Vince Holding Corp.

Ladies and gentlemen, thank you for standing by and welcome to VINCE Q3 2019 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. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Amy Levy, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you and good afternoon, everyone. Welcome to Vince Holding Corp.'s third quarter fiscal 2019 earnings conference call. Hosting the call today are 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 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 adjusted results that the company presents today are non-GAAP measures. Thanks, Amy.

Let me begin by sharing how excited we are to have recently completed the acquisition of Rebecca Taylor and Parker. With this transaction, we are bringing together three highly recognized distinct brands to create a global contemporary fashion group. We look forward to working with the Rebecca Taylor and Parker management team to grow these brands by employing similar strategies that continue to drive the success we've accomplished at Vince. Turning briefly to third quarter performance, which closed prior to the acquisition, We delivered another quarter as strong top and bottom line results have been. Our net sales for the quarter grew 3.4%, and gross margin expanded 150 basis points to 50.4%. Adjusted net income, despite higher tariff costs, increased 28% to $8.7 million, or 73 cents per diluted share, compared to net income of $6.8 million, or 57 cents per diluted share in the same period last year. In our direct-to-consumer segment, revenue increased 16%, led by a 10% comp increase and four net new store openings since the end of the third quarter last year. We saw strong comps across all channels with continued strength in our e-commerce business, driven largely by an increase in transactions. We attribute our performance to strong response to our product, as well as marketing and segmentation strategies that we've been executing to drive customer traffic. As we continue to expand offerings within key classifications and test new product categories as well as build on our marketing initiatives, we expect this strong momentum to continue. For the fourth quarter to date, we are pleased with the overall performance in our direct-to-consumer business led by continued strength in e-commerce. Our wholesale channel revenue decreased 3.6% in the third quarter. This decrease was a result of lower shipments to the off-price channel, the acceleration of seasonal wholesale deliveries into the second quarter, and seasonal timing of returns. We continue to see robust growth in our sales of the register, which in turn has enabled us to secure more floor space in our key wholesale partner doors. We are excited to have the larger space as it gives us the opportunity to further showcase the essence of a Vince brand. With more impactful visual merchandising, we see potential of building our momentum as we continue to deliver exceptional products in addition to creative marketing collaborations and events. Sales for fourth quarter of the day tell us that the traction we are gaining continues. 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. Our retail expansion strategy continued to progress with store openings from the U.S. as well as international markets. Our new Fifth Avenue store, which opened in September, is located in a heavily trafficked area of Midtown. This is another example of our opportunistic leasing strategy, and we believe this location serves as an opportunity to further expand brand awareness. At the end of November, we opened in the Mall of Millennia, located in Orlando, further expanding our presence in Florida. We plan to continue to expand our U.S. retail base next year and have identified premier locations where we can negotiate opportunistic leases that enable us to achieve strong economic returns. In addition, we continue to renegotiate existing store leases upon expiration or kick-out periods as we leverage our brand strength. We are also exploring relocations to larger footprints or more optimal nearby locations. In terms of global expansion, we saw a strong store opening in South Kensington, London in September. Thank you. Thank you. and our intention is to launch in fall of 2020. As we expand our store base globally, our in-store experience that embodies a California vibe will be consistent across retail locations from Melrose to Europe and China. As I mentioned earlier, our e-commerce channel performed exceptionally well in the quarter. This represents another way in which we share our narrative through visuals and creative content that enables us to connect with our guests. Our product extension strategies are also progressing well. We are building out our sourcing, design, and production capabilities to support distribution of handbags in extended sizes to enhance sourcing and expansion of our teams. We expect to initiate distribution of our handbags in the wholesale channel in 2021. We plan to initially launch sizes 18 to 24 on our e-commerce in fall 2020, followed by distribution into the wholesale channel. Turning to our marketing strategies, we are focused on both increased engagement with existing customers and driving customers to the brand. These initiatives are all centered around customer connectivity. In addition to utilizing social media ads, each season we work with media partners with a similar demographic to share our campaigns, drive impressions, and clicks to our site. For the fall season, we work with Shop Bazaar, New York Times, and GQ to advertise and help build brand awareness. Looking ahead to the fourth quarter and beyond, we have a lot of exciting digital advertising campaigns to come. Furthermore, we continue to create buzz and engage with local communities through influencer partnerships as well as branded and customer-facing events. Our recent partnership with the New York City Influencer Florist allowed us to create an exclusive custom shoe for Nordstrom as part of their Perfect Pair Muse campaign. This partnership included store displays, site experience, and email placements to drive awareness. We also continue to work with our influencer agency in Europe. All influencers will be posting fall and holiday products and using the campaign hashtag Vince Woman to measure activities on Instagram. Over the next few quarters, we will continue to develop collaborations and brand partnerships as well as leverage micro and macro brand influences. Turning to our subscription business, we anniversary the launch of Vince Unfold in November.