FINANCIAL RATIO REPORT BASED ON THE BRAND MICHAEL KORS MODULE: LUXURY BRAND MANAGEMENT SUBMITTED BY: Shaunessa Nongrum
SUBMITTED TO: Alka Gupta
LBM Level-1
PEARL ACADEMY NARAINA INDUSTRIAL AREA, PHASE-2 NEW DELHI-110028
ACKNOWLEDGEMENT On the very outset of this report, I would like to extend my sincere & heartfelt obligation towards all the personages who have helped us in this endeavor.Without their active guidance, help, cooperation and encouragement I would not have made headway in the project. I am extremely thankful and pay my gratitude to my mentor, Mrs Alka Gupta for her valuable guidance and support on completion of this project in its presently. I also acknowledge with a deep sense of reverence, my gratitude towards my parents and members of my family, who have always supported us morally as well as economically. At last but not least, gratitude goes to all of my friends who directly or indirectly helped me to complete this project report.
-
TABLE OF CONTENTS A. No
DESCRIPTION
1.1 1.2 1.3 1.4 1.5
Introduction Background Product Categories Price Ranges Milestones
2 2.1 2.2 2.3
Financial Analysis Income Statement Balance Sheet Cash Flow
3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8
Financial Ratio Analysis Liquidity Ratios Profitability Ratios Return On Equity Return On Capital Employed Capital Structure Market Value Ratios Price Analysis Conclusion
4
Annexure
5
References
1.1. Introduction Michael Kors is a rapidly growing global luxury lifestyle brand led by a world-class management team and a renowned, award-winning designer. Since launching his namesake brand over 30 years ago, Michael Kors has featured distinctive designs, materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. Mr Kors’ vision has taken his company from its beginnings as an American luxury sportswear house to a global accessories, footwear and apparel company with a presence in over 95 countries.
1.2. Background Michael Kors was born on August 9, 1959, on Long Island, New York. He moved to New York City to attend the Fashion Institute of Technology, but dropped out after two semesters. In 1978, Kors went to work at the French boutique Lothar's, which allowed him to design and merchandise his first fashion collection. The well-received collection generated enough interest that Kors was able to start his own fashion line. Michael Kors Women's Collection launched in May 1981, and was sold in the high-end department stores Bergdorf Goodman and Saks Fifth Avenue. Kors's simple, elegantly tailored clothing and his charmingly persuasive sales techniques proved to be a winning combination. In 1990, however, Kors; company was forced to reorganize under Chapter 11 bankruptcy. After getting back on his feet, Kors launched KORS Michael Kors, a lower-priced line. He also became the creative director of Celine, a French fashion house, in 1997. In the six years he held that position, he continued to expand his own brand, launching menswear, accessory and perfume lines. In 2003, he won the coveted Menswear Designer of the Year award from the Council of Fashion Designers of America, the most prestigious prize in American fashion. Countless celebrities wear his garments, and U.S. first lady Michelle Obama posed in a Michael Kors dress for her first official portrait. With new lines constantly in production and more customers drawn in by his Project Runway appearances, Kors's fashion empire continues to grow.
1.3. Product Categories Just as any high end brand does, Michael Kors has a wide range of products to offer to it’s customers. The brand offers clothing, shoes, bags, accessories and fragrance/beauty products for women. Kors also design for men in these categories, although the selection is much more limited. The ready-to-wear women’s category includes dresses, tops, jeans and pants, shirts and shorts, outwear and swimwear.Perhaps the most popular product of the brand is their wide variety of luxurious bags.
The company is based on two different collections: The ‘Michael Kors’ collection is the luxury segment of the brand and the MICHAEL Michael Kors collection is a more accessible luxury collection. Both collections offer accessories, apparel and footwear. Michael Kors Collection: The items in this collection are made from the highest quality materials such as leather and other exotic skins. The handbags and small leather goods retail from $500 to $6,000 while the footwear ranges from $300 to $1,200 and the apparel retails from $400 to $4,000. MICHAEL Michael Kors collection: The MICHAEL Michael Kors collection focuses on handbags and accessories, but also includes footwear and womenswear. The accessories include small leather goods (such as clutches and wallets, wristlets and cosmetic cases) as well as women’s footwear and dresses, tops, pants, jeans, skirts, shorts and outerwear. The handbags retail from $200 to $800, the small leather goods are from $45 to $200, the footwear retails from $70 to $500 and the women’s clothing retails from $50 to $500. This collection is much more accessible and affordable especially for those who want the “Michael Kors look” without the high price tag.
