Vince Holding Corp (VNCE) 2016 Q3 法說會逐字稿

Good morning. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vince Holding Corp Q3 2016 earnings results conference call.

(Operator Instructions)

Thank you. [Amy Levy], Vice President of Finance and Investor Relations, you may begin your conference.

Thank you, and good morning, everyone. Welcome to Vince Holding's third quarter FY16 earnings conference call. Hosting the call today is Brendan Hoffman, Chief Executive Officer; and Dave Stefko, Chief Financial Officer.

Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ from those that the Company expects. Those risks and uncertainties are described in today's press release, and in the Company's SEC filings which are available on the Company's website. Investors should not assume that the statements made during the call will remain operative at a later time, and the Company undertakes no obligation to update any information discussed on the call.

In addition, in today's discussion the Company is presenting its financial results in conformity with GAAP, and on an adjusted basis. The adjusted results that the Company presents today are non-GAAP measures. 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 the Company's website at investors.vince.com.

After the prepared remarks, management will be available to take your questions for as long as time permits. Now I will turn the call over to Brendan.

Thank you, Amy, and thanks everyone for joining us. While overall, our third-quarter sales came in below our expectations, we are pleased with progress we are making as we continue through a transitional phase at Vince. The first collection since our Founders rejoined our Company hit the selling floors during the quarter, and we received wide praise from both our wholesale partners and our retail customers for the return to high quality, great fit, fabrics and fashion. We were particular encouraged by performance at Nordstrom's.

However, our results for the quarter reflect ongoing headwinds in the retail and macro environment, including continuing traffic challenges and warm weather. In addition, as you know we have taken several steps to transition the business, some of which negatively impacted near-term results to a larger degree than we initially expected, particularly in our retail business. We nonetheless believe these measures are right for the business long-term.

In our full price direct-to-consumer business we promoted regular price for only six days during the quarter, which we believed was in line with our promotional activity last year. Upon further review, we found that regular price was actually promoted for 20 days in last year's third quarter, and this change in promotional activity pressured sales performance during the quarter. We remain committed to re-establishing Vince as a regular priced brand in all channels of distribution, and while this will continue to present some top line challenges in the short-term, we believe it is the right decision for the long-term integrity of the brand.

We were also impacted by later product deliveries. As we mentioned on our last call, part of the delay was due to the transition to a new warehouse, as well as our ongoing systems migration. We continue to believe that these changes will become a vehicle to drive further growth and efficiency as we enter 2017.

We also mentioned in our last call that we eliminated our pre-fall delivery in June, as we felt that this product was below the standards of a go-forward Vince product that we are now producing. The lack of product hindered sales into the quarter more than we expected. Finally, we made the decision to reconstruct our replenishment business, which left a hole in the assortment that we were not able to fully overcome with the fashion deliveries alone.

We feel strongly that this was the right decision for the brand, as the past presentation of both men's and women's had become too reliant on basics, and did not have the appropriate level of freshness or quality. That said, we are working on an appropriate go-forward strategy for our basics collection to round out the fashion deliveries on the floor. As I said earlier, these steps created short-term pressure on the top line, however, we strongly believe that we are moving the business in the right direction.

Our performance at Nordstrom's was evidence of this. We met with Pete Nordstrom and his leadership team last week in Seattle, and their vision for how the Vince brand can grow across multiple categories throughout their store base over the next few years was very exciting. This coupled, with areas of success that we have seen with our other wholesale partners left our team, led by Rea and Christopher incredibly energized for the future.

They've already gained a great deal of insight from the initial collection, and continue to learn more about our customer, how they shop, and what they want from Vince. Importantly, they're incorporating this knowledge into future collections. In addition, there were certain categories that did not receive a full rework, given their longer lead times and the timing of Rea's return.

Outerwear was the most noticeable category that we weren't able to fully capitalize on, but we believe this represents a meaningful opportunity for next year. Men's is another growth opportunity that we are focused on for the future. The first collection delivered by the Founders is just hitting the floor now, as part of our pre-spring deliveries, and we believe this can provide outsized opportunities both in our owned stores, as well as with our partners, where men's is not nearly as highly penetrated as our woman's ready-to-wear business.

