Vince Holding Corp. (VNCE) Q1 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Vince Q1 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Amy Levy. Please go ahead.

Thank you and good afternoon, everyone. Welcome to Vince Holding Corp's first quarter fiscal 2021 results conference call. Hosting the call today is Jack Schwefel, Chief Executive Officer and David 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. In addition, in today's discussion, the company is presenting its financial results in conformity with GAAP and on an adjusted basis. The fiscal 2020 adjusted results that the company presents today are non-GAAP measures. Discussions of these non-GAAP measures and information on reconciliations of them to their most comparable GAAP measures are included in today's press release and related schedules, which are available in the investor's section of the company's website at investors.vince.com. 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 Jack.

Great, thank you, Amy, and thank you everyone for joining us this afternoon. We are pleased with the pace of recovery in our business led by the Vince brand. Revenue in the first quarter grew 47.5% and loss from operations was $7.1 million, a more than $15 million improvement over the adjusted loss in the first quarter of fiscal 2020. We are highly encouraged by this performance as we emerge from the crisis with two distinct global fashion brands that I believe has tremendous long-term growth potential. Starting with Vince; revenue in each of the direct to consumer and wholesale segments are showing strong recovery. Wholesale revenue is nearing fiscal first quarter 2019 results while retail, store sales are just modestly lower as traffic recovers, and they were operating in Q1 at 23% fewer hours as compared to pre-COVID days. While still impacted by a lack of international travel, particularly in our tourist markets, customers are enthusiastic about shopping us in-store. At the same time, we continue to gain market share within the luxury contemporary category within our wholesale partner doors. The momentum of the Vince brand is firmly in place as the sophisticated, effortless style of the brand continues to resonate with consumers. As consumers begin to vacation -- vacation again, we have launched the new swim wear collaboration with New Swim that will be available in select wholesale partner doors and vince.com. We believe that Swim is another category through which we can increase our share of her closet, when we look forward to this partnership. In men's, we are particularly excited to see the strong performance as wholesale as we become a clear leader within the men's contemporary luxury category. We continue to see men's as a meaningful growth opportunity for Vince and we are highly encouraged by the momentum in this business, As you see the rise in consumer demand through the emergence from COVID, we are ramping up our investments in marketing to attract new consumers to the brand, while remaining highly engaged with our existing customers, As the vaccines continue to roll out, we see the anticipation of returning to a lifestyle that includes activities away from the home in terms of both work and leisure. In response to this, we have shifted away from communicating to customers with Vince at home and lounge and luxury messaging towards the new wear-to-work and the promise of travel as a glimmer on the horizon. In addition, we are transitioning our emphasis away from sales and promotions to full price messaging. With the recovery from the pandemic beginning to accelerate around the world, we believe that we are hitting a pivotal point in our business. As we prepare to fully resume our growth strategies for Vince, we plan to continue to ramp our marketing investments throughout the remainder of the year. We were also on-track to implement our point of sale systems by fall this year. We view this as another step towards increasing our targeted marketing and personalization capabilities as this is foundational to launching our CRM systems. In addition, the implementation of point of sale will enable us to expand our omnichannel capabilities such as ship from store and buy online and pickup in store, which we expect to complete prior to our fiscal year-end. As part of our go-forward plan to increase market investments, we have created the new role of Chief Marketing and Digital Officer. The priorities for this role will be to develop and execute brand and performance marketing strategies as well as to accelerate our omnichannel business across the Vince and Rebecca Taylor brands. I look forward to sharing more detail of this position once the candidate has officially joined the organization. Turning to our Vince retail strategy, we believe that stores continue to pay an important role in building brand awareness and driving customer engagement. Prior to COVID, we saw success in opening new stores with flexible lease options and favorable economics. In the first quarter, we opened one new store in East Hampton, New York, just in time for the summer season. We opened one additional store in the second quarter and plan to open an additional five stores throughout the remainder of the year. These stores are in highly