Q3 2020 Vince Holding Corp Earnings Call
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I'd now like the hand, the conference over to your Speaker today, Ms., Amy Levy Vice President of P., a day and Investor Relations. Thank you. Please go ahead.
Thank you and good afternoon, everyone welcome to be holding Corp's third quarter fiscal 2020 results conference call hosting the call today the stucco interim.
Interim Chief Executive Officer, and Chief Financial Officer the.
Before we begin let me remind you that certain statements made on this call may constitute forward looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that the company expects sales.
Those risks and uncertainties are described in today's press release and in the Companys SEC filings, which are available on the company's website.
Investors should not assume the theme is made during the call will remain on the liter price and the company undertakes no obligation to update any information discussed on the call in a day.
And in these discussions the Companys present, the its financial results in conformity with GAAP and on an adjusted basis. The fiscal 2018 adjusted results of the company presented today are non-GAAP measures discussions of these non-GAAP measures and information on reconciliations of them to their most comparable GAAP measures on who did in cities.
Press release, and really the schedule, which are available in the Investor section of the company's website at the investor sentiment Dot com after.
After the prepared remarks management will be available to take your questions for as long as time from it.
After the prepared remarks Manny.
Now I'll turn the call over disease.
Thank you Amy.
Good afternoon, everyone. Thanks for joining us today.
As we announced was on slimmer preliminary results last week, we saw sequential improvement on our sales trends and delivered an operating profit even excluding the benefit of led concessions true prudent cost management for the third quarter.
Well, the French DTC business sales and gross margin of recovery extending into the fourth quarter as we enter the holiday season.
Demonstrating the strength of the Vince plan.
Although the current environment remains difficult we continue to see the customer demand for the couple of casual luxury that's awesome Vince.
Vince remains the top performing plant in the can jump on the luxury segment, which went on.
Or just the wholesale partners.
The Doctor Taylor, we're also pleased to see the policy the reaction to the brand refresh and merchandising initiatives taking place.
Our proven ability to reestablish the brand leadership position for Vince combined with the advancements we are making to restore the DNA of Rebecca Caleb.
Generating excitement internally and with the wholesale part.
As we continue to navigate the near term headwinds, resulting from colder. We've also taken steps to enhance our liquidity position to support the continued execution of our strategies.
The actions resolved before you can point threemillion excess availability on the revolving credit facility, which I will discuss in more detail shortly.
Overall, we believe we are well positioned to advance our growth strategies for response from our respective brands as we emerge from this crisis in the back half of 2021.
That said with the recent rise in coal the cases and the new newly oppose restrictions across the globe the health and safety of our customers on team members remains our number one priority.
On the fact, our team members across the organization of the hard work and commitment to supporting our brand expansion efforts the serving our customers throughout this period.
Looking at the Vince brand.
The sophisticated casual study of the Vince brand continues to resonate with consumers around the world as Air Force. After the most luxury aligns with the stay at home lifestyle.
Letters on Tosh, particularly have performed exceptionally well throughout the quarter.
Well, we were excited to expand our reach for the Vince brand by extending our size off range of 24 on both Vince Dot Com and Morris from Dot Com.
This is an important step in developing a more inclusive line on a more inclusive of community as we offer this cost from a level of quality on luxury she deserves.
The initial performance exceeded our expectations and we will continue to communicate the shocks me through various marketing initiatives on upcoming seasons as we expand this category.
In wholesale we continue to outperform and gain market share what's on the contemporary space online business or the wholesale partners remain strong in store traffic continues to be challenged.
Part of the continues to resonate with consumers season after season.
During the quarter, we launched the Vince collection of Bloomingdale's and we've been pleased with the initial response, we look forward to building upon our partnership with Bloomingdale's as we expand the reach of the brand.
In our direct business, our ecommerce channel delivered mid teens growth, including Vince on fault. However store traffic remained under pressure due the decrease in person shopping and lack of tourist traffic with the research surgeons from called it.
Given that many of our stores are located in malls major cities as expected negative traffic trends have continued into the fourth quarter.
That said, we've seen a significant improvement in conversion of shoppers are shopping with great interest in it for themselves the for holiday gift gifting needs.
Well the brick and mortar side of the business has been soft we continue to see strong online demand on both on our own website on a wholesale partners ecommerce sites, demonstrating the clear appetite for the Vince brand.
The market disruption created by cold it on the retail landscape is also leading to some highly attractive real estate off the charges.
We continue to strategically and selectively evaluate opportunities to secure premier premier locations with short term favorable leases.
During the third quarter, we opened two Rebecca to your outlet stores from Premier centers since the end of the quarter. We opened one outlet for each of the record tail intense as well as well as one full price stores from the back of Taylor.