As we look forward to the balance of the year, our initial pre-spring collection is just now represented on the floor, although a little later than we expected. With this collection, as well as our fall product, we are very proud to say that the floors of both our owned stores and with our partners reflects the quality and aesthetics of Vince product that we you will see from us moving forward.

We are also starting to experiment with different categories that we could add to our assortment. This week we've introduced jewelry, a selection of home decor items, including throws, candles -- of throws and candle and books by third-party partners in two of our stores, and will launch online next week. We believe these items will help to round out our merchandise offering, and provide opportunity to drive additional sales.

Based on the results of this initial test, we will look to roll out these categories to more stores, as well as potentially with our wholesale partners in the future, to extend our brand offering into categories that complement our core offering. As we think about our wholesale performance going forward, we look to build upon what we have learned, based on business and feedback from our partners and customers. All of our partners remain steadfast in their commitment to the brand, and are pleased with progress we have made with the product.

Having said that, we know that they are going to look to continue to run with lean inventories, and chase sales as they see results. With our inventories now very clean, we are in a position to hold some inventory where it makes sense, but are also comfortable with letting demand outweigh supply as part of our brand reset, and to drive regular price business. We are managing inventory in a similar way in the off-price channel.

We recognize that off-price remains a part of our go-forward business, however, we will maintain a higher level of inventory discipline in order to control the volume, as well as the level of discounting in this channel. We feel that we can ultimately do more with less, as we have already begun to see the benefits of not having to offer such deep discounts to sell the product. This will allow us to protect our gross margin dollars, but do so with less units.

Ultimately, we feel this benefits both Vince and our off-price partners. Finally, with our elevated new product in place, we are also now beginning to re-engage with our customers more directly, to drive her into stores and onto our website. We are doing this in a very methodical way, and through mediums that makes sense for our brand and our customer. For example, we're doing a better job of leveraging Instagram to showcase our new product, while also speaking directly with our customers.

We're pleased to see far greater customer response to our brand on this platform than we have in the past. We are also participating in a number of great events that will enable us to showcase our brand, and connect with our consumers in a very organic way. For example, we held a hugely successful fashion show at Mitchells in Westport to benefit Pink Aid which sold out in a matter of minutes.

Our recent collaboration with the Napa Film Festival in November is another great example of the type of partnerships that we are forming to create local connections with consumers. In addition, as we mentioned last quarter, we continue to take a grassroots approach to working with our wholesale partners to help them better engage customers with our brand. Christopher spent a lot of time on the road this quarter, conducting meetings and seminars with our partners in a number of major markets, to help them learn how to best showcase our brand and connect with our customers.

As we begin to gain more momentum behind the brand, we will also start to layer in some more traditional media outreach moving forward. That said, we will continue to do this in a way that makes sense for both our brand and our customer. Overall, while the retail environment, as well as the strategic changes within our Company have been more challenging than we anticipated, we remain confident in our belief that we are moving the brand in the right direction for sustainable growth.

As mentioned, we have seen some favorable responses to our new product from both our consumer and wholesale partners, and we are excited about the buzz around the brand. That said, we remain cautious and prudent as we plan the business going forward, and make decisions for long-term success. As such, we are reducing our guidance for the full year, largely due to lower than expected performance in our direct-to-consumer business which Dave will discuss in more detail shortly.

We are starting to see the momentum build behind our business, although the clear pivot in results will take a little longer than we originally anticipated. We have an excellent team that is engaged and excited to continue moving forward as they gather insights to enhance our collections, and enable us to continue to make more prudent decisions about our brand. I think that we are where we need to be at this point, and we will continue to make strides towards gaining market share within the wholesale channel, expanding our direct-to-consumer presence, growing international, and expanding the business over the long-term.

Now I will turn it over to Dave to review our financial performance. Dave?

Thank you, Brendan. The third-quarter net sales decreased 6% to $76 million, compared to $80.9 million in the prior-year period. Our wholesale channel sales were down 9.4% to $51.2 million, which reflects a continuation of planned reductions in off-price orders.

This continues our previously discussed strategy to better balance the supply/demand ratio in the off-price channel. As a reminder, we began the sell-off of excess inventory in the third-quarter of 2015, and completed the sell-off in the second quarter of this fiscal year.

