M&A Announcement

Nov 9, 2020

Greetings, and welcome to the BS Corporation Acquisition Announcement. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Joe Alkire, Vice President of Investor Relations, Corporate Development and Treasury. Thank you, sir. Please begin. Good morning, everyone. Thank you for joining us. Welcome to VF Corporation's conference call to discuss the announcement of our agreement to acquire Supreme Holdings. Participants on today's call will make forward looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. I would also like to highlight that in addition to this morning's release, we have posted a presentation to the Investor Relations section of our website, and we'll be referring to this presentation during the call. Joining me on today's call will be VF's Chairman, President and Chief Executive Officer, Steve Rendle and Chief Financial Officer, Scott Rowe. Following our prepared remarks, we'll open the call for questions. Steve? Thanks, Joe, and good morning, everyone. Thank you for joining us on such short notice. We're thrilled to be with you today to announce the acquisition of Supreme, an iconic global brand in our marquee streetwear property, an acquisition that further demonstrates VF's commitment to evolve our portfolio of brands to align with the market opportunities we see driving the apparel and footwear sector, and a transaction that marks it another milestone in BF's portfolio transformation and represents another catalyst in BF's evolution toward a more consumer minded retail centric hyper digital enterprise. We are confident the Supreme transaction will serve as a spark for another layer of transformative growth and value creation for VF and our stakeholders. During our Investor Day last fall, we highlighted VF's sharp focus on total addressable markets as critical component to our portfolio management approach. VF's portfolio today is anchored in the core TAMs of active and athleisure, outdoor and work and work inspired. However, if you recall, we highlighted several attractive overlapping market adjacencies, including streetwear. We estimate the broader streetwear market to be a roughly $50,000,000,000 global opportunity with a low double digit growth profile, driven by a number of attractive secular trends, including casualization, social influence and creative self expression to name a few. Supreme sits at the epicenter of this market opportunity as the original and a global category leader. Streetwear is rooted in casual apparel and footwear emerging from art, music, street and action sports subcultures and is anchored in cultural legitimacy. This unique positioning drives strong engagement from a young and diverse consumer base. The category started in U. S. Markets and has expanded globally through non conventional marketing, distinctive products and a dedication to the youth self expression. The streetwear model is unique, operating with agility across design, development, marketing and merchandising. Frequent curated drops and a constrained supply philosophy are key elements to driving continuous brand energy and strong consumer engagement. This scarcity, novelty and strong social influence model supports meaningful pricing power, resulting in best in class profitability. 3 Wear is not a new space for VF and the acquisition of Supreme follows a long standing relationship between the brand and VF with Supreme being a regular collaborator with our Vans, North Face and Timberland brands. And additionally, the street inspired aspects of Vans, The North Face, Timberland and Dickies capture many of the core elements of streetwear and represent roughly $3,000,000,000 of our annual revenue. In fact, the street inspired lines of our largest brands represent some of the fastest growing segments of our portfolio today. Supreme was founded in 1994 on Lafayette Street in Downtown Manhattan. At its core was a group of neighborhood kids. New York City skaters and local artists became the store staff, crew and customers. The brand quickly grew to embody downtown culture known for its quality, style and authenticity. Today, Supreme has grown into a $500,000,000 plus global cultural lifestyle brand, selling apparel, accessories and footwear through a disruptive digitally led business model. We see a compelling path for continued growth and value creation as we bring Supreme into the VF portfolio. More specifically, we expect 8% to 10% growth for the brand over the next 5 years, driven by international and D2C expansion, core pillars of VF's long term growth strategy. Scott will cover the details of our plan, but I'd like to share a few of the key opportunities we see for both Supreme and VF resulting from this transaction. Supreme provides VF with deeper access to attractive consumer segments, which has application across many of our existing brands. There are clear opportunities for Supreme to leverage VF's strong international platforms and our existing digital and B2C capabilities. There are also significant opportunities for Supreme to leverage VF's scale and expertise to enhance its supply chain capabilities, improving operating efficiencies, explore new category adjacencies and tap into VF's existing consumer insight, data and analytics capabilities. VF is the ideal steward to honor the authentic heritage of Supreme, while leveraging our scale and expertise to accelerate and enable the brand's long term growth vision. I'm pleased with the continued advancement of our active portfolio management framework, which brought light to the attractiveness of the streetwear space and the natural fit of Supreme's business with our organization. Reshaping our portfolio to accelerate growth and our business model transformation remains our number one strategic priority. Our thoughtful and disciplined approach to capital allocation will continue