Khaled Capital recommends that Ralph Lauren acquire Tory Burch to strengthen its position in the women's apparel market. Ralph Lauren faces challenges from decreasing customer loyalty and lack of women's clothing offerings. Acquiring Tory Burch would allow Ralph Lauren to breach the women's retail market and leverage existing relationships between executives. Tory Burch adds a "new luxury" element and popular clothing lines like Tory Sport to diversify Ralph Lauren's revenue.

1. Ralph Lauren Corporation. Strategic Opportunities
Discussion Materials | February 12, 2016

2. Khaled Capital Partners
 Zachary Geremia
 Kelley School of Business, 2019
 Majors: Accounting & Finance
 Terrell Rose
 Kelley School of Business, 2019
 Majors: Finance & Business Analytics
 Jon Bikoff
 Kelley School of Business, 2019
 Majors: Finance & Real Estate
 Winnie Chin
 Kelley School of Business, 2019
 Majors: Accounting & Finance
 Sam Douglas
 Kelley School of Business, 2019
 Majors: Accounting & Finance

3. Table of Contents
I. Executive Summary 4
II. Apparel, Design, & Retail Industry 6
III. Ralph Lauren Overview 9
IV. Valuation Summary 16
V. Appendix 18

4. I. Executive Summary
4

5. Executive Summary
Khaled Capital recommends that
Ralph Lauren acquire Tory Burch
to strengthen its women’s
apparel market
 Overview
 Ralph Lauren is a global luxury apparel company headquartered in New York, earning about half of its revenue from
its retail business and the other half from its wholesale business
 The company is focused on creating value for their shareholders despite the strong dollar, slowing growth in China,
and falling sales
 Current Positioning
 Ralph Lauren’s 3rd quarter earnings reported a 39% decrease in net income from the same period a year earlier. RL
attributed this to unseasonably warm weather, a drop in foreign tourist traffic in North America, and product
assortment challenges. They also cut their fiscal 2016 estimates from 3-5% growth to only 1% growth
 After exceeding financial projections in November, due to strength in Europe, contributions of new stores, and strong
global e-commerce, Ralph Lauren suffered a rough 4 months in which their stock fell 22% after earnings were reported
on February 4th
 Strategic Alternatives Assessment
 A strategic acquisition of Tory Burch would breach a new market for women’s retail that Ralph Lauren currently lacks
 Ralph Lauren has existing relationships with executives at Tory Burch including the Co-CEO, Roger Farah, as well as
Tory Burch herself, both of whom previously worked at Ralph Lauren
 Tory Burch adds a “new luxury” element to Ralph Lauren’s conventional presence in the luxury apparel market
 Tory Burch also adds a highly demanded clothing line, Tory Sport, which will add diversity to Ralph Lauren’s revenue
stream
5

6. II. Apparel, Design, & Retail Industry
6

7. Macroeconomic Landscape
 Unemployment, the strongest driver of consumer spending has been steadily decreasing over the past five
years, but a reversal in the rate could weaken the economy and retail industry as a whole
 United State’s disposable personal income is forecasted to grow at an average rate of 2.5% through 2020,
along with consumer sentiment being forecasted to stay steady through the same time period.
 Historically, low oil prices boost consumer spending, but it has been noted that consumers may be saving
more of their extra spending money than they have in the past
 The strength of the US dollar continues to significantly weigh on Ralph Lauren’s revenues
 US Real GDP is expected to grow 2.5% in 2016 and 2.4% in 2017
 Growth in Europe is uncertain because of the low, even negative interest rates currently being enacted by
central banks in efforts to spur spending
 China’s growth is starting to normalize, but by 2019, the Chinese online retail sector is forecasted to have a
value of $480.1 billion, an increase of 209% since 2014
Overall,
macroeconomic
trends show potential
strength in the retail
industry due to
confident consumers
and optimistic
forecasts despite
instability
0 100 200 300 400
2012
2022
China’s Income per household
Poor Mass Middle Class
Upper Middle Class Affluent
7

