Vince Holding Corp (VNCE) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Vince Q4 2020 Earnings Conference Call. (Operator Instructions) Thank you.

I'll now turn the conference over to Amy Levy. You may begin.

Thank you, and good afternoon, everyone. Welcome to Vince Holding Corp.'s Preliminary Fourth Quarter Fiscal 2020 Results Conference Call. Hosting the call today is Jack Schwefel, 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 preliminary and historical financial results in conformity with GAAP and on an adjusted basis. Discussions of these non-GAAP measures and information on reconciliations of them to their most comparable GAAP measures are included in today's press release and related schedules, which are available in the Investors 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'll turn the call over to Jack.

Great. Thank you, Amy, and thank you, everyone, for joining us this afternoon. I'm pleased to be here today as the CEO of Vince Holding Corporation. Vince and Rebecca Taylor, our 2 distinct iconic brands, I believe have extraordinary potential as global fashion brands. Vince's powerful brand recognition, a heritage of design and quality and strong consumer connections. The Rebecca Taylor brand possesses the DNA to achieve similar levels of recognition and popularity in the future. I look forward to working with the teams as we leverage omnichannel focus and data-driven merchandising and marketing approach to help each of these brands achieve their long-term potential.

To begin, I'd like to share a little bit of why I joined the company and what I see in each of these brands, and we'll begin with Vince. Since the brand was founded in 2002, it has become assemble of sophisticated, effortless style and, over the years, has developed a strong and loyal customer base. A friend who I would describe as having exceptional taste recently spoke of the Vince brand as the best of America, and I agree. The brand's distinct positioning is one of beautifully designed and crafted products, high-quality fabrications and easy to wear styles. We are extremely fortunate to have such talent in a Creative Director of Caroline and her design team as we continue to design our collections to embrace the lifestyle of our customers. We will continue to leverage Vince's strong brand equity and expand awareness as we increase our focus on the direct-to-consumer channel. The e-commerce site serves to engage consumers, and we have an opportunity to enhance our direct-to-consumer channel through the commencement of our omnichannel capabilities. Our stores play a vital role in driving brand awareness and engagement.

Turning to Rebecca Taylor. I am equally enthusiastic and optimistic about the future of this brand. Rebecca Taylor is a small jewel known for its romantic feminine style. The work the team has done to return to the brand's heritage serves as a startling point to -- as a starting point to reinterpret and modernize the collections for today's women. The team pulled back the assortment and eliminated one of the seasonal collections in order to properly reset the brand for the future. There could be no better time for this relaunch to occur as we emerge from the pandemic. Under Steven Cateron's vision, we took a step back to assess the brand position in preparation for spring 2021 relaunch, Romanticism Redefined.

Rebecca has expanded from dresses and occasion wear to a complete lifestyle offering. New categories include sweaters with romantic caplet details, outerwear in exaggerated silhouettes, sophisticated trousers and everyday knitwear. Each piece thoughtfully designed for decidingly elegant way of dressing that defines romance for today. The relaunch coincides with the brand's new Digital First strategy, including a completely redesigned website, the launch of SMS program, an updated site experience on rebeccataylor.com and a focus on segmentation and personalization. I am also very pleased to be working with an accomplished team as we emerge from the pandemic with 2 incredible brands with significant growth potential.

The organization under David Stefko's leadership successfully navigated through this unprecedented period by managing expenses and maximizing liquidity while continuing to engage the customers and generate demand. The team was able to advance its strategic initiatives despite the challenges presented by the pandemic. At Vince, we launched inclusive sizing in 2020 to better address our customer demand and expand our customer following. Additionally, the organization took its first step to omnichannel in 2020 by combining our e-commerce and our wholesale warehouses, forming one virtual warehouse.

As we work towards being fully omnichannel by 2021, the current investment in implementation of an enhanced point-of-sale system will allow us to reach this goal. This team has done an exceptional job over this past year, and I look forward to working with them to continue to build upon all this progress.

The direct-to-consumer business continues to improve sequentially, and we have maintained strong relationships with our wholesale partners, where some of our peers have seen deeper pullbacks and, in some cases, relationships end. Further, we believe we have actually taken market share during the pandemic, which is a remarkable feat that speaks to the power of the Vince brand.

