Q2 2020 Vince Holding Corp Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to Vince holding Corp. Q2, 2020 earnings conference call.

At this time all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to me, we brace president of Feeney and Investor Relations. Thank you. Please go ahead.

Thank you and good afternoon, everyone welcome to Vince holding Corp. second quarter fiscal 2020, <unk> results conference call.

During the call today see that go interim Chief Executive Officer, and Chief Financial Officer.

Before we begin let me remind you that certain statements made on this call may constitute forward looking statements.

Subject to risks and uncertainties that could cause actual results to differ from those that the company.

Those risks and uncertainties are described in todays press release, and the Companys SEC filings, which are available on the company's website.

Mr should not assume that the statements made during the call won't let me put it as a leader.

The company undertakes no obligation to update any information discussed on the call.

After the prepared remarks management will be available to take your questions for as long as time permits now I'll turn the call over to date.

Thank you Andy.

Good afternoon, everyone and thanks for joining us today.

I'm very excited to be stepping into the role of interim CEO as we continue our path forward.

Past five years I have worked closely with Brendan as we rejuvenated the Vince brand.

I remain excited about the opportunities in front of us for both Vince and Rebecca Taylor.

We have a team of highly talented individuals across the business that remains committed to working together to advance the strategies, we have set in place for both brands.

Near term turn our priority remains to navigate our business to the challenges presented by cobot 90, including driving sales controlling expenses protecting cash maximizing liquidity.

Looking back on the second quarter as expected we saw slow rebuild momentum from the initial results will depend dynamic as consumers buying shifted to ecommerce and stores reopened.

At the start of the crisis, we reduced merchandise purchase orders to prepare for unpredictable changes in customer purchasing behavior.

We also maintained promotional and markdown activity above our normal cadence throughout the quarter to move seasonal inventory, which pressured gross margin.

We continue to carefully manage costs and protect cash through furloughs salary reductions lower marketing investments and disciplined expense management.

I will speak to our financial results shortly.

Looking at the business for Vince we have reprioritized, our growth strategies to adapt to the changing environment.

In our direct business. We are re opened the majority of our stores with fewer hours and reduce staffing to respond to lower traffic levels.

Focusing on driving continued momentum in our ecommerce business.

In wholesale we're working closely with our wholesale partners to rebuild prequaled and momentum and believe that our relative performance and market share gains within a contemporary space set us up well for the future.

Despite the unprecedented events that have unfolded, the Vince brand static continues to fit well with our customers desire for effortless luxury combined with elegant casual comfort, which is the is the academy of the Vince brand.

There has been a clear appetite for casual luxury across categories are well suited for a stay at home lifestyle.

In sweaters and certain other NIPT classifications, we have been able to chase business to support the strong demand for these styles.

For fall, we are continuing to continuing to emphasize casual luxury and will leverage our replacement capabilities to continue to chase product based on customer demand.

We will also be launching extended sizes on Vince Dot com at the end of September we.

We see this as an untapped opportunity as well as we believe this is an underserved market and there is an appetite for casual luxury based on feedback from our wholesale partners.

We believe that our brands are static what's in the contemporary luxury space gives us a distinct competitive advantage as demonstrated by the over 60% growth. We saw in just dot com as well as market share gains we saw at our wholesale partners.

Vince was a top performing women's and men's contemporary brand and volume with the August nor should anniversary show, what's best ever shelters.

We are excited about the signal. These results disease. These results said as it relates to demand for our brand at Nordstrom.

We're also excited to share that this fall we extended our wholesale presence with the launch of our collection, a bloomingdale's dotcom as well as as indoors at select locations.

Bloomingdales represents another great opportunity partnership opportunity for Vince given how their customer base aligns with our brands demographics.

We will continue to evaluate potential partnerships with both brick and mortar and ecommerce sites that are brand appropriate.

Our marketing efforts will support our offering with a continued emphasis on a stay at home lifestyle.

We will host digital events, including a test of a new virtual collection walk through service.

Which allows us to showcase products currently in stores, well, if you're into social distancing guidelines guidelines.

[noise] Influencer collaborations remain an important component of our marketing strategy as we seek partners that have a large following.

We will also work with our wholesale partners to increase our reach through product and personalized marketing.