Michael Kors Womenswear
Margie Canvas Wedge
Irving Embossed Leather Sneaker
Simone Glitter Leather Sandal
Studded The Annabelle Tote Selma Jet Set TravelSling Tote
Wren Silver Tone
Gold Tone Bracelet
Bradshaw Gold Tone
Aviator Reflectors
Delray Pave Rose Gold Tone
Monogrammed Belt
1.4 Price Ranges 1. Apparel: Michael Kors ready to wear items price range is $89 to $3695. 2. Footwear: The shoe collection is made up of sandals, pumps, wedges, flats, boots and booties and sneakers ranges from $300 to $1,200. 3. Handbags: The handbags and small leather goods retail from $68 and go up to $2995. 4. Watches: They are a fashionable alternative to extreme high-end watches that cost thousands of dollars. Most watches range from $150 to $500. The retail price is from $85 to $285. 5. Jewellery: Pieces including bracelets, rings, earrings and necklaces ranges from $45 to $375. 6. Accessories: These include tech accessories, cold weather items, sunglasses and belts. The price range is $48 to $295.
1.5 Milestones 
1977-Kors' collections were stocked in all major luxury outlets in America including Saks Fifth Avenue, Neiman Marcus and Bloomingdales.
1981- Michael Kors Women's Collection launched 1984- Kors had his first eponymous catwalk show. 1999-LVMH buy a 33 per cent stake in Michael Kors' business and promoted him from designer to creative director at Céline. 2004- Launched his diffusion line MICHAEL Michael Kors, which offers lowerpriced alternatives to his main line. 2010- Received the Oliver R. Grace Award for Distinguished Service in Advancing Cancer Research, the Fragrance Foundation's FiFi Award for Lifetime Achievement and the Geoffrey Beene Lifetime Achievement Award from the CFDA, 2010. He was the youngest ever recipient of the latter. 2011- 30th anniversary of Kors’ business 2012- Kors was an esteemed judge on the hit US television series Project Runway 2013- Kors was selected for The Time 100, the magazine's annual list of the 100 most influential people in the world. 2014-Forbes reported that Kors now has a personal fortune in excess of $1billion, making him the latest fashion industry billionaire. 2015-Kors was named a Global Ambassador Against Hunger for the United Nations World Food Programme.
2. Financial Analysis Financial analysis is the process of evaluating businesses, projects, budgets and other financerelated entities to determine their suitability for investment. Typically, financial analysis is used to analyse whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance. One of the most common ways of analysing financial data is to calculate ratios from the data to compare against those of other companies or against the company's own historical
performance. For example, return on assets is a common ratio used to determine how efficient a company is at using its assets and as a measure of profitability. This ratio could be calculated for several similar companies and compared as part of a larger analysis. 2.1 Income Statement An income statement is a financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. Also known as the "profit and loss statement" or "statement of revenue and expense." 2.2 Balance Sheet A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. The balance sheet adheres to the following formula: Assets = Liabilities + Shareholders' Equity 2.3 Cash Flow A cash flow statement is one of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. The document provides aggregate data regarding all cash inflows a company receives from both its on-going operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. Accordingly, we will be analysing the financial ratios of Michael Kors from the year 2012 to 2015 and the tool used is Ratio Analysis.
3. Michael Kors’ Financial Ratios 3.1 Liquidity Ratios 3.1.1 Current Ratio It is calculated by dividing current assets by current liabilities. Current ratio =
Current assets Current liabilities
Current Assets of Michael Kors for 2015: $2,017,431 Current Liabilities of Michael Kors for 2015: $330,081
Therefore, Current Ratio of Year 2015=
2017431 330081
= 6.11:1 3.1.2 Quick Ratio This is a ratio between quick current assets and current liabilities (alternatively quick liabilities). It is calculated by dividing quick current assets by current liabilities (quick current liabilities) Quick ratio =
Quick assets Current liabilities/ (quick liabilities)
Quick Assets of Michael Kors for 2015= (Current Assets−Inventory) 1497523 Quick Liabilities of Michael Kors for 2015=330081 1497523 Therefore, Quick Ratio= 330081 = 4.54:1 Years Current Ratio Quick Ratio
2012 2.81:1 1.68:1
2013 5.76:1 4.38:1
2014 5.76:1 4.38:1
2015 6.11:1 4.54:1
700% 600% 500% 400% Current Ratio Quick Ratio
300% 200% 100% 0% 2012
2013
2014
2015
Interpretation: In 2012, both Current and Quick Ratios increased from 2.81:1 to 5.76:1 and 1.68:1 to 4.38:1 respectively. They remained constant from 2013 to 2014. 2015 saw a rise of both Current and Quick Ratios again from 5.76:1 in 2014 to 6.11:1 and from 4.38:1 to 4.54:1 3.3 Profitability Ratios These ratios measure the operating efficiency of the firm and its ability to ensure adequate returns to its shareholders. The profitability of a firm can be measured by its profitability ratios. Profitability ratios in relation to sales: 1. Gross Profit Margin 2. Net Profit Margin 3. Operating Margin
3.3.1. Gross Profit Margin This ratio is calculated by dividing gross profit by sales. It is expressed as a percentage. Gross Profit= Sales – Cost of goods sold. Gross profit is the result of relationship between prices, sales volume and costs. Gross profit margin =
Gross Profit x 100 Net sales
Gross Profit of Michael Kors for 2015= $2,647,651 Net Sales of Michael Kors for 2015= $4,371,469 Therefore, Gross profit margin =
2,647,651 4,371,469
x100
=61% Years Gross Profit Margin
2012 58%
2013 60%
2014 61%
2015 61%
Gross Profit Margin 62% 61% 60% Gross Profit Margin
59% 58% 57% 56% 2012
2013
2014
2015
Interpretation: Gross Profit increased throughout the course of four years. In 2012, GP was 58% and rose up to 61% in 2015.
