VF Snaps Up Supreme Brand In $2.1B Deal; Shares Jump 11%

Shares of VF Corp. spiked 11.1% on Monday after the apparel and footwear company announced the acquisition of Supreme Brand for $2.1 billion. As part of the transaction, Supreme’s current investors, private equity firms the Carlyle Group and Goode Partners, are also selling their stakes. VF expects the deal to close later this year 2020, pending customary and regulatory approvals.

VF (VFC) said that the Supreme has 12 retail stores, while it generates about 60% of its sales from the digital platform. The company’s DTC (direct-to-consumer) model, brand loyalty and global presence “complements the ‘street-inspired’ aspects of VF’s Vans shoes, The North Face, Timberland and Dickies brands.”

VFC’s CEO Steve Rendle told Yahoo Finance that Supreme will likely be “modestly accretive” to the company’s earnings and revenue in fiscal 2021 and “contribute at least $500 million of revenue and $0.20 of adjusted EPS in fiscal 2022.” He also said that the Supreme “has higher gross and operating profit margins than VF’s overall portfolio, reflective of its focused business model and premium price-point products.” Further, Rendle estimated that “Supreme could reach $1 billion in sales over time as operations are expanded overseas.” (See VFC stock analysis on TipRanks)

Following the acquisition news, Susquehanna analyst Sam Poser raised the stock’s price target to $100 (28.5% upside potential) from $90 and maintained a Buy rating. Poser said that the “acquisition of Supreme adds a renown, fast-growing streetwear brand to VFC’s portfolio. VFC will benefit from Supreme’s “deep” consumer knowledge, agile product model, and industry-leading scarcity model. Supreme will benefit from VFC’s international know-how, digital infrastructure, and supply chain and sourcing capabilities.”

The analyst expects “Supreme to exceed both the 8%-10% near-term revenue growth and $0.20 EPS accretion expectations cited by VFC management.” He believes that Supreme’s sales and earnings outlook for FY22 looks conservative, “given the pre-pandemic and current growth trajectory.”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy rating is based on 7 Buys, 8 Holds and 1 Sell. The average price target of $78.93 implies upside potential of about 1.4% to current levels. Shares have declined by about 21.9% year-to-date.