Our direct-to-consumer segment sales increased 1.6% to $24.8 million in the third quarter, as a result of the addition of eight new stores since the third quarter of last year, partially offset by 11.7% decrease in comparable sales including e-commerce. The decrease in comparable sales is primarily the result of a decline in average order value, as well as the decline in the number of transactions due to lower traffic, and a reduction in promotional activity.

Gross profit in the third-quarter was $38 million or 50% of net sales. This compares to $40 million or 49.5% of net sales in the third quarter of last year, which included a $2 million benefit from the recovery of the $14.4 million inventory write-down that was taken in the second quarter of last year.

Excluding this benefit, gross profit for the third quarter of 2015 was $38 million or 47% of net sales. The increase in gross profit rate for the third quarter of 2016 reflected fewer allowances, reduced discounts, primarily in off-price channel, and a favorable channel mix shift, partially offset by unfavorable year-over-year inventory adjustments to inventory reserves.

Selling, general, and administrative expenses in the quarter were $31.9 million or 42% of sales. This compares to $27.7 million or 34.2% of sales in the third quarter of last year, which included a $0.2 million of net management transition costs. Excluding these costs, selling, general administrative expenses would have been 34% of net sales in the third-quarter of 2015. The increase in SG&A spend was largely driven by costs for strategic investments, the consulting arrangement with our co-founders, and an increase in rent and occupancy costs associated with eight new store openings since the third-quarter of FY15.

Since Vince spun-off from Kellwood, we have continued to operate on all Kellwood IT platforms through a shared services agreement. As we previously discussed, we undertook an IT migration project to make us completely independent from Kellwood. Given the complexity of this project, as we have brought in new software platforms and hardware configurations that will manage every facet of the business, it has taken us longer to complete this transition than we initially projected.

As we speak, we are executing the final phase of this new platform, and therefore expect that most of the costs associated with this migration will be behind us after this year. As Brendan mentioned, we believe this strategic investment will drive future efficiency and support growth.

The resulting operating income for the quarter was $6.1 million. This compares to an operating income of $12.3 million for the third quarter of last year. Excluding the aforementioned benefit from the recovery of the inventory write-down and net management transition costs, operating income was $10.5 million in the third quarter of 2015.

Our tax rate for the third quarter FY16 was 30.3%, compared to 41.2% in last year's third quarter. This decrease was due to an adjustment to our tax rate resulting from our change in guidance for the full year, partially offset by the impact of certain nondeductible executive compensation costs.

Net income for the third quarter was $3.4 million or $0.07 per diluted share, compared to net income of $5.9 million or $0.16 per diluted share in the third quarter of last year. Excluding the benefit from the recovery of the inventory write-down and net management transition costs, net income for the third quarter of FY15 was $4.8 million or $0.13 per diluted share.

Now moving onto the balance sheet. We ended the quarter with $20.7 million of cash, and $52.8 million of borrowings under our debt agreements. Note that a large majority of this cash is held by Vince Holding Corp until needed by our operating subsidiary.

Our debt to leverage ratio at the end of the third quarter of FY16 was 4.9 times on a reported basis. In addition, we were in compliance with applicable financial covenants, and we expect to be in compliance for at least the next 12 months. At the end of the third quarter, we had availability in excess of $30 million remaining under our revolving credit facility.

Inventory at the end of the quarter was $34.4 million, compared to $43.9 million at the end of last year's third quarter. The year-over-year decrease was primarily driven by more disciplined inventory management, partially offset by the addition of eight new retail stores since the third quarter of last year.

Capital expenditures for the quarter totaled $3.4 million, primarily attributable to IT migration costs. As of today, the Company operates 54 stores in the US, including 40 full price stores and 14 outlet stores.

Now turning to our revised guidance for 2016. Based on our third-quarter sales results, the negative retail and macro headwinds Brendan mentioned and the delayed delivery of our full pre-spring collection, we are lowering our sales guidance for the year to between $280 million and $290 million, including revenues from the six new retail stores already opened this year.

