Vince Holding Corp (VNCE) 2014 Q4 法說會逐字稿

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vince Holding Corp. Q4 and FY14 earnings conference call.

(Operator Instructions)

Thank you. I would now like to turn the call over to Ms. Jennifer Poland, Vice President of Finance. You may begin your conference.

Thank you, Melissa, and good morning, everyone. Welcome to our fourth quarter and full year FY14 earnings conference call. I'm Jennifer Poland, Vice President of Finance. Joining me today is Jill Granoff, our Chairman and Chief Executive Officer, and Lisa Klinger, our Chief Financial Officer, who will be your speakers for today's call.

Before we get into the discussion of our results, I need to remind you that any forward-looking statements we make today are subject to our cautionary statements regarding forward-looking statements found in our press release and SEC filings. Our fourth quarter and FY14 earnings release and related financial information are available on our website under the Investor section. For those who cannot listen to the entire live broadcast, a replay will be available for 30 days on our website at www.vince.com.

I would also like to point out that on November 27, 2013, Vince Holding Corp. completed its initial public offering. As a result of the IPO and the related restructuring transactions, Vince became the sole operating business of Vince Holding Corp., while the non-Vince businesses were separated. Additionally, on July 1, 2014, certain stockholders of the Company completed a secondary public offering of the Company's common stock, with all proceeds going to their stockholders.

In today's discussion, we are presenting our financial results in conformity with GAAP, including the financial results of the non-Vince businesses for the full year of FY13 as discontinued operations. In addition, we will be presenting financial results relating to the full year of FY13 on an adjusted basis, in order to exclude the impact of results of the non-Vince businesses and certain public company transition costs, as well as FY14 on an adjusted basis, in order to exclude the impact of secondary offering expenses.

These adjusted results are non-GAAP measures, and include adjusted measures. Discussions of these non-GAAP measures and 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 section of our website. After our prepared comments, we will be available to take your questions for as long as time permits. Now I'll turn the call over to Jill.

Thank you, Jennifer. Good morning, everyone, and thank you for joining us for our fourth quarter and full year FY14 earnings call. We are very proud of our performance in our first full year as a public Company. We delivered record sales and profits, and made great progress on all of our strategic growth initiatives. We also continued to invest in our business, in order to set a solid foundation for future growth.

Starting with the numbers, we are pleased to have achieved our financial objectives in FY14 Net sales grew by over 18%, with double-digit growth in both our wholesale and direct-to-consumer segments. Our gross margin expanded by 280 basis points, and adjusted operating margin expanded by 30 basis points to 20.8%, despite substantial reinvestment in our business. Adjusted EPS increased nearly 29% compared to last year. We also demonstrated disciplined inventory management, and paid down $82 million in debt, strengthening the Company's capital structure.

From a strategic perspective, we delivered many major wins in 2014. During the year, we broadened our product assortment, expanded distribution, further developed our men's business, and increased brand awareness from 20% to 33%. Within domestic wholesale, we maintained our leadership position in our key department store accounts, and opened 18 new shop-in-shops for a total of 29 at year-end.

In retail, we opened 9 new stores, for a total of 37 at year-end, and we delivered comparable sales including e-commerce of 12%. We also relaunched our website, setting the stage for accelerated digital growth. In addition, we continued the successful expansion of our international business in both Europe and Asia, reflecting growing acceptance of the Vince brand globally.

In terms of product, we continued our evolution into a global dual gender lifestyle brand. We continued to expand upon our women's and men's apparel offering, as well as launching our handbag line this year. Our licensed women's footwear business continued to perform exceptionally well, and the brand's product assortment expanded, with the launch of men's footwear and children's apparel through licensing agreements.

We also made many strides in our organization and operations. We strengthened our leadership team, established a supply chain office in Asia in partnership with our sourcing agent, opened new showrooms in New York, and a new design studio in Los Angeles, and improved our operate processes to increase efficiency and effectiveness. In total, we continued our successful trajectory, and set the platform for future growth.

Now turning to the fourth quarter. We had double-digit sales growth in all distribution channels with the exception of domestic wholesale. While we remain the number one or two brand among our department store partners, net shipments in domestic wholesale were down slightly due to a reduction in off-price shipments, increased give-backs and minor disruption due to the West Coast port strike.

In contrast, our direct-to-consumer segment was up by 40%, and comparable store sales inclusive of e-commerce rose nearly 16%, reflecting our 21st consecutive quarter of comparable store sales growth. In terms of profitability, gross margin expanded by 260 basis points in a highly promotional environment, and diluted EPS grew by nearly 22%.

Overall, we remain very pleased with the continued momentum in our brand. Our customer is clearly responding to our enhanced product offerings, and we made strides in becoming the go-to resource for everyday luxury essentials and modern, effortless style. Before I review our key strategic initiatives and outlook for 2015, I would like to turn the call over to Lisa who will provide additional details on our financial results for the fourth quarter and FY14. Lisa?

Thank you, Jill. As we mentioned in our introductory comments, the Company will be presenting both GAAP as well as adjusted financial results, in order to provide investors with additional information to evaluate our comparable operating performance.

Starting with the fourth quarter, total net sales grew 7.9% to $94.7 million, versus $87.8 million in the prior year period. Our wholesale segment sales declined slightly to $68.9 million due to a reduction in off-price shipments, increased give-backs, and minor disruptions due to the West Coast port strike. These challenges in the domestic wholesale channel were partially offset by strength in our international business and growth in our licensing revenues.