capable locations all with short term renewable leases. In addition to full price stores, we plan to open three outlet locations in the second quarter. As we expand our omnichannel capabilities, we believe that stores will further fuel profitable growth for our businesses. In the international business, we are excited to see the strong acceptance of the Vince brand in Australia. A new shop in shop locations are performing above expectations, and we see opportunity to expand our presence in this market. We will also begin to revisit our plans to expand into China with the growing demand for luxury presenting [ph]. In Europe, we are seeing a slower recovery in our London businesses as the impact of COVID continues to weigh on that -- this region. However, we remain confident in the potential for this market and look forward to accelerating our growth strategies once we begin to see a recovery. On the last topic prior to shifting to Rebecca Taylor, I'm pleased to announce the introduction of Borrow [ph] for Vince, scheduled to launch at the end of this month. Based on the success of Vince UNFOLD, we are launching this rental option in both women's and men's through CaaStle, our partner to enable more customers to discover and wear new styles. We believe that Borrow creates another opportunity for us to organically grow our member base as users potentially transition to UNFOLD. Overall, I'm very pleased with the direction we are taking with the Vince brand, and as we continue to leverage the positive momentum in our business to advance our growth strategies. We continue to see a lot of runway for global expansion as we further leverage the distinct positioning of this luxury brand. Turning to Rebecca Taylor, I remain excited about the potential for this brand, longer term, as we employ similar strategies that led to the successful turnaround of the Vince brand, while revenue decline in the quarter as we reset the brand, we are seeing momentum build each month and operating results in this business has improved meaningfully, which Dave will speak to shortly. We remain confident in the creative direction of Rebecca Taylor, as we return to the brand's heritage in a modernized way to serve today's women. We saw strong response to the re-launch in Spring 2021 collection Romanticism Redefined in both our direct-to-consumer channel and at wholesale partner doors. The strong sell-through combined with interest from those who don't currently carry Rebecca Taylor is giving us even greater confidence that we're moving the brand in the right direction. The collection has expanded from dresses and occasion wear to include sweaters, trousers, knitwear and outerwear categories. With a complete lifestyle offering, we are well positioned to serve our customer as she transitions back to her pre-COVID way of living. Creative Director, Steven Cateron, hosted an interactive online event at Bloomingdale's as part of the re-launch, which resulted in sales in the brand tripling at that partner in the ensuing days. Based on the strong reception, we plan to similar events in the future with Bloomingdale's and other wholesale partners. We are highly encouraged by the enthusiastic response we are seeing in the early stage. In conjunction with new collection, we also relaunched the brand's new digital first strategy including a completely redesigned website, the launch of an SMS program and greater focus on segmentation and personalization. Hashtag Rebecca with friends launched on Instagram as a campaign of women who embody the new spirit of Rebecca Taylor, Rebecca's community. This theme will carry forward in social media and in another channels. We saw growth in followers triple in just two weeks and total followers reaching over two million people. We will continue to invest in paid social and paid search to drive traffic and revenue growth. In mid-July, we plan to relaunch RNTD Rebecca Taylor's version of Vince UNFOLD as well as Borrow on rebeccataylor.com. Similar to Vince, we see this as an opportunity to gain access to new customers, as we expand the optionality of our offerings. As part of the brand re-launch, we plan to open full price in outlet locations that offer the same attractive economics we achieved for the Vince brand. We opened two new outlet locations so far in the second quarter and plan to open an additional three outlets in the remainder of 2021. We also plan to open four full price locations this year. While the turnaround progress for Rebecca Taylor was temporarily hampered from the COVID pandemic, we are no less confident in the long-term potential for this business. In conclusion, we are extremely pleased to see the strong recovery in consumer demand in the marketplace and believe, we are well positioned to benefit to both our Vince and Rebecca Taylor brands. We are seeing strong momentum at the Vince brand, as we resume our growth strategies. At the same time, we are excited by the progress we are seeing in Rebecca Taylor with the recent relaunch of the brand. Our focus will remain on driving our initiatives forward while maintaining discipline in how we operate the business for the long-term profitable growth. With that, I will turn it over to Dave. With that, I will turn it over to Dave.

