Michael Kars has always been one of our favorite stock picks.A year ago its brand position, especially in the high-end handbag category, was unassailable.Management was doing a great job keeping costs under control in this high margin business.Marketing costs as a percentage of revenue were always among the lowest in Kars peer group.

We have become more pessimistic about the stock since the last quarterly earnings report.Nike's new entry in this market place, the Lebron Bag, looks like it will be a strong competitor.In addition, although luxury handbag margins are still very attractive, Kars management seems to have lost its touch in cost management, as that key metric, marketing costs to revenue, is up sharply.This may be a response to the Lebron Bag, but it is still a source of concern.

Present a graphical analysis of what is happening to the economic performance of Michael Kars in the view of this analyst by graphing the company's position a year ago and now in terms of the relevant demand and cost curves.

Be sure to illustrate what changed and why in between your two graphs.

Identify Michael Kars mark-ups (relative to both marginal cost and average total cost).

Point out on your graphs the key indicator of whether new entry is likely to be attractive in this market.

In your graph, does Michael Kars have "excess capacity"?