Q1 2022 Vince Holding Corp Earnings Call
My name is Emily and I will be coordinating the call today at the end of todays presentation. There will be the opportunity to ask any questions. You may have by pressing star followed by one on your telephone Keypads I will now turn the call over to our host Amy Levy. Please go ahead.
Thank you and good morning, everyone welcome to Vince holding Corp, 's first quarter fiscal 2022 results conference call.
During the call today is Josh 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 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 any information discussed on the call.
After the prepared remarks management will be available to take your questions for as long as time permit now I'll turn the call over to Jack.
Thank you Amy and thank you everyone for joining us this morning for a discussion on our first quarter performance.
Just spoken with you a few weeks ago on our year end performance Im going to provide you with a brief update on the quarter along with trends impacting the remainder of the year.
We are pleased with our first quarter results, which were in line with our expectations.
We continue to see momentum in Vince with growth this quarter aided by a significant increase in store traffic as customers return to in person shopping.
Additionally, Rebecca Taylor remains on the right path and we continue to believe this brand can capitalize on meaningful white space.
Beginning with a review of our performance events during the quarter direct to consumer sales exceeded 2019 results led by strength in our e-commerce as well as double digit growth in our retail stores.
While the wholesale channel remains challenged we meaningfully surpassed 2019 levels and we continue to see strong sell through at the retail level.
The strength of the brand was exemplified by the lack of distinguishable the resistance to our initial price increases, enabling us to partially offset inflationary pressures.
Overall, we remain confident that Vince is well positioned within the everyday luxury category with a superb assortment of sophisticated casual items that strongly resonate with the needs and wants of our customers.
During the quarter. We saw strong response to styles are aligned with the continued trends returned to work and social activities, such as pants blouses with strong demand for versatile.
Occasion based items.
Based on the successful swimwear collaboration with new swim last year, we launched another collection with them for the spring summer season.
This line, which launched in mid May is now available in select stores and on Vince Dot com.
We continue to believe that swimmers of category through which we can increase our share of her closet and we are very excited about this continuing of this partnership.
Sure.
In men's we saw exceptional growth with double digit increase on top of double digit growth last year.
Performance was terrific across all categories, particularly Linden bottoms woven and contemporary styles. Our team continues to elevate the men's assortment in terms of a more sophistication and fabrications to meet the growing demands of our customers.
Similar to womens on the mens side, we have expanded into swim with a small offering from outer known during the quarter, which is available in select stores and on Vince Dot com.
Overall, we are very excited by the momentum in our men's business, which we see as a significant growth opportunity.
Looking at store performance urban locations performed extremely well.
In addition, we saw higher than expected traffic in a resort vacation locations such as Hawaii in Las Vegas.
Our fifth Avenue store, which we reopened a few weeks ago and as the first and only store that offers extended sizes has been performing well with strong traffic to date.
We are also excited for the recent opened Boston seaport location and while it's still too new to provide initial results. This is a highly desirable location and we are optimistic about the long term success of this development.
Overall, despite ongoing supply chain delays our stores are experiencing strong momentum with a return to in person activities and we plan to lean further into that shift.
And shopping behavior.
While store productivity levels are highly encouraging e-commerce remains a key part of our growth strategy.
During the quarter shift from store accounted for more than 25% of our online sales.
Further we continue to focus on driving full price selling online with E mails that emphasized storytelling versus promotion, which proved to be successful during the quarter.
On the wholesale front consistent with what we said last quarter, we anticipate supply chain disruptions and delays will remain a challenge throughout the second half of the year.
Our teams continue to closely work with each of our partners as we navigate these challenges while.
While demand is strong across wholesale partners, we are seeing conservatism and initial buys given the lack of visibility in the macro environment.
That said, we are extremely pleased with our men's business at Nordstrom's, which has shown extraordinary growth during the quarter. Additionally, our men's product newness looks fabulous as we continue to elevate the collection at.
Bloomingdale's, where we have been present since the first quarter of 2021, we are particularly excited about the way the Vince brand is showing and remain confident of this partnership from a brand perspective, we have continued to execute on the strategy that we outlined last quarter regarding a disciplined approach throughout the funnel at both Vince and Rebecca Taylor.
