Q3 2022 Vince Holding Corp Earnings Call

Ladies and gentlemen, thank you for joining I would like to welcome you to this in Q3 2022 earnings conference call.

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And well provide you assistance at any time, please press the star Dave I T E.

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I'll now turn the conference over to your highest Amy Levy.

Please go ahead, when you're ready Amy.

Thank you and good morning, everyone welcome to Vince holding Corp, 's third quarter fiscal 2022 results conference call hosting the call today is Jack's Weibo, Chief Executive Officer, and Dave Stefko, Chief Financial Officer before we begin let me remind you that certain statements made on this call may cause.

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 investor.

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.

Following today's remarks, there will be no question and answer session now I'll turn the call over to Jack.

Thank you Amy and thank you everyone for joining us this morning.

I will begin with an overview of our third quarter performance focusing on our events business as we continue to execute the wind down of our Rebecca tell a business that we announced on our Q2 call.

Similar to others third quarter was challenged by macro related headwinds as our consumer continued to content, but that wasn't as inflationary pressures and higher interest rates in the retail sector increased promotional activity as many including ourselves.

The rest of actions to reduce inventory balances.

With our strategic decision to exit the Rebecca chat with us.

We have realigned our resources to focus on the current scale of our business.

We're continuing to evaluate our processes.

And costs to drive further efficiencies and enhanced disciplines across our organization.

We believe.

The actions, we're taking today, we will be better positioned for long term profitable growth.

Now turning to our Q3 results more specifically our topline performance was driven by our wholesale channel, where we saw a nice reception across our men's and women's assortments, particularly as we transition into the cooler policies.

Performance offset a slight decline in our direct to consumer results, which continued to be impacted by the normalization of ecommerce traffic trend.

Q3, we launched our new paths program for mens expanding our assortment beyond lounge and stretch.

<unk> for continued growth with our men's business.

In addition in men's we saw strengthen layering pieces with items, such as our short jacket and long sleeve knits in both men's and women's we saw strength in our sweaters, particularly as the quarter progressed and customers focus on buy now wear now products.

In addition, we have seen positive initial response to our cold weather accessories for both men and women with a new licensing partner Alex Yao.

With respect to ROE self performance as part of the 20th anniversary celebration, we introduced a special capsule collection, which was showcased at select wholesale partners celebrated and our hashtag I loved them.

We were thrilled with the results we saw which we believe are a testament to the strength of the Vince brand.

In fact, our collection was the best Contemporary center stage activation to date and sales for Nordstrom and we had our highest volume up at Nordstrom's, New York City location since it opened in 2019.

Turning to our stores in Q3, our retail stores experienced an increase in foot traffic over 2021.

There was notable strength in Washington, D C and Boston locations as well as Hawaii, and Las Vegas, primarily attributed to the traffic increases.

We are pleased with our new store in the seaport that broke in Boston as well as our newly relocated stores Merrick Park in Coral gables part.

In Q3, we also completed the successful relaunch of that Vince website, as well as our new customer data platform or CDP.

Our new web site is faster and enhances the customer mobile experience. We have been encouraged by the initial improvement we have seen with mobile conversion following the relaunch and look forward to benefiting from the capabilities of the site provides including its applications for enhanced personalization, particularly alongside with CDP.

Would you pay allows us to capture detailed customer data across a variety of systems that provides and the understanding of our customer at scale, enabling us to better predict how they will shop with us in the future.

With the improved capabilities, we will be able to enhance our marketing and better target and engage with both new and existing customers. We recently ran a small pilot.

Leveraging CDP target loyal customers, who had not engaged with this in the past 60 days.

Through this campaign, we were able to provide ourselves assertions with valuable data and the ability to drive sales within our key customer cohort.

This is just one small example of how we plan to leverage personalization to enhance the relationship between our store associates and customers to drive increased frequency and spend over time.

In addition, this proprietary first party data is more efficient from a cost perspective.

<unk> us to interact with their increasingly omnichannel customers and better understand their preferences to create a more personalized dialogue with them as they shopped the brand.

Turning to international.

During Q3, we opened our first pilot store in China in late September .

While early we are pleased with the initial response, we have seen.

South Korea continues to be very strong and we were especially pleased with the reception of our 20th anniversary pop up.

So since I get.

Also encouraging is our business in the United Kingdom falls into a wholly owned retail store on <unk> Street, as well as our growing businesses and Harris Suffrages and Harvey Nichols.

Finally with respect to holiday. This year, you again see a strong gifting focus in key areas of our assortment, including accessories as well as mixing cashmere.