For holiday, our focus will be on a lifestyle in or around the home as she plans to host or 10 small gatherings during the holiday season.

As we plan our strategy strategy for the holiday season, we are evaluating the right balance or promotional and brand messaging factoring in the expectation for a highly promotional environment.

On the international front, we are also showing encouraging progress.

The momentum in our business pre pandemic has fostered a great relationships with our partners.

Which includes several regional partners and over 300 specialty accounts with continued to desire or product as they reopen their stores.

In Asia, we are encouraged with the trends you're seeing in mainland China and Korea.

Similarly in the Europe, we're pleased to see early signs of recovery as stores we open.

In London, we are excited to see improving department store sales volume.

We also have efforts in place to drive traffic to our London store by hosting virtual sales and small in store events.

We continue to build partnerships with London, based influencer, including paid social media posts and branding of ads.

During the second quarter, we focused on the advancement in our ecommerce initiatives.

Systematically combining our multiple warehouse inventories into a single location, we have increased efficiencies by creating a greater access to inventory in high demand skews and at the same time reduce cost.

This consolidation of our inventory will now better enable us to capitalize on the accelerated shift.

Commerce shopping.

Our retail stores also remain an important channel to connect with customers in person and to drive brand awareness.

We will strategically take advantage of opportunistic pre mill Premier relocations for both full price and outlet stores that may become available due to the disruption in the retail landscape.

Our store expansion will remain highly selective in terms of both location.

In short term low investment lease agreements so.

Sure Vince and Rebecca too.

Turning to Rebecca Taylor, we were pleased to see the enthusiasm among our wholesale partners regarding our relaunch as we reposition the brand back to its Kevin Andrews Yeah.

This is steady and bodies will rule mannatechs essence, with delicate broadridge and trends.

The new line will offer greater versatility, enabling customers to wear Rebecca Taylor, both at home or out with friends.

Multiple use dresses and tops have already shown success with our customers as these projects drove the increase in sales in the Nordstrom anniversary sale.

Our brand message Rebecca Taylor will now consist of one singular singular strong voice as we eliminated the sub brands that Rebecca Taylor had morphed into over the past few years.

In addition, the integration interest Vinces systems is on track to be completed before the end of year, and we expect to achieve greater than anticipated cost savings.

We look forward to our full relaunch of the collection plans for spring 2021, and continue to believe we can successfully execute the Vince playbook for the Rebecca tailored brands.

Turning to our financial results total company net sales for the quarter decreased 59.9% to 37 million compared to $92.2 million in the second quarter fiscal 2019.

This reflects the closure of all Vince Rebecca Taylor stores as of March 17 as well.

As well as a reduction in orders following the temporary closure of wholesale partner doors.

This was partially offset partially offset by a more than 60% increase in our Vince ecommerce business.

For the Vince brand second quarter consolidated net sales decreased 54.9% to three.

The $32.2 million compared to 70 $171.4 million in the same prior year period.

Our Vince direct to consumer segment sales decreased 46.2% to 15.1 million in the second quarter, reflecting the previous previously mentioned store closures and reduced traffic levels and re opened stores part.

Partially offset by the strong growth in our E Commerce business.

Our Vince wholesale channel sales decreased 60.5% to $17.2 million as result of the delay and cancellation of order receipts due to the closure of holes or park wholesale partner doors.

Similar to performance in our direct business online sales of this product on partner partner E. Commerce sites were strong in your second in the second quarter.

You accelerated performance on both our branded web site as well as the E commerce sites and our wholesale partners illustrates the continued strength of the Vince brand.

Rebecca Taylor and Parker combined net sales decreased 76.9%.

4.8 million as compared to the same period last year.

As we mentioned on last quarter's call, we have paused the development of new products for our partner business for now.

To focus resources on the operations of our Vince ever Rebecca Taylor brands post the colder crisis.

Gross profit in the second quarter was 13.3 million or 36% of net sales.

This compares to 43.4 million or 47% of net sales in the second quarter last year.

The decrease in gross margin rate was primarily primarily due to increased promotional activity year over year adjustments to inventory reserves channel mix and the de leveraging supply chain costs, partially offset by lower sales allowances.

Selling general and administrative expenses, excluding the non cash impact of goodwill and intangible asset impairment charges long lived asset or other finite lived intangible asset impairment charges in the quarter were 27.3 million.

