Q3 2021 Vince Holding Corp Earnings Call
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Good day, and thank you for standing by and welcome to the Vince Q3, 2021 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
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I like to hand, the conference over to your speaker for today Jean Fontana. Thank you. Please go ahead.
Thank you and good afternoon, everyone welcome to Vince holding corporations third quarter fiscal 2021 results conference call hosting the call today is Jack's Russell 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 expects those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website investors should not assume that statements made during the call will remain operative at a later time and the company undertakes no obligation to update them.
The information discussed on the call after their prepared remarks management will be available to take your questions for as long as time permits, but that I will turn the call over to Jack.
Thank you Jane and thank you everyone for joining us this afternoon for a discussion of our third quarter performance.
We are encouraged with the trends in our business given the many macro challenges facing the industry.
We are pleased to see the momentum in our e-commerce business within our Vince Brent.
Our customers continue to love, our sophisticated high quality women's and men's Assortments. Our men's business is showing particular strength in the quarter improving against both 2020 in 2019 levels at.
Rebecca Taylor, we feel confident in the progress made on our brand turnaround and remain focused on driving key strategies.
I will begin with a review of the performance of our events breath direct to consumer revenue cells have recovered just slightly above fiscal 2019 results, partially offset by sales pressure in the challenged wholesale channel in spite of our current headwinds impacting the industry. The demand for the Vince brand remains strong and we remain confident in our ability to continue to draw.
<unk> further market share gains within the contemporary luxury category.
Our business in the third quarter was fueled by a dressier items as people return to the office and social activities.
Continue to see a strong response to dresses, particularly versatile styles that can be dressed up or dress down based on the occasion, our latest collections have shifted to an emphasis of gifting and family themed messaging.
Including products for both comfortable gatherings and dressed up events during the holidays.
We have also seen a pickup in sweaters and outerwear as our customers who are focused on buy now wear now product.
In direct to consumer the continued momentum in our E Commerce business, which was up double digit for 2019 levels was partially offset by softer than expected results in our retail stores.
Looking at our store performance by region, we are seeing locations in urban markets outpacing the store base, which we attribute to the return to work there.
During the third quarter, we opened four full price stores in Roosevelt Field, New York Pentagon City, Virginia.
Cherry Creek in the Denver market and knock Street in Dallas, We are very pleased with the strong early results and we will continue to focus new store openings in highly favorable locations.
All with the short term renewable leases.
Our store openings in new markets, Charlotte and Denver for example have performed well and have fueled a significant increase in regional traffic to the website as well.
In wholesale supply chain disruptions and delays moving product through distribution centers and into stores remains a challenge that we believe will continue to impact our business further in the fourth quarter. Overall, we remain pleased with the sell through at retail which continues to demonstrate the demand for Vince as we remain a leading kantar.
Temporary brand for our partners.
As mentioned on last quarter's call, we launched the Vince crafted collection for Nordstrom on October 14th.
This included an offering of six handed exclusive styles, which created a unique experience for customers.
This collection was a huge success and generated a lot of press, including Elle magazine named <unk>, one of the best fashion campaigns for fall 2020 one.
We are excited to announce that the Vince crafted collection is now available in five of our own retail stores.
Melrose Avenue in Pacific Palisades in the Los Angeles market.
Dallas, Palo Alto and Mercer Street here in New York.
Building on our offering we launched family cashmere themes for the holidays during the quarter for nordstrom's as well as for our own stores.
The reception of our branded Bloomingdale's also continues to be very strong, which we attribute to high demand for the brand in customers returning to stores.
We see an opportunity to grow the relationship over time, and we'll look to do so in a way that complements our existing wholesale footprint.
In men's we are extremely pleased with the momentum of our business in the wholesale channel and in our own stores.
We are seeing strong response to sweaters, knits and especially outerwear.
Given the impressive performance in the men's category. This quarter, we're even more confident of the strength of our positioning within the contemporary mens category, we believe that men's as a significant growth opportunity for the Vince brand and will remain a key strategic focus.
We will continue to work closely with our wholesale partners to navigate supply chain headwinds, which we will speak to shortly.
Importantly, we believe that these challenges are transitory and that wholesale distribution will remain a meaningful part of our growth strategy as it enables us to broaden our customer reach.
From a brand perspective, we are focused on progressing our marketing and digital initiatives to accelerate our brand presence at both Vince and Rebecca Taylor.
We have been focusing on further driving our analytics and data capabilities, which are paying substantial dividends in our paid search channels and our email and SMS programs. These programs drive over 60% of our ecommerce traffic.
In advance of the holiday shopping period, we launched gifting pages on our web sites for both Vince and Rebecca Taylor on November 2nd for the Vince brand, we have seen double digit conversion gains for both 2020 in 2019 levels further the Vince gift pages are driving over 10% of total ecommerce sales and customers visiting these pages convert.
