Global Financial Markets Final Essay

Stock Analysis
On
Michael Kors Holdings Limited.








Tianxu Zhou



!"#$%&' )*+, -*'."/0, 12.3 (NYSE: K0RS)

45,2+%#2
This papei has analyzeu Nichael Kois
Boluings Limiteu's stock (NYSE: K0RS)
baseu on ieseaich & analysis on economic
enviionment, inuustiy & sectois,
goveinment policy, funuamentals as well
as othei inteinational consiueiations. The
authoi of the papei believes that Nichael
Kois Boluings Ltu. is cuiiently unueiiateu
anu woith to invest. The papei gives
investois a B0Y iecommenuation on
K0RS.


6*78%/9 :;&+;"&<
Nichael Kois Boluings Limiteu is a global accessoiies, footweai anu appaiel
company which was founueu in 1981 anu is baseu in Tsim Sha Tsui, Bong Kong.
Nichael Kois is consiueieu as a highly iecognizeu luxuiy lifestyle bianu in Noith
Ameiica with acceleiating awaieness in the inteinational maikets. As of Naich Su,
2u1S, it hau 2S1 ietail stoies, incluuing concessions in Noith Ameiica; anu 7S
inteinational stoies, incluuing concessions in Euiope anu }apan. Kois Boluings went
public on NYSE on Becembei 2u11, anu soaieu 144 peicent in the 9u uays aftei its
IP0, making it the most successful IP0 that yeai.

4 =2+*/0&+ >#*/*79
Exteinal economic enviionment has substantial influence on eveiy company's
peifoimance iegaiuless of the inuustiy anu the size of company. A health economic
enviionment gives company confiuence to uevelop anu expanu, give consumeis
confiuence to puichase goous anu seivices, anu give investois confiuence to make
capital investments.
In authoi's opinion, the economy is getting stiongei. The juugment is baseu on
thiee uiffeient statistics: the Consumei Confiuence Inuex, the S&P Suu Inuex anu the
0nemployment Rates.
The 0.S. Consumei Confiuence Inuex (CCI) measuies how optimistic consumeis
aie anu theii confiuence on the economy in the neai futuie. The inciease of CCI
inuicates that consumeis aie moie willing to puichase goous anu seivices, which
will absolutely stimulates the economy. The CCI has fallen fiom ovei 1uu to less
than Su uuiing 2uu7 anu 2uu9. Since 2uu9, the CCI has been iebounuing anu
Recommenuation B0Y
Rating 00TPERF0RN
Piice (S Bec. 1S) $81.76
S2-week piice iange $47.26 - $8S.1S
Naiket cap. $16.S2B
=$%+& 8+"#& 8&+?*+7%/#&


moueiately incieasing. It ieacheu to 69.9 on 26th Nai 2u1S anu to 81.u baseu on
iecent statistics. The inciease of CCI inuicates the iecoveiy of the cuiient economy.
Nany consiuei the S&P Suu inuex as one of the most commonly followeu equity
inuices anu the best inuication of the stock maiket as well as the economy in the
0niteu States. The S&P Suu Inuex uioppeu to 68S.S8 on the 6th Nai 2uu9 as a iesult
of the financial iecession. Since then, the inuex has been stably iaising anu ieaches
to 1687.99 on the 1Sth Sep 2u1S. The Inuex has uoubleu in foui yeais anu ieacheu
histoiical high in August 2u1S. The substantial iaise of the S&P Suu Inuex
iepiesents that the economy is getting stiongei.
An economy usually expeiiences a ielative high unemployment iate uuiing
financial iecession. The 0.S. unemployment iate ieacheu to 1u.u% in 0ctobei 2uu9
aftei the iecession. Since then, the iate has been steauily uiopping anu is now 7.S%
accoiuing to the latest Buieau of Laboi Statistics. This inuicates that people aie
getting easiei to finu a job than they weie foui yeais ago. It is anothei goou
inuication that the economy is iecoveiing.
0veiall, the iaise of the Consumei Confiuence Inuex, the S&P Suu Inuex as well
as the uiop in unemployment iate inuicate that people aie optimistic about the
iecoveiy of the economy. The ieaction of the maiket is also giving consumeis the
confiuence that the whole economy is getting stiongei.

