Introduction
The award winning company, Michael Kors was established in 1981. The company designs luxury clothes and accessories. Today, it is manufacturing a variation of goods under the signature Michael Kors Collection and labels. Some of these goods include footwear, watches and jewellery. Though the company started in 1981, it was not until 2006 that the company opened its first retail shop. The company operates in three segments which are, retail, wholesale and licensing. (Michael Kors, 2018). Currently, Michael Kors has 509 impartial stores and almost 200 licensed locations internationally and employs approximately 13,702 people. (Statista, 2018).
This report will provide a detailed analysis of Michael Kors financial performance and information over the duration of the last five years. To efficiently assess the company’s performance, I will discuss information such as: value per share, sales revenue produced and the development of the business and will provide an explanation of any fluctuations in performance.
Financial reports are normally produced annually and their main aim is to keep shareholders and others informed about the business’ activities. The key purposes of financial reports are to deliver evidence about the economic situation and presentation of a business which will be valuable to a wide variety of people for evaluating the stewardship of management and for making financial choices. (Holmes, Sugden and Gee, 2008).
Michael Kors is a limited company and with this comes many advantages. Running a limited company gives Michael Kors the comfort of limited liability. The company will not be accountable for any financial losses made. Michael Kors are also able to sell shares in the company, or allocate possession of shares.
Michael Kors have a market capital of 9.94 billion and their current share price is 66.08USD. (London Stock Exchange, 2018). Figure 1 below, demonstrates the value per share of Michael Kors over the last five years.
Figure 1. (London Stock Exchange 2018).
April 2013-2014
Michael Kors share price on the 1st April 2013 was 57.49USD. The share price advanced to 92.24USD by the 6th February 3014. This duration witnessed a rise of 60.44%. On the 25th February 2014, the maximum share price across the span of the former five-year period was established. Since then, Michael Kors have unmistakably failed to grasp a share price as high as 101.04USD.
Within the past ten years, the luxury goods industry has developed and has persisted buoyant during economic recession. The total global sales of luxury goods in 2013 was around $284.3 billion. The industry displayed a momentous retrieval with 13% growth in 2010 and exceeded the pre-financial crisis peak of $222.7 billion established in 2007.
Figure 2 details Michael Kors net sales and profits by section and geographic setting for the financial years 2012, 2013 and 2014.
Figure 2. Michael Kors (Michael Kors 2018).
At the end of 2013, Michael Kors had roughly 6,379 employees. As of the 29th March 2014, it was estimated that of Michael Kors’ employees, 7,451 were involved in trade and administrative status’, and their residual employees were involved in additional features of the company.
Industries such as accessories, footwear and clothing are profoundly influenced by macroeconomic cycles that disturb customer expenditure and can encourage a prolonged period of depressed customer spending. This has been proven to have a physical adversative consequence on the Michael Kors brand, financial condition and working outcomes. Factually, these industries have been a topic associated with recurring differences, downturns in the overall economy and doubts concerning upcoming economic predictions that can influence buyer expenditure behaviours.
When disposable profits are lesser due to declining phases, buying of fashionable pieces, such as Michael Kors products have a tendency to decline. There are more than a few influences that effect the triumph of Michael Kors operations regarding consumer spending. Some of which include, financial circumstances, salaries and joblessness and tax systems. A persistence and worsening of the existing weakness in the economy had revealed to damagingly influence customer and wholesale buying of Michael Kors goods and had evidently exposed a substantial outcome on the company and their economic state. (Michael Kors, 2014).
February 2014-2015
Michael Kors share price on the 6th February 2014 was 92.94USD. The value per share reduced to 62.63USD by the 20th April 2015. This period saw a reduction of 32.61% to Michael Kors share value. (Michael Kors, 2015).
Figure 3 details Michael Kors net sales by major product category.
Figure 3. Michael Kors (Michael Kors, 2018).
At the end of 2014, Michael Kors had almost 9,184 workers. It was estimated that as of the 28th March 2015, the company had 5,378 full-time personnel and 5,716 part-time personnel.
In 2014 it was announced that Michael Kors, as a company was unprotected from overseas currency exchange rate fluctuations. Michael Kors operations are unprotected from foreign exchange rate fluctuations as the financial outcomes of the different operations are converted from the local exchange into U.S dollars through economic state strength. The conversion of these overseas currencies entitles transactions that can impact Michael Kors strength of results of their operations if the U.S dollar strengthens against foreign currencies. (Michael Kors, 2015).
Michael Kors net sales from their retail outlets improved from $541.6 million to $2,134.6 million for the financial year 2015. This is in comparison to $1,593.0 million for the financial year 2014, which comprised of adverse foreign currency results of $43.0 million.
Michael Kors net sales from their wholesale consumers amplified from $487.6 million to $2,065.1 million for the financial year 2015. This is in contrast to $1,577.5 million for the financial year 2014, which contained of adverse foreign currency results of $33.5 million.
During the financial year 2015, Michael Kors gross profit improved from $631.6 million to $2,647.7 million. This is compared to the $2,016.1 million which was made in the financial year 2014, which included critical foreign currency effects of $51.2 million. As a percentage, the gross revenue weakened to 60.6% through the financial year 2015, in comparison to 60.9% through financial year 2014. The lessening in the gross revenue margin was an effect from a reduction of 66 basis points in gross revenue margin from Michael Kors retail sector, which symbolises almost half of the company. The decline of Michael Kors gross revenue margin from the retail sector was mainly caused by a rise in reductions and markdowns, moderately counterbalanced by extra favourable product combinations experienced during 2015 in contrast to 2014. (Michael Kors, 2015).
April 2015-2016
Michael Kors share price on the 20th April 2015 was 62.63USD. The value per share fell to 57.06USD by the 1st April 2016. This period saw a decline of 8.89% of Michael Kors share value. (Michael Kors, 2016).
