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M A R K E T M O N I T O R | F A L L 2 0 1 4

Apparel, Accessories, and Footwear

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Representative Apparel, Accessories & Footwear Transactions

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Contents

Industry Update

Public Stock Performance & Valuations

M&A Activity & Valuations

Moss Adams Overview

Firm Contacts

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12

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Source: U.S. Department of Commerce, CapitalIQ, and Moss Adams Capital estimates.

Consumer Environment Improves, Still-cautious Consumer

• Consumer Confidence (July reached 90.9) soared to highs last seen in late 2007, on strengthening job and home markets, strong stock market performance

• Labor markets remain stable, with steady job creation (1.6 mm jobs added from January through July), and jobless rate hitting 6.2% in July, improving from 6.6% in January. However, continued shrinkage in the labor force remains a concern; labor force participation rate has tumbled to 62.9% (July reading), its worst level since 1978

• Improvements in employment and consumer macro have been countered by loom of inflation (high gas prices, coupled with rising food costs), putting pressure on shoppers to curb spending

• Competition for share of consumer wallet has intensified from increased durables (auto, electronics, home) and health category spending

• Retail environment remains challenging, due in part to an apathetic consumer, lack of fashion newness, an elevated promotional retail environment, weather conditions; Q4 ’13 and Q1 ’14 comparable-store sales performance for a median of selected chain retailers posted declines of 3 to 4%

• Apparel retailer sales are expected to grow 3 to 4% in 2014, boosted by product innovation/differentiation, new fashion trends, promotions; average spending for Back-to-School is projected to be up 5% to $669 in 2014, according to a NRF trade survey

• Key industry trends include (i) attractive price-value propositions / differentiated products, (ii) omni-channel, (iii) wholesale brands selling direct-to-consumer, (iv) international growth, (v) consumer focus on active/healthy lifestyles, and (vi) private label lines for mass retailers

Same-Store Sales Growth – Chain Retailers

Consumer Spending Indicators

Q113 Q213 Q313 Q413 Q114

Abercrombie & Fitch -15.0% -10.0% -14.0% -8.0% -4.0%

Aeropostale -14.0% -15.0% -15.0% -15.0% -13.0%

American Apparel 8.0% 7.0% 2.0% -3.0% -7.0%

American Eagle -5.0% -7.0% -7.0% -7.0% -10.0%

Buckle 1.2% 3.2% -0.5% -2.8% -0.9%

DSW -2.4% 4.4% -0.7% 0.0% -3.7%

Gap 2.0% 5.0% 1.0% 1.0% -1.0%

Genesco -4.0% -2.0% -1.0% 1.0% 1.0%

Guess? North America -9.8% -2.0% -5.0% -4.4% -3.8%

Tilly's 1.1% -0.5% -2.4% -4.9% -6.8%

Urban Outfitters 9.0% 8.5% 7.1% 1.0% 0.0%

Wet Seal -2.9% 3.7% 0.8% -16.5% -16.9%

Zumiez -0.7% 0.9% 1.5% -2.2% 1.8%

Median -2.4% 0.9% -0.7% -3.0% -3.8%

Industry Update

Apparel Retailer Sales

y/y growth

Unemployment Rate

Consumer Confidence (right-axis)

0

10

20

30

40

50

60

70

80

90

100

-12%-10%

-8%-6%-4%-2%0%2%4%6%8%

10%12%

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-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Aspirational+4%

Diversified -Mid/Small Cap

+9%

S&P 500+17%

Performance+17%

Diversified -Large Cap

+30%

Diversified – Large Cap, Performance Segments Higher

Source: CapitalIQ.

Note: The indices in the chart above are composed of the public companies included on slide 7 and 8.

1 Year Performance: Apparel, Accessories and Footwear vs. S&P

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9.0%

18.5%

9.1%

26.7%

21.8%

S&P 500

Diversified -Mid/Small Cap

Diversified -Large Cap

Aspirational

Performance

5.0%

2.7%

5.8%

7.4%

10.2%

S&P 500

Diversified -Mid/Small

Cap

Diversified -Large Cap

Aspirational

Performance

Source: CapitalIQ.

Public Market Valuations Next 12 Months: Estimated Growth

• The outlook for companies in Apparel, Accessories and Footwear, is positive, with 6% sales and 14% EBITDA growth projected for a median of selected apparel companies over the next 12 months

• In comparison, companies in the S&P 500 are projected to have sales and EBITDA growth of 5% and 9%, respectively, for the next 12 months

• Apparel, Accessories and Footwear companies, on a trailing EBITDA valuation basis, are trading at the high range of historical valuation levels

• Since 2011, Apparel, Accessories and Footwear companies have largely traded at a premium to the overall market, on a EBITDA multiple basis

Apparel and Footwear

12.1x

S&P 50010.9x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

EV

/ T

TM

EB

ITD

A

Sales EBITDA

Note: Apparel, Accessories and Footwear is composed of the public companies included on slide 7 and 8.

Apparel Industry Sales Outlook Higher than Market

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