Following the success of last year's holiday Social media campaigns, we launched a campaign this spring called spring Awakening.
Which emphasizes new silhouettes and colors as we head into fall, we will continue to launch clear social media campaigns that highlight relevant brand assets, while also showcasing the quality and lifestyle of the brand.
Additionally, on social we remain focused on advancing our influencer strategy, which will be a key to both Vincent Rebecca Taylor in order to increase awareness and drive conversion.
We have implemented a layered approach to this strategy balancing engagement with Influencers to drive brand awareness as well as those influencers, who can generate revenue.
We are very encouraged to see that many of these digital activities are already driving traffic into our stores.
During the first quarter. We also started to focus more on video assets, particularly as it relates to social channels.
This includes testing and learning on Tictoc, which we believe is the future of marketing given its ability to showcase authenticity.
But we were early stages right now we are very excited about this opportunity there.
Turning to international Encouragingly, our international business has shown growth in full price sales both in wholesale and third party websites as customers are responding positively to the newness and color of our spring assortment. We saw particular strength in Korea, and Australia retail sales both of which grew double digits during the quarter.
We opened one shop in shop, and El Corte <unk> in Madrid during the first quarter.
Looking ahead, we plan to open an initial location in Shanghai in the third quarter and to launch online in the back half of the year.
Overall the performance at Vince continues to demonstrate the strength of the brand and we are extremely excited about the opportunities ahead in the contemporary luxury category.
To Rebecca Taylor, we continue to find opportunities to grow the brand.
The spring assortment, but occasion based items is resonating with our consumer as travel plans increase the spring and summer months are a sweet spot for the brand and we're seeing success on specific styles across all categories with particularly with Russell sleep browse classes dresses cardigans and skirts.
In wholesale we continue to make strides in strengthening our relationships as we as we seek to drive market share gains.
As we expand the brand we are learning and testing what works and what doesn't particularly around brand positioning the brand resonates with our consumers more strongly when it sits with higher end brands. We also see certain subsets of the assortment are performing better than others, and we'll lean into that consumer demand.
As a reminder, we currently have 18, Rebecca Taylor stores, 10 of which are full priced and native which outlet stores. Our increased marketing investments continue to show results as our social engagement rate sequentially increased approximately 42% during the quarter.
The brand continues to utilize micro influencers, particularly performance Influencers to drive product sales and customer acquisition.
Through the spring summer season, we are building upon the concept of travel around the world that we discussed last quarter, we introduced a series called near and far and which global Influencers to talk about the new direction of the brand highlighting <unk> as global cache and everyday occasion dressing.
Looking ahead, we will continue to execute a similar strategic plan to what drove success in Vince as we redefine their merchandising assortment and enhanced our brand messaging.
Before handing it over to Dave I want to thank Matt to tailor for all his hard work over the five years as CIO of events and we wish him the very best on his retirement we.
We are very excited to welcome Heather Wilberger, who will be joining us as our new CIO effective July five.
We believe our strong business acumen and experiences with e-commerce like industries data warehouse initiatives and extensive vendor management relationships will help us execute on our strategies.
With that I will turn it over to Dave.
Thanks Jack.
As we continue to navigate through the unprecedented macro headwind challenges that are beyond our control we remain focused on driving our key strategic initiatives to capitalize on the strong foundation, we have built.
Total company net sales for the first quarter increased 36, 2% to $78 4 million compared to $57 5 million in the first quarter of fiscal 2021.
For the Vince brand first quarter consolidated net sales increased 34, 5% to $68 2 million compared to $50 7 million in the same prior year period.
Our direct to consumer segment sales increased 45, 3% to $34 8 million in the first quarter and exceeded 2019 levels led by growth in our e-commerce business as well as double digit growth in retail stores.
In our wholesale segment net sales increased 24, 9% and exceeded first quarter 2019 sales levels.
Rebecca Taylor and Parker combined net sales increased 48, 9% to $10 1 million as compared to the same period last year.
This was primarily primarily driven by sales growth and Rebecca Taylor retail locations.
Gross profit in the first quarter was $35 6 million or 45, 5% of net sales. This.
This compares to $25 5 million or <unk> 44, 3% of net sales in the first quarter of last year.
