Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Vince Holding Corporation Q3 2015 earnings results conference call. [Operator Instructions] Thank you. Jennifer Poland, VP of Finance, you may begin your conference.

Thank you and good afternoon, everyone. Welcome to our third quarter 2015 earnings conference call. I am Jennifer Poland, Vice President of Finance. Joining me today is Brendan Hoffman, our Chief Executive Officer; and David Stefko, our Interim Chief Financial Officer and Treasurer, who will be your speakers for today's call. 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 we 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. In today's discussion, we are presenting our financial results in conformity with GAAP and on an adjusted basis. The adjusted results that we present 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 our website at investors.vince.com. 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 Brendan.

Thanks, Jen, and thank you all for joining us today. Let me start by saying how excited I am to be here. I have long admired Vince as a great brand with a distinct position within the contemporary space. While the brand has maintained leading market share within the department stores, over the last year the business has become challenged. This was partially due to a difficult retail environment, as well as some missteps in the business that caused the brand to stray from its DNA. I believe there are a number of actions that we can take to get us back to the roots in which Vince was founded. To create everyday casual luxury essentials with modern, effortless style that speaks to multiple generations. With strategies in place, the focus now is on execution. Although, I've only been on Board for about seven weeks, but I’ve spent that time meeting with the team in New York and LA, getting to know the business, meeting with our wholesale partners, visiting our retail stores and learning about our customers. Based on what I've seen, I'm confident that I can leverage my background in merchandising, branding and e-commerce to drive improved performance in the business. One of my primary goals is to position the company to succeed over the long-term and to create the process and cultivate the talent that are needed to ensure Vince can reach its full potential. I'm happy to say that we have taken the first step having recently announced that Vince founders, Rea Laccone and Christopher LaPolice have returned to the company. As part of their responsibilities, they will oversee product development, design and merchandising, working with the creative teams to elevate both the product offering and the brand image. We have a very strong, passionate and…

Thank you, Brendon. For the third quarter, net sales decreased 21.5% to $80.9 million versus $102.9 million in the prior-year period. Our wholesale channel sales were down 28.4% to $56.5 million due primarily to a decline in our U.S. wholesale segment, as a result of lower sales and reorders in the full price channel, as well as higher give-backs to our wholesales partners and planned reductions in the off price channel. Our direct-to-consumer segment sales increased 1.3% to $24.4 million in the third quarter, as we added nine new stores since the third quarter of last year. This was offset by a comparable store sales decline including e-commerce of 12.5%. Our comparable store sales decline was a result of declines in our brick-and-mortar stores, offset by an increase in our e-commerce business. The decline in the third quarter comparable store sales was partially the result of three events: a 20 day reduction in our tiered promo event versus last year, as we are currently working to reduce our promotional cadence, a shift in our promotional calendar of friends and families event out of Q3 and into Q4, as well as lower conversion and ADS. Moving on to profitability. Gross profit in the third quarter was $40 million or 49.5% of sales, which includes a $2 million benefit from the recovery of the $14.4 million inventory write-down that was taken in the second quarter of this year. Excluding this benefit, gross profit was $38 million or 47% of net sales. This compares to gross profit of $50.6 million or 49.2% of sales in the third quarter of fiscal year '14. The adjusted gross margin decline was due to the deleverage on lower wholesale sales and increased returns and allowances. Selling, general and administrative expenses in the quarter were $27.7 million or…

Thanks Dave. We are extremely excited to see the work that is underway unfold, and we have the balance sheet in place to enable us to execute our initiatives. We are pleased to have the continued support and partnership from Sun Capital, as we work to drive the business forward. That said I want to reiterate that it won't be until the fourth quarter of 2016, before we see these efforts meaningfully bear fruit. I look forward to our call this time next year when the long-term vision of the brand will be fully reflected throughout our company. With that, we will now be happy to take your questions.

[Operator Instructions] The first question is from Ed Yruma with KeyBanc Capital Markets.

Just a couple of quick ones, I guess, first on the potential for rights offering. Just help us understand really, is it something that you're intending to do? And I guess, why was this done kind of preemptively, I guess, ahead of a rights offering?

Well, the company is looking at all options to enhance its liquidity, so while this is a binding commitment from Sun, it is an option if we would elect to use it. And as far as why we did it, as we begin our projections in the next year, we look at investments that we want to make, the depth of those investments, the potential results of those investments and the timeframe we would take to get return on those investments, we just thought it was best to get this is in place at this point in time.

Ed, I wanted to have the flexibility to do what's right for the business in 2016, as we prepare for what I think is a long-term growth and this just gives us the flexibility to be able to do that.