Looking forward, my priorities in the first 90 days will include further finding myself with the broader teams as well as outside partners, including wholesale accounts, vendors and landlords. We will also evaluate the business across operations and processes to gain greater insight into our capabilities and infrastructure and determine where we will need to invest and improve the business. During this time, liquidity will remain a priority, and we will also remain diligent in our expense structure, while limiting any potential investments to critical areas. Over the near term, we will look to capitalize on the growing consumer confidence as the vaccine rollout continues.

Overall, I believe that there are a number of opportunities ahead, and I'm very excited to work closely with the entire team to ensure we are enhancing the business and profitability and shareholder value over the long term. I look forward to providing you with additional details on our go-forward strategy and update you on our initial progress on our next call.

With this, I will turn it over to Dave.

Thanks, Jack. Before I discuss the financials, I would like to point out that the results we are reporting today are preliminary as we are finalizing the analysis of a noncash deferred tax item related to the valuation of our deferred tax assets and the implication of the CARES Act thereon. We believe this item will have an increasing effect on our provision for income taxes, net loss and loss per share in the range of $0.10 and $0.15 per share for the fourth quarter. I would like to stress this is a noncash, non-income-from-operations item.

Looking back on 2020, we successfully navigated the pandemic through swift measures to reduce expenses, manage liquidity and protect our business. We worked closely with our wholesale channel partners along with our landlords and vendors during this time, and we truly appreciate their partnership. Most of all, I want to thank our teams across the organization for their commitment and hard work for which I am extremely grateful. As we look ahead, we are encouraged by the rollout of the vaccine and excited about the future of our brands. I look forward to working with Jack as we capitalize on the strength of our brands to emerge from the pandemic as a leader in contemporary luxury.

Turning to our preliminary financial results. Total company net sales for the fourth quarter decreased 28.4% to $74.8 million compared to $104.4 million in the fourth quarter of fiscal 2019. This is a notable improvement to the 34% decline in the third quarter. For the Vince brand, fourth quarter consolidated net sales decreased 20.4% to $69.5 million compared to $87.3 million in the same prior year period. Our Vince direct-to-consumer segment sales decreased 28.4% to $30.4 million in the fourth quarter. This decline reflects continued reduced traffic trends in urban markets in New York and California. Although some of our retail stores were slower to recover, we still saw some improvement in this channel. We saw improvement in the traffic trends and relatively better performance in retail stores in the Midwest, Florida and Texas as the pace of COVID recovery was more pronounced in these regions. The sales decrease in retail stores was partially offset by a low-teens growth in our e-commerce business, which, as a reminder, includes Vince Unfold.

In our wholesale segment, while net sales declined 12.9%, we remained confident in our market share position within this segment as Vince continues to outperform peers within the contemporary luxury category. On the international front, we are very excited about the opening of our new Australia shop-in-shop locations. These 3 locations have had a strong start, significantly exceeding our expectations, and we have the fourth location that is planned to open in the first week of May.

Notably, we saw strong full-priced selling at our new shop-in-shops during the end-of-season sale period in Australia, a great indication of the potential for this market. Rebecca Taylor and Parker combined net sales decreased 68.9% to $5.3 million as compared to the same period last year. As we have shared in the past, with the COVID crisis, we have paused the development of new product for our Parker business to focus resources on the operations of our Vince and Rebecca Taylor brands. This contributed to about 1/3 of the sales decline. For Rebecca Taylor, the decline was largely due to the planned elimination of one of the seasonal collections as we reset the brand and also the timing of spring '21 -- 2021 shipments. Nevertheless, we are very pleased with the response to our new product offering within the wholesale segment.

Gross profit in the fourth quarter was $27.6 million or 36.9% of net sales. This compares to $46.2 million or 44.2% of net sales in the fourth quarter of last year. The decrease in gross margin rate was primarily due to increased promotional activity, higher year-over-year adjustments to inventory reserves and the deleveraging of supply chain costs, partially offset by a decrease in sales allowances to our wholesale partners.

Selling, general and administrative expenses in the quarter were $31.5 million or 42.1% of net sales as compared to $49.3 million or 47.2% of net sales for the fourth quarter of last year. As a result of the actions taken to reduce costs at the onset of the COVID pandemic, we decreased SG&A dollars by $17.8 million in the fourth quarter. This decrease was primarily the result of lower payroll and compensation expense, rent concessions, reduced marketing spend and prudent expense management.

Operating loss for the fourth quarter was $3.9 million compared to a loss of $3.3 million in the same period last year, which included approximately $2.9 million in costs associated with the acquisition of Rebecca Taylor and Parker and $0.2 million in noncash asset impairment charges.

Preliminary net loss for the fourth quarter, excluding the previously mentioned noncash deferred tax item, was $5.7 million or $0.48 loss per diluted share compared to net income of $51.7 million or $4.29 per diluted share in the fourth quarter last year. Excluding a TRA adjustment of $56 million, the costs associated with the acquisition of Rebecca Taylor and Parker and noncash asset impairment charges, adjusted net loss for the fourth quarter of fiscal 2019 was $1.2 million or $0.10 loss per share.

Moving on now to the balance sheet. Borrowings under our debt agreements totaled $85.9 million. As a reminder, this includes $20.7 million from the third lien credit facility we entered into with an affiliate of Sun Capital in December of 2020. We ended the quarter with availability of $30.2 million under our revolving credit facility. We continue to take steps to manage our liquidity and maintain financial flexibility, and we believe we have adequate funds to effectively operate our business.

As part of this, on April 26 of this year, we entered into a sixth amendment to our existing term loan credit facility. This term loan amendment extends the waiver of our fixed charge coverage measurement until January of 2023 to create more flexibility as we recover from the pandemic. Until January of 2023, this will continue to be subject to the current spring and covenant. We concurrently entered into a sixth amendment to our existing revolving -- revolver facility, which consents to the term loan amendment.

Moving to inventory. Net inventory was $68.2 million at the end of the fourth quarter as compared to $66.4 million at the end of the fourth quarter last year. We continued to work through COVID-impacted excess inventory from fall 2020 and prior seasons. As retail traffic trends begin to improve, we're seeing increased demand for product from the off-price channel. In addition, majority of spring shipments arrived in the first quarter of 2021 as compared to the fourth quarter last year due to our decision to minimize air-freighted product. While we expect inventory to be up mid-single digits in the first quarter, we anticipate the balance of newness versus prior season inventory to continue to improve.

As stated in our press release published this afternoon, due to the low visibility and uncertainty related to the impact of COVID-19, we will not be providing formal guidance at this time. With that said, we are pleased with the pace of recovery in our sales, which are expected to be up approximately 40% to 50% for the first quarter of fiscal 2021 as compared to the same period last year, in line with our expectations. Like many others in the industry, port congestion is creating delays in shipping that is expected to impact the timing of deliveries and cost pressures during 2021.

For fiscal 2021, we are planning capital expenditures, net of tenant allowances, to be below that of 2020. Our capital expenditure plans include new store openings as well as IT investments, specifically related to our efforts to become fully omnichannel. As we have done over the last 2 years, we will continue to pursue new short-term leases with attractive terms opportunistically.

Looking ahead, we are optimistic about our future. With the vaccine rollout, consumers are beginning to return to more normal lifestyles, which is driving spending on apparel and accessories. Within the past few weeks, we have started to see increased demand for occasion products, including dresses and dress pants. This increased demand, combined with our new product, gives us confidence that we'll continue to see sequential improvement in our performance. While we are encouraged by recent trends as we continue to recover from COVID, we will continue to manage our expenses and inventory conservatively given that there still remains limited certainty at this time.

This concludes my comments regarding our fourth quarter. We will now take your questions. Operator?

(Operator Instructions) And your first question comes from Dana Telsey with Telsey Advisory Group.

Jack, since you're newer to the company, could you -- what attracted you to Vince? And could you just expand on what you see as the growth potential in each of the brands?

Sure. I'd be happy to do that. As I stated, I'm very excited about this opportunity for a multitude of reasons. I think that while Vince is just -- has been an amazing design company, I think -- and has a wonderful reputation, I think it deserves to have a bigger forum than it has today. I can easily see the brand being much larger than it is today, especially internationally. I think the efforts to date on direct-to-consumer allow us to grow in that venue in a very, very large way as well. As I look at Rebecca Taylor, I think it's much more in a gestation period. It has not really been fully articulated, either on the wholesale or direct-to-consumer. And I think its ability to grow internationally will also be extreme. So excited about the fairways in front of us for both those brands.

