NEW YORK — VF Corp. is aiming to energize the rapid growth of 7 For All Mankind by leveraging its own infrastructure and sourcing capabilities, while capitalizing on 7 For All Mankind’s considerable brand equity to grow the business overseas, expand its sportswear offerings and focus on the under-penetrated men’s and kids’ markets.
“There is a lot to like about the premium-denim business in general and the 7 For All Mankind brand in particular,” said Eric Wiseman, president and COO of VF Corp., on a conference call with analysts last Thursday to discuss the announced acquisition of the Vernon, Calif.–based premium-denim brand. “The market for jeans over $150 is growing, while the non-premium market remains stable. The 7 brand has the highest brand equity of any premium jean we measured, and twice the market share of its nearest competitor. Retailers are editing their supplier base to focus on proven power brands and, as the market leader, 7 is benefiting from the trend.”
VF Corp. will pay $775 million in cash for 7 For All Mankind, proceeds of which will be split by the company’s owners, Peter Koral and Bear Stearns Merchant Banking, when the deal closes in August, as expected. The price is about 2.5 times expected 2007 sales of $350 million, and slightly over 9 times expected EBITDA. One analyst on the conference call said it was a good deal for VF Corp., considering a company like Guess is currently trading at about 12 times EBITDA.
VF Corp. CEO Mackey McDonald responded that the deal was a win-win for both parties as 7 needs significant resources and capital to grow into a major lifestyle brand. “We gave them a good return on their investment and we can get a good return by taking the company to an entirely new level,” he explained of the purchase price.
In an interview with DNR, Wiseman said the board of 7 For All Mankind approached VF Corp. about the deal last month, and he and McDonald were immediately interested. “We’d been looking at the contemporary space closely, and 7 is a leader and a true authentic brand in that space,” he noted.
VF Corp. is creating a new contemporary coalition in its portfolio of brands, consisting of 7 For All Mankind and Lucy, a women’s activewear brand also acquired last week. VF Corp. is actively seeking out more brands in the contemporary market and is in discussions with at least one more potential acquisition right now, said Wiseman. 7 For All Mankind’s CEO Michael Egeck will head up the contemporary coalition as president, while remaining in his current role at 7.
Koral will remain with the company in an advisory capacity through the end of his current employment agreement in March 2008, according to Wiseman.
Overall, men’s product currently makes up 25 percent of 7 For All Mankind sales, making it a prime area of future growth, said Egeck. At 4 percent of current sales, kids’ is another area of opportunity.
Egeck has a mandate to increase 7’s sales 15 percent annually over the next five years, and growing the sportswear categories will play a big role in that. Currently about 10 percent of total sales, non-denim product is forecast by Egeck to grow by 40 percent annually, with the goal of reaching 30 to 35 percent of total sales within five years. “This is an area where we look forward to leveraging the John Varvatos sourcing platform,” said Egeck of his future corporate sibling.
7 For All Mankind will also expand into new categories via licenses, and is currently evaluating opportunities in eyewear, fragrance and swimwear. It’s first licensed product, footwear in the $200 to $800 price range, debuts at retail this fall.
The company has an ambitious owned retail strategy unfurling, with the goal of operating 100 stores globally by 2011. The first of those stores will open in L.A. in November, with a second U.S. store to debut in an undecided location in the following month, and 10 more in 2008. “We are looking at several potential locations now,” said Egeck.
Direct-to-consumer, including an e-commerce site which bowed last November, should ring up 30 percent of total company sales within four years, according to Egeck.
7 For All Mankind was founded in 2000 by Koral with partners Jerome Dahan and Michael Glasser. Dahan and Glasser left the company two years later, following a contentious falling out with Koral, going on to found rival denim brand Citizens of Humanity.
The acquisitions of 7 For All Mankind and Lucy are expected not to have an impact on VF Corp.’s 2007 earnings per share, with five cents to ten cents accretion expected in 2008.
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