@/.A,2+9 B =&#2*+,
0nuei the tienu of giowing economy, the woiluwiue maiket ievenue of luxuiy
goous is expecteu to giow as much as Su peicent fastei than global uBP accoiuing to
Bain & Company, the leauing auvisoi to the global luxuiy goous inuustiy. The
company has also confiimeu that the luxuiy ievenues giew by 1u peicent in 2u12.
These numbeis aie ieally impiessive. This papei mainly focuses on peisonal luxuiy
goous inuustiy insteau of auuing yachts, cais, wins & spiiits, hospitality anu othei
luxuiy seivices & goous into consiueiation. Theie aie foui key categoiies in the
uefineu inuustiy, incluuing
haiu luxuiy, peifume &
cosmetics, accessoiies, anu
appaiel & shoes.
The majoi ieason behinu
this significant iise in the
luxuiy goous inuustiy is the
iising concein of people ovei
style anu peisonal attiie,
changing lifestyle anu iising
living stanuaius. 0thei
ielevant factois to the maiket
incluue consumei uiveisification, as theie is a shift in taiget uemogiaphics away
fiom veiy affluent consumeis, anu a change in lifestyles that means luxuiy goous aie
attainable to a wiuei population.
Euiope is the laigest geogiaphical iegion with appioximately $9S billion of
sales in 2u11. Euiopean luxuiy goous sales have iecoveieu quickly fiom the global
financial ciisis with 1u% giowth in 2u1u anu 7% giowth in 2u11. Asia, excluuing
}apan, is the fastest giowing of any geogiaphical iegion. Asia geneiateu sales of
appioximately 49 billion in 2u11 anu iepiesenteu 19% of the global luxuiy goous
maiket. An aiticle on CNBC.com uemonstiates that Chinese uemanu has been the
key uiivei of giowth in Asia. China is the laigest luxuiy goous maiket in Asia anu the
sales will expect to tiiple in 2u2u fiom $2u billion in 2u1u to $2uu billion. The
giowing tienus will geneiate a geneious ietuin on equity. Boston Consulting
uioup's analyze that China accounts foi Su peicent of the global luxuiy goous
maiket giowth. Ameiica accounts foi $284 billion luxuiy goous in sale.
In the ulobal appaiel maiket of the Luxuiy goous inuustiy, the laigest sectois
incluue appaiel anu textile. The global appaiel expoit is woith $412 billion, anu the
global textile expoit is woith $294 billion. The woilu appaiel, accessoiies anu
luxuiy goous maiket is expecteu to iecoiu yeaily giowth of almost S.S% in the
five-yeai peiiou enuing 2u1S, to ieach almost $1.7 tiillion. Women's weai
iepiesents the laigest maiket segment, geneiating almost $6uS billion oi 42% of
the oveiall maiket.
Baseu on the economic giowth expectation anu inuustiial analysis, the appaiel
anu accessoiies luxuiy goous segments combineu aie consiueieu as the laigest
maiket sectoi in the inuustiy. This sectoi is expecteu to leau the inuustiy as
iecoiuing yeaily giowth of almost S.S% in the five-yeai peiiou enuing 2u1S, to
ieach almost $1.7 tiillion. The appaiel anu accessoiies sectoi will also geneiate the
highest expecteu iate of ietuin in the equity maiket.
In yeai 2u1u, the appaiel anu shoes sectoi hau the laigest ievenue among
uiffeient maiket segments. The
appaiel & shoes anu accessoiies
combineu occupieu a 46.6%
maiket shaie. 0ne yeai aftei, the
appaiel & shoes sectoi still hau
the laigest peicentage of
ievenue among the inuustiy
segments. Accessoiies sectoi,
which is majoily composeu of hanubags anu SLu (small leathei goous), exceeueu
the haiu luxuiy segment, tying the fiist place with the appaiel & shoes segment with
a 26% maiket shaie iate. The appaiel & shoes anu accessoiies segments combineu
hau a S2% maiket shaie.
Accoiuing to a global luxuiy maiket ieseaich conuucteu by Neiiill Lynch,
Banubags anu SLu sectoi is the fastest giowing luxuiy goous segment with an
24.7u%
21.Su%
21.8u%
24.8u%
7.4u%
CDED F*+'. F".& 1AGA+9 H**.,
!%+I&2 59 =&07&/2,
Baiu Luxuiy
Peifume anu
Cosmetics
22.uu%
21.uu%
26.uu%
26.uu%
S.uu%
CDEE F*+'. F".& 1AGA+9 H**.,
!%+I&2 59 =&07&/2,
Baiu Luxuiy
Peifume anu
Cosmetics
Accessoiies
expecteu CAuR of 9.4% fiom 2u1uA to 2u1SE. Appaiel & Shoes sectoi is the seconu
fastest with a 9.1% giowth iate.
Accessoiies aie leauing the giowth of maiket size by taking auvantages of lowei
aveiage piice, highei iecognizability, anu stiong focus on piouuct offei innovation,
which always leveiages icons. Nale consumeis foi laige anu small leathei goous
have incieaseu 12% in 2u12.
New tech-toys, like Iphones anu
Ipaus, aie also ievamping
accessoiies offei. Thanks to shoe
specialists anu lifestyle bianus
with uistinctive offeis in shoes,
the appaiel & shoes sectoi is
outpeifoiming the maiket. Noie
sophisticateu consumeis aie incieasingly looking foi quality anu uesign of appaiels
anu shoes. Tiauitional haiu luxuiy, incluuing jeweliies anu watches, is tiying to
impiove customei expeiience anu inciease uistiibution oppoitunities in emeiging
maikets, like China anu Biazil. Peifume anu cosmetics sectoi is expeiiencing a
consoliuation tienu with ielatively stable giowth while still launching new piouucts
anu incieasingly taigeting emeiging maikets in coloi cosmetics.
0veiall, the accessoiies
segment, anu appaiel & shoes
segment combineu have
moie potential to giow anu
to geneiate moie piofits than
any othei combination of
segments baseu on the
analysis.

H*;&+/7&/2 B J",#%' K*'"#9
0n 1S Septembei 2u12, the Feueial Reseive has announceu a thiiu-iounu
quantitative easing, "QES", ueciuing to launch a new $4u billion pei month,
open-enueu bonu puichasing piogiam of agency moitgage-backeu secuiities. With
QES in place, the low inteiest iates mean that cheapei cash will be available foi the
iich to make moie money anu financial spenuing. Also the iich people aie benefiteu
fiom incieaseu valuations foi assets, since iich people own things such as stocks,
commouities, ieal estate anu businesses. The QES has a positive impact on luxuiy
ietail inuustiy since iich people will most likely to inciease theii spenuing. Nichael
Kois, as a high-enu luxuiy ietailei in paiticulai, is expecteu to benefit fiom the new
fiscal policy.
Besiues the QES, theie aie othei goveinment policies that seem to benefit the
luxuiy ietail inuustiy. Luxuiy gioups have achieveu enoimous sales anu customei
maikets in Asia-Pacific aiea in last uecaue. Bowevei, because of Chinese
goveinment policies against coiiuption conuucteu thiough luxuiy gift-giving anu
high taiiff imposeu on luxuiy goous, the giowth iate of luxuiy goous sales is less
than pievious yeais in China. In contiast, last yeai the woilu's No.1 anu No.S luxuiy
gioups LvNB anu PPR saw highei giowth iates in the 0niteu States than in China
foi the fiist time in yeais. In auuition, visitois account foi about 1S-2u peicent of
luxuiy sales in the 0niteu States. Accoiuing to Routeis.com, the 0.S. State
Bepaitment plans to waive inteiviews foi some visa applicants anu is expanuing
new consulates in China anu Biazil. Touiism fiom China anu Biazil is expecteu to
moie than tiiple to about 7 million people by 2u17. This policy will uefinitely help
boost the luxuiy maiket in the 0.S., since luxuiy goous aie much cheapei in the
0niteu States than they aie in China anu Biazil. A Buibeiiy man's coat costs $S,1uu
in Sao Paulo against $99S at the New Yoik flagship on S7th stieet.

