Vince Holding Corp.

Ladies and gentlemen, thank you for standing by and welcome to Vince Holding Corp. Q2 2020 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 the 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, FD&A and Investor Relations. Thank you. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Vince Holding Corp's second quarter fiscal 2020 results conference call. Hosting the call today is Dave Stesco, interim chief executive officer and 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. Thank you, Amy.

Good afternoon, everyone, and thanks for joining us today. I am very excited to be stepping into the role of interim CEO as we continue our path forward. Over the past five years, I have worked closely with Brendan as we rejuvenated the Vince brand, and I remain excited about the opportunities in front of us for both Vince and Rebecca Taylor. We have a team of highly talented individuals across the business that remain committed to working together to advance the strategies we have set in place for both brands. Near term, our priority remains to navigate our business through the challenges presented by COVID-19, including driving sales, controlling expenses, protecting cash, and maximizing liquidity. Looking back on the second quarter, as expected, we saw a slow rebuild in momentum from the initial results of the pandemic as consumers buying shifted to e-commerce and has stores reopened. At the start of the crisis, we reduced merchandise purchase orders to prepare for unpredictable changes in customer purchasing behavior. We also maintained promotional and markdown activity above our normal cadence throughout the quarter to move seasonal inventory, which pressured gross margin. We continue to carefully manage costs and protect cash through furloughs, salary reductions, Lower Marketing Investments and Discipline Expense Management. I will speak to our financial results shortly. Looking at the business for Vince, we have reprioritized our growth strategies to adapt to the changing environment. In our direct business, we have reopened the majority of our stores with fewer hours and reduced staffing to respond to lower traffic levels while focusing on driving continued momentum in our e-commerce business. In wholesale, we're working closely with our wholesale partners to rebuild pre-COVID momentum and believe that our relative performance and market share gains within the contemporary space set us up well for the future. Despite the unprecedented events that have unfolded, the Vince brand aesthetic continues to fit well with our customers' desire for effortless luxury combined with elegant casual comfort, which is the epitome of the Vince brand. There has been a clear appetite for casual luxury across categories that are well-suited for a stay-at-home lifestyle. In sweaters and certain other knit classifications, we have been able to chase business to support the strong demand for these styles. For fall, we are continuing to emphasize casual luxury and will leverage our replacement capabilities to continue to chase product based on customer demand. We will also be launching extended sizes on Vince.com at the end of September. We see this as an untapped opportunity as we believe this is an underserved market and there's an appetite for casual luxury based on feedback from our wholesale partners. We believe that our brand's aesthetic within the contemporary luxury space gives us a distinct competitive advantage as demonstrated by the over 60% growth we saw in Vince.com as well as market share gains we saw at our wholesale partners. Vince was a top-performing women's and men's contemporary brand in volume for the August Nordstrom anniversary sale with best-ever sell-throughs. We are excited about the signal these results send as it relates to demand for our brand at Nordstrom. We are also excited to share that this fall we expanded our wholesale presence with the launch of our collection on Bloomingdales.com as well as indoors at select locations. Bloomingdale's represents another great partnership opportunity for events given how their customer base aligns with our brand's demographics. We will continue to evaluate potential partnerships with both brick and mortar and e-commerce sites that are brand appropriate. Our marketing efforts will support our offering with a continued emphasis on a stay-at-home lifestyle. We will host digital events including a test of a new virtual collection walk-through service which allows us to showcase product currently in stores while adhering to social distancing guidelines. Influencer collaborations remain an important component of our marketing strategy as we seek partners that have a large following. We'll also work with our wholesale partners to increase our reach through product and personalized marketing. For holiday, our focus will be on a lifestyle in or around the home as she plans to host or attend small gatherings during the holiday season. As we plan our strategy for the holiday season, we are evaluating the right balance of promotional and brand messaging, factoring in the expectation for a highly promotional environment. On the international front, we are also showing encouraging progress. The momentum in our business pre-pandemic has fostered great relationships with our partners, which includes several regional partners and over 300 specialty accounts who have continued to desire our product as they reopen their stores. In Asia, we are encouraged with the trends we are seeing in mainland China and Korea. Similarly, in Europe, we are pleased to see early signs of recovery as stores reopen. In London, we are excited to see improving department store sales volumes We also have efforts in place to drive traffic to our London store by hosting virtual sales and small in-store events. We continue to build partnerships with London-based influencers, including paid social media posts and branding events. During the second quarter, we focused on the advancement in our e-commerce initiatives. By systematically combining our multiple warehouse inventories into a single location, We have increased efficiencies by creating a greater access to inventory in high demand SKUs and at the same time reduce cost. This consolidation of our inventory will now better enable us to capitalize on the accelerated shift to e-commerce shopping. Our retail stores also remain an important channel to connect with customers in person and to drive brand awareness. We will strategically take advantage of opportunistic Premier Relo locations for both full price and outlet stores that may become available due to the disruption in the retail landscape. Our store expansion will remain highly selective in terms of both location and short-term low investment lease agreements for Vince and Rebecca Taylor. Turning to Rebecca Taylor, We are pleased to see the enthusiasm among our wholesale partners regarding our relaunch as we reposition the brand back to its feminine roots. The aesthetic embodies a romantic essence with delicate embroideries and prints. The new line will offer greater versatility, enabling customers to wear Rebecca Taylor both at home or out with friends. Multiple-use dresses and tops have already shown success with our customers as these products drove an increase in sales through the Nordstrom's anniversary sale. Our brand message for Rebecca Taylor will now consist of one singular strong voice as we eliminated the sub-brands that Rebecca Taylor had morphed into over the past few years. In addition, the integration into Vince's systems is on track to be completed before the end of the year and we expect to achieve greater than anticipated cost savings. We look forward to our full relaunch of the collection planned for spring 2021 and continue to believe we can successfully execute the Vince Playbook for the Rebecca Taylor brand. Turning to our financial results, total company net sales for the quarter decreased 59.9% to $37 million compared to $92.2 million in the second quarter of fiscal 2019. This reflects the closure of all Vince and Rebecca Taylor stores as of March 17, as well as the reduction in orders following the temporary closure of wholesale partner doors. This was partially offset by a more than 60% increase in our Vince e-commerce business. For the Vince brand, second quarter consolidated net sales decreased 54.9% to $32.2 million, compared to 71.4 million in the same prior year period. Our Vince direct-to-consumer segment sales decreased 46.2% to 15.1 million in the second quarter, reflecting the previously mentioned store closures and reduced traffic levels in reopened stores, partially offset by the strong growth in our e-commerce business. Our Vince wholesale channel sales decreased 60.5%. to $17.2 million as a result of the delay and cancellation of order receipts due to the closure of wholesale partner doors. Similar to performance in our direct business, online sales of this product on partner e-commerce sites were strong in the second quarter. The accelerated performance on both our branded website as well as the e-commerce sites of our wholesale partners illustrates the continued strength of the Vince brand. Rebecca Taylor and Parker combined net sales decreased 76.9% to 4.8 million as compared to the same period last year. As we mentioned on last quarter's call, we have paused the development of new product for our Parker business for now to focus resources on the operations of our Vince and Rebecca Taylor brands post the COVID crisis. Gross profit in the second quarter was 13.3 million, or 36% of net sales. This compares to 43.4 million, or 47% of net sales in the second quarter last year. The decrease in gross margin rate was primarily due to increased promotional activity, year-over-year adjustments to inventory reserves, channel mix, and the deleveraging of supply chain costs, partially offset by lower sales allowances. selling general and administrative expenses, excluding the non-cash impact of goodwill and intangible asset impairment charges, long-lived asset or other finite-lived intangible asset impairment charges, in the quarter were $27.3 million, or 73.9% of net sales, as compared to $41.6 million, or 45.1% of net sales for the second quarter of last year. As a result of the actions taken to reduce costs at the onset of the COVID pandemic, we decreased SG&A dollars by $14.3 million. This decrease was primarily a result of lower payroll and compensation expense, as well as reduced spending on marketing, lower depreciation and amortization costs due to store impairments taken in the first quarter as a result of COVID-19, and the streamlining of other expenses. Operating loss for our second quarter was $14 million compared to a loss of $18.4 million in the same period last year, which included $20.1 million in non-cash asset impairment charges. Moving to the balance sheet, borrowings under our debt agreements totaled $76 million. We ended the quarter with availability of $34.7 million under our revolving credit facility, We continue to take steps to manage our liquidity and maintain financial flexibility, and we believe have adequate funds to effectively operate our business through the crisis. We continue to work with our suppliers on extending payment terms and on managing inventory flow. In addition, we are pleased with the progress we are making in our negotiations with our landlords, which are nearly complete. Moving to inventory, net inventory was $92.1 million at the end of the second quarter as compared to $74.9 million at the end of the second quarter last year. As we mentioned last quarter, we are expecting to receive shipments of product at the onset of the pandemic that we were unable to cancel. Therefore, due to order cancellations in the wholesale channel and temporary store closures, we saw an increase in seasonal inventory levels in the second quarter. We plan to move through the remainder of excess inventory through our outlet channel and off-price partners in addition to promotional activities. Further, we believe that our merchandise assortment will remain relevant in future seasons and therefore a portion will carry over. Overall, we are comfortable with this strategy and believe we will move through the excess inventory and get back to more normalized levels over time. As stated in our press release published this afternoon, due to the uncertainty related to the impact of COVID-19, we will not be providing guidance at this time. In conclusion, first and foremost, we have a great team of dedicated leaders and individuals who have a clear vision for the future of Vince and Rebecca Taylor and the opportunities that lie ahead. We believe the market-leading position of the Vince brand in the fashion contemporary luxury space and the resiliency to expand this leading positioning during the COVID pandemic further support our ability to take advantage of opportunities post-COVID. In addition, we believe Rebecca Taylor is poised to replicate the Vince Recovery and Growth Playbook. Although there is currently a lot of uncertainty surrounding the retail environment, we remain confident that our portfolio of brands are well positioned to deliver long-term sustainable growth for our shareholders. This concludes my comments regarding our second quarter. We will now take your questions. Operator?