VF Corp has entered into a $1.5bn all-cash deal for Supreme with the global optical industry leader EssilorLuxottica, for a lower amount than it paid to acquire the brand four years ago.
Bracken Darrell, president and chief executive officer (CEO) at VF, explained that a strategic review found limited synergies between Supreme’s distinct business model and VF’s integrated approach, making the sale a logical step. Despite this, Darrell noted that under VF, Supreme had expanded into key markets like China and South Korea and returned to strong growth.
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GlobalData retail analyst Neil Saunders points out Supreme was never a “good fit” for VF adding it “overpaid for a trophy asset” and struggled to develop it, leading to a write-down and sale at a loss.
Saunders notes VF Corp needs to focus on its core brands without the distraction of Supreme, which had lost its lustre and faced multiple issues.
The acquisition by EssilorLuxottica is seen as “unusual” since it’s the first apparel brand the group has acquired. Saunders said the move is risky, especially as streetwear’s popularity has waned. However, he acknowledged that EssilorLuxottica has strong distribution capabilities and brand management skills, potentially making Supreme a better fit.
Meanwhile, GlobalData’s retail analyst Louise Deglise-Favre notes many investors seem to be confused by this acquisition given EssilorLuxottica’s share price drop yesterday (17 July) following the announcement: “Essilor Luxottica is an eyewear specialist group and its motivations to purchase the hip streetwear brand remain quite unclear given the gap in the target audience and brand identities.”
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By GlobalDataBut VF Corp president and CEO Darrell expressed confidence in the move, adding: “Alongside the other notable brands in EssilorLuxottica’s portfolio, Supreme and its talented team will be well-positioned for continued success. While we will always look to adjust the VF portfolio from time to time, this transaction gives us increased balance sheet flexibility. It also supports our overall program to better position the company for long term growth and more normalised debt levels.”
EssilorLuxottica’s chairman and CEO Francesco Milleri and deputy CEO Paul du Saillant called the addition of Supreme an “incredible opportunity” that aligns with their innovation journey.
“It perfectly aligns with our innovation and development journey, offering us a direct connection to new audiences, languages and creativity. 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.”
The transaction is expected to close by the end of calendar year 2024, subject to customary closing conditions and regulatory approvals. VF Corp warned that the sale of Supreme is expected to dilute its earnings per share in fiscal 2025.
Earlier this year, VF said it was undertaking a strategic review of its brands amid slumping sales. Following this, the Vans and North Face owner made headlines earlier in May with rumours circling that VF had marked down Supreme’s card as it was looking to slim down its portfolio.
At that time GlobalData apparel analyst Alice Price noted that while it was once a frontrunner in the streetwear scene, Supreme had lost its “cult” status in recent years with its drops becoming “predictable in style and design, no longer generating the same buzz and anticipation they once did.”
Saunders had pointed out previously that about Supreme, there was a mark hanging over how much it is worth: “VFC has already written down some of the goodwill for the brand and I doubt it will want to sell it if it means incurring further losses and write-downs.”
In May, VF reported a decline in sales for FY24 despite its turnaround efforts as revenue of $10.5bn fell 10% (or 11% in constant currency).