to provide VF with unique and compelling acquisition opportunities such as this. I want to close by extending a special thank you to the VF and Supreme teams for their hard work, commitment and dedication to this transaction. Talent is a foundational element of VF's strategy, our continued success and our culture, and we are thrilled to welcome Supreme to the VF family. The management team has already shown a clear desire to collaborate with VF in areas that will better enable their ability to execute a strong long term growth plan. We look forward to building on our long term partnership going forward. And now I'll turn it over to Scott. Thanks, Steve, and good morning, everyone. I am pleased to announce that we have signed a definitive merger agreement with Supreme, an iconic global leader in streetwear with a unique digitally led retail centric business model. Today's announcement represents another step along our portfolio transformation journey. It's hard to believe that our Williamson Dickie acquisition was just 3 years ago. And since that time, we have focused our portfolio management efforts on aligning our brand portfolio with our long term strategic vision, selling Nautica and Reef, acquiring Altra and Icebreaker, spinning off Kontoor Brands and launching a process to sell the occupational work portfolio. In addition to VF's strong brand building capabilities, active portfolio management has been and will continue to be a key component of our ongoing TSR algorithm. And we believe today's announcement is a logical step in our evolution and we're excited for both VF and Supreme's enhanced prospects for a stronger, more sustainable growth and long term value creation. Before we dive into Supreme's business and financial profile, I want to quickly cover the transaction details. As you saw in the news release issued this morning, under the terms of the merger agreement, we have agreed to acquire Supreme for approximately $2,100,000,000 subject to customary closing conditions and regulatory approval. The agreement includes the potential for a performance based earn out tied to accretive revenue growth and gross margin performance. Under the terms of the agreement, the founder of Supreme will also defer a portion of the purchase price, which will be payable in VF Equity over time. We intend to fund the acquisition with excess cash and commercial paper. We expect to close the transaction later this calendar year. Our liquidity position will remain strong following the transaction with greater than $3,000,000,000 of total available liquidity anticipated by the end of the fiscal year. While leverage metrics will remain elevated in the near term, we plan to rapidly delever the balance sheet over the next 12 months to 24 months. For reference, we posted a presentation on our website that outlines the specifics of the transaction and provides an overview of Supreme's business and financial profile in more detail. Next, I'd like to spend a few minutes and provide an overview of Supreme's fundamentals as well as a high level summary of the growth plan we see for the brand over the next 5 years. Supreme generated more than $500,000,000 in revenue over the past 12 months and the brand has more than doubled over the past 4 years. During this period of explosive growth, the brand's fundamentals have remained intact with exceptional full price sell through and the business model operates with best in class profitability with gross margins of over 60 percent and operating margins of over 20%, a similar profile to that of our Vans brand. Supreme is almost entirely a direct to consumer business with just 12 stores globally and more than 60% of the brand's revenue in digital. Supreme has a strong global presence despite its relatively immature global footprint, with approximately 45% of revenue generated outside of the U. S. We see a clear path to 8% to 10% revenue growth for Supreme over the next 5 years, driven by a large international and B2C expansion opportunity, core pillars of BS 2024 strategy. There are no cost synergies baked into our acquisition model. Supreme is a unique asset led by a small but disciplined and agile management team that has presided over consistent growth during the past several years and currently operates with industry leading margins. Therefore, our approach to integrating the business will evolve differently than prior acquisitions. We're planning a light touch integration across most areas of the operations. However, we have identified potential opportunities associated with BF supply chain and international and D2C platforms. The potential cost savings and synergies identified will be incremental to the returns assumed in our acquisition planning. Throughout our diligence process, we've been impressed by Supreme's business model resiliency. On a year to date basis, including the impact of COVID related disruption, Supreme's revenue has increased at a mid single digit rate, including more accelerated growth since the launch of the brand's fall winter season, which began in August. Importantly, profitability and cash flow generation has also remained strong during this period, a clear testament to the strength of the brand and disciplined brand management. This resiliency was a key driver behind our confidence in executing a transaction of this size in the current environment. As Steve mentioned, Supreme will be immediately accretive to EPS, while enhancing Versus gross margin and cash profile starting with the fiscal year. Assuming a late calendar 2020 closing, we expect this acquisition to be modestly accretive for fiscal 2021, excluding transaction and other deal related expenses. On a full year basis, we expect Supreme to contribute more than $500,000,000 in revenue and at least $0.20 of adjusted EPS, providing a strong tailwind to our mid teen