8. Industry Trends
Value of Personal Luxury Goods Market
 In terms of apparel, China enjoyed a 43.3% market share of
global exports in 2013
 80% ($137.3 billion) of sales at department stores
worldwide, as well as 60% ($25.9 billion) of sales at
sporting goods stores were apparel and shoes
 Total online retail market value in America is $463.9 billion
 There has been a large growth in Fast Fashion, a modern
fashion phenomenon where companies are swiftly taking
styles from fashion shows and moving them into retail
 The US remains by far the biggest luxury goods market in
the world, accounting for almost 40% of all spending in the
industry
 Current factors challenging the industry include economic
instability in Eastern markets, armed conflict in Central
Asia, and social unrest
 Overall Fashion and Apparel expenditure in Asia has
increased 10% year over year for the last decade, despite
slower growth in China
 Expenditure in Asia is expected to reach $340 billion by
2018
 Mainland China is becoming more influential in online
markets, however, their retail spending within the country
has decreased
 Western Europe luxury clothing and fashion markets are
strongly supported by Asian tourism
China Luxury Clothing Sales GrowthWith slowed
growth in Asia,
companies are
beginning to see
a shift in
industry activity
from East to
West
The impact of a
weakening
economy is
unlikely to stop
wealthy Chinese
consumers from
traveling to buy
their luxury
goods, but it
might change
their destination
of choice
8

9. III. Ralph Lauren Overview
9

10. Challenges Facing Ralph Lauren
 Overview
 Ralph Lauren has high brand recognition and customer loyalty; however the change in fashion market trend has shown an decrease in
customers’ loyalty
 Ralph Lauren’s focus on male apparel and clothing restricts consumer population
 The need for expansion and brand recognition within the international market
Ralph Lauren
currently
faces the
challenge of
the rapidly
shifting
fashion
industry and
diversification
in market and
apparel
 Customer Loyalty
 Customer loyalty is a crucial aspect in the retail
industry; however, it is also important to draw more
customers
 Customer loyalty to a brand is decreasing. Statistics
have shown that 46% of consumers said they are
more likely to switch brands than 10 years ago and
31% would switch brand because of pricing
 Women Clothing and Apparel
 Lack of apparel and product marketed towards
women in general compared to Tory Burch, Kate
Spade, and Burberry
 The fashion industry is rapidly changing. Ralph
Lauren’s competitors are companies that
continuously introduce new styles and lines of
clothing
 Women are demanding more diverse and fashion
forward apparel and clothing
 International Market
 Ralph Lauren’s development in the United States and
Europe are more mature while the development in
the growing Asia market is lacking
 65% of the top 20 emerging growing market are in
Asia
Forecast of Women’s Clothing Sales
10

11.  Current Growth Drivers
 The Chinese middle class is rapidly expanding while their disposable income increases as a percentage of their total net income
 E-commerce platform sales have increased 150% within the last decade, allowing people easier access to online marketplaces
 Ralph Lauren has proven themselves as a leading fashion brand internationally who holds a valuable brand name
 Current Opportunities
 US apparel retail market projected to grow 22% from 2015-2019
 Online retail sales in China are expected to grow at an annual rate of 17% through 2018
 Bottom Line
 Continue to take advantage of online retail channels to reach more customers
 Expand into clothing areas with weaker brands, mainly women’s apparel and sportswear
 Continue to expand into China through brick and mortar locations and retail partnerships
If Ralph Lauren
can make larger
strides online and
in expanding retail
markets such as
China, they can
maintain the sales
and quality image
that they have
historically had in
the US
Opportunities and Growth Drivers
Percentage of Sales by
Region
North America Asia Europe
Percentage of Sales per Region
$3,500
$4,000
$4,500
$5,000
$5,500
2013 2014 2015 2016 2017 2018 2019 2020
Gross ProfitNet Income Growth
11

12. V. Acquiring a Company
12

13.  Diversification Play
 Acquire Tory Burch to increase share in the women’s apparel market and extend growth in international markets. Tory Burch will
be a great addition to Ralph Lauren because although it will represent the brand with a different logo, it will maintain the same
quality standard
 Alternative Solution
 Acquire Burberry to build upon Ralph Lauren’s existing presence in Europe and the US
 Internal-growth Play
 Reinvest in technology to better handle consumer preferences for online retail
Strategic Recommendations
0
5
10
15
20
25
30
35
Asia Europe UK UAE South
America
0
20
40
60
80
Asia Europe UK UAE
Tory Burch Store Locations Ralph Lauren Store Locations
80 stores in US 247 stores in US
13

