Q4 2020 Vince Holding Corp Earnings Call
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Excuse me, ladies and gentlemen, this is the conference operator.
Today's conference is scheduled to begin momentarily.
Until that time your lines will again be placed on music hold thank you for European channel.
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Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 earnings Conference call.
At this time all participants are in a listen only mode.
For the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one on your telephone keypad.
If you require any further assistance please press star zero.
Thank you I'll now turn the conference over to Amy Levy you may begin.
Thank you and good afternoon, everyone welcome to Vince holding Corp, 's preliminary fourth quarter fiscal 2020 results conference call.
Hosting the call today on stacks wasteful, Chief Executive Officer, and Dave Stefko, Chief Financial Officer 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 expect those risks and uncertainties are described in today's press release.
In the company's SEC filings, which are available on the company's website investors should not assume that the statements made during the call will remain operative at a later time as the company undertakes no obligation to update any information discussed on the call.
In addition in todays discussion the company is presenting its preliminary and historical financial results in conformity with GAAP and on an adjusted basis.
For discussions of these non-GAAP measures and the information on reconciliations of them to their most comparable GAAP measures are included in today's press release and related schedules, which are available on the investors section of the company's website at investors <unk> com.
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 Jack.
Okay.
Great. Thank you Amy Thank you everyone for joining us for therapy.
Used to be here today.
Oh, Vince holding Corporation Vince.
Thank you Taylor achieved distinct electronic brands. They believe is extraordinary potential global fashion brands.
This is powerful brand recognition heritage of design in quality and strong consumer connections.
For Rebecca Taylor brand possesses the DNA to achieve similar levels of recognition on popularity of the future and look forward to working with the teams as we leverage our omnichannel focus on data driven merchandising and marketing approach to help each of these brands achieve their long term potential.
To begin I'd like to share a little bit of why I joined the company on what I see on each of these brands, we will begin with Vince.
Since since the brand was founded in 2002.
<unk> assembled a sophisticated separately style and over the years has developed a strong memorial customer base.
From what I would describe there is nothing exceptional test.
When I spoke of the Vince brand as the best of America and I agree.
The brands distinct positioning as one of beautifully designed and crafted products high quality fabrications and easy to wear styles.
We are extremely fortunate to have such talent and a creative director Caroline and her design team as we continue to designer for what seems to embrace the lifestyle of our customers.
We will continue to leverage Vince has strong brand equity and expand awareness.
As we increase our focus on the direct to consumer channel.
E Commerce site serves to engage consumers and we have an opportunity to enhance our direct to consumer channel to the commencement of our omnichannel capabilities our stores for your vital role in driving brand awareness and engagement.
Turning to Rebecca Taylor and equally enthusiastic and optimistic about the future of this brand.
Rebecca Taylor is a small jewel known for its romantic permanent style.
The work the team has done to return to the brand's heritage serves as a starting point to as a starting point for reinterpreted modernize the collections for today's one.
The team pulled back the assortment and eliminate one of the seasonal collections in order to properly reset the brand for the future.
There could be no better time for this re launch to occur as we emerge from the pandemic on here Stephen Carrier's decision, we took a step back to assess the brand position in preparation for spring 2021 relaunch for a massive system redefine.
Rebecca has expanded from dresses on occasion wear to a complete lifestyle offering.
New categories include sweaters were romantic caplet details.
Outerwear in exaggerated silhouettes sophisticated trousers and everyday knitwear.
Each piece thoughtfully designed for decidedly elegant way of addressing that defines romance for today.
The relaunch coincides with the brand's new digital first strategy, including a completely redesigned website for launch of SMS program.
And updated site experience on Rebecca Taylor Dot com and our focus on segmentation and personalization.
I am also very pleased to be working on an accomplished team as we emerge from the pandemic with two in principle brands with significant growth potential.
The organization under David <unk> leadership successfully navigate through this unprecedented period.
By managing expenses and maximizing liquidity, while continuing to engage the customers and generate demand.
The team was able to advance on strategic initiatives. Despite the challenges presented by the pandemic.
As Vince we launched inclusive sizing in 2020 to better address our customer demand and expand our customer following.
Additionally, the organization took its first step to omni channel in 2020 by combining our e-commerce and our wholesale warehouses for me one virtual warehouse.
As we work towards being fully omni channel by 2021.
Current investment and implementation of an enhanced point of sale system will allow us to reach this goal. The team has done an exceptional job over this past year and I look forward to working with them to continue to build upon all this progress.