organic TSR algorithm and accretive returns on capital. So in summary, we're excited about this opportunity to further our exposure to the attractive streetwear market and add another iconic brand with $1,000,000,000 potential to our portfolio. BF has a rich history of delivering superior long term total shareholder return and transformational portfolio actions represent critical milestones along this value creation journey. Our ability to accelerate earnings growth while advancing our digitally led retail centric strategy is another major step in our evolution and its tangible proof underscoring the optionality inherent in this business model. And now we'll open the call and take your questions. Ladies and gentlemen, the floor is now open for questions. Our first question is coming from Omar Saad of Evercore ISI. Please go ahead. Hey, thank you. Good morning. Congratulations. Pretty exciting and interesting deal, different than a lot of the ones you've done in the past. My one question and one follow-up, I guess I'd say Supreme is really kind of a different price point for VF, I think, relative to a lot of the brands that you guys have in the portfolio, maybe even calling it luxury esque. Maybe your kind of high level thoughts, kind of delving into that higher price point part of the market, more elevated price point part of the market. And then my follow-up would be on the categories, you mentioned there could be some category adjacency opportunities. The obvious one to me or the obvious potential one to me might be footwear, given the importance of sneaker culture and streetwear and your capabilities and your other brands that have huge shoe businesses, of course. Those would be my two questions. Thanks, guys. Hey, good morning, Omar. Thank you. This is Steve. So I think how we look at Supreme and I think how the Supreme leadership thinks of themselves is not as a luxury brand, but rather as an activity based brand. I think this brand is anchored in East Coast skate culture and certainly taps into all of those streetwear elements of art, music that we see so prevalent in bands. From a price point standpoint, what we've learned is we've gotten to know James and the management team there that at the center of everything they do is their intense focus on creating authentic high quality product that's really put to market at a fair price. Their whole point here is to provide accessibility to their young consumer and to do that with a high quality product offer that's put to market at a fair price. That doesn't mean that this brand doesn't sell high priced items, but the core of their offer are really those core tees, hoodies and crews that kids are highly sought after. The category adjacencies that we talked about here very well could be footwear. And I think the key here as we get to know one another is to really spend the time to learn what are those core categories that Supreme sees value in representing themselves and where can we provide help. But there'll be no rush to really drive to these points. We will take our time to get to know each other, understand what their consumers' expectations are and where can VF provide value to further Supreme's success. Thanks, Steve. Thank you, Omar. Thank you. Our next question is coming from Michael Kennedy of Credit Suisse. Please go ahead. Hey, guys. Congrats on a nice announcement today. This is great to see. How should we think about the ultimate size potential of this brand or even the headwinds to the ultimate size of this brand, given that this is literally the best example I can think of outside of the true luxury group that really set the example for what a scarcity model can be and scarcity is so, so, so important to this brand. How do you think about the revenue target that you laid out the 8% to 10% and what the ultimate size of this business can be with how important scarcity is here? Yes, I'll take that Michael. Good morning. A couple of things to consider. We talked about the size of the market, first of all, the total addressable market and really the adjacencies. So the opportunity from that standpoint gives us a lot of confidence. And also, I'd just ask you to remember there's only 12 stores today and this brand is New York anchored and started there. The U. S. And Japanese markets are reasonably well established. But when you look at the international opportunity, really just beginning. And another interesting data point is the digital footprint is in general 2x the brick and mortar footprint. So as the brand decides what makes sense next and there's a whole lot of white space out there, this formula of going into a market developing that where the supreme followers and lovers exist, developing that community and ultimately then opening up a brick and mortar store, which is the ultimate expression of the brand in conjunction with that strong online presence. That's a formula that's worked really well for this management team and we would expect that that will continue for quite a while. So we saw we've talked about $1,000,000,000 I think that's pretty easy math if you think about the opportunity for geographic and international expansion. Thanks a lot guys. Yes. Thanks Michael. Thanks Michael. Thank you. Our next question is coming from Bob Drbul of Guggenheim. Please go ahead. Hey, good morning. Congratulations. Thanks, Bob. Thanks, Bob. I guess just a couple of questions for me just around the discussion around no cost synergies and in your assumptions. Do you see over time the opportunity to take some costs out of this and some of the synergies on sourcing or anything? Are you intending to sort of fine tune the sourcing mechanisms in place given your scale and size? Maybe you could just talk to that, that would be helpful. Thanks. Yes, Bob, I'll take that. This is Scott speaking. Listen, you got it right. We