Based on the increase in customers moving to the Hamptons, We signed the short term lease from East Hampshire Hampton Vince store scheduled to open in February 2021.
Recall that we were very pleased with the sales and profitability of our new stores. We continue to view, our retail presence as an integral part of expanding brand recognition.
On the international side, we have been encouraged by the progress in our wholesale business. As these regions are outpacing the recovery in the U.S. International sales in the third quarter were considerably less negative than in the U.S.
Our marketing efforts during the third quarter continued to emphasize the stay at home lifestyle.
As we mentioned on last quarter's call, we pivoted into hosting digital guidance, including our new virtual collection walk through service. The showcases product currently the stores influenced the collaboration and personalized marketing of also helped us maintain strong connection with consumers while simultaneously increasing our reach.
For holiday, we've been emphasizing on gifting assortment with the launch of our gift guide two weeks earlier earlier this year.
Gifting items are focused on home apothecary dog sweaters on baby, which are being presented in table, the slate and our top stores and highlighted in the gift section on our website.
Over the Black Friday, cyber Monday promotional period, we saw increased momentum in our ecommerce business on the deceleration the negative trends in our retail stores.
We have a host of numerous virtual events for the holiday season to maintain customer engagement. These.
These include an event hosted by a clear of director Caroline Bell humor to discuss the intimate virtual guide to the holiday dresses on what select clients as well as the candle, making class co hosted by Caroline and Bloomingdale's fashion Director Mercent Frank.
In addition, we held an auction for quality benefiting the Hcl you don't need the money for each face mask purchase as well as exists hospital worker giveaway in early December.
Turning now to the back of TAVR, we're very pleased with the progress we've made in our strategies to refresh the brand and a hand enhance the merchandise assortment.
Yes, static personifies romanticism redefined by combining combining Dallas embroideries impressed with dynamic fabric techniques the accrete nervous.
The relaunch of the Rebecca tell the brand with the spring 2021 collection, we are seeing strong reception by both lucky new interest across international and Asian markets. The from positive reception to the alignment of one cohesive collection.
The question will be available on February I supported by relaunch, marking efforts focus on digital with the heavy emphasis on the inflow on sort of strategy.
We continue enthusiasm from our wholesale partners regarding the relaunch of Radecki Taylor has been highly encouraging.
We are developing our collections with what we believed the right balance of price the high quality of tightly managing skew count on.
Well, we are returning the brand back to its fadiman groups. Our team is focused on an expanded offering of tops as well as the focus on versatility and the product offering.
Well, we are encouraged by the enthusiasm for the relaunch. This is just the first stage and we will continue to refine our collections each season as we monitor consumer response incorporate feedback.
Two weeks ago during market, we launched our 2021 some of pre fall collection, reflecting the influence of Stephen Cadreon and his design true.
The again, we're very pleased with the broad based positive response to see Vince second collection.
We are realigning our strategy to better best distribution with our reset timing in 2021 focused on the full price selling to drive healthier business partnerships with less promotional activity.
The spring collection will be launched of select north from stores on Neiman Marcus as was actually the bloomingdale's, where we believe the collection as well share the fed of an entity of their customer base at an attractive opening price point.
Well, we continue to make advancements involving Rebecca Taylor there are still many growth opportunities ahead.
We remain focused on such successfully executing the Vince playbook for the <unk>.
I could tell the brand we feel confident about our long term strategy and growth opportunities for both Vince or buckets on it.
Turning to our financial results total.
Total company net sales for the quarter decreased 34%, the 69 million compared to 104.5 volume in the third quarter of fiscal 2019.
This was a significant improvement of the 59.9% decline in the second quarter.
For the <unk> for the Vince brand third quarter consolidated net sales decreased 28 point, 28.7%, the 61.6 million compared to $86.4 million on the same part of your carrier.
Vince direct to consumer segment sales decreased 35.4% to 22.8 22.8 million in the sort of quarter.
In our wholesale segment the two.
24.2% sales decline was largely due to lower off price shipments.
Our direct consumer segment, the 35.4% decline of sales reflected reduced sales on our retail stores due to lower traffic trends on.
Partially offset by mid teens growth in our ecommerce business, which as a reminder includes that's on full.
But that could tailor and part of the combined net sales decreased 58.9%.
The 7.5 million as compared to the same period of last year.
As we mentioned on last quarter's call. We of course, the development of new products for Parker business. The focus resources on the operations of our Vince for effect of Taylor brands post the coldest crisis the.
This contributed to a third of the sales decline.
The Rebecca Taylor the decline was largely in the wholesale channel as we reset the brand and did not offer a holiday pre spring collection.
Gross profit the third quarter was 31.7 volume of 45.9% sales.
This compares to 51 million of 48.8% of net sales in the third quarter of last year.
