Brendan Hoffman - Chief Executive Officer David Stefko - Chief Financial Officer Amy Levy - Vice President, Investor Relations

Ladies and gentlemen, thank you for standing by and welcome to Vince Q1 2020, Preliminary Results Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Amy Levy, Vice President, Investor Relations. Thank you. Please go ahead.

Thank you and good afternoon everyone. Welcome to Vince Holding Corp’s first quarter fiscal 2020 preliminary results conference call. Hosting the call today are, Brendan Hoffman, Chief Executive Officer; and David 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. The preliminary results discussed on today’s call are subject to change following the completion of quarterly financial closing procedures, and do not include the non-cash impact of goodwill and intangible asset impairment charges, long-lived asset or other finite-lived intangible asset impairment charges, which are expected to have a material impact on the company’s reported results. 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 Brendan.

Thank you, Amy. Thanks for joining us today. I hope that everyone and their families remain healthy and safe. The world has changed dramatically over the last several months with the outbreak of the COVID-19 pandemic and the protests against racial inequality across our country. This is certainly a pivotal time in our history and we hope for a meaningful path to recovery and equality. Turning to our business, while we were pleased with the continued momentum in February, at the onset of the pandemic and subsequent temporary store closures, we had to respond quickly to the downturn in our business. I am extremely grateful to our teams for their hard work and commitment as we continue to operate our business through the COVID-19 health crisis. They have demonstrated resiliency, agility, and creativity when executing under pressure and with limited resources. While our priorities have been shifted towards actions necessary to manage our brands through the difficult environment, I am no less excited about the long term opportunities for our business. The Vince brand has been steadily gaining market share over the last three years, illustrating its strong and growing following, and we're still in the early innings of our growth strategy. The brand has distinct aesthetic of effortless luxury and provides comfortable essentials that align perfectly with a stay-at-home lifestyle. The versatility and effortless appeal plays well into the widely publicized trend towards comfort. Rebecca Taylor has its own modern luxury aesthetic, where we see white space opportunity in the contemporary fashion landscape. We have become even more confident that we can create the success we've achieved at Vince, by executing a similar strategic playbook. While we look forward to fully resuming our strategies for these brands, our near-term priorities have been focused on reducing costs and enhancing liquidity.…

Thank you, Brendan. I want to reiterate my confidence in our long term potential based on our strong portfolio of well positioned brands, talented teams, sold infrastructure and multiple growth opportunities that lie ahead. The first quarter started off strong; however, our business became challenged as the outbreak of COVID led to temporary store closures of our domestic and international retail locations alongside other retailers, including our wholesale partners. We shifted our focus to our e-commerce business and moved quickly to take aggressive steps intended to protect our business through this crisis, which I will speak to. For our preliminary first quarter results, please note these results are subject to change upon completion of our quarterly financial closing procedures and do not include the non-cash impact of goodwill and intangible asset impairment charges, long-lived asset or other finite-lived intangible asset impairment charges, which are expected to have a material impact on our reported results. Also note that we plan to file our first quarter 10-Q at the end of July and our finalized financial results will also reflect a benefit of $2.3 million from the re-measurement of the liability related to the company's tax receivable agreement. For the first quarter, total company net sales decreased 47.3% to $39 million compared to $74 million in the first quarter of fiscal 2019. This reflects the closure of all Vince and Rebecca Taylor stores as of March 17, partially offset by an approximately 30% increase in our Vince e-commerce business. For the Vince brand, first quarter consolidated net sales decreased 47.7% to $28.8 million, compared to $55.1 million in the same prior year period. Our Vince direct-to-consumer segment sales decreased 34.9% to $18.1 million in the first quarter, reflecting the previously mentioned store closures, partially offset by the strong growth in our e-commerce…

Certainly. [Operator Instructions] Our first question is from Dana Telsey with Telsey Advisory Group. Your line is open.

Good afternoon everyone. I'm glad to hear that everyone is safe and healthy. Brendan, as you think of the game plan for Vince that led to the successful transformation of the business model, and now obviously given COVID-19, it almost seems like you reinvent again. How do you think – you mentioned the wholesale landscape. How do you think of going beyond Neiman’s and Nordstrom’s, and if you think about the upcoming holiday season, how are orders being planned or is it – will it be more a DTC focus than a wholesale focus? Then I have a follow-up.

Yeah, thanks Dana. Yeah, I mean I think that what got us here is what's getting us through COVID and what ultimately will allow us to be even more successful on the other side. You know it starts with great products which we are very proud how we have reengineered that over the last three years to build on what the founders originally brought to with Vince. And you know doing so, not only with our wholesale partners, specifically Neiman’s and Nordstrom’s and great specialty stores around the world, but also growing our DTC business leading first with digital. As I mentioned, our penetration is close to 30% – over 30%, which I think probably compares very well to other brands in our space, and so we'll just continue to lean heavily on that as we've seen over the last few months how well that channel has performed for us. But as I mentioned in my remarks, you know I think in some contrarian way, we'll see an opportunity again in brick and mortar stores under the right scenario whether it's as an opportunity to mitigate some of the current headwinds that are happening with rent and store closures or longer term in the A-malls that we're in and A-locations as a way to further enhance our digital and DTC strategy. So, we feel excited about what this all means on the other side without really a hard pivot from what we were doing. In many ways, it just accelerates the strategies we had in place. In terms of our wholesale distribution, I think as everyone's doing right now, we're all looking for different levers we can pull to provide some additional security and opportunity, and I think the initial reaction by all the wholesalers as we would expect was to cut back and cut back dramatically. We’re starting to see as they see the holiday collection of stores start to open up. As they recognize, as they have said that Vince is one of the brands that is most important to them, I think we're seeing more potential upside than perhaps the initial worrisome scenarios that happened at first, but we're still keeping our options open to make sure that as I said, we have different levers we can pull to ensure we not only get through this, but get through this in a position of strength for the Vince brand and obviously now for Rebecca Taylor and Parker.

