CFA Research Challenge 2019 - Report Team - GEM Univesity

Disclosures:
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The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s),
or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or
publication of this report.
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Market making
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Disclaimer
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be
reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information
is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment
advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by
any individual affiliated with SMCP SA, CFA Institute, or the CFA Institute Research Challenge with regard to this company’s stock.
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CFA REASEARCH CHALLENG 2019 2
Investment Summary
Within our valuation model we issue a moderate buy recommendation on SMCP stock, targeting a price of
19.35€. It would represent a 26% upside potential to the closing price of 15.33€ on the 22nd of January 2019.
We release our recommendation on an 80%/20% model based on a Discounted Free Cash Flow and a
Multiple Analysis. We think SMCP has the potential to achieve constant growth in the accessible luxury
market, mainly thanks to four pillars: the market’s industry growth, their unique business model, the
international e-commerce expansion and the reduction of their debt.
1. Market’s Industry Growth: The apparel market, as the sum of luxury accessible and fast fashion sector, is
estimated to increase next year. According to Statista, the 2019 apparel market revenues are expected to be
valued at 1,608,374 million of US dollars while this amount is expected to reach to 168,269 million of US
dollars by 2021. It is the Women's & Girls' Apparel market that is the largest sector with a volume of
US$609,675m in 2019. More precisely, the luxury market is expected to grow by 2,1% (CAGR 2019-2022)
which would influence the accessible luxury market too. Even if the latter results in a competitive one, we
think that SMCP is well set in it and that it would benefit from this global growth.
2. Their Business model: We think that SMCP business model is quite unique and would benefit of different
competitive advantages. Firstly, its multi brand approach enable the group to not depend on single brand
but to expand market coverage. We think it allows to gain scale effect in terms of number of customer base
and to leverage synergies (from IT infrastructure to Production). The similarity the group has to the luxury
players in terms of the quality, personalization and distribution offers the customer the “French élite” style
that is usually designed by top luxury peers. Moreover, SMCP is made of a fast and flexible supply chain that
ensure not only a low product cycle (100 to 120 days) but also a certain flexibility in the production.
3. International and e-Commerce exposure: The group is enjoying a moment of international expansion,
particularly in Greater China and North America. We still expect growth possibility in and out of Europe. In
fact, SMCP plans to open over 80 stores in international and European markets (Italy, Spain) to intensify the
sales. On another strategic side, the group’s products are available through various e-commerce platforms
as well as own online stores dedicated to each of the three brands. SMCP is intensifying its partnership with
e-tailers (especially in Greater China). This in return helps to increase the reputation as well as would help to
get immediate customer feedbacks through online forums.
4. Financial deleveraging: It is eminent from our analysis that following their IPO, the group has paid off over
30% of its debt, which could be a positive sign highlighting the group’s financial capability in reducing its debt
burden making their Net Debt to EBITDA ratio reduce from 3.35 to 2.64. This gives an insight to investors
about the credibility of the group and adds up to the value of the company as financing sources’
diversification comes into play.
Recommendation
MODERATE BUY
Share Price (22 / 01 / 18) 15.33€
Target Price 19.35€
Upside 26%
Key Figures
Annual Dividend 0€
Dividend yield 0%
52w Low 12.73€
52w High 25.50€
Avg. daily vol. (3 months 93.17k
Number of shares 73.51M
Enterprise Value 1.39B
Free float (%) 34%
Beta 0.89
Valuation
FCFF Target Price (80%) 21.01€
Multiples Target Price (20%) 12.71€
Key Financials
2016 2017
Sales Growth 17.21% 16.78%
EBITDA Margin 13.54% 11.52%
Net Debt/EBITDA 3.35 2.64
Net Margin 8.74% 7.94%
SMCP S.A.S | Euronext Paris | EPA: SMCP |Sector: Textile | Industry: Fashion and Apparel

Business Description
SMCP is a fast-growing international apparel and accessories retail group with its headquarters based in
Paris, France. It runs three brands: Sandro, Maje, and Claudie Pierlot, sharing a brand concept of “Parisian
chic and joie de vivre” (See Figure 1: Revenue in 2017 by Regions). The group provide quality and on-trend
products at much lower prices than luxury, while keeping a price premium compared to fast fashion players.
The company realized its IPO in October 2017 on the Euronext Paris Exchange. By now, it develops its
business in 38 countries, with a bit more than 5,000 employees
1. Geographic and business segment: SMCP operates 1332 points of sale in 38 countries all around the
world, with 475 located in France, 431 in EMEA，271 in APAC, and 155 in Americas. For FY 2017, those
points generated a total net sale of 912,371 thousand euros, which represents a 126.1 million, or 16%,
increase compared to FY 2016. This exceptional growth is the result of the progress made in all geographic
regions. In detail, France division has the highest profitability, contributing 41.3% of total sale to the group.
Whereas APAC division booms at the highest speed, with sales improving by 40.27% from FY 2016.
2. Market strategy: SMCP implements a luxury brand marketing strategy, by which the group is committed
to create an aura of high-end sophistication for its brand. For each of its collections, the group conducts
marketing campaigns that include advertising campaign in high-end fashion magazines and catalogues such
as Vogue and Elle, as well as public display advertising with Group products worn by models and photo
campaigns published for each new collection. Besides, the group has rich customer relation management
tools, including sending text messages, emails and letters informing customer of new collections and
promotions, to keep close with its clients and increase their loyalty.
3. SMCP Products: The Group’s products are sold through a network of points of sale and websites under
the three brands: Sandro, Maje and Claudie Pierlot. The Group’s product range is composed of on-trend and
high-quality womenswear, menswear and accessories, offered at more accessible prices compared to luxury
brands and offers to its customers attributes associated with luxury, such as high-end communication,
premium store locations and a superior personalized shopping experience (See Figure 2: Group’s net sales
by Brands 2017).
Sandro: Founded in 1984 by Evelyne Chétrite, Sandro is targeted at sophisticated and self-confident women
with a sleek, cool sense of style and a Parisian nonchalance. The brand also includes a men’s line that offers
active and smart casual male attire for young professional men. Sandro is the Group’s largest brand in terms
of net sales with 593 points of sale worldwide.
Maje: Maje has a bohemian chic positioning, targeting a feminine and young-at-heart and joie de vivre
clientele. Founded in 1998 by Judith Milgrom, Maje is the Group’s second largest brand in terms of net
sales.
Claudie Pierlot: Founded in 1984 by Claudie Pierlot, this brand is characterized as Parisian-preppy, wise and
with a rebel touch. Claudie Pierlot is focused on a timeless, effortless style. The brand has experienced
significant growth since its acquisition by the Group in 2009, with 209 points of sale worldwide.
Industry overview
The global apparel and accessories market can be divided into three categories in terms of various pricing
strategies. Those categories are luxury, accessible luxury and other segments. When we consider the target
company we are analysing, SMCP appears as one of the typical companies in the accessible luxury industry,
we will focus on this market in our report. The key characteristics for the accessible luxury industry products
are high cost performance, fast update, and more stock keeping units. Different from the target consumers
of luxury industry, accessible luxury industry focuses on matching young people's needs, and the design is
more innovative with relatively lower price. Nowadays, the accessible luxury market is facing fierce
competition with the development of the e-commerce and retail network (See Figure 3: Market Share of
the top 10 Apparel Brands in 2017). According to the Statista, the main 10 apparel brands account for about
60% of the total global apparel market share (See Appendix 1: Revenue in the Apparel Market). Revenue
in the Apparel market amounts to €1,456,447m in 2018. The market is expected to grow annually by 4.4%
(CAGR 2019-2021). Among In global comparison, most revenue is generated in China (€303,782m expected
in 2019). Growth per region should remain stable in line with the previous period, except for the Asia-Pacific
region which is expected to grow at a CAGR of around 4.6%, while Western Europe is expected to grow at a
CAGR of around 1.5% for the period.
Figure 1: Revenue by Regions 2017
(Source FactSet)
Figure 2: Revenue by Brands 2017
(Source FactSet)
Figure 3: Market Share
(Source Statista)

Drivers for the accessible luxury market
1. Macroeconomics: One of the key drivers for the boost of the accessible luxury apparel industry is the
rising per capita income that is correlated with the growth of GDP, since the rising purchasing power
improving the consumer confidence will translate into the consumption of accessible luxury apparels.
Obviously, the significant influence on the growth of the accessible market can be analysed on many
economic factors’ aspects, for example, the young people who are the target consumers of the accessible
luxury market have limited budget to buy traditional luxury apparels and accessible luxury with affordable
price and similar gene of luxury is a good choice for these people in this case.
Europe Union: According to the Statista, over the recent 10 years, the GDP growth of the Europe Union
increased steadily overall except it bottomed out at 2008 and 2012. The reason for the decline was the
financial crisis and it hurt nearly all industries globally. However, with the economic recovery, the rising
purchasing power was translated into consumption of apparel. The revenue in the apparel market in Europe
Union show a slight growth from 2010 to 2018 and this tendency is expected to keep until 2021. Backed up
by the stable economy, which reflects on the apparel market as an around 2% of sustainable growth each
year (See Figure 4: Estimated Revenues for the Apparel Market in Europe (M€)).
East Asia & pacific: The GDP growth keeps at 4% and did not show any increasing tendency in recent years,
while as the largest market in Asia, China sustains a high-speed GDP growth rate at 7%-8% each year. Over
the past decade, Chinese consumers have taken the lead in luxury shopping. Despite China’s slowdown in
economic growth, the crackdown on gifting and weaker currency, the accessible luxury apparel goods market
remained stable. According to the Statista, the market's largest segment is the segment Women's & Girls'
Apparel with a market volume of €202,888m in 2018.The apparel market revenue increased by around 6.9%
each year and is expected to keep increasing for the next 3 years. It is noticeable that the apparel market
revenue in Asia growth rate is the highest among the rest part of the world due to the high and steady GDP
growth (See Appendix 2: GDP Growth & Apparel Market Revenues for East Asia & pacific (M€)).
North Americas: In North Americas, the GDP growth rate fluctuated over the recent years with an average
of 2% increase. Revenue in the Apparel market amounts to €346,595m in 2018. By forecasting, apparel
market revenue for the period between 2019 and 2021, Statista’s revenue outlook accesses a CAGR of 2.4%.
(See Appendix 3: GDP Growth & Apparel Market Revenues for North America (M€)).
2.Other drivers:
Low cost of use for accessible luxury apparel: After analysing the same category of items in luxury and
accessible luxury, it is acknowledged that the price of the accessible luxury items is lower than that of the
luxury items while the use life of accessible luxury item is shorter. We can say that the cost of use is lower
for accessible luxury apparel. According to our estimations, the cost of use for a Gucci dress is €65, while the
cost use for a Tara Jarmon is €13. In this case, the accessible luxury apparels are much more attractive than
luxury apparels with both having high quality and fashionable design.
The tendency of “Mix and Match” that is gaining increasing popularity among the consumers of apparel and
accessories market. People use apparels from different type of brands with wide range of pricing positioning
to show their fashionable outfit. For example, the consumers tend to wear an accessible luxury dress such
as Sandro with a luxury handbag. And this tendency is expected to continue in the following years. “Mix and
Match” phenomenon is more flexible for consumers to diversify their outfits to show their personal
characteristics and individualization, which increase the demand for the accessible luxury apparel market.
The wide range of target consumers of accessible luxury apparel market is increasing and obviously, the
market will benefit from the increasing of number of consumer base, specifically, the increasing number of
global middle-class.
The urbanization in the emerging market and rise of white-collar workforce is another driver for the
accessible luxury market. These consumers have the demand for the fancy appearances in both work and
social environment (See Figure 5: Forecast of the Global Middle-Class Population).
Rising use of social media: With the development of the social media, people have more access to get
information about the fashion outfits and people are willing to spend more on their outfits. There is a
tendency that the increase of the make-up sales has a positive correlation with the increase number of
selfies. In addition, the fashion influencers have strong power to lead the fashion trend. Because people tend
to mimic what they buy and wear. All these impacts from the use of social media encourage people to catch
up with the trend and buy more fashionable items. (See Figure 6: Number of Social Network Users
Worldwide in Billions).
The growth of international tourism: There is an increasingly popular tendency of international tourism
from which the global apparel and accessories market benefit. Tourists can get more purchasing
opportunities to buy the apparels when they are travelling abroad than in domestic market (Source UNWTO).
Figure 4: Estimated Revenues for the
Apparel Market in Europe (M€)
(Source FactSet)
Figure 5: Forecast of the global middle-
class population
(Source Brookings Institution)
Figure 6: Number of Social Network
Users Worldwide in Billions)
(Source eMarketer)

Competitive positioning
With €912 million sales created in FY 2017, SMCP operates as an excellent player in global apparel and
accessories segment. SMCP ‘s unique business model that blends the competitive edge of both luxury and
fast fashion players is its biggest competitive strength, which ensure its stable and sustainable profitability.
1. Multi-brand strategy expanding market coverage: Different from most of its peers, such as Ba&sh and
Theory, that adopt a single-brand approach, SMCP operates with three complementary brands that are
totally split from each other, thus avoiding over dependence on one brand. With each having its unique
expression and market positioning: Sandro for sharp fashion, Maje for rich aesthetic, Claudie Pierlot for
classical consumers, the three brands target their own specific consumer profiles, enabling the group to gain
significant market share which cover a broad audience (between 15 and 45 years old).
2. Brand building like luxury players:
Products with quality comparable to luxuries and competitive price: Like luxury brands, SMCP attaches a
great importance on innovation and on styles, cuts and fabrics. Each brand has its own in-house design team
supervised by artistic directors. Those teams identify the latest fashion trends and interpret them through
the codes of each brand, providing consumers with ingenious design. However, the price of those products
is attractive and accessible: On average, the selling price are €192 at Claudie Pierlot, €205 at Maje, and €210
at Sandro women, much lower than that of luxuries.
Superior and personalized shopping experience increasing brand awareness: SMCP’s retail stores are usually
located in premium high-street locations, commercial thoroughfares, and in reputable shopping malls such
as Finance Centre in Hong Kong, leaving their consumers with luxury-like shopping experience (See Figure
7: Typical Store Design for Sandro, Maje & Claudie-Pierlot). Furthermore, the group carefully selects and
trains assistants that are passionate about fashion to provide fully-assisted sales service. Finally, Stores
display only one size of each item and offer no mirrors in fitting rooms to enhance the active interactions
between the customers and the sales assistants, providing the customers more personalized assistance.
Absolute control over retail and distribution raising entry barrier: With almost 100% of sales made through
its own retail network, SMCP operates as a retail pure player with vertically-integrated and closely controlled
distribution network. The “retail only” model enable the group to directly control brand image and dominate
pricing, commercial policies, and sale force, eliminating the risk of wholesalers injuring the brand’s retail sale
and image with vicious compete on price. Furtherly, the distribution network, consisting free-standing
stores, concessions, e-commerce and partnership, thoroughly synthesizes the online and offline platforms
with features of web-to-store, click-to-collect and e-booking of products, profoundly benefiting the omni-
channel operation. We think the strong control over retail and distribution is laudable for it raises barriers
of entering in apparel market given the low exposure to wholesale channel (See Figure 8: Channels Net Sales
Contribution in FY 2017).
3. Accurate response and fast speed comparable to fashion player:
Continued newness creating continuous traffic: For each brand, the group produces two collections a year
each providing 24 drops per year. The three brands also have periodic new “capsule” collections, in
partnership with other brands or designers. On average 25 new products are marketed per week. With 450-
500 products designed for each collection, every week there are 5% of the products renewed. Constant
renew ensures the group’s products catch up with the latest trend and remain fresh and attractive to
customers, therefore creating profound traffic to its stores and websites, ultimately allowing the group to
consistently drive sales intensity through repeat customer visits.
Fully-integrated supply chain boosting product cycle while spreading risk: With the 10 largest representing
only 22% of total supply, the group has more than 600 material suppliers in Europe and Mediterranean
region (particularly in France, Italy, Spain, and Portugal) and Asia (especially in China), choosing its suppliers
on a principle of proximity sourcing while minimizing its procurement dependency. This highly flexible supply
chain, with highly coordinate in-house design, agile sourcing and procurement, ensure a product cycle within
100 to 120 days, a production model similar to fast fashion players (average lead time is 35 to 40 days) and
much more rapid than luxury companies (average lead time is 365 days), endowing the group with agility in
producing: the group can produce a limited number of products at the start of the season with limited risk
of excess inventory and synchronously adjust its production according to fast-changing fashion trend and
customer demand. Finally, diversifying the geographical location of suppliers limits the group’s exposition
to inflation and currency fluctuations, reducing the risk of potential disruptions.
Globalized logistics system ensuring in time replenishment: The group has a fully-globalized logistics system
that allows for flexible and responsive logistics worldwide. It has its main warehouse located in Vémars and
Varty serving its EMEA markets and warehousing and logistics capabilities situated in New Jersey and
Shanghai supporting its North America and Asia markets. Such globally connected logistics system
Figure 7: Typical Store Design for
Sandro, Maje & Claudie-Pierlot
(Source SMCP Website)
Figure 8: Channels Net Sales
Contribution in FY 2017
(Source Data SMCP)