Additionally, our direct-to-consumer segment sales increased 39.8% in the fourth quarter, as we added nine new stores since the fourth quarter of last year, grew our comparable store sales by 8.7%, and continued to see strong growth in our e-commerce business. Including e-commerce sales in our comparable sales measure, our fourth quarter year-over-year increase was 15.5%. Comparable sales growth was driven by a double-digit increase in transactions, which was somewhat offset by a slight decrease in transaction size.

Moving on to profitability. Gross profit in the fourth quarter increased 13.8% to $45.7 million, versus the fourth quarter of FY13, as the result of both an increase in sales and an increase in gross margin rate. Gross profits as a percentage of net sales increased 260 basis points from 48.3% -- or to 48.3% from 45.7% last year. The gross margin rate increase was driven primarily by year-over-year improvement in inventory reserve allowances, increased sales penetration of our direct-to-consumer, international and licensed businesses, and supply chain efficiencies, partially offset by higher promotions, markdowns, and returns allowances.

Selling, general and administrative expenses in the quarter were $25.5 million or 26.9% of sales, compared to $25.2 million or 28.7% of sales for the fourth quarter of last year. Adjusted selling, general and administrative expenses as a percentage of net sales for the fourth quarter of FY13 were 25.8%. As we continue to invest in our growth, our SG&A rate deleveraged primarily due to strategic investments in our marketing programs to build brand awareness and drive traffic to all of our distribution channels, increased labor and occupancy costs related to our retail growth strategy, and costs related to our equity compensation program. We also incurred higher depreciation expense as we strategically invested in new retail stores, wholesale shop-in-shops, and our expanded showrooms, design studio and headquarters facilities.

Operating income in the fourth quarter of this year increased 35.3% to $20.2 million or 21.3% of sales, compared to $14.9 million or 17% of sales for the fourth quarter of last year. Compared to adjusted operating income in FY13 of $17.5 million or 19.9% of sales, operating income increased 15.4%. We are pleased with the expansion in our operating margin, as our gross margin rate expansion offset the impact of increased investments to support our various growth initiatives, and costs incurred for Vince to operate as a standalone public company.

GAAP reported net income for the fourth quarter this year increased to $10.5 million, compared to $600,000 last year. Reported diluted earnings per share was $0.27, compared to a diluted loss per share for the prior year's fourth quarter of $0.02. Compared to adjusted net income in the fourth quarter of FY13, net income increased 19.9% and diluted earnings per share increased 17.3%, compared to adjusted diluted earnings per share of $0.23 in the same period of the prior year.

In looking at our annual results, net sales for FY14 were $340.4 million, an increase of $52.2 million or 18.1% over FY13. Our growth was driven by a 13.2% increase in wholesale segment sales, and a 37.1% increase in our direct-to-consumer segment sales. Our comparable store sales for FY14 increased 7.8% over FY13, or 12.1% when including e-commerce sales. This comparable sales growth was driven primarily by an increase in transactions, and a slight increase in transaction size.

Gross profit for FY14 increased 25.4% to $166.8 million from $133 million in FY13. The increase in gross profit was driven primarily by the increase in sales, and an increase in the gross profit rate. Gross profit as a percentage of net sales for FY14 increased 280 basis points to 49% from 46.2% in FY13. The increase in gross profit rate was primarily driven by increased penetration of sales from our direct-to-consumer, international and licensing businesses, overall supply chain efficiencies, and the year-over-year improvement in inventory reserve, offset slightly by higher markdowns and returns allowances.

Selling, general and administrative expenses for FY14 increased 15.4% to $96.6 million, versus $83.7 million in FY13. Excluding public company transition costs in both periods, adjusted selling, general and administrative expenses for FY14 increased 29.9% to $96 million, compared to $73.9 million in FY13. As a percentage of net sales, adjusted selling, general and administrative expenses for FY14 increased to 28.2% from 25.6% in FY13. The increase in our SG&A rate for FY14 was driven primarily by increased investments to support our retail expansion strategy, marketing investments to increase brand awareness, and expenses required for Vince to operate as a standalone public Company.

Operating income increased 42.2% to $70.2 million from $49.4 million in FY13. Excluding public company transition costs of $600,000 and $9.8 million in FY14 and FY13 respectively, adjusted operating income increased 19.7% to $70.7 million in FY14, from $59.1 million in FY13. As a percentage of net sales, adjusted operating margin for FY14 was 20.8%, compared to 20.5% in FY13.

On a GAAP basis for FY14, the Company reported net income of $35.7 million, compared to a net loss in FY13 of -- $[27.4] million, which included the impact of public company transition costs, and results of the non-Vince businesses that were separated on November 27, 2013. Diluted earnings per share for FY14 was $0.93, compared to a net loss per share for FY13 of $0.97. Adjusted net income for FY14 increased 28.2% to $36 million for FY14, and from $28.1 million for FY13. Adjusted diluted earnings per share increased 28.8% to $0.94 in FY14, compared to $0.73 in FY13.

Now moving on to the balance sheet. We voluntarily reduced our debt by $34.5 million during the fourth quarter, resulting in total debt outstanding of $88 million. Our debt leverage ratio was 1.2 times at the end of FY14, compared to 2.8 times at the end of FY13. During FY14, we voluntarily paid down $82 million of debt, while investing behind our numerous growth initiatives. At the end of FY14, the Company had $19.4 million of availability remaining under its $50 million asset-backed lending facility, providing significant liquidity to the business.

