VF Corp. turning brand stable into retail strength

GREENSBORO, N.C. —Apparel company VF Corp. acquired two fashion brands—7 for All Mankind and lucy activewear—for a total of $885 million late last month. The two companies, with combined total revenues of $350 million, will be the foundation of a new contemporary labels brand portfolio that VF intends to build.

“We’re a very consumer-focused company, and we’re very scientific about how we do that,” said Eric Wiseman, president and coo of VF Corp., in a phone interview. “We look at how consumers live their lives and what brands they believe are authentic to them…both 7 for All Mankind and lucy activewear are two of those brands within the premium denim and women’s activewear spaces, respectively.”

Both brands will be major growth vehicles for the company. 7 for All Mankind, which has current annual revenues of $300 million, has enjoyed continued expansion since it was launched in 2000. It also generates strong profitability as a brand, with operating margins over 20%. Wiseman said he expects to see 7 continue to grow 15% annually.

Plans to expand 7’s selection of sportswear items are already in the works. The brand already offers a limited selection of sportswear items that are complementary to denim, such as button-down shirts and leather jackets for men, and fashion tops and sweater hoodies for women. VF will keep and expand the 7 purse and handbag collection, which will launch this fall.

Retail expansion for the brand is also on the horizon. “We believe we can open 100 7 for All Mankind stores globally by 2011,” Wise-man said. “7 is the leading brand in the contemporary denim space, and despite the fact that it’s based in California, it already has an international appeal—27% of its sales now are international. We’re looking to open stores in A-plus locations, with the first announced space being on Robertson Boulevard in Los Angeles.”

VF has growth plans for lucy activewear as well. With approximately $57 million in revenues, lucy, based in Portland, Ore., is a women’s active lifestyle brand. Founded in 1999, the brand is sold through a base of 50 retail stores and an online Web site.

“Lucy is a West Coast-based brand, although recently they have been expanding up and down the East Coast, in the Washington, D.C., area as well as a store near Boston,” Wiseman said. “They’ve also successfully opened stores around Chicago.”

VF plans to continue lucy’s expansion on the East Coast, in cities like New York in particular, Wiseman said. “We think this brand translates really well to East Coast style,” Wiseman said. “Although we don’t necessarily see it expanding internationally, we could see some stores in Canada.”

Once the acquisition is completed at the end of this month, Mike Egeck, the current ceo of 7 for All Mankind, will serve as president of VF Contemporary Brands. Mike Edwards, the ceo of lucy activewear, will continue to run the brand. He will report to Egeck.

As a group, VF’s new contemporary brands coalition will have annual revenues of more than $350 million, based on expected combined 2007 annual revenues of the two brands. VF expects revenues for both brands to increase anywhere from 15% to 20% yearly over the next five years. In 2007, the group is expected to contribute about $125 million to total company revenues, reflecting a partial-year ownership of both brands. Likewise, the company expects total revenues to be up 14% this year, compared to the 12% previously anticipated.

Based on the profitability expected for both brands and the company at large, analysts have been largely positive about VF’s latest acquisitions. “Both brands have strong growth potential into vertical retail, international, licensing and ancillary product categories,” said Todd Slater, a senior retail analyst for Lazard Capital Markets, in a report. “VF is a high-quality, consistent and diversified branded supplier that continues to operate [at the] top of its game, while making strategic growth acquisitions.”

More acquisitions could be on the way, according to Wiseman. “We’re always looking to acquire leading lifestyle brands for all of our sectors—sportswear, outdoor, imagewear, jeanswear and now contemporary,” he said.

VF’s other principal brands include Wrangler, Lee, Riders, Rustler, The North Face, Vans, Reef, Napapijri, Kipling, Nautica, John Varvatos, JanSport, Eastpak, Eagle Creek, Lee Sport, Majestic and Red Kap.