RL Board Deck

ILLUSTRATIVEACQUISITION ANALYSIS

Discussion Materials

GREEN MOUNTAIN CAPITAL

October 12, 2016

2

TABLE OF CONTENTS

1. Executive Summary

2. Kate Spade Overview

3. Public Market Perspectives

4. Preliminary Views on Valuation

3

RecommendationsEXECUTIVE SUMMARY

We recommended that RL does not initiate an acquisition of Kate Spade & Co.

• Potential acquisition contradicts RL’s recent strategic “Way Forward” initiative

• Revenue dis-synergies will result from overlapping product offerings

• Although financially feasible, at current valuation this transaction would be dilutive for RL

At current valuations, we would require a significant amount of conviction regarding the amount of synergies that would exist in a merger scenario before we would consider recommending a merger

• Without integrating the brands, synergies cannot be captured through standard

cost cutting methods

• We are concerned that talent loss could destroy brand equity

4

RecommendationsEXECUTIVE SUMMARY (CONT’D)

Industry Headwinds

• Lagging same store sales plague the industry

• E-commerce continues to challenge traditional brick and mortar business model

• Cyclicality of consumer discretionary spending

Kate Spade is a luxury retail brand best know for its Women’s handbags and shoes

• Kate Spade recently launched their “Axis of Growth” strategic initiative focusing on

product, category, and geographic expansion

• Kate Spade has one of the highest quality of sales in the industry

Range of Analyst Price Targets:

2016E EBITDA Multiple: 8.2x - 10.2x2016E EBITDA: $249m

2016E Earnings: 17.9x - 19.9x2016E Net Income: $91m

WACC: 10.5%Exit EBITDA Multiple: 8.2x - 10.2xValutation Date: 12/31/2016

Premium to Current Price: 10.0% - 30.0%

LTM EBITDA Multiple: 10.4x - 12.4xLTM EBITDA: $249m

IRR Target: 15.0% - 17.5%Terminal EBITDA Multiple: 9.2xLeverage EBITDA Multiple: 6.5x

LBO

Analyst Price Targets

Comparable Companies

Standalone DCF Analysis

Premiums Paid Analysis

Precedent Transactions

$10.0 $12.0 $14.0 $16.0 $18.0 $20.0 $22.0 $24.0 $26.0

5

DCF and Comparable Transactions Most Relevant to the SituationPRELIMINARY VALUATION SUMMARY

Stan

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• Based on a preliminary valuation analysis, Green Mountain Capital believes that KATE is likely valued between 10.0 - 11.0x 2016E EBITDA of $248.8 Million, or approximately $2,500 - 2750 Million

Last Close (10/11/16)

Expected Valuation

Range

Source: Green Mountain Capital Estimates, Bloomberg Consensus Estimates

6

Corporate SnapshotRALPH LAUREN CORPORATION

RL 1 Year share price movements

Overview The Way Forward • Challenge 1. “ Not enough focus on core brand strength”

• Response: Refocus on and evolve the core that made RL iconic• Challenge 2. “Operating model driving excess inventory”

• Response: Evolve the operating model

0

20

40

60

80

100

120

140

160

Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16

1Q17Earnings Released


LaunchedWay

Forward


• Ralph Lauren designs, markets, and distributes men’s, women's, and children's apparel, accessories, fragrances, and home furnishings.

• They operates under three distinct segments 1. Wholesale 45% sales 2. Retail 53% of sales 3.licensing 2% of sales.

• Announced re-vamp of strategy known as “The Way Forward” in June 16’ to address brand and operational issues.


7

Corporate SnapshotKATE SPADE & COMPANY

KATE 1 Year Share Price Summary Financial Metrics Key ShareholdersRecent Statistics (in millions) % TotalShareholder Type

Key ExecutivesCraig A. LeavittCEO(55)

• Joined Feb, 2014• EVP Sales at Diesel• EVP of Retail Concepts at RL for 16 years

Deborah H LloydChief Creative Officer(51)

• CCO Since 2007• Educated at Royal College of Art

Thomas LinkoSenior VP/CFO(43)

• Joined Oct, 2015• SVP Finance at Tommy Hilfiger for 12 years• MBA at Rider University

Kate Spade & Company is a global multichannel, lifestyle brand operating under three segments Kate Spade North America, Kate Spade International, and Adelington Design Group.

As of January 2016, Kate Spade had 36,000 employees worldwide.

2016 2017Revenue 1,385.7 1,530.8EBITDA 248.1 297.2EV/EBITDA 9.27 7.73P/E 26.35 19.25

FMR LLC Institutional 14.14%Vanguard Group Institutional 7.05%Wellington Management Institutional 6.94%Blackrock Institutional 6.86%Goldman Sachs Group Institutional 6.50%Harris Associates Institutional 4.92%Waddell & Reed Institutional 3.47%Jennison Associates Institutional 3.39%Oz Management Institutional 3.38%Prudential Financial Institutional 3.32%

Top 10 Shareholders 59.97%0

5

10

15

20

25

30

Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16

Price 17.8$ Fully Diluted Shares 128.0$ Market Cap 2,273.7$ Cash 297.9$ Debt 401.6$ Enterprise Value 2,361.3$


8

KATE’s Core ProductsKATE SPADE BOASTS A DIVERSE PRODUCT LINE

Women’s Men’s Children’s Home

Highlights Recent Transactions

• Acquired 60% interest in KS China Co. Limited owned by E-Land Fashion China for $36.0 million.

• Received net $19.7 million from The Lane Crawford Joyce Group for reacquiring businesses in Hong Kong, Macau, and Taiwan.

• Converted the reacquired businesses in Asia into a 50% owned joint venture with Walton Brown and received $19.7 M from LCJG for their interests.