14. Tory Burch LLC
 Overview
 An American lifestyle brand that embodies the personal style and sensibility of its Chairman, CEO and Designer, Tory Burch
 Room For Growth
 In September 2015, Burch introduced Tory Sport, a separate performance active wear line
 While Tory Burch has experienced significant growth since its founding, its true growth potential may lie outside of the U.S
 It is very difficult for a company like Tory Burch to maintain double digit growth rates by doing business primarily in the
U.S. due to the saturation of the market
 Meanwhile, China's growing middle and upper- class presents a huge market for luxury fashion that can support
unparalleled growth opportunities
 To support a significant foreign expansion, the company will likely require additional outside funding
 Current Ownership
 Tory Burch- 28.3%
 Tresalia Capital- 20%
 BTD Capital Partners- 12.5%
 Len Blavatnik- 10%
 General Atlantic LLC- 7.5%
 Christopher Burch- 3.3%
Tory Burch has
entered into new
categories with
eyewear in
partnership with
Luxottica in 2009,
fragrance and
beauty with Estée
Lauder in 2013,
and timepieces with
Fossil coming in
2014
14

15. Burberry
 Company Overview
 Burberry Group
 BRBY (LSE)
 CEO: Christopher Bailey
 Headquarters: London, England
 Worldwide ultra-luxury apparel company with brands
ranging from fashion forward runway designs to casual
weekend wear
 Classic British designs
 Key financials
 Net Income 2015: $542.4
 EBITDA 2015: $943.7
 Current EV: $6524.3
 Current Ratio: 14.08
 EPS: 0.80
BRBY Price
 As an established and respected
brand, Burberry will help Ralph
Lauren penetrate the ultra-luxury
market that it is currently struggling
to gain traction in
 Burberry’s classic women’s apparel
will help Ralph Lauren increase
revenue in this market
 Classic British apparel will boost
Ralph Lauren’s presence in the
United Kingdom and western
Europe as a whole
Burberry is a
British luxury
apparel company
that could reach a
market currently
untapped by Ralph
Lauren
15

16. IV. Valuation Summary
16

17. Ralph Lauren Valuation Summary
$8,000 $9,500 $11,000 $12,500 $14,000
Discounted Cash Flow Analysis
Comparable Companies Analysis
Precedent Transactions Analysis
Implied EV/EBITDA of 10x-11.5x
Implied EV/EBITDA of 8x-9.5x
Implied EV/EBITDA of 9x-10x
Current Evaluation: $10,900 to $11,300 (millions)
Current Share Price: $86.16
Implied EV/EBITDA multiple: 9.27x
17

