VF Corp to buy US footwear brand Supreme at $2.1bn

By Rahul Vaimal, Associate Editor
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The American apparel and footwear company VF Corporation is expected to buy streetwear apparel firm Supreme at a range of $2.1 billion.

The company, which also owns the North Face and Timberland brands, stated that it would make an extra payment of up to $300 million to satisfy certain post-deal closing milestones.

New York-based skateboarding, clothing and footwear company, famous for its red box logo with “Supreme” written in white, gained popularity among fans of the streetwear style, with people lining up outside its 12 stores worldwide for hours.

Perceived scarcity has aided the Supreme to gain a distinct status among young people and enabled it to sell its products at far higher prices when compared to 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. With the announcement of this new merger the shares of the American apparel company surged about 13 percent to $78.94.

Recently, reports were there that the current investors of Supreme, Carlyle Group, which is the parent organization of the streetwear apparel company and New York-based private equity firm Goode Partners were selling their shares in the firm.

According to the calculations of the VF Corporation, the wider streetwear market will be providing a $50 billion worth global opportunity and Supreme was at the center of this market.

Mr. Rendle states that its deal with Supreme will help the company to strengthen its eCommerce business, which has become more urgent for apparel and footwear makers due to the COVID-19.

In the past years, Supreme has partnered with many leading fashion brands including Louis Vuitton, Nike, Levi and Vans and the company makes about 60 percent of its revenue from the online business.

The deal, which is expected to be completed later this year, is anticipated to contribute at least $500 million of revenue and adjusted earnings per share of 20 percent in fiscal 2022.

Even though the Supreme does not publish any group sales or profit figures, its European wing is forced to issue its annual accounts and it shows rapid growth and industry-leading margins in recent years.

As of the year-end to January 2019, Supreme’s European business posted a revenue of $130 million despite having only two stores and a profit margin before interest expenses of 44 percent.

“Supreme is a strong streetwear brand, 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.