Good afternoon. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Vince Q2 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll now turn the conference call over to Amy Levy, Vice President Investor Relations.

Thank you and good afternoon everyone. Welcome to Vince Holding Corp's second quarter fiscal 2019 earnings conference call. Hosting the call today is Brendan Hoffman, 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 the statements made during the call will remain operative at a later time and the company undertakes no obligation to update any financial information discussed on the call. 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 Brendan.

Thanks Amy. We were very pleased with the strong top and bottom-line results we achieved in the second quarter. We are particularly excited to see the multiple initiatives that we have undertaken come together resulting in strong results across the business. Summarizing our second quarter results, net sales grew 13%, gross margin expanded 480 basis points to 48.7% and our operating performance improved $4.4 million to $2 million profit, as compared to an operating loss of 2.4 million in the same period last year. We delivered strong performance across all channels with double-digit sales growth in our retail and wholesale channels. We continue to gain momentum season after season, as customers respond favorably to our seasonally relevant, beautifully designed and crafted collections. We believe that the combination of our elevated product assortment marketing campaigns that communicate our brand DNA and enhance shopping experience is driving transactions in our direct-to-consumer business, as well as enabling us to expand our presence on our wholesale doors, where we have become a market share leader in the space. In our direct-to-consumer segment, revenues increased 11%, attributable to a 7% comp increase and the two new store opening since the end of the second quarter last year. We saw positive comps across our full price and outlet stores, as well as exceptional strength in our e-commerce channel. Our momentum in our business strengthened throughout the quarter and has continued into the third quarter. We expect strong trends to continue through the second half as we expand our offerings in key categories within apparel, where we were under penetrated last year, and maintain a consistent offering of seasonally relevant beautifully designed product. We will also continue to test new product categories as we look to fulfill the lifestyle needs of our customers. Our wholesale channel revenue…

Thank you, Brendan. Second quarter consolidated net sales increased 13% to 71.4 million, compared to 63.1 million in the same prior year period. Our wholesale channel sales increased 14.7% to 43.4 million, primarily due to the acceleration of seasonal wholesale shipments. Our direct-to-consumer segment sales increased 10.6% to 28 million in the second quarter, while comparable sales including e-commerce increased 7.1% due to an increase in transactions and in average dollar sale. Gross profit in the second quarter was 34.7 million, or 48.7% of net sales. This compares to 27.7 million or 43.9% of net sales in the second quarter last year. The 480 basis point increase in gross margin rate was primarily due to product mix efficiencies in the product development cycle, and sourcing initiatives. Selling, general and administrative expenses in the quarter were 32.8 million or 45.9% of net sales, as compared to 30.1 million, or 47.7% of net sales for the second quarter of last year. The increase in SG&A dollars was primarily a result of increased compensation and benefits partially related to the growth in stores, increased marketing investments, costs associated with enhancements to our e-commerce and Vince Unfold platforms, as well as higher occupancy costs related to new stores. Operating income was $2 million or 2.8% of net sales, compared to an operating loss of $2.4 million for the second quarter of fiscal 2018. Net income for the second quarter was $1 million or $0.08 per diluted share, compared to a net loss of $3.8 million or $0.33 per share in the second quarter last year. Moving to the balance sheet. We ended the second quarter with $52.1 million of borrowings under our debt agreements. This is a decrease in our overall borrowings under our debt agreements of $12.3 million since the same period last…

[Operator Instructions]. And your first question is from Dana Telsey with Telsey Advisory Group. Your line is open.

Good afternoon everyone, and nice to see the progress on the top line. Two questions. One on the tariffs. So, can you just go through that again, are you including the tariffs in the guidance or they're excluded in the guidance? And how do you think of the buckets in mitigation and what do you expect can be done for next year? And then second thing, on your growth rate in DTC and wholesale, what were the product mix that drove the business and how do you -- and was there a stronger beginning or end to the quarter? And anything else we should be watching as we go into 3Q and 4Q, whether it's with collaborations with some of the new marketing that you mentioned, Brendan, you think will be impactful to continue to accelerate the sales? Thank you.

Thanks, Dana. I'll try and go through all that. But pause me, if I miss something. So regarding the guidance, as stated in the press release and the remarks, there's $2 million from the September 1st list for tariffs that are not included in our guidance, September 1st and later. So what we gave you was the trajectory of the business, excluding those tariffs. The impact of those tariffs after mitigation is about $2 million. So that's why we pulled that out. There is $500,000 that's included in the guidance from the earlier tariffs in May. So that reflects what was initiated over the last four weeks, that we just weren't able to fully mitigate, because of the timing. We did not feel comfortable raising prices, just operationally wasn’t very difficult to do. We are going to raise prices selectively on some of our core items that are go forward items and that will happen over the course of the next couple of months. We have worked very closely with our suppliers to mitigate some of the increase as well as accelerating some shipments to get them here before the tariffs were implemented. Going forward as we look at 2020, we're frankly less concerned about that as we have time to properly price the merchandise. And we just right now -- we're in fashion week, it's spring Fashion Week. So these are goods we'll be shipping in January, February and March. And we were able to factor in what we know now, which is the 15% tariffs and price accordingly and saw no push back from our accounts, I think, speaks to the elevated product and the strength of the business that the pricing seemed very natural. So that's why we feel like, we go into next year with the proper amount of time to repair the tariffs even at this level will be, not be meaningful.

