New York -- North Carolina-based apparel maker VF Corp. is buying two fashion companies -- Seven for All Mankind LLC and lucy activewear inc. -- for a combined $885 million in a move to help fuel growth in a stagnant retailing environment.
The two privately-held companies, with a combined estimated revenue of $350 million, are expected to form the foundation of a new coalition of contemporary labels that VF intends to build. VF brands include Wrangler and The North Face.
In a news release, the Greensboro, N.C.-based company said Thursday that the acquisitions will be financed through existing cash, borrowings under its existing credit facility and the placement of long-term debt. Both acquisitions are expected to be completed by the end of August.
"Our ability to identify, acquire and grow brands has been a key driver of shareholder value over the past several years, and we're clearly maintaining this momentum," said Mackey J. McDonald, VF chairman and CEO, said in a statement. "The acquisition of these high growth, high potential brands marks another milestone in the continuing success of our growth plan."
VF said that it is acquiring the Los Angeles-based Seven For All Mankind, with an estimated $300 million in annual revenues, for $775 million. The brand -- known as 7 For All Mankind -- is one of the nation's top-selling high-end denim labels that's sold in upscale stores and online at 7forallmankind.com.
The label, whose jeans sell for well over $100 and is sported by celebrities, was launched in 2000.
In a separate deal, VF is purchasing lucy, a rapidly growing women's activewear brand with about $57 million in estimated annual sales, for $110 million. Founded in 1999, the lucy brand is sold through 50 retail stores and online through lucy.com.
In a conference call to analysts, McDonald said that both brands have reached signifincant growth "but they have huge opportunities ahead." VF plans to expand sales of these two brands through global store expansion and new product launches.
The 7 For All Mankind brand, which is set to open its first store in November, is expected to have a total of 100 stores globally by 2011, company executives said Thursday.
The latest move by VF reflects the growing interest among apparel companies to focus on hot brands with big growth potential as they face a declining department store business and changing consumer tastes. Rival Liz Claiborne Inc. announced earlier this month that it's considering whether to sell, license or shut down 16 brands as it pegs its future on fewer but more powerful brands like Juicy Couture and Lucky Brand Jeans.
Another rival, Jones Apparel Group Inc. announced earlier this year that it will be selling some of its slow-selling moderate-price brands, which have been squeezed by department store consolidation.
Upon closing these transactions, VF will name Mike Egeck as president of the new division called VF Contemporary Brands, in addition to his current role as CEO of Seven For All Mankind. He will report to Eric Wiseman, president and chief operating officer of VF.
Reflecting the growth potential for both brands, VF said the new division's revenues should increase at a 15 percent to 20 percent annual rate over the next five years.
In 2007, the group is expected to contribute approximately $125 million to total revenues, reflecting a partial year of ownership of both brands.
On July 19, VF reported that its second-quarter profit declined despite strong revenue growth, as the company posted a loss from the sale of its intimate apparel business.
Net income for the quarter fell to $81.7 million, or 72 cents per share, from $99 million, or 88 cents per share, a year earlier.
Revenue climbed 12 percent to $1.52 billion from $1.35 billion, fueled by higher revenues across the company's outdoor, jeanswear, sportswear and imagewear businesses.
VF shares fell $1.89, or 2.1 percent, to $86.63 on Thursday.