18. VI. Appendix
18

19. Ralph Lauren Discounted Cash Flow Analysis
19
2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Sales $ 6,945.00 $ 7,450.00 $ 7,620.00 $ 7,984.0 $ 8,265.8 $ 8,609.0 $ 8,939.7 $ 9,297.0
% Growth 7.3% 2.3% 4.8% 3.5% 4.2% 3.8% 4.0%
Less: Cost of Goods Sold $ 2,789.0 $ 3,140.0 $ 3,242.0 $ 3,353.3 $ 3,471.6 $ 3,615.8 $ 3,754.7 $ 3,904.8
% Sales 40.2% 42.1% 42.5% 42.0% 42.0% 42.0% 42.0% 42.0%
Gross Profit $ 4,156.0 $ 4,310.0 $ 4,378.0 $ 4,630.7 $ 4,794.1 $ 4,993.2 $ 5,185.0 $ 5,392.3
% Sales 59.8% 57.9% 57.5% 58.0% 58.0% 58.0% 58.0% 58.0%
Selling General and Administrative $ 2,971.0 $ 3,142.0 $ 3,301.0 $ 3,433.1 $ 3,554.3 $ 3,701.9 $ 3,844.1 $ 3,997.7
% Sales 42.8% 42.2% 43.3% 43.0% 43.0% 43.0% 43.0% 43.0%
EBITDA $ 1,185.0 $ 1,168.0 $ 1,077.0 $ 1,197.60 $ 1,239.86 $ 1,291.35 $ 1,340.96 $ 1,394.56
% Sales 17.1% 15.7% 14.1% 15.0% 15.0% 15.0% 15.0% 15.0%
Less: Depreciation & Amortization $ 233.00 $ 258.00 $ 294.00 $ 319.36 $ 330.63 $ 344.36 $ 357.59 $ 371.88
% Sales 3.4% 3.5% 3.9% 4.0% 4.0% 4.0% 4.0% 4.0%
EBIT $ 952.0 $ 910.0 $ 783.0 $ 878.2 $ 909.2 $ 947.0 $ 983.4 $ 1,022.7
% Sales 13.7% 12.2% 10.3% 11.0% 11.0% 11.0% 11.0% 11.0%
Taxes $ 296.07 $ 272.09 $ 226.29 $ 307.38 $ 318.23 $ 331.45 $ 344.18 $ 357.94
Tax Rate 31.1% 29.9% 28.9% 35.0% 35.0% 35.0% 35.0% 35.0%
EBIAT $ 655.9 $ 637.9 $ 556.7 $ 570.9 $ 591.0 $ 615.5 $ 639.2 $ 664.7
Plus: Depreciation and Amortization of Intangibles $ 233.0 $ 258.0 $ 294.0 $ 319.4 $ 330.6 $ 344.4 $ 357.6 $ 371.9
Less: Capital Expenditures $ 276.0 $ 390.0 $ 391.0 $ 399.20 $ 413.29 $ 430.45 $ 446.99 $ 464.85
% Sales 4.0% 5.2% 5.1% 5.0% 5.0% 5.0% 5.0% 5.0%
Less: Changes in Net Working Capital $ (112.2) $ 296.5 $ 221.0 $ 239.5 $ 248.0 $ 258.3 $ 268.2 $ 278.9
% Sales -1.6% 4.0% 2.9% 3.0% 3.0% 3.0% 3.0% 3.0%
Unlevered Free Cash Flow $ 725.13 $ 209.41 $ 238.71 $ 251.50 $ 260.37 $ 271.18 $ 281.60 $ 292.86
Present Value of Free Cash Flow $ 251.50 $ 260.37 $ 271.18 $ 281.60 $ 292.86
Weighted Average Cost of Capital 10.0%
Sum of PV Cash Flows $ 1,357.51

20. Ralph Lauren Discounted Cash Flow Analysis Continued
Implied Equity Value and Share Price
Enterprise Value $ 10,016.60
Less: Total Debt $ 1,020.00
Plus: Cash $ 500.00
Implied Equity Value $ 9,496.60
Implied Share Price $ 110.04
Terminal Value % of Enterprise Value
Terminal Present Value $ 8,659.09
Enterprise Value $ 10,016.60
% of Enterprise Value 86.4%
Terminal Value Using Exit Multiple Method
2020E EBITDA $ 1,394.6
Exit Multiple 10
Terminal Value $ 13,945.6
Discount Rate 10.0%
Present Value $ 8,659.09
Enterprise Value using Exit Multiple Method
Enterprise Value $ 10,016.60
Implied Perpetuity Growth Rate
Terminal Year FCF $ 292.86
WACC 10.0%
Terminal Value $ 4,002.37
Implied Perpetuity Growth Rate 2.5%
20

21. Tory Burch LLC Valuation Summary
$2,700 $2,900 $3,100 $3,300
Comparable Companies Analysis
Precedent Transaction Analysis
Implied EV/EBITDA of 8.5x-9.5x
Implied EV/EBITDA of 7x-8x
Current Evaluation: $2,900 to $3,100 (millions)
21

22. Tory Burch Financial Estimates
Blue cells represent estimates
22
2010 2011 2012 2013 2014 2015 2016
Sales $ 313.00 $ 450.00 $ 760.00 $ 1,000.00 $ 1,375.00 $ 1,856.25 $ 2,505.94
% Growth 43.8% 68.9% 31.6% 37.5% 35.0% 35.0%
EBITDA $ 150.00 $ 229.00 $ 250.00 $ 275.00 $ 371.25 $ 375.89
% Sales 33.3% 30.1% 25.0% 20.0% 20.0% 15.0%