did not come in with a big synergy plan or that's not really part of the justification of this deal. And the first and most important reason is this management team has done a great job over a long period of time with superior fundamentals, right? I mean, this is a very strong and profitable business model, really strong gross margins, really strong operating margins and in a very attractive growth profile. So we don't need to do anything. That being said, as we've spoken with James and the team, there are a lot of powerful platforms within VF that are interesting to management team that we think may allow them to serve that consumer in a more efficient and effective way, things like our international capabilities, the platform, think about the back end of the plumbing, as I like to call it, our supply chain and just scale and efficiency, some of the things we do around real estate and direct to consumer. There are certainly opportunities that we think will make sense over time, but only when the brand is ready and when it makes sense for their consumer, will we pull those levers. This is a really unique business model that works really well. And so we're going to be cautious and measured and work together to find where those opportunities lie. But if you ask me, Bob, 5 years from now, do we think there'll be a lot of synergies? Yes, we think there's going to be places that make sense for the brand and make sense for us together to get some of those efficiencies. I would say those would be upsides to the returns that we've outlined in the materials we set that we sent out this morning. Great. Thank you very much. Sure, thanks Bob. Thank you. Our next question is coming from Erinn Murphy of Piper Sandler. Please go ahead. Great. Thanks. Good morning. I guess the question is if you could share a little bit more about the due diligence process, how competitive was it? And then my follow-up is just bigger picture, how do you think about managing fashion risk with this business? Thank you. Hey, good morning, Aaron. This is Steve. I'll take that. So the due diligence process, I think the key takeaway here is we have known Supreme for many, many years. As you can see in our materials, our Vans, North Face and Timberland businesses have been doing collaborations together since the mid-90s. So this was not a competitive process. This was really 2 business leaders, businesses coming together and talking about an opportunity and how to unlock value for both sides. And the process was methodical. And to Scott's point is that we have taken our time, we're getting to know one another, but it was very clear that there was a lot of opportunities that VF could bring to help Supreme achieve its objectives. But I think also very important here, Aaron, is this is just a great affirmation of the journey we've been on as a VF the last 4 years to evolve our portfolio to be more aligned with those parts of the market that we see scaling for apparel and footwear, but also to really put a fine point on the transformation that we have been put in place to really put the consumer at the center of our business to become a stronger operating model based around D2C skills and using digital to really enhance those capabilities. And Supreme really sits at the center of that and will be a really strong addition to how we transform and drive our shareholder value over time. And then, Erin, I forget the second half of your question, if you could remind me. Yes. Just bigger picture, how you think about managing fashion risk with this brand? Thank you. Right. So to the earlier question around this being a fashion brand, this is really an activity based brand. And it is anchored in East Coast skate. And the focus that this leadership team has on creating just good value product in the agility of their model and how they think through their seasonal weekly drop plan, the merchandising design skills that go in line with that. But more importantly, just the deep engagement that they have with their consumer here and across the globe informing the agility that they have in their product creation model. I wouldn't put fashion risk as a top topic here. I think the opportunity here is to further engage, get deeper understanding and be able to position Supreme in those markets where they've got strong consumer demand and to really enable the model that this team has put together and have been so successful driving over the years. Great. Thank you. Yes. Erin, this is Scott. I would just tack on to that too. An interesting proof point is the incredible sell through that this brand has seen over a long period of time. We talk about 90 high mid to high 90s kind of sell through, which is just amazing, right, and really a testament to how well they've managed the merchandising of the brand. Would you like to move on to the next question? That'd be great, Gerald. Thank you. Our next question is coming from Laurent Vasilescu of Exane BNP Paribas. Please go ahead. Good morning. Thank you very much for taking my question. Scott, it looks like from the slides, the brand grew at a 25% CAGR since 2017. Can you parse out how large the brand was last year, just in the context of a COVID world? And then can you talk about the building blocks for 8% to 10% CAGR? How do we think about e commerce? And is there an opportunity with just 12 stores to get to, let's say, 100 to 200 stores over the next few years? Yes. So, first of all, the resiliency in the COVID environment, which I think is behind your the first part of your question, Laurent, has been amazing, frankly. And we've seen that high single digit growth on a year to date basis. The brand is over $500,000,000 today growing high single digits like 9% year to date. And when you look at the acceleration even of that growth in the current season that they're in today, the resiliency