And when you think about other wholesale accounts, is it other department stores you want to go to or is it specialty stores or e-commerce platforms?

Yeah, I think it could be any or none of those. I think we're just in the initial stages of trying, like everybody else trying to see how this all plays out. You know where the winners and losers are through this and just making sure that we have enough optionality in our distribution to take advantage of whatever the opportunities are. So, I think the comment I made in my remarks was really just to acknowledge that we do have different levers we can pull, whether it be DTC or wholesale, both to ensure that we have the safety to survive the pandemic, but then also to thrive in the post-pandemic world. So, I think without getting any more specific than that, it was really more the acknowledgment of the different options we have.

Got it. And then on the gross margin, how much of an inventory reserve did you take? And on the SG&A buckets, how is occupancy? Occupancy, can it be renegotiated? Do you go to percentage rents, because what I'm hearing is exactly what you said. There's certainly a lot of opportunity for you to negotiate transactions with other space, if you wanted to take other space and negotiate some of your existing lease terms? Is there an opportunity and what other big buckets of SG&A do you see in addition to obviously the commentary on the inventory reserves for gross margin?

I'll comment on the rents first and I’ll hand it over to Dave to unpack some of the other things you asked. I mean, I think you know we're very pleased with the most part about the constructive conversations we're having with the landlords. Obviously everybody is in a very difficult situation here, and for a period of time there wasn't all that much to discuss. But now as we've started to open up stores, we've entered into meaningful dialog on what the proper solutions are and they are still ongoing. I'd say we're kind of midway through. Obviously, we have a lot of different leaseholders. We have a couple that holds a lot of our leases and are very pleased with the discussions there, and then we have a lot of one-offs that again, we're equally pleased with the direction of the conversation. But they are not done yet, you know and so we have our ways to go, but clearly our ability to see opportunity for our Vince and Rebecca Taylor on the strategy we went into COVID with, which was shorter-term, percentage rent, flexible leases, is serving us very well now, not only in those that we have under that structure but also in already having that as a competency for our brand and brands when we talk about running the Vince playbook, to be able to open up stores with very little CapEx, have them look fantastic to the consumer and do business on a – with a variable expense structure. So more to come on that, but certainly pleased over the last few weeks of direction, the rent discussions have gone with the landlords. And I'll turn it over to Dave to unpack some of the other stuff you asked, Dana.

Thank you.

Yeah. Dana, on the inventories with reserve, is that what you asked about?

Yes, exactly.

Yeah. So from an inventory perspective, you know it's a variable look as to where we project, where we can move the product, you know through the different channels. From a rate of how many points, we'll get back to you on that on what we finally booked, but we feel comfortable where we have the inventory reserve set out for the quarter. Did you have other questions on landlords and rent?

No, just anything else on the gross margin in terms of unpacking the gross margin, which were the biggest impacts to gross margin?

Yeah, the largest impacts in addition with the inventory was obviously the promotionality of the product. The consumer responded well on the website, both our website and that of our wholesale partners as to promote the promotionality that was driven.

Thank you.

I mean we – just to further on that, we obviously worked very hard to get ourselves to be a regular price brand. You know it took a few years, and so this, we're all doing right now what we need to do to move inventory and drive the top line and bring in cash, and so that's forced all of us in our space to get a little bit more promotional than we otherwise would have liked. But I don't think that it has a long-term hangover for the Vince brand. I think you know as we get to the back half of the year and we start to be able to get the stores open and flow in new product, we’ll be able to pull back on the promotionality. I still think we're probably less than our direct competition, even through COVID. And then you know we’ll look to reset fully in 2021 when hopefully we get back to a normal cadence, but that's absolutely a priority for us because we saw the benefits in 2019, getting those higher regular price sell-throughs.

Got it. And then the early read on the stores that are reopening, I think it was only like 10 stores. Where are you in terms of productivity levels as compared to last year?

Yeah. I mean, I would say we obviously had very modest expectations and we're beating them. I would say the number is in the down 50% range, but our stores are so small, such a small sample, it can be, it can skew a lot. I will say Florida opened up very strong last week. So the weekend in South Florida absolutely over-exceeded what we were seeing in Texas. So hopefully it's being done safely. We know we're taking all the proper precautions, but maybe that bodes well as we open up other stores in California and such, where there is that pent-up demand that we will see it hit the ground quicker than we did in the earlier states.

And was there any difference in performance between your own online sites and those from your wholesale partners?

I mean, as I mentioned in my remarks, Nordstrom did a phenomenal job. Somehow we ended up virtually flat for the quarter in their registered sales and that was obviously with the stores being closed for six weeks. So their e-commerce business was fantastic, not only in their ability to create the demand, but their ability to unlock the store inventory to fulfill it, so theirs was fantastic and obviously we are pleased with the step-up in ours. So I'd say it was – you know across the board some of it was a little bit inconsistent just due to timing and their ability. Some of the sites didn't have the same access to the fulfillment center to be able to fulfill the demand that others did, but where they were able to allow the demand to be fully realized, you know we saw tremendous strength. And I think the Vince product as I mentioned in my remarks, it lends itself well to this work-from-home, because as you know Anna Wintour said a couple of times, it's all about comfortable clothing now and I don't think there is a more comfortable line than Vince for the unbiased.

Thank you.

Thanks Dana.

Ladies and gentlemen, this concludes the Q&A. I'll now turn things back over to Brendan Hoffman for any closing remarks.

Great! Thank you again for joining us today. We look forward to updating you on our Q2 results in the fall. Stay safe.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect.