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PRIVATE & CONFIDENTIAL Merger Considerations Project Catwalk March 2019

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Page 1: PRIVATE & CONFIDENTIAL Project Catwalk...Michael Kors Coach Industry Average Leverage Coach expertise exposure to top tier cities digital investments extensive marketing Exposure to

PRIVATE & CONFIDENTIAL

Merger Considerations

Project Catwalk

March 2019

Page 2: PRIVATE & CONFIDENTIAL Project Catwalk...Michael Kors Coach Industry Average Leverage Coach expertise exposure to top tier cities digital investments extensive marketing Exposure to

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Team ProfileTeam of Dedicated Individuals with Significant Strategic Advisory Experience

Years of Experience Advising Companies Undertaking Strategic Alternatives in Tandem with Expertise in Retail Prove That We

Are Best-Suited to Advise Tapestry on its Potential Merger with Capri Holdings

Kyle Costanzo

Born and raised in Princeton New Jersey, Kyle grew interested in finance after interning at an energy brokerage firm after high school.�When�he’s�not�working�on�stock�pitches�for�HIM’s�Consumers sector, Kyle serves as the co-president of JED Consulting,�McGill’s�student-run consulting firm. In his time outside of studies, Kyle goes skiing,�maps�out�Montréal’s�coffee scene, and plays poker tournaments.

+1 438-880-8951

McGill UniversityB.Comm

Emilie Granger was born and raised in Montreal, Canada. Growing up with a brother in Investment Banking, Emilie always knew she wanted to undertake a career in Finance. At McGill, Emilie is an ambassador for Women in Capital Markets. Outside of McGill, Emilie enjoys playing soccer and countryside hiking. She also competes in sprint triathlons.

Emilie Granger

+1 609-947-8339

McGill UniversityB.Comm

+1 438-926-4428

McGill UniversityB.Comm

Tejas Saggi

+1 905-601-1227

McGill UniversityB.Comm

Eric Van Hees

Tejas was born in India and raised in the suburbs of Vancouver, BC. At a young age, he realized he had a knack for Excel shortcuts and so the natural rite of passage was to enter finance. He now spends the majority of his days rethinking this decision. As a true financier, he recently picked up squash. Outside of finance, Tejas enjoys playing basketball and traveling.

Eric was born and raised in Oakville, Ontario. His interest in finance originates from his involvement with his high school investment club. His time at McGill has been filled with extracurriculars including being a member of the Varsity Lacrosse team and the McGill Investment Club. Outside of school, Eric can be found playing guitar or socializing with friends.

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Mitigant

1. Merger�solves�Capri’s�inventory�issue,�

which is the reason stock has fallen

2. Track record of success of this org

structure with LVMH. Extract value by

separating affordable luxury and luxury

3. No scrutiny for similar recent mergers

Executive SummaryTapestry Should Merge with Capri Holdings to Create the First True US-Based Luxury Conglomerate

Purchase of Luxury Conglomerate like Capri Holdings will Generate Significant Synergies, and Position the Combined Entity to

Solidify its Leading Position in the United States, and Grow its Market Share in Growth Markets Abroad

Risks

1. Market has punished Capri recently due to

their inventory issues (-60% from peak)

2. Organizational structure overhaul

necessary to integrate Capri with TPR (i.e.

must give all brands autonomy)

3. Antitrust concerns

Considerations SummaryRisks and mitigants and strategic alternatives

� Rationale For Tapestry Merger With Capri Holdings:

− Increase profitability by moving deeper into luxury

− Lower business risk by diversifying product lines

− Immense revenue and cost synergy potential

− Potential for operational efficiencies through business re-organization

− Attractive Valuation

Strategic Summary

Merger will Create First True

US-Based Luxury Retail

Conglomerate

� Premium: $59 purchase price represents a 30% premium to current share price and a

11.0x TEV / NTM EBITDA

� Transaction Financing: Funded with 60% equity and 40% cash ($3.6bn of newly issued

debt), pro-forma Debt / 2020E EBITDA of 2.0x (in line with comps)

