Apparel Retail

Discussion Materials

Consumer Retail Group

February 15, 2011

Market TrendsUS Retail Industry Update

Current market trends in Retail Industry:

Pent-up demand, a rising stock market and incremental improvements in the overall economy led to a solid holiday

season in 2010. The combined November/ December sales roses 4.1%, representing the best holiday comps since

2006

The level of consumer confidence is moving in two directions: with higher-income consumers spending again but still

seeking value, and lower-income consumers remaining cautious on spending. Clothing sales were particularly strong,

posting gains of 11.2%

Apparel goods are likely to skyrocket due to increasing cotton prices and labor costs in China. The retailers will likely

have no choice but to pass along increased costs to consumer, which would negatively impact unit volumes.

2

NAICS Code 4481 Adjusted Annual Sales for seasonal variations and holiday and trading-day differences, but not for price changes.

Source: US Census as of February 15, 2011 http://www.census.gov/retail/mrts/historic_releases.html

US Retail Industry Structure

Internet Retail Discount Stores

Department Chains

Food Retail

Restaurants & Food

Services

Catalog & Specialty

Distribution

Specialty Foods & Food

Products

Furniture & Furnishings

Retailers

Apparel & Footwear Manufacturers

Footwear & Accessories

Retailers

$3,386 $3,467 $3,618 $3,841

$4,093 $4,313 $4,454 $4,409

$4,129 $4,398

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US Retail Industry Annual Sales 2001-2010 …

Market TrendsUS Apparel Retail Sector Overview

3

Current market trends in Apparel Retail Sector:

Apparel sales were particularly strong during the 2010 holiday season, rising 11.2%, more than 10 times pace of the

previous year. Consumers have been continuing to invest in trusted brands

Rising cotton prices are expected to impact end consumer prices in 2011. While hesitant to raise prices in a difficult

economic environment, both retailers and wholesalers appear to have recognized the need to take pricing action in

order to limit margin declines

The M&A sector has focused mainly on strategic buyers who continue to target opportunities to grow via acquisitions

NAICS Code 4481 Adjusted Annual Sales for seasonal variations and holiday and trading-day differences, but not for price changes.

Source: US Census as of February 15, 2011 http://www.census.gov/retail/mrts/historic_releases.html

$119 $123 $128 $136

$145 $154

$162 $159 $152

$159

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US Apparel Retail Sector Annual Sales 2001-2010 in Billion

Work Casual Denim Going Out

American Eagle American Eagle

Abercrombie &

Fitch

Abercrombie &

Fitch

Urban Outfitters Urban Outfitters

Forever 21 Forever 21

H&M H&M

Express Express Express Express

Guess Guess

Bebe Bebe

Gap Gap

Banana Republic Banana Republic Banana Republic

J. Crew J. Crew

Teens

Late 20’s/

30’s +

20-30s

Source: Company data, UBS EXPRESS Equity Research Report.

Market TrendsApparel Retail Market Activity

4

Observations

M&A activity in Apparel has been more than halved in

2010 compared to 2005.

However, M&A activity in Apparel Retail sector is not

expected to remain at current levels as we continue to see

signs of a healthy backlog of transactions building in the

space.

Large strategic buyers continue to target opportunities

to grow via acquisitions, as organic growth continues to

face headwinds, given that consumers are cautiously

increasing their spending.

Source: Capital IQ*

As of February 15, 2011

Source: Capital IQ*

As of February 15, 2011

3630

39

28 24

18

2005 2006 2007 2008 2009 2010

Apparel Retail M&A Activity

Number of Transactions

8.6x

7.1x 7.4x

2.7x

5.3x

8.2x

2005 2006 2007 2008 2009 2010

Apparel Retail Multiples

EV/EBITDA

3

6

22

3

7

Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

Apparel Retail Private Placements

Number of Transactions

Source: Capital IQ*

As of February 15, 2011

Market TrendsNov. 2010 Acquisition of J. Crew Group

5

Analyst Commentary

“The acquisition of J Crew would make a highly appealing LBO, as the core company concept maintains growth opportunities”

“It’s a great deal for J. Crew shareholders since estimated takeover value represents a 28% premium to stand-alone fair value estimates. There are not many ways to grow the firm other than aggressive cost cutting and expanding into bridal and men’s segments, as well as the Madewell brand”

Leveraged Acquisition Loans Asset Based Credit Facility

Investment Considerations

J Crew is a leading retailer with multiple sales

channel: 220 retail stores, 85 factory outlets, 20

Madewell stores and online venue

The company made $1.7 billion sales in 2010

A top industry management team (Millard

Drexler) that can deliver great results

Acquiring the firm at an attractive price at

$43.50 per share (52-wk high of $50.96 in April)

