VF Corp.’s $2.1 billion acquisition of Supreme stirred up some streetwear angst about how the deal would change the much-loved brand — but the real question might be just how Supreme is going to change VF.
While Supreme is getting access to the global and logistical might of VF, the Denver-based parent to The North Face, Vans and Timberland is also getting an up-close master class in the drop — an approach that VF has been working to put to use at scale over the past few years with more frequent shipments and more compelling brand stories.
The integration has just started since the deal closed on Dec. 28, shortly after the company closed its third quarter, when both sales and profits declined but showed significant improvement from earlier in the year.
Steve Rendle, VF’s chairman, president and chief executive officer, told WWD in an interview Wednesday that it was still “extremely early” in the melding of VF and Supreme, but that the brand was living up to its billing.
“As we get to know each other better, the cultural connections, the similarities are just as strong if not stronger than we thought,” Rendle said.
He pointed to Supreme’s strong digital business, which accounts for 60 percent of its sales, the brand’s desire to expand geographically and its weekly drop model.
“We understand the skill set that sits inside that team,’ he said. “We don’t want to disrupt this business. This business is really well run.
“It always makes me chuckle if people think we’re going to come in and change Supreme,” Rendle said.
He pointed to Vans, which he said has grown to be a $4 billion brand “without being commoditized or ubiquitous.”
“What you see here is brands gaining the knowledge, the experience, the capabilities of VF, adding their skills and enabling them to be better operators,” he said.
Chief financial officer Scott Roe is running point on the integration.
“We had a kick-off meeting that Steve and I participated in and one thing that James Jebbia, the founder, said, which really resonated with all of us was the concept of respect,” Roe said. “They have a deep respect for what we do and we have a deep respect for what they do. That is the basis of a really productive relationship. We don’t tell them how to run their business.”
On a conference call with analysts, Roe described Supreme as “a beautiful, simple machine” and that, “we don’t want to mess it up.”
Supreme is expected to add $125 million and adjusted EPS of 5 cents in the fourth quarter.
Next fiscal year, VF is looking for the uber hip street brand and fashion darling to add at least $500 million of revenue and 20 cents of adjusted EPS.
Overall, VF is still bouncing back from the worst of the coronavirus lockdowns and expects revenues to get back to the peak quarterly revenues seen before COVID-19 sometime the coming fiscal year.
In the third quarter, net profits fell 25 percent to $347.2 million from $465 million a year earlier, while adjusted earnings per share tallied 93 cents, 3 cents better than the 90 cents Wall Street analysts had penciled in.
Revenues decreased 6 percent to $2.97 billion from $3.16 billion a year earlier — a marked improvement from the nearly 30 percent drop logged in the first half. By brand, Dickies’ sales were up 9 percent and The North Face was flat, while Vans declined 6 percent and Timberland dropped 14 percent.
All told, VF ended the quarter with $3.9 billion in cash and short-term investments and the next day spent $2.1 billion of that to close the Supreme deal.
VF is looking for full-year revenue to range from $9.1 billion to $9.2 billion, a drop of 12 percent to 13 percent on an adjusted basis. Adjusted earnings per share are slated to be down about 51 percent to $1.30.
Roe said that while VF is planning on spending some time “deleveraging” after the Supreme deal, the company is very much still in the M&A game.
He pointed to some of the steps VF took early in the pandemic, such as reducing inventory, marketing and discretionary spending and how that helped the company buy Supreme in the middle of the pandemic.
“We’ve been playing the long game since the beginning here,” he said.
And that’s not just in dealmaking, but strategy in general, with VF organizing itself around brands that are purpose-based, digitally nimble and often center around an active lifestyle.
Rendle said that when VF does get back to its revenue peak it will be in a world transformed by the pandemic.
“We think stores will still be very important, but how consumers interact with stores absolutely will be different,” he said. “We pivoted this [fiscal] year and rapidly accelerated our buy online, pick up in store, reserve…curbside pickup wasn’t even in our mind-set back in January and we’re thinking, how do we save the sale, using retail inventory to service online orders.”
But between now and then, the company, like the rest of fashion and retail, is going to have to muddle through the rest of the pandemic.
Shares of the company fell 7 percent to $79.15 on Wednesday as investors gauged the impact of continuing COVID-19 store closures, where Vans, for instance, has been restricted in California and in Europe.
Edward Jones analyst Brian Yarbrough said, “Unfortunately, I don’t think investors were expecting the COVID-19 issues to bleed into 2021, but it seems like the headwind will remain for the near term.”
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