Smile, say thanks, and put it at the back of your closet again.
If she asks you why you are not using it, tell her you love her, appreciate her thinking of you, and change the subject. If she presses, tell her you are just not using it right now.
No matter how crappy a gift I'm given, I always smile, thank the person for thinking of me, feel incredibly grateful, and then stuff it at the back of my closet or return it. If I don't know where they got it, I would casually ask, thanks for thinking of me! Wherever did you get this?
Sometimes, I don't think honesty is the best policy in this case.
Hope that helps.