Vince Holding Corp.

Good afternoon. My name is Chris and I'll 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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you'd like to withdraw your question, you can press the pound key. 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 Sexo, 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 enhanced shopping experience is driving transactions in our direct-to-consumer business, as well as enabling us to expand our presence in 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 net new store openings 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 grew 15% in the second quarter. We are excited to see the broad-based strength across our department store partners, specialty retailers, and third-party e-commerce sites Here in the U.S. and around the world. Our brand performed extraordinarily well at Nordstrom's anniversary sale. We are also now fully functioning on dropship with our major department store partners, which helped to drive sales during Nordstrom's annual sale. We believe this functionality will continue to fuel incremental sales at favorable margin rates over the long term. Looking ahead, we remain focused on advancing our strategic initiatives, which include driving growth through our direct-to-consumer business as we continue to expand our store base in the U.S. and strategically enter international markets, increase market share within the wholesale channel, test new product categories, and define our customer journey while refining our marketing efforts to drive traffic and conversion in our stores and on our websites. We continue to expand our retail presence as well as drive strong growth in our e-commerce channel, both of which have significant growth potential. Our Santana Rose store in San Jose, California, which opened in early August, is another great location that is off to an exceptional start. We also recently opened our Aventura Mall store in Miami and are excited to be opening our Midtown Manhattan store later this month. as we believe this is another opportunity to further capture walk-away business from exited doors as well as to increase brand recognition in this highly trafficked area. Our Prince Street expanded location reopened in early August and we are excited to be offering an elevated shopping experience in a beautifully designed store with an expanded merchandise offering. Our real estate strategy, which we began two years ago, has been centered largely around short-term leases and we are excited to build on this success. The payback period for these short-term leases is exceeding our two-year target and generating strong cash-on-cash returns. To that end, we have already extended four of these leases based on their performance and plan to open one additional new store before year's end. We will continue to opportunistically open stores across the U.S. while maintaining the flexibility in our leases to ensure we drive improved profitability across our store base. Turning to our international opportunities, later this month we will be opening our first company-operated store outside the United States in the South Kensington area of London. We believe this is an ideal market for Vince, given our strong performance with shops opened with Harvey Nichols and Selfridges over the last 18 months. This is an important step in driving awareness for the Vince brand as consumers experience our easy luxury style firsthand. We kickstarted our influencer program in London, focusing on male and female influencers local to this market to further fuel brand equity. We have recently been exploring entrance into the China market, where we have also seen many of our luxury peers successfully build real estate networks and develop a strong e-commerce presence. There is a healthy appetite for fashion luxury in this region, where we believe the Vince brand will have strong appeal. I have recently visited China to evaluate the market opportunity and I'm excited about the growth potential. We are in the later stages of choosing a new experienced partner to help us launch in this market in fiscal 2020. Turning to our marketing initiatives, we remain focused on compelling seasonal campaigns to drive customer engagement. For fall, we launched our first campaign highlighting a group of California creatives, including artists, photographers, Actors and filmmakers with deep connections to the California region. This campaign features a series of short films providing an opportunity to share unique storytelling and communicate Vince's California DNA. The campaign is also featured on social media and print, including New York Times, T Magazine, Gentle Women and Fantastic Man, digital advertising, and Vince.com. We continue to invest in proven media partners, including the New York Times, Goop, and Conde Nast, expanding on creative, impactful, custom content, experiential moments, such as exclusive events. For example, we partnered with Goop on a pre-fall editorial that showcases Vince as the summer's go-to for luxurious, relaxed looks. The partnership was celebrated at Goop's Sag Harbor, New York location, We are also pleased to have reintroduced a direct mail catalog. This is designed to drive full-price sales to a targeted customer group who is motivated by new products. We have begun to drive more efficient digital marketing spend through more sophisticated audience segmentation, resulting in increased click-through rates and decreases in cost per session. We saw positive results by behaviorally driven email segmentation as we are delivering more meaningful and relevant messaging to the various customer segments, resulting in higher AOVs and conversion. We started the process of building out more robust CRM and CEM capabilities and are currently defining the future customer journey. We will focus on acquisition and retention goals towards becoming a customer-focused, direct-to-consumer, omnichannel organization. This will tie into our efforts to build behaviorally triggered emails and direct mail communication. Since Unfold, our subscription model launched in Q4 of last year, continues to gain momentum. We are seeing steady growth in new signups to receive unlimited access to a broad selection of our women's apparel. As we were early adapters of this model, we are pleased to see a growing number of brands launching an online subscription service. This furthers our confidence that subscription services align with the way customers shop and offer an additional growth avenue for our brand. Finally, as we mentioned last quarter, we may explore potential acquisitions that we believe are complementary to the Vince brand where we see opportunity to drive growth as well as gain strategic and operational synergies. As we continue to monitor for updates on current and pending tariffs related to List 4, We have been implementing mitigation efforts, including accelerating shipments, which we started in the second quarter, and continuing negotiations with our vendors who have been good partners in working with us on pricing. We also do plan to strategically increase prices on select items where we believe we have some elasticity. Longer term, we will also be looking at other sourcing opportunities. However, quality remains paramount. Therefore, we will remain disciplined in the process. In summary, we are extremely excited to see the strategic initiatives that we have employed coming together to drive strong top and bottom line performance. We expect the recent momentum to continue into the second half and beyond outside of the tariff pressures. Moreover, we are working diligently to offset the tariff increases announced to date and therefore do not expect these cost pressures to have a meaningful impact on our financial results in fiscal year 2020. Having stabilized the business and created a strong foundation, we believe we have meaningful opportunity to drive long-term sustainable growth by expanding our brand presence in the U.S. and international markets, continuing to gain market share in the wholesale channel, and extending our brand awareness through a direct-to-consumer channel and marketing strategies. With that, I'll turn it over to Dave.