Dive Brief:
- VF Corp. is selling the Supreme brand to EssilorLuxottica for $1.5 billion, according to a securities filing Wednesday.
- The deal is expected to close by the end of the 2024 calendar year. Supreme generated $538 million in revenue during VF’s latest fiscal year, per the filing, and the sale of the brand is expected to cause reduction in the value of VF’s earnings per share in its 2025 fiscal year.
- VF, which also owns Vans, Timberland and The North Face, previously announced it was initiating a “strategic review of the brand assets within its portfolio,” which could include a sale. In VF’s latest earnings report in May, CEO Bracken Darrell said the review was complete.
Dive Insight:
VF bought Supreme in 2020 for about $2.1 billion. David Swartz, senior equity analyst for Morningstar Research Services, said VF overpaid for Supreme, and “its results were apparently getting worse.”
“The Supreme deal had a big negative impact on VF’s balance sheet,” Swartz said in an email to sister publication Fashion Dive. “Its sales and profits were apparently falling, and VF had to record large impairments. As a near-luxury brand that is mostly sold online, Supreme didn’t fit well with the rest of VF’s portfolio.”
The apparel conglomerate has been experiencing revenue declines for multiple quarters. That led it to set up a transformation plan to boost its Vans brand and overall sales in North America and the strategic asset review, as well as hire a slate of new executives including a new CFO and presidents for The North Face and Vans.
“This deal will allow VF to pay down debt and focus on Vans and The North Face, which are more important brands,” Swartz said.
In an analyst note Tom Nikic of Wedbush said the deal appears to be “a bit of a double-edged sword.” The $1.5 billion sale price is about 30% lower than what VF initially paid for the brand.
“On the bright side, it will give them much-needed balance sheet flexibility ($1.75 billion of debt coming due in the next 9 months),” Nikic wrote in the note. “[T]here’s something poetic about ridding themselves of the brand that many market-watchers view as the deal that broke the proverbial camel’s back. On the flip side, Supreme was easily the most profitable brand in the portfolio…so they will be giving up quite a bit of profit in this deal.”
In VF’s joint press release with EssilorLuxottica, Darrell affirmed that there were “limited synergies” between Supreme and VF, making a sale the natural next step, given Supreme’s business model and VF’s integrated model.
“While we will always look to adjust the VF portfolio from time to time, this transaction gives us increased balance sheet flexibility,” Darrell said in the release. “It also supports our overall program to better position the company for long term growth and more normalized debt levels.”
VF is set to report its next quarterly earnings on Aug. 6.
EssilorLuxottica, meanwhile, is the owner of Sunglass Hut, Ray-Ban and Oakley. It manufactures licensed eyewear for Diesel, Prada, Ralph Lauren, Chanel, Coach and Burberry. The addition of Supreme, a streetwear brand that includes apparel, accessories and skateboards, marks a change in EssilorLuxottica’s portfolio.
Francesco Millerli, chairman and CEO of EssilorLuxottica, and Paul du Saillant, deputy CEO of the eyewear company, said in a press release that they see “an incredible opportunity” in the addition of Supreme to their company.
“It perfectly aligns with our innovation and development journey, offering us a direct connection to new audiences, languages and creativity,” Millerli and du Saillant said. “With its unique brand identity, fully-direct commercial approach and customer experience — a model we will work to preserve — Supreme will have its own space within our house brand portfolio and complement our licensed portfolio as well. They will be well-positioned to leverage our Group’s expertise, capabilities, and operating platform.”
In its most recent earnings report in April, EssilorLuxottica reported revenue of 6.3 billion euros, or about $6.9 billion, a 3% increase. However, the North America region, which represents about 45% of the company’s total revenue, saw slow growth for the quarter at 0.6%. EssilorLuxottica is set to report Q2 earnings next week.