Inventory at the end of FY14 was $37.4 million, an increase of 10.2%, compared to $34 million at the end of FY13. The year-over-year increase was primarily driven by the addition of nine new retail stores since the fourth quarter of last year, increased in-transit inventory as the result of our operational improvement initiatives, an expanded replenishment program, new handbag inventory and overall global sales growth.

Capital expenditures for FY14 totaled $19.7 million, of which $9.8 million was attributable to new and remodeled stores and shop-in-shop build-outs. Additionally, $9.9 million of the capital spend during the year related to our new headquarters and showrooms in New York, our new design studio in Los Angeles, and our new Paris showroom. At the end of FY14, the Company had signed seven leases for stores that are expected to open in FY15 or beyond, with several other leases in various stages of negotiation. As of today, March 19, the Company has 38 stores in the US, including 28 full price stores and 10 outlet stores.

That concludes my comments regarding our fourth quarter and full year FY14 financial performance. I will now turn the call back over to Jill, so she may provide you with an update on our key strategic initiatives, and our outlook for 2015. Jill?

Thank you, Lisa. Overall, the Vince brand remains strong, with a highly loyal customer base, great relationships with our retail partners, and ample long-term growth opportunities. However, there are certain dynamics that are arising in the domestic wholesale channel that are likely to create some near-term pressure on our domestic wholesale business in FY15 First, our department store partners are increasing their focus on inventory management. They are reducing their upfront buys, and placing greater emphasis on in-season reorders to achieve faster turns and better sell-throughs. Many have also combined their store and e-commerce buying teams for greater inventory purchasing efficiency, as part of an omnichannel reorganization reducing upfront buys further.

Second, as you know store expansion in the department store channel is shifting toward off-price. While we will continue to generate a portion of our sales in the off-price channel, our plan is to reduce our off-price penetration, and increase full price selling for the long-term health of our brand. As a leading vendor among our wholesale partners, we will continue to focus on driving productivity strategically within domestic department store doors, while maintaining our brand's luxury profile. We plan to drive long-term wholesale growth through expanded product assortments, increased marketing and sales support, and enhanced visual merchandising including selected shop-in-shops.

We also plan to drive wholesale growth online, but we will not compromise our brand integrity. So on a combined basis, we expect these dynamics to create pressure on our US wholesale business in 2015, which we view as a transition year. To combat these pressures, we are taking steps to accelerate our other organic growth levers, and we are proactively pursuing a number of exciting initiatives to capitalize on the full potential of the Vince brand. While domestic wholesale remains very important to us, we believe it is prudent to diversify our business model, and take greater control of our own destiny.

First, we have considerable opportunities to grow our highly productive store fleet. Our retail expansion strategy remains on track, with 8 to 10 store openings planned in FY15. We still believe we have the potential for 100 stores in the US, versus 38 stores today. Our retail stores enable us to showcase the full lifestyle of the Vince brand in a compelling environment, and offer an enhanced shopping experience.

We also plan to build upon our momentum in the e-commerce channel, with the launch of a new digital operating platform in 2015. Our goal is to establish a single view of the customer and our inventory across digital and physical stores to optimize the customer experience and improve operating effectiveness. The new platform will also provides us with enhanced globalization capabilities to support our international expansion efforts. We believe we can drive accelerated growth in e-commerce, and at least double our e-commerce business in the next three to five years.

Moving on to international. We believe we have significant growth potential globally, since our international business still represents less than 10% of total sales. We expect our top territories including Canada, UK, Japan and Korea to grow at double-digit rates, and we are taking steps to increase our penetration significantly in both Western Europe and the Middle East. Our new Paris showroom opened earlier this month, in time for the Paris fall market to help us elevate our presence in Europe and drive accelerated growth. Some of the new prestige accounts we will be entering in fall 2015, include in Selfridges in the UK and [Printemps] in France.

From a product perspective, we are planning double-digit gains in both our men's business and our accessories business, as Vince evolves into a full lifestyle brand. In both categories, we are expanding the assortments and increasing distribution in 2015. In addition, Vince's licensed women's footwear continues to be a leading contemporary brand for a number of our key wholesale partners, and will be in over 500 doors for spring. Men's footwear, our newest licensed business, has also seen very promising results out of the gate.

Finally, on the operations front, we will continue to build our infrastructure to support the long-term growth of the business. As I mentioned earlier, we accomplished significant achievements in 2014 related to our operation strategy, by adding talent, expanding vendor relationships and enhancing our internal capabilities. We also completed the migration of several shared service activities from Kellwood.

During 2015, we plan to fully migrate our IT systems, processes and support structure. While a major undertaking, we believe that having control of our technical infrastructure will enable us to more efficiently respond to our specific business needs and support our growth initiatives. During this migration, we will incur incremental transition costs, as we run dual systems for a period of time to ensure a smooth migration with minimal disruption.

In terms of our financial outlook for 2015, we are forecasting total sales for the year of $360 million to $370 million, including 8 to 10 new retail stores, and comparable sales growth including e-commerce in the low double-digit range. With the exception of domestic wholesale, all distribution channels are expected to achieve double-digit growth rates. We believe it is imperative for the long-term health of our brand to resume greater full price selling in domestic wholesale, and we are resetting our near-term growth plans accordingly.

We anticipate gross margin will expand between 50 and 100 basis points versus the prior year. The gross margin expansion is expected to be led by a higher penetration of direct-to-consumer sales, as well as continued supply chain improvements, partially offset by the impact of category mix shifts. Selling, general and administrative costs as a percentage of net sales are anticipated to expand between 175 and 200 basis points over the adjusted FY14 rate of 28.2%, driven by the costs associated with the expansion of our store base, increased infrastructure investments, and higher equity-based compensation expense.

