Vince Holding Corp.

Hello and welcome to today's Vince Q4 2021 earnings conference call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during a presentation, you may do so by pressing star followed by one on your telephone keypad. And I'd like to hand over to Amy Levy, Vice President and Investor Relations. Please go ahead when you're ready.

Thank you and good morning, everyone. Welcome to Vince Holding Corp's fourth quarter fiscal 2021 results conference call. Hosting the call today is Jack Schwekel, Chief Executive Officer and Dave Stesko, 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. 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.

Thank you, Amy, and thank you, everyone, for joining us this morning for a discussion on fourth quarter and our fiscal year performance. We remain encouraged by the trends in our business in spite of the current macro Edwin's impacting our industry. Looking back at 2021 and through the first quarter of 2022, we are very pleased with the ongoing momentum and advanced business. We continue to gain traction in both the direct-to-consumer and wholesale partner channels as we further refine our offerings and enhance the customer experience. In terms of Rebecca Taylor, the team has made progress in developing a versatile collection with floral prints and silhouettes while maintaining the romantic aesthetic of the brand. I would like to begin with a review of the performance of our VINs brand. In the fourth quarter, direct-to-consumer sales recovered to slightly above fiscal 2019 results, while we saw continued sales pressure in the challenging wholesale channel. Our gross margin improved significantly last year, despite higher freight costs. The strength of the brand combined with our high-quality product provides us with pricing power to offset cost headwinds. We remain extremely well positioned in the contemporary luxury category. as we continue to evolve the assortment to meet the needs of our customers. Looking back at our holiday season, we were very pleased with our performance as we rolled out promotions beginning in early November, earlier in the quarter than usual. Customers responded positively to our gifting assortments, particularly knitted sweaters, as well as the dressier styles ahead of the season, and based on the success, we expect to repeat this cadence in 2022. In addition to dressier items, our business in the fourth quarter was fueled by styles that prepared customers for return to work and social activities outside the home. We saw a very strong response to cashmere and leather and will build on these strengths. This trend of supplementing her wardrobe has continued into the first quarter. Our spring collections introduced an array of fashion colors, which have been well received in the first quarter as we shift away from mostly neutrals. As we look ahead towards fall, Ours have shown enthusiasm in our pants assortments as well as our new line of cold-weather accessories, both for men and women, by Amical, our new licensing partner. In addition, based on the success I mentioned earlier, we see a very big opportunity with sweaters, outerwear, and particularly leather in the back half of the ship. In men's, we are extremely pleased with the continued momentum, both in the wholesale channel and in our own stores and websites. While we are seeing excellent growth across these all categories, knits, wovens, tops, pants, and in addition to sweaters, particularly performed well during the fourth quarter. Thus far in the first quarter, we have seen a great response to linen and pants, including joggers, as we evidently have capitalized on the hybrid work-from-home environment. Based on the impressive performance we are seeing quarter after quarter, we are confident that the men's category remains a significant growth opportunity and is a key strategic focus for the Vince brand. In particular, wholesale distribution will remain a meaningful part of this growth strategy as we work to drive market share gains by broadening our customer reach. Looking at store performance by region, urban locations continue outpace the store base. That said, during the quarter, store productivity remained under pressure as a result of Omicron related buying behavior. We began to see this trend improve in March, especially in some of our resort vacation locations like Honolulu in Las Vegas. E-commerce continues to show momentum even as the mix shifts towards stores. We plan to continue to lean into e-commerce as the consumer utilizes both