VF unloads struggling contemporary brands unit for $120m

Dive Brief:

Apparel manufacturer VF Corp. Thursday reported it had entered into a definitive agreement to sell its contemporary brands businesses to Israeli apparel company Delta Galil Industries Ltd for $120 million.
Brands in the portfolio include 7 for All Mankind, Splendid, and Ella Moss, with the deal expected to close later this year.
The contemporary brands business going to Delta Galil saw sales of $344 million last year, the lowest margin to VF's portfolio at 2.8% of its total revenue in 2015.

Dive Insight:

Just a couple of years ago analysts expected to see VF, which also owns Vans, North Face, and Timberland, to acquire Lululemon or Lands’ End. But rather than expanding its portfolio, things have been quiet, and now it’s sizing down.

"Earlier this year we said that we are taking a focused and proactive look at the composition of our business portfolio to ensure that we are well positioned to maximize VF’s growth and return to our shareholders,” VF chairman and CEO Eric Wiseman said in a statement. “This announcement illustrates that our work as active portfolio managers is progressing.”

It’s also a sign, though, of how much the apparel industry is faltering, with the company unleashing premium denim and other clothing brands that have been hit by changing consumer priorities and the proliferation of lower-priced fast-fashion goods. The strong dollar of late also hasn’t helped apparel manufacturers sourcing in Asia, which trades in the U.S. dollar in the apparel industry.

Still, this could be a strong move for VF, which, as Bloomberg notes, has a diverse mix of brands left and could be in a stronger position after the sale to make an acquisition that could boost its productivity. Lululemon is still a possibility in many analysts’ minds, especially since the yogawear maker is more affordable as it works to come back from quality and supply chain issues.

If Kering spins off sportswear brand Puma, or if resurgent Adidas spins off Reebok, those would also be possibilities, according to Bloomberg. Brooke Sutherland at Bloomberg also speculates that upscale knitwear maker Vince and private-equity owned Eddie Bauer or action-sportswear company Dakine could fit well with VF’s remaining portfolio and could serve to boost its productivity, which Wiseman has said is the driving focus.