3.3.2. Net Profit Margin This ratio is calculated by dividing net profit by sales. It is expressed as a percentage. This ratio is indicative of the firm’s ability to leave a margin of reasonable compensation to the
owners for providing capital, after meeting the cost of production, operating charges and the cost of borrowed funds. Net profit margin =Net profit after interest and tax x100 Net sales Net profit after interest and tax of Michael Kors for 2015= $881023 Net sales of Michael Kors for 2015= $4371469 881023 x 100 Therefore, Net profit margin= 4371469 =20.1%
Years Net Profit Margin
2012
2013
2014
2015
9%
18%
20%
20%
Net Profit Margin 25% 20% 15%
Net Profit Margin
10% 5% 0% 2012
2013
2014
2015
Interpretation: Net Profit ration increased from 9% in 2012 to 20% in 2014. It remained constant from 2014 to 2015 with 20%. 3.3.3. Operating Profit Margin Another variant of net profit margin is operating profit margin which is calculated as: Operating profit margin = Net profit before interest and tax x 100 Net sales Operating profit after interest and tax of Michael Kors for 2015= $1,256,973 Net sales of Michael Kors for 2015= $4,371,469 Therefore, Operating Profit Margin= Years 2012 Operating Profit 19% Margin
1256973 x 100 4371469 2013 29% = 29%
2014 30%
2015 29%
Operating Profit Margin 35% 30% 25% Operating Profit Margin
20% 15% 10% 5% 0% 2012
2013
2014
2015
Interpretation: There was an increase in Operating Profits from 2012 with 19% to 2014 with 30%. It fell to 29% in 2015. 3.4 Return on Equity(ROE) Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE=
Net profit x100 Equity
Net Profit after tax of Michael Kors for 2015= $881023 Equity tax of Michael Kors for 2015= $2240965 Therefore, ROE=
881023 x 100 2240965
= 39.1% Years
2012
2013
2014
2015
ROE
32%
38%
37%
39%
Return On Equity 45% 40% 35% 30%
Return On Equity
25% 20% 15% 10% 5% 0% 2012
2013
2014
2015
Interpretation: Return on Equity increased from 32% in 2012 to 38% in 2013. It decreased the following year to 37% and increased again in 2015 by 39%. 3.5 Return On Capital Employed (ROCE)
This ratio measures the relationship between net profit and capital employed. It indicates how efficiently the long-term funds of owners and creditors are being used. Return on capital employed= Profit after tax x 100 Debt+Equity Net Profit after tax of Michael Kors for 2015=$881023 Debt of Michael Kors for 2015= $0 Equity of Michael Kors for 2015=$2240965 Therefore, ROCE=
881023 x 100 0+2240965
=39.3% Years ROCE
2012 32%
2013 38%
2014 37%
Return On Capital Employed 45% 40% 35% 30%
Return On Capital Employed
25% 20% 15% 10% 5% 0% 2012
2013
2014
2015
2015 39%
Interpretation: Return on Capital Employed increased from 32% in 2012 to 38% in 2013. It decreased the following year to 37% and increased again in 2015 by 39%. 3.6 Capital Structure/ Leverage Ratios These ratios indicate the long term solvency of a firm and indicate the ability of the firm to meet its long-term commitment with respect to repayment of principal on maturity or in predetermined instalments at due dates and periodic payment of interest during the period of the loan. The different ratios are: 1. Debt equity ratio 2.Interest coverage ratio 3.6.1. Debt Equity Ratio: This ratio indicates the relative proportion of debt and equity in financing the assets of the firm. It is calculated by dividing long-term debt by shareholder’s funds. Debt equity ratio = Long Term Debts Shareholders’ Funds The debts for all four years of Michael Kors are 0; therefore the Debt Equity Ratio for the same years will all be equal to zero. 3.6.2 .Interest Coverage Ratio This ratio measures the debt servicing capacity of a firm in so far as the fixed interest on long-term loan is concerned. It shows how many times the interest charges are covered by EBIT out of which they will be paid. Interest coverage ratio = EBIT interest Since Michael Kors has no debts, its interest coverage ratio of all four years will be zero.