The 120 basis point increase in gross margin rate compared to the first quarter of fiscal 2021 was primarily due to favorable leveraging of distribution and other overhead costs.
A nonrecurring insurance recovery as well as channel and product mix.
Partially offset by higher product and freight costs.
Selling general and administrative expenses in the quarter was $40 9 million or <unk> 52, 2% of net sales as compared to $32 6 million or 56, 6% of next sales for the first quarter of last year.
The increase in SG&A dollars as a result of higher payroll and compensation expense increased investments in marketing and higher consulting and other third party costs.
Operating loss for the first quarter was $5 3 million compared to a loss of $7 1 million in the same period last year.
Income.
<unk> expense for the first quarter was zero as compared to $2 6 million in the same period last year.
The tax benefit from the first quarter pretax loss will not be realized in the current year as we anticipate ordinary income for fiscal 2022.
In addition, we expect to realize noncash income tax expense of $2 8 million. The result of noncash deferred tax expense created by the current period amortization of indefinite life goodwill and intangible assets for tax.
Not for book purposes.
Net loss for the first quarter was $7 2 million or <unk> 60.
Or a <unk> 60 loss per share compared to a net loss of $11 6 million or a 98 loss per share in the first quarter.
Last year.
Moving now to the balance sheet.
Borrowings under our debt agreements totaled $98 $5 million.
We ended the quarter with availability of $41 5 million under our revolving credit facility.
Moving to inventory net inventory was $83 3 million at the end of the first quarter as compared to $71 7 million at the end of the first quarter last year.
The increase in inventory.
Flex a higher level of pre fall product.
A higher investment and replenishment product as well as increased product costs related to transportation and raw material inflation in comparison to the prior year.
Looking ahead to the second quarter, given the lack of visibility related to the supply chain and the macro environment. We are not providing specific guidance at this time, however, I would like to provide some context regarding our outlook for.
For Q2, and the remainder of the year.
On our call in early May we mentioned several steps we have taken to help mitigate the impact of continued product and transportation cost inflation, some of which I spoke to earlier.
We expect these factors to contribute to meaningfully higher inventory levels at the end of the second quarter compared to the prior year.
For the second quarter, we expect total company net sales to remain above pre COVID-19 levels.
However, we expect to experience meaningful gross margin pressure due to unfavorable channel mix, specifically higher sales in the off price channel.
Continued supply chain cost inflation and potentially higher promotions in the DTC channel.
Looking at the back half of the year, we expect gross margin trends to improve as we see an increased benefit from price increases.
Some of the supply chain costs and have rebalanced our channel mix.
For fiscal 2022, we continue to expect capital expenditures net of tenant allowances to be below 2021, and more similar to 2020 with a focus on digital investments as we continue to drive our digital transformation.
Looking ahead, we will continue to focus on executing our key strategies to drive growth in our business.
This concludes my comments regarding our first quarter, we will now take your questions.
Operator.
Thank you could you would like to ask a question. Please do so now by pressing star followed by one on your telephone keypad. If you change your mind I would like to withdraw your question from the queue. You can press star followed by Chase.
To ask a question. Please ensure that your device Andrew microphone is unmated lately.
Our first question comes from Dana Telsey with Telsey Advisory group.
Please go ahead.
Good morning, everyone nice to see the product acceptance and navigating this environment constructively like Eli.
Jack can you tell us a little bit about when you talked about different categories of product performing well what are you seeing there how does it differ between mens and womens and does it differ online versus in store and then I have a follow up for Dave. Thank you.
Sure Hi, Dana.
Good question in terms of categories, what were seeing on the mens side is a lot of return to work product.
I mean by that is a lot of woven linen woven specifically this spring.
They were strong last year, they're even stronger this year.
Along with that though we're seeing things like lynden pull on pads and also some of our other fabrications of pull on pads to be very very strong. So we know that this is a customer that's working in a hybrid model.
Clearly stressing a few days of the week the dressing down on other days very very similar on the women's side as well, where we're seeing dresses were seeing strength in skirts, but we're also seeing strength in more casual styles as well.
Breakdown.
In terms of in stores versus online, it's quite similar not a lot of nonetheless differential there at all.
Got it and then when you think about inflation days and price increases and what you mentioned about the gross margin given more off price business.