Michael Kors retail section accounted for almost 50.8% of their entire income in the financial year 2016. Michael Kors retail sector conveyed net sales of $2,395 billion, which signified a 12.2% rise from net sales of $2,135 billion in 2015. As well as the retail sector, Michael Kors wholesale sector accounted for almost 45.5% of their entire profits. Through Michael Kors licensing sector, which is where they authorise third parties particular manufacturing, sales and supply rights through goods and geographic licensing provisions, the remaining profits are made. It was estimated that in 2016, the licensing sector of Michael Kors accounted for almost 3.7% of their total takings.
Figure 4 details Michael Kors net sales and income by sector and geographic setting for the financial years 2014, 2015 and 2016.
Figure 4. Michael Kors (Michael Kors, 2018).
Michael Kors international brand has grown from strength to strength which has been influential in serving the company shape their licensing business.
Michael Kors co-operate with a hand-picked sum of product licenses who produce and sell what they believe are products requiring specialised expertise that are enhanced by their brand strength. For example, the successful creation of the line of Michael Kors watches and jewellery is partially down to their partnership with Fossil Partners, LP (“Fossil”). In addition to partnerships, Michael Kors signature watches and jewellery are successful as they have become a fashion piece for younger consumers. The increase in demand for watches and jewellery increases the demand for factors of production which can cause a shortage of inputs. Partnerships Michael Kors partake with other companies aid the impact of their success by taking advantages of their unique proficiency, which can be observed across statistical data and categories. It has resulted in Michael Kors entire revenue for licensed goods to increase from $171.8 million in 2015 to $173.3 million in 2016. (Michael Kors, 2016).
Figure 5 details Michael Kors net sales by major product category.
Figure 5. Michael Kors (Michael Kors, 2018).
Michael Kors had around 11,094 employees at the end of the financial year 2015. This is an increase of 1,910 personnel from 2014. It was estimated that as of the 2nd April 2016, the company had 6,144 full-time employees and 6,545 part-time employees.
April 2016-2017
Michael Kors share price on the 1st April 2016 was 57.06USD. The value per share fell to 37.44USD by the 3rd March 2017. This period saw a decrease of 34.4%.
Michael Kors retail sector accounted for almost 57.2% of their total profits in the financial year 2017. Michael Kors retail sector had taken in net sales of $2,572 billion, which indicated a 7.4% rise from net sales of $2,395 billion in 2016. As well as the retail sector, Michael Kors wholesale sector accounted for almost 45.5% of their entire profits. The company’s wholesale sector accounted for 39.5% of Michael Kors total turnover. Michael Kors remaining revenue in 2017 was generated through their licensing sector. (Michael Kors, 2017).
Figure 6 details Michael Kors net sales and profits by sector and geographic setting for the financial years 2015, 2016 and 2017.
Figure 6. Michael Kors (Michael Kors, 2018).
Remaining to generate shareholder worth by growing the company’s takings and revenues and firming up their worldwide brand was Michael Kors main goal for 2016. By concentrating on six specific initiatives, Michael Kors intended to achieve this goal. The six initiatives include: improved brand communication, influential and advanced goods offerings, growing their international appearance, supreme digital existence, continuing to build on their male’s line, enhancing obdurate consumer experiences and lastly, focusing on collections and products.
Towards the end of 2016, Michael Kors had nearly 12,689 in their workforce. This is an increase of 1,595 personnel from 2015. It was also calculated that as of the 1st April 2017, the company had 7,048 full-time personnel and 6,654 part-time personnel.
Operations in worldwide marketplaces can generate many jeopardies for Michael Kors and their plan to continue to develop globally. The company’s movement outside of the United States made takings of roughly 34.4% in 2017. On the 23rd June 2016, a recommended vote to leave from the European union was agreed by voters within the United Kingdom. With this vote comes mindfulness of the influence Brexit will have on Michael Kors. It may unfavourably affect the company’s movement, political steadiness and financial circumstances within the European Union, United Kingdom and elsewhere. Furthermore, withdrawal may negatively affect taxation, currency and might too disturb the permitted migration of products, services and individuals among the United Kingdom and the European Union. (Michael Kors, 2017).
March 2017- Present
Michael Kors share price on the 3rd March 2017 was 37.44USD. The share price increased to 62.90USD by the 13th March 2018. This duration saw a growth of 68%. Michael Kors share price has meanwhile reached a stage where there has been little change and is currently 65.38USD. Figure 1 illustrates Michael Kors share price at a steady value. From the 13th March 2018 until the 16th April 2018, the company’s share price has improved by 3.9%. (London Stock Exchange, 2018). Nonetheless, the period of increase from March 2017 to March 2018 was a considerable rise.
On the 31st May 2017, Michael Kors announced they needed to improve their marketing store fleet to assist with the continuing development of the company. The company plan to do this by shutting between 100 and 125 of their underachieving trade shops over the following two years and becoming more focused on their most exceedingly industrious sites. With the closure of the underperforming shops, it will confidently produce price savings. (Michael Kors, 2017).
Conclusion
This report has discussed Michael Kors financial performance over the duration of the last five years. In February 2014, Michael Kors reached their highest share price across the duration of the five years and since then they have been unable to get a share price as high as 101.04USD. Michael Kors shares of the company did fall to closely 32.38USD, which is a decrease of 11% in 2017. This was evidentially the company’s lowest in more than five years. The company has had to deal with unprotected currency exchange rate fluctuations from overseas operations and Brexit which too, may affect taxation and currencies. Increasing its outlook, Michael Kors now anticipates total takings for the financial year 2018 to be just about $4.59 billion. (Thomas, 2018).
14.5.2018