We expect diluted earnings per share to be between $1 and $1.05. Finally, we expect our capital expenditures to be in the $17 million to $20 million range in FY15. Capital expenditures are planned for new store openings and shop-in-shops, as well as our new Paris showroom, LA design studio and IT investments.

In closing, our customers remain passionate about our everyday luxury products, and we are seeing increasing demand on a global basis. While we are resetting our near-term growth plans in domestic wholesale for the long-term health of our brand, we have many growth opportunities in our domestic wholesale business, and will continue to focus on strategically driving our productivity within existing doors, while maintaining our brand's luxury profile. At the same time, we will aggressively pursue our other meaningful growth levers from a product, channel and international expansion perspective to realize the full potential of the Vince brand, and deliver double-digit growth in sales and profit over the long-term.

Before turning the call over for questions, I would like to thank our amazing Vince team in New York, LA and the field, for their tireless efforts during our first year as a public company. Our strong results were truly the combined effort of the entire team. I'd also like to thank our wholesale, licensing and international distribution partners who continue to showcase and support the brand globally. Now, let's open it up for questions. Operator?

(Operator Instructions)

Your first question comes from Robert Ohmes with Bank of America Merrill Lynch. Your line is open.

Thanks. Good morning, guys.

Good morning, Robbie.

A couple of questions. I guess, Jill and Lisa, maybe first, can you first -- and I am sorry if I missed it but the -- can you give us the shop-in-shop outlook, new shop-in-shop outlook for both the US and international? And maybe, Jill, weave into that -- you mentioned Selfridges, and maybe some other department stores, how are you -- are you going into them with shop-in-shops, or what's the presentation going to look like initially? And maybe elaborate on sort of the multi-year plan for international?

The second question was just on the category mix shift gross margin impact in the 2015 guidance. You probably touched on it already, but I might have missed it. What's the pressure there? And then last question, and I'll remind you if you forget all these -- but just, Jill, maybe you could -- you have a lot going on. Could you sort of tell us what you're most excited about in the expanding of Vince's offerings, in terms of handbags versus kids versus men's versus the footwear growth? What should we be thinking about as investors on where the emphasis is going to be in 2015? Thanks.

Okay. So let's start with shop-in-shops. Today we have 29 shop-in-shops in the United States, and that is split roughly equally between women's and men's, and we have 13 shop-in-shops internationally. We're looking to open maybe10 or so shops domestically, and about 5 shops internationally. The international shop-in-shop count could escalate, as we look to enter new markets.

In terms of what we're looking to do internationally, we're really excited about Selfridge's. It's an account we've looked to enter for a long time. We were waiting for the right space and location, but they will be picking us up in women's and men's and footwear and handbags, so complete lifestyle.

And in [Printemps], we are actually talking about having a fixed shop there, which would really focus on women's, but all product categories within women's. We're also looking at pop-ups in [Isetan], and other places. So we're really pushing on the international front.

People are very excited about our product offering, and the new Paris showroom really has showcased the full brand. So Karen Gregersen, our President is now leading this effort. She has extensive international experience. So we will see some shops domestically, but we anticipate that we will certainly see more on the international front as well.

In terms of the category mix shift question and our guidance, the point there is that we are growing men's, and we are growing handbags. And each of these categories today has a lower gross margin rate than our women's business, primarily due to the scale of our women's business relative to these other two areas. So as those categories grow, there will be a slight impact from the category mix shift. However, as those categories gain scale, we believe that the gross margins in those categories will improve, thus narrowing the gap.

Yes, and Robbie, if you want to think about our 50 to 100 basis point guidance on gross margin for FY15, it's going to roughly come two-thirds from the mix shift of the increase in DTC international and licensing sales growing faster than the domestic wholesale. And then, the remaining third will essentially come from margin improvement initiatives that will carry forward throughout 2015.

Great. Thanks. And then just the last question, Jill, just what on the domestic side from -- where do you see the most excitement for 2015? Is it handbags, or should we be paying attention to footwear, or are there expansion of women's items? Help us think about what we should be looking for?

Sure. Well, obviously, women's is the core foundation of our business. So while we talk a lot about our new initiatives, it's important to reinforce how important women's is, and we'll really be focusing on sweaters, our cashmere sweaters which customers really love, blouses where we have lost some momentum, and dresses which have probably showed the highest level of growth, also year-round outerwear. So I would be remiss, if I didn't mention how we continue to focus on our all-important women's business, addressing a broader variety of wear occasions.

That said, we are seeing the fastest growth in men's. We believe there is white space. We opened a lot of shop-in-shops in men's this year. They're showing great growth. We're getting incremental space and location with men's.

So we'll really be pushing on the men's front. As you know, we opened our first men's only store as a test. It did really great. We are really looking at men's, and we're very excited about what that could represent.

Certainly, footwear is important as well. But that's a licensed business, so that doesn't impact our results as much. But I think it's terrific. The growth that we've seen there is huge.

And then within handbags, we don't see that handbags is going to have a material impact in 2015. But we do believe that that will, and can have a material impact over the longer-term. As you know, we launched handbags with Saks exclusively in a soft launch, and now we will be rolling handbags out for fall. So we are very excited that all of our department store accounts have picked up handbags.