• Kate Spade has been executing on their “Axis of Growth”. In 2015 they streamlined the business model and launched two new category pillars: Children's and Home.

• Topline expansion continued with net sales of $1.2 billion, a 21% increase from 2014 and finished the year with a Adjusted EBITDA of $203M.

• Launched: Kate Spade e-commerce websites in France, Germany, Italy, Spain, & the Netherlands, a new business model for Jack Spade & new licensing with Beyond Yoga

• Entered global licensing agreement with Fossil Group, Inc. for design, development and distribution of Kate Spade New York watches through 2025.

• Launched new licensed categories including a yoga collaboration with Beyond Yoga.

Source: KATE Financials, Investor Presentation, Transcripts and Website

9

Company OverviewKATE SPADE REMAINS DOMINANT IN THE INDUSTRY

Brand Contribution & Description

71% 13%

16… KateSpadeNorthAmerica

KateSpadeInternational

AdelingtonDesignGroup

Company Overview Key Financials§ Overview: Kate Spade & Company is headquartered in New York

City and operates in the apparel footwear and accessory design space. KATE has been manufacturing premium products since 1993.

§ Products: Offers luxury consumer goods that span demographics, genders and geographies. The brand is universally recognized for its crisp color, graphic prints and playful sophistication.

§ End-Market: At the conclusion of 2015, KATE became a stronger, refocused company with a retail footprint of nearly $2 billion. Moving forward, they plan to continue to successfully transform into a global, multinational lifestyle brand.

Kate Spade North America

Kate Spade International

Adelington Design GroupRecent Performance: Brand posted 10.5% EBITDA improvement,

caused by a decrease in SG&A expense that were partially offset by reduced gross profits.

Recent Performance:The secondary brand experienced a 20 X EBITDA growth rate. This improvement can be attributed to opporational

improvements by closing stores and simultaneously decreasing costs.

Recent Performance: KATE's primary brand reported FY 2015 EBITDA growth of 24.2%. This year-over-year increase is reflected by

an increase in gross profit that was partially offset by an increase in SG&A.

This segment includes: Liz Claiborne and Monet.

The segment includes: Kate Spade New York and Jack

Spade

The segment includes: Kate Spade New York and Jack

Spade

Source: Green Mountain Capital Estimates, Bloomberg Consensus Estimates, KATE Financials, Investor Presentation, Transcripts and Website

10

Summary FinancialsBusiness Segments

HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE

Key Cash Flow & Balance Sheet ItemsFiscal Year ending 01/02/2016Fiscal Year ending 01/02/2016

Gross profits and EBITDA margins have expanded with revenue as we project continued expenditures in capital expenditure as the Company plans to open 15 new company-owned stores in 2016.

Cash From Operations 105.6Cash from Investing Activities 19.3Cash from Financing Activities -11.0Net Changes in Cash 113.8Source: Bloomberg

Inventories 191.9 Accounts Payable 109.3Accounts & Notes Receivable 96.9 Total Current Liabilities 267.2Cash and Cash Equivalents 297.9 Long Term Debt 397.0Total Current Assets 621.7 Total Liabilities 735.1

Common Stock 176.4Retained Earnings 1,155.8

Property Plant & Equipment Net 174.0 Total Shareholders Equity 245.2

Total Assets 980.4 Total Liabilities and Equity 980.4Source: Bloomberg

In Millions of USD except Per Share FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Est FY 2017 Est12 Months Ending 01/02/2010 01/01/2011 12/31/2011 12/29/2012 12/28/2013 01/03/2015 01/02/2016 12/31/2016 12/31/2017Revenue 2,915.92 1,623.24 1,518.72 1,043.40 803.37 1,138.60 1,242.72 1,385.69 1,530.81

Revenue Growth Year over Year (%) (26.83) (44.33) (6.44) (31.30) (23.00) 41.73 9.14 11.50 10.50Gross Profit 535.40 48.75 53.29 57.42 535.40 734.70 804.00 918.90 1,022.80EBITDA (158.86) 34.89 (10.28) 6.60 82.00 152.50 203.20 248.80 282.50

Trailing 12M EBITDA Margin (%) (5.45) 2.15 (0.68) 0.63 10.20 13.40 16.40 18.00 18.50EBIT (318.06) (61.27) (96.25) (52.53) 20.20 33.50 66.40 164.60 189.50

Trailing 12M EBIT Margin (%) (10.91) (3.77) (6.34) (5.03) 2.50 2.90 5.30 11.90 12.40Net Income (138.00) (88.50) — (36.53) (32.20) 76.70 21.70 76.50 93.40Capital Expenditures 64.38 56.74 73.65 61.86 65.13 93.61 55.08 70.00 106.00Source: Bloomberg


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Analyst RecommendationsSynopsis Commentary

Summary PredictionsFirm View PT

Wunderlich Securities BUY $ 20 Wolfe Research BUY $ 24 Wells Fargo Securities BUY $ 24 Wedbush BUY $ 22 Buckingham Research Group BUY $ 29 KeyBanc Capital Markets BUY $ 24 Cowen BUY $ 18 Goldman Sachs HOLD $ 18 Telsey Advisory Group BUY $ 23 BMO Capital Markets HOLD $ 17 SunTrust HOLD $ 18 Mizuho Securities USA Inc BUY $ 22 Nomura BUY $ 23 Imperial Capital LLC BUY $ 40 Median $ 23

Overview

Valuation is compelling on a

EV/EBITDA Basis

1) the brand is healthy (they continue to outperform peers and gain share), 2) top-line continues to outperform (we see 9-10% comps in 2H as reasonable), 3) margins should continue to move higher (12.5% EBIT margins remains 6-8 points below accessory peers) and 4) we believe valuation is extremely compelling here (just 7.0x EV/EBITDA on 2017 numbers – including benefit of NPV of $739 million NOL balance

Wells Fargo, September 26, 2016 (Rating BUY, PT=$24)

Renewedmonobrand strategy

will lead growth

In early August, the shares sold off sharply after mixed Q2 results --including a sharply lower growth of 4% in direct-to-consumer (DTC) comparable sales -- as KATE sharply reduced its full-year financial targets. Still, after a 2015 strategic transition -- upon which the company shifted to a monobrand focus on Kate Spade New York --we see potential medium- to longer-term upside to a renewed strategic focus on product category and geographic expansion under four key category pillars, namely: women's, men's, children's and home.

S&P Capital IQ, October 1, 2016 (Rating BUY, PT=$20)

Strong full price demand is driving

comp sales

Commentary on the call suggests Kate is already seeing at least the low end of the 300-700bp of guided comp improvement from 2Q’s +4%. While the environment is difficult, strong full price demand for Kate’s product indicates the brand remains healthy, which is rare in the current environment. We reiterate our Buy rating

BofA Merrill lynch, August 3, 2016 (Rating BUY, PT=$21)

Despite Q2 headwinds, analysts continue to see upside with a median price target of $23.00 or ~28%.

RESEARCH ANALYST PERSPECTIVES

Source: Bloomberg Consensus Estimates

12

Board of Directors

OWNERSHIP AND BOARD OF DIRECTORS

Kate Spade’s top 10 shareholders are all institutional investors. This group represents a 59.97% ownership stake in the company.

Insider investors only represent 0.44% ownership of the Kate Spade.

Ownership Type

Top 20 Institutional OwnershipShareholder Type % Total

Institutional89.6%

Retail & Other10.0%

Insider0.4%

FMR LLC Institutional 14.14%Vanguard Group Institutional 7.05%Wellington Management Institutional 6.94%Blackrock Institutional 6.86%Goldman Sachs Group Institutional 6.50%Harris Associates Institutional 4.92%Waddell & Reed Institutional 3.47%Jennison Associates Institutional 3.39%Oz Management Institutional 3.38%Prudential Financial Institutional 3.32%

Top 10 Shareholders 59.97%State Street Institutional 2.58%Ci Investments Inc Institutional 2.45%Scopus Asset Management Institutional 2.34%Tiaa-Cref Institutional 2.26%Samlyn Capital LLC Institutional 2.22%Columbus Circle Investors Institutional 2.06%BNY Mellon Institutional 2.06%Fisher Asset Management Institutional 1.71%Hartford Financial Institutional 1.67%Melvin Capital Management Institutional 1.60%

Top 20 Shareholders 80.92%

Nancy J Karch ▪ Director of Emeritus Chairman (68) McKinsey & Co.Lawrence S. Benjamin ▪MD of CapwellDirector (60) PartnersRaul J. Fernandez ▪ Chairman of Director (49) Object VideoCarsten Fischer ▪ Former COO Director (54) of ShiseidoKenneth B. Gilman ▪ Former CEO of AsburyDirector (70) Automotive GroupKenneth P. Kopelman ▪ Partner Kramer LevinDirector (64) Naftalis & Frankel LLPCraig A. Leavitt ▪ Chief Executive OfficerDirector (55) of Kate SpadeDeborah Lloyd ▪ Chief Creative OfficerDirector (51) of Kate SpadeDouglas Mack ▪ Chief Financial OfficerDirector (47) of Fantics Inc.Jan Singer ▪ Chief Financial OfficerDirector (52) of Spanx Inc. Doreen A. Toben ▪ Former VP of VerizonDirector (66) Communications

Source: Bloomberg

13

Industry DynamicsSTRONG SSS DRIVE KATE DOMESTICALLY

Prices in the women’s handbag industry, Kate Spade’s anchor product, continue to rise driving top line growth for the firm.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

KATE COH LB PVH TIF RL BURBY LULU KORS VNCE-10

-5

0

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10

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KATE LB TIF RL BURBY LULU KORS VNCE

95

100

105

110

115

120

125

Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16

WomensHandbag

2016 Percentage of International Sales2016 Same Store Sales

PPI Index: Women’s Handbag and Purses

Kate’s percentage of international sales currently trails behind its peer, but they are looking to grow in Latin America, China, Japan, and India.

Note: PPI Index - average change in prices received by domestic producers for their outputSource: Green Mountain Capital Estimates, Bloomberg Consensus Estimates

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Current Price Statistics 18 Month Share Price Performance

ABSOLUTE SHARE PRICE PERFORMANCE

5 Year Share Price Performance

3101724313845

$12.00

$17.00

$22.00

$27.00

$32.00

$37.00

Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16

18% drop due to lack of demand for novelty items and drop in full year guidance.

Kate Spade’s 4Q profit exceeded expectations as EPS increased 33% over a two year period.

Price % ChangeCurrent Price $17.76

All-Time High $40.45 -126.36%52 Week High $26.46 -48.07%52 Week Low $15.10 15.50%1 Month Avg. $18.29 -2.37%3 Month Avg. $19.31 -8.03%6 Month Avg. $21.00 -17.54%

Source: Bloomberg

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RELATIVE SHARE PRICE PERFORMANCE

Kate Spade dropped 18% on August 3 due to merchandising issues and a reduction in full year guidance.

One-Year Relative Price Performance

Three-Year Relative Price Performance

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16

60.0%

70.0%

80.0%

90.0%

100.0%

110.0%

120.0%

130.0%

Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16

Kate Spade & Co S&P 500 RL Peer Index

Same store sales, including e-commerce grew 4%, falling short of 13.2% FactSet consensus.

Kate Spade dropped 25% in mid-August 2014 as sales decreased to single digits from a high of 30% in 2Q 2014.

Source: Bloomberg

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FORWARD LOOKING VALUATION MULTIPLESEV / EBITDA – 3 Years

Price / NTM Earnings – 2 Years

Time Period KATE RL PEER2014 Avg 29.6 x 10.6 x 14.9 x2015 Avg 15.5 x 11.5 x 12.2 x2016 Avg 10.6 x 9.3 x 10.9 x

EV/EBITDA

Average Multiples

As EBITDA increased the multiple is lowered which is in line with RL and Peers

As stock price has slowly decreased from a high in 2Q 2015, earnings have increased to lower the P/E ratio

Time Period KATE RL PEER2014 Avg 98.5 x 20.9 x 32.4 x2015 Avg 44.3 x 23.7 x 24.5 x2016 Avg 28.5 x 20.6 x 21.4 x

Price/Earnings

10.0 x

30.0 x

50.0 x

70.0 x

90.0 x

110.0 x

130.0 x

150.0 x

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016Est

Q42016Est

Kate RL PeerIndex

5.0 x

10.0 x

15.0 x

20.0 x

25.0 x

30.0 x

35.0 x

Q1 2014Q2 2014Q3 2014Q4 2014Q1 2015Q2 2015Q3 2015Q4 2015Q1 2016Q2 2016Q3 2016Est

Q4 2016Est

Kate RL Peer Index

Source: Bloomberg

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Trading StatisticsCOMPARABLE COMPANY SHEET


LT EPS Growth 5 year2015 2016E 2015 2016E 2015 2016E (%)

Lululemon Athletica Inc 7,824.0 57.1$ 12.7 7,288.7 17.3 x 12.8 x 30.4 x 22.6 x 1.9 x 2.5 x 9.5

Vince Holding Corp 268.3 5.4$ 2.6 299.8 17.0 x 9.2 x 47.7 x 28.1 x 0.1 x 0.2 x -

Kate Spade & Co 2,272.5 17.8$ 5.8 2,361.0 11.7 x 9.5 x 20.5 x 19.8 x 0.9 x 0.9 x -

PVH Corp 8,999.3 112.2$ 7.4 11,635.3 10.2 x 10.2 x 15.5 x 15.0 x 7.3 x 7.5 x -

Coach Inc 10,220.2 36.5$ 12.3 9,777.0 9.9 x 8.4 x 18.5 x 15.1 x 2.0 x 2.4 x 97.9

Tiffany & Co 9,207.0 73.7$ 12.0 9,595.8 9.6 x 9.6 x 20.2 x 18.6 x 3.7 x 4.0 x 4.4

Burberry Group PLC 8,257.3 18.7$ 13.4 7,387.4 9.5 x 10.7 x 23.8 x 20.3 x - 0.8 x 9.5

L Brands Inc 20,375.5 71.3$ 9.7 24,822.5 9.2 x 9.1 x 17.9 x 17.4 x 4.1 x 4.1 x 5.7

Ralph Lauren Corp 8,401.1 102.1$ 6.8 8,303.1 8.1 x 8.3 x 18.5 x 17.3 x 5.5 x 5.9 x -

Michael Kors Holdings 7,766.1 46.0$ 18.0 7,680.7 5.8 x 6.4 x 10.2 x 9.5 x 4.6 x 4.8 x 57.7

Mean 8,359.1 54.1$ 10.1 8,915.1 10.8 x 9.4 x 22.3 x 18.4 x 3.3 x 3.3 x 30.8

Median 8,329.2 51.5$ 10.9 7,991.9 9.8 x 9.3 x 19.4 x 18.0 x 3.7 x 3.2 x 9.5

EV/EBITDA Price/Earnings EPSCompany Name Mkt Cap (M) Price Profit Margin Currency Adj. EV

18

Trading GraphsOperating Metrics

COMPARABLE COMPANY METRICS

Trading Metrics

15.2x 18

.7x

9.7x 10.9x

9.0x

9.9x

10.4x

9.5x

8.8x

6.6x

13.3x

9.5x

8.1x 10.2x

8.5x

9.4x

9.8x

9.0x

8.2x

6.6x

0.0x2.0x4.0x6.0x8.0x

10.0x12.0x14.0x16.0x18.0x20.0x

LululemonAthletica

Inc

VinceHoldingCorp

KateSpade&

Co

PVHCorp CoachInc Tiffany&Co

BurberryGroupPLC

LBrandsInc

RalphLaurenCorp

MichaelKors

Holdings

EV/EBITDA

2017E 2018E

28.0x

29.6x

27.7x

16.7x

17.1x

19.7x

20.1x

18.5x

18.5x

10.4x

23.5x

29.4x

20.1x

14.9x

15.2x 18.3x

18.7x

17.2x

17.1x

9.8x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

LululemonAthletica

Inc

VinceHoldingCorp

KateSpade&Co


BurberryGroupPLC

LBrandsInc

RalphLaurenCorp

MichaelKors

Holdings

Price to Earnings

2017E 2018E

12.6%

0.5%

6.1% 6.6%

13.2%

11.5%

11.5%

8.9%

6.8%

16.9%

13.2%

2.9%

7.6%

7.1%

14.1%

11.8%

11.8%

9.0%

7.3%

16.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

LululemonAthletica

Inc

VinceHoldingCorp

KateSpade&Co


BurberryGroupPLC

LBrandsInc

RalphLaurenCorp

MichaelKors

Holdings

Profit Margin

2017E 2018E

14.0%

-11.4%

14.0%

2.3% 2.9%

-2.9%

6.1%

3.2%

-10.2%

-1.3%

12.0%

9.2% 10.

