VF Corp. has completed its acquisition of Supreme.
The globally renowned streetwear brand will now be a wholly-owned subsidiary of the Denver-based apparel giant that also owns complementary labels like The North Face, Timberland and Vans. VF believes Supreme will contribute at least $500 million of revenue and 20 cents of adjusted earnings per share in fiscal 2022, and can reach $1 billion in annual sales.
Supreme founder James Jebbia and his senior leadership team will remain with the brand and operate the business from its New York City-based headquarters.
The deal accelerates VF’s transformation into a consumer-focused firm. At the moment, just 45 percent of Supreme’s revenue is generated overseas, offering opportunities for further international expansion. Streetwear presents a “$50 billion global opportunity,” VF CEO Steve Rendle said last month.
At a Telsey Advisory Group meeting with VF executives earlier this month, Dana Telsey, chief investment officer, said, Supreme “has a strong presence in the US and Japan, but has significant opportunity to increase its penetration in other international regions.”
The brand, she added, “has taken a deliberate approach to international expansion, developing a market by market strategy including product and messaging. China was highlighted as a significant opportunity for the brand, particularly given [VF’s] expertise at driving growth in the region. Supreme’s retail stores are viewed as the truest representation of the brand and help drive customer engagement and digital growth. With just 12 retail stores—six in Japan, four in the U.S., and two in Europe—there is significant opportunity to expand the store footprint over the long term.”
Shortly after the transaction was disclosed last month, UBS softlines and retail analyst Jay Sole described a call with a former Supreme senior leader, who said that the streetwear brand could become a multi-billion dollar brand over the long term. According to Sole, the source also said that VF could probably bolster Supreme’s manufacturing operations. The brand currently designs as much as 80 percent of its goods. VF can help increase manufacturing output at a lower cost and a higher-level of quality, which Sole said could help expand margins. Also, VF’s technical know-how in e-commerce fulfillment will likely help Supreme introduce speed and efficiency into its direct-to-consumer model.
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In VF’s most recent earnings report for the second quarter ended Sept. 26, the company returned to profitability, but said it expects the coronavirus pandemic will continue to present “ongoing disruption to its business operations.”
For the second quarter, net income was $256.7 million, or 66 cents a diluted share, on revenues of $2.61 billion. The acquisition is expected to be modestly accretive to VF’s revenue and adjusted earnings per share in fiscal 2021.