3.7 Market Value Ratios These ratios are employed by current and potential investors to determine whether a company's shares are over-priced or under-priced. The most common market value ratios are: 1. Book value 2. Earnings Per Share 3. Dividend per share 3.7.1. Book Value It indicates the net worth per equity share. A high book value indicates that the company has huge reserves. Formula=Net Worth No.of shares Net worth of Michael Kors for 2015=$2240965 No. of shares for 2015=199.66 2240965 Therefore, Book Value= 1996600 =1.12 Years Book Value Ratio
2012 1.16
2013 1.11
2014 1.09
Book Value Ratio 1.18 1.16 1.14 Book Value Ratio
1.12 1.1 1.08 1.06 1.04 2012
2013
2014
2015
2015 1.12
Interpretation: There was a fall in Book Value Ratio from 1.16 in 2012 to 1.09 in 2014. In 2015, it rose to 1.12.
3.7.2 Earnings per Share Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. Earnings per share = Net profit after tax – Preference dividend Number of equity shares Net profit after tax of Michael Kors for 2015=$881,023 No. of shares for 2015=199.66 881023 Therefore, Earnings per share= 1996600 =0.44 Years Earnings Per Share
2012 0.07
2013 0.19
2014 0.32
2015 0.44
Earnings Per Share 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
Earnings Per Share
2012
2013
2014
2015
Interpretation: There was an increase of Earnings Per Share thoughout all four years, starting from 0.07 in 2012 to 0.44 in 2015. 3.7.3. Dividend per share This ratio shows the dividend paid to the shareholder on a per share basis. This is a better indicator than the EPS as it shows the amount of dividend received by the ordinary shareholders, while EPS merely shows theoretically how much belongs to the ordinary shareholders. Formula=Total dividend distribution No. of shares Michael Kors’ dividends for all four years are not available.
3.8 Price Analysis
3.9 Conclusion After thoroughly analysing the brand, Michael Kors is evidently a successful and well distributed one. With having no debts for the past four years, the brand is rapidly growing and is continuing to rise in sales and profits every day. Michael Kors applied one of the most valuable lessons in life, usually taught in business manuals and motivational books. It saw an opportunity in something that others called a threat. When the crisis hit and everyone started to mind their spending, Kors was ready to make it all work out for the best. Its offer was and is hard to be overlooked, even in times of financial moderation. Average prices at MK range from $40 to $10.000, so it’s not necessary to break the bank in order to fulfill your appetite for luxury items. In recent years, Michael Kors developed quickly and it took many by surprise The popular brand has a story that is almost synonymous with the American dream. Michael Kors is now in the top three fashion brands on Facebook, next to Louis Vuitton and Burberry. Rightfully so, given the fact that it is now a multi-billion dollar business. Making great quality, trendy products affordable, staying in tune with the modern world, being visible, engaging with customers and rewarding them are the key ingredients that have helped Michael Kors reach global success.
4. Annexure 4.1 Income Statement
Period Ending:
Trend 3/28/2015 3/29/2014 3/30/2013 3/31/2012
Total Revenue
$4,371,469$3,310,843$2,181,732$1,302,254
Cost of Revenue
$1,723,818$1,294,773$875,166 $549,158
Gross Profit
$2,647,651$2,016,070$1,306,566$753,096
Operating Expenses Research and Development
$0
$0
Sales, General and Admin.
