Ladies and gentlemen, thank you for standing by, and welcome to Vince Holding Corp. Q2 2020 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Amy Levy, Vice President, FD&A and Investor Relations. Thank you. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Vince Holding Corp.'s Second Quarter Fiscal 2020 Results Conference Call. Hosting the call today is Dave Stefko, Interim Chief Executive Officer and 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 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. 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 Dave.

Thank you, Amy. Good afternoon, everyone, and thanks for joining us today. I am very excited to be stepping into the role of interim CEO as we continue our path forward. Over the past five years, I have worked closely with Brendon as we rejuvenated the Vince brand, and I remain excited about the opportunities in front of us for both Vince and Rebecca Taylor. We have a team of highly talented individuals across the business that remain committed to working together to advance the strategies we have set in place for both brands. Near term, our priority remains to navigate our business through the challenges presented by COVID-19, including driving sales, controlling expenses, protecting cash, and maximizing liquidity. Looking back on the second quarter, as expected, we saw slow rebuild of momentum from the initial results of the pandemic as consumers buying shifted to e-commerce and as stores reopened. At the start of the crisis, we reduced merchandise purchase orders to prepare for unpredictable changes in customer purchasing behavior. We also maintained promotional and markdown activity above our normal cadence throughout the quarter to move seasonal inventory, which pressured gross margin. We continued to carefully manage costs and protect cash through furloughs, salary reductions, lower marketing investments, and disciplined expense management. I will speak to our financial results shortly. Looking at the business for Vince, we have reprioritized our growth strategies to adapt to the changing environment. In our direct business, we have reopened the majority of our stores with fewer hours and reduced staffing to respond to our lower traffic levels, while focusing on driving continued momentum in our e-commerce business. In wholesale, we're working closely with our wholesale partners to rebuild pre-COVID momentum and believe that our relative performance and market share gains within the contemporary space…

[Operator Instructions]. Our first question is from Dana Telsey with Telsey Advisory Group.

Dave, as you think about the inventory levels at the end of the second quarter, how much of that would be pack and hold maybe for the spring season or future seasons? How much of it and how do you see inventory progressing throughout the balance of the year? And then also, I've seen the Bloomingdale's partnership that now you're looking at, how do you see that impacting the wholesale business level of promotions being the same? How many stores will you be in? And are there other partners you're looking to expand with?

Okay. Thanks, Dana. Hope you're doing well. From an inventory perspective, a lot of the increase in the inventory is we set a seasonal inventory, obviously, it comes from the spring, summer, and pre-fall seasons. We do believe that the product, because of the cutbacks in the department stores has not had the exposure in the marketplace, and so we'll be viewed to some degree as newness next year. And there are some items that would be -- applicable to the fall season that we're able to move into fall production and reduce our development in some of those seasons. So from that level, we see our ability to work through that. As we get into our ordering of product for pre-spring and as you probably know, our spring market just started last week for Vince and this week for Rebecca Taylor, we are able, obviously, to match our buying more closely to the order patterns that we are seeing. And with the performance of the brand, for instance, the Nordstrom’s anniversary event, how we've been doing from an e-com perspective, in our wholesale partners, we believe as they've been managing through their inventories to get them back in line, they will now be opening up their open-to-buy dollars, and that we've proven that we deserve our fair share of those dollars. So that's why we believe, over time, we're comfortable that we can work through these inventory levels. As far as Blooming Dales, we just launched bloomingdales.com in a select few stores. It's new. Everything is going well. We don't see any change in the promotionality because we're in Bloomingdale's, more so driven by the needs in the marketplace and how the consumer is responding. So, we're very comfortable with the Blooming Dale’s relationship so far. We are in the process of getting on drop ship with them. Drop ship in this environment is a key driver for everyone, and we do have drop ship capabilities at other wholesale partners, and we're in the process of establishing that with Blooming Dales also. And as far as your last question, I mean a comment on other partners, we're open to distribution to other partners. We will, at that time, look at the environment, not just how they sit; the Vince brand, but also how they would impact our existing wholesale partners. So, anyone we would expand with, we would consider the current environment of both the customers and the impact on that.

And the stores that you've reopened so far, how are you doing on your sales recapture rate? What is that looking like? And the 60% increase in e-commerce sales was, obviously, an acceleration from the 30% increase in the first quarter. How much of that is your own sight? How much of that is wholesale partner sites?

Well, the 60% I referenced is just vince.com. So that's our own site. So obviously, even with the Nordstrom anniversary sale, a greater percentage of that business comes through e-commerce and drop ship. From a store perspective, traffic, as we open stores, was anemic at best. We have seen traffic in our stores getting more below the 60% down level. And we are seeing improvements week-over-week over the last 4 to 6 weeks, but we are seeing conversion. Conversion is more than double what conversion was before. So obviously, the person who is coming to shop is a buyer and looking to spend. So, the trends are good, and we expect the trends to continue.

Got it. And can you give any update on the health of the balance sheet and how you're thinking of the balance sheet now? And also an update on the inventory reserves and any adjustments there?

Yes. I mean, like every business now, we're evaluating our ability to move through seasons. As you know, as we all entered into COVID, we had older inventory to sell to the off-price channel, which didn't move. So, at that time -- so again we're evaluating – we’re in the cycle, everything will fall. So, we have increased inventory reserves like most. As far as the balance sheet goes, we believe we have adequate liquidity and availability. We also continue to work on a daily basis with our vendors, with our inventory inflow. We're very pleased with the work we've done with our landlords and everybody in that case understanding that we have to get through this together. We have a great relationship with our banks, and we are very diligent on how we're managing our spending day-to-day. And so, all those levers continue to be available to us and we continue to manage them. So, hope that answers your question.

And perspective on holiday and how you're planning holiday?

Well, so we look to holiday. Like May, we all understand there's going to be maybe -- one of the pressure points is going to be the Fedexes and UPS’ of the world from a delivery perspective. So, we like many are looking at do this holiday need to start sooner and are we going to have to entice the consumer to shop early. We’re having discussions with our wholesale partners around their plans and expectations from us, so we can make sure that we can service them, and we're working through our own plans, too. I mean we would expect that this will be a more promotional and earlier holiday season.

And then just lastly, marketing spend, given the events that you're doing. How you're thinking of marketing spend going forward? And does the additional sizes, how much does that add to inventory?

See, from a marketing spend perspective, majority, not almost all of our marketing spend is being used to support driving the e-commerce business, and so that's measurable. We can see results from it. And so, we're committing our dollars there, other general type of marketing. We're managing that from an investment perspective and a liquidity perspective. So, we're targeting and spending the dollars where we believe it should be spent. From an extended sizes point of view, it's a launch on our own e-commerce site, vince.com, so it is not a large investment. And so, with this first season, we want to get a read on it, and we will share that with our wholesale partners. And then we'll make further investments as we look into spring as we see the results and the distribution beyond that.

This does conclude the Q&A period. Now I'll turn the call back over to Dave for any closing remarks.

Okay. Thank you. So, this concludes today's call. We look forward to updating you on our third quarter earnings call in early December. Please stay safe, everyone, and thank you.

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