In addition to footwear, Kenneth Cole Productions designs and sells handbags, apparel, and other accessories. You decide, therefore, to consider comparables for KCP outside the footwear industry.

a. Suppose that Fossil, Inc., has an enterprise value to EBITDA multiple of 11.08 and a P/E multiple of 17.09. What share price would you estimate for KCP using each of these multiples, based on the data for KCP in Problems 25 and 26?

b. Suppose that Tommy Hilfiger Corporation has an enterprise value to EBITDA multiple of 7.07 and a P/E multiple of 17.36. What share price would you estimate for KCP using each of these multiples, based on the data for KCP in Problems 25 and 26?

Problem 25

Suppose that in January 2006, Kenneth Cole Productions had EPS of $1.67 and a book value of equity of $12.17 per share.

• Using the average P/E multiple in Table 9.1, estimate KCP’s share price.
• What range of share prices do you estimate based on the highest and lowest P/E multiples in Table 9.1?
• Using the average price to book value multiple in Table 9.1, estimate KCP’s share price.
• What range of share prices do you estimate based on the highest and lowest price to book value multiples in Table 9.1?

Problem 26

Suppose that in January 2006, Kenneth Cole Productions had sales of $531 million, EBITDA of $51.3 million, excess cash of $107 million, $3.3 million of debt, and 23 million shares outstanding.

• Using the average enterprise value to sales multiple in Table 9.1, estimate KCP’s share price.
• What range of share prices do you estimate based on the highest and lowest enterprise value to sales multiples in Table 9.1?
• Using the average enterprise value to EBITDA multiple in Table 9.1, estimate KCP’s share price.
• What range of share prices do you estimate based on the highest and lowest enterprise value to EBITDA multiples in Table 9.1?

Table 9.1

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TABLE 9.1 Ticker KCP NKE PMMAY RBK www BWS SKX SRR DECK WEYS RCKY DFZ BOOT Stock Prices and Multiples for the Footwear Industry, January 2006 Name Kenneth Cole Productions NIKE, Inc. Puma AG Reebok International Wolverine World Wide Brown Shoe Company Skechers U.S.A. Stride Rite Corp. Deckers Outdoor Corp. Weyco Group Rocky Shoes & Boots R.G. Barry Corp. LaCrosse Footwear Market Stock Price Capitalization ($) ($ millions) 26.75 562 84.20 21,830 312.05 5,088 58.72 3,514 22.10 43.36 17.09 13.70 30.05 19.90 19.96 6.83 10.40 1,257 800 683 497 373 230 106 Enterprise Value ($ millions) P/E 465 68 62 16.21 20,518 16.64 232 92 75 Average (excl. KCP) Max (relative to Avg.) Min (relative to Avg.) 4,593 3,451 1,253 1,019 22.62 614 17.63 524 367 226 Price/ Book 2.22 3.59 14.99 5.02 14.91 2.41 17.42 2.71 1.91 2.02 20.72 1.87 13.32 2.29 11.97 1.75 8.66 1.12 9.20 8.11 12.09 1.28 15.01 2.84 +51% +186% +106% -42% -61% -56% Enterprise Enterprise Value/ Value/ Sales EBITDA 0.90 1.43 2.19 0.90 1.20 0.47 0.62 0.89 1.48 1.06 0.92 0.87 0.76 1.06 8.36 8.75 9.02 8.58 9.53 9.09 6.88 9.28 7.44 6.66 7.55 10.75 8.30 8.49 +27% -22%