during a COVID environment and their ability to find their consumers wherever they're able to transact, whether when stores shut their e commerce businesses is robust and they've been able to adapt to that. It's just quite honestly pretty impressive. And it's really a testament to that team in the way in which they operate. Remember too that digital business is more than 60% of the total revenue today and a big part of the growth going forward. But as you think about forward growth, Laurent, I would just go back to my earlier comment, I think it was Omar's question, and with 12 brick and mortar stores that are very, very efficient, the opportunity to continue to add stores is absolutely there, if you think about geographic expansion. That coupled with a really strong omni channel capability and a digital footprint that's 2x what they see in brick and mortar. If you think about continuing to expand, whether it be in existing markets or even new markets from a brick and mortar standpoint and then couple that with a really strong digital presence, that's how you get that growth algorithm on a go forward basis. That's great to hear. All the best. Yes. Thanks a lot. Thank you. Our next question is coming from Matthew Koss of JPMorgan. Please go ahead. Great. Thanks and congrats on the acquisition. Scott, maybe how do you so Supreme's operating margin is greater than 20% today. Do you see this as sustainable? Any planned near term investments to scale? And how best to think about the multiyear gross margin and operating margin expansion opportunity for the brand in your opinion? Yes. Well, we're getting that's a pretty detailed question given that we just announced today and we're got to give us some chance to work together on more details. But I'd say this, Matt, very consistent this brand has had very consistent performance, really strong gross margins, very high sell through, which means they're not having to deal with a lot of the discounting and things that many brands in our space deal with. And their model is quite honestly unique, fairly simple and straightforward and very consistent and has been scalable. So they've seen these margins maintained over a very long period of time. We see no reason why that won't continue. Again, this isn't really about synergies or anything we're going to do particularly different with the brand. We absolutely have strong capabilities and platforms that together we think could be beneficial to the brand, but only when it makes sense and only when they're ready for it because frankly it's operating and the fundamentals of the business have been so consistently strong that we see no reason why that won't continue. You think about where future expansion is likely to be a little over indexed. You think about the international markets. Historically, we've seen better margins in our international business and there's no reason to think that wouldn't be the case here as well over time. Great. And then maybe just a follow-up. You mentioned portfolio shaping is still your number one strategic priority. So after today's acquisition and the divestiture of occupational work, are you comfortable with the portfolio today or further changes that you're looking to make? Yes, Matthew, this is Steve. I'll grab that. So, yes, we have done a lot of work over the last 4 years to evolve the portfolio to where it is today. And yes, we're comfortable. And I think the point being why we would be comfortable with the evolution into those core aspects of the total addressable market of the active, the outdoor, the work, work inspired and being able to tap into the adjacencies like streetwear, which we were already operating in from a VF standpoint, but now bringing in a Supreme, just a finer point around active and how to touch those adjacencies. M and A will remain our number one choice, and we'll continue to be very thoughtful around deploying our 3 lens approach to finding brands, but also capabilities that will enhance our portfolio's ability to continue to scale and deliver against the long term algorithms we've laid out last year in our Investor Day. Great. Congrats again. Thank you. Thanks, Mike. Our next question is coming from Sam Poser of Susquehanna. Please go ahead. Good morning. Thank you for taking my question. I have a handful and I'm just going through them and then we can do it. 1, the most important I think is sort of the collaborations. 1, can you tell us what size that is? And 2, is there any risk that some other brands such as I mean, there's a lot of other apparel and footwear brands that have done collaborations over the years and continue to do so. Is there any risk that given that you guys are taking the business on that those other apparel and footwear brands may back off doing collaborations with them? And I'll just go to what kind of learnings do you, VFC, expect to get from Supreme? What percent of the collaborations of total revenue? And 3, what's the seasonality of the business? How do we look at it by quarter, that 500,000,000 dollars Great. Well, thank you, Sam. And I'll start, Scott. We can tag team here. So the collaboration question, I think, is a really important one. And I would answer it, Sam, in this way. This is a highly well run business and the management team has a very clear strategy that we will support and enable. The collaborations are an important part of their model, but they have core items that they drive and a branded offer that they manage on a weekly basis that is also central to their growth. So this is their decision to drive and on hours absolutely to support. I would hope, and I think this is true, that the market understands how VF works with our branded portfolio, and we do not dictate what our businesses do. We really work to support and enable the strategies that each business has in place. And I think