Financial SummaryRealistic and reasonable offer for Capri Holdings

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Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19

S&P 500 Tapestry Capri Holdings

The Tapestry Story: Strategic ObjectivesThe Current Situation

Tapestry Is At a Cross Roads With An Interesting Opportunity to Pursue Capri Holdings for A Merger

Tapestry is a North American Luxury

Retailer

Increased competition from

other North American Luxury

Retailers

Low global market share for luxury goods

M&A strategy to gain scale in North America and diversify product

lines

Leverage competencies of

both companies to exploit growth areas

Foundation Fright Formation Follow-On

• Diversification: Successful Men’s�and�apparel�segments�fill�gaps�in�Tapestry’s�product�line

• Luxury: Capri offers luxury brands like Versace that can improve profitability at Tapestry

• Inefficiency Reduction: Potential to re-organize Capri holdings to reduce inefficiencies in inventory management

• China Access: China opportunity is largely untapped

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Competitive LandscapeTapestry Competes in the Affordable Luxury and Luxury Market Segments

Tapestry and Capri Collectively Are Currently Relatively Small in the Global Luxury Goods Market and Therefore Need to Take

Strategic Actions to Gain Market Share

Genre High-EndLuxury, High-End,

and UpscaleLuxury Luxury Upscale

Core Product FocusModern luxury and

lifestyle

Accessories, footwear, and

apparel

Fully diversified luxury products

Fully diversified luxury products

Premium lifestyle products

Key Brands

Geography

North America (59%)Asia (24%)

Other (17%)

North America (64%)Europe (23%)

Asia (13%)

North America (19%)Europe (35%)

Asia (40%)Other (6%)

North America (23%)Europe (28%)

Asia (37%)Other (12%)

North America (56%)Europe (40%)

Asia (3%)Other (1%)

Headquarters New York New York Paris Paris New York

Recent EventsRecently acquired

Kate SpadeRecently acquired

VersaceSold Puma back to

original shareholders

Bought remaining interest in Dior

brand

Closed flagship store on Fifth Avenue

% Luxury Goods Market, 2017

0.01% 0.01% 4.1% 10.6% NA

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Overview of Strategic Alternatives Available to TapestryTapestry Should Merge With Capri Holdings

Company OverviewImproved Growth

ProspectsIncrease

ProfitabilityLikelihood

of Approvals

Low Riskiness of

Implementation

Status Quo – Make no Acquisitions

� Make no acquisition and continue price battles with Capri

� Capri margin remain below potential, while debt levels remain relatively low

Acquire Ralph Lauren

� Gain scale in US, and fill gaps in menswear and apparel

� Low likelihood of successful China entry� Lower luxury than Tapestry hurts TPR brand image

Acquire Select Capri Holdings Assets (i.e.

Versace)

� While enabling Tapestry to gain scale and luxury, it is unlikely that Capri would give all market power in the US to Tapestry, and sell Versace which they recently bought

Merge With Capri Holdings

� Reduce price competition in North America to increase margins

� Significant cost and revenue synergies� Better compete with LVMH and Kering

Merging With Capri Will Create the First North American Retail Conglomerate in Centuries, and Will Enable Significant

International Growth Opportunities and Domestic Margin Increases

Luxury Fashion

Experience, exclusivity, and logo trendGlobal exposure – attractive to growing Asian market

Affordable Luxury

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Summary of Rationale for Merger with Capri HoldingsMerger Will Create The First Ever North-American Luxury Conglomerate, Competing with the Likes of LVMH

By Merging with Capri Holdings, Tapestry Can Achieve A Valuation Uplift Through Increased Profitability, Significant Synergies,

and Added Operational Efficiencies

� Increased Margins: Conglomerates allow for economies of scale, increasing margins

� Increased Growth Prospects: Conglomerates can transfer competencies to other

portfolio brands (ex. Leveraging presence of brand in China to expand other brands)