You mentioned that you've been in discussions with your wholesale partners. Clearly, there is a little bit of pressure on that business, given the excess inventory levels and just challenged trends. I guess if you zoom out a little bit, I guess, how would you assess the health of your wholesale business from channel perspectives? Are there partners that you're trying to exit? And I guess what's the feedback been from the better wholesale partners?

Well, obviously, we've spoken of the results in our wholesale channel, so it's been disappointing. Nothing we're looking to exit. I mean, we're just looking to regain the volumes that we've lost. We're still number one and number two on the floor in women's ready-to-wear with all of our majors. The reaction has been unbelievably positive. I mean, they were happy when I joined. They're thrilled now that Rea and Christopher have joined us as consultants to partner with me and so they've spoken directly with Rea and Christopher, they've spoken through me, and they like us, can't wait to see the product in the back half of the year.

And the final question, in terms of overall inventory level, I know you've incorporated kind of continued liquidation pressure. I guess, at what point, when can it affect the buys, so that the inventory level themselves get more aligned, ahead of some of the new product coming out in the fourth quarter of next year.

No, Ed -- I mean that work was done prior to me getting here, during the transition, so we feel we're quite lean and well-prepared from an inventory level as we enter the New Year. Obviously, the product we hope will perform well, but it's still the old design and theme, so until we get Rea and Christopher’s product on the floor, we're still dealing with the legacy product, but from an overall level, we feel like we have right sized it with a very conservative set of lenses on.

The next question is from Matthew Boss with JPMorgan.

So larger picture, I guess, if you could just help us, what was it that attracted to you to Vince? And like you said, you're only seven weeks or so under your belt, that how would you rank priorities, as best as you can, as you're kind of taking the helm and what you see as the top opportunities?

What attracted me was it's a brand I was very familiar with from my Neiman Marcus days, having worked with Christopher and the team back then, so I've known the brand a long time. Known it's been a little bit bruised, and a little bit off-track, but saw it had great potential and huge upside. And when I arrived, it took about 24 hours to realize that I needed to get the right partners in here to relaunch product and kind of bring us back to the future of this, as we've been saying around here. And so I think we've done that as we've talked about. And it will take some time to get that product on the floor, but then we have so many different levers we can pull in terms of getting the existing product right, new product offerings, retail expansion, international expansion, I think there is just so many different levers we can pull, but we got to get the product right first. So when you say, what's the priority, the priority is absolutely to get the core product back on track.

And then just a follow-up. As you think about the mix of business today at Vince between wholesale and retail, any structural changes you think necessary over time? I guess, just how you're thinking about the channel mix longer-term once you do have the product back under control?

Well, I don't think any mix change is necessary. I mean, I think it's likely to happen just as the business evolves and grows. Clearly, where the business had been, wholesale was far more mature than our domestic retail or international business. So you could say just on the surface that as we regain the wholesale volume we've lost, we're also going to grow these other channels as well. But down the line, I think that there are ways to grow wholesale as well through line extensions, brand extensions, different categories we can get into that. I want to reiterate, it's not our focus right now, because we don't want to take our eye off the ball and what's important. But certainly, as we look a few years out, we think it has that potential, which will continue to allow us to grow the wholesale channel, while we grow our direct-to-consumer and international.

The next question is from Mark Altschwager with Robert Baird.

First, I guess, I just wanted to follow-up on your comment that you just made. I guess, when I think of, kind of, recapturing the DNA and the original focus of the company, it really was wholesale brand focused on women's tops. And as you look to recapture that essence, and do you believe the company needs to pullback on some of the category expansion goals near-term in order to refocus on the core or do you think you can simultaneously pursue these brand extension, while [fixing][ph] the core product?

So to be clear, when I say the core product, that's the contemporary ladies ready-to-wear, menswear, men's and women shoes and handbags, and that I can consider our core product right now. We pulled back on kids, which I think is a opportunity in the feature, and I think there're other categories we've never been in and that can be an opportunity under the Vince halo. But right now, our focus is on the categories that we've been in over the last few years and getting those back on track.

And then I understand it's really going to be Q4 of '16 before we start to see the impact of some of your plans. But just is there's any guidepost on how we should be thinking about early-to-mid part of 2016 as we build on models, the trends in the back half of '15. Is that a fair way to think about the early part of the year or just any help there would be great.

I don't think we're going to be able to give much help. I'll turn it over to Dave in a sec. I mean we are relatively pleased with the way November shaped out from the new product checking in the stores. But of course, there's a long way to go through the rest of this season, the holiday season. So as we go into spring, Dave, anything you want to elaborate on?

Yes. We haven't published any guidance yet. We're still similar to what we had said last quarter that that we expect the first half of the year to be difficult. And we expect to still see pressure on gross margins first half of the year.

The next question is from Jeff Van Sinderen with B. Riley & Co.