channels. We've reopened our Fifth Avenue store this past week. We are excited to be reopening this store, given its high traffic location and the fact that it's the first VIN store to offer extended sizes. For the first half of the year, we plan to open a new store in the Boston Seaport. In wholesale, supply chain disruptions and delays remain a challenge, but our teams are working closely with our partners to get product into stores in a timely manner. Like others, we believe these headwinds will continue at least through the first half of this year. Overall, we remain pleased with the sell-through at retail, which continues to demonstrate the demand for Vince as we remain the leading contemporary brand for our partners. The reception of our brand at Bloomingdale's continues to be very strong, particularly driven by younger customers in urban markets such as New York City and Los Angeles. As mentioned on last quarter's call, we see an opportunity to grow this relationship, and we'll look to do so in a way that complements our existing wholesale footprint. We are also excited to share that during the quarter, we reached an agreement with Saks Fifth Avenue to launch our collections on Saks.com, as well as select locations this June. Saks represents another great partnership opportunity for events, and we look forward to growing this relationship over time. From a brand perspective, we have installed a disciplined approach to marketing throughout the funnel at both Vince and Rebecca Taylor. We have been focusing on combining top of funnel marketing with performance marketing or owning, coding the message for each brand. During the holiday shopping period, we launched clear holiday campaigns on social media for both Vince and Rebecca Taylor. While these campaigns were mainly rooted in social, We also used email and SMS in a very tactical manner to drive customers both to the website and into stores, while simultaneously increasing our brand awareness. As a result of these marketing strategies, we have seen double the traffic and conversion from the fourth quarter of the previous year. Another enhanced initiative for Vince was our direct mail campaign, where we offered our most valuable customers with a gift with a gift card to drive it into stores and onto the website. We will use direct marketing more in the future. During the spring season, we strategically positioned the VINZ brand using messaging focused on living life your way. For example, we introduced a series called Crafted with VINZ this past spring, which takes eight artists and builds stories around each of their lives and how they fit VINZ clothes into these stores. The ethics of Vince is, and always has been, quiet contemporary luxury, a type of luxury that fits into your daily life. Our customers are highly affluent, and as such, they truly appreciate the quality of the Vince brand. In order to expand our customer base, a key focus for us has been to grow brand awareness and loyalty across generations, particularly to the younger customer, through the introduction of a considered social campaign. The use of our influencer strategy will continue to be critical to both Vince and Rebecca Taylor as we aim to increase awareness and drive conversion. As mentioned last quarter, we completed the base implementation of our point of sale system for the Vince brand, further enhancing our omnichannel capabilities. Our shift from store capability, which makes more efficient use of our omnichannel inventories, has been a huge success and it's become an instrumental piece of our e-commerce business. During the fourth quarter, shift from store counted for 14% of total e-commerce demand quarter to date, and more than 25% of our online sales are being fulfilled through stores, allowing us to ship a much larger percentage of demand than we were a year ago. In addition to our shift from store capability, my online pickup and store, which we launched at the end of the fourth quarter, has started to show encouraging results as it allows for more speed to market in terms of where product is coming from. We expect both shift from store and focus to be even more refined in the second half of this year. In addition, we have seen strength in our retail marketing strategies, which is driving conversion in stores. Looking forward, we will continue to focus on strengthening our omnichannel capabilities to drive Vince Holding Corporation's digital transformation. We will be replatforming the front end platforms of both Vince and Rebecca Taylor starting in the second half of 2022. We have selected Salesforce, our current partner for these new platforms, and we'll have them in place by the end of the year. Subsequent to that, we will install a true customer data platform, CDP, which will further enhance our target marketing and personalization capabilities. Turning to our international business, I'd like to start by acknowledging the deeply troubling situation that is happening in the Ukraine. All of us have been standing stand in support with the people of Ukraine. And to show the support, we have made a $50,000 donation to Ukrainian relief efforts. In addition, we have created a selection of accessories with our partner and account for Ukrainian refugee support to further raise funds for this cause. All of that said, our business in Eastern Europe is extremely small and we have now stopped that business. We are confident we can make up this exposure in Eastern Europe between our Spanish, Australian, and Chinese businesses. In China, we are excited to announce that we have entered a wholesale relationship, which will allow us to open our first store in Shanghai and launch on web in the back half of this year. Alongside that, we are still in conversations with our joint venture partner to fully launch the Vince brand in China. We look forward to providing you with an update on future calls as these conversations progress. Overall, we are very pleased with the performance of the Thence brand over the past year and remain extremely confident in its future. Our teams will continue to work hard to take advantage of all of the opportunities ahead as we drive market share gains in the contemporary luxury category. Turning to Rebecca Taylor, we are making progress and heading in the right direction. As we grow the brand, a key focus for the team has been establishing margin healthy strategies through full price selling. Similar to the Vince brand, Rebecca has been met with no resistance to price increases. We are encouraged by the reception of her spring assortment, which extends the spring 2021 relaunch, and our recent fall and winter assortments by continuing to address more of her lifestyle needs with a particular focus on building out occasion-based items that can be dressed up or down to adjust to her changing needs. During the first quarter, We have seen a great response to lace, crochet, and prints thus far. In wholesale, we have seen success by leveraging relationships with existing partners. We believe there is a growing white space in this category that we can take advantage of to drive market share gains. Looking ahead, we will be launching a test of six select Dillard stores this coming fall. We are encouraged by the performance of our West Coast stores, including our new store in Palm Springs, as well as our outlets in Carlsbad and Livermore, California. During the fourth quarter, we opened three full-price stores and one outlet for Rebecca Taylor. As a reminder, we currently have 18 Rebecca Taylor stores, 10 of which are full-price and 8 of which are outlet stores. As we continue to increase our marketing efforts, we are seeing the results start to meet our expectations. The social engagement rate in the fourth quarter sequentially increased approximately 42%. For spring, we are taking the foundation of the Rebecca brand and embedding it into the concept of travel around the world. Similar to Vince, our messaging focuses on demonstrating how the brand is appropriate wherever you go as the world starts to regain the need for occasion-based items. Based on the successful partnership Vince has had with American Express for several years, we made it a focus for Rebecca Taylor in the first quarter and are very pleased with the results. Overall, we will continue to learn to lean into a similar strategic plan to what drove success at Vint's as we redefined our merchandising servant and enhanced our brand messaging. In conclusion, our performance reflects the strength of our distinct fashion brands. Despite experiencing extraordinary headwinds as I joined Vint's holding a year ago, we continue to impressively manage through these challenges while making progress on our three-year plan that we announced in January. As I watch the hard work, the good hard work, of our teams put in quarter after quarter, I continue to be more excited about the future. In 2022, we will continue to use a disciplined approach while executing on key strategies to drive future growth for our shareholders. With that, I will turn it over to Dan.