We'll probably be doubling our door count. I think we're about 55 today, including Vince retail stores and Saks stores, and now we'll be rolling out to Neimans, Saks, Nordstroms, Bloomingdales, shop ups, some international accounts. So I think we have identified about 130 doors for fall. We are also looking at having some small leathergoods, accessory items that could be great gifting at holiday. So we're excited about the long-term potential for handbags. But in 2015, that's not going to have a material impact on our business.

Great. Thanks very much.

Thanks, Robbie.

Your next question comes from Erinn Murphy with Piper Jaffray. Your line is open.

Great. Thank you guys. Good morning. It's good to hear that you guys are reducing the shipments to off-price. Could you just explain where your penetration is currently, both from a dollar and a unit perspective in the off-price channel? And then, what's contemplated in your 2015 guidance?

So we don't give explicit off-price details. I think what we've said in the past, is that we try to plan our business so that we are at an off-price penetration of around 20%, so 80% full price, 20% off-price.

Is that dollars or units? Sorry, Lisa, is that dollars? (multiple speakers)?

In sales dollars, Erinn.

Okay. Thank you.

Yes, perfect. And I would say for 2014, we were a bit above that number. The plans that we have in place for 2015 will get us much closer aligned with that long-term target goal of 80/20 mix.

And then, I guess in terms of wholesale, as we think about 2015, you talked about kind of some continued good growth in both accessories and men's being up double-digits. What are you seeing from your majors, so not your off-price, but your major department stores, in terms of space allocation for women's at this point?

So we're not seeing any change in space allocation for women's. I mean, for the most part, we are the number one contemporary brand in their stores. We retained our number one ranking with Nordstrom, with Neiman's and Saks, and number two at Bloomingdale's. So if anything, in certain locations, we're actually getting increased space as we expand the assortment.

But I would say, overall the space for women's is roughly the same. What we are seeing is that we will get additional space within our existing doors for men's, as well as for handbags. Obviously, we're seeing increased penetration for footwear as well, both women's footwear and men's footwear. But again, those are both licensed businesses.

But from a guidance perspective, we are planning double-digit growth in every channel and in every product category, with the exception of domestic wholesale which is basically being planned flattish. And again, this is really about supply/demand balancing, as we look to improve our full price sell-throughs. We are very focused on the long-term health of our business. It was a very promotional Q4, especially in department stores, and we want to -- obviously as I said, increase full price selling, try to reduce the amount of products sold on promotion, and also reduce our off-price penetration. We think that the long-term integrity of our brand is our top priority.

Absolutely. That makes sense. And then, just a last question, just as we continue to think about this wholesale piece of this business. I mean, you talked about wholesale partners obviously ordering down as well, just keeping a more kind of prudent eye on their own inventory turns. So from your guidance, what have you assumed in terms of reorders? And then, what's your confidence in your ability to chase, if the business starts to improve beyond kind of what you've initially put in the guidance?

So basically initials are down, reorders are up, so that overall business is flat. We too are looking to have disciplined inventory management. So there will be certain items that we're able to chase, especially key item drivers that we buy into that are more season-less, where we don't think we have risk. But we're not going to buy deep on fur pieces or leather pieces or other items. So if those sell out, they sell out, and we're okay with that.

And I guess, sorry, I do have one last question, I guess, Lisa for you. From the guidance on the comp perspective, you talk about low double-digits inclusive of e-com. Can you just help us think about any sensitivities quarter by quarter? I'm particularly curious on the first quarter, just given we've had the West Coast port disruptions that things have lingered for a number of companies. Obviously, Boston and New York got hit pretty heavy, in terms of weather in the month of February. So just helps us think about any nuances we need to be you aware of, as we're refining our models for the year? Thank you.

Sure. It's a great question, Erinn. So while we don't provide quarterly guidance, it's really our expectation that the comp sales growth is going to be pretty balanced over the course of the year. As you may realize, we have evolved our comparable sales metric to be one that is inclusive of both retail stores and our e-commerce sales. So while the weather in the Boston market certainly didn't help our brick-and-mortar stores in Boston, we actually have seen a decent response on our e-commerce website when the weather is poor. So again, for the balance of the year, what where we're looking for a pretty equal contribution across the quarters at this point.

Thank you, guys, and best of luck.

Thank you.

Thank you.

Your next question comes from Ed Yruma with KeyBanc Capital Markets. Your line is open.

Hi, guys. Thanks for taking my question. Jill, on the flattish wholesale growth, if you strip out your decision to pull out of some of the off-price, maybe also men's, I guess, how are you planning the core women's business in those department stores? And I guess secondly, I know handbags aren't going to be impactful to 2015, but if you had a hindsight performance at Saks, I guess, would you consider the handbag launch a success? Thanks.

Sure. Basically, our women's business is planned flattish, maybe down slightly. And then, that is being offset by the men's and the handbags which are small in comparison. I mean, our women's is still running, I don't know, about 87%, 88% of our total mix. So women's flat to down slightly, the others up, taking us to about flat overall.

And then, in terms of handbags, we think the launch was successful. Remember, we intentionally did a soft launch, so that we can test and learn. Test which of the collections did well, which of the silhouettes went well, price points, color, et cetera, and we gained key learnings. People love the baby crossbody, people love the mock crock tote.

Then we also learned what they didn't like. They want more [closures], which we have addressed for fall. So overall, we believe that the launch with Saks did exactly what we thought it would, in terms of providing us with key learnings that we could then incorporate into the new assortment. We see that they love the signature V. We will be rolling that out.