this will be very true for Supreme going forward. Their collaborations are beyond apparel and footwear. I think you know well that they work with a broad cross section of different sectors and different businesses to enhance their model. We have no intention of changing that and only enabling and supporting that. And then I think that trust and understanding that the broader marketplace has for VF and how we manage, certainly, we'll be supportive here. Not really able to talk to you about the size of this part of the Supreme business model. It's important. But I would tell you, it's not the primary driver, Sam. And then on your question on learnings. Yes, Sam. Yes. On the learnings, Sam, I think that the thing that we take away here as we've gotten to know this leadership team is just their deep understanding and their skills to engage with their consumers across the different mediums that they use. We're good at this, but I think there's another gear that this team utilizes, and I think it's something that we'll be able to, over time, learn and adopt within some of our businesses. But I'll also tell you, it's this agile product model that they deploy and using that deep engagement with the consumer to drive that season by season weekly product drop. This is central to becoming more putting the consumer to our model and becoming more retail centric and utilizing digital tools to support those capabilities that allow you to engage and drive that level of frequency. I think those will be key areas that we jointly work to learn from one another. Yes. I was just going to add on too. You asked about seasonality. Really, this business is not so seasonal, right? It doesn't have a particular seasonal spike and it's fairly consistent throughout the year. The one thing I would say is, twice a year there's a reset for the new season to be launched. And so as you think about January, would be the next period where you see that reset, which has impact on the short or the stub period earnings that we talked about for this year. Thank you very much. Thank you, Sam. Thank you. Our next question is coming from Camilo Lyon of BTIG. Please go ahead. Thank you. Good morning and I'll add my congrats as well. Steve, you sort of touched on this earlier, but I'd love to get a more finer point on this question. Specifically, what elements of the strategy do you anticipate accelerating versus those that you will leave in place as they were before acquisition and maybe that leads into an expansion into China. I don't believe the brand is in China today on a direct basis. So I'm curious to know if there are parts of the strategy and the global growth opportunity that you plan on accelerating? And then I have a follow-up. Sure. I think the elements of the strategy that we would look to support is just how can we help and enable, and I'll be redundant here, but their deep understanding of the consumer and how can we help them really drive their agile product model. Scott talked about potential synergies with our supply chain. There are things that we can do to help them move more quickly and more efficiently in order to service that consumer. China is an important opportunity. I think Supreme, while it started in New York, had very early penetration into the Japanese market. And I think we know that there is strong demand in the Asia portion of the world and being able to work with our teams to understand that Greater China marketplace, what is the best way to engage with consumers there, be able to share those learnings back with the Supreme team, but ultimately, enabling them to make the decisions that drive their day to day business. We are not coming in to make changes. We are, as I've said this now multiple times, sorry, again, for being redundant, we're here to really support and enable a very thoughtful set of strategic actions in a high performing business. Great. And then my follow-up is for you, Scott. So you said that the business that the brand has doubled over the last 4 years, so implying a 20% CAGR. I guess if you could just help us reconcile that 20% CAGR that's been seemingly very steady with the forward outlook of 8% to 10%. What are the governors to that deceleration? Or more differently said, why should this business not continue at this elevated growth rate that it's been experiencing in the past 4 years? Yes. Camilo, I would say could and should are 2 different answers. And one thing, again, just to reiterate what Steve said is, we're not pushing this team to go faster. I mean, could they go faster? Sure. I mean, they could. But what we've been impressed with is the measured growth and I would say the long term sustainable growth of that comes with going into a region and really curating and developing the loyal followers building upon that in a very careful way. So we're not going to push them. This is management's plan, which we've bought into. We didn't say we got a better idea or we're going to push you. History would say they've grown faster. Could they? Sure, they could. But this is a very attractive and accretive proposition as it is. And if together we see opportunities to accelerate, like Steve said, internationally, if it makes sense, then absolutely. I guess I'd take away from this, are we really confident in this ability to grow? Yes, we are. And let's see how we develop, but let's see how that ends up going forward. But we got a lot of confidence in this growth algorithm given the TAM and given the history of the brand. Fantastic. Congrats again. Thanks. Good morning. Yes. Thanks, Camilo. Thank you. Our next question is coming from Alexandra Walvis of Goldman Sachs. Please go ahead. Good morning. Thanks so much for taking my questions here. I wanted to ask a little bit about the streetwear market in the deck. You talked to a market growth with a double digit CAGR. Is