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Supreme Fits Well With Narrow-Moat VF's Portfolio but Doesn't Come Cheap; Shares Overvalued

David Swartz Equity Analyst

Analyst Note

| David Swartz |

Narrow-moat VF announced that it will buy New York-based upscale streetwear brand Supreme from The Carlyle Group, Goode Partners, and founder James Jebbia (who may take VF equity) for $2.1 billion in cash plus the possibility of an additional $300 million in earnouts. We assign an Exemplary stewardship rating to VF for its history of successful acquisitions, and we do not expect this deal to change our view. However, while we think Supreme, which had more than $500 million in sales over the trailing 12 months, fits well with VF’s other brands, the purchase price of more than 4 times sales and about 15 times enterprise value/EBITDA is pricey. VF projected Supreme would be slightly accretive to fiscal 2021 earnings and add about $0.20 to fiscal 2022 EPS. As we had previously forecast VF’s fiscal 2022 sales and EPS at $11.0 billion and $2.90, respectively, Supreme’s impact on fiscal 2022 results will be limited. We expect to increase our fair value estimate of $56 per share by a mid-single-digit percentage but still view VF, trading at roughly 25 times next year’s EPS, as overvalued. VF's share price jumped about 14% on the announcement.

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Company Profile

Business Description

VF designs, produces, and distributes branded apparel and accessories. Its largest apparel categories include action sports, outdoor, and workwear. Its portfolio of about 20 brands includes Vans, The North Face, Timberland, and Dickies. VF markets its products in the Americas, Europe, and Asia-Pacific through wholesale sales to retailers, e-commerce, and branded stores owned by the company and partners. The company has grown through multiple acquisitions and traces its roots to 1899.

8505 E. Orchard Road
Greenwood Village, CO, 80111
T +1 720 778-4000
Sector Consumer Cyclical
Industry Apparel Manufacturing
Most Recent Earnings Sep 30, 2020
Fiscal Year End Mar 28, 2021
Stock Type High Yield
Employees 48,000