We will be introducing a new collection called the modern V, again, branding is important. We know they loved the mock crock as I mentioned. We will now be introducing that fabrication into the crossbody, which is the silhouette they liked. We see what colors they liked. So the whole idea is to gain learnings before we made huge inventory investments and rolled it out, and we have I think really enhanced the line for fall. And the fact that all of our key accounts are picking it up, including internationally, I think demonstrates that they believe this will be a success as well.

Got it, and two quick follow-ups, I guess. Are you -- do you think you're seeing cannibalization, as you open more stores and your wholesale partners? And then, I guess, Lisa, if you would contextualize how much of the duplicative costs from some the Kellwood transition costs you will not have to incur again? Either whatever you incurred this year, and then I guess the incremental for 2015, that would be appreciated. Thank you.

Yes. So first, just addressing cannibalization, we have talked about the fact that we do see some cannibalization even within direct-to-consumer in select markets. For example, in Boston, we mentioned that we had one store in Copley, and then we have four stores. So there certainly is some cannibalization within retail, as we take greater share of wallet within an existing market.

In terms of what we're seeing, as you look across wholesale, really where we've seen the cannibalization is with a lot of our specialty stores. Some of the specialty stores that carry a few items, they often don't sustain that level of sale when we open a full price store. I think the results in our department store is mixed. In some cases, we've actually seen the department stores increase. In other cases, we've seen the department store [increase]. So it's something that we are looking at very closely. But I'd say the cannibalization has been more on the specialty store side, than we have seen on the department store side.

Yes. And then as far as the IT migration, obviously we want to make sure that we're doing this very thoughtfully and prudently, so we're making sure that we have full redundancy during the transaction. So the dual system and the migration, right now we're planning to incur incremental transition costs of between $700,000 and $1 million into our SG&A this year. It obviously also influences our overall CapEx guidance that we've incorporated as well. But from an operating expense perspective, again, we're planning between $[700,000] and $1 million.

Great. Thanks so much (multiple speakers).

Time and nature, obviously.

Your next question comes from Matthew Boss with JPMorgan. Your line is open.

Hi, good morning. So wholesale today, I think makes up around 75% of revenues, give or take. Beyond the 2015 transition year, what's the best way to think about the mix longer term?

Yes. So when I joined in 2012, wholesale was 85%, so the mix was 85/15. And then in 2013, it was 80/20. And this year, it's 75/25, and next year, it will probably be about 70/30. Long-term, currently the way we're modeling it, we think it will probably be around 60/40.

Wholesale is still really important to us, and it's very sizable. We have great products. And then, we think we can grow wholesale, as we've mentioned, not only with additional classification within women's, but especially with men's and handbags.

We are not looking to enter into new accounts, even though we've certainly had opportunities to do that. And as you heard, we are also looking to keep the off-price. But retail, we see about 100 store potential. So if you combine basically the fleet we have in wholesale, the growth within those doors, plus the number of new retail doors we think we can have in e-commerce growth, we think the longer-term mix is probably around 60/40.

Great. And then, what percentage of sales today is e-commerce? Can you talk about what you're seeing from underlying brick-and-mortar traffic? And then finally, on the competitive front, anything you're seeing different, and just kind of markdowns versus plan in the quarter?

Okay. So in terms of e-com, we have not provided that breakdown in the past, and we think it's just really hard, because of the way customers are shopping today. So we look at direct-to-consumer in the aggregate. But certainly, the sales on e-commerce are growing. It has been a focus area for us, especially as the assortment has been expanding. So it's a very important channel.

And by the way, when we think about e-commerce, we think not only about our own e-commerce, we also think about sales on our department store partners' websites, and we see that growing too. So we are definitely seeing a change in the way customers are shopping, and they are shopping more online, whether it's with our department store partners or on Vince.com. So digital is absolutely a key focus area.

With regards to brick-and-mortar traffic, we had really good comps in the fourth quarter. We had around 9% comps within our retail stores. It was close to 16[%], when you layered in e-commerce.

As Lisa mentioned in her prepared remarks, the growth was driven by an increase in transactions. And that growth was driven by an increase in traffic, as well as an increase in conversion, offset slightly by a minor reduction in our average dollar sale, obviously, with promotional intensity and price matching and everything else. So in Q4, we were pleased to see traffic up. As Lisa mentioned, in Q1 in selected markets, with the weather, traffic's down. But overall, we feel very good about our direct-to-consumer potential.

Great. Best of luck.

Thank you.

Your next question comes from Jeff Van Sinderen with B. Riley. Your line is open.

Good morning. Just a follow-up sort of clarification question, regarding the department stores, and sort of how they're planning their business, as you said, less buying upfront. And I'm just wondering, I think you said you were not going to go deep into categories that you could get stuck in. But would it make sense for you to have a little bit more in terms of being able to satisfy at once, since that seems to be how they are shifting? Maybe you could just touch on that?

Well, they're definitely shifting to less upfront, and more in-season, as I mentioned. What we're trying to do, so that we can really match supply with demand, is to actually make our purchases later where possible, which is where we can get some supply chain efficiency. So in the past, we used to have to place a lot of our buys before market. And now what we're really trying to do is, get input from our department store partners to influence the buys that we make.

So hopefully, that will enable us to optimize on the opportunities, best on the best sellers that they envision. Obviously, we don't know always how the consumer is going to respond, versus how the retailer thinks the consumer is going to respond. But what we're really doing is looking to push out our procurement, so that it is based on our department store partner's feedback.