The direct to consumer business continues to improve sequentially and we have maintained strong relationships with our wholesale partners for some of our peers have seen deeper pullbacks in some cases relationships in.
Further we believe we have actually taken market share during the pandemic, which is really remarkable feat that speaks to the power of the Vince brand.
Looking forward <unk>.
I already from the first 90 days will include further funding myself with the broader teams as well as outside partners, including wholesale accounts vendors on landlords, but will also evaluate the business across operations and processes to GAAP.
And greater insight into our capabilities and infrastructure and determine where we will need to invest and improve the business.
This time liquidity will remain a priority and we will also remain diligent in our expense structure, while limiting any potential investments to critical areas.
Over the near term, we will look to capitalize on the growing consumer confidence is the vaccine rollout continues.
Overall I believe that there are a number of opportunities ahead and I'm very excited to work closely with the entire team to ensure we are enhancing the business on profitability and shareholder value over the long term.
Look forward to providing you with additional details on our go forward strategy and update you on our initial progress on our next call.
With this I will turn it over to debt.
Thanks Jack.
Before I discuss the financials I.
I would like to point out that the results for our reporting today are preliminary as we are finalizing the analysis of a noncash deferred tax item related related to the valuation of our deferred tax assets and on.
The income and implications of the cares Act go on.
We believe this item will have an increasing effect on our provision for income taxes net loss and loss per share in the range of 10 and 15 per share for the fourth quarter.
I would like to stress. This is a non cash non income from operations items.
Looking back on 2020, we successfully navigated the pandemic through swift measures to reduce expenses manage liquidity and protect our business.
We worked closely with our wholesale channel partners, along with our landlords and vendors. During this time and we truly appreciate their partnership.
Most of all I want to thank our teams across the organization for their commitment and hard work for which I am extremely grateful.
As we look ahead, we are encouraged by the rollout of the vaccine and excited about the future of our brands.
Look forward to working with Jack as we capitalized on the strength of our brands to emerge from the pandemic as a leader in contemporary luxury.
Turning to our preliminary financial results.
Total company net sales for the fourth quarter decreased 28, 4% to $74 8 million compared to 100 for $4 million from the fourth quarter of fiscal 2019.
This is a notable improvement for.
For the 34% decline in the third quarter.
For the Vince brand for.
Quarter consolidated net sales decreased 24% to $69 5 million compared to $87 3 million in the same prior year period.
Vince direct to consumer segment sales decreased 28, 4% for $30 4 million in the fourth quarter.
This decline reflects continued reduced traffic trends and urban markets in New York and California.
Although some of our retail stores were slower to recover we still saw some improvement in this channel.
We saw improvement in the traffic trends.
The relatively better performance in retail stores, and the mid West, Florida, and Texas and for <unk>.
<unk> of COVID-19 recovery was more pronounced in these regions.
The sales decrease in retail stores was partially offset by a low teens growth in our E Commerce business, which as a reminder includes Vince unfold.
In our wholesale segment net sales declined 12, 9%, we remain confident in our market share position within this segment as Vince Vince continues to outperform peers within the contemporary luxury category.
On the international front, we're very excited about the opening of our new Australia shop in shop locations.
These three locations that had a strong start significantly exceeding our expectations and we have a fourth location that is planned to open in the first week of May.
Notably we saw strong full price selling on our new shop in shops. During the end of season sales period in Australia, a great indication of the potential for this market.
Rebecca Taylor and Parker combined net sales decreased 68, 9% to $5 3 million as compared to the same period last year.
As we have shared in the past with the COVID-19 crisis, we have paused the development of new products for our Parker business to focus resources on the operations of our Vince and Rebecca Taylor brands.
This contributed to about a third of the sales decline.
For Rebecca Taylor the decline was largely due to the planned elimination of one of the seasonal collections as we reset the brand and also the Chinese spring 'twenty, one 2021 shipments.
Nevertheless, we are very pleased with response to our new product offering within the wholesale segment.
Gross profit in the fourth quarter was $27 6 million or 36, 9% of net sales.
This compares to $46 2 million from 44, 2% of net sales in the fourth quarter of last year.
The decrease in gross margin rate was primarily primarily due to increased promotional activity.
Year over year adjustments to inventory reserves and the deleveraging of supply chain costs, partially offset by a decrease in sales allowances for our wholesale partners.
Selling general and administrative expenses on a quarter with $31 5 million or <unk> 42, 1% net sales as compared to $49 3 million for 47, 2% of net sales for the fourth quarter of last year.