Thanks, Jack. I would like to reiterate how pleased we are with the trends in our business in spite of the macro headwinds as we remain focused on driving our key strategies. Looking back on 2021, we have made impressive progress on both refining and executing our key strategic initiatives while simultaneously navigating through unprecedented challenges in the overall environment. We have worked very closely with our wholesale channel partners, landlords, and vendors all of whom have been great partners during such an uncertain time. Looking ahead into 2022, we see meaningful opportunities to grow both of our distinct fashion brands as we capitalize on a strong foundation we have continued to build over the past few difficult years. Total company net sales for the fourth quarter increased 32% to 99 million compared to 75 million in the fourth quarter of fiscal 2020. For the Vince brand, fourth quarter consolidated net sales increased 26% to $87 million, compared to $70 million in the same prior year period. Our Vince direct-to-consumer segment sales increased 45% to $44 million in the fourth quarter and exceeded 2019 levels, driven by our e-commerce business, which benefited from the ship-from-store capabilities provided by our new POS system. In stores, we saw improved traffic trends versus 2020, particularly in locations in our urban markets, which outpaced the store base in the quarter. In our wholesale segment, net sales increased 10%. We approached 4Q 2019 sales levels and continue to outperform peers within the contemporary luxury category. On the heels of this strong performance, we are thoughtfully expanding our distribution with the addition of targeted SACS locations. Rebecca Taylor and Parker combined net sales increased 121% to 11.7 million as compared to the same period last year. This was primarily driven by sales growth of Rebecca Taylor in the wholesale channel, as well as nine new store openings for the brand since the end of last year. Close profit in the fourth quarter was 43.6 million, or 44% of net sales. This compares to 27.6 million, or 36.9% of net sales in the fourth quarter of last year. The 710 basis point increase in gross margin rate compared to the fourth quarter of fiscal 2020 was primarily due to lower year-over-year adjustments to inventory reserves and lower promotional activity in the direct consumer channel. partially offset by transportation costs related to supply chains challenges. Selling general and administrative expenses in the quarter were 41.8 million or 42.2% of net sales as compared to 31.5 million or 42.1% of net sales for the fourth quarter of last year. The increase in SG&A dollars is a result of higher payroll and compensation expense, increased investments in marketing, and higher occupancy costs due to landlord rent concessions we received in the prior year. Operating income for the fourth quarter was $1.8 million compared to a loss of $3.9 million in the same period last year. Income tax expense for the fourth quarter was $2.8 million as a result of non-cash deferred tax expense created by the current period amortization of indefinite life, goodwill, and intangible assets for tax, but not for book purposes. This non-cash book versus tax impact on income taxes will continue in 2022 as well. Net loss for the fourth quarter was $2.7 million, or a $0.23 loss per share, compared to a net loss of $7.4 million, or a $0.62 loss per share, in the fourth quarter last year. Moving now to the balance sheet. Borrowings under our debt agreements total 92.7 million. We ended the quarter with availability of 40.6 million under our revolving credit facility. Moving to inventory, net inventory was 78.6 million at the end of the fourth quarter as compared to 68.2 million at the end of the fourth quarter last year. In January of 2022, we received a more normal flow of spring 2022 shipments, while last year we were working through excess inventory from prior seasons and received the majority of our new spring shipments in the first quarter of 2021 due to shipping delays associated with the global supply chain issues. Now, I would like to provide guidance for the first quarter of fiscal 2022, as well as provide some additional context regarding our outlook for the remainder of the year. For the first quarter, we expect total company net sales to approximate 77 million, exceeding pre-COVID revenue levels. Operating loss is expected to be between 6 million and 8 million, reflecting a decline in gross margin year over year, partially offset by SG&A expense leverage. The increased gross margin pressure is a result of higher markdowns in our DTC channel as well as product and transportation cost inflation experienced during the first quarter. Looking beyond our first quarter guidance, we increased orders of pre-fall and fall assortments, which we believe will support the relaunch of the Vince e-commerce platform and associate marketing strategies expected elevated demand. In addition, we increased replenishment inventory following a shortfall last year. These higher inventory levels should help to mitigate the impact of extended shipping times related to factory shutdowns and a temporary port closure in Shanghai. As a result of these actions, we expect to see higher inventory levels at the end of the second quarter. In addition to this, we have also moved spring 2022 seasonal assortments into the off-price channel earlier than we've historically done to ensure we will maintain a balanced composition of inventory. We anticipate that these actions will enable us to be comparatively less diluted with markdowns in the second half of the year than in the first half. This, combined with further price increases that will begin to take effect at the end of the second quarter and more fully in the back half of the year, should help to mitigate the impact of continued product and transportation cost inflation. For fiscal 2022, we expect capital expenditures net of tenant allowance to be below 2021 and more similar to 2020, with a focus on digital investments as we can continue to drive our digital transformation. Looking ahead, we will continue to focus on executing our key strategies to drive growth in our business. This concludes my comments regarding our fourth quarter. We will now take your questions. Operator?

Thank you. For our Q&A, if you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. And when preparing to ask your question, please ensure your phone is unmuted locally. Our first question today comes from Dana Telsey from Telsey Advisory Group. Your line is open.

Good morning, Jack, Dave, and Amy. Nice to see the progress. A couple things. first on the supply chain discussions, how have you diversified, whether it's sourcing, bringing in goods, any sense of timing in terms of how long you expect things to be at these levels and any improvement in the second half of the year? And the current, any of the China lockdowns, are they impacting you? And then just on the guidance for the first quarter, Dave, that you had mentioned, can you just expand a little bit on inventory levels in terms of markdowns, full price, what you're seeing in terms of the fashion product and the basic product and how you're sorting it. Thank you.

Hey, Dana, this is Jack. I will start it off. In terms of how we're diversifying, we are leaning in a little harder to some of our vendors and categories. that are outside of China. We're doing more and more business in Peru and we're doing more business domestically as well. In addition to that, we are testing and sampling and looking to do more product in Europe, in Turkey, in Portugal. That's all in gestation that hasn't really come to fruition, but clearly our receipts coming out of South America and domestically are starting to grow. We are finding We continue to find new ways to move product out of China. Like many others, we're being as creative as we can be. It's somewhat of a game of whack-a-mole as things move around. We have gone from, in many cases, from air to now looking at fast boats and think that there's some relief there. But it's morphing. It changes day to day. And it's an environment that is very difficult to predict beyond this week. So in terms of guidance, I give you anything further out because it continues to change. We're aware that over 3 million people have been tested in Beijing just this week and are waiting to see what that's going to mean in terms of product. It hasn't affected us yet, but we're all kind of holding our breath on that.

I would add to that, that we have not seen the supply chain challenges slow us down to this point. We have spent money to air items. When you look at what's going on in Shanghai, we have moved items via boat from Shanghai to other ports or airstrips because of the difficulty to truck items across the border. So we've been responsive and investing. talk about second quarter and some of the things we've done from an inventory perspective. That's why we've taken something like replenishment and increased order quantities to make sure that we have product as we get into the back half of the year in case the supply chain challenges continue.

Got it. And price increases, what's the magnitude of price increases that you've taken? What are you expecting to take go forward? And is it on the whole assortment in both Vince and Rebecca Taylor? Or is it more one versus the other?

It's pretty much across both brands. And it's pretty pervasively across the entire collections. I think we were We were hopeful in fall as we were pricing this spring that we had taken enough, and I think we've been a little bit more aggressive as we look towards fall. We are seeing significant cost of goods increases as we build product for the fall and beyond, and are looking for the light at the end of the tunnel here where it starts to slow down. But candidly, no, we will see them across the board. And talking to our wholesale partners, they're seeing the same thing from other resources as well.

And it also sounds like wholesale is increasing. How many more Bloomingdale's stores? How many sacks are you looking to go into? And do you manage the pricing there? Do they manage it in terms of promotions? How do you expect that to work?

With Bloomingdale's, we're adding a few doors. It's just a handful. But candidly, the productivity per door is the thing that we think we can really grow the most. They see it too in terms of their ownership, their depth of product. And we're very, very pleased with just how proactive this relationship has been. Likewise with Saks, we're going to go in there with a handful of stores and e-commerce and really work with them as a partner in terms of having a lot of say in terms of how we're positioned from a pricing standpoint.

Got it. And it sounds like, Jack, you alluded to the fact that it seems like spring merchandise, the reopening and social occasion dressing, you're seeing the benefit. Any just way you'd frame or talk about how spring's been received?

Yeah. Look, at Vince, it's been a lot about color. And it has been incredibly well received in all channels, whether it's wholesale, retail, or e-commerce. Same in Rebecca Taylor. Special really matters at Rebecca Taylor, which is why I emphasize things like crochet and the more hand-knitted looks. That clearly resonates with who the Rebecca Taylor customer is, and we're just trying to find more ways to throw her like that.

Thank you.

We have no further questions. I'll now hand back to Jack Schweffel for closing remarks.

Great. Thank you. This concludes our fiscal 2021 results call. Thank you for your time and your attention to this. We will be updating you all on final Q1 2022 results in June. Thank you for your time and have a great day.

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.