significantly shortens the distribution time. Able to replenish stocks less than 2 days in Europe, within 4 days
in North America, the group can maintain low inventories in stores and thus optimize dedicated sales space.
4. Michael Porter's Five Forces Model
The threat of new entry is medium-low as accessible luxury brands need sufficient capital and resources to
support themselves. It usually takes a long time for customers to get familiar with a brand. For example,
Sandro was set up in 1984 with 35 years history, therefore, the threat of entry for the heritage brand Sandro
is low and it is difficult to compete with it directly.
The threat of substitutes is medium as consumers can choose other brands such as the high street brand
Zara with less money. For accessible luxury brand’s target consumers, these people have their own
preference for the brands, so they will not change the brands easily. However, with the increase of the
stylish apparels accessible on the market, the brand like SMCP will be affected but with less influence as it
has unique characteristics and 3 complementary brands.
The power of suppliers is medium because of the large number of manufacturers all over the world, some
luxury brands even control the whole production process on their own. For SMCP, the long partnership
between some vendors causes the higher bargaining power.
The bargaining power of buyer is medium-low. After brands setting the price range, the customers have
little power to change it as the price are “intentionally discriminatory”. However, the switching cost is low,
this will strengthen the buyer’s power to some extent.
Competitive rivalry in the accessible luxury industry is medium-high. In 2018, the global top 10 apparel
brands account for 40 % of the total market share, which means the market is competitive. The competitive
rivalry for SMCP is relatively moderate due to its’s position and the leading position of French style. With
the accumulation of word of mouth from the customers for its unique style, ordinary players cannot become
the direct competitors (See Figure 9: Michael Porter's Five Forces Model).
Digital strategy
1. First SMCP’s Ecommerce platform was created in 2013 and prioritized the following year. Overall the e
commerce sales accounted constantly more during the years reaching 12% of SMCP’s sales in 2017 and
14.3% in the first half of 2018; up +200bps of H1 2017. From 2014 the corporation has tried constantly to
improve and enhance its digital framework, through professional employments and E-partners. As the main
name we find Flavien D’Audiffret, ex Amazon Data senior, with a Central Global Digital team (CGD). We
noted over 40 professionals divided in the three business units and two regions. SMCP has constantly
opened websites in other countries and increase its distribution (e-tailers platforms and department stores
e-commerce websites). The digital strategy is divided in two parts: channel agnostic and e-commerce
business drivers. The first group strategy aims to let the customers free to choose how to interact with the
brands. Being e-commerce business drivers means they would like to master the two third of the online
business through own websites with a relative profitable percentage. The remaining part is driven by “pure
players” like “Mr. Porter” or “Net à Porter”. SMCP is rolling out omni-channels and specifically is improving
the customer experience through store-to-web services. For instance, delivery times (inserting the same
“day delivery” or “click and collect” options) e-reservation and quality of online packing.
2. Starting from May 2016 with a partnership with T-Mall and the after-launch of Sandro and Maje e-
commerce website, the group is continuing to sharpening its digital strategy in the Greater China market.
Even if this area could be penetrated enough, we think that SMCP is planning to double its digital sales and
expect to increase links with second e-tailors as Kaola, vip.com or JD. WeChat is the main tool that enable
to engage and increase customers in this area. Along with the website strategy, the group is trying to stress
on the digital communication to increase web traffic (emphasizing on videos or brand stories) and targeting
young population through VIP ambassadors on social medias such Brad Pitt for instance (See Figure 10: Brad
Pitt Sandro Endorsement). We expect the group to endure this strategy and try to influence the brick and
mortar customers behavior to an online one. They would benefit from a decrease of “practical” costs and
increase the most profit-accretive channel they have. Among the three brands, Sandro results to have the
highest number of websites linked and for this reason we assume Maje and Claudie Pierlot to increase their
presence on e-tailers’ and e-commerce platforms.
Figure 9: Michael Porter's Five Forces
Model
(Source Team Assessment)
Figure 10: Brad Pitt Sandro
Endorsement
(Source Twitter Sandro Paris)