Okay. And then, you've had a great increase in brand awareness, and I'm just wondering in terms of your marketing plans this year, or brand awareness plans this year, or if there are new initiatives, I guess?

Yes. So when, again, we first joined, we did some market research. We saw that our brand awareness was around 20% on an [aided] basis, which we saw was quite low. But the good news was that our brand affinity and purchase intent were among the highest of all of our competitors. And that really gave us confidence that those people that know the brand, love the brand, want to buy the brand, and that we need to build awareness.

So what we did is, is we increased our marketing investment. We had been at 2% of sales. We went to 2.5% of sales, and in this last year we were at 3% of sales. On a dollar basis, significant growth as well, on a higher base of top line sales.

So what we will do, is we will continue to increase our marketing investment in 2015. We're looking for maybe roughly a 20% increase, and we will allocate a disproportional share of that to digital initiatives, as well as to co-op with our department store partners, because we looked at our spend relative to some of our competition. We are below, in many cases where our competition is. So we will have an increased amount in departments store co-op, as well as digital.

Okay. Well, I'll just say that I think some of your co-op ads look really good. Thanks for taking my questions, and best of luck. Okay. Thanks, Jeff.

Your next question comes from Mark Altschwager with Baird. Your line is open.

Good morning, and thanks for taking the question. Jill, can you just address bigger picture, how we should be thinking about the growth algorithm for the business over the next couple years? Do you see 2015 as a short-term pause, or are you rethinking the longer-term15% to 20% top line, 20% to 25% bottom line goals?

Sure. So we currently have not provided guidance for FY16, as we're really focused on executing our business plan for 2015. However, as the year progresses, we can certainly provide greater insight into 2016 and beyond. That being said, we want to be clear that we still believe that in the aggregate we can grow this business double-digits, both top line and bottom line.

We have a lot of organic growth levers, with sales of $340 million, we believe there's a lot of upside potential. So we still feel good about the plans we've communicated previously. We are just not going to see that level in 2015, as we reset domestic wholesale. But we still feel very good that we will be a double-digit grower, in both top line sales and bottom line profit over the long-term.

Thank you, and just a quick one for Lisa. Can you talk about your debt paydown plans for 2015? Thank you.

Sure. So obviously, 2014 was a major year in deleverage. In 2015, we're not anticipating that same level of debt paydown. So the way our model has currently been built, we would look to pay down debt with our free cash flow generation that we're planning on generating this year, which is around $20 million to $30 million.

And part of the issue there, just in case you don't recall this, we do have a tax receivable agreement with Sun Capital. So we will be making payments to Sun with some of our cash proceeds. Lisa could probably comment on that further.

Yes, I mean, it's essentially the same payment, as we would have paid for tax payments to the IRS. So again, on the free cash flow sort of after CapEx and after tax payables, you're kind of at that $20 million to $30 million number.

Very helpful. Thank you, and best of luck.

Thanks.

Your next question comes from Joan Payson with Barclays. Your line is open.

Hi, good morning. So in terms of the retail productivity levels longer-term, is there a good way to think about how those could evolve and what they could look like, given some of the category evolution you have playing out? And then my other question is just around, some of your comments on the off-price channel. Does what you're seeing in wholesale really reshape at all, how you're thinking about your outlet footprint longer-term?

Sure. So this is Lisa. On the retail productivity, we continue to make advances on our productivity literally every quarter, as we continue to refine our assortments, as we look at optimizing our visual merchandising, and all of those sorts of things. It's a little early to tell what handbags could offer from a sales productivity perspective. It obviously could be very beneficial, once it is up and running and sort of flowing through. But it's still a little early to tell on that front.

I do want to mention though, that as footwear becomes an important portion of our business and our retail stores, that does have a lower ticket than our apparel. So there might be some blending on that front as well. But it's certainly something that we're very focused on, we look at on a very regular basis to make sure that we're getting the best productivity out of every square foot that we have in our retail fleet.

And then, your comment on our desire and intent to reduce our off-price penetration, that is really concentrated in wholesale. We are not changing our plans for our outlet business. As we've mentioned previously, we have a target of 100 stores in the US, with a 3 to 1 ratio of full price stores to outlet stores. We are still projecting 25 outlet stores. There are probably 200 outlet centers. So we're only looking to go into the best centers.

We have not increased that target range. We are sticking with that 25 store target, and maintaining our plans with regards to outlet. We do prefer that as an off-price distribution channel, because we can control the presentation, the customer experience, the pricing cadence, and really show the complete lifestyle of the Vince brand. So, yes, we're looking to reduce off-price penetration in total. But we're maintaining our outlet plans as we've previously communicated.

Great. Thank you.

Your next question comes from Lindsay Drucker Mann with Goldman Sachs. Your line is open.

Thanks. Good morning, everyone.

Good morning, Lindsay.

I wanted to ask -- just kind of taking it back to your -- the long-term algorithm that you guys talked about around the time of the IPO, which was 15% to 20% sales, and 20% to 25% net income. I think an important part of that top line piece was kind of the core women's wholesale business. Maybe10% to 15% sort of underlying growth there, in order to drive the total engine. If we look at 2015, and we strip away -- and maybe even 4Q, when we sort of strip away the noise, the inventory destocking and the off-price, what does your sell-through look like in that core channel?

Has it slowed? I'm assuming it has slowed versus that kind of maybe10% to 15% range. And are you looking for that to reaccelerate, and what would help that reaccelerate versus your original targets?

