Vince Holding Corp. (NYSE:VNCE)
Q2 2021 Earnings Conference Call
September 12, 2021 4:45 PM ET
Company Participants
Amy Levy – Vice President of Investor Relations
Jack Schwefel – Chief Executive Officer
Dave Stefko – Chief Financial Officer
Conference Call Participants
Presentation
Operator
Good evening, everyone. Thank you for joining today’s Vince Holding Corp Second Quarter 2022 Earnings Conference Call. My name is [Don Pam] (ph) and I’ll be the operator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. [Operator Instructions]
I would now like to pass the conference over to our host, Ms. Amy Levy with Vince Holding Corp. Ms. Amy, the floor is now yours.
Amy Levy
Thank you and good afternoon, everyone. Welcome to Vince Holding Corp’s Second Quarter Fiscal 2022 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 expect. Those risks and uncertainties are described in today’s press release and in the company’s SEC filings, which are available on the company’s website. Investors should not assume that statements made during the call will remain operative at a later time and the company undertakes no obligation to update any information discussed on the call. After the prepared remarks, management will be available to take your questions for as long as time permits.
Now, I’ll turn the call over to Jack.
Jack Schwefel
Thank you, Amy, and thank you everyone for joining us this afternoon for a discussion on our second quarter performance. Before I begin, as you saw in our press release today, in light of the continued challenging macro environment and after careful consideration we have made the difficult decision to exit the Rebecca Taylor business. This decision will allow us to focus all of our resources on the growth and profitability of the Vince brand going forward. Given this update, my discussion today will focus primarily on Vince and I will provide an update on our strategic initiatives before turning the call over to Dave to review our financial results in more detail.
Turning now to a review of our performance at Vince. During the quarter, both our direct to consumer and wholesale channels drove sales growth above both 2019 and 2021 levels. Our direct to consumer results were led by strength in our retail stores and our wholesale channel, benefiting from strong performance at the Nordstrom Anniversary event, as well as the expected increase in sales into the off-price channel. During the quarter our assortment continue to resonate with our customers as both women and men have gravitated into a dressier casual style and away from lounge as we have returned to more normalized activities in Vince.
In women’s, we saw strong demand for our dresses and pants, as well as great reception to color, pattern and skirts and new silhouettes and tops. While we scaled back the breadth and depth of our swimmer categories this year, we saw strength in our exclusives and more modest pieces. We are also pleased with the higher turns and increased margin rate we delivered for the line this year. In addition, for the women’s business we were very encouraged by the positive response we saw in our inclusive sizing event at our fifth Avenue store last quarter and we are exploring opportunities to offer inclusive sizing in more stores.
In men’s, we were again very pleased with the momentum we saw during the period. In particular, we saw strength in our men’s essential and key summer items like our linen program and Cabana shirts. We are now seeing customers buy Vince men’s wear in a dressier way, aligning similarly to our women’s esthetic and we continue to see strong opportunity for growth in this line going forward in areas such as evergreen categories, such as [indiscernible]. Looking ahead towards fall, we see a significant opportunity within cold weather accessories and we are excited for upcoming launch for both men and women with our new licensing partner [Amica] (ph). This expanded assortment, which will be in stores later this month includes a range of scarfs, leather gloves, mittens and other items in seasonal color ways. We are very excited for this line up as we enter the fall and holiday seasons, which will complement our existing men’s and women’s styles and adds to our already strong gifting assortments. We also continue to offer a selection of accessories in partnership with our Amica, supporting the Ukrainian refugees and are proud to have raised almost $30,000 since launch early June.
Turning to store performance, we have continued to see sales and traffic migrate back to our retail stores following several quarters of COVID driven e-commerce growth. As you may recall in May, we opened our Boston Seaport store and in June relocated our Merrick Park location and are seeing strength in both markets. In addition, during the quarter we closed two stores and have plans to relocate one store, remodel two locations before the end of the year. As customer shopping behaviors of migrated back to stores, our year-over-year comparison in e-commerce has been impacted which highlights the growing importance of our omnichannel capabilities. We continue to view e-commerce as a key part of our growth strategy. With this in mind, we are excited for the upcoming relaunch of the Vince website. With our updated site, our customers will experience faster page loads and an improved customer journey highlighted by enhancements to navigation and filters along with redesign category and product pages. The new site will also bring a mobile first experience including a streamlined checkout process for customers.
Along with these immediate improvements, we are also looking forward to the long-term scalable benefits from our relaunch and its applications for enhanced personalization, particularly alongside our new customer data platform or CDP. Through our CDP we now have enhanced targeted marketing and personalization capabilities which we believe will benefit our disciplined marketing approach that we have, continue to highlight.
Turning now to the wholesale channel. Most exciting was, as I mentioned, the very strong performance we saw in both men’s and women’s at this year’s Nordstrom Anniversary sale. We were particularly proud of these results, especially on top of last year’s record performance. While we did continue to experience delays due to ongoing supply chain challenges and did see more cautious approach to reorders in the period, we continue to work closely with our wholesale partners. To that end, we were very pleased to launching [indiscernible] during the quarter. Later this fall we will be celebrating Vince’s 20th anniversary with our hashtag, I love Vince campaign. As part of this milestone event select wholesale partners will be joining the celebration with tailored capsule collections. These collections will showcase our brand favorites, that defines Vince’s tried and true heritage of understated luxury. In addition, we will be celebrating the campaign on social media with particular emphasis on our wardrobe essentials and classic Vince items, while highlighting the three qualities of the brand, craftsmanship, quality and heritage.