Thanks, Jack. We are encouraged to see the accelerated pace of recovery in our business in the first quarter. Our top line trends continue to increase sequentially, giving us confidence to continue to advance our near term strategies. Total company net sales for the first quarter increased 47.5% to $57.5 million compared to $39 million in the first quarter of fiscal 2020. For the Vince brand, first quarter consolidated net sales increased 76.3% to $50.7 million compared to $28.8 million in the same prior year period. Our Vince direct to consumer segment sales increased 32.3% to $23.9 million in the first quarter. This increase reflects improved traffic trends in our retail business still led by non-tourist areas including retail stores in the Midwest, Florida and Texas while urban areas continue their recovery at a slower pace. Growth in our e-commerce business was less pronounced as consumers return to in-person shopping as stores reopen. As a reminder, our e-commerce business in the first quarter of fiscal 2020 grew significantly due to the temporary store closures resulting from mandated COVID lockdowns. In our wholesale segment, net sales increased 150.6%. As Jack said, we remain confident in our market share position within this segment, as Vince continues to outperform peers within the contemporary luxury category. Rebecca Taylor and Parker combined net sales decreased 33.6% to $6.8 million as compared to the same period last year, As we have shared in the past with the COVID crisis, we have paused the development of new product for our Parker business to focus resources on the operations of our Vince and Rebecca Taylor brands. This contributed to about two thirds of the sales decline in the quarter. For Rebecca Taylor, the decline was largely due to decreased e-commerce traffic as a result of a pullback in marketing, as well as reduced assortment and average unit retails as part of our reset of the brand. Nevertheless, we remain very pleased with the response to our new product offering both within our direct consumer and wholesale segments. Total company gross profit in the first quarter was $25.5 million or 44.3% of net sales. This compares to $16 million or 41% of net sales in the first quarter of last year. The 330 basis point increase in gross margin rate is primarily due to a lower year-over-year adjustments to inventory reserves due to the impact of COVID last year. This increase was partially offset by channel mix due to the higher mix of e-commerce last year where both company and wholesale partner stores were temporarily closed. Selling, general and administrative expenses in the quarter was $32.6 million or 56.6% of net sales as compared to $38.5 million or 98.8% of net sales for the first quarter of last year. As a result of the actions taken to reduce cost at the onset of the COVID pandemic, SG&A dollars decreased by $6 million in the first quarter, which was primarily the result of lower consulting and other third-party cost as well as decreased bad debt expense, payroll and compensation expense and marketing expense. Operating loss for the first quarter was $7.1 million compared to a loss of $49.4 million in the same period last year, which included approximately $26.9 million in non-cash asset impairment charges. Looking at results for Vince as compared to the first quarter of 2019, sales were $50.7 million from the first quarter of 2021, as compared to $55.1 million in the first quarter of 2019. While operating income excluding corporate unallocated expenses was $7.2 million in the first quarter of 2021, compared to $8.8 million in the first quarter of 2019. Income tax expense for the first quarter was $2.6 million as a result of a noncash deferred tax expense created by the current period amortization of indefinite-lived goodwill and intangible assets for tax but not for book purposes. We expect there will be another tax expense in the second quarter and to see a tax benefit in the second half of the year. The tax expense per tax benefit recognized for each quarter will also be non-cash. Therefore, for the full year, we expect this non-cash deferred tax liability to be approximately $2.8 million. Net loss for the first quarter was $11.6 million or a loss of $0.98 per share compared to a net loss of $48.2 million or a $4.12 loss per share in the first quarter last year. Excluding a TRA income adjustment of $2.3 million and non-cash asset impairment charges, adjusted net loss for the first quarter of fiscal 2020 was $23.6 million or $2.02 loss per share. Moving on now to the balance sheet. Borrowings under our debt agreements totaled $87.3 million. We ended the quarter with availability of $27.4 million under our revolving credit facility. We continue to take steps to manage our liquidity and maintain financial flexibility and we believe, we have adequate funds to effectively operate our business. We will continue to make targeted long-term investments to continue to support long-term strategies. Moving now to inventory, net inventory was $71.7 million at the end of the first quarter as compared to $67.3 million at the end of the first quarter last year. We continue to work through COVID impacted excess inventory from fall 2020 in prior seasons. As we anticipated, we are seeing open to buy dollars in the off-price channel being released with the recovery of retail shopping by the consumer. Looking ahead, we anticipate the balance of newness versus prior season inventory to continue to improve. Due to the uncertainty related to the impact of COVID-19, we will not be providing formal guidance at this time. That said, as a reminder for fiscal 2021, we're planning capital expenditures, net of tenant allowances to be below that of 2020. And as Jack detailed in his remarks, our CapEx plans include a total of 19 new stores in fiscal 2021, 10 for Vince and 9 for Rebecca Taylor as well as IT investments specifically related to our efforts to become fully omnichannel. With the uncertainties related to retail and the recovery from COVID over the last year, we opportunistically but aggressively pursue new stores and brand appropriate centers. Like our pre-COVID strategy, we were able to secure short-term, low investment, low cost leases. Overall, we are extremely encouraged by recent trends as the economy and industry continue to recover from COVID. The strong positive momentum in our business combined with the recent increase in consumer demand makes us even more confident in the long-term potential of both Vince and Rebecca Taylor. Like many industries, we are facing macro headwinds such as increased labor and shipping cost that we're managing through. Regardless, we will continue to manage aspects of the business conservatively given that there still remains uncertainty at this time. This concludes my comments regarding our first quarter. We will now take your questions. Operator?