And we do have to mention that our vendors, as Brendan mentioned in his comments, have worked with us to absorb some of the tariff cost and also to help us with strategies to support managing it.

And as you know, as we all know, this seems to -- it seems to change every morning I wake up and there's a new sentiment towards what these tariffs will be or won't be. So that's why we felt it was better to categorize it the way we did.

Got it.

And in terms of -- anything else on tariffs or guidance, Dana?

Just on, the only other thing on that is, as you think about 2020, the $2 million, do you think of it as $4 million, or you can mitigate some of $4 million for the year, or you mitigate some of it? And may even get down to $1.5 million or $2 million for on an annual basis?

Yes, I don't see, as Dave mentioned, I don't see 2020 as being much of a risk. I think, given the time we have with the, and this is fresh off this week of market for Q1 merchandise and pricing in the 15% tariffs and just how natural it seemed in terms of the retails will be at, there was no pushback from the major accounts at all. So I think, given the place in the market we're at, we're going to be able to pass on enough of the price increases combined with the negotiations of partnerships or vendors and other mitigating factors that I don't anticipate it being a headwind for us in 2020.

Got it.

In terms of what was working for us, I think you asked in Q2, we continue to see the brand just hit the center of the bullseye with our customer, I mean growth -- growth was driven a lot around dresses. We saw, we added dresses to different fabrication, so they were in woven and knits this year, we added a lot more prints to the line, lot of comments on the femininity that's evolved the Vince product in and it keeps going. I keep going back to how the team has changed to a more seasonably appropriate weights and colors. So, in June and July, we're still merchandising product that is wearable at that moment in time, not something you have to put in your closet for when the weather changes. And so we continue to get high marks both from the comments and from the results we're seeing. And so that was very exciting to see in Q2.

Got it. And then just one last thing, I literally am looking at the 10-Q as it just came out. And it looks like the operating margin on wholesale was terrific. And it looks like the revenue growth on DTC, there wasn't as much [indiscernible] that operating margin didn't come through as strong. Was anything on the puts and takes of the operating margins of DTC and wholesale?

So, regarding wholesale, it just speaks to the growth we're seeing at the channel with less dilutions. I mean, our natural margin rate continues to improve. And so that means, as we have season ending true ups with our wholesale accounts, we're just able to reduce the amount of support we give them. So that's really exciting to see. In terms of DTC…

DTC, is you're asking about? On the operating income line, Dana, are you asking?

Yes, exactly.

I mean on the gross margin, while Dave is looking out, on the gross margin side at DTC, we continue to see healthy full price sell throughs. And, prior to the tariffs that are better going in markup….

I mean, you're talking about the flow through on operating income Dana, is that what you're asking?

I think it says the operating income for the quarter was around $54 million, I think it was $454,000 compared to $414,000 last year. Anything to note because the revenue grew, so just wondering what was in between that didn't drop to the operating income line?

We also look at that for the quarter. And we've got [indiscernible] impact of new stores. Hang on a second, we're looking at it. And we have the rent cost of stores. And then we also have adjustments that were made last year to inventory reserves that benefited last year.

Got it.

Kind of a non-repeating item.

Got it. Thank you.

Dana, I think, when you asked about going forward. I mean, we're starting, I mentioned in my remarks, we're seeing the momentum -- well you asked how the business went in Q2, we got better as the quarter went along as I mentioned in my remarks and we've seen that continue and improve into Q3 into mid-September here. And I think we had a great anniversary sale at Nordstrom, as I mentioned, and I think what we're seeing in our own DTC business that's providing a lift is -- some misses, we had last year in the collection in terms of price points. We have some higher AU, higher priced items this year with some of the shearling and leathers, and particularly in our own DT stores, as own stores and online that really can move the needle. And so having a great reaction to those that is driving early business and it was something we identified when we post mortem last fall that we felt that, that would enhance the collection. And so far, it looks like we were right.

Ladies and gentlemen, this does conclude the Q&A period. I'll turn it back over to Brendan Hoffman for any closing remarks.

Great. Well, thank you for joining the call today. As you can see, we're really excited about our long-term growth potential and we continue to build momentum in our strategic initiatives. I look forward to sharing more of our progress with you on our third quarter call. Thank you very much.

This concludes today's conference call. You may now disconnect.