5%

3.9% 5.0

%

3.4% 4.6

%

3.6%

-1.0%

1.9%

-13.0%

-8.0%

-3.0%

2.0%

7.0%

12.0%

LululemonAthletica

Inc

VinceHoldingCorp

KateSpade&

Co


BurberryGroupPLC

LBrandsInc

RalphLaurenCorp

MichaelKors

Holdings

Revenue Growth

2017E 2018E


19

Green Mountain CapitalCOMPARABLE COMPANY ANALYSIS

Low - High Low - HighEV / 2016 EBITDA 248.8 9.0X - 10.8X 2,239$ - 2,488$

19 - 19 2,221 - 2,470 17.35$ - 19.29$

EV / 2017 EBITDA 282.50 8.4X - 10.5X 2,373 - 2,825 19 - 19

2,355 - 2,807 18.39$ - 21.93$

Low - High Low - HighPrice / 2016 Net Income 91.00 17.0X - 24.4X 1,547 - 2,220

12.09$ - 17.35$

Price / 2017 Net Income 111.60 15.2X - 21.6X 1,674 - 2,344 13.08$ - 18.31$

Finalized comparable companies valuation range 18.00$ - 20.00$ Premium / (Discount) to current 1.4% - 12.6%

EV / EBITDA

Implied equity valuation range:

Implied equity valuation range:

Valuation methodology FY Net Income

Multiple range Implied Valuation range

Valuation methodology FY EBITDA

Implied Share Price:


PRICE / EARNINGS

Implied Valuation range

Less Net Debt:


Less Net Debt:


Multiple rangeOur selected multiple ranges indicate that KATE should be valued between $18.00 and $20.00


20

Recent Market PerspectivesFirm Selected Commentary

RECENT ANALYST VALUATIONS

October 8, 2016 We cut our 12-month target price by $8 to $20 (prior story said $28), on premium '16 price-to-sales of 1.8X vs. peers, with over $700 million of NOLs. Noting KATE's unexpectedly sharp downward guidance revisions (citing "tourist headwinds"), we reduce "16 and '17 EPS estimates by $0.09 and $0.10 to $0.68 and $0.96. Q2 EPS of $0.11 (before $0.09 tax charge) vs. $0.08, was $0.04 shy of our Capital IQ consensus. Net sales rose 14% (up 17% pro forma) on notable gains in the core North America and international segments. Adjusted EBIT rose 35% as margins widened 150 basis points.

August 3, 2016: “We have confidence in Kate's ability to sustain outsized comps even with a less promotional strategy. Based on our handbag survey results, we think Kate can offset fewer markdown sales with greater full price sell-through, and continue to post comp and earnings beats. We are forecasting 28% three-year earnings growth CAGR and do not think that the current share price factors in this growth.”


21

Description of Valuation MethodologyComparable Companies Analysis

ILLUSTRATIVE VALUATION ANALYSES

Discounted Cash Flows Analysis

Comparable Transaction Analysis

LBO Analysis

• Green Mountain Capital identified comparable companies to KATE and analyzed their trading values relative to KATE’s own trading multiples and applied such multiples to calculate a valuation of the Company

• Green Mountain Capital determined the Present Value of the projected after-tax unlevered cash flows – the inherent value of KATE

• Green Mountain Capital reviewed a range of retail transactions and applied their multiples to derive a change-of-control valuation of the company

• Green Mountain Capital considered valuation from a sponsor’s perspective by preforming an LBO analysis on KATE with current market assumptions

Green Mountain Capital utilized a number of standard methodologies to value KATE supplemented by a review of various equity research analysts’ views

We believe that our Discounted Cash Flow and Comparable Transaction Analyses are the most relevant methodologies in this situation

Overview

Range of Analyst Price Targets:

2016E EBITDA Multiple: 8.2x - 10.2x2016E EBITDA: $249m

2016E Earnings: 17.9x - 19.9x2016E Net Income: $91m

WACC: 10.5%Exit EBITDA Multiple: 8.2x - 10.2xValutation Date: 12/31/2016

Premium to Current Price: 10.0% - 30.0%

LTM EBITDA Multiple: 10.4x - 12.4xLTM EBITDA: $249m

IRR Target: 15.0% - 17.5%Terminal EBITDA Multiple: 9.2xLeverage EBITDA Multiple: 6.5x

LBO

Analyst Price Targets

Comparable Companies

Standalone DCF Analysis

Premiums Paid Analysis

Precedent Transactions

$10.0 $12.0 $14.0 $16.0 $18.0 $20.0 $22.0 $24.0 $26.0

22

DCF and Comparable Transactions Most Relevant to the SituationPRELIMINARY VALUATION SUMMARY

Stan

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Val

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• Based on a preliminary valuation analysis, Green Mountain Capital believes that KATE is likely valued between 10.0 - 11.0x 2016E EBITDA of $248.8 Million, or approximately $2,500 - 2750 Million

Last Close (10/11/16)

Expected Valuation

Range


23

ANALYSIS AT VARIOUS PRICES

The biggest takeaway from the valuation analyses is that KATE is trading lower than most valuation methods that do not include synergies

• KATE’s current share price of $17.76 makes it an attractive target at most premiums

