Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 fiscal 2015 earnings call for Vince LLC. [Operator Instructions] I will now turn the call over to Jennifer Poland, Vice President of Finance and Planning. You may begin your conference.

Thank you, Mike, and good morning, everyone. Welcome to our second quarter 2015 earnings conference call. I am Jennifer Poland, Vice President of Finance and Planning. Joining me today is Mark Brody, our Interim Chief Executive Officer; and David Stefko, our Interim Chief Financial Officer and Treasurer, who will be your speakers for today's call. 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 we 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 web site. 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. In addition, in today's discussion, we are presenting our financial results in conformity with GAAP and on an adjusted basis. The adjusted results that we present today are non-GAAP measures. Discussions of these non-GAAP measures and reconciliations of them to the most comparable GAAP measures are included in today's press release and in related schedules which are available in the Investors section of our website at investors.vince.com. After our prepared comments, we will be available to take your questions for as long as time permits. Now, I'll turn the call over to Mark.

Thank you, Jennifer. And thank you everyone for joining us today to discuss our second quarter 2015 results. I'll begin with an update on the quarter and our revised outlook, followed by some comments on our near-term and long-term growth initiatives. Then, I'll turn it over to Dave for a more detailed review of the financials and outlook. First off, I am delighted to be serving as Interim CEO for Vince during this transition period. As many of you know, I have served on the Board of Vince since Sun Capital's original acquisition of Kellwood in 2008, and continue to believe that Vince is a powerful brand with tremendous long-term growth potential. I would also like to thank Jill Granoff, who has been very helpful in transitioning her responsibilities to me, following her resignation in July, and we wish her well in her future endeavors. I am also pleased that Dave Stefko has agreed to take on the role of Interim CFO and Treasurer, as we search for a new CEO and CFO. I have worked with Dave for four years at Sun Capital, and we are both extremely focused on improving the business, while also ensuring a smooth transition. Since I took on an interim executive management role at Vince in June, I have spent considerable time working the teams to gain a deeper understanding of their issues and strategies. Based on this work, I continue to believe that the overall strategy is the right one for the company, specifically enhancing our women's assortment, further developing our men's business, selectively opening new retail stores, leveraging e-commerce to drive awareness in sales, and broadening our international reach. However, to achieve these strategic goals, we do need to focus more than ever on improving the product and our operational performance as…

Thank you, Mark. For the second quarter, net sales decreased 10.4% to $80 million versus $89.3 million in the prior-year period. Our wholesale channel sales were down 21.6% to $58.3 million, due to a decline in our U.S. wholesale segment. Our direct-to-consumer segment sales increased 44.7% to $21.7 million in the second quarter, as we added 11 new stores since the second quarter of last year and grew our comparable store sales including e-commerce by 13.4%. Our comparable stores sales increase was driven by growth in both, our bricks-and-mortar stores and our e-commerce business. While our direct-to-consumer business showed growth during the period, margins were pressured by increased promotional activity. Moving on to profitability. Gross profit in the second quarter was $20.8 million or 26% of sales, which includes a $14.4 million charge associated with the write-down of excess inventory and aged product. Excluding the inventory write-down, gross profit was $35.2 million or 44% of net sales. This compares to gross profit of $44 million or 49.3% of sales in the second quarter of fiscal 2014. The adjusted gross margin decline was due to the deleverage on lower wholesale sales and increased returns and allowances. Selling, general and administrative expenses in the quarter were $27.3 million or 34.2% of sales compared to $24.1 million or 27% of sales for the second quarter of last year. SG&A also included net management transition cost, inclusive of severance and related cost of $2.9 million. Excluding these costs, SG&A would have been 30.6% of net sales in the quarter. Excluding the secondary offering cost, SG&A as a percent of sales was 26.3% in the second quarter of fiscal 2014. The increase in SG&A was largely driven by store labor and occupancy cost, associated with 11 new store openings since the end of the second…

[Operator Instruction] Your first question is from Matthew Boss from JPMorgan.