Higher Profitability of

Conglomerates in Luxury

Space

1

� Fill Product Gaps: Diversify into other product segments such as clothing and menswear

� Enter Higher End Segments: Versace and Jimmy Choo appeal to higher end customers

helping the company partly alleviate risk of retail slowdown

Diversify Product and

Segment Mix, Lowering

Business Risk

2

� Revenue: Geographic�expansion,�eliminate�need�to�cut�prices�(“flash�sales”),�leverage�

distribution relationships, build centralized e-commerce platform

� Cost: Economies of scale, shared cost structure, increased power over suppliers

Significant Revenue and

Cost Synergy Potential

3

� Reorganize Capri Organizational Structure: Capri’s�portfolio�is�highly�centralized�which�

lowers�responsiveness�of�brands�to�market�trends;�Tapestry’s�structure�of�increased�

agency�amongst�brands�would�increase�Capri’s�operational�efficiency�

Potential for Operational

Efficiencies Through

Cultural Reorganization

4

� Buy Low: Capri down 60% from 2014 peak, creating a unique opportunity to buy at a low

� Capri Cashes Premium: Capri shareholders receive a premium at a time when Capri is

performing poorly

Attractive Valuation Due

to Recent Market

Performance of Capri

5

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Rationale #1: Higher Profitability of Conglomerates in Luxury SpaceCase Studies of LVMH, Kering and Inditex Demonstrate Benefits of Being A Conglomerate

Tapestry Will Achieve Significant Operational Efficiencies That Will Boost Margins and Create Value for Shareholders Through

Multiple Expansion By Merging with Capri

EBITDA Margins of Companies in Luxury Space Increased Profitability Results in Conglomerate Premium

10%

15%

20%

25%

30%

35%

Tapestry Burberry Polo LVMH Kering

2016 2017 2018

Conglomerates

10.5x 10.6x 10.8x11.2x

13.4x 13.6x

Tapestry Burberry Polo LVMH Kering Inditex

EV / LTM EBITDA

Conglomerates

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51% 52%

18%20%

14%11%

6%10%

4%11%3%

Pre-Merger Post-Merger

Handbags Accessories Men's

Footwear Clothing Other

Rationale #2: Diversify Product and Segment Mix, Lowering RiskMerger with Capri Will Create Diversified Mix Both in Terms of Products and Customer Segments

Merger Will Lower Business Risk of Tapestry Due to a More Diversified Product Mix and Likely Increase Margins Due to Mix

Shift Towards Luxury Market Segment

Merger Yields More Diversified Product Mix Segment Mix Post-Merger Shifts Towards Luxury

94%89%

6%11%

Pre-Merger Post-Merger

Affordable Luxury Luxury

Merger will almost double percentage of revenue

coming from higher-margin Luxury segment

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Transfer Of Know-How Will Allow Both Brands To Extend Their Existing Product Offering, And Geographic Footprint

Rationale #3: Significant Revenue and Cost Synergy PotentialRevenue Synergies Achieved From Pricing and Expansion Tailwinds

Geographic Expansion - China

Pricing War

E-commerce Penetration

Chinese consumers are likely to make up at least 45% of

the market in 2025 (from 32% in 2018), and they will make

half of their luxury purchases at home

6%

15%

8%

Michael Kors Coach Industry Average

Leverage Coach expertise

exposure to top tier cities

digital investments

extensive marketing

Exposure to China

The Hard Reality of Digital Everything

42% 41% 17%

Store Only Researched online,

purchased offline Online

Digital Influence (2017)

91% 89% 88% 86% 85% 83%

9% 11% 12% 14% 15% 17%

2017 2018 2019E 2020E 2021E 2022E

Channel Distribution

Offline Online

Tapestry can keep customers at the center of their strategy by

pressing forward with digital initiatives and quickly and efficiently

scaling�Coach�and�Kate�Spade’s�omni-channel presence by

leveraging Michael Kors expertise in e-commerce

Eliminate price wars and increase pricing on all affordable luxury

brands (Kate Spade, Coach, Michael Kors)