Valuation Matrix

Average of Comparable Range

Average of Precedents Range

EV / Revenue EV / EBITDA Price to Earnings

2016E 2017E 2016E 2017E 2016E 2017E

Statistic: $1,386 $1,531 $249 $283 $91 $112

$12.43 (30.0%) $1,594 $1,593 1.15x 1.04x 6.40x 5.64x 17.51x 14.28x

$13.32 (25.0%) $1,708 $1,707 1.23x 1.12x 6.86x 6.04x 18.76x 15.30x

$14.21 (20.0%) $1,822 $1,821 1.31x 1.19x 7.32x 6.45x 20.02x 16.32x

$15.10 (15.0%) $1,936 $1,935 1.40x 1.26x 7.78x 6.85x 21.27x 17.34x

$15.91 (10.4%) $2,040 $2,040 1.47x 1.33x 8.20x 7.22x 22.41x 18.27x

$16.87 (5.0%) $2,163 $2,163 1.56x 1.41x 8.69x 7.66x 23.77x 19.38x

$17.76 – $2,277 $2,277 1.64x 1.49x 9.15x 8.06x 25.02x 20.40x

$18.65 5.0% $2,391 $2,390 1.72x 1.56x 9.61x 8.46x 26.27x 21.42x

$19.79 11.4% $2,537 $2,538 1.83x 1.66x 10.20x 8.98x 27.88x 22.73x

$20.18 13.6% $2,587 $2,588 1.87x 1.69x 10.40x 9.16x 28.42x 23.18x

$20.42 15.0% $2,619 $2,618 1.89x 1.71x 10.52x 9.27x 28.77x 23.46x

$21.31 20.0% $2,733 $2,732 1.97x 1.78x 10.98x 9.67x 30.02x 24.48x

$22.20 25.0% $2,847 $2,846 2.05x 1.86x 11.44x 10.07x 31.27x 25.50x

$23.09 30.0% $2,960 $2,960 2.14x 1.93x 11.90x 10.48x 32.53x 26.52x

$24.06 35.5% $3,085 $3,085 2.23x 2.02x 12.40x 10.92x 33.89x 27.64x

Current Price

Share PricePremium to

Current Equity ValueEnterprise

Value


24

Exit Multiple Method - No SynergiesDISCOUNTED CASH FLOWS ANALYSIS

Our DCF indicates that KATE is underpriced at present levels based on our implied equity value

• WACC: 10.5%• Terminal EBITDA multiple: 9.1x• Tax Rate: 40%• 2016E through 2018P are based

on BB consensus estimates• 2019P through 2021P are based

on Green Mountain Capitals estimates

• Valuation date: 12/31/16

Assumptions

Implied Enterprise Value: $2,559.1 Million(CY 12/31/16) 4 Quarters Fiscal Years Ending December 31,($ in millions, except share price) Ending Year 2 Year 3 Year 4 Year 5 Terminal

12/31/17 2018 2019 2020 2021 Value

Revenue $1,531.1 $1,701.1 $1,769.1 $1,839.9 $1,913.5% Revenue Growth 10.5% 11.1% 4.0% 4.0% 4.0%

Gross Profit 1,022.8 1,144.8 1,190.6 1,238.2 1,287.8Gross Profit Margin 66.8% 67.3% 67.3% 67.3% 67.3%

EBITDA 282.5 322.4 335.3 348.7 362.6% Margin 18.5% 19.0% 19.0% 19.0% 19.0%

D&A (103.9) (110.7) (113.4) (116.3) (119.2)SBC (31.5) (35.0) (36.4) (37.8) (39.4)EBIT $147.2 $176.7 $185.5 $194.6 $204.0Taxes at 40.0% (42.1) (50.5) (53.1) (55.7) (58.4)NOPAT $105.1 $126.1 $132.4 $138.9 $145.7

Plus: D&A 103.9 110.7 113.4 116.3 119.2Plus: SBC 31.5 35.0 36.4 37.8 39.4Less: CAPEX (106.0) (117.7) (122.4) (127.3) (132.4)Less: (Increase) Decrease in NWC (9.9) (9.6) (3.6) (3.7) (3.9)

Unlevered Free Cash Flow $124.5 $144.5 $156.2 $162.0 $168.0 $3,643.9% Growth na 16.0% 8.1% 3.7% 3.7%

Present Value of Unlevered Free Cash Flow $112.7 $118.4 $115.8 $108.6 $102.0 $2,001.7

Sum of NPV Cash Flows $557.4 Implied Equity Value Per ShareNPV of Terminal Value $2,001.7 Exit MultipleImplied Enterprise Value $2,559.1 8.2x 8.7x 9.2x 9.7x 10.2xLess: Net Debt $0.7 9.5% $19.25 $20.10 $20.96 $21.81 $22.66Less: Minority Interest – 10.0% $18.79 $19.62 $20.45 $21.28 $22.11Less: Preferred Equity – 10.5% $18.35 $19.16 $19.96 $20.77 $21.58Implied Equity Value $2,559.8 11.0% $17.92 $18.70 $19.49 $20.28 $21.06

11.5% $17.50 $18.26 $19.03 $19.79 $20.56Implied Share Price $19.96Share Price as of 10/12/2016 $17.76 Implied Premium (Discount)Premium (Discount) to 10/12/2016 12.4% Exit Multiple

8.2x 8.7x 9.2x 9.7x 10.2xEV / 2016E EBITDA 10.3x 9.5% 8.4% 13.2% 18.0% 22.8% 27.6%EV / 2017P EBITDA 9.1x 10.0% 5.8% 10.5% 15.2% 19.8% 24.5%

10.5% 3.3% 7.9% 12.4% 17.0% 21.5%EV / 2016E Revenue 1.8x 11.0% 0.9% 5.3% 9.7% 14.2% 18.6%EV / 2017P Revenue 1.7x 11.5% (1.5%) 2.8% 7.1% 11.5% 15.8%

Dis

coun

t R

ate

Dis

coun

t R

ate


25

Kate Spade LBO – 15% Required IRRTransaction Summary Sources & Uses

Transaction Assumptions Scenario Sensitivities

PRELIMINARY LBO ANALYSIS

Transaction Close:Enterprise Value:2016E EBITDA Multiple:2016E EBITDA:

• Assumes transaction closes 12/31/16• Financing Fees:

• Revolver 1.5%• Term Loan: 1.5%• 1% Amortization over 7 Years

• Total Leverage of 6.5x EBITDA• $1,600.0 Million Term Loan B priced at L + 700bps• $300.0 Million undrawn revolver priced at L + 250bps• $1,000 Million in Sponsor Equity

• Assumes 10.0% Management Options• Tax Rate of 40.0%

12/31/16$2,500.0 Million

9.1x$248.8 Million

($ in Millions)

Sources UsesExcess cash $240.0 Equity purchase price $2,482.2Term loan - B $1,617.3 Refinance debt $289.3Sponsor equity $960.0 Prepayment penalties $6.3Tax Refund $30.5 Financing fees $28.8

Transaction costs $41.2Total Sources $2,847.8 $2,847.8

Implied Equity Value Per ShareTerminal Multiple

8.2x 8.7x 9.2x 9.7x 10.2x7.0% 10.5% 13.5% 16.4% 19.0% 21.5%8.0% 9.8% 12.8% 15.6% 18.3% 20.7%9.0% 9.2% 12.2% 15.0% 17.6% 20.0%10.0% 8.5% 11.5% 14.3% 16.9% 19.3%11.0% 7.9% 10.9% 13.6% 16.2% 18.6%

Prem

ium

Paid

Implied Premium (Discount)Terminal Multiple

8.2x 8.7x 9.2x 9.7x 10.2x5.5x 8.0% 10.5% 12.9% 15.1% 17.1%6.0x 8.5% 11.3% 13.8% 16.2% 18.4%6.5x 9.2% 12.2% 15.0% 17.6% 20.0%7.0x 10.0% 13.3% 16.4% 19.3% 21.9%7.5x 11.0% 14.8% 18.3% 21.5% 24.4%

Tot

alL

ever

age


26

Trading StatisticsSELECTED COMPARABLE TRANSACTIONS

Ann Inc / Ascena Retail Group is the most relevant transaction due to the fact that it is the most recent and shares many characteristics ( Premium & EV/EBITDA.

Duration (days) Payment type Nature of Bid

5/18/2015 Ann Inc Ascena Retail Group 2006.31 0.8 x 7.2 x 27.5 x 23.6% 98 Cash & Stock Friendly12/19/2013 Jones Group Inc Sycamore Partners 2199.05 0.5 x 15.1 x 12.1 x 7.0% 111 Cash Friendly7/24/2013 Maidenform Brands LLC Hanesbrands Inc 571.94 0.9 x 7.0 x 13.0 x 29.3% 75 Cash Friendly5/10/2013 True Religion Apparel Inc TowerBrook Capital Partners 635.13 1.5 x 7.0 x 17.5 x 17.0% 82 Cash Friendly

10/31/2012 Warnaco PVH Corp 2823.82 1.2 x 10.5 x 18.0 x 33.6% 106 Cash & Stock Friendly5/2/2011 Volcom LLC Kering 511.92 1.1 x 7.5 x 30.9 x 30.9% 53 Cash Friendly8/24/2009 Charlotte Russe Holding Inc Advent International Corp 304.46 0.3 x 5.8 x 24.0 x 20.1% 51 Cash Friendly9/19/2007 Kellwood Co Sun Capital Partners 926.05 0.4 x 6.4 x 26.0 x 13.3% 154 Cash Hostile4/3/2006 Mossimo Inc Iconix Brand Group 103 2.5 x 36.0 x 19.3 x 23.6% 212 Cash & Stock Friendly

Mean 1,120.2$ 1.0 x 11.4 x 20.9 x 22% 104.7Median 635.1$ 0.9 x 7.2 x 19.3 x 24% 98.0

Date AnnouncedDeal Information

Target Acquiror Transaction EV EV/LTM Revenue EV/LTM EBITDA LTM P/E Share Price Premium


27

Distribution of Premiums Paid

PREMIUMS PAID DATA

13.8%

4.3% 5.0%

19.0% 21.7%

25.0% 22.4%

30.4%

25.0%

18.3% 17.4% 20.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0-10% 10.01-20% 20.01-30%

0-10% 10.01-20% 20.01-30% 30.01-40%

All Transactions Strategic AcquirersApparel Industry

• $1 billion to $5 billion in transaction value

• North America Target• Transaction announced

in the last 5 years • Closed M&A deals only

• Target Industry: Apparel and Design

• Transaction value over $100 million

• Excludes Private Equity Firms



• Target Industry: Apparel and Design

• Transaction value over $100 million



The industry overall seems to have higher premiums on average than typical larger transactions do.

By excluding financial acquirers from our second data inquiry, we note that 50% of strategic acquisitions paid premiums between 10% and 30%.

The premiums that we selected from comparable transactions suggest premiums of approximately 25%.

From our research, we believe that a premium for this deal would need to range between 20% and 25%.

Stock Price Premium Premium PriceDay $17.76 25.00% $22.20

Week $17.98 25.00% $22.48Month $18.11 25.00% $22.64


28

Side by Side ComparisonRL / KATE KEY STATISTICS

• KATE trades at higher multiples than RL, implying greater growth potential, as well as a possible accretive transaction

($ in Millions, except per share items) Ralph Kate Illustrative KATE Pro-FormaLauren Spade Combination Combination

Share Price as of 10/11/16 $102.33 $17.76 N.M.Discount to 52-week High $137.38 $26.46 N.M.Market Capitalization $8,418 $2,274 $10,691 21.3%Enterprise Value $8,320 $2,361 $10,681 22.1%

2016E Revenue $8,013 $1,386 $9,399 14.7%2016E EBITDA $1,255 $249 $1,504 16.5%2016E Net Income $643 $91 $734 12.4%2016E Cash Flow $880 $194 $1,073 18.0%

2016E EV / Revenue 1.04x 1.70x 1.14x2016E EV / EBITDA 6.63x 9.49x 7.10x2016E P /E 13.08x 24.98x 14.56xLT EPS Growth Rate 5.3% 7.0% N.M.