73.9% of net sales as compared to 41.6 million or 45.1% of net sales for the second quarter of last year.

As a result of the actions taken to reduce costs at the onset of the code pandemic, we decreased SGN $8 by 14.3 million.

This decrease was primarily a result of lower payroll and compensation expense as well as reduce spending on marketing.

Lower depreciation and amortization costs due to store impairments taken yet taken in the first quarter as a result of koby my team and the.

And the streamlining of other expenses.

Operating loss for our second quarter was $14 million compared to a loss of $18.4 million in the same period period last year, which included $20.1 million non cash asset impairment charges.

Moving to the balance sheet borrowings under our debt agreements totaled 76 million.

We ended the quarter with availability of 34.7 million under our revolving credit facility.

We continue to take steps to manage our liquidity and maintain slant financial flexibility. We believe have adequate funds to effectively operate our business through the crisis we.

We continue to work with our suppliers on extending payment terms and on managing inventory flow.

In addition, we are pleased with the progress we're making in our negotiations with our landlords, which.

Which are nearly complete.

Moving to inventory net inventory was 92.1 million at the end of the second quarter as compared to 74.9 million at the end of the second quarter last year.

As we mentioned last quarter, we are expecting to receive shipments of products at the onset of the pandemic that we were unable to cancel.

Therefore, due to order cancellations in the wholesale channel and temporary store closures, we saw an increase in seasonal inventory levels in the second quarter.

We plan to move through the remainder of excess inventory through our outlet channel and off price partners. In addition to promotion promotional activities.

Further we believe that our merchandise assortment remain relevant in future seasons, and therefore, a portion of the carryover.

Overall, we are comfortable with this strategy and believe we will move through the excess inventory and get back to more normalized levels overtime.

As stated in our press release published this afternoon due to the uncertainty related to the impact of colder 19, we will not be providing guidance at this time.

In conclusion.

First and foremost we have a great team of dedicated leaders and individuals who have a clear vision for the future of Vince and productive sales and the opportunities that lie ahead.

We believe the market leading position of the Vince brand in the fashion contemporary luxury space and the resiliency to expand this leading position during the cold.

And Demicks further support our ability to take advantage of opportunities Trinity's post code.

In addition, we believe Rebecca Taylor is poised to replicate the Vince recovery and growth playbook.

Although there is currently a lot of uncertainty surrounding the retail environment. We remain confident that our portfolio of brands are well positioned to deliver long term sustainable growth for our shareholders.

This concludes my comments regarding our second quarter.

We will now take your questions.

Operator.

Ladies and gentlemen, as a reminder, in order to ask a question you will need to press Star and then one on your telephone keypad. Please stand by what we can both kuni roster.

The first question is from Dana Telsey with Telsey Advisory Group. Your line is open.

Good afternoon, everyone hope, everyone is safe and healthy.

Dave as you think about the inventory levels at the end of the second quarter.

Much of that would be pack and hold maybe for the spring season or future season, how much of it and how do you see inventory progressing throughout the balance of the year and then also I seen the bloomingdale's the partnership that now you're looking at how do you see that.

Impacting the wholesale business level of promotions being the same how many stores. We will you be in and are there. Other partners you are looking to expand with thank you.

Okay. Thanks, Dan Hope you don't doing well.

From an inventory perspective, you know a lot of the.

The increase in the inventories we said the seasonal inventory obviously it comes from.

Spring this summer and and pre fall seasons.

We do believe that the product.

Causes of the cutbacks in the department stores has not as not I'm missing.

I've seen.

It has not had the exposure.

You know in the marketplace and so we'll be viewed to some degree as newness.

Next year, there are some items that would be of course applicable to the fall season that we're able to to move into salt production and reduce our development and some of those seasons. So.

So from that level, we see our ability to work through that as we get into our our ordering a product for pre spring and as you're probably aware spring market just started last.

Last week for for Vincent This week Rebecca Taylor, we are we are able obviously to match our are buying more closely to the order patterns that we are ours are seeing.

And with the performance of the brand.

During.

For instance, the Norcen's anniversary event, you know how we've been doing.

From an E Commerce perspective, you know in our.

Our wholesale partners.

We believe assai as these as they've been managing through their inventories.