It's Christina Brathwaite on from Matt. So with the reset of the wholesale distribution channel behind us, what do you see as a normalized wholesale growth rate? And what do you see is the target level of wholesale mix versus retail longer-term?

First off, the mix that we have right now between our men's and women's business is about 84/13 [ph]. And overtime, we look to see that to grow about 80/20, 75/25. And as we are looking to longer-term growth rates, that's getting a bit into our 2016 guidance and we're really not there at this point in time to put forth guidance for '16. So it something we're really going to be looking a lot at it the rest of the year, and when we're ready to do that at the end of the year, we'll give guidance on that.

I guess, additionally, what's kind of the best way to think about store growth going forward, and you guided to some more stores this year. But any thoughts probably on the growth and any concern with the store productivity just given the environment right now?

We've been opening in general about eight to 10 stores a year. And we've talked previously about having kind of a 100 stores is our target. I mean, ultimately, the number of stores we're going to open is going to be dependent on how many good stores we can open, because we really look for stores that have good financial returns. So if it ultimately turns out there is a 120 stores, we're going to look to do that. If it's 80, it's 80. But we're going to look at it very economically. The stores we have opened in general are performing to our expectations, so we're pleased with that. We have had a little bit of issue in our outlets. And we talked some about some of the issues in our outlet channel, and we're working to address our outlets. So we'll be evaluating really that outlet and full-price retail store ratio going forward.

Your next question is from Mark Altschwager with Robert W. Baird.

Just following-up again on the lower wholesale orders, could you just talk about the trends that your retail partners are seeing at POS for the Vince brand? And I think last quarter, management talked about some of the missteps in the tops business specifically, but is the softness now more broad-based in that or just the magnitude of the pullback maybe increasing those categories? And then additionally, I think you said, you expect the pressures to continue into fiscal '16. Is there a way to back out the impact of all the inventory build in that channel over the last couple of years and just ascertain a base level of revenue for the wholesale channel?

I guess, first off, when you think about how things have happened itself, basically sell-through at POS at our customers, it's kind of a story of women's versus men's. We have said how we see men's as a big area of growth. Men's in the first half of the year has been up mid-double digits and has been a nice area of growth for us. It's really women's that's been hurting us, and they've been down at POS about mid-single digits. As we're really looking to get growth from some smaller categories that are working, which is we talked about in previous calls are mixture of good, better, and best products, and that has a lot of that entry-level products that's in the good category, and that's been some areas that have been missing, which is really what we're looking to really fix going forward and improve that distortion of product. Probably not going to be till the latter half of next year, and we can get that good, better, best allocation back more in line to where we historically have been. But beyond that -- and what we've said about being kind of tough in the first half of the year of '16, but we don't have much guidance beyond that. Did that answer you question?

That is helpful, yes. And then just secondly, is there a way to think about kind of a base revenue level for the wholesale channel?

Well, I guess, that would be kind of getting into what we foresee is guidance for '16. And so we're not really there to, at this point now, to start talking about that.

And maybe just switching gears real quick. On the DTC side, comps accelerated in the quarter. It sounds like you're expecting that to reverse quite a bit in Q3. Could you just elaborate a little bit more on what you're seeing there and what's driving that?

So one of the things that's impacting our comps or how we're projecting our comps to be in the second half of the year is a real focus on reducing our promotional capabilities. So for example, last year we had a two-tiered promo that we ran for 25 days through our DTC channel. We significantly knocked that down for this year, and that's going to have a negative impact on our comps here in Q3. But we also think it's the right thing for the brand. You have to become less promotional. It's what our wholesale full-price customer accounts want from us as well, and we think it's great for the brand and we'll enhance more full-price selling of our products.

The next question is from Jeff Van Sinderen with B. Riley.

I wonder if maybe you could share a little more detail on the retail metrics just for your own stores. Just wondering, I know, you said both brick-and-mortar and e-com were positive. And I was just wondering if you could maybe break that out for us for the quarter, maybe give us metrics like AUR, UPT, ATV [ph], I'm just trying to get a sense of that, transactions, traffic, that sort of thing. And then maybe also, I know you talked about the recent softening in the direct channel. Are you seeing that more in your brick-and-mortar stores? Are you seeing that in e-com as well? Maybe we can start there.

