Owner of Vans and North Face brands buys Supreme streetwear label
VF Corporation will pay $2.1 billion, plus a further $300m if future milestones are met
VF Corporation said on Monday it would pay $2.1 billion to buy streetwear apparel company Supreme, adding another popular brand to the Vans shoe maker's roster.
The company, which also owns The North Face and Timberland brands, said it would make an additional payment of up to $300 million, subject to satisfaction of certain post-deal closing milestones.
Shares of VF Corporation surged about 13 per cent to $78.94 in afternoon trading.
It said current investors Carlyle Group and New York-based private equity firm Goode Partners were selling their stakes in Supreme, founded by American-British businessman James Jebbia in 1994.
Known for its red box logo with "Supreme" written in white, the brand has gained a following among "hypebeats", or fans of the streetwear style, with product launches of everything from hoodies to burner phones selling out in minutes and people lining up outside its 12 stores worldwide for hours.
Perceived scarcity has helped Supreme to acquire a cachet among young people and allowed it to charge far higher prices than other streetwear brands like VF's Vans and Nike.
"This scarcity, novelty and strong social influence model supports meaningful pricing power resulting [in] best-in-class profitability," VF Corporation chief executive Steve Rendle said.
VF Corporation estimated the broader streetwear market to be a roughly $50bn global opportunity and that Supreme was at the core of this market, he said.
He said its deal with Supreme will help bolster its e-commerce business, which has become more urgent for apparel and footwear makers due to the Covid-19 pandemic.
Supreme, which has collaborated with many prominent fashion names including Louis Vuitton, Nike, Levi and Vans, gets over 60 per cent of its revenue from the online business.
The deal, which is expected to be completed later this year, is anticipated to contribute at least $500m of revenue and adjusted earnings per share of 20 cents in fiscal 2022.
Supreme does not provide group sales or profit figures but its UK-based European arm is obliged to publish annual accounts and these have shown rapid growth and industry-leading margins in recent years.
In the year to the end of January 2019, Supreme's European business racked up revenue of £100m ($130m) despite having just two stores and a profit margin before interest expenses of 44 per cent – a multiple of the margins earned by other streetwear brands like Vans, Abercrombie & Fitch or even luxury brands like Gucci, company filings show.
Analysts have wondered whether Supreme will be able to maintain its premium pricing as its products become more ubiquitous, but were more sanguine after Monday's announcement.
"Supreme is a strong streetwear brand .... and while the brand has built its appeal on scarcity, we believe the market will be excited at the margin and growth profile and its contribution to VFC," Bernstein analyst Jaime Merriman said.
Updated: November 9, 2020 09:54 PM