Financial analysis
1. SMCP is operating in two specific market (luxury and fast retail) and must be analysed according to its own
specific business model as it complexifies the way it compares to other players of the retail and luxury industry,
the comparison panel was therefore constituted of three categories that represent the luxury, the retail, and
the accessible segment of the apparel and accessories industry. We decided to compare years 2016 to 2017 to
reflect on the transition from private to public owned company.
2. Concerning profitability, we can see a decrease in all the main indicators even if the company produced a
steady growth in revenues of 16.78%. The company has been producing strong growth in its three brands since
2013 (See Figure 11: Sales Growth) with earnings repartition between the three brands being consistent over
the years (50% for Sandro, 37.6% for Maje and 12.4% for Claudie-Perliot in 2017). Growth was mainly supported
by new stores opening (109 in 2017), online sales that shot up by 46% and growth for the Sandro brand (40%).
EBITDA decreased by 13.04%, Operating income went down by 17.95% and their relative margin gives the same
picture. The gross margin only gained a bit less than one percent, the operating margin decreased by 3.94% and
the EBITDA margin lost 4.76% going from 18.65% to 13.89% which can show potential difficulties to generate
profitable growth in the long term. The returns ratio all went down due to the introduction to the public market
and are not relevant in this analysis. To obtain a better picture of SMCP’s return on assets, return on capital,
and return on equity we would need 2018’s values. Compared to its peers, SMCP is performing above the three
segments in terms of sales growth (the peers average is of 7.4% growth with the highest growth being the luxury
segment at 12.8% but in terms of EBITDA, EBIT, and Net Income SMCP falls behind sharply indicating strong
competition in terms of cost control (See Appendix 4&5).
3. SMCP Cash, Current, and Quick ratio for 2017 all went down. The cash ratio which was already lower than
one went from 0.27 to 0.11 indicating potential risk of short-term financial difficulties. The current ratio lost
41.63 and the quick ratio went down almost by half. These drops account for the expenses linked to the IPO and
loan servicing and increases in short term liabilities that come from extended short terms borrowings which
went up by 136.5 million euros over the previous period. Even if SMCP’s liquidity appears to be low the company
put in place a credit facility agreement for a total amount of €250, that will be available in any currency that can
be euro converted for a length of 6 months. We interpret this facility agreement as a sign that banks have trust
in SMCP’s ability to meet its short terms requirements. In comparison to the industry SMCP is underperforming
greatly overall and even more if solely compared to the luxury segment. The panel cash ratio average is under
1 as well but closer to the 0.80 which could indicate that SMCP is still pursuing its expansion phase (See Figure
12: Liquidity Ratios 2017)(See Appendix 6&7).
4. In 2017, SMCP Net Operating Cycle was notably above the industry average at 97.35 days while the highest
value comes from the accessible segment at 41.03 days. The Days Sales Outstanding increased from 37.35 to
39.38, Days Inventory Outstanding raised as well (from 130.8 to 136.5) and the resulting Net Operating Cycle
increased by 10.42 days. We think that this slight downfall in performance is due to the company’s growing
store base which increases the supply chain complexity. Since SMCP acts as a pure player and has flexibility and
rapidity in delivering collections, we estimate the ratios to improve when the Asian market would have been
fully penetrated. Maje is the most flexible brand in terms of collection and represents the highest share of
revenues which makes us believe that the two other brands need to improve in that matter if SMCP wishes to
possess a better operating cycle that can rival its peers (See Appendix 7).
5. In 2017 SMCP went on to deleverage its balance sheet with part of the proceeds from the IPO serving to pay
high yields notes (See Figure 13: Total Debt). The total debt over equity reduced by 75% while total debt over
total assets went down from 42.90 to 18.24. By repaying and refinancing its debt, SMCP is bringing stability in
the long term. The Z-Score which measure the probability for a firm to go bankrupt is 3.43 (source Bloomberg)
and with a score above 2.99 we can be reassured in SMCP’s ability to meet its long-term requirement (a score
below 1.81 would have indicated financial difficulties and a high probability to fil for bankruptcy). The Luxury
and Fast fashion segment both average around 18% of Financial debt over Equity while SMCP is at 30.7% and
closer to Brands such as Inditex, H&M and Gap who possess an average of 29.9%.
Valuation
We issue a moderate buy recommendation on SMCP Group with a target price of 19.35€ that represents a 26%
upside compared to the 15.33€ closing price of SMCP on the 22th of January 2018. The valuation was obtained
using a mix of the discounted Cash Flow to Firm (DCF) Model that gave a target price of 21.01€ and multiple
valuation that gave a target price of 12.71€. We decided to give the two methodologies different weights
considering the lack of identifiable peers corresponding to SMCP business model. Therefore, the DCF valuation
Figure 11: Sales Growth
(Source FactSet)
Figure 12: Liquidity Ratios 2017
(Source FactSet)
Figure 13: Total Debt
Source FactSet)

has been given a weight of 80% and the multiples valuation a weight of 20%. Since the company went public
only in 2017 we decided not to use the Discounted Dividend Model (DDM) as no dividends were paid since.
1. DCF valuation: Sales estimates were obtained by averaging the actual growth consensus and our own growth
forecasting. Our forecasting derives from the retail apparel industry growth estimates in three distinctive
sectors where data was the most available: Europe, China and the US. We attributed different weights to the
growths estimates by looking at revenues repartition between the EMEA (Europe, Middle East and Africa) the
APAC (Asia-Pacific) and America (North, Central and South) regions with a decrease in EMEA’s weight over the
years due to increase in APAC’s revenue carried by increase in sales in China that SMCP intends to focus on.
The final obtained estimates are slightly lower than the consensus expectations except for the year 2019 as we
believe market penetration in China to be difficult at first in the short term to then rebound in that year. Our
assumptions are mainly based on the fact that the sales mix shares would respectively benefit from growth in
those three regions of the world and the fact that SMCP will be able to maintain its current market share. We
intended to include growth estimates from the Textiles & Apparel & Luxury Goods industry but since it only
reflected upcoming trends for the US, it wasn’t representative of SMCP’s specific business model and to avoid
double counting we decided to ignore them and focus solely on the retail apparel industry (See Appendix 8).
From our belief that the cost of sales will be reduced in 2018 due to expansion of online sales we lowered from
its historical average of 52% of sales to around 37.6% which was the figure obtained when averaging the analyst
consensus to this historic figure. From the released 2018 6 months profit and loss statements we can observe
that our COGS estimations stay conservative as they were able to reduce cost of sales up to 23.5% percent.
SMCP’s midterm objective is to have 20% of the sales made online and as stated by Mrs Everlange, SMCP’s
Head of Investor Relation, “The better the digital, the better the margin”. This represents a reduction of around
25% of the cost of sales and 11% of the selling administrative and general expenses. Despite the challenge to
maintain quality levels with a drop-in production costs we expect SMCP to maintain the corresponding level of
adjusted EBITDA margin with minor fluctuations around our 17% estimate throughout the following years. This
by using its own retail network (where 100% of its sales are realized), that allows SMCP to control the pricing
power and customer policies. (See Appendix 9).
From the obtained EBITDA we derived Free cash flow by allocating a value to depreciation and amortization,
changes in Net Working Capital and Capital expenditure slightly higher than the obtained average historical
percentage of sale. We indeed believe that SMCP will need higher allocations to D&A, Capex and NWC to
support its expansion in China and its development projects (Sandro Homme). The respective rates applied
were of 5.64%, 4.70% and 8.67% of total revenues. In the recent Q&A section of SMCP Half-Year 2018 Results,
Philippe Gautier, SMCP’s CFO stated that he did not “expect any changes in taxation” and we therefore decided
to use the 28.82% 5 years average effective tax rate of the industry (source: Reuters) to compute After Tax EBIT
(See figure 14: FCF & EBITDA Projections)(See Appendix 9,10, 11 and 12).
We then derived the discounting rate using the weighted average cost of capital. Following a debt to enterprise
value ratio of 15.10% and using the CAPM model to estimate the cost of equity we obtained a WACC of 7.94%.
The following data was used in the process: 1) risk free rate: French government 10 years bond rate of 0,638%
2) French market risk premium of 9.74% 3) beta sourced using a re-levered average beta from a retail
companies’ panel of 0.89. (See Appendix 13). The obtained WACC was then further adjusted by a 1% increase
to reflect corporate governance risk. We believe that by often assuming the roles of artistic director for the
brand and of general directors, the brand if losing one of its board of management members could face
potential loss in creative and artistic identity that could lead to a reduction in sales (See Figure 15: WACC
Calculation). We obtained our Terminal growth rate estimation from the different GDP growth rate of the
regions that SMCP operates in (EMEA, APAC and AMERICA) weighted with SMCP’s long term geographical
revenues distribution. As our approach is conservative we then lowered the result by 2%. Our final estimate is
a terminal growth rate of 1.07% (See Figure 16: Terminal Growth Rate).
Our DCF analysis suggests that SMCP’s shares are undervalued. These results are to put in perspective to our
financial analysis that suggests that the company has slightly underperformed in some of the profitability and
liquidity aspects in 2017 which is the reason why our recommendation is moderated. (See Appendix 14).
2. Multiples Valuation: We used the following ratios to conduct our multiples valuation: P/E, EV/Sales,
EV/EBITDA and EV/EBIT. We selected peers and made a sample composed of luxury, fast fashion and accessible
brands to have a better estimate of SMCP’s true business model’s value. We obtained an average price of
12.57€ which would signify that the market currently overvalues SMCP. We are confident that this result is
representative of SMCP’s actual financial situation and not of its growth potential as the only multiple giving a
higher value is EV/Sales (20.12€). The average is highly impacted by extreme values and the all industry could
be overvalued compared to SMCP which is why we decided to only give a 20% weight to the result obtain with
this method (See Appendix 15).
Figure 14: FCF & EBITDA Projections
(Source FactSet)
Figure 15: WACC
(Source Bloomberg & Team Assessment)
Figure 16: Terminal Growth Rate
(Source Bloomberg & Team Assessment)