So you got me with the few questions all in that whole thing there. So I'll try to address them all. So first off, we don't separate our metrics between our e-commerce and our brick-and-mortar stores. We basically consolidate them. I will say, U.S., for example, how are some statistics, like AURs, so overall were pretty flat. They were a little stronger actually in our e-commerce than our brick-and-mortar. And brick-and-mortar was like more impacted, because our AURs in our outlets were actually a little lower. We've been increasing some of our MFO product, which has some lower price points and those have actually been selling pretty well.

And then, well, I guess I can't, since you're not really going to break that out. Let me ask you this. As far as the wholesale segment, if we can shift to that for a minute, maybe you can just give us a sense of what you're seeing in spring order book trends. I'm not asking you to give guidance for next year, but in terms of order of magnitude what you're seeing there?

Spring, that will be, I guess, somewhat an easy question to answer, because we haven't gone to market yet. That's going to be happening over the next few weeks and we'll be certainly watching that closely and working with our customers on it. And in some of my earlier remarks that I had, we talked about 2016 where we expect kind of the start of the year to still be challenged. And that's really us just looking at how our products been selling through and really just working on the assumption that our wholesale accounts are going to kind of be buying us into how we've been selling that we would expect to see some decreases year-over-year, as we head into the beginning of '16. But we're going to really know that a lot better here, after we get through market the next few weeks.

The next question is from Richard Jaffe with Stifel.

If you could go sort of back to the beginning and talk about Livia's contribution, the timing for contribution, and maybe a sense of what she is thinking? She has been there a bit. She has had a chance to presumably meet everybody, get a look of what's in the pipeline, and reflect little bit on what needs to be done in the timing. So if you could sort of take us from her perspective and the timing for the impact as well?

First up, as I said in my remarks, and we even issued a press release when Livia started. We're really excited to have Livia on Board. She has got a track record as a merchant. And this really I think going to be a great addition to the team and really develop great working relationships with everybody here so far. As far as starting to feel the impact of what she can do on the merchant front, just given the product development cycle that we have, it's probably going to be more to the latter half next year, like fall of '16 product that we can really start seeing some impact of her contributions.

So just to be clear, so the team is intact. The big change is just Livia and now she is comfortable with her soldiers, the team, is that correct?

Yes, it's just same team that she is just now leading the merchant function, which is really a position we needed and are glad to have her there for.

And the design counterpart; is there any changes anticipated for that side of the equation?

No, not at this time. They're working in collaboration together on our -- we have designer for men's and designer for women's and handbags and they all work in collaboration with Livia.

I guess, I understand the need for Livia and I share your excitement about what she can bring to table here. But I'm concerned that if the product has been uninspiring for several quarters, that the design team, which is responsible for that product now has have far greater responsibility, but they got it wrong once. What's going to change to get them inspired in a new direction, I'm just trying to understand that.

As far as we were talking about Livia, this is really going to help them kind of hone in on the right product assortments and make sure we stay in the guard rails of who are target customer is. I mean, I think when I talked to Livia about moving out of the good, better, best range, probably got a bit too aspirational, got a bit too much better and best product, and not enough good, and that's I think an area where Livia is going to be able to contribute to them.

Then next question in from Erinn Murphy with Piper Jaffray.

This is Christof Fischer on for Erinn. I wonder if you guys could talk a little bit more broadly, just on kind of category trends that you guys are seeing, maybe over the past couple of months and how you guys think about that going forward. In particular, I'd be interested to hear your guys on kind of handbag and the footwear category.

