Finance Assignment on KORS

Topics: Balance sheet, Asset, Generally Accepted Accounting Principles Pages: 32 (3119 words) Published: March 30, 2014
1. EXECUTIVE SUMMARY

Stock Pick: Michael Kors (MK) is a global luxury lifestyle brand of consumer products, which range from American luxury sportswear to accessories, footwear and apparel. The company operates in three business segments – retail, wholesale and licensing. MK is traded on the New York Stock Exchange. Although MK was established 30 years ago as a luxury brand, its initial public offering was only on December 2011. (MK Annual Report 2013)

2. KEY HIGHLIGHTS

Rapid Revenue Growth: MK had 67.54% growth by March 2013 compared to last year. The company has an outstanding 54.5% revenue increase and gross profit increased 58.3% within the First Quarterly Fiscal year 2013 itself (MK Investors Financial News Release 2013). Hence, not only the revenue growth is high, the income has also increased. Margins: The Company has observed an increase in profitability margins over the 5-year period studied. It currently generates a gross profit margin of 60% and an net profit margin of 19% Return on Capital: From 2009, MK has observed an increase in its return on capital invested. From 20% in 2009 to a 38% return on capital in the last fiscal period, projects a company that is at an outset to yeild returns in comparison to its industry peers in the retail sector. The average industry return on capital calculated for the last 5 years is at 30%. Price Multiples: MK trades at high PE and PTB multiples in comparison to its industry peers. The PE and PTB observed as of the last fiscal year was 36 and 13.71 as opposed to the industry averages of 17.13 and 5.77. Trading Commentary: From the period, MK went public, the stock had observed an upward trend and since its listing, it has yielded a holding period return of 172%. As of 2012, it has yielded a return of 92%. Its current YTD holding period return is 42%.

Efficient Market Hypothesis (EMH): The share price increased when the company launched the second public offering in February 2013. By April 2013, KORS had fallen 13.6%. This was an unexpected stock drop for a company expected with high growth. However, the company continued to be in line with the expectation to the index by being focus at their business strategy of maintaining a high quality brand recognition and expansion strategy. Even in April 2013, the share price was more than its competitor was, Coach Inc. was, in the second quarter fiscal year 2013, the store sales are expected to increase more than 15-20% (MK Investors Financial News Release 2013). This is reflected in the considerable increase in the share price in comparison to S&P 500 Index in the last 3 months. The share price movement reflects a semi-strong form of Efficient Market Hypothesis (EMH) with inclusion of all information of all publicly available information and past price movements. However, value investors are more interested in the stock price, but the stock value.

3. STAKEHOLDERS

The Company’s officers and executives include Mr. Michael David Kors as Director &Chief Creative Officer, Mr. John D. Idol as Chairman & Chief Executive Officer, Ms. Ann McLaughlin as Director and Mr. Britton Russell as Executive Vice President-Global Operations.

Whilst MK is emerging with men apparels and accessories, the customers contributing majorly to the growth of the company are the women (Luxury Daily 2013).

4. VALUE DELIVERED TO SHAREHOLDERS IN RECENT HISTORY

Although the company has not been paying dividends for more than 2 years, the total shareholder equity has increased over the previous years. The company may have been re-investing the returns back into the growth of the company. Increase in shareholder’s wealth conveyed as a percentage of the initial investment represents the Total Shareholder’s Return (TSR). Since the company’s initial public offering was on December 2011; the TSR for the year 2012 is calculated to be 21.89% (i.e. (Share Price as of 9 September 2012, 56.79 – Share Price for 2011, 46.59)/46.59*100). Ideally,...

References: Altagamma (2013). Available at http://www.altagamma.it/img/sezione3/files/397_975_file.pdf [Accessed October 1, 2013)
Bloomberg (2013)
Luxury Daily (2013). Available at http://www.luxurydaily.com/tiffany-michael-kors-are-most-purchased-luxury-brands-by-ultra-affluent-women-the-luxury-institute/ [Accessed October 1, 2013)
Marketwatch: The Wall Street Journal (2013)
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