As we have previously discussed, we plan to ship a portion our spring 2017 collection in the fourth quarter of FY16, which is reflected in our guidance. This also assumes a decline in comparable sales, inclusive of e-commerce sales in the mid teens range. Given the tough environment, we are managing our business prudently, and have therefore reduced our expectations to reflect the weakness in overall traffic trends that we expect to continue.

As we think about our comp expectations for the remainder of the year, here are a few things to keep in mind. We are up against a 10.7% increase in comparable sales in fourth quarter of last year. We faced our toughest comparison of the quarter in November, our biggest volume month as we did not anniversary our Friends and Family event that we held in November of last year.

While we were pleased with our performance over the Black Friday weekend, this was not enough to offset the lack of an equivalent event this year. On a positive note, in December and January, we will not be up against big promotions in the comparable periods last year. In addition, our pre-spring product is fully in place.

Gross margin is expected to be between 45.9% and 46.6% contingent upon end of the year level of sales allowances and final adjustments to inventory reserves. We will continue to make strategic investments in the fourth quarter to support our long-term objectives.

SG&A is now expected to be between $128 million and $130 million which is the low end of our previous guidance range. Our SG&A guidance is favorably impacted by the reduction in our annual incentive compensation expectations due to our lower EPS guidance. Offsetting this benefit to SG&A, our incremental costs we have incurred, both to date and into the fourth quarter for increased costs in the Company's IT migration investment.

We now expect earnings per share to be between $0.00 and a loss of $0.07. As we expect to have a low level of pretax income or loss, and as the Company continues to assess certain business factors that impact our tax rate for the year, it is difficult to give a narrow range of guidance on our annual tax rate. However, we have considered both the most and least favorable outcomes in our guidance.

Capital expenditures for the fiscal year are now projected to approximately $16.5 million. This increase in our capital projection is driven by increased costs we expect to incur to finalize our IT migration efforts, the final phase of which is currently being executed.

This concludes my comments regarding our third-quarter financial performance and outlook for 2016. We will now take your questions. Operator?

(Operator Instructions)

Erinn Murphy, Piper Jaffray.

Thank you, guys. Good morning. Just a couple of questions.

Maybe Brendan for you, first starting with your comments on Nordstrom in particular, being a fairly positive stand-out. Can you talk a little bit more about, is it something that they're doing differently with how they're treating your brand? And then, as you think about the go forward, are they allocating more to the contemporary space overall, or is it really Vince specific, and then what are the opportunities at that account with men's?

Well, I think that, as I mentioned on the last call, we saw positive response with the Anniversary sale in July, and that just seemed to get traffic into the stores, just as we were delivering our new product. And I think it got early eyeballs, which was always important to Vince to get those people either buying early, or at least thinking about buying early.

And we just saw that momentum carry throughout the quarter. And I think they've done a great job. As I go around the country -- I know you do, just look at the way that they present the brand, and the standards they have, and very proud of the way we look there. And I think it shows in the volume.

I can't speak specifically to their space allocations, if they've changed or not. I know we've been fairly consistent with the space we've had there over the last few years.

And yes, we think there's other category growth led by men's, which is only about 35 stores there. And so, we think there's the opportunity to both bulk up our presentation in the stores we are in, and also roll out some key items in the additional stores, and they were very supportive of that. So we're going to move forward with that, starting in spring and really into fall.

And then, yes, we also started a new round with other categories we can do, and how meaningful they can be to Vince, I mean, to Nordstrom's. So that was exciting to hear from them, their belief in the brand as a complete lifestyle brand.

That's helpful. Thank you. Can you maybe elaborate a little bit, what you saw with Saks and Neimens during the quarter. I know, there was the -- you've had the renovation of space on the Fifth Avenue location with Saks, and Neiman had some systems updates earlier on, so maybe just speak to what you're seeing at both of those accounts as well?

Yes, I mean, it's been a little bit more inconsistent. We've had pockets of success, and other places where it's been a little disappointing.

Neimans has been a little trickier to measure, just because they're going through their systems migration. And Saks, as you said, they're doing a major renovation in the New York stores, so we've seen a little bit of a hurt there.

But again, there have been stores that have done great, but then there's other stores where we just -- haven't been able to make up some of the promotional activity that we -- that they pulled back on. That wasn't just in our own direct-to-consumer stores. We've got great support from our partners to try and recalibrate this to a regular priced brand, but in doing that, you take some hits on the top line.

