Analysts: The VF, Supreme Marriage Is Going to Be Bigger Than Forecasted

VF Corp. has flexed its famously disciplined acquisition muscle — and analysts as well as investors are feeling upbeat about it.

On the heels of today’s announcement that the Denver-based retail group had signed a definitive agreement to acquire New York-based Supreme in a reported $2.1 billion deal, shares for VF have been surging, and analysts are cheering the news as a smart move for both parties. As of 12 p.m. ET, VF shares were up more than 13%, at $79.24.

One reason the new partnership is receiving a resounding thumbs up is likely the revenue potential on both sides: Supreme has enjoyed marked success using a scarcity model and VF has a long history of invigorating brands (Vans and The North Face among them) and helping them become leaders in their respective categories.

In fact, Cowen analyst John Kernan said the $1 billion revenue opportunity VF is forecasting for Supreme could fall short of its true potential.

“VF makes a big strategic push into streetwear with the $2 billion acquisition of Supreme at what we view as attractive financial terms given growth potential and the attractive financial model of Supreme,” Kernan wrote in a distribution note Monday morning, where he also raised his fiscal 2023 earnings estimates for VF. “The deal gives VF a bigger position in the $50 billion-plus streetwear market that has double-digit [percentage] annual growth potential and could render VF’s initial targets for $1 billion in long-term Supreme revenue as conservative.”

Supreme currently sells its coveted apparel, accessories and footwear through direct-to-consumer channels — primarily digital — and has seen gross margins of over 60%, with 45% of its revenue generated outside the United States.

Among the brand’s other strengths, Kernan pointed to its use of scarcity to drum up hype, as well as its presence in the multibillion-dollar-and-growing resale market.

Meanwhile, Jessica Ramirez, an analyst with Jane Hali Associates, noted Supreme’s history of buzzy collaborations — including with VF’s own labels — as well as its rising presence among mainstream consumers that so far hasn’t cost it it’s street cred or value proposition. Collabs between VF-owned labels and Supreme include the fall ’20 remix of Vans’ Old Skool Pro and the Half Cab Pro silhouettes, plus last year’s twist on The North Face’s popular Nuptse jacket and pants.

“It just makes sense for Supreme to go with VF. They’ve been partners for so many years, and Supreme has proven that it has come such a long way,” Ramirez said. “What we’ve seen with Supreme is that, among streetwear brands, it has the most power. The potential for $1 billion is there. The way it manages its collaborations is [effective] and the halo it has generated remains [intact].”

What’s more, Ramirez said she anticipates that Supreme could benefit from VF’s logistical backing and supply chain strength, as well as the company’s sustainability initiatives.

“We don’t know much yet about Supreme’s [efforts to be environmentally conscious], but VF is a portfolio that has tried to be forward-thinking when it comes to sustainability,” she added.

Ramirez said market watchers and investors are also reacting today to VF finally closing in on a deal after months of anticipation and growing appetite for a deal. (In recent weeks, there had also been rumors the firm had thrown its hat in the ring to buy Reebok.)

“This is such a good boost for VF,” she said. “For the longest time, we’ve heard management say on earnings calls that they’re looking to buy, but they just hadn’t found anything. Instead, we’ve seen them shed off the brands that weren’t working for them, and Wall Street was happy for that. But the Street really was bullish on them actually acquiring something. And this one is something to take home.”

Following the acquisition, Supreme founder James Jebbia and the senior leadership team will remain with the brand. The transaction is expected to be completed late this year, subject to customary closing conditions and regulatory approval.

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