(1) Premium to October’s average stock price. (2) LTM on date of acquisition.

has been acquired by

Transaction Value: $3.0 Billion

Offer Price/Share: $43.50

Premium: 24.6%(1)

Cash Consideration: Equity (38.7%)

Debt (61.3%)

PF Ownership: TPG (75%)

LGP (25%)

2010E EBITDA Multiple: 9.6x

LTM(2)'s EBITDA Multiple: 8.6x

Financing: Term Bridge

Underlying: NA Sr Unsecured Notes

Proceeds Raised: $1.2 Billion $400.0 Million

Maturity: 1/26/2018 NA

Feature: NA 1YR SC@101%

Coupon: L + 350 L + 800

Price: 99.25% NA

S&P Rating: B CCC

Moody's Rating: B1 Caa1

Proceeds Raised: $ 250.0 Million

Maturity: 2016

Coupon: L + 250

Acquirers took

advantage of cheap

debt and increasingly

regard the stock

market as good value

J. Crew Group was

acquired at it’s top

performance stage

as a result, this

acquisition strategy

depends on potential

future growth rather

than a simple

management

turnaround strategy

Market TrendsRecent M&A Activity in the Apparel Retail Sector

6Source: Capital IQ as of February 15, 2011.

Closed Date Acquiror Target Target Description Enterprise

valueEV/ EBITDA

11/23/10

(Announced)

Leonard Green & Partners,

L.P. and TPG CapitalJ. Crew Group, Inc. (NYSE:JCG)

J.Crew Group, Inc. is a multi-brand, multi-channel, specialty

retailer. The company offers an assortment of women's, men's

and children's apparel and accessories. The company conducts

its business through retail, factory, clearance, crewcuts, and

Madewell stores, catalogs, and on its Website.

$2,679.4 8.4x

1/4/11 LF USA Inc.

Oxford Industries Inc.,

Substantially All of Oxford

Apparel Business

Oxford Apparel Business produces branded and private label

dress shirts, suited separtes, sport shirts, casual slacks,

outwear, sweaters, jeans, swimwear, westernwear, and golf

apparel.

$121.7 NA

11/17/10 Lodis Accessories, Inc. Another Line, Inc.

Another Line, Inc. designs, manufactures, and sells belts, and

hangbags for women, offering chain and beaded, fabric, and

leather and woven style belts. The company was founded in

1988 and is based in Lake Forest, California.

$6.8 NA

11/15/10 Signature Eyewear Inc. Rough Justice

Rough Justice manufactures designer footwear for women. The

company's products include platforms, wedges, dress footwear,

sandals, and flats. The company was founded in 2007 and is

based in Inglewood, California.

NA NA

11/4/10 KarpReilly, LLC Adrianna Papell, LLC

Adrianna Papell, LLC designs, sources, and distributes day and

occasion dresses under the Adrianna Papell, Aidan Mattox, and

Hailey Logan labels.

NA NA

11/1/10Hanesbrands Inc. (NYSE:

HBI)GFSI Holdings Inc.

GFSI Holdings, Inc., through its wholly owned subsidiary, GFSI,

Inc., engages in designing, manufacturing, and marketing

sportswear and active wear bearing names, logos, and

insignias.

$225.0 7.5x

10/28/10

(Announced)Charles Komar & Sons, Inc.

Carole Hochman Design Group,

Inc.

Carole Hochman Design Group, Inc. designs and manufactures

sleepwear, loungewear, and daywear for women. The company

was founded in 1930 and is based in New York, New York.

NA NA

Selected M&A Transactions for the Last 2 Years

Market Trends

7.9x 7.9x 7.8x

6.6x

7.9x8.2x 8.1x

8.9x

10.2x

8.8x

7.2x

12.2x

14.1x

Tommy Hilfiger Claire's Stores Deb Shops Charlotte Russe Tommy Hilfiger Gymboree Barney's May Neiman Marcus Linens n Things Burlington Coat Factory

Michaels Stores Barney's

Recent M&A Activity in the Apparel Retail Sector

7Selected M&A transactions for the last 2 years, Source: Capital IQ as of February 15, 2011.

Apex Apollo Lee Equity Advent V. Heusen Bain Jones Federated Consortium Apollo Bain Consortium Istithmar

12/05 3/07 7/07 8/09 3/10 10/10 11/04 2/05 5/05 11/05 1/06 6/06 6/07

$1,547 $2,581 $259 $312 $3,136 $1,761 $400 $17,260 $4,981 $1,305 $1,958 $5,604 $942

Acquiror

Date Announced

Transaction Value

Specialty Apparel Branded

Specialty Apparel Median: 7.9x

EV/ LTM EBITDA

Branded Median: 8.9x

Private Equity Buyer Strategic Buyer