In early November, so this was more Q4, but Saks ran a -- one of their events. We had $3 million of inventory in the event this year, last year we had $9 million of inventory. So those are just tough numbers on the top line to make up, but also not sustainable in terms of how you would grow the business. So we feel really good about how we're repositioning our brand across all our partners.

Got it. And then, one of the things you said in your prepared remarks, you said that during the quarter -- I think it was during the quarter, you made the decision to reconstruct your replenishment business. I guess, how much of that impacts the third-quarter wholesale business? And then can you just talk about the potential benefit you hope to get from this, and how much of your overall business does replenishment represent?

Well, no. So just to be clear, we had made the decision to reconstruct replenishment eight or nine months ago, so we've spoken about that in the past. Third quarter was really where -- the first time we, the product was off the floor, versus last year having it on. So in the spring, even though we had made this decision, the store still had some of their replenishment they were selling down on.

The business just got to be way too basic-driven. I mean, if you walked into a lot of the stores, outside of the major markets, whether it would be men's or women's, it was a predominantly basic business, on styles we've been running for years like the scuba jacket and the legging and that just wasn't what -- the way we want the brand to be reflected.

So one, we felt that the styles that made up replenishment were old and tired. But two, felt we needed to rip off the Band-Aid to get this back to being a fashion brand, first and foremost, and really pleased with the way the presentations looked as a result of that.

Now that we've made that sea change, we're looking at how we can support the fashion businesses with some core items. And not -- to make sure that we keep the balance where it should be for brand like ours. And so, specifically in men's, we've added back a handful of styles for spring, that will be back in the assortment which we think will really help, our customers are very pleased about.

And women's, while we haven't specifically added anything back to replenishment, we have bulked out some key items like T-shirts, and starting to discover some pants we can add back, and that eventually will get back on replenishment, but for now we're just going to be carryover items, that we'll make sure we can stay in stock in. And part of that is, is we're trying to learn what the customer wants, and what makes sense to keeping our inventories longer than a three month cycle. But regardless, with a few exceptions, I don't think we'll get back into the position we were in before, where we were running things for years without any change.

Got it. Okay. And then, just last question, on gross margin, obviously you have a positive stand out in the quarter. I actually think 50% is the highest level you've ever seen in the third-quarter period before.

So can you just talk about some of the components of that strength in the quarter? Clearly, you were less promotional, but going forward, should we actually anticipate that gross margin in this new world order could actually be ahead of prior peak, as we think about some of the puts and takes there?

Well, I think speaking generally, I think as we recalibrate this off-price channel, that's a huge, huge lever point there. I mean, we were selling stuff at pennies on the dollar for the last few years. And this year, because we've worked so hard so quickly to get those inventories in line, we have off-price accounts begging us for merchandise. And as I mentioned in my remarks, that's still part of the business, but at a much less of a discounted level.

So one, the product that we'll be putting out there will be higher-quality. Two, we will be selling it to them at a much reduced discount, which means they won't not be able to hyper-promote it the same way. And so, yes, I think that will have a long-term sustainable benefit to our overall gross margin.

Thank you. I'll let someone else queue in.

Thanks, Erinn.

Mark Altschwager, Robert W. Baird.

Good morning. Thanks for taking the question. Now that the floor sets are largely reflective of the newer design vision as you go into holiday, and you're capturing the data from the customers, how do you think about the balance of making bigger inventory bets to fuel the comp into next year, but possibly leading to more markdowns, and versus the focus on full price selling? And just broadly, how is the data that you've been able to gather this fall, informing your inventory plans as you look into next year?

Yes. Well, as I think, and I mentioned in my remarks, where the team is energized, it's because now we have some data. And that, we did this flat-footed, when Rea and Christopher joined the Company a year ago, and just charged through fall kind of without anything to really go on.

And we were super proud, are super proud of the way the product looked and the quality, but we were doing it without -- in a short compressed time frame, which didn't allow us to go after categories that we knew we were going to miss, like outerwear. But also without any history, on what the customer was telling us as you suggest.

So now, Rea and Christopher, they devour this information, the selling reports, that's their lifeblood. And every Monday morning, at 6:00 AM, they're going through that selling, and making decisions on where they think their opportunity is. And so, even pre-spring which is just hitting the floors now, we're starting to make decisions on what we can chase into spring, or what we can recolor for some newness into spring, based on what the customer is telling us.

So I think that's something, that as we get into 2017, it will provide upside for us that we weren't able to realize in 2016. And quite frankly, I don't know how exactly to forecast, because it is so new to us, but it was certainly part of what the Company did so well when they ran the Company.

Having said that, we are going to keep our inventory lean and light, and make sure that we do not get ourselves back into a situation where the supply outweighs the demand. And even as our wholesale customers are coming in and placing orders, and they, as I mentioned in my remarks, are under tremendous pressure to drive their inventory levels down, and increase their turn. We're going to try and be smart about how we chase business with them, but not be a crutch where they can just count on us to be a repository of holding inventory for when they're ready for it, because as you suggest, that could get us into a heap of trouble if we're wrong.

And you've called out weather as being a headwind this fall, but even as temperatures cool, and we know the department stores are planning conservatively. But is there, do you have ability to chase into demand yet this fall and holiday season, or is this going to be more of a 2017 initiative?

I don't think we will be chasing into fall or winter type products, that's kind of done. I mean, we're -- unfortunately it's going to cold, a couple weeks ago, and it was right when the product got marked down. So we're certainly pleased with the rate of sale now.

But we think that if it had been a little colder, a little bit earlier, we could have gotten some more regular price sale. Having said that, one of the learnings, and I kind of allude this in my remarks, is the appreciation that the customer is buying closer to need.

And so, as we are -- we're in market this week showing pre-fall which delivers in May and June. And historically, it was used to kick off fall, a very emotional fall [piece], that perhaps were not appropriate for the weather that was -- that we were seeing as we were entering summer.

I think the wholesale accounts have been quite pleased with how balanced the collection is, that Rea has done, where there's certainly a nod to fall, and certainly a lot of fall colors, but stuff that can be worn throughout the season. And then, we'll transition into fall, with the true winter stuff as we get into September so. But that's all part of the learning that we're all going through, now that we have some of this data as you suggest.

That's great. And maybe, just finally dovetailing on that, I mean, any initial guideposts you can give us, as we build our models for FY17? As you get this feedback from wholesale partners, I mean, would you expect shipments to grow next year? And on the DTC side, obviously comparisons get quite a bit easier, but a lot going into that. So just any other thoughts on what we should consider, as we build our models for the next several quarters?

No, I don't think we're ready to do that yet. We want to get a few more weeks under our belts, we have this Christmas season plays out, and see how -- as I have been saying for months now, this is an exciting time for us, because the floors now do have two collections from our founders and we'll have a better chance -- better visibility into how the customer is responding to that, with all the products being consistent.

As we go into 2017, obviously a lot of -- we've taken so much of the pain in 2016, we're not against, up against these massive promoted promotions in our DTC business. I mean, Dave alluded to November comps. I can't overemphasize how much those Friends and Family drove top line, both online and in stores, but again we think detrimentally to the business, and certainly to our wholesale partners.

So for spring, we've now cleaned that all up, so we, 2017 will be a good base for our DTC business, and made a lot of progress on the wholesale side too, in terms of walking down those promotions. Because even though the product in spring of last year wasn't from the founders, they were helping partner with the wholesale -- the wholesalers to try and reset the brand. So I think that's going to be very helpful, as we look at 2017, recognizing as I mentioned that everyone is still going to be cautious with their upfront placements.

Great. Thanks again for taking the questions.

Thanks, Mark.

Richard Jaffe, Stifel.

This is [Sam] (inaudible) on for Richard. I was wondering if you could talk to SG&A next year, if you see it slowing at all, or continuing at the current level?

Well, I think part of the current level, as Dave suggested, were all the new stores we have opened over the last 12 to 18 months. And while we are going to open up a few stores next year, it won't be at the same rate, and I think that was a large part of SG&A.

Also the consulting agreement that we have with Founders was a big incremental increase over previous years. So obviously, that will anniversary itself, and not be such a huge incremental cost. And then, some of these migration costs Dave talked about, with getting off the Kellwood platform will be behind us.

