(Filed Under wholesale Lingerie News). Delta Galil Industries, Ltd. signed a “definitive agreement” to purchase the "premium" brands in VF Corporation’s Contemporary Brands Coalition (CBC) for $120 million, according to the companies. The labels include 7 for All Mankind, Splendid and Ella Moss.
Delta is betting it can reverse the sharp slide in both sales and earnings for those labels, and believes it will benefit from lowering the overall proportion of its business in intimate apparel, as well as increasing the proportion of its sales in the branded and upper tier sectors of the market.
VF’s chairman and CEO Eric Wiseman explained, “Earlier this year we said that we are taking a focused and proactive look at the composition of our business portfolio to ensure that we are well positioned to maximize VF’s growth and return to our shareholders. This announcement illustrates that our work as active portfolio managers is progressing.”
The VF announcement noted the transaction “which is expected to close in the third quarter of this year, is subject to various regulatory approvals and other customary closing conditions that must be accomplished in order for a closing to occur. The selling price is $120 million, subject to various working capital adjustments.”
To explain in detail why it is making the acquisition, Delta posted an extensive presentation on its website, emphasizing that the purchase will “increase Delta’s branded portfolio from 53%” branded (versus 47% private label) to 65% branded and just 35% private label after the takeover. Delta boasted that brands in the acquisition are “leading premium brands” that will provide the company with “pricing power/high margins” and “expand Delta’s diversification.” Delta also noted that the acquisition will expand the proportion of its business in the “upper tier” of the market from 41% to 55%, and the proportion of its business in North America from 58% to 62%.
Conversely, the reason VF has decided to part with 7 for All Mankind, Splendid and Ella Moss is obvious from the Delta presentation which shows both sales and earnings for the CBC brands plummeting since 2011. In that year combined sales for the three brands peaked at $485 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) were $62 million. The next year sales dropped to $446 million but EBITDA rose to $74 million. Thereafter the slide continued in earnest, with sales and earnings falling steadily each year. For 2016 Delta stated combined sales are expected to be $300 million and EBITDA to be just $10 million.
The move by Delta, which itself was projecting sales in 2016 before the deal of about $1.1 billion, will decrease the proportion of its business devoted to underwear and intimate apparel since all three newcomers are primarily denim and sportswear labels. 7 for All Mankind is described by Delta as “a global leader” in the “premium denim market,” with a presence in a variety of other categories. The Splendid brand operates in the categories of “T-shirts, dress, sweaters, jackets and bottoms, athleisure, swim and accessories,” and kid’s apparel according to Delta. Ella Moss produces apparel for women in girls in many of the same categories.
Moving forward, however, Delta does plan to “leverage the new brands to grow our business in men’s and ladies intimate apparel and active wear,” according to its presentation. Other “initial plans” include “improve product offering by introducing more lifestyle products and increasing core programs, grow men’s category in Splendid, continue to develop the strong e-commerce business” as well as “integrate the European business into Delta, improve sourcing, close under-performing stores, reduce operating costs” and take advantage of “synergies” with Delta Galil USA and Schiesser, the German underwear company it bought in 2013.
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