Yes. So I just want to be super clear. We've never articulated that our women's domestic wholesale business would grow in the 10% to 15% range. That was a consolidated wholesale growth, which would include men's, women's, international, licensing and international.

So the women's business, again, in our longer-term plans at the IPO were more in the high single-digit ranges. I would say right now, the way our business is performing, we have planned 2015, as Jill mentioned earlier to be flattish to slightly down. So we think that the right number for our women's wholesale business in the foreseeable future, again depending on where handbags and some other of those newer categories go, is probably low single- to mid single-digit range. So not a dramatic difference from what we -- from our prior communications.

And if we can just sort of focus on the sell-through, and maybe your core department store partners, so stripping away the noise of inventory destocking and off-price, what do you attribute the -- even if it's moderate -- but the deceleration in momentum versus expectations to?

Well, I think overall, when I at least read the transcripts of a lot of our department store partners, I know they have talked about their full price businesses basically being flat. They are seeing a shift in their business models to more sales online, and they are often reporting higher comps in their off-price stores. So without having all the details of each of our department store businesses, what I hear is that overall their businesses are flat as well.

So in general, what we look to, is how are we performing relative to our competitors on the floor? And in general, we perform in line, if not better than our competitors on the floor. What we did see this year, is that we had more promotional selling. So obviously, that impacts our sell-through rates overall and our give-backs.

Our focus now is supply/demand balancing. But at the end of the day, we feel the health of our businesses, how we're performing relative to our competitors on our department store floors, and the fact that we're still opening shops, or getting increased space in certain locations, gives us the confidence and we're still number one in their stores, that we continue to do well.

Got it. And then, just maybe taking it down to the margin story, whereas you had been looking for some moderate ongoing operating margin improvement over time -- given the slower performance in this -- I believe it's a higher margin part of your portfolio -- in some this outsized strength you're looking for in lower op margin businesses like retail maybe in some of these new categories, should we be looking for operating margin improvement over time outside of -- once we're through 2015 over the longer-term, should we be looking for operating margin improvement story?

Yes, it's a good question, Lindsay. So your recollection is spot on. It was always our stated goal to try to maintain our operating margin of around 20%. We will like likely see a slight decline in that rate for FY15, as our direct-to-consumer segment which has a lower operating margin will grow substantially faster than our wholesale segment. But over time, as we build our direct-to-consumer business, we should be able to decrease the operating margin gap between DTC and wholesale.

Obviously, you'll be able to get some scale, and leverage some of the fixed costs that we have to bear to build that business. We should also see a reacceleration of our wholesale sales growth rate, and some strong growth in international which will be helpful. And then obviously, last but not least, we should be able to start leveraging some of our fixed corporate costs that we've had to put in place, in order to be a standalone public Company. So we are planning for all of these things to allow us to and able to return to our operating margin rates of 20% or higher.

Thanks so much.

Thanks.

Your last question comes from Marni Shapiro with The Retail Tracker. Your line is open.

Thanks, guys.

Good morning.

The shoes and that new cut-out bag, they're just amazing. So congrats, the stores look great.

Thank you.

Could you talk a little bit about -- as Saks and Nordstrom's grow their outlets, and you're obviously great partners with these guys, is it possible to avoid being in those outlets? Do you want to be in those outlets? How are you handling that growth with your relationships? And can you really sell them end-o- season, or is this from what I understand more of an upfront buy? How does that work?

Sure. So we obviously sell to both Saks Off 5th and Nordstrom Rack. However, we often say no to locations, if we feel it will impact the full price stores that might be nearby. So Nordstrom is certainly accelerating growth in their Rack stores. We will not be going into all of those stores.

And similarly, with Saks, we look at every single location on a case by case basis, and we approve or disapprove stores. So that remains a brand decision, which stores we will sell in. So clearly, it's a part of our business, but we do not intend to grow our business at the same rate.

In terms of the products that's carried in outlets, it's really a combination of excess goods that may not have sold on the floor, that then gets pushed to their off-price channels. And then, in some cases there might be other product that we make specifically for them at their request, really to round out the assortments in terms of sizing and color ranges, to have a complete assortment. And those are often prior season best sellers, because the last thing we would ever want to do is jeopardize full price selling in the main department store line. So but these are active conversations that we have with Saks and Nordstrom. We recognize it as a part of their strategy, but certainly we have to continue to focus on the long-term integrity of our brand, and our focus is on greater full price selling.

Fantastic. And then, in the shoe business, have you talked about the approximate volume that you're doing today in shoes, and where you think it can be?

Well, it's a licensed business. So you can probably glean some insights from Brown Shoe, since they report on that business. But I think the key is, if you just look at the acceleration that we've seen in door count, I believe we ended this year at about 350 -- excuse me, 2014 at 350. We'll probably be in 500 doors this year, so a lot of growth in women's. We're really pushing on the international growth now.

We're delighted that Brown Shoe is actually sharing the new Paris showroom with us, so that we can really begin to show our footwear collection globally. So we think there is a lot of upside. In addition, we think that there's opportunity on the men's side as well.

So a lot of consumer demand for the brand, with the broad variety of silhouettes we have in men's and women's, it's a sizable business. It's one of the leading businesses. But in terms of the dollars overall, because it's a licensed business, I think Brown Shoe is probably best able to comment on that.

Great. Thank you, guys. Best of luck for spring.

Okay.

And there are no further questions in queue at this time. I turn the call back to Ms. Jill Granoff for any closing comments.

Sure. Thank you all for listening and participating in our call today. We look forward to speaking with you again in June for our FY15 first quarter earnings call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.