The decrease in gross margin rate was primarily due to increased promotional activity and channel mix, partially offset by a decrease in sales allowances on.
Wholesale partners.
Selling general and administrative expenses in the quarter were 25.4 million of 36.8% net sales as compared to 43.4 million of 41.6% of net sales for the third quarter of last year.
As the result of the actions taken to reduce costs at the onset of the call. The pandemic, we decreased SGN $8 by 18 million of the.
This decrease was primarily result of lower payroll on compensation expense rent concessions reduced marketing spend and prudent expense management.
Hi can the occupancy expense from the third quarter was positively impact impacted by renovate much rent of hurdles and rent reductions totaling 4.2 million, resulting from negotiations with landlords.
At the end of the third quarter, the majority of leases have been modified risk.
We expect to see of an additional benefit from remaining lease from at least negotiations in the fourth quarter and possibly on the first quarter of 2021.
Operating income for our third quarter was 6.3 million compared to 7.6 million in the same period last year, which included <unk> point sevenmillion costs associated with the acquisition of Rebecca came on park.
Net income for the third quarter was 5 million of 42 cents per diluted share compared to 6 million or 50 cents per day per diluted share in the third quarter last year.
Net income for the third quarter fiscal 2020 reflects the 4.2 million share.
36 cents per share benefit of the EPS were mentioned rent concessions.
Excluding the costs associated with the acquisition of the back of Taylor on Parker adjusted net income for the third quarter 2019, or 6.7 million of 56 cents per diluted share.
As I mentioned earlier and as detailed in the press release, we took proactive steps to enhance our liquidity as we continue to navigate the pandemic.
As part of this we entered into a 20 million dollar third lien credit facility with an affiliate of some capital.
Interest and fees under the third lien credit facility, our payable and time.
After closing the third and the credit facility on December 11.
This year, we had excess availability of 42.3 million under our revolving credit facility.
In addition on December 11th we entered into amendments to our existing revolving credit facility and our existing term loan credit facility.
The amendment among others extended the period period during which the testing under of financial covenants the suspended the.
Lowered the fixed charge coverage ratio to be net maintain thereafter extend.
The extended the applicability of certain the revised eligibility criteria for trade receivables and waived certain term loan average amortization payments.
As Colin has continued to grow around the world. We believed it was important to proactively enhanced our liquidity now providing the ability to continue to invest in our brands.
Very appreciative of the continuous support and partnership of both some capital and our lending partners.
Moving to inventory.
Net inventory was 88.6 million at the end of the third quarter as compared to 71.6 million at the end of the third quarter last year.
We continue to work through our seasonal inventory through promotions outlet stores and the off price channel.
In addition, due to the static of certain products, we're able to seamlessly incorporate a portion of our of our inventory and the future collections. Overall, we are comfortable with and the toward position as we work our way back to more normalized levels.
As stated in our press release published this afternoon due to the uncertainty related to the impact of coal the 19.
We will not be providing guidance at this time.
In conclusion, we believe that we have the the liquidity in place to continue to navigate through the challenges presented by the coated pandemic the.
This remains a leading brand within the fashion contemporary luxury space, we continue to see evidence that Brent that the brand resonates with consumers and has gained further market share.
We have the multi pronged growth strategy in place and we look forward to advancing our strategic initiatives as we as as we emerge from the pandemic.
The Rebekka Taylor based on the early feedback we remain even more encouraged by the opportunity to Rebecca to replicate the Vince recovery and growth playbook.
Similar to the bench.
The Taylor has strong recognition within the contemporary luxury apparel space and we are excited about its future potential as we move past the pandemic.
This concludes my comments regarding our third quarter well now take your questions on.
Operator.
Thank you as a reminder to ask the question you will need to press the star one of your telephone and your first question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is open.
Good morning, Dave Good morning, Good afternoon, David Amy Hi, how are you on that.
The thing.
Nice to see the sequential improvement in sales results.
And can you just talk a little bit about any particular category DTC eat what you saw on E Commerce, and obviously stores didn't get the traffic, but in wholesale on how that wholesale business is progressing. Thank you and then a couple of follow up.
I mean were you know obviously.
We are seeing sweaters and tops performing wells, we've said kind of consumer obviously, we've seen this year on both sides wholesale and on our DTC business. The other consumer has been received.
Responding to promotions, obviously, but the consumer has also been responding to the new newness.
So as we see new products yet.
As the season comes the or certainly as full price of buying going on on the.
From from that perspective on where I'll look forward to spring the spring launch products.
At the end of January early February of from that perspective to see some back to more full price selling.
Got it and then on the expense leverage that you're seeing what days what comes back how do you break out the buckets of expenses.