Tapestry’s�share�price�has�soared�in�recent�years�as�the�company�

worked to decrease its reliance on big promotions, step up the

quality of its handbags, and increased sales price

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Rationale #3: Significant Revenue and Cost Synergy PotentialCost Synergies Achieved From Centralized Support Functions Operated As Shared Centralized Services

Taxiway to Margin Expansion

Integrating Production With That Of Capri Could Potentially Damage Its Integrity In The Minds Of Its Customers. However, We

Found That, Depending On The Product Category, Numerous Domains Can Generate Efficiency Synergies

Bargaining Power at Malls and Flagship Locations

6% 7%10%

8%

13%

6% 6%

11%8% 8%

Apparel andfootwear

Bags andaccessories

Cosmetics andfragrances

Jewellery andwatches

Multiple luxurygoods

Performance by luxury fashion product sector 2017

Profit margin Return on assets

1. Shared marketing costs

2. Overhead costs

3. Design costs

4. Production efficiencies

With more luxury brands in luxury malls and with

more flagship locations, Tapestry can benefit from

bargaining power with real estate third parties

32%

25%

21%

13%

9%Monobrand StoreSpecialty StoreDepartment StoreOff-Price StoreOnline Store

How Luxury Groups Create Added Value?

Function SynergyValue

Creation

Productive Functions

Manufacturing

Purchasing

Sourcing

R&D

Supportive Functions

Distribution

Marketing

Real Estate

Back Office

Know-How Best Practices

Efficiency Productivity

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Rationale #4: Generate Efficiencies Through Cultural ReorganizationCapri’s�Organizational�Structure�Reveals�Inefficiencies�That�Could�Be�Alleviated�Through�Reorganization

Capri Holdings Current Organizational Structure – Centralized

What LVMH and Kering’s Organizational Structures Allow

Tapestry Organizational Structure – Siloed

John Idol

CEO

Thomas Edward

CFO

Michael Kors

CCO

Cathy Robinson

COO

Joshua Schulman

CEO - Coach

Victor Luis

CEO

Anna Bakst

CEO – Kate Spade

Eraldo Poletto

CEO – Stuart Weitzman

Michael Braine

CIO

Todd Kahn

CLOAndrea Shaw

CFO

… … …

NY Headquarters

NY Headquarters

A

B

Retain strategic direction within each division

Develop identifiable elements that make up the brand perception– increase ability to cross-sell portfolio brands

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Rationale #4: Generate Efficiencies Through Cultural ReorganizationThrough Cultural Reorganization, We Can Create A Structure That Is In-Line With European Conglomerates

Merged Organizational Structure – Siloed and Centralized

Kate Spade

President

Stewart Weitzman

President

Victor Luis

CEO

NY Headquarters

Coach

President

Michael Kors

President

MK Collection

President

Versace

President

Affordable Luxury

CEO

Luxury

CEO

Jimmy Choo

President

Capri’s�Current�Organizational�Structure�Creates�Inefficiencies�Related�to�Inventory�Management�and�Marketing;�By�Adopting�

Tapestry’s�Organizational�Structure�of�Brand�Autonomy,�Capri�Can�Solve�Many�of�the�Reasons�Why�Their�Stock�is�Discounted

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1

Rationale #5: Attractive Time To MergeCapri Is Trading At A Low Creating A Unique Opportunity to Buy A Portfolio of Leading Luxury Brands for Cheap

Tapestry�Can�Benefit�From�Capri’s�Core�Competencies�and�Add�Unique�Value�to�Extract�Returns�

Capri Has An Attractive Valuation After Poor Performance Low Debt and High P/E Give Tapestry Capacity to Acquire

0.3x Net Debt/EBITDA

3.0% Net Debt/Enterprise Value

$1.2B Cash Balance

At 0.3x Debt to EBITDA and only a 3% Net Debt/EV, Tapestry has plenty of capacity to use debt to fund acquisitions