At nearly double the rate of those who do not.
As a result, we will remain focused on driving more online traffic to these pages.
Looking ahead to 2022.
We are already planning a holiday campaign, where gifting will be a major feature along with holiday dressing.
We see this as a meaningful opportunity, particularly in our nips and Kashmir Alliance as these items make perfect gifts.
As part of this concentration on gifting a key focus for both brands has been an introduction of considered social campaign.
We are currently working with over 100 influences all of whom will be posting gifting and omnichannel content onto our social channels through the end of the year there.
The reach of these influences offers the opportunity to be seen by upwards of 70 million U S consumers driving additional consumers to each brand.
We executed prestige in the autumn, which included outreach to key social influencers, garnering publicity for both brands. Another enhanced initiative was the Vince gift card promotion, where we gifted our top customers with a 100 and at $50 invitation to shop full priced during the early part of November.
We plan for the holiday selling season to begin earlier this year and by moving up the timing of this promotion we were able to capture those sales we will deploy different offers in December to offset last year's offers.
We also completed the based on implementation of our point of sale system for the Vince brand further enhancing our targeted marketing and personalization capabilities.
We have ship from store capability for ecommerce up and running making more efficient use of our omni channel inventories.
Through the Black Friday, cyber Monday weekend, the ship from store component yielded a significant contribution to our total e-commerce sales, which was entirely incremental as this product was not available at our E Commerce distribution center.
Looking at our international businesses, we are cautiously optimistic with our retail store momentum in London as well as with our partners throughout Western Europe, and we believe this momentum will carry into 2022 and beyond.
We are exceeding 2020 sales in all international wholesale markets and showing strength in mainland Europe, the middle East as well as all international web channels.
We are also excited to announce that we have restarted conversations with our joint venture partner to launch our brands in China. This is an incredible opportunity for us to further enhance our presence and brand positioning given many of our competitors already have a meaningful footprint in mainland China.
As these conversations progress we look forward to providing you with an update on future calls.
Overall I am pleased with the performance of the Vince brand and we continue to be extremely excited about the future we see ample opportunities to grow this brand both domestically and internationally as we built out our e-commerce capabilities develop new marketing strategies and accelerate growth in our men's business turning to Rebecca Taylor with the reset now complete.
<unk> the growing potential for this brand as exciting as the brand equity remains strong.
So a positive response to our spring market results and this will be set on the floor for February and March next year.
We are focusing on full price selling as we establish margin healthy strategies to grow this business over time.
Extending into spring 2021, relaunch and our recent fall assortment, we will continue to reflect a collection of categories that address more of her lifestyle needs with a particular focus on building out occasion based items that can be dressed up or down to adjust her changing needs during the third quarter.
We opened one full price store and two outlet stores for Rebecca Taylor all of which are showing encouraging initial results in early November we opened our last through the year and Beverly Hills at the Bev Center, our first Rebecca store in the Los Angeles market.
As we have increased our marketing efforts, we are seeing results, our social engagement rate in the third quarter increased materially with product engagement as well in November we saw our biggest gains in engagement and growth of our Rebecca audience. Since we acquired the brand overall, we remain focused on utilizing a similar strategic.
Eric plan to what drove the success, we achieved at Vince to redefine our merchandize assortment and enhance our brand messaging and optimize our channel distribution.
Our performance during the third quarter reflects the strength of our brands and we are excited about the future growth we see for the company.
Heading into holiday, we move up our promotions to begin in early November and the results have been encouraging with margin positive and up compared to 2019 levels.
Before turning the call over to Dave I would like to provide an update on the supply chain issues, we are experiencing.
Similar to most of the industry, we continue to see challenges with ongoing port congestion and higher freight cost pressures.
While we expect these supply chain disruptions to continue through at least the first half of next year, we will keep taking precautionary steps to mitigate the impact.
Including by leveraging our impressive pricing power, which results from our strong brand loyalty.
In conclusion.
We are very excited about the future of our distinct fashion brands. We will continue to use a disciplined approach while executing the strategies in place to fuel long term profitable growth for our shareholders.
Since joining Vince Holding's nine months ago, we have navigated unprecedented industry challenges and at the same time continue to execute our strategies, while establishing an even stronger foundation for the future growth.
Coming out of fiscal 2021, we are finalizing our three year plan and look forward to updating you on our long term targets at the ICR conference in January.
With that I will turn it over to Dave.
Thanks, Jack we're pleased with the trends in our business as we remain focused on driving our key strategies.
Total company net sales for the third quarter increased 26, 7% to $87 5 million compared to $69 million in the third quarter of fiscal 2020.
