By Elisa Anzolin

MILAN (Reuters) -EssilorLuxottica has agreed to buy streetwear brand Supreme from VF Corporation for $1.5 billion, the companies said on Wednesday, marking the first acquisition of an apparel company for the French-Italian eyewear maker.

In a separate statement, EssilorLuxottica also said it had agreed to buy an 80% stake in family-owned Heidelberg Engineering, a German company specialising in ophthalmic diagnostic solutions, strengthening its push into medical technology. The companies did not disclose financial details.

Vans and North Face owner VF Corp bought clothing and skateboarding streetwear brand Supreme in 2020 for $2.1 billion.

The sale of Supreme is expected to be dilutive to VF’s earnings per share in fiscal 2025, according to the companies’ joint statement.

VF Corp shares gained over 8% in New York, while shares in EssilorLuxottica, whose brands include Ray-Ban, were down almost 4% in Paris at 1435 GMT.

For the Franco-Italian group, which has largely focused on eyecare and glasses, this is quite an unexpected move.

“It appears to be geared towards streetwear, at a time when streetwear brands seem to be seeing significant lower engagement from consumers worldwide,” Bernstein analysts wrote in a note.

EssilorLuxottica bought Supreme not only for the brand’s prospects but also to acquire a platform, big data and connect to its audience, primarily Generation Z, a source close to the matter said on Wednesday .

The eyewear maker does not intend to make any changes to Supreme’s business model, the person said, adding that it could become a place to test new products and technologies.

The deal is expected to close by the end of 2024, the companies added.

EssilorLuxottica, which worked with JP Morgan and Latham and Watkins as exclusive financial and legal advisors, said that Supreme offers the group a direct connection to a new audience.

Known for its red box logo with “Supreme” written in white, the brand has gained a following among fans of the streetwear style with product launches selling out in minutes and people lining up outside its stores for hours.

“With its unique brand identity, fully-direct commercial approach and customer experience…Supreme will have its own space within our house brand portfolio and complement our licensed portfolio as well,” said EssilorLuxottica’s CEO Francesco Milleri and deputy CEO Paul du Saillant in a statement.

VF Corp said that a strategic portfolio review concluded there were limited synergies between Supreme and VF, making a sale a natural next step.

“This transaction… supports our overall program to better position the company for long-term growth and more normalized debt levels,” said Bracken Darrell, president and CEO of VF, in the statement.

VF Corp, which reported a fourth-quarter loss and revenue below analysts’ estimates in May, is in the midst of a turnaround plan.

Supreme, which reported revenues of around $520 million in the fiscal year 2022-2023, operates mainly online and has 17 stores in the US, Asia and Europe.

(Reporting by Elisa Anzolin, editing by Sharon Singleton and Keith Weir)

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