Risk to the target price
We conducted a Monte-Carlo analysis to obtain a better representation of SMCP shares’ price distribution by modifying inputs parameter of our DCF
valuation. The main modified parameters were the cost of capital, the growth rate in sales, the percentage of COGS and the terminal growth rate. After
20 000 simulations we obtained a mean share price of 29.34€ euros with a standard deviation of 13.19 euros. The variables that impact the price the
most were found to be the WACC and the growth in sales which reflects the importance for SMCP to pay attention to how it founds its projects and to
focus on sales growth. With all changing variables considered we find that the model has a positive skewness of 1.43 and we obtained a 39% probability
to find a target price superior to our valuation (See Appendix 16).
Investment risks
1. Competitive market conditions: As SMCP’s gross profit comprises almost (41)% of profits from France alone, where highly fragmented market
conditions exist includes competitors with much higher financial, retailing and distribution resources. Even in expanding markets such as Italy, China
Portugal, the United States existing heightened competition between local and other National Brands would require the Group to make intense efforts
to put together their products more attractive and appealing in contempt with its existing best efforts. It should also be taken in consideration that there
are very low barriers to enter this market.
2. Change in Trend and Preference: As the customer expectations changes very rapidly in Apparels and related industry, if the group is not able to cope
up with changing trends and preferences could adversely affect the sales and in addition would lead to inventory pile up. This would cause a downturn
in the Group’s business and future development prospects.
3. Counterfeiting: The Apparel and Accessories retail industry is faced with extensive counterfeiting notably in new markets such as China. This may have
a negative impact due to loss in consumer confidence and contraction in sales which in fact may affect future prospects of the Group.
4. Capital Structure: Shandong Ruyi Technology Group owns a 61.3% stake in the group makes it vulnerable to at a future stage, dispose of such a large
stake that could lead to momentous overhang.
5. High proportion of Revenue from Local Market: MSCP is dependent majorly upon its local market as (41)% sales in the FY17 was generated from the
France alone. Although SMCP has been outperforming the market, being France a mature market further possibilities of high growth rate are limited so
a slow growth is expected.
6. Currency and Foreign Exchange Risks: Since the Group operates in foreign markets a significant share of revenue is generated outside the Europe
which makes it prone to forex risk. As for now the negative returns is around 2% which is quite negligible. Although frequently overseeing and evaluating
trends in rate fluctuations, where negative exposures are hedged through derivative instruments, eventually we could see that foreign currencies can
cause major setback on the group’s financial position.
7. Legal Risks: It should be noticed that SMCP major consideration for compliance with existing legal rules and regulations, failure at certain point of time
in future may result in penalties or other judicial proceedings, which could result in its operations being impacted and its reputation affected.
(Source Team Assessment)
Corporate Governance:
Company’s Management and Supervisory Bodies: Corporate management was stable enough over the years with a change of only two CEOs since the
holding creation in 2010.
Board of Directors: SMCP as a listed company, refers to Corporate Governance Code (AFEP-MEDEF), in other words to the governance standards that
improve operation and management in a highly transparent way.
Headed by Mr. Yafu Qiu chairman, the board of directors is composed of eight internal members followed by four independent ones. In compliance with
law 2011-103, the board is made of six women and includes Ylane Chétrite as a non-voting member. Four members of the board and the chairman Mr.
Yafu Qiu represent Shandong Ruyi Technology group, the main shareholder of the corporation. Daniel Lalonde, Evelyne Chétrite and Judith Milgrom are
the three executives into the supervisory board. We are concerned about that some BOD members that tend to hold several outside-group mandates;

some members are entitled up to five mandates and we are substantially worried about a possible time
management problem that could lead to a decrease in performance (See Appendix 17).
Management : Among all the internal members of the firm, we find a diversified list of backgrounds in the
textile, luxury, engineer and finance industry. While we observe ex specialists as Amazon CDO, the CEO
Daniel Lalonde, the CFO Philippe Gautier and the recent Maje’s recruited CEO all come from the luxury
industry. We strongly believe these people are key pillars for the group as they offer significant advantages
in replicating luxury code to accessible luxury models. We can also note that for Maje and Claudie Pierlot
the “Artistic director – Deputy CEO” combination seems to work well; the positions at each brand has been
stable during last years. The two founder sisters continue to occupy these positions while at Sandro is
Vanessa Pierrat to hold the only the AD spot. The old Sandro CEO has recently shifted to Lanvin corporation;
therefore, the group is looking for replacement. Before the succession, it is Daniel Lalonde to be chosen to
lead Sandro. Within the supervisory and the management there are family connections. It was declared that
while Evelyne Chétrite and Judith Milgrom result being sister, the first is the mother of Ylane Chétrite.
Furthermore, Chenran Qiu, director and deputy CEO, is the BOD’s chairman daughter. In conclusion we
noted that SMCP follow the Article L.225-37-2 of the French Commercial Code; the directors and executives
are compensated by fixed, variable and exceptional elements (See Appendix 17).
Shareholders: Among the main stakeholders of SMCP we find: Top SoHo with a piece of 61,3% and the
Founders and Management that reach 4,29%. The institutional part instead amounts to 20,86% of the
shares. (See Figure 17: Ownership composition). The capital is divided into two type of shares: Ordinary
shares and Class G preferred Shares (shares directly allocated for certain managers and employees of the
group) We noted that 14,224,078 Class G preferred shares could be translated into 5,072,914 common
stocks since 1 January of 2019. To every ordinary share is linked one traditional vote. (See Figure 18 and 19:
Voting right division with/without Conversion of Preferred Shares). From the company bylaws, we also
found that for every common stock held more than 2 years it is stipulated a double voting right. Through
European Top SoHo SARL, Shandong Ruyi is today the biggest shareholder of SMCP with a total of
44,830,000 shares that equals to 61.26% of total share. Headquartered in Jining (China), Shandong Ruyi was
founded in 1993 with the aim of being textile provider of luxury brands. The group recently acquired share
portions in several fashion brands. Big steps to become a textile and fashion empire. The group aims to
financially back up SMCP, helping in the expansion plan. We think it would result as long-term investor.
Corporate Social and Environment Responsibility report (CSR): The rapid business growth has brought to
the company the need of preserving the “French elegance” reputation, integrity and brand image. During
last years, SMCP has constantly structured and implemented a committed CRS strategy mainly defined in
six areas of action; Client, Environment, Supply Chain, Society, Human Capital and Commercial Practices.
This framework is built on a dedicated Department of Strategy, made by CRS officer and a related project
manager. The quality of the products is one of the main topics of SMCP to the point that Maje recruited in
2015 a quality manager dedicated to the quality-related group issues (POP Regulation, REACH requirements
and biocides regulation).
Investor Profile in percentage of Outstanding Shares (Source FactSet):
Figure 17: Ownership Composition
(Source FactSet)
Figure 18: Voting right division with
Conversion of Preferred shares
(Source FactSet)
Figure 19: Voting right division without
Conversion of Preferred shares
(Source FactSet)

