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V.F. Corp (VFC) Acquires Supreme Brand, Enhances Portfolio

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V.F. Corporation (VFC - Free Report) has sealed its deal to acquire Supreme, a privately-owned streetwear brand, for $2.1 billion. Following the completion of the transaction, Supreme has become a wholly-owned subsidiary of V.F. Corp. The Supreme brand mostly sells apparel, accessories and footwear through the online platform.

With this acquisition, V.F. Corp is likely to speed up its 2024 strategy, which aims at transitioning its business model to a consumer-minded and retail-centric business in a hyper-digital way. The acquisition will also strengthen the company’s long-standing partnership with Supreme. Notably, V.F. Corp collaborated with Supreme for its brands such as The North Face, Vans and Timberland on various occasions.

The acquisition is estimated to slightly contribute to the company’s top and bottom lines in fiscal 2021. It expects synergies of at least $500 million in revenues and 20 cents per share in adjusted earnings during fiscal 2022 from this deal.

This move is in sync with V.F. Corp’s digital business model transformation and likely to add shareholder value. Notably, the company is poised to gain from Supreme’s strong follower base in the younger generation, even when consumers are moving away from apparel to essential spending. Moreover, the company’s increased focus on international and direct-to-consumer (DTC) expansion as part of its 2024 strategy provides V.F. Corp with an opportunity to attain $1 billion in sales.

As part of its 2024 Growth Plan, the company expects to generate revenue growth of 7-8% at a five-year CAGR through 2024. This growth will be primarily driven by its largest brands — The Vans, The North Face, Timberland and Dickies. Further, the company expects revenue growth through the period to be driven by strong contributions from the International and Direct-to-Consumer business platforms. It expects earnings per share growth of 12-14% at a five-year CAGR from the fiscal 2019 levels. In fiscal 2024, the company anticipates gross margin to exceed 55.5%, with an operating margin of more than 15%.

Zacks Rank, Estimate Trend and Price Performance

With a market capitalization of $33.3 billion, V.F. Corp currently carries a Zacks Rank #3 (Hold). The company is gaining from strong business performance in the digital channel and across China. Driven by its investments and the increased consumer shift to digital platforms amid the coronavirus pandemic, the company’s global digital revenues rose 44% (up 42% in constant dollars) in second-quarter fiscal 2021.

Backed by the strong performance, the company estimates digital revenue growth of more than 40% for fiscal 2021. Including its pure-play digital wholesale partners, digital penetration is expected to account for more than 25% of revenues in fiscal 2021, with digital growth of more than 40%.

In the past 30 days, the company’s earnings estimates have moved north 1.5% to $1.34 for fiscal 2021 (ending March 2021) and 5.1% to $2.84 for fiscal 2022 (ending March 2022).

 


 

In the past three months, its shares have gained 21.7% outpacing the industry’s growth of 21.2%.

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