$1,251,431$926,913 $621,536 $464,568
Non-Recurring Items
$822
Other Operating Items
$138,425 $79,654
Operating Income
$1,256,973$1,008,171$630,014 $247,682
Add'l income/expense items
($935)
Earnings Before Interest and Tax
$1,256,038$1,008,040$628,651 $250,311
Interest Expense
$215
Earnings Before Tax
$1,255,823$1,007,647$627,127 $248,816
Income Tax
$374,800 $346,162 $229,525 $101,452
Minority Interest
$0
$0
$0
$0
Equity Earnings/Loss Unconsolidated Subsidiary
$0
$0
$0
$0
Net Income-Cont. Operations
$881,023 $661,485 $397,602 $147,364
Net Income
$881,023 $661,485 $397,602 $147,364
Net Income Applicable to Common Shareholders
$881,023 $661,485 $397,602 $126,137
$1,332
($131)
$393
$0
$0
$725
$3,292
$54,291
$37,554
($1,363)
$1,524
$2,629
$1,495
4.2 Balance Statement Period Ending:
Trend 3/28/2015 3/29/2014 3/30/2013 3/31/2012
Current Assets Cash and Cash Equivalents
$978,922 $971,194 $472,511 $106,354
Period Ending:
Trend 3/28/2015 3/29/2014 3/30/2013 3/31/2012
Short-Term Investments
$0
$0
$0
Net Receivables
$391,158 $328,545 $214,934 $138,371
Inventory
$519,908 $426,938 $266,894 $187,413
Other Current Assets
$127,443 $50,492
Total Current Assets
$2,017,431$1,777,169$989,189 $464,063
$34,850
$0
$31,925
Long-Term Assets Long-Term Investments
$0
$0
$0
$0
Fixed Assets
$562,934 $350,678 $242,113 $170,755
Goodwill
$14,005
$14,005
$14,005
$14,005
Intangible Assets
$61,541
$48,034
$20,980
$14,146
Other Assets
$33,498
$23,425
$18,889
$7,504
Deferred Asset Charges
$2,484
$3,662
$4,389
$3,952
Total Assets
$2,691,893$2,216,973$1,289,565$674,425
Current Liabilities Accounts Payable
$330,081 $308,370 $164,248 $142,332
Short-Term Debt / Current Portion of Long-Term Debt
$0
$0
$0
$22,674
Other Current Liabilities
$0
$0
$0
$0
Total Current Liabilities
$330,081 $308,370 $164,248 $165,006
Long-Term Debt
$0
$0
$0
$0
Other Liabilities
$22,037
$19,800
$7,922
$3,590
Deferred Liability Charges
$98,810
$82,672
$70,149
$49,592
Misc. Stocks
$0
$0
$0
$0
Minority Interest
$0
$0
$0
$0
Total Liabilities
$450,928 $410,842 $242,319 $218,188
Stock Holders Equity Common Stocks
$0
$0
$0
$0
Capital Surplus
$636,732 $527,213 $424,454 $228,321
Retained Earnings
$2,168,761$1,287,738$626,253 $228,651
Period Ending:
Trend 3/28/2015 3/29/2014 3/30/2013 3/31/2012
Treasury Stock
($497,724)($2,447)
$0
$0
Other Equity
($66,804) ($6,373)
($3,461)
($735)
Total Equity
$2,240,965$1,806,131$1,047,246$456,237
Total Liabilities & Equity
$2,691,893$2,216,973$1,289,565$674,425
5. References
Michael Kors: Designer handbags, clothing, watches, shoes, and more. 2016. Michael Kors: Designer handbags, clothing, watches, shoes, and more. [ONLINE] Available at: http://www.michaelkors.com/. [Accessed 9 April 2016].
Michael Kors biography, quote and facts (Vogue.co.uk). 2016. Michael Kors biography, quote and facts (Vogue.co.uk). [ONLINE] Available at: http://www.vogue.co.uk/spy/biographies/michael-kors. [Accessed 9 April 2016].
Michael Kors Biography (Biography.com). 2016. . [ONLINE] Available at: http://www.biography.com/people/michael-kors-594228#synopsis. [Accessed 11 April 2016]. Add to My References
Michael Kors Holdings Limited (KORS) Cash Flow - NASDAQ.com. 2016. Michael Kors Holdings Limited (KORS) Cash Flow - NASDAQ.com. [ONLINE] Available at: http://www.nasdaq.com/symbol/kors/financials?query=cash-flow. [Accessed 11 April 2016].
Financial Analysis Definition | Investopedia. 2016. Financial Analysis Definition | Investopedia. [ONLINE] Available at: http://www.investopedia.com/terms/f/financialanalysis.asp. [Accessed 11 April 2016].
Michael Kors Holdings Shares Outstanding (KORS). 2016. Michael Kors Holdings Shares Outstanding (KORS). [ONLINE] Available at: https://ycharts.com/companies/KORS/shares_outstanding. [Accessed 11 April 2016].