What do you expect inventory levels to be at the end of the second quarter.
What type of price increases taken whether now for spring summer and how youre thinking about fall merchandise.
And if you think about on the SG&A buckets any puts and takes on gross margin and <unk>.
G&A as you think about it going forward beyond Q2. Thank you.
Hey, Dan good morning. Thanks.
If I can cover all what you asked and when you look at price increases and we did it we did put increases in.
For the spring season, but as we said.
In our last call.
Our trailing the build of costing we have we have seen especially when you look at the transportation side.
Theres definitely incretion and the material side also by specific on transportation, which we all saw growing throughout the year.
Hit its peak.
In the late fourth quarter so.
So we've seen a stabilized and slightly.
Decline to some degree as we get into the back half of the year, we are anticipating elevated levels and freight costs scale.
But we are we.
We have recognized that.
Increasing pricing in the fall and future seasons.
That perspective, and then also we can be more reactive from a product perspective.
On the percentage of product that we need to air versus both because.
We are seeing while Shanghai has had its issues.
The port congestion is not what it was.
And we will see where the back half of the half of the year goes, but we're anticipating that we'll be able to have a better a better mix of of on the water versus air product.
Your other question was about.
Inventory levels.
We are we are seeing.
Items that we have made an investment in.
Inventory for Q2 and replenishment goods, we felt in the back half of last year that we missed some sales opportunity.
Because we did not have in our volume there so.
We're looking at that as an opportunity, which will which will drive our our inventory higher this year and then.
We have also.
To kind of fight the freight and port congestion and things we've made a bigger investment in lightweight sweaters that we think we'll have more sustainability as we go through the pre spring and spring seasons.
Got it and then when you think of wholesale and you mentioned because we've been hearing out there in the marketplace wholesale accounts are following orders with canceling orders or whatever it maybe.
How are you how are you dealing with that.
And are you seeing that too and what does the studio expansion whether its doors in sacs.
Spinning up with Bloomingdale's, how are you planning that go forward.
Yes.
I'll take that one look I think we've seen some conservatism.
Over the last couple of seasons and that just seems to continue.
We have very good relationships with our big wholesale partners and I've heard some of the same things, but we're very pleased with the partnership and collaboration we get with all four of them Youre aware that we've recently.
Decided to do business.
Come to an agreement with Zack so.
It's a new relationship again.
And I think we're excited to see where that goes but I feel very very good about the relationship with the other three department searches.
We collaborate with talking to them on a weekly basis.
And we share our victories and figure out ways to mitigate this climate right now.
Okay, and then just on Rebecca Taylor, what are you seeing in terms of the reopening given the strength that we hear about dresses and occasion wear.
Yes, absolutely in our assortment this year really more reflects that than it did even last year, where we had some success. We're still in the early innings, you're figuring out the Brent candidly we.
We have some categories that are working well.
You just mentioned a couple of them and we're figuring out how to work in the other categories too and get some victories and start the building.
We have to remind ourselves that we have this very large collection on the other side with Vinson with Rebecca we don't want to be that large collection until we really start to figure things out, but I can't overemphasize that we're still we're still figuring out it's a very different business events.
Yes.
And then you have a very small international business, but we've been hearing about the reopening in international doing well what have you experienced.
Yes, we actually knock on wood, we've had a very solid steady ride with our international business, we continue to grow it.
Excited about the fact, we just added another department store with CT and glass.
In Spain, Spain has been very strong Australia has been shockingly strong given just where they have been with the pandemic Korea as well.
Looking forward to opening in Shanghai, This fall and seeing where we go with that with China next year. So no.
I'd say were very bullish on our international business, we like what we see in Europe , and we especially like what we're seeing in Asia.
Thank you.
Thank you Dana for your question I will now turn the call back to Jack to conclude.
Thank you operator, we look forward to a really robust summer selling and activity. There are clearly macroeconomic and political issues to be dealt with as well as macro and minus and Mike micro business opportunities to be seized and thank you for your time today and this concludes our we'll be back in September with Q2 earnings and.
This concludes our Q1 2022 earnings call. Thank you.
Thank you everyone for joining US today. This concludes our conference Cohen you may now disconnect your lines.
Yes.