And then, Dave, as you think about margins and inventory levels, what's the impact of port congestion now? Obviously, you mentioned the timing of bringing in some of the spring arrivals in the first quarter versus the fourth quarter to minimize airfreight. What are you seeing as timing of port congestion? And is it more on the side in China or is it here in the U.S., getting labor to get the goods off the containers? And how is this impacting wholesale orders?

Well, I mean one thing is we're not seeing anything different than anybody else is. And so yes, Dana, it's really -- you see -- ask what is impacting what side. There is the port congestion in the U.S., but then there is also the container misalignment around the world and the ability in Asia to obtain containers where you need them. Even something as the issues at the Suez Canal, while we don't utilize the Suez Canal, it put a lot of containers out of place from a timing perspective in order to recover. So a lot of us are seeing that. We're seeing increased rates, both on ocean and then as people move their demand to air, you see increased rates from an airfreight perspective, which are already increased because of the limited air traffic or airplanes that are -- have been flying just from a consumer travel perspective.

So we will manage it appropriately. We'll continue to look at where we can use ocean freight and where we need to use airfreight to manage from a cost side, but also we have to be smart from a perspective of making sure we can deliver when our wholesale partners and our stores in e-com, we need the product, for instance, just an example of Nordstrom anniversary sale. We need to have the product here in time for anniversary sale. So we'll continue to manage it from that perspective.

Got it. And then your thoughts on off-price. How important is the off-price channel? How big do you want it to be compared to the other customers in wholesale? And how are you planning it?

I mean we've seen off-price over the last 2, 3 years, Dana, we've had years where off-price has been -- let's say, we've seen years we've grown $10 million and years where it has declined. 2020 was a softer year from the perspective of how folks are managing their open-to-buy dollars, and that probably led to some degree to some of the decline that we saw in the fourth quarter when you look at our results compared to the prior year. But it's like anywhere else is the consumer is now getting out there to shop. More recently, over the last 3 to 6 weeks, we're seeing off-price open-to-buy dollars increase because people are back. The traffic is back. People are shopping their stores. And everybody has been very responsible from trying to manage their inventories. And so that's what we're seeing now is opportunities from an inventory perspective to open back up, and the open-to-buy dollars are increasing to support that.

Got it. And it does sound like the reopening that we've been hearing about, whether it's coming from stimulus savings, things reopening and address the events. Are you seeing that too? It sounds like with the pants and what you mentioned with the dresses there's a pickup? And are you seeing that in any of the urban areas? Are those still the last ones to come back?

We're actually very pleased with what we're seeing going on, both with our wholesale partners, our sell-throughs there as well as what we're starting to see in our own direct-to-consumer businesses. And while we saw -- as Dave mentioned, we saw great strength earlier from Florida and Texas, we are beginning to see some of these urban areas really pick up, specifically in the Northeast and California.

Got it. And then balance sheet, anything we should be watching for on the balance sheet as we move through 2021, that would impact one quarter versus another that we should be mindful of?

I mean nothing specific, Dana, from a balance sheet perspective. I mean, it's -- as we said -- I said in my comments, we -- because of the timing of shipments, we'll see a higher inventory level come the first quarter. But it's the inventory flow you're always looking at. Again, we're going to be impacted by our ability to air products versus ocean products and the timing of will some items hit the last week of a quarter or the first week of a quarter. So our inventory will fluctuate from that reason, but not that it will have much impact on from a sales perspective, though.

And then just lastly, what are you seeing in terms of raw material costs and pricing? How that will differ this year from last year?

Yes. From a pricing perspective, we will price what the value of the brand is. We'll look at costs. We'll manage costs like we always have. What we won't do is change anything to compromise quality. Quality is what Vince has always stood for. We certainly are having the same attitude as we look at Rebecca Taylor. So quality will always be number one. The price of goods will fluctuate based on market conditions, what the market supports.

And there are no further questions. I will now turn the conference back over to Jack Schwefel for closing remarks.

Great. Thank you, operator, and thank you for joining us on this call today. In closing, I'd just like to reiterate that I am very much aligned with the strategic direction of both Vince and Rebecca Taylor brands and will be maniacally focused on execution. I look forward to updating you on our progress in the future. And thank you again for your time today. Operator, that concludes it.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect.