1,155 crore in the past four quarters in revenue, manufactures
semi-formal and casual wear under the brands Koutons, Charlie Outlaw, Les Femme and
Koutons Kids. Each of these brands operates in a separate segment, ranging from the
premium to value segment, with Koutons positioned as the higher-end brand.

The company currently has 230 family stores and 1,388 Exclusive Brand Outlets (EBOs).
Most of these are on a franchisee basis, which keeps it an asset-light model for Koutons.
Last year, the company also forayed into women and kids’ wear, as these are high-margin
segments, which will help improve the overall return on the capital employed.
The company has seen a subdued 15% growth in profits in the first half of FY10 despite a
good 36% increase in operating margins. Improved inventory management, lesser
markdowns and higher volumes were the key contributors to this. However, in the second
half of FY10, the company is not be able to record a 25% growth in sales as seen in the first
half, with the festive period over.

The company reported ` 347-crore sales in the quarter to September ‘09, a 23% year-on-
year (YoY) growth. With an operating profit of ` 61 crore and net profit of ` 24 crore,
margins have improved on a YoY basis, but higher interest outflows still weigh heavy on
quarterly growth in profits. This has impacted its interest coverage ratio which has come
down from 2.36 times as on March ‘09 to 1.74 times as on September ‘09. Interest coverage
is a measure of the ability of the company to pay interest out of its earnings.
Going forward, the company expects to grow the ladies and kids segment that will improve
the overall margin. It also expects higher realisation and improved inventory management
system that will reduce its working capital cycle. The management expects a 300-bp
reduction in its interest cost that will further improve margins. At ` 348 and an annualised
EPS of ` 22.9 for FY10, the stock is valued at 15.3 times its earnings, cheaper than some
other retail players.
Source: www.theeconomictimes.com

Self Assessment

Fill in the blanks:
1. …………………… permits economic specialization between the manufacturing and
distribution units of an enterprise.
2. …………………… processes permit each product to be manufactured and distributed in
economical lot sizes.

3. The …………………… function concerns short-range variation in either demand or
replenishment.

7.2 Inventory Costs

Inventory is the major source of cost in the supply chain and also the basis for improving
customer service and enhancing customer satisfaction.

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