Capacity to Add Debt

Tapestry would be able to acquire select brands to add to their portfolio for under $1.2B

Ample Cash Balance

14.4x P/E Ratio vs. 10.6x average for American Luxury Conglomerates

Relative to direct peers, Tapestry has a higher P/E

Equity Consideration Still Accretive Due to High P/E

2

3

$0

$20

$40

$60

$80

$100

$120

Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19

S&P 500 Capri Holdings

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Capri Holdings Valuation SummaryBlended Valuation Results in a Roughly 28% Premium to Current Share Price

Capri Holdings Future Growth Is Driven by Versace and Jimmy Choo, With a Slight Margin Expansion From Prior Acquisition

Integration

Intrinsic Valuation

Comparable Companies Analysis

Informational Range

Target Price:$59.00

Current Price: $46.00

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Merger Model 1.36 Share Exchange and $13.31 Cash Resulting in 30% Premium and $59 of Shareholder Value (11x EBITDA)

Key Merger Assumptions

Even With An Above Market Premium and Conservative Synergy Estimates, The Deal Is Still EPS Accretive and Benefits

Shareholders. Base Case Transaction Structure Is 1.36 Exchange Ratio and $13.31 Cash Funded ~80% with External Debt.

Merger Sensitivity Analysis

2021E EPS Accretion

Premium Paid

### 10.0% 20.0% 30.0% 40.0% 50.0%

40% 48% 43% 38% 34% 29%

50% 40% 36% 33% 29% 24%

% Equity 60% 31% 28% 24% 21% 18%

70% 24% 20% 17% 14% 11%

80% 18% 14% 11% 7% 4%

2021E EPS Accretion

Premium Paid

45.3% 10.0% 20.0% 30.0% 40.0% 50.0%

High 49% 45% 41% 38% 34%

Synergies Medium 31% 28% 24% 21% 18%

Low 13% 10% 7% 5% 2%

� 30% premium provides Capri shareholders with an attractive price that is in-line with

intrinsic value and competitive based on precedents. Our base case results in a 1.36 share

exchange and $13.31 per Capri shareholder, resulting in a total of $59.22 of value.

Price Considerations

Attractive price for Capri

Shareholders

� A higher equity component, despite being more expensive, allows flexibility for pro-forma

entity to pursue growth avenues and entices major shareholders to vote in favour of merger.

Attractive upside for Capri shareholders from long term synergy realization.

Financing Considerations

Higher equity component, while

maintaining accretion

� The pro-forma company will realize revenue, expense and cultural synergies. Despite

conservative estimates, we still forecast considerable accretion. Conservative ramp up until

2023.

Synergy Considerations

Considerable upside from

multi-channel growth avenues

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Major Shareholder ConsiderationsSignificant Focus Should Be Placed On Institutional Investors And Michael Kors

Michael Kors Likely Holds Significant Clout In Boardroom And Is The One Significant Individual Shareholder As The Other Major

Shareholders Are Likely Passive Investors That Will Vote According to Proxy Service Recommendations

11.3%

10.0%

4.3%

66.7%

Tapestry Major Shareholders Capri Holdings Major Shareholders

Other 10.3%

6.9%

6.5%

4.3%

2.9%62.7%

Other

Michael

Kors

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2.90%

1.14%

Before After

Michael Kors Expected Voting DirectionMulti-Pronged Strategy of Equity Consideration and Board Seat Provides Mr. Kors with Considerable Influence

Michael Kors Will Have Limited Arguments Against The Merger Of The Two Companies And With Careful Consideration He Will

Not Be A Hindrance To A Smooth Transaction

Illustrative�Mr.�Kors’�Ownership�Comparison

Mr.�Kors’�Expected�Vote

Board Seat Equity Consideration Fiduciary Duty

Expected to Vote in Favour

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Merger Considerations and MitigantsRelatively Limited Downside With Capri Merger Given Strong Merger Rationale

Various Case Studies And Conviction In Rationale Mitigate The Majority Of Merger Risks Though These Should Be Actively

