In a world of fleeting trends in apparel and rapid retail consolidation, VF. Corp is saying “Goodbye to All That” and doubling down on workwear.
Only 10 months into his position as president and chief executive officer of one of the world’s largest apparel companies, Steve Rendle has made VF’s first acquisition since its 2011 purchase of Timberland by agreeing to an $820 million cash deal for Williamson-Dickie Mfg. Co., the owner of Dickies, Workrite, Kodiak and others.
The $820 million price tag for Williamson-Dickie equals 11 times the company’s earnings before interest, taxes, depreciation and amortization, a competitive multiple in the apparel sector. For comparison, Michael Kors’ $1.35 billion deal last month for Jimmy Choo represented a higher-than-expected EBITDA multiple of 17.5.
Fort Worth, Tex.-based Williamson-Dickie was founded in 1922 and has a long history of workwear. Rendle characterized it as a “bedrock” whose “authenticity” he plans to build upon as VF moves deeper into more stable areas of apparel, like uniforms for the health-care industry and other service sectors.
The idea of people in need of certain types of clothes for work is a far cry from trying to keep up with the ever-changing trends of premium denim or the teen apparel market.
“One of the reasons we like [workwear] is it’s disconnected from the carnage in the market right now,” Rendle said, speaking from Fort Worth, where the terms of the acquisition were recently finalized.
Wall Street seemed pleased with the deal and pushed VF’s stock up 3.1 percent to $63.50, its highest level in nearly a year.
Christian Buss of Credit Suisse said in a note that the acquisition “lines up nicely” with VF’s strategy and gives it “scale and and cost-saving opportunities,” along with a “more defensible portfolio of brands, de-risking away from the highly volatile fashion space.”
Rendle added that contemporary apparel is “not an area we’ve declared a priority” when asked if there were any possible acquisitions for VF in that market going forward. The company sold its contemporary brands group last year to Delta Galil for $120 million.
Further acquisitions of workwear brands in what Rendle characterized as a “fragmented market” worth $30 billion are much more likely.
Scott Roe, VF’s chief financial officer and vice president, said the company intends to be “active portfolio managers, which means looking at [acquisitions], but that doesn’t mean workwear is our only target.”
Nevertheless, VF pointed to about 65 brands it sees as “competitors” in the workwear market along the lines of Williamson-Dickie, like Russell, Anvil and Columbia.
Workwear may be the company’s surest bet to meeting the broad financial goals set out during VF’s March investor day, where it projected total revenue of $14 billion by 2021 and its intention to focus on mergers and acquisitions.
“It was at that time that we began to really study the workwear environment and it became clear to us that there was an adjacent opportunity to reduce our exposure to the more difficult distribution centers in the U.S. and focus on our workwear business,” Rendle said. “What was interesting to us with Williamson-Dickie was that their set of brands really lined up well with our portfolio.”
VF’s stable of workwear brands includes Timberland, Wrangler, Red Kap and Bulwark. It also holds popular skate and outerwear brands Vans and The North Face.
The Williamson-Dickie acquisition led VF to increase its 2021 revenue target by $1 billion, given the growth opportunities it sees with brands like Dickies, which has been popular among skaters since the Nineties and is increasingly popular on the streetwear scene. Although it’s a private company, VF said Williamson-Dickie’s trailing 12-month revenue came in at $875 million.
“As we look out to 2021, we see the potential for Williamson-Dickie to contribute more than $1 billion of revenue, which when combined with our organic growth, puts VF revenue north of $15 billion by 2021,” Roe said during a call with Wall Street analysts.
The acquisition will also be an immediate positive for 2017, giving it a $1.7 billion stable of workwear brands. VF also increased its annual guidance to $11.85 billion in revenue from the $11.65 billion earlier this year, with earnings per share expected to come in at $2.96, up from $2.94.
When asked if the street-style appeal of Dickies was part of his consideration of Williamson-Dickie, Rendle said “absolutely.”
“It’s a really nice complement to have significant awareness in that core workwear segment,” Rendle added.
That awareness among skate and streetwear culture (where there’s plenty of cross-pollination) has Rendle looking at Dickies as having the potential to grow at the level of Timberland or The North Face, brands that have seen sales soar since being acquired by VF.
“We see that [increased popularity] being equally possible with Dickies — they’ve already proven it in China and also Europe to an extent,” Rendle said.
“Lifestyle we think could be one of the faster-growing categories, especially when you think about some of the synergies, not just our workwear portfolio, but in our branded portfolio,” Roe said during the call with analysts. “There are some adjacencies we see as a real opportunity.”
As for how exactly VF is set to grow the Williamson-Dickie brands, the company isn’t opposed to an expansion of direct-to-consumer, along with digital and international growth.
“It’s something we’ll certainly look at, but it’s not something we’re firmly prepared to do,” Rendle said.