that historical or forward looking? And could you comment a little bit on the competitive landscape here? What are the strongest elements of that market? Where do you see the greatest competition coming from? There are a number of other brands out there from the wheelchair that are pretty well capitalized also. Sure. So Alex, I'll start, Scott, Nick, fill in if I missed something here. So as we think about the total addressable market, active being that largest piece of the $500,000,000,000 global TAM that we've spoken about, really Supreme has the opportunity to tap into that large marketplace and how they utilize their co labs to kind of expand into all aspects there, I think is a really unique aspect of this market. And the trends we see today in this COVID environment of casualization and consumers really looking to and engage with authentic brands with great meaning positions again Supreme to be very, very strong. So I don't know if that answers your question, Alex, but this brand has certainly people think of it as a street brand. The more we get to know and understand who this brand is, its origins are East Coast Skate and that activity based authentic connection to their consumer really gives them a fairly large piece of canvas to work on. That's helpful. Thanks for sharing the color. The one other thing that I wanted to ask about was, the retail market, supreme brand and indeed streetwear is very prevalent in luxury resale markets. Is there, at this stage, any opportunity that you see to engage more directly or otherwise leverage that channel, either at Supreme or the other brands? Or is that TBD at this stage? Yes. So the resale market is a great validation of the strength of this brand, but it is not part of the supreme go to market strategy. It's not one that they see as relevant. And as we've said, the strategy and the choices that this team makes for the brands are theirs to drive. And it's not something that they envision capping into at all. But I think the key thing here, it is a great validation to be prevalent there, to sell at such strong price points, just really discrete validation of the strength of this business and the strength of the brand. Fantastic. Thank you. Thank you. Our next question is coming from Jonathan Komp of Baird. Please go ahead. Yes. Hi, thank you. Maybe a bit of a follow-up, but I want to ask more broadly about the ambitions for this brand. And when you look at the social reach of the brand today, even just high level thinking about projecting maybe only a 1% or 2% market share long term for a leading full price brand like this, do you think the long term the aspirations would ultimately be much, much higher than you're projecting in the intermediate term here? Or do you think the positioning of the brand will be a limiting factor to that? Yes. Maybe I'll start on that, Jonathan. Yes. I mean, listen, we said this earlier. I don't Steve and I have both said it in different ways. We actually see no upside limitation on the brand. When we've talked about $1,000,000,000 we said we see a clear line of sight to $1,000,000,000 right? And hopefully, we've now in the materials we gave you and some of our comments outlined what we see as that line of sight. But to the point you raised, could it be bigger over time? Sure. I mean, I don't think any of us see an upper limit here. But we're also not trying to get over our skis or ahead of ourselves. This very careful growth has been a really strong it's worked really well for the brand and we're not trying to push it. Having said that, over time, I see no reason why it can't exceed the $1,000,000,000 but that's way that's in the future. Let's get the 1st $1,000,000,000 first. Yes, understood. And then maybe just one more finer point on the 30% of that portfolio today, street inspired across your current brands. Do you think ultimately there could be some revenue synergies there when you get Supreme in house and get to collaborate across the organization? Or how should we think about that roughly $3,000,000,000 internally already for street inspired? Yes. I guess I would say maybe Steve you have additional comment here. But first of all, I always like to say these TAMs are Supreme management team, again to Steve's point, they're about East Coast skate and their community and it just happens to be classified by people in the market and others as streetwear. But the reality is they're active they're an active brand, they're casualization, all these trends occur. And likewise, our other brands are exactly the same. Vans has a large consumer following that would be considered streetwear, but again, anchored in that active athleisure. So the co ads we've said have been longstanding. And if the brands together see continued reasons, which I see no reason why they wouldn't in the future, I think we'll continue to see those collaborations. But each brand is independent and each one has their own consumers that they address. So we're not trying to force different brand collaborations or interactions. They've been quite successful so far on their own, and we would expect that to continue. I guess I would just add, the collab decisions made by Supreme, as well as the collab decisions made by our by the other brands within our portfolio, those are brand decisions and they're made in a manner that what is relevant to support the brand strategy and what's relevant to their consumers. So those will continue to be management led decisions. Understood. Thank you very much. Okay. Thanks, Jonathan. Thank you. Our next question is coming from Adrienne Yih of Barclays. Please go ahead. Good morning. Let me add my congratulations as well. Scott, I was wondering if you can help us with any of the relative EBIT margin differentials between the digital channel and 4 wall? And then secondly, Steve, maybe for you, what