Monitored Should A Process Commence

Merger Considerations Mitigants

• Luxury�retailers�being�punished�for�Capri’s�inventory management practices which may hurt�Tapestry’s�brand�image

� Cultural risk as Capri is re-structured to match�Tapestry’s�organizational�structure

� Auction competition driving up price and negatively affecting Tapestry shareholders

� Potential cannibalization of revenues between Michael Kors and Kate Spade

� Anti-Trust concerns, given large horizontal merger

A

B

C

D

E

A

B

C

D

E

• Implementation of new organizational structure and Tapestry expertise will fix inefficiencies and eliminate discount

� The focused management model has a proven track-record of success in Luxury Retail

� LVMHs recent acquisition spree will likely leave them out of process + Tapestry can offer autonomy to MK unlikely LVMH / Kering

� Elimination of flash sales will counter-act any cannibalization

� Recent horizontal mergers and other major fashion conglomerates set precedent for regulatory approval

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ConclusionRecommendation To Merge With Capri Holdings And Engage Us, Desautels Capital Management, As An Advisor

Why Hire Desautels Capital Management

� Industry and company expertise helps us advise on synergy implementation, future growth

opportunities, integration and expected market sentiment of transaction

Expertise in Luxury Retail

Considerable relationships

and experience

� Desautels Capital Management is focused on strategic advisory to ensure that all clients

operate in the most optimal manner to maximize shareholder value

� Interest has already been generated surrounding leverage and given equity heavy

consideration, we are confident that adequate leverage will be available

Advisory Focused

No conflict of interest with

lending arrangement

� Desautels Capital Management has a prior relationship with the Capri Holdings

management team, this would make it easier to start negotiations on a friendly note and

perhaps create a more private process

Capri Relationship

Promotes targeted friendly

process

Desautels Capital Managements Superior Expertise, Firm Structure, And Relationships Are All Reasons Why You Should Engage

Us Over Our Competition

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Appendix

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Company OverviewKate Spade and Stuart Weitzman Provide Geographic and Product Growth Levers

Coach�Sets�the�Model�for�an�International�Luxury�Retailer�That�Tapestry’s�Other�Brands�Can�Leverage�to�Achieve�Similar�

International Success

Product

Mix

Annual

Revenue

Int’l�Mix

Employees

Operated

Stores

$4.22B $1.28B $374M

987

13,500

342

5,500

103

940

54%

18%

20%

8%

Women'sHandbags

Women'sAccessories

Men's

57%43%

NorthAmerica

International

55%21%

24%

Women'sHandbags

Women'sAccessories

OtherLifestyleCategories

83%

17%NorthAmerica

International

98%

2%

Footwear

Handbags &other

64%

36%NorthAmerica

International

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Comparison of Tapestry and Capri HoldingsTapestry and Capri are Both High-End US Retail Conglomerates

Genre High-End Luxury, High-End, and Upscale

Core Product Focus Modern luxury and lifestyle Accessories, footwear, and apparel

Key Brands

Geography

Headquarters New York New York

59%24%

17%NorthAmericaAsia

Other

64%

23%

13%NorthAmericaEurope

Asia

Sales EBITDA EV/EBITDA EV Debt Cash

Tapestry $5.0bn $1.2bn 8.8x $10.1bn $1.6bn $1.2bn

Capri $4.7bn $1.0bn 9.0x $9.2bn $2.5bn $163.0mm

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Coach’s�Success�In�China�Will�Benefit�Other�BrandsAbility to Share Supplier and Distributor Relationships Can Provide Platform for Chinese Growth for Tapestry Brands

Coach Revenues are Growing More and More International, and Kate Spade and Stuart Weitzman Will Follow

Coach’s�Success�in�China�Over�10�Years�Shows�the�Potential�Growth�that�TPR’s�Other�Brand’s�Can�Achieve�in�the�Next�10�Years