So hopefully, as the business stabilizes, we'll also be able to look for opportunities to gain some efficiencies in other areas. Having said that, we will continue to invest in the business, both in people and in infrastructure as it makes sense to prepare ourselves for sustainable growth.

Yes, and then, one more, in terms of your other product categories like shoes and handbags. Is there a potential to expand those more in 2017, or other categories that you plan on, I guess, going into?

Well, shoes, we have our arrangement with Caleres, and I know, and speaking of them, the shoe business has been excellent for them, and a lot of that is driven off the designs and styling that Rea put in, when she came back to freshen up the shoes. So that is a licensing agreement.

Handbags is something that's in our crosshairs right now. We know there's an appetite for it, we know there's a big appetite for it. We're very motivated to find the design and production capabilities to do it in a way, that lives up to the Vince standards. And that's been the -- what's slowed us down so far.

I think now as we feel better about the ready-to-wear product, and getting our mojo back there, we're going to focus more on how we can regain -- regain is the wrong word, but build a handbag business that fits into the lifestyle of the Vince customer. Same time, as I mentioned, we think men's -- Rea is very focused on the men's business, and how we can grow that, whether it's opening up more men's only stores, whether it's growing accounts like Nordstrom's and Neiman's and Saks to really outsize growth at.

And then, categories within categories we have. I mentioned outerwear, that's something we know we underplayed this year, based on the timing. Denim is something -- we've added some denim into the line, both men's and women's, and had some great success, and we feel like that's a category that we can invest in, in people and structure, and build a better bigger business. And it's something that our -- the accounts have been asking for.

And as I mentioned, we just launched our own -- two of our own stores, Madison Avenue here in New York, and the Grove in California, as well online next week, some third-party categories like jewelry and books and some home items, that can be a growing business for us with third-party partners. Or some of what we can take in-house.

So I think from my standpoint, feeling so much better about the core ready-to-wear business, allows us now to go after some of these other opportunities. And that was really always the plan, we knew that we had to get the core product back on track, before we got distracted with the other opportunities that are out there.

Okay. Great. Thank you.

Jeff Van Sinderen, B. Riley.

Hello, this is [Richard Magnusen] in for Jeff Van Sinderen. Thank you for taking my call.

Sure.

Can you give us some more color on the comp progression you saw in your owned retail stores throughout the quarter, and then what you saw in November? And then, maybe could you tell us how we should think about your comps for Q4? And then also, what you're -- any initial plans of store openings and closings you have for 2107, any detail there?

So as I mentioned in my remarks, we were surprised as we got into the quarter, that there was a lot more promotional activity that happened last year in our owned stores than we realized. I, obviously, shame on us, but I chalk that up to just the transition that happened.

I mean, we literally have an entire new team that wasn't here last September, and so, it got lost. And what specifically happened, was the promotion, the buy more, save more last September was only supposed to run for five or six days. We had the printed collateral that stated that. But as we got into the month, early in the month, we saw we were up against these big days that seemed abnormally large, and we were able to reconstruct that they -- last year, they started the sale two weeks early.

So a 5 day sale that started 14 days early, and then actually extended the sale a few days in major cities, because the Pope was in town. So we actually had a Papal extension on the promotion. So we were basically up against this promotion the entire month of September which we had not factored in, which was very disappointing and very difficult to overcome.

And then, as Dave stated in his remarks, we did know we were up against Friends and Families for the first week of November this year, which we chose not to anniversary, and it just drove a tremendous amount of business. It's not just -- even my remarks, where I said last year, we promoted 6 days versus last year 20 days, it's also the way we were promoting it.

I mean, last year, when we promoted Friends and Family, we had signs everywhere. We literally had sandwich boards out in the mall advertising the sale. We had it all over our windows.

This year when we did this -- we did our buy invitation event, it was very quiet. If you went on the website, you had to know about it and be invited in. If you went into our stores, there was no markings of it. You had to come in, knowing that you were invited.

And so, we are trying to elevate the way we handle that, so even the days to days isn't a apples to apples comparison versus the way we did it last year. And so, November started off against this huge Friends and Family event. And then, obviously, we had the election.

