Supreme sold to eyewear retailer for $1.5 billion, value shrinks by nearly 30% in 4 years

On July 18, DoNews reported that on July 17 local time, EssilorLuxottica, a vision care and eyewear manufacturing company, and VF Corporation, the parent company of The North Face, announced that they had reached a final agreement. EssilorLuxottica will acquire the Supreme brand from VF Corporation for $1.5 billion in cash. The transaction is expected to be completed by the end of 2024, subject to certain conditions and regulatory approvals. Additionally, the sale of the Supreme brand is expected to dilute VF Corporation's earnings per share for the fiscal year 2025. According to the Supreme official website, in April 1994, Supreme opened its first store on Lafayette Street in downtown Manhattan, becoming the center of New York City's skateboarding culture. Skateboarders, punks, hip-hop fans, and other young counterculture enthusiasts gathered around Supreme. Over the past 30 years, Supreme has evolved from its New York roots into a global community, currently operating 17 stores worldwide. It is worth noting that the price EssilorLuxottica paid to acquire Supreme is lower than the $2.1 billion paid by VF Corporation in 2020, shrinking by nearly 30%, witnessing the rise and fall of this pioneering brand in the capital market. Founded in 1899, VF Corporation is one of the world's largest apparel, footwear, and accessories companies, with iconic outdoor, sports, and workwear brands such as Vans, The North Face, Timberland, and Dickies under its umbrella. After acquiring Supreme at a high price at the end of 2020, VF Corporation also expressed ambitions, setting a target for the brand to achieve $600 million in revenue in the 2022 fiscal year, which was not achieved. In June 2023, VF Corporation disclosed Supreme's performance data for the first time. In the 2023 fiscal year (12 months ending March 2023), Supreme's revenue and profit suffered a double blow, with revenue decreasing by 7% year-on-year to $523 million, lower than the approximately $562 million in the 2022 fiscal year; net profit also plummeted by 21% to $64.8 million. In the latest 2024 fiscal year annual report, VF Corporation did not separately disclose the performance of the Supreme brand. However, the second quarter report for the 2024 fiscal year mentioned that the Supreme brand had its strongest season opening performance in years, with double-digit revenue growth in the second quarter. This was mainly due to the successful opening of a new store in Seoul in August 2023 and achieving good results in various metrics, which is a strong proof of the company's "expanding brand coverage" strategic roadmap In this announcement, Bracken Darrell, President and CEO of VF Group, pointed out that under the leadership of VF Group, the Supreme brand has expanded its influence in major markets such as China and South Korea, and has resumed strong growth. In fact, in less than 4 years since VF took over, the expansion plan of Supreme's directly operated stores has been unusually slow, only tapping into the markets of South Korea and China. Currently, in the United States, Asia, and Europe, the Supreme brand operates 17 retail stores and an e-commerce platform. It seems that in China, Supreme did not catch up with the hottest years of the streetwear industry. The first directly operated retail store of Supreme officially opened at the end of March 2024, and has not opened a second store since then. Previously, Supreme made a breakthrough in China in 2017 through a collaboration with luxury brand LV, mainly testing the Chinese market through concept stores. In the 2024 annual report, the operational risks of the Supreme brand were also mentioned. Its business model is different from other brands of VF Group. As Supreme focuses on frequently, weekly, and limitedly releasing products directly to consumers, it faces unique risks. The underperformance after acquiring Supreme did not bring any sweetness to VF Group as expected, instead, the overall performance of VF Group itself suffered. Overall, VF Group has seen seven consecutive quarters of declining revenue. In the 2023 fiscal year, revenue decreased by 2% year-on-year to $11.6 billion, and net profit plummeted by over 90% to $120 million. In the 2024 fiscal year, revenue dropped by nearly 10% year-on-year to $10.5 billion, with a net loss of over $900 million, turning from profit to loss year-on-year. VF Group's financial data for this year In the second quarter of the 2024 fiscal year, VF Group proposed a self-rescue plan and launched the "Reinvent" plan. This includes improving performance in North America, transforming the Vans brand, selling underperforming assets, and strengthening the balance sheet. Darrell mentioned the reason for selling the Supreme brand in this announcement, stating that considering the unique business model of the brand and the comprehensive model of VF Group, the synergies between the Supreme brand and VF Group are limited. Therefore, the sale is the logical next step. "Although VF Group will always adjust its investment portfolio from time to time, this transaction increases the flexibility of the group's balance sheet, allowing the company to achieve long-term growth and a more normalized debt level." Whether the acquisition by EssilorLuxottica can revive the Supreme brand is worth market expectations. According to foreign media reports, this is the first time the eyewear manufacturer has acquired a clothing company Executives at VISIONLOFT LUXOTTICA stated in this announcement that they see the excellent opportunity to introduce iconic brands like Supreme into the company. Supreme will have a place in the company's own brand portfolio and complement the existing lineup