23. Ralph Lauren Comparables
23
EV/Revenue EV/EBITDA P/E EPS
Company Name Ticker Share Price Market Cap Enterprise Value LTM 2016E LTM 2016E LTM 2016E LTM 2016E
PVH Corp PVH $70.86 $5,825.54 $8,822.00 1.11x 1.10x 10.64x 8.15x 12.09 10.15 $5.88 $7.00
Burberry BRBY $1,604.00 $5,215.00 $6,524.30 1.90x 1.90x 7.98x 8.67x 14.71 16.40 $0.80 $0.71
Lululemon LULU $60.52 $8,385.10 $7,992.00 4.66x 3.67x 21.15x 17.38x 33.73 33.94 $1.61 $1.94
Hanesbrands Inc HBI $24.03 $9,411.85 $11,712.43 2.04x 2.00x 16.83x 11.28x 22.62 12.72 $1.06 $1.07
Ralph Lauren RL $86.61 $7,032.02 $6,684.02 0.90x 0.91x 6.73x 6.16x 15.15 13.15 $5.52 $6.37
Mean $7,173.90 $8,346.95 2.12x 1.92x 12.67x 10.33x 19.66 17.27 $2.97 $3.42
Median $7,032.02 $7,992.00 1.90x 1.90x 10.64x 8.67x 15.15 13.15 $1.61 $1.94
High $9,411.85 $11,712.43 4.66x 3.67x 21.15x 17.38x 33.73 33.94 $5.88 $7.00
Low $5,215.00 $6,524.30 0.90x 0.91x 6.73x 6.16x 12.09 10.15 $0.80 $0.71

24. Tory Burch Comparables
EV/Revenue EV/EBITDA P/E EPS
Company Name Ticker Share Price Market Cap Enterprise Value LTM 2016E LTM 2016E LTM 2016E LTM 2016E
Coach COH $34.05 $9,455.55 $9,005.45 2.13x 2.01x 10.89x 9.27x 25.86 17.91 $1.92 $1.90
Kate Spade KATE $15.64 $1,997.14 $2,177.58 1.80x 1.77x 29.14x 11.04x 25.02 31.79 $0.62 $0.49
Michael Kors KORS $50.23 $9,102.81 $8,320.94 1.81x 1.78x 6.13x 6.20x 11.56 11.36 $4.28 $4.39
Gildan Activewear GIL $25.09 $6,101.04 $6,662.88 2.91x 2.38x 20.05x 11.82x 27.93 15.53 $0.90 $1.62
Tory Burch LLC
Mean $6,664.14 $6,541.71 2.16x 1.99x 16.55x 9.58x 22.59 19.15 $1.93 $2.10
Median $7,601.93 $7,491.91 1.97x 1.90x 15.47x 10.16x 25.44 16.72 $1.41 $1.76
High $9,455.55 $9,005.45 2.91x 2.38x 29.14x 11.82x 27.93 31.79 $4.28 $4.39
Low $1,997.14 $2,177.58 1.80x 1.77x 6.13x 6.20x 11.56 11.36 $0.62 $0.49
24

25. Precedent Transactions
Date Completed Acquirer Target Type Transaction Value Premium EV/EBITDA
8/24/2015 Ascena Retail Group Inc. ANN Inc. Cash/Stock $2,006.31 23.64% 8.54x
6/19/2014 Men's Warehouse Inc. Jos A Bank Clothiers Inc. Cash $1,486.07 31.83% 11.16x
7/31/2013 TowerBrook Capital Partners LP True Religion Apparel Inc. Cash $635.13 16.97% 8.19x
2/14/2013 PVH Corp. Warnaco Group Inc. Cash/Stock $2,823.82 33.56% 11.28x
9/14/2011 VF Corp. The Timberland Co. Cash $1,971.75 36.11% 12.3x
3/7/2011 Leonard Green and Partners J. Crew Group Inc. Cash 2637.43 28.10% 9.21x
Mean $1,926.75 28.37% 10.11x
Median $1,989.03 29.97% 10.19x
High $2,823.82 36.11% 11.16x
Low $635.13 16.97% 8.19x
25