For the Vince brand third quarter consolidated net sales increased 27, 3%.
$78 4 million compared to $61 6 million in the same prior year period.
Our Vince direct to consumer segment sales increased 56, 5%.
$35 7 million in the third quarter, reflecting improved traffic trends, particularly in locations in our urban markets, which outpaced the store base in the quarter.
In our wholesale segment net sales increased 10%.
Supply chain challenges, which we expect to continue to impact the fourth quarter, we remain confident in our market share position in wholesale as Vince continues to outperform peers kind of contemporary luxury category.
Rebecca Taylor and Parker combined net sales increased 22.0% to $9 1 million as compared to the same period last year.
We're encouraged with the progress we're making as we complete our first year of redefining the Rebecca brand.
Gross profit in the third quarter, $42 1 million or <unk> 48, 2% of net sales.
This compares to $31 7 million or 45, 9% of net sales in the third quarter of last year.
The 240 basis point increase in gross margin rate compared to the third quarter of fiscal 2020.
Primarily due to lower promotional activity and a direct to consumer channel and lower year over year adjustments to inventory reserves, partially offset by higher freight cost in the wholesale off price channel, we are driving healthier margins.
Selling general and administrative expenses in the quarter was 49.0 million or 44, 6% of net sales as compared to $25 4 million or <unk>.
36, 8% of net sales third quarter of last year.
The increase in SG&A dollars was the result of many actions taken in the third quarter of 2020 as a result of Covid.
This includes $4 2 million, we received in rent abatements and concessions.
Lapping this year and a return to more normalized payroll.
And store level as well as the resumption of marketing investments in 2021.
Operating income for the third quarter was $3 1 million compared to operating income of $6 3 million in the same period last year.
Income tax benefit for the third quarter was $2 1 million as a result of an annual noncash deferred tax expense created by the amortization of indefinite life goodwill and intangible assets for tax not for book purposes.
And the impact in the quarter or a decrease in the company's estimated effective tax rate for the full fiscal year.
For the full year, we continue to expect this noncash deferred tax liability to approximate $2 8 million.
Net income for the third quarter was $2 2 million or <unk> 18 per diluted share compared to a net income of $5 million or <unk> 42 per diluted share in the third quarter last year.
I would like to point out that net income for the third quarter reflects $1 5 million and deferred financing costs and a prepayment penalty both associated with the termination of the 2018 term loan facility.
Now moving to the balance sheet.
Borrowings under our debt agreements totaled $95 9 million.
Ended the quarter with availability of $49 1 million under our revolving credit facility.
Moving to inventory.
Net inventory was $82 million at the end of the third quarter as compared to $88 6 million at the end of the third quarter last year.
As a reminder, inventories in 2020 with negatively impacted our wholesale customer order cancellations as a result of Covid.
During the third quarter of fiscal 2021, we continue to work through the increase in seasonal inventory levels from prior quarters promotions outlet stores in the off price channel.
As a result of the actions we've taken in 2021, our healthier inventory levels reflect the better balance of newness and we feel comfortable with the current inventory composition.
As Jack previously mentioned, we continue to experience challenges in our supply chain, including port congestion and higher freight costs similar to the rest of the industry.
While these headwinds are beyond our control we remain focused on taking actions to mitigate the impact on our business.
We plan to be targeted in our selling and pricing strategies to offset some of the cost pressures we are experiencing.
Similar to recent quarters until the low visibility and uncertainty related to the impact of Covid, especially given the continued increase in supply chain challenges that are beyond our control, we will not be providing formal guidance at this time.
However, I will provide some insight on our fourth quarter.
Fiscal 2021, we continue to expect capital expenditures net of tenant allowances to be below that of 2020.
As Jack mentioned in his remarks in November we move forward with bench gift card promotion, allowing us to capture earlier consumer driven holiday season.
The result of this action and the initial benefits of our new point of sale adventure Nichols optimistic on fourth quarter sales growth.
On a margin perspective, we will see the normal decline in fourth quarter versus third quarter margins due to the promotion out of the quarter.
We will also see margin pressure from even higher freight costs due to the demand placed on the freight industry and this quarter.
Also we do not anticipate the level of benefit that we experienced in Q3 and lower year over year adjustments to inventory reserves to repeat.
With SG&A in Q4 versus Q3 will spend greater than payroll more importantly in marketing as we drive our marketing and digital initiatives both for the fourth quarter holiday season, and a long term benefit of our brands.
As a reminder, in September we filed a shelf registration statement under which the company may sell up to approximately 1 million shares of its common stock at.
At the market.
Or ATM offerings.
The shelf registration and ATM program remain in place and sources, along with cash from operations and our current revolving credit facilities.
And our long term growth initiatives.
During the third quarter, there was no activity with ATM offerings as Jack mentioned, we will be presenting our long term strategies and targets for the business in January at the ICR Conference looking ahead, and considering positive momentum in the fourth quarter. Despite short term cost pressures the foundation of our business remains.
<unk>.
We'll continue to focus on executing our key strategies.
Celebrate the growth of our business.
This concludes my comments regarding our third quarter, we will now take your questions.
Operator.
Ladies and gentlemen at this time I'd like to ask a question. Please press star and the number one on your telephone keypad.
Your first question comes from the line of Dana Telsey with Telsey Advisory group.
Hi, good afternoon, everyone nice to hear about the progress in the fourth quarter as we hear about supply chain dynamics from everyone lately and the headwinds there how are you approaching it in terms of.
Whether it's port congestion containers, what are you seeing how much you're using airfreight and as we go into the first half of 2022, what what are you expecting on it on any of these changes and in particular on the wholesale side of the business or the order cancellations.
You need now in the order book is more real or how do you think of that thank you.
Hey, Dana Thank you.
A couple of thoughts here.
We look at the spring we look at the first six months of 'twenty 2022, very similar to how we think about the back half of 2021, and we're planning for it that same way, we will continue to use air freight at exactly the same cadence we've been using it.
On the longer term, we start to think about some.
Changes in how we bring product to market, we are looking at Europe, and South America.
And looking to lean on that.
A more significant way in the future that doesn't happen overnight, we're just in the infancy of that.
But we were somewhat pessimistic and we're planning to be pessimistic on that.
From a wholesale perspective.
We're watching our partners, who have been very very slow to to buy into inventory through 2021 begin to open that up a little bit and more frontloading of product.
They went into this year with a buy light and chase and we chased with them.
And Fortunately in most cases, we were able to make accommodations, we are seeing them get a little bit more religion about owning inventory at the beginning of season and as such that we think that will take a little bit of pressure off of us on a chase mode.
Got it and then when you think about the DTC business you commented on the stores and E. Com. What are you seeing different in the stores and the income E com and impressive that your urban stores are showing improvement.
Yes overweight.
And very very excited about that.
Some of that is it is very attributable to just people people beginning to buy more workwear, whether they're going back to the office a day or two days or three days a week, they're realizing that they need to make more investment there.
We're excited about what we're seeing in direct to consumer in the probably the biggest biggest change or evolution. We're seeing is just that that that customer who shops us online and in store. We're very pleased with the initial results of our new Pos and it really is foundational for us and doing more omni channel programs.
The Pos system that we've just completed allows us to capture customer information in a much more significant way than we were previously we can build on that with.
We will build on that with.
Customer data platform and loyalty programs in the future, which just give us or give us more control of everything and that will just have to buy stuff.
Got it and then when you unpack the gross margin and the SG&A.
Much of an improvement in full price sales, where they are and how much was the freight costs. It sounds like the full price sales helped to offset the higher freight costs and then on the SG&A side the rent concessions from last year, how long does that continue through or do we see SG&A returned to some form of higher levels.
Yes, I'll start I'll start with your last comment Dana on the.
So from the rent concessions the way the accounting works and the rent concessions you kind of get a catch up adjustment when you sign an amendment. So as you look at those gains that you've seen in the quarter Theyre kind of one time, one time gains.
And plus your your rent costs are booked on a straight line.
Basis, so really the SG&A that you've been seeing for the last couple of quarters is normalized.
Rent expense, it's really the prior year.
Quarters that had the benefits as we sign those amendments.
Amendments.
From a.
Full price basis.
We definitely have seen a greater percentage of our business at a full price level.
Even even more so as Jack mentioned the acceleration of of the da Vinci gift card that we moved up into early November.
That's much more full price selling.
With a gift card.
A better margin sale than what a.
Black Friday, cyber Monday type of sale what would have been.
Got it and then just on the Rebecca Taylor side I noticed in the operating income breakout so the sales improve the loss increased how do you I'll unpack that.
A lot of that I would attribute to we're starting to pound the drum a little bit louder here, we werent investing or spending previously on marketing and we're starting to do that in some of its branding, which won't have an immediate cause effect with itself, but we will have a longer term effect. So.
The investments that we've had to make to make sure that people know about the brand and the and then how relevant we think we are.
Show through and some of that.
Got it thank you.
Thank you.
Thank you.
And there are no further questions I would like to turn the call back over to Jack.
Thank you operator.
With that we'll conclude today, we look forward to talking to you with Q4 earnings in April of 2022, I. Appreciate all of your time and attention on this and hope you all have a great holiday and new year's and look forward to talking to you soon thank you.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
Okay.
Sure.
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Thanks.
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Yes.
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