While�Slowing,�Coach’s�Penetration�in�China�Will�Provide�a�Roadmap�for�Tapestry’s�Other�Two�Brands

76% 75% 72% 70% 72% 70% 69% 65% 59% 53% 52% 50%

24% 25% 28% 30% 28% 30% 31% 35% 41% 47% 48% 50%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Coach N.A. Revenue Coach International Revenue

$54$108

$185

$303

$425

$545$594 $601 $599

$650

0%

20%

40%

60%

80%

100%

120%

0

100

200

300

400

500

600

700

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Coach China Revenues ($millions) Coach China Revenue Growth YoY

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Trend #1: Polarization of Winners and Losers97% Of Economic Profits For The Industry Being Generated By 20 Companies, Most of Which are Luxury

Top Fashion Companies Generate Most Economic Profit

Polarization Continues To Be a Harsh Reality in Fashion With 97% of Economic Profits for the Industry Being Generated By 20

Companies

183 6

100144

129

-18

-47-34

2010 2016 2018

Fashion companies contribution to industry economic profit (%)

Bottom 20%

Top 20%

21% - 80% 1

2

• Fashion industry is experiencing growing contribution from top

quintile companies to industry economic profit

• Polarization has led to a smaller group of winners, most of them in the

luxury segment. The top 20% is experiencing a widening disparity with

winners accounting for 97% of EP (70% in 2010)

• Number�of�“value-destroying”�companies�(generating�negative�

economic profit) has almost doubled between 2010 and 2018

• Companies able to differentiate on price point/efficiency or brand

have performed best3

1

2

Mid-Market 36

Luxury & Affordable Luxury28

Value 24

Premium Bridge11

Total economic profit by price segment (2017)% of all public companies

Economic profit of Top 20 players

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Trend #2: China to Re-Emerge as Growth Lever in LuxuryWhile Growth Has Slowed, Significant Growth Opportunities Exist for Companies Not Currently in China

Coach Can Leverage its Success in China to Help Brands Under the Tapestry Umbrella Capitalize on the China Opportunity

0.0%

2.0%

4.0%

6.0%

8.0%

Paris Tokyo Singapore Milan London Hong Kong New York Los Angeles KualaLumpur

Toronto Shanghai

Increase in Stores by City in 2017

Luxury Affordable Luxury

Which Markets Offer Attractive Expansion Opportunities?

32%

45%

2018 2025E

After a Decade of Luxury Growth, China Has Slowed Percent of Global Luxury Retail Purchases Made in China

� Both mainland China and Hong Kong continue to experience a

slowdown in luxury goods spending, with economic uncertainty

dampening consumer confidence

� The Hong Kong market is still affected by the strained relations

with the mainland, with many wealthy Chinese tourists staying

away and choosing to travel to other Asian cities such as

Singapore and Tokyo

� However, China will remain a key growth lever for luxury retail

players going forward

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22.4x 22.0x

18.3x

9.1x7.3x

8.8x 7.9x

1 2 3 4 5 6 7 8

4.0x

3.1x2.7x 2.7x

2.2x1.7x 1.7x

2.0x

1 2 3 4 5 6 7 8 9

Precedent TransactionsNo Perfect Precedent Given Capris conglomerate business model

Precedent Transactions: EV/LTM Revenue Multiple

Precedent Transactions: EV/LTM EBITDA Multiple

Average: 2.7x

Average: 15.8x

High End Luxury Retailers Warrant Significant Premiums, Like Versace, Due To Attractive Growth Opportunities

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Merger Model Assumptions Costs and Revenues Synergies

Synergies Description Express as % of Target Sales* Justification

Low Medium High

1) Cost of Goods Sold Production efficiencies 0.50% 2.00% 3.50%Pooling of resources to optimize distribution and production facilities

(economies of scale and economies of scope).

2) Design Costs Shared design costs 0.50% 2.00% 3.50%

Tapestry and Capri's core business remains centered on creative

content generation and trend identification. The merged entities can

reduce sourcing and R&D costs significantly, and benefit from

bargaining power with manufacturer and wholesalers.

