Skateboarding Sells Out, Supreme Sells Up!

Supreme, a streetwear brand with 12 stores and a cultish following, is being sold to the parent company of Vans and Timberland in a deal that valued the apparel maker at roughly $2.1 billion including debt.

VF Corp. VFC -1.86% is buying Supreme from founder James Jebbia and a pair of private-equity firms, Carlyle Group Inc. CG 1.96% and Goode Partners LLC. Mr. Jebbia and the fashion brand’s senior leadership team will continue to manage the business, VF said Monday.

Founded in New York City in 1994, Supreme is known for its apparel products displaying a red-and-white logo bearing the brand’s name. The seller of skateboarding T-shirts, hats and sweatshirts has tapped into the zeitgeist of teens seeking hard-to-get looks.

In 2017, Supreme sold a roughly 50% stake to Carlyle for about $500 million, giving it a valuation of nearly $1 billion. Carlyle about doubled its money with the sale to VF, according to a person familiar with the matter.

Supreme caps on display at a Paris exhibition in 2018.PHOTO: CHESNOT/GETTY IMAGES

A VF spokesman declined to specify how much the company is paying to Carlyle and Goode. The business will be delivered to VF without any debt, the spokesman said.

Unlike traditional retail chains, which aim to sell as much product as possible, the label has relied on scarcity and word-of-mouth to generate hype around its name. The company’s T-shirts and hoodies often sell out immediately and then can later be found listing for more than $1,000 on eBay and other sites.

Mr. Jebbia said Supreme will maintain its “unique culture and independence” after merging. VF executives said Supreme’s current business model, will be maintained and it doesn’t see meaningful cost savings in the near term through the combination.

“Our approach for integrating the business will evolve differently than prior acquisitions,” VF finance chief Scott Roe said on a conference call. “We are planning a light-touch integration across most areas of the operations.”

VF in 2011 bought the footwear maker Timberland for $2.3 billion. In 2019, the Denver-based company spun off its denim business.

Like many fashion brands, Supreme has battled knockoffs. It pursued a legal fight around the world with an Italian businessman who flooded the market with T-shirts and hoodies bearing the brand’s logo. Supreme denounced his operation as a “counterfeit organization” and succeeded in shutting him down in Italy. The company has secured trademarks in China and the European Union, a Supreme spokesman said.

More than 60% of Supreme’s revenue of more than $500 million comes from online orders, VF said, adding that it believes there is more room for additional bricks-and-mortar shops. The brand has stores in New York, San Francisco, Los Angeles, London and Japan.

For the three months ended Sept. 26, VF posted lower profit and sales due to the continued effects of Covid-19 restrictions. During the quarter, it notched gains from digital sales and in China, which experienced the early days of the pandemic but is now recovering.

The acquisition of Supreme fits into VF’s expansion, though the company would need to strike a balance between its growth plans and Supreme’s perception of scarcity, Wells Fargo Securities said in a note to clients. The company “needs to be careful about driving growth without losing the brand’s ‘secret sauce,‘“ Wells Fargo said.

Way Waters, who has been collecting Supreme sneakers and shirts since the early 2000s, started reselling Supreme items in 2017, when he said he sold a roughly $50 T-shirt for $1,800 to a man waiting outside a just-opened Supreme store in Brooklyn, N.Y. He said he worries that Supreme’s limited supply and prices could change under VF ownership, and wonders if its approach to design might change as well.

“Supreme is basically the kid in the back of the class in the ‘90s who’s scribbling on the desk, being disruptive, teachers always yelling at them, always had a different mind-set,” said Mr. Waters, a 28-year-old hip-hop artist in Long Island, N.Y. “You can still skateboard, you can still be a father, you can still be a person who thinks differently from society.”

The Supreme brand could contribute at least $500 million in revenue and 20 cents a share in adjusted earnings in fiscal 2022, VF said. The company said it could pay more for the business over time based on revenue growth and gross margin performance.

Mr. Jebbia could receive a portion of the purchase price in VF equity over time, the company added. The deal is expected to close by year’s end.

VF shares closed at $77.81 on Monday up 11%. The stock is down about 22% so far this year.

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