[Operator Instructions] We have a question from Dana Telsey with Telsey Advisory Group. Your line is now open.

Good afternoon and glad to hear about the recovery that you're beginning to see. As you think about the recovery in Vince with the 76% increase and frankly, back to nearly --- and wholesale back to nearly 2019 levels, how is the online business performing as stores reopen? What are you seeing there? And as you just -- as you went through the quarter, was there any difference in cadence and region in terms of regional performance? And then a couple of follow-ups.

Well, those are great questions, hi Dana, this is Jack.

Hi.

A couple of thoughts on that. In terms of the web, we're continuing to see growth in the web. We -- I'd like to see a lot more to be quite honest with you and I look to the -- I look to later this quarter, third and fourth quarter to really see that accelerate. I'm bringing in a digital person to really help with that, and I think that that would, that's just the beginning, and that's just the first step. As far as cadence, we've -- we're building momentum. I think we started slow at the beginning of the fiscal year. There were some shipping issues, there -- we had late product. The port issues in China and in California clearly affected us. As we stock products is where we started to see the momentum. We've looked down the supply chain and are taking measures to ensure that that doesn't happen again, and it won't happen again. So I do think, as we gotten better inventory positions, we really saw the acceleration. We're starting to in our own DTC, in our own stores, we are beginning to expand store hours, where it makes sense, where the traffic is guarding to really come back. We saw, I think like a lot of retailers, like a lot of brands, we saw a lot of growth rate quickly from vacation destinations and we've really watch that now go across the country and very, very pleased with the progress we've seen with it.

Thank you. And then, as you think about the wholesale operating income. The wholesale operating income, where did -- where does that strength come from? Is it lower markdowns? How are you doing with the Neiman Marcus, Nordstrom doors. Anything new to note and other partnerships on the platform side with online in terms of wholesale?

I'm working on a lot of different things with platforms that it's a great -- good question and I think in the coming calls, I'll be able to share some. I hate this, to talk about things before they happen but as far as, as wholesale goes, Dave, was pretty specific on the last call about we were a little frustrated for a while with the open to buy from some of our wholesale partners was a bit tight as they were trying to ratchet down their inventories. We're starting to see some remedy of that and I think opportunistically, the better inventory positions we will be in, that give us a competitive advantage over some of our competitors that aren't in that inventory position.

Got it. And then, you mentioned marketing investments ramping up. How do you think about the marketing budget this year may be compared to 2019? So what should we look for in the back half of the year on marketing?

Well most of it will be around digital, which I don't think is a surprise in 2021, beginning to start to put our toe in the water in terms of what -- how do I investment spend, how do I look at that channels that are working, whether it's of interest for Rebecca or follow me ads for Vince and as we start to see some progress, I think we're willing and able to -- to be able to react to it and move much quicker.

Got it. And then on the port congestion and supply chain, the inventory was up 6.5% to $71.7 million. How are you thinking about inventory go forward? And then on taxes, what's your expectation there for the balance of the year? Thank you.

From an inventory perspective, Dana, I would expect us to see the inventories slightly up to last year, where we were from a tax perspective. Like we said, it's all non-cash, we should be -- we're projecting 2.8 million of non-cash to asset tax expense for the year, it will fluctuate through the quarters, depending on whether we are positive from that operating income or negative from the operating income perspective.

Got it. And then, promotional environment and your AURs, I mean, we are seeing lean promotions. What are you seeing? And how you're thinking about AURs going forward?

Look, I think this year it provides a reset, and an ability to be less promotional than we probably have been historically, and definitely dialoging about that with some -- with our partners about a bit of where can we do -- not just because, it's an anniversary sale to -- that doesn't have to be what it was, doesn't have to be as deep as it was. And I think everyone is cognizant because of some inventory issues that that are out there that there isn't a necessity so much to have to be highly promotional upfront. So very encouraged but what the landscape looks like there.

And one last thing, Jack, Rebecca Taylor. Any initial reads there and what you're seeing and your expectations go forward?

Look, I think we're still in an evolving period with that and very excited, I mean, very excited about what the reception has been, as we get more eyeballs on it and I think that will -- that momentum is building and it will continue to build all through this year.

Terrific. Thank you very much.

This concludes the Q&A session. I will now turn the call back to Jack Schwefel.

Thank you. Just want to thank everyone for being on the call today, appreciate it and look forward to talking to you again at the end of the second quarter. Have a great day.

This concludes today's conference. Thank you for joining. You may now disconnect.