This is Richard Magnuson in for Jeff Van Sinderen. Could you give us a better sense of how the consulting arrangement with the founders will work? And can you update us further on where you stand on speeding up the design cycle supply-chain implications? And then maybe more on what direction the founders are taking to merchandise content?

Sure. I mean the arrangements, as we laid out last week, is formally for about two years and change, but that's just a starting point. I mean, Rea and Christopher have been very clear to me that they're going to be here as long as they're having fun. And as Rea has said to me, the first year will be toughest part. So after that it's going to get a lot more fun. So I think right now the arrangement is going great. The three of us are getting along fabulously, having a lot of fun. They're extremely committed and involved. And so it's certainly my hope that, and I think their hope, that they are here longer than what the contract is there for. Their focus has been to regain the brand identity of what Vince was always stood for. That has gotten slightly off the rails over the last few years. And it starts with great product, great quality, great fabrics, great fit and that's what they feverously working at brining back, and it's remarkable to be in the showroom in LA and see the results, and just see people walk into the showroom employees and say wow, that's what Vince is supposed to be. So just in a short period of time, they've been able to get that across internally. I think, well, for sure, we'll also be able to shorten the lifecycle. I mean one thing that was apparent to me was we had too many cooks in the kitchen. I mean there were so many people involved in making product decisions that that just confused and lengthened the process, and now we have one singular voice, and Rea is in-charge, and that by its very nature will shorten the cycle, has shortened the cycle. Also allows her, as she did back when she was here before to react as she sees changes in trends and changes in what's retailing and be much closer to the time of when the product needs to be delivered. So we think their involvement has so many positive ripple effects that we're already starting to see internally, unfortunately it just takes that much time until it hits the retail floor.

The next question is from Joan Payson with Barclays.

This is Todd Cohen on for Joan Payson today. Wanted to touch a little bit on line here, especially as it becomes a larger part of your business, I was hoping that you could just provide us with an update on the margin structure differences between online and the traditional brick-and-mortar?

No, we're not going to break that out. I'll just tell you, we're very pleased with the direction of the e-commerce business. We're relaunching the platform in 2016, which we think is just going to increase our ability to service the customer. Also, as we get the brand identity back that's going to really impact all our touch points. We're going to be much brand right with all the way we reach out to our customers. And I think e-commerce is going to be a big benefit of that as well.

And then just kind of switching gears here to brick-and-mortar, during 3Q did you notice, I guess, any meaningful delta between outlet and full price in terms of traffic conversion? And is that impacting your plans moving forward?

Nothing that's impacting our plans moving forward.

And the next question is from Lindsay Drucker Mann with Goldman Sachs.

I just wanted to ask a question on the contemporary category, which have been such a great growth category with Vince in a number of other brands, really benefiting from the development, increased focused from department stores, and sitting in that sweet spot of trade up from premium and trade down from luxury. A number of brands in contemporary have slowed or it feels like the category broadly is soft. Just curious, if you could maybe opine on where you think the significance of category, whether the consumer has changed? And how you think about its position in broader ready-to-wear overtime?

I mean quite frankly, I think for us, specific to Vince, our wounds have been self inflicted. So I think the category is still very vibrant, very important, when I speak to our partners. And we have every reason to believe that we can regain the volume we lost, if the product is right. So I think the platform is there for us and it's just about getting the product right.

How about philosophically how you think about handling promotions, selling to off price, allowing the customer to buy you added discount, any changes in the promotional strategy going forward?

Listen, all of those different channel mixes will be part of our future. But I do think that, we all hope that we can reduce the level of promotion going on at full price retail. Both in our own stores, where we've already started to pullback in some of the tier promotions and with our wholesale partners, and quite frankly they want that as well. I mean, one of them made the comment that when we get the product back on track, they hope that there will be less need for everyone to promote, because it was always a regular price brand. And so we're anxious to get back to that positioning as well. And again, not to sound like a broken record, but it's all about getting the product right.

I think off price is about 20% of the business, is that a fair target going forward?

20% to 25%.

Is where it is now, I --

It's the target. We targeted in the past, that's what we strive for.

And one last one, are there any big systems investments do you think that the business needs in order to get on the right track? Anything we should be thinking about for 2016?

I'm sorry, what was the question again?

Any big systems or other investments you think that the business will need for 2016?

We have our ongoing conversion from Kellwood that we have discussed in the past that is going forward. We also have the launching of the new e-commerce platform in line with that. And that is a project that started in 2015 and we plan on finishing that in 2016.

There are no further questions at this time. I will turn the call back over to our presenters. End of Q&A

Well, thank you very much. We appreciate all the questions and we look forward to continuing to communicate with you in the near future. Thanks.