As a result of the actions taken to reduce costs at the onset of the COVID-19 pandemic, we decreased SG&A dollars by $17 8 million in the fourth quarter.
This decrease was primarily the result of lower payroll and compensation expense rent concessions reduced marketing spend and prudent expense management.
Operating loss for the fourth quarter was $3 9 million compared to a loss of $3 3 million in the same periods last year, which included approximately $2 9 million in costs associated with the acquisition of Rebecca Taylor and Parker.
And <unk> 2 million and noncash asset impairment charges.
Preliminary net net loss for the fourth quarter, excluding the previously mentioned noncash deferred tax item.
Was $5 7 million for a 48 loss per diluted share.
Per day net income of $51 7 million or $4 29 per diluted share in the fourth quarter last year.
Excluding a TRA adjustment of $56 million.
The costs associated with the acquisition of Rebecca Taylor, and Parker and noncash asset impairment charges adjusted net loss for the fourth quarter of fiscal 2019 was $1 2 million for <unk>.
<unk> per share.
Moving on now to the balance sheet.
Borrowings under our debt agreements totaled $85 9 million.
As a reminder, this includes $27 million from the third lien credit facility, we entered into with an affiliate of Sun capital in December of 2020.
We ended the quarter with availability of $30 2 million under our revolving credit facility.
We continue to take steps to manage our liquidity and maintain financial flexibility and we believe we have adequate funds to effectively operate our business.
Part of this on April 26 for this year, we entered into a six amendment for our existing term loan credit facility.
This term loan amendment extends the waiver of our fixed charge coverage measurement until January of 2023.
Eric to create more flexibility as we recover from the pandemic.
Until January of 2023, Vince will continue to be subject to the current springing covenant.
We concurrently entered into a six to manage our existing revolving revolver facility, which consent to the term loan amendment.
Moving to inventory net inventory was $68 2 million at the end of the fourth quarter as compared to $66 4 million at the end of the fourth quarter last year.
We continue to work through COVID-19 impacted excess inventory from fall 2020 on prior seasons.
As retail traffic trends begin to improve we're seeing increased demand for products from the off price channel.
In addition majority of spring shipments arrived on the first quarter of 2021 as compared to the fourth quarter last year due to our decision to minimize air traded product.
But we expect inventory inventory true up mid single digits in the first quarter, we anticipate the balance of newness versus prior season inventory to continue to improve.
As stated in our press release published this afternoon.
Due to our low visibility and uncertainty related to the impact of COVID-19, we will not be providing formal guidance at this time.
With that said, we're pleased with the pace of recovery on our sales, which are expected to be approximately 40% to 50% for the first quarter of fiscal 2021 as compared to the same period last year.
In line with our expectations.
Like many others in the industry Port congestion is creating delays in shipping is expected to impact the timing of deliveries and cash cost pressures during 2021.
For fiscal 2021, we're planning capital expenditures net of tenant allowances to be below that of 2020.
Our capital expenditure expenditure plans include new store openings as well as it investments specifically related to our efforts to become fully omni channel.
As we have done over the last two years, we will continue to pursue new short term leases with attractive terms.
Opportunistically.
Looking ahead, we are optimistic about our future.
With the vaccine rollout consumers are beginning to return to more normal lifestyles, which is driving spending on apparel and accessories.
In the past few weeks, we have started to see increased demand for occasion products, including dresses and dress pants. This.
This increased demand combined with our new product gives us confidence confidence that we will continue to see sequential improvement in our performance.
While we are encouraged by recent trends as we continue to recover from COVID-19.
We will continue to manage our expenses and inventory conservatively given that Theyre still remains limited certainty at this time.
This concludes my comments regarding our fourth quarter, we will now take your questions on.
Operator.
At this time I would like to remind everyone in order to ask a question price star and the number one on <unk>.
Your telephone keypad.
And your first question comes from Dana Telsey with Telsey Advisory group.
Good afternoon, everyone and welcome Jack and Hello, Dave.
On the jacket configure newer to the company could you.
Track to beat event and could you just expand on what you see is the growth potential on each of the brands.
Sure Bill.
Happy to do that.
As I stated very excited about this opportunity for a multitude of reasons I think that while Vince is just.
Okay.
Been Amazing design company I think it has a wonderful reputation I think it deserves to have a bigger for them whether that's the debt.
I can easily see the brand being much larger than it is today, especially internationally I think the efforts to date on direct to consumer allow us to grow on that in that venue in a very very large way as well.
As I look at Rebecca Taylor I think it's much more on the gestation period. It does not really been fully articulated either on the wholesale or direct to consumer and I think its ability to grow internationally. We'll also be extreme so excited about the the.
The fairways in front of us for both those brands.
Thank you and then Dave as you think about margin and inventory levels, what's the impact on port congestion now obviously, you mentioned the timing of bringing in some of the spring on both from the first quarter versus the fourth quarter to minimize airfreight. What are you seeing with timing port congestion and is it more on.
Beside in China quite a bit here in the U S getting labor to get the goods off the containers and how is this impacting wholesale orders.
Well I mean.
For one thing is we're not seeing anything different than anybody else's and so yesterday and it's really when you ask what is impacting what side. There is support congestion in the U S. But then there was also the containers.
Miss alignment around the world and the ability in Asia too to obtain containers, where your needle moving something as the issues at the Suez Canal.
We don't utilize the Suez Canal is putting a lot of containers out of place from a timing perspective in order to recover. So so a lot of us are seeing that we're seeing increased rates. Both both on the ocean and then as people move their demand to air you see increased increased rates from the airframe.
Respective which are already increased because of the limited limited.
Air traffic on airplanes that are that have been flying.
From a.
Consumer <unk>.
Although perspective.
So we will manage it appropriately we will continue to look at where we can use ocean freight and where we need to use air freight to manage from a cost side.
But also we have to be smart from his perspective.
Making sure we can deliver.
When our wholesale partners and our stores and E com, we need the product for for instance, just an example, nordstrom anniversary sale, we need to have we try to cure and time for anniversary. So we will continue to manage it from there.
Net perspective.
Got it and then your thoughts on off price.
How important is the off price channel, how big do you want it to be compared to the other customers and wholesale on how you're planning on.
And then leave.
We've seen off price over the last two or three years, Dan we've had years where off price has been.
Let's say, we have seen years, we've grown at.
$10 million in the year ago, Rich decline 2020 was a softer year from the perspective of how folks for managing their open to buy dollars net.
Probably led.
On degree to some of the decline that we saw in the fourth quarter. When you look at our results compared to the prior year, but it's like anywhere else as the consumer is now getting out there to shop.
More recently over the last three to six weeks, we're seeing off price open to buy dollars.
Increase because people are back to traffic is back people are shopping their stores.
Everybody has been.
Very.
On responsible from trying to manage their inventories.
And so that's that's that's what we're seeing now is opportunities from an inventory perspective to open back up.
And you opened up open to buy dollars are increasing to support that.
Got it and it does sound like the reopening that we've been hearing about whether it's coming from stimulus saving things reopening and protect the events are you seeing net too it sounds like with the pants on what you mentioned with the direct sales data.
Pick up and are you seeing that in any of the urban AI into those for the last one to come back.
We're actually very pleased with what we're seeing going on both with our wholesale partners our sell throughs, there as well as what we're starting to see in our own direct to consumer businesses.
And while we saw Dave mentioned, we saw great strength earlier from from Florida, and Texas. We are beginning to see some of these urban areas really pick up specifically in the northeast from California.
Got it.
And then balance sheet anything we should be watching for.
On the balance sheet I think move through 2021 that would impact one quarter to another that we should be mindful off.
Counting nothing specific Dana from a balance sheet perspective on it.
As we said on some of my comments.
Because of the timing of shipments, we'll see higher inventory level.
Come the first first quarter.
Yes.
And as the inventory flow.
You are always we're always looking at and again, we're going to be impacted by our ability to air products versus ocean products and the timing of some items hit the last week of a quarter for the first week of the quarter. So our inventory will fluctuate from that region that not going to have much impact on from a sales perspective, though.
And then just lastly, what are you seeing in terms of raw material cost and pricing on that will give for this year from last year.
Yes from a pricing perspective, we will we will price.
Whats the value of the of the brand as you know, we'll look at cost will manage costs like we always always have.
We won't do is change anything to compromise quality quality is what Vince has always stood for.
We certainly are having the same.
Attitude as we look at Rebecca Taylor.
For quality will always be number one.
The price of goodwill will fluctuate based on on <unk>.
On market conditions.
If the market supports.
Thank you.
And there are no further question. So I will now turn the conference back over to Jack <unk> for closing remarks.
Great. Thank you operator.
Thank you for joining us on this call today in closing I'd, just like to reiterate that I am.
Very much aligned with the strategic direction.
Direction of both Vince and Rebecca Taylor brands, and we'll be maniacally focused on execution and look for.
Forward to updating you on our progress in the future. Thank you again for your time today.
Operator that concludes it.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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