APPENDIX 1: REVENUES IN THE APPAREL MARKET IN MILLION € (WORLDWIDE)
(Source: Statista)
APPENDIX 2: GDP GROWTH & APPAREL MARKET REVENUES FOR EAST ASIA & PACIFIC IN M€
(Source: FactSet)

(Source: Statista)
APPENDIX 3: GDP GROWTH & APPAREL MARKET REVENUES FOR NORTH AMERICA IN M€
(Source: FactSet)

(Source: Statista)
APPENDIX 4: PEERS GROWTH RATES
(Source: FactSet)
Net sales EBITDA EBIT NET INCOME
SMCP 16,8% -13,0% -18,0% -81,3%
Ralph Lauren -7,1% 82,8% 595,1% 264,0%
Guess 7,0% 8,6% 27,9% N/M-
Abercrombie 5,0% 30,6% 419,2% 79,3%
PVH Corp (Calvin Klein & Tommy) 8,7% -8,0% -20,9% -2,0%
Capri Holding (Michael Kors) 5,0% -10,7% 8,0% 7,1%
Moncler 14,7% 14,4% 14,5% 27,4%
Kering 24,97% 57,04% 93,47% 119,50%
Burberry -1,2% -4,6% 10,3% 2,3%
Inditex 8,7% 3,7% 7,1% 6,7%
H&M 4,0% -7,5% -13,7% -13,2%
Gap 2,2% 4,8% 23,3% 25,4%
Average 7,4% 13,2% 95,5% 39,6%
Accessible average 5,9% 15,0% 168,6% 53,4%
Luxury average 12,8% 22,3% 39,4% 49,7%
Fast Fashion average 5,0% 0,3% 5,6% 6,3%
Growth Rates

APPENDIX 5: PEERS PROFITABILITY
(Source: FactSet)
APPENDIX 6: PEERS LIQUIDITY APPENDIX 7: SMCP FINANCIAL EVOLUTION
(Source: FactSet) (Source: FactSet)
Growth of Net Sales 2017 2016 EBITDA Margin (%) 2017 2016
SMCP -13,91% -10,25% SMCP 11,52% 13,54%
Ralph Lauren -7,07% -10,16% Ralph Lauren 13,64% 6,93%
Kering 24,97% 6,20% Kering 22,12% 17,61%
H&M 4,02% 6,31% H&M 14,53% 16,35%
Growth of EBITDA 2017 2016 Net Margin (%) 2017 2016
SMCP -26,74% -48,66% SMCP 7,94% 8,74%
Ralph Lauren 82,83% -50,40% Ralph Lauren 2,63% -1,49%
Kering 57,04% 5,77% Kering 11,54% 6,57%
H&M -7,54% -5,74% H&M 8,09% 9,69%
Growth of Net Income 2017 2016 Ebit Margin 2017 2016
SMCP -21,78% -15,88% SMCP 9,32% 13,26%
Ralph Lauren 263,95% N/M- Ralph Lauren 8,01% -1,50%
Kering 119,50% 16,88% Kering 17,70% 11,43%
H&M -13,16% -10,82% H&M 10,28% 12,39%
Return on Assets 2017 2016
SMCP 4,63% 5,91%
Ralph Lauren 2,76% -1,67%
Kering 7,18% 3,39%
H&M 15,78% 20,21%
Profitability Index
SMCP Solvency 2016 2017
Debt 480 669 332 391
Fin debt/eq ratio 143.47% 30.70%
Net Debt/ebitda 3.35 2.64
SMCP Liquidity 2016 2017
Quick ratio 60.2% 39,72%
Current ratio 131.23% 89,60%
Cash ratio 26.79% 11,24%
SMCP Op Circle 2016 2017
Net sales 580572 707149
Days in inventory 130,8 136,5
Days in account receivables 37,35 39,38
Days in accounts payables 81,07 78,38
Net Operating Cycle 87,08 97,5
Financial Analysis

APPENDIX 8: GROWTH FORECAST
(Source: FactSet & Team Assessment)
Base Case
Apparel/Footwear Retail Industry growth estimates (source Factset) FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E
Europe Sales Annual growth estimate 15,00% 7,70% 9,40% 11,60% 9,10% 6,00% 3,50% 3,44%
China Sales Annual growth estimate - - 45,70% 53,10% 28,70% 24,80% 16,30% 7,59%
US Annual growth YoY 4,50% 3,50% 3,60% 5,50% 4,30% 4,50% 6,20% 6,22%
Percentages of revenues impacted by growth FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E
EMEA 82,60% 75,40% 72,90% 71,40% 66,55% 62,94% 59,33% 55,72%
APAC 6,80% 12,40% 15,20% 16,80% 21,00% 24,28% 27,56% 30,84%
AMERICA 10,60% 12,20% 11,90% 11,80% 12,45% 12,78% 13,11% 13,44%
Growth rate estimates - - - 17,85% 12,62% 10,37% 7,38% 5,09%
Blue Sky 10% above estimations
EMEA 82,60% 75,40% 72,90% 71,40% 66,55% 62,94% 59,33% 55,72%
APAC 6,80% 12,40% 15,20% 16,80% 21,00% 24,28% 27,56% 30,84%
AMERICA 10,60% 12,20% 11,90% 11,80% 12,45% 12,78% 13,11% 13,44%
Grey Sky 10% below estimations
EMEA 82,60% 75,40% 72,90% 71,40% 66,55% 62,94% 59,33% 55,72%
APAC 6,80% 12,40% 15,20% 16,80% 21,00% 24,28% 27,56% 30,84%
AMERICA 10,60% 12,20% 11,90% 11,80% 12,45% 12,78% 13,11% 13,44%
Sales growth FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E
Analysts growth estimates - - - 28% 12% 11% 11% 8%
Final growth estimates - - - 23,17% 12,42% 10,64% 9,43% 6,55%
Scenario weights
Base Case 50%
Blue Sky 25%
Grey Sky 25%