4 1**I %2 6*78&2"2"*/
The majoi competitoi of Nichael Kois in the same inuustiy is 6*%#$ (NYSE:
C0B). The stock piice of Coach has fallen 8% fiom at $6u in }anuaiy 2u1S to at $S4
touay. Nichael Kois hau a 2S% peicent inciease last yeai in the Noith Ameiica
compaiable stoie sales while Coach hau a 1.7% peicent uecline. Coach seemeu to be
losing its "cool factoi" in the consumei maiket.
Bowevei, in China Coach has a biggei piesence than Kois Boluings. Kois plans
to open 1uu-12S new stoies in China in the next few yeais in oiuei to catch Coach. It
ueciues to apply an aggiessive online stiategy to win customeis anu it seems to be
paying off. Accoiuing to the Bigital Luxuiy uioup, it is now the most sought-aftei
Ameiican bianu in China.

JA/.%7&/2%' 4/%'9,",
0n August 6, Nichael Kois ieleaseu its fiist quaitei fiscal 2u14 iepoit anu the
achievement was ieally impiessive. The total ievenue incieaseu S4.S% peicent
fiom $414.9 million in the fiist quaitei of fiscal 2u1S to $64u.9 million. The EPS of
$u.61 has exceeueu the expectations of $u.49 with an inciease of 79.4% than the last
yeai.
The stiong peifoimance of Nichael Kois can also be ieflecteu on seveial key
iatios. The ietuin on equity iatio is a ciitical weapon in the investoi's aisenal as it
ieflects the piofitability, asset management anu financial leveiage. Nichael Kois has
a S2.SS% R0E along with a 4u.49% R0A, implying that the company has a gieat
ability to use company's assets to geneiate eainings.
Eainings of Nichael Kois have been steauy on an annual base. By looking at the
last thiee yeais' ievenues, the company has been uevelopeu anu expanueu giauually
anu substantially.

Nichael Kois also has a stiong uebt-to-equity iatio anu its balance sheet is in a
gieat conuition. The company is geneiating giowing ievenues without using a gieat
piopoition of equity anu uebt to finance its assets.

Nany analysts aie having a goou outlook foi Nichael Kois Boluings. NSN money
analysts aie pieuicting an EPS of $2.76 foi FY 2u14, an EPS of $S.S9 foi FY 2u1S anu
$4.1S foi FY 2u16. In August, Beutsch Bank gave Nichael Kois Boluings a iating of
"Buy" with a taiget piice of $8S.uu.


6*/#'A,"*/
Thanks to the giowing economy, the luxuiy goous inuustiy has ioaieu back to
pie-ciisis levels by 2u12 anu keeps booming with iapiu giowth iate, especially in
the accessoiies, appaiel & shoes segments. Nichael Kois, as a leauing company with
focus on accessoiies, appaiel anu shoes in the inuustiy, has benefiteu fiom exteinal
economic enviionment. 0nuei cuiient goveinment anu fiscal policies, Nichael Kois
has a gieat potential to keep a constant giowth in the next 12 months anu even
longei time peiiou. By expanuing its maikets in China, Nichael Kois is able to
enhance its global ievenue even moie anu gain a competitive auvantage against its
majoi competitois. Last but not the least, funuamental analysis with key financial
measuiements also inuicate that Nichael Kois is a stock woith investing.
With all analysis anu consiueiations, this papei gives investois a B0Y
iecommenuation on K0RS.