is Supreme's current advertising, their demand creation strategy, pre existing? And behind the 8% to 10% top line growth, what type of investment, additional investment does that warrant from VF Corp? And then lastly, where is the current product being sourced? And it obviously sounds like there's a longer term opportunity for them to be put on your platform, so just confirming that. Thank you. Yes. Adrienne, I guess the first part of that was on margin. We haven't disclosed the relative differential. Remember, the business model here is pretty simple. It's more than 60% approaching 2 thirds digital and the remainder being brick and mortar. Overall, just given the tremendous profitability, the very strong gross margins, you can assume that with very little discounting, high consumer demand, high margins across both channels and very highly productive brick and mortar stores. You look at the overall returns of the business, they're pretty, we would say, best in class. So we're not going to break down between the 2, but just know that both are very attractive and that this profile overall together has a return profile that we would say is accretive to our mid teen organic plan. Yes. Thanks. And then to your questions around advertising and the source base. The advertising creation strategy that Supreme uses today is really anchored in just really strong relevant content that really is derived from that deep consumer understanding and they are experts at using the different social, digital channels to push that story, out on a weekly basis. But I think Scott made this point earlier, the stores are the most authentic representation of the brand. And in those markets where that brick and mortar presence sits is a very powerful tool for really engaging and pulling that community together within their four walls. I think how we would support that going forward is if there are things that we can use or help them tap into from a consumer data analytics capability to help gain deeper understanding to make even richer content, Those are things that we'll spend time to learn and understand and make available. But this team has a very, very good model that they drive in a very, very core and authentic way that we'll just look to support. And then the product source base, there's a domestic element, there's an international element that they use to drive this agile model that has made them so successful. And as our teams get to know each other along the operations side, there likely is opportunity for us to really help them find additional efficiencies, but most importantly, to support this agile model that they've proven so successful with. Very helpful. Thanks very much. Congrats again. Thank you. Thank you. Our next question is coming from Ike Boruchow of Wells Fargo. Please go ahead. Hey, guys. Let me add my congrats. Just two quick ones, two quick questions. The $500,000,000 for next year, given the LTM is $500,000,000 I guess my only question is, are there revenue streams or anything that you guys plan to break down or cut? Or is it just conservatism, which is I think an appropriate answer? And then secondarily, just on the other parts of the portfolio, any update on your thoughts around the timing of occupational work? And then are there any other parts of the portfolio you guys would think about divesting? I know you've made a lot of inroads there. Just kind of curious if you're happy with where you are today or maybe you are today or more announcements? Yes. Ike, Scott here. So first of all, we said more than 500. We weren't intending to signal anything in terms of restructuring the business or whatnot. So whether that's conservatism or just give us a little time to work through this and give you more specific. We were just trying to shape to give you some indication of what to expect, but there's nothing deeper than that. I think the second part of your question, Ike, was around occupational work. Really no update there. We remain in an active process continuing to have dialogue and we'll certainly keep you apprised as new information comes to light. And I'm sorry, Ike, I think there was a 3rd part and I can't remember the 3rd part right now. Yes, Scott. I was just trying to understand. Do you think there could be more divestitures to come or are you kind of happy with the portfolio now? Yes. Maybe I'll make a quick comment and then Steve maybe wrap it up here. But first of all, I would just say this is an ongoing evergreen process, right? We're never actually done. We're always looking through our 3 lenses at the portfolio we have and the portfolio we'd like to have. I think you can logically say after all the moves over the last 4 plus years that we've made, we're certainly much closer to the transformed VF that we aspire to be today versus where we were. So that doesn't mean we're done, but it means we've made a lot of progress in the transformation journey. Unfortunately, we have run out of time for questions today. At this time, I'd like to turn the floor back over to Mr. Rendell for closing comments. Well, thank you everybody for reacting so quickly to join us this morning. We are thrilled to welcome Supreme to the Via family of brands. And as we've said here a couple of times this morning, this acquisition really puts a fine point on the work that we've been doing to evolve our portfolio, the effort that we're putting to evolve our business model to be more consumer minded and retail centric using digital capabilities to enhance that work. Supreme is just a natural fit to our portfolio, and we really look forward to being on this journey with that management team and helping them achieve their vision and aspirations for this powerful, powerful brand. So thank you very much for joining us today. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and have a wonderful day.