We continue to be pleased with the increased engagement we are seeing across our social media channels. While the majority of our influencer campaigns are directed towards women, we were thrilled with the performance we saw at one post this summer highlighting our straight legs vintage wash jeans Tom Cruise wear in this year’s blockbuster Top Gun Maverick. Looking ahead, we will continue to focus on driving increased engagement and are excited for not only our 20th anniversary campaign, but our holiday campaign as well which will highlight occasion and gifting across our web and social pages later this year.
Finally, our international business continues to show growth. We saw particular strength in Korea, supported by demand in tops, sweaters and knits. We are also very pleased with our progress in the United Kingdom and look forward to the opening of our shop in shop at [indiscernible] planned for October. In China, we are excited for the opening of our Shanghai pilot store and webs launch later in September. In closing, we continue to operate in a challenging and dynamic environment. And I want to thank all of our employees for their hard work and dedication. As we look ahead, we are focused on making progress across all of our initiatives to best position Vince for profitable growth going forward.
With that, I will turn it over to Dave.
Dave Stefko
Thanks, Jack. Our second quarter results were driven by growth in our Vince business, while we continued to navigate a challenging macro environment that has created headwinds to profitability. Total company net sales for the second quarter increased 13.4% to $89.2 million compared to $78.7 million in the second quarter of fiscal 2021. For the Vince brand, second quarter consolidated net sales increased 20.5% to $80.9 million compared to $67.2 million in the same prior year period. Our Vince direct to consumer segment sales increased 6.9% to $34.2 million in the second quarter and exceeded 2019 levels. The year-over-year increase was driven by growth in our retail stores.
In our Vince Wholesale segment net sales increased 32.8% and exceeded Q2 2019 sales levels. The Rebecca Taylor and Parker combined net sales decreased 27.9% to $8.3 million as compared to the same period last year. This was primarily driven by lower sales in our wholesale channel, partially offset by an increase in our direct to consumer business, driven primarily by new stores.
Gross profit in the second quarter was $36.4 million or 40.8% of net sales. This compares to $35.4 million or 45% of net sales in the second quarter of last year. The 420 basis point decrease in gross margin rate compared to the second quarter of fiscal 2021 was primarily due to unfavorable year-over-year adjustments to inventory reserves, higher product and freight costs, as well as an increase in promotional activity, partially offset by favorable leveraging of distribution and other overhead costs.
Selling, general and administrative expenses in the quarter was $39 million or 43.7% of net sales as compared to $32.7 million or 41.6% of net sales for the second quarter of last year. The increase in SG&A dollars as a result of higher payroll and compensation expense, higher rent expense and increased consulting and other third-party costs as we have restored storage certain expenses that were temporarily depressed in the prior year due to the ongoing impact of COVID 19.
Operating loss for the second quarter was $5.2 million compared to operating income of $2.6 million in the same period last year. The operating loss for the second quarter of fiscal 2022 includes a $1.7 million impairment charge associated with Rebecca Taylor indefinite lived trade name and a $0.9 million impairment charge associated with the property and equipment of certain Rebecca Taylor retail stores.
Income tax expense for the second quarter was $7.9 million as compared to $1.3 million in the same period last year. This tax expense was a result of an annual non-cash deferred tax expense created by the amortization of indefinite lived goodwill and intangible assets for tax but not for book purposes. As of July 30, 2022 we no longer anticipate annual ordinary income for the fiscal year, mainly due to the decline in results of Rebecca Taylor and therefore the tax provision of $7.9 million for the three months ended July 30 reflects the impact of applying the company’s estimated effective tax rate for the fiscal year for the six month pre-tax loss. Net loss for the second quarter, which includes the impact of the impairment charges I previously review was $15 million or $1.23 loss per share compared to a net loss of $0.6 million or a $0.05 loss per share in the second quarter last year.
Moving now to the balance sheet, borrowings under our debt agreements totaled $115.7 million. We ended the quarter with availability of $37.1 million under our revolving credit facility. Moving to inventory, net inventory was $129.5 million at the end of the second quarter as compared to $74.3 million at the end of the second quarter last year. As we previously discussed, we anticipated our ending Q2 inventory levels to be elevated due to our strategic decision to increase our orders of pre-fall and fall assortments, as well as a higher investment and replenishment products following a shortfall last year. The higher inventory levels were also impacted by the extended shipping times related to factory shutdowns and a temporary port closure in Shanghai earlier this calendar year.
In addition, we also experienced increased product cost related to transportation and raw materials inflation and saw a lower-than-expected demand with our wholesale partners who have taken a more cautious approach to ordering, given the current macro backdrop. Given the actions we announced today with respect to winding down our Rebecca Taylor business, we are not in a position to provide guidance at this time. The wind down is at an early stage and is expected to take several months to complete and is subject to various risks and uncertainties that could impact our ability to successfully complete the wind down. With that said, as we look to the back half of the year, we will remain focused on executing our strategies to drive growth in our Vince business, while continuing to navigate the volatile consumer environment.
This concludes my comments regarding our second quarter. We will now take your questions. Operator?
Operator
Thank you, sir. [Operator Instructions] There are no questions registered at this time, so I would like to pass the call back over to management team for any closing remarks.
Jack Schwefel
This concludes the Vince 2022 Q2 earnings call. Thank you for attending. We look forward to sharing our third quarter performance later in December. Have a good evening.
Operator
And with that we will conclude today’s Vince Holding Corp second quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect your line.
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