Well you know if you when you we publish our 10-Q will kind of do the the list, but the largest you look at the $18 million reduction of the largest reduction obviously came in and payroll true. It's our largest extends beyond the cost of of other income.
So from a payable perspective, you know we went on for lotion across other.
Across the company we did.
And for a close towards the end of the third quarter of unlike many many companies from of permanent look for the we went through a reduction in force.
Yes, you haven't seen the results from the reduction in force the on the.
The impact of debt on on the the third quarter, but that is complete from that perspective.
On the risk of course, the benefit we've talked about from lease negotiations of some of which will continue into the into the fourth quarter on there will be other adjustments as leases are signed amendments are signed for things we've negotiated the.
Will there will be of reflective.
Pickup of similar to what Nisone hundred dollars, the Sars and type that you saw in the third quarter.
And then we like we again like many really trying to manage our marketing spending you know I mean of is easier to do obviously when the stores were closed and you know we we invested more in the E com.
To help drive the E com business and so I think Thats representative represented representative in the third quarter and then we have and will continue to prudently manage every other spending category whether it be true.
Travel when to make investments or or not.
We just will manage those prudently until we see a re.
Return on.
In the sales back to more normalized levels.
Got it and then you had mentioned in terms of rent abatements deferrals how.
How much lower does occupancy costs go and with new leases that you're signing a day short term in terms of the year and are you able to get more variable rent structures.
Yeah, I would say as you know our strategy you know on the pre Kogut. We're doing you know short term.
Low rent.
Some percentage rent you know there are.
So I'm not percentage range.
Low investment leases from that strategy was very successful force you know again, we that's what we have continued on you know with leases Weve signed and that's how we'll view opportunities as we go forward on.
So you will see you will see a combination of you will see you know you know of.
Low rent leases the all the short term in nature, what they'll be very little capital investment.
Leases.
On there'll be some of that will also be variable from that perspective. So it's just it's a similar mix to the to what we successfully have started to two years ago.
No part to the coal the when.
And would you say is really on offer cash obviously, we're able to see some some brands that probably 12 months ago. We obviously wouldn't see because of the land owners are looking for our occupancy also.
And two last things first on the new credit facility.
Does the how did your interest expense adjusted and any updates on the CEO search.
So from a.
From new credit facility. So it's you know, it's it's the $20 million per cent silly. It's obviously, a third lien credit facility. So it would be the most expensive debt that we would carry solar will carry the highest interest cost from the rate perspective, but as some of the driver interest expense higher.
We did obviously use that to pay down the revolving credit facility, which is the cheapest facility. So we'll see higher interest expense, but the flip side of it is the interest is all payable on in kind of gets added to the debt there is no cash.
Outlay, so from the cash interest cost will actually see the decline our cash interest cost and allow us to keep more money on the business and that was used for investing in the brands.
Im asked of the CEO search on it continues on its a sub committee of our board.
As involved in it myself.
Myself from the leadership team has 100% focus on on a run of the business.
And making sure we stay on path and get through the pandemic him and keep driving these these does the are.
These brands.
And then just on the Department store channel the wholesale channel.
Where do you expect that to go is the percentage of the business does it become a 50 50 split with Vince DTC in Vince wholesale or how do you. How do you think of the going forward.
I mean, we're not really I've given you know the kind of like the go forward view right now obviously some of this day.
On a somewhat.
Of course covert going to go from that perspective, you know what happens after the holiday.
Yeah, we we have commitments like like many.
The next year, but we also understand the variability.
The things we do we we do feel really good about as Vince has performed during the cold it.
We do believe that we have taken market share in many wholesale partners on the interest in our brands will be remains strong and our performance.
Remained strong if not stronger.
So we see Vince and therefore, we believe it will be less brands on the other side both by brands that have been able to survive financially and just by the desire to of the department stores at some of the Brexit why carry going forward. So we we look from the department store side the wholesale side.
To be very strong.
And a significant growth opportunity going forward, but we also have investments that we can continue to make in our ecommerce platform.
Which we will strategically do 2020, we didn't invest in combining our inventory. So we had one inventory, which some of the growth. We've seen is due to that and there are other investments and we'll make the we'll be making on 2021 to help our growth from E. Com perspective, and then we look at the stores as we've talked about you know were going on.
Opportunistically continue to look at stores on investing stores. So you know.
That gives you the will flavor of how we view the future as we go forward of but.
I know it Doesnt directly answer your question on on the mix that we see on the business.
Got it.
Thank you.
Okay. Thank you Dan.
And this concludes our question and answer session Mr., David Scott's Cool I turn the call back over to you for some closing remarks.
Well, thank you for joining us today I hope you, you're having a great holiday season.
We look forward to updating you on our fourth quarter.
And annual results in April have happy new year. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Bye.
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