APPENDIX 9: PROFIT & LOSS STATEMENT
APPENDIX 10: CASH FLOW PROJECTIONS
In Millions of EUR FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E
Sales 434,06 581,11 681,10 795,39 979,69 1101,42 1218,56 1333,47 1420,80
Cost of Sales (excluding D&A) 235,99 307,55 344,89 401,88 369,34 414,24 458,79 500,32 533,51
Gross Profit 198,07 273,56 336,21 393,52 610,35 687,17 759,77 833,15 887,29
SG&A Expense 115,72 145,76 196,74 264,53 269,31 302,77 334,97 366,56 390,57
Other Operating Expense 12,69 21,00 12,41 18,50 28,02 31,51 34,86 38,14 40,64
EBITDA 69,67 106,80 127,05 110,49 313,02 352,90 389,94 428,45 456,08
Depreciation & Amortization Expense 26,77 38,05 35,73 35,00 55,27 62,14 68,74 75,23 80,15
EBIT (Operating Income) 42,89 68,74 91,32 75,49 257,75 290,76 321,20 353,22 375,93
Nonoperating Income and unusual expenses -2,05 6,18 -2,52 6,41 2,51 2,83 3,13 3,42 3,65
Interest Expense 40,44 41,26 66,06 68,89 85,18 95,76 105,94 115,93 123,53
EBT 4,50 21,30 27,78 0,19 170,06 192,18 212,13 233,87 248,76
Income Taxes 11,80 13,41 -6,05 -6,14 49,01 55,39 61,14 67,40 71,69
Net Income -7,29 7,89 33,83 6,33 121,05 136,79 150,99 166,47 177,07
In Millions of EUR except Per Share FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E
Operating Activities
Net Income / Starting Line 4,50 21,30 27,78 0,19 170,06 192,18 212,13 233,87 248,76
Depreciation, Depletion & Amortization 24,01 35,85 35,73 35,00 55,27 62,14 68,74 75,23 80,15
Other Funds -15,39 31,71 -17,38 50,55 12,37 12,37 12,37 12,37 12,37
Changes in Working Capital -28,95 -17,62 -16,32 -41,83 -46,09 -51,82 -57,33 -62,74 -66,85
Net Operating Cash Flow -15,82 71,24 29,82 43,90 191,61 214,87 235,91 258,73 274,44
Investing Activities
Capital Expenditures -42,91 -38,34 -42,81 -47,11 -84,94 -95,49 -105,64 -115,61 -123,18
Sale of Fixed Assets & Businesses 1,14 0,40 0,35 0,07 0,49 0,49 0,49 0,49 0,49
Purchase/Sale of Investments -0,94 -1,31 0,00 -1,89 -1,03 -1,03 -1,03 -1,03 -1,03
Other Funds -0,50 2,45 3,37 0,00 1,33 1,33 1,33 1,33 1,33
Net Investing Cash Flow -43,21 -36,80 -39,09 -48,93 -84,15 -94,70 -104,86 -114,82 -122,39
Financing Activities
Change in Capital Stock 1,95 0,00 30,11 126,28 0,00 0,00 0,00 0,00 0,00
Issuance/Reduction of Debt, Net 53,60 -24,96 21,53 -138,29 -85,19 -17,31 -15,58 -14,02 -12,62
Change in Current Debt 52,36 -26,63 -32,50 132,45 -65,96 0,00 0,00 0,00 0,00
Change in Long-Term Debt 1,24 1,67 54,03 -0,08 -19,23 -17,31 -15,58 -14,02 -12,62
Change in Other Debt - - - -270,66 0,00 0,00 0,00 0,00 0,00
Other Funds 0,04 0,00 -0,70 -1,03 -0,42 -0,42 -0,42 -0,42 -0,42
Net Financing Cash Flow 55,59 -24,96 50,94 -13,04 -85,61 -17,73 -16,00 -14,44 -13,04
Exchange Rate Effect 0,82 -0,43 -0,02 -1,75 -0,34 -0,34 -0,34 -0,34 -0,34
Net Change in Cash -2,61 9,06 41,65 -19,81 21,50 102,09 114,72 129,12 138,66

APPENDIX 11: BALANCE SHEET
APPENDIX 12: FORECAST ASSUMPTIONS
APPENDIX 13: BETA ESTIMATION
(Source: Bloomberg & Team Assessment)
In Millions of EUR FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E
12 Months Ending 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022
Net Working Capital 71,4 54,3 29,8 62,2 93,1 104,6 115,8 126,7 135,0
Percentage of sales 16,45% 9,35% 4,38% 7,82% 9,50% 9,50% 9,50% 9,50% 9,50%
+ Property, Plant & Equip, Net 64,10 69,11 65,05 67,76 66,50 66,50 66,50 66,50 66,50
+ LT Investments & Receivables 10,31 12,64 15,11 16,13 13,55 13,55 13,55 13,55 13,55
+ Goodwill 336,28 336,78 630,07 630,07 630,07 630,07 630,07 630,07 630,07
+ Other Intangible Assets 357,72 352,21 720,05 728,76 724,40 724,40 724,40 724,40 724,40
+ Deferred Tax Assets 18,04 19,77 54,76 56,18 55,47 55,47 55,47 55,47 55,47
+ Misc LT Assets 2,32 0,42 1,30 1,04 1,27 1,27 1,27 1,27 1,27
- LT Debt 419,11 432,07 748,07 192,31 173,08 155,77 140,20 126,18 113,56
- Other LT Liabilities 102,30 107,55 205,58 187,34 150,69 162,79 176,60 169,36 164,86
Long term Operating Assets&Liabilities 267,35 251,31 532,68 1 120,28 1 167,49 1 172,70 1 174,47 1 195,73 1 212,85
Net Operating Assets 338,76 305,65 562,49 1 182,52 1 260,57 1 277,35 1 290,24 1 322,42 1 347,83
+ Cash, Cash Equivalents & STI 16,37 27,16 57,33 40,43 61,93 164,02 278,73 407,86 546,52
+ ST Debt 89,67 60,43 6,30 140,08 74,12 74,12 74,12 74,12 74,12
Net Cash -73,29 -33,26 51,03 -99,65 -12,19 89,90 204,62 333,74 472,40
Forecast Assumptions FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E
Sales % growth 23,57% 33,88% 17,21% 16,78% 23,17% 12,42% 10,64% 9,43% 6,55%
COGS % sales 54,37% 52,92% 50,64% 50,53% 37,70% 37,61% 37,65% 37,52% 37,55%
SG&A Expense % sales 26,66% 25,08% 28,89% 33,26% 27,49% 27,49% 27,49% 27,49% 27,49%
Other Operating Expense % sales 2,92% 3,61% 1,82% 2,33% 2,86% 2,86% 2,86% 2,86% 2,86%
EBITDA % sales 16,05% 18,38% 18,65% 13,89% 31,95% 32,04% 32,00% 32,13% 32,10%
D&A Expenses % sales 6,17% 6,55% 5,25% 4,40% 5,64% 5,64% 5,64% 5,64% 5,64%
EBIT (Operating Income) % sales 9,88% 11,83% 13,41% 9,49% 26,31% 26,40% 26,36% 26,49% 26,46%
Nonoperating Income % sales -0,47% 1,06% -0,37% 0,81% 0,26% 0,26% 0,26% 0,26% 0,26%
Interest Expense % sales 9,32% 7,10% 9,70% 8,66% 8,69% 8,69% 8,69% 8,69% 8,69%
Income % sales -1,68% 1,36% 4,97% 0,80% 12,36% 12,42% 12,39% 12,48% 12,46%
Change in NWC % sales 6,67% 3,03% 2,40% 5,26% 4,70% 4,70% 4,70% 4,70% 4,70%
Cap EX % sales 9,89% 6,60% 6,29% 5,92% 8,67% 8,67% 8,67% 8,67% 8,67%
Increase in LT debt % growth 3,09% 73,13% -74,29% -10,00% -10,00% -10,00% -10,00% -10,00% -10,00%
Tax rate - - - - - 28,82% 28,82% 28,82% 28,82% 28,82%
Comparables Levered Beta Net D/E Tax Rate Unlevered Beta
TED BAKER PLC 0,80 57,40% 22,74% 0,55
GAP INC 0,67 39,70% 30,45% 0,52
INDITEX 0,99 0,10% 22,54% 0,99
Retail average 0,69
LVMH 1,15 40,10% 26,74% 0,89
TIFFANY & CO 0,78 31,00% 43,71% 0,66
BURBERRY GROUP 1,01 0,16% 27,47% 1,00
FERRAGAMO 0,75 11,70% 37,63% 0,70
TOD'S 0,67 19,50% 31,09% 0,59
Luxury average 0,77
Panel average 0,74
Relevered beta computation
Debt to equity ratio 30,70%
Tax rate 34,00%
Relevered beta 0,89