Get them back in line and that they will now be opening up their open to buy dollars and that we've proved proven that we deserve our share of those dollars. So that's why we believe will overtime more comfortable you know that we can work through these inventory levels.

As far as timing bloomingdales, okay as far as Bloomingdale's, we just launched on Bloomingdale's dotcom in a select few stores its its new everything.

Everything is going well, we don't see any change in the Promotionality because group and bloomingdales more so driven by the needs in the marketplace no and how the consumer is responding.

So we're very comfortable to bloomingdales.

Relationship so far where we are in the process of getting on dropship with them drop ship in this environment is is a key driver for everyone.

And we do have dropship capabilities that other wholesale partners and we're in the process of establishing that was put bloomingdale's I'll also.

And as far as the last question I mean.

I'll comment on on other partners, we're open to to distribution to other partners. We will at that time, you know look at the environment not just how they fit.

The Vince brand, but also how they would impact our existing wholesale partner so any anyone we would expand with what we would consider.

Yes, the current and environmental both with customers and the impact on them.

And the stores that youve reopen so far how are you doing on your sales recapture rate what is that looking like and.

The 60% increase in E. Commerce sales is obviously an acceleration from the 30% increase in the first quarter how much of that is your your own side, how much of that is wholesale partner site.

What we saw you saw this it even with the Nordstrom anniversary sale.

Well the 60% I referenced is just Vince dotcom, so thats our on site.

A greater percentage of that of that business.

Come through E commerce and drop ship.

From a store perspective traffic as we open stores was was an anemic at best we have seen traffic in our stores and.

And getting more below the 60% down level.

We are seeing improve improvement week over week.

Over over the last.

Four to six weeks.

But we are seeing conversion.

Conversion is is more than double what conversion was before so obviously the person is coming to shop is a buyer and looking to spend so.

The trends the trends are good and we expect the trends to continue.

Got it and can you give any update on the health of the balance sheet and how you're thinking of the balance sheet now and also an update on the inventory reserves in any adjustments there.

Yes, I mean like every business now we are evaluating our ability to move through seasons. As you know we all entered into coal that we had we had hoped.

Older inventory to sell to the to the off price channel, which which.

Which.

Didn't move so at that time, so again, you're evaluating where in the cycle everything will fall. So we have increased inventory reserves like most as far as the balance sheet goes. We believe we have we have adequate liquidity and availability. We also continue to work.

Continue to work on a daily basis with.

With our vendors.

With our inventory inflow.

We're very pleased with the with the work we've done with our landlords and our payout.

Everybody in that case understanding that we have to get through this together.

We have a great relationship with our our our banks and we are very diligent.

On how were managing our spending day today.

And so all those levers.

Continue to be available to us and we continue to manage them.

So I hope that answers your question.

And perspective on holiday and how you're planning holiday.

Now as we look to holiday no like many in overall, we all understand there's going to be maybe one of the pressure points is going to be.

The Fedex is a new pieces of the world from a delivery perspective. So we like many are looking at you know does holiday need to start sooner and are we going to have to entice the consumer to shop early.

We are having discussions with our wholesale partners.

Around their plans and expectations from us. So we can make sure that we can service them and we're working through our own plans to and you know I mean, we would we would expect that this will be a more promotional.

And earlier holiday season.

And then just lastly, marketing spend given the events that you're doing how are you thinking of marketing spend go forward and does the additional sizes, how much was that ad inventory.

Steve Summer marketing spend perspective majority if not all almost all of our marketing spend is being used to support driving the ecommerce business.

And so thats measurable we can see results from it and so we're committing our dollars there other.

Other other general type of marketing were managed managing that from an investment perspective and liquidity perspective. So we're spending we're targeting a spend the dollars.

Where we believe it should be spent.

From an extended sizes point of view, it's a launch on our own E commerce site than stock comp. So it is not as it is not a large investment.

And so with this first season.

Well, we want to get a read on it we will share that with our wholesale partners and then we'll make further investments as we look into spring.

As we see the results and the distribution beyond that.

Thank you.

Thank you Dan.

Thats does conclude that the Q and a period of time I'll turn the call back over to Dave for any closing remarks.

Okay. Thank you so this.

So this concludes todays call. We look forward to updating you on our third quarter earnings call in early December Please state stay safe everyone and thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.

[music].