I guess first you asked about handbag and footwear, so as it relates to handbags, we mentioned that we launched it last year, we had a make some adjustments in some of the functionality of the handbags and that's in place, but frankly we continue to evolve that and look to keep improving it. We also adjusted the price points of the bags, so that happened this past season as well. You put those together, we start to see some improved sell-throughs on those handbags, but still not where we wanted to be, but frankly we're not even a full year into it yet, and so we're still hopeful, but it's frankly still small part of our business, so still got a lot of potential. Footwear, that performs very strong. Our women's continues to grow quite well. And we launch men's in the latter part of last year. So that's been helping our comps this year and it's been a good category for us. Also, men's continues to grow, and really bottoms and outerwear, both in men's and women's is really an area of growth for us.

And then maybe as a follow-up, I'm wondering if you guys could give anymore granularity on kind of the outlook performance versus full-pricing, and your outlets was little bit softer. But any kind of thoughts how you guys think about that going forward or what kind of strategies you guys have in place to kind of put that into the soft?

We haven't broken out separately full-price or outlets. Frankly, our DTC is put together as one, including e-commerce. I did mention a little bit ago about the softness in outlets, and we attribute that really to a couple of things, but traffic is certainly one. We've seen some traffic challenges in our outlets. Some of it is just things you hear about declines in international travel and visitors and things like that. How we're combating it, is we're looking to put in some selective marketing campaigns, not big money, but enough to start driving some traffic hopefully to our outlets. We're also working on improving our promotional cadence within the outlets as well to make sure we're price competitive, but really have good sharp prices for our product and move out the excess product when we need to.

The next question is from Joan Payson from Barclays.

Could you talk a little bit about your long-term operating margin target? Did that changed at all? And at what point you would expect margins to begin expanding again?

Right now as we sit here today, I mean, we still feel like the long-term strategies of Vince are still intact. We're not looking to change any of our strategies. We're looking to hopefully execute on them better. And with all that, we're not at the point where we're saying we're looking out to long-term guidance directionally or saying our operating margins should be different number, we're not really to that point yet. But our operating margin is still, we think could be quite strong.

And then as you're beginning to focus on rightsizing parts of the North American business, does that correspond to any of the international expansion strategy.

Not at all, we actually just recently hired an individual here in July to be our Vice President of International [ph] Craig Samuelson. He is got a wealth of a experience in the international area, particularly in Asia, and he is been traveling all over the world in his first month and a half. So I think he is going to bring nice contribution to our scenario.

The next question is from Lindsay Drucker Mann from Goldman Sachs.

I wanted to just follow-up on maybe a view as the team has come in and sort of tried to get a better handle on how business shifted as dramatically as it did, going back from a year ago to today. You talked about perhaps pursuing the higher price points too aggressively and collecting some of the entry of the product. I was curious if there was anything else that you could identify as miss-steps that could have been avoided to have maintained business momentum or if some of this is just sort of broader category weakness that came home to roost. Maybe just some perspective on how things deteriorated?

I mean, I think ultimately it's being true to the core of what the Vince customer is, and the fabric, the hand feels that our Vince customers are looking for. I mean we got a little broad in that, and I think we need to focus a little more on that. I think more of our everyday essential type products available to them, and once again having a high penetration of great price product in the good category.

And then maybe just following-up on Joan's question. As we think about your margin structure versus peers, you still do have businesses operated at very high margins, and it's typically been a function of I think OpEx as a percent of sales rather than gross margins. I'm wondering if you feel like those areas you've underinvested and where we need to beef up some of the investment and could see some deleverage there?

When we look at the business, I mean, obviously we've had some challenges in sales right now, a lot of it coming from the off-price channel frankly. That's probably about half of our drop that we're seeing in our reduced sales guidance. So you that is in area where frankly we have much investment or need to have a lot of investment. Our investment is really in the other areas of the business. Our wholesale sales team, our operations team, our design, technical teams. And it's a great group of people we have there today, and we're always looking to strengthen that team. We're frankly right now looking at adding regional sales specialist in our wholesale team around the country to better serve our wholesale accounts. And so we're going to continued to invest in that, because it's frankly a great return.

There are no further questions at this time. I will turn the call back over to the presenters. End of Q&A

Thanks everybody for joining the call today. And look forward to talking to you again next quarter.