3) Overhead Costs Shared overhead costs 0.50% 2.00% 3.50%

There is low visibility in the overlap between Capri and Tapestry. We

expect management teams to remain separated as brands should be

operated independently (LVMH case study). However, we expect

significant cost synergies from overhead costs by combining

distribution facilities on a global scale.

4) Marketing Costs Shared marketing costs 0.50% 2.00% 3.50%

Market power synergies: benefit from bargaining power with

emplacements, fashion magazines, wholesalers and real estate third

parties.

5) Share Distribution ChannelsShare distribution

relationships0.50% 2.00% 3.50%

E-commerce penetration: Tapestry can keep customers at the center

of their strategy by pressing forward with digital initiatives and

quickly�and�efficiently�scaling�Coach�and�Kate�Spade’s�omni-channel

presence by leveraging Michael Kors expertise in e-commerce.

6) Geographic ExpansionShare geographic

relationships0.50% 2.00% 3.50%

Leverage Coach expertise to increase Michael Kors and Kate Spade

exposure to China and Asian markets (which make up at least 45% of

the market in 2025).

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Model OutputsPro-Forma Outputs

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Sources & UsesBase Case Assumption of 60/40 Equity / Cash Consideration

Funding Sources

Stock Issued 6,899

New Debt 3,600

Cash from Acquirer 1,000

External Funding 11,499

Cash Available at Target 163

Total Funding Sources 11,662

Uses of Cash

Acquirer Standalone Cash Balance 1,243

Acquirer Standalone Cash Balance 163

Combined Cash Balance 1,407

Acquirer Cash Used in Deal (1,000)

Cash Available for Transaction 407

Excess Cash Available from Target 163

Excess Cash Available from Acquirer 243

Acquirer Cash Balance Used 1,000

External Financing

Stock Portion 60.0%

Cash / Debt Portion 40.0%

Total 100.0%

Sources

Uses

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Comparable Companies AnalysisLack of Perfect Comparable in the North American Luxury Conglomerate Space

Ralph Lauren 15.8% 16.27x 10.80x 1.32x

PVH Corp 14.5% 10.86x 8.21x 1.14x

VF Corp 14.7% 20.06x 14.86x 2.45x

Hanesbrands 20.2% 10.13x 9.18x 1.45x

LVMH 25.9% 19.78x 11.20x 2.56x

Kering 32.8% 17.19x 13.40x 3.20x

Inditex 21.0% 23.13x 13.60x 2.69x

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Peer Leverage AnalysisPro-forma entity financed with 60/40 Equity/Debt will bring Net Debt / EBITDA roughly in line with peers

1.1x

1.6x1.7x 1.7x

1.9x

2.4x2.5x

2.0x

Ralph Lauren Marks &Spencer

LVMH Nordstrom Kering Tommy Hilfiger Richemont MergedCompany

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Major Shareholder ConsiderationsBoth Entities Are Majority Owned By Institutional Passive Shareholders

Large Passive Shareholders Will Likely Follow Board Recommendation And Fairness Opinion, Which We Expect Will Be In Favour

� Board recommendation,

influenced by Michael Kors,

and advice from proxy

governing bodies

� Advice relies on conviction of

synergies and valuation

Voting

Considerations

Does premium

accurately

reflect value

� Passive investors will be granted a

premium above valuation and in

line with precedents.

� Proxy voting governance agencies

likely to advice voting in favour of

acquisition

� Equity consideration for long term

capital appreciation

Expected

Outcome

Vote in favour of

merger

� Direction for namesake

company and will his

considerable current control

continue

Voting

Considerations

Will I lose

considerable

control

� Capri could offer board seat so

Michael maintains influence

� Michael is a Fiduciary entrusted to

maximize shareholder value –

attractive premium and equity

upside maximize current

shareholder value

� Give Michael option to maintain

creative control of namesake brand

Tapestry

Strategic

Actions

Board seat,

synergy

conviction and

fiduciary