APPENDIX 14: DCF COMPUTATION
APPENDIX 15: MULTIPLES
In Millions of EUR FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E FY 21E FY 22E Tstage
EBIT (Operating Income) 42,89 68,74 91,32 75,49 257,74 290,78 321,16 353,26 376,00 380,35
After Tax EBIT 30,53 48,93 65,00 53,73 183,46 206,97 228,60 251,45 267,64 270,73
Depreciation & Amortization Expense 26,77 38,05 35,73 35,00 55,27 62,14 68,74 75,23 80,15 81,01
Changes in NWC -28,95 -17,62 -16,32 -41,83 -46,09 -51,82 -57,33 -62,74 -66,85 -67,56
Percentage of Sales (%) 6,67% 3,03% 2,40% 5,26% 4,70% 4,70% 4,70% 4,70% 4,70% 4,70%
Capital Expenditure -42,91 -38,34 -42,81 -47,11 -84,94 -95,49 -105,64 -115,61 -123,18 -124,50
Percentage of Sales (%) 9,89% 6,60% 6,29% 5,92% 8,67% 8,67% 8,67% 8,67% 8,67% 8,67%
Free Cash Flow Estimate -14,55 31,02 41,60 -0,21 107,70 121,80 134,37 148,34 157,76 159,68
Terminal Value - - - - - - - - - 2 029,88
Discounted Free Cash Flow and TV - - - - 98,86 102,64 103,94 105,33 102,83 1 323,13
Entreprise Value 1 836,73
Net financial Debt (Dec 2017) 291,97
Equity value 1 544,77
Number of share outstanding (millions) 73,51
Price per share 21,01 €
(Source Factset) P/E EV/SALES EV/EBITDA EV/EBIT
Ralph Lauren - 0,92 7,79 12,81
Guess 45,56 0,32 5,17 10,33
Abercrombie 189,33 0,17 3,00 -
PVH Corp (Calvin Klein & Tommy) 13,31 1,20 9,23 13,21
Capri Holding (Michael Kors) 11,44 1,30 5,27 6,57
Averages luxury 64,91 0,78 6,09 10,73
Moncler 5,57 5,27 16,21 18,46
Kering 3,20 3,44 15,47 18,20
Burberry 26,40 2,42 10,76 14,23
Averages fast fashion 11,72 3,71 14,15 16,96
Inditex 4,08 3,81 17,43 21,50
H&M 1,63 1,41 9,73 13,74
Gap 0,58 0,56 4,21 5,90
Averages accessible 2,10 1,93 10,46 13,71
Panel averages 30,11 1,89 9,48 13,50
SMCP Price 0,41 20,48 14,25 13,86
Average Price (€) 12,25

APPENDIX 16: MONTE-CARLO SIMULATION
Output data
Base price 15,53
Mean Price 29,34
Median Price 27,39
Variance 171,57
Standard deviation 13,10
Coefficient of Variation 0,45
Min 0
Max 177,78
Range 177,78
Trials 20000
Skewness 1,32
Probability that Price > Base price 44,84%

APPENDIX 17: CORPORATE GOVERNANCE
(Source: SMCP Website)
SMCP Board of Directors Members Background & Past Experience Current External Chair
Mr. Yafu Qiu Textile Industry Management Trinity Limited – member of the Board of Directors
(President of BoD) Chairman of Shandong Ruyi Chairman of the Shandong Ruyi Group;
Mr. Daniel Lalonde Mathematics
(Member of BoD & CEO) President and Chief Executive Officer of LVMH North America
Ms. Evelyne Chetrite Sandro Founder Eve Art - Chairman; Fonds TAL – Chairman
(Member of BoD & Sandro Artistic D) Sandro collections as creative director Grand Chene - Manager; Hessed – Manager
Ms. Judith Milgrom Maje Founder Fonds TODA - Chairman
(Member of BoD & Maje Artistic D) Directs and Collections creator of Maje Judor Investissements - Co- Manager
Ms. Chenran Qiu International Fashion Retailing Vice Chairman and Executive President of Shandong Ruyi Technology Group
(Member of BoD) & member of the Board of Directors of Renown Incorporated
Mr. Francis Srun Business and Adm Executive President of the Ruyi International Hong Kong Group
(Member of BoD) Managing Director Asia of Ralph Lauren Watch & Jewelry
Ms. Xiao Su Engineering Vice president of China Chemical Fibers Association
(Member of BoD) executive president of Shandong Ruyi Technology Group
Ms. Weiying Sun Textiles Engineering
(Member of BoD) Director of Technology Development - Shandong Jining Ruyi Woolen Textile
Independent Member of BoD Background & Past Experience Current External Chair
Mr.Patrizio di Marco Preivously worked at Gucci, Prada, Bottega Veneta Board of Dolce and Gabbana
Mr.Fanny Moizant Founder of "Vestiaire Collective" Director of Communication of Vestiaire Collective
Mr.Orla Noonan Director of Groupe AB Chairman of Team Co Ceo Groupe AB
Mr.Daun Yang Ceo UTA Fashion Management Group
Mr. Daniel Lalonde CEO
Ms. Evelyne Chetrite Deputy CEO
Ms. Judith Milgrom Deputy CEO
Mr. Ylane Chétrite Deputy CEO
Mr. Philippe Gautier CFO & Operations Director
Mr. Flavien d'Audiffret Digital & CRM Director
Mr. Paul Griffin SMCP North America CEO
Mr. Stéphane Ledru SMCP Asia CEO
Ms. Elina Kousourna SMCP Strategy & Development Director
Mr. Jean-Baptiste Dacquin SMCP HR Director
Mr. Daniel Lalonde Temporary Sandro CEO
Ms. Isabelle Guichot Maje CEO
Ms. Isabelle Allouch Claudie Pierlot CEO
Mr. Ylane Chétrite Sandro Homme
Ms. Isabelle Guichot Maje
Ms. Isabelle Allouch Claudie Pierlot
Artistic Director
Brand CEO
SMCP Entity
SMCP Execute committee

APPENDIX 18 : BRANDS PRODUCTS’ SAMPLE (Source SMCP Website)
Sandro Maje Claudie Pierlot
Clothing
Accessories

APPENDIX 19 : SWOT ANALYSIS (Source Team Assessment)
STRENGHTS WEAKNESSES
- The complementary brand approach - Relatively low possibility to rise prices
avoid dependence on one brand - Strong dependence on the French market
- Ability to constantly provide new collection - Lack of a proper CEO AT Sandro
and periodic “capsule” collections - Weight of actual debt
- Control over retail and distribution offers
SMCP the possibility to manage brand
image and price
- Brand awareness in Europe
- Omni channel distribution
- It has a fully integrated supply chain
- Fashion experienced management team
- Advantage of long term shareholder (TopSoho)
OPPORTUNITIES THREAT
- Intensifoication of global market share - Possibility of shifting in customer tastes
- Increase in Middle and Upper class population - Decreasing GDP
- Implementation of underdeveloped products as - Negative change in tax regulation in
accessories and pants relevant countries
- Acquisition of strategic new brands
- Possibility of licensing eyewear
- E-commerce implementation particularly in
the Greater China
Swot Analysis

CFA Research Challenge 2019 - Report Team - GEM Univesity

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