Black Friday as Dave mentioned, even though we saw traffic challenges, we did have a -- we were very pleased with our business there, and business has strengthened in a little bit over the last few weeks, versus what we had been seeing throughout the last quarter, still with traffic down. So it's still concerning. But again, we are -- as we look a the balance of the quarter, we don't have any huge promotions that we're up against.

Our inventory levels are now comparable to last year in our owned stores. So we alluded to the late deliveries. We had thought that we would get inventories back up, to comparable levels by mid September, that didn't happen until really November.

And as I mentioned in my remarks, that lack of a pre-fall delivery really hurt us into Q3 more than we recognized. And one, it's weights that are more appropriate as the weather is turning, but also you lack the -- when it gets marked down, you lack that sale and clearance that drives people into stores and into our partner's stores.

And I said specifically, on Erinn's remarks, that we had so much less on sale at Saks at the beginning of the month. It was largely driven by not having that delivery. So I think all of those things contributed, and hopefully, largely are behind us, but still a little bit battle-scarred from what we're seeing over the last few months, and what we're hearing from others in terms of traffic numbers.

Okay. And then, you had mentioned Nordstrom's in particular, but what are your key retail partners experiencing in sell-through trends of your brand lately, can you offer more color on that? And [there were] the stronger true sell-throughs in terms of location and product, and then maybe speak a little bit about the booking trends, the wholesale booking trends you're seeing?

Well, I don't want to speak -- specifically, Nordstroms was comfortable with us talking about this. So I don't -- I haven't gotten that permission from others, so I want to be careful there.

But California has been our strongest market across the board, and I think that in some ways, that's weather driven. It gets cold at night, even in Los Angeles. And I think when we were delivering the sweaters in August and September, people were layering up already out there, where they weren't doing it in the Northeast, and then, obviously Northern California, San Francisco, it stays cold. So that was true for us, that was true for our wholesale partners.

Overall, our sell-through on the fall product was higher than last year. But as I said, we didn't -- and that was done slightly higher than last year, and that was done without promoting in our wholesale partners the same way we did the year before.

But we did lose the benefit of replenishment. And replenishment was promoted last year as well, which speaks to just the lack of integrity of the brand, because why would you promote replenishment items? And so, we just couldn't overcome that with the fall collection at regular price.

But again, feel good that we're cleaning that up, in terms of the go forward placements. As I alluded to earlier, the four major partners are incredibly supportive of the brand, love what they're seeing.

I think, we're also seeing the progression, this, to reset a brand like this takes time, and you need a few seasons. And I think they were very happy with fall. They were real happy with pre-fall, they loved spring which will ship in a couple months, and now we're showing pre-fall which we're getting tremendous reviews from. And as I said, I think they're pleased, that it's balanced in terms of the weights.

But having said that, they are still conservative with their purchases. And it's going to be a balancing act to get the purchases upfront, and see what we're comfortable holding, or just letting these -- the demand outweigh the supply, and building upon that, and with higher gross margins.

So I don't think there's any one answer. I think it's all of this we've been considering, and trying to be pragmatic about it. And obviously, in our own direct-to-consumer business, we can control our inventory flow there. So we're very excited about the opportunity to build upon the fall and pre-spring delivery, and not be up against this promotional activity.

Okay. And then lastly, could you give us more color on your inventory composition, and what we should anticipate for inventory at the end of Q4 if you could?

No, I mean, not yet, I mean, we're trying to get the spring merchandise here earlier than last year, because we think that's an opportunity to start to get floors set up earlier. So we might -- hopefully our inventories will start to rise a little bit because of that. But we are so clean right now with our inventories, that we just think there's opportunity to use them more impactfully as a weapon.

And like I said, this being the big thing, getting the -- getting spring here earlier. Last year, it started to hit in February, and we didn't get the floors set up until the end of February. So we're proactively pushing our factories to get this here, as early as possible, even if it hits our year end.

Thank you very much.

Thank you.

There are no further questions at this time. I will turn the call back over to Brendan Hoffman.

Thank you for your interest in Vince Holdings. We look forward to updating you on our progress on the next conference call. Happy holidays.

This concludes today's conference call. You may now disconnect.