MarketSummary

FinancialSummary

ValuationStatistics


29

KATE 2 Year Stock PerformanceRELATIVE EXCHANGE RATIO

Exchange Ratio Snapshots

RL 2 Year Stock Performance

$13

$18

$23

$28

$33

$38

Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 $75

$95

$115

$135

$155

$175

$195

Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16

Relative Exchange Rate Over 2 Years

0.14

0.18

0.22

0.26

0.30

Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16

The ratio between KATE and RL appears to be cyclical because of large spikes occurring in Spring of 2015 and 2016.

As a result of its cyclicality, this ratio has returned to a similar level as October 14.

Time Horizon Exchange RatioCurrent 0.173556142

YTD 0.21255607

1 Year Average 0.201408908

2 Year Average 0.196510518


30

RL / KATE Illustrative Acquisition Analysis ACCRETION / DILUTION ANALYSIS

($ in Millions, except per share data) Current Analysis at Various Prices (% Premium to Current)Price 10.0% 20.0% 25.0% 30.0% 40.0%

Transaction Price Per Share $102.33 $19.54 $21.31 $22.20 $23.09 $23.98

ConsiderationConsideration in Stock – – – – –Consideration in Cash $319.0 $546.8 $565.0 $565.0 $565.0Consideration in Debt $2,600.0 $2,600.0 $2,695.6 $2,809.5 $2,923.4

2017 EPS ImpactAcquiror Net Income $699.9 $699.9 $699.9 $699.9 $699.9Plus: Target Net Income $111.6 $111.6 $111.6 $111.6 $111.6NEWCO Net Income $811.5 $811.5 $811.5 $811.5 $811.5

Pro Forma NEWCO Net Income $694.4 $690.6 $687.9 $685.0 $682.1

Acquiror Diluted Shares Outstanding 85.900 85.900 85.900 85.900 85.900Shares Issued – – – – –Pro Forma Shares Outstanding 85.900 85.900 85.900 85.900 85.900

Pre-Deal Diluted EPS $8.15 $8.15 $8.15 $8.15 $8.15Pro-Forma Diluted EPS $8.08 $8.04 $8.01 $7.97 $7.94

2017E Accretion / (Dilution) ($) ($0.06) ($0.11) ($0.14) ($0.17) ($0.21)2017E Accretion / (Dilution) (% ) (0.8%) (1.3%) (1.7%) (2.1%) (2.5%)

2018P Accretion / (Dilution) ($) $0.69 $0.62 $0.58 $0.55 $0.522018P Accretion / (Dilution) (% ) 7.9% 7.1% 6.7% 6.3% 5.9%

• The transaction, valuing KATE at ~$2,850 Million, is dilutive in the first year due to one-time restructuring charges, but accretive thereafter

• Transaction close: 12/31/16• No Synergies• Purchase Price of $22.20 per

Share or ~11.4x 2016E EBITDA

• 100% Cash Consideration• Funded with $2,600.0 Million

TLA priced at L + 250bps• $500.0 Million Revolver

priced at L + 87.5bps• Minimum Pro-Forma Cash

Balance of $175.0 Million • Cash Tax Rate of 28.6%• $200.0 Million Restructuring

charge (25% realized at close, 50% in 2017P, 25% in 2018P)

Assumptions

Source: Green Mountain Capital Estimates, Bloomberg Consensus EstimatesNote: Does not include 3% Revenue dis-synergies

31

Cost & Revenue Synergies (Dis-synergies) AppliedACCRETION / DILUTION SENSITIVITY ANALYSIS

2017P Pro-Forma GAAP EPS

Accretion / (dilution) (%)

Assumptions

• Assumes 20.0% SG&A synergies are applied to KATE’s 2016E SG&A

• Aggregate savings of 148.1 Million in 2017P

• RL Pro-Forma Revenue experiences a range of dis-synergies due to cannibalization of sales

Assumptions

• When assuming a minimum of 10.0% SG&A synergies, the transaction is accretive at any likely premium RL will pay

• When assuming 20.0% SG&A synergies, as well as a range of revenue dis-synergies, the transaction is dilutive in most premiums paid scenarios

• Assumes SG&A synergies are applied to KATE’s 2016E SG&A

• RL Pro-Forma Revenue experiences dis-synergies of -3%

Premium Paid10.0% 20.0% 25.0% 30.0% 40.0%

10.0% $8.70 $8.65 $8.62 $8.59 $8.5215.0% $9.01 $8.96 $8.93 $8.90 $8.8320.0% $9.31 $9.27 $9.24 $9.20 $9.1425.0% $9.62 $9.58 $9.55 $9.51 $9.4430.0% $9.93 $9.89 $9.85 $9.82 $9.75SG

&A

Syn

ergi

es

(%)

Premium Paid10.0% 20.0% 25.0% 30.0% 40.0%

(5.0%) (37.2%) (37.8%) (38.1%) (38.6%) (39.4%)(4.0%) (26.9%) (27.5%) (27.8%) (28.3%) (29.1%)(3.0%) (16.6%) (17.1%) (17.5%) (17.9%) (18.8%)(2.0%) (6.3%) (6.8%) (7.2%) (7.6%) (8.5%)(1.0%) 4.0% 3.5% 3.1% 2.7% 1.8%

Rev

enue

Dis

-syn

ergy

(%)


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