Why does the involving competitive and consumer landscape when you've observed we made the strategic decision to pull forward.

Few key promotional events to October and launched our gifting assortment on the website two weeks earlier as well.

While the environment has remained promotional through the start of the holiday season.

We are pleased with the demand we are continuing to drive for the Vince brand as.

As we look ahead, while we expect to continue to navigate a challenging environment.

We will remain agile and disciplined all focused on increasing efficiencies across our organization.

Positioned Vince for long term profitable growth.

I want to thank all of our team members for their dedication and hard work as we enter a new chapter for events slowly and intently focused on capitalizing on the strength of the Vince brand.

With that I will turn it over to Dave.

Thanks Jack.

As Jeff discussed our third quarter financial results were impacted by the wind down of the Rebecca Taylor business as well as the aggressive actions we have taken.

Use our adventure inventory levels.

Especially in light of the continued challenging macro environment.

With respect to Rebecca Taylor.

Business contributed $8 9 million in net sales for the quarter and we include charges of $11 1 million related to the wind down activity, including the write down of inventory as well as accelerated operating lease amortization.

Calibrated depreciation and amortization severance and other costs.

We expect the wind down of Rebecca Taylor can be completed by the end of our fourth quarter.

Turning now to our results in more detail.

Total company net sales for the third quarter increased 12, 7% to $98 6 million compared to $87 5 million in the third quarter of fiscal 2021.

The year over year increase was driven entirely by the Vince brand, which delivered third quarter consolidated net sales of $89 7 million compared to $78 4 million in the same prior year period.

The 14, 4% increase was driven by our wholesale segment, which saw its net sales increased 29, 1%.

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And offset a 3% decrease in our <unk> direct to consumer segment sales as the continued normalization of ecommerce trends offset growth in our retail stores.

Gross profit in the third quarter was $29 8 million with 32% of net sales.

This compares to $42 1 million or 48, 2% of net sales in the third quarter of last year.

The decrease in the gross margin rate was primarily driven by the wind down of Rebecca Taylor business, which negatively impacted third quarter 2022 gross margin rates by 800 basis points.

Also contributing to the decline in gross margin rate as well was an unfavorable year over year adjustment to inventory reserves and an increase in promotional activity and a direct to consumer channel, partially offset by favorable leveraging of distribution and other overhead costs.

Selling general and administrative expenses in the quarter was $39 2 million or 398% of net sales.

Compared to $39 million or <unk> 44, 6% of net sales for the third quarter of last year.

The increase in SG&A dollars was driven by $4 4 million in expenses related to the wind down of the Rebecca Taylor business, which offset lower rent expense lower consulting and other third party costs as well as lower marketing and lower incentive compensation expenses during the period.

Operating loss for the third quarter, which includes the $11 1 million in costs associated with the wind down of the Rebecca Taylor business was $9 4 million compared to operating income of $3 1 million in the same period last year.

Income tax benefit for the third quarter was $6 6 million as compared to $2 1 million in the same period last year.

The noncash tax benefit was a result of an annual noncash deferred tax expense.

Aided by the amortization of indefinite life goodwill and intangible assets for tax, but not for book purposes, and the impact in the quarter of a change in the company's annual estimated effective tax rate there on.

Our full year noncash tax expense is still expected for 2022.

Net loss for the third quarter, which includes the impact of the charges associated with the wind down of the Rebecca Taylor business was $5 2 million.

Or a 43 loss per share compared to a net income of $2 2 million or <unk> 18 per share in the third quarter last year.

Moving now to the balance sheet.

<unk> under our debt agreements totaled $125 5 million.

We ended the quarter with availability of $26 8 million under our revolving credit facility.

Moving to inventory net inventory was $116 4 million at the end of the third quarter as compared to $82 million at the end of the third quarter last year.

The growth in inventory was driven by the increase of carry over pre fall and fall assortments compared to last year as well as a higher investment in replenishment products.

And higher product cost related to transportation and raw materials inflation, despite actions taken including increased promotional activity in Q3, we're entering Q4 with higher than normal inventory levels.

We're actively reviewing our plans for fiscal 2023 and have reduced our inventory buys appropriately throughout the seasons of fiscal 2023, which we believe will better enable us to return to more normalized inventory levels in the second half of next year.

We are laser focused on driving further efficiencies across our organization to enter fiscal 2023, and a healthier position, enabling us to drive long term profitable growth.

This concludes our remarks, thank you for joining us. This morning, we look forward to speaking to you again on our fourth quarter call.

Thank you for joining that does conclude today's crew. Please have a lovely day and you may now disconnect your line.

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