Vans parent VF Corp. sells Supreme skating brand to France's EssilorLuxottica for $1.5 billion in cash

By Ciara Linnane

'Strategic portfolio review concluded there are limited synergies between Supreme and VF, making a sale a natural next step,' says CEO

VF Corp.'s stock rose 13.5% Wednesday, after the Vans parent said it's entered an agreement to sell its Supreme skating brand to French-Italian eyeglass and accessories maker EssilorLuxottica for $1.5 billion in cash.

"We see an incredible opportunity in bringing an iconic brand like Supreme into our company," said Francesco Miller, CEO of EssilorLuxottica (FR:EL) along with Paul du Saillant, deputy CEO, in prepared remarks. "It perfectly aligns with our innovation and development journey, offering us a direct connection to new audiences, languages and creativity."

Bracken Darrell, VF Corp. (VFC) CEO, said the company has grown Supreme's presence in China and South Korea and returned it to delivering strong growth.

"However, given the brand's distinct business model and VF's integrated model, our strategic portfolio review concluded there are limited synergies between Supreme and VF, making a sale a natural next step," he said.

Supreme opened its doors in downtown Manhattan in 1994 and became a hub for New York City skate culture, eventually employing, as well as selling to skaters and local artists.

The brand has since expanded to 17 retail stores and an e-commerce platform serving all regions. It was acquired by VF Corp. in 2021 for $2.1 billion, so it's selling the business at a loss.

The deal is expected to close by year-end and to be dilutive to VF Corp.'s per-share earnings in fiscal 2025.

Wedbush said the deal seems to be a bit of a double-edge sword.

"On the bright side, it will give them much-needed balance sheet flexibility ($1.75 billion of debt coming due in the next nine months), management noted "limited synergies" with the rest of the portfolio, and there's something poetic about ridding themselves of the brand that many market-watchers view as the deal that broke the proverbial camel's back,"{ wrote analysts Tom Nikic and Matt Quigley.

On the other hand, Supreme was the most profitable brand in the portfolio with EBIT margins of more than 30% versus consolidated margins that are in the mid-single-digit percentage range, accounting for about 30% of VFC's total EBIT last year, they wrote. EBIT is earnings before interest and taxes.

"We will wait to update our estimates until the deal closes, but we are raising our price target to $13 (from $11) to reflect the alleviation of the debt overhang," the analysts wrote. Wedbush has a neutral rating on VF Corp.'s stock.

The deal will not improve the company's debt leverage as much as expected, they added. The company will likely pay down all of its $1 billion term loan that carries an interest rate of 6.3%, or $63 million of interest payments annually. They can also partially repay April 2025 bonds that pay 2.4% interest for another $12 million in annual interest savings.

"Thus, the total interest expense savings are only $75 million vs. somewhere in the range of $166-$180 million of lost EBIT," they wrote.

The stock has fallen 14% in the year to date, while the S&P 500 SPX has gained 17%.

-Ciara Linnane

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07-17-24 1442ET

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