Vince Holding Corp. (NYSE:VNCE) Q3 2023 Earnings Call Transcript

Vince Holding Corp. (NYSE:VNCE) Q3 2023 Earnings Call Transcript December 6, 2023

Operator: Hello, everyone, and welcome to the Vince Holding Corp Third Quarter Fiscal 2023 Earnings Conference Call. My name is Bruno, and I’ll be your operator for today. I would now like to hand over the call to Caitlin Churchill from Investor Relations. Please go ahead.

Caitlin Churchill: Thank you, and good morning, everyone. Welcome to Vince Holding Corp.’s Third Quarter Fiscal 2023 Results Conference Call. Hosting the call today are Jack Schwefel, Chief Executive Officer; and Michael Hand, Interim 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 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 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.

A fashion model wearing a complete look featuring the company’s apparel.

In addition, in today’s discussion, the company is presenting its financial results in conformity with GAAP and on an adjusted basis. The adjusted results that the company presents today are non-GAAP measures. Discussions of these non-GAAP measures and the 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. Following today’s remarks, there will be no question-and-answer session. Now I’ll turn the call over to Jack. Jack?

Jack Schwefel: Thank you, Caitlin, and thank you, everyone, for joining us this morning. I continue to be very proud of our teams and the progress we are making against our strategies and objectives to position Vince for long-term success. Year-to-date, we delivered improved profitability over the prior year period despite incurring incremental costs we did not experience in the prior year, given our operating changes with the partnership with authentic, and we have continued to drive momentum across the organization. Our third quarter performance exceeded our previously reported preliminary results, and we are pleased to see the sequential improvement across both of our channels compared to the second quarter. While weather did impact customer buying behavior, which has trended more to buy now wear now mentality, especially with our men’s business.

We are pleased overall with the reception to both our pre-fall and fall assortment which was highlighted in our Vince Heroes and Gray Matters marketing campaigns. With respect to profitability for the Vince brand, we reported operating profit flat to last year despite lower sales given the current macroeconomic environment and the strategic decision to pull back on the off-price wholesale business. From a margin perspective, we delivered 120 basis points of operating margin expansion for the quarter supported by lower freight expense and lower promotional activity and despite incurring approximately $4 million of royalty expenses that we did not incur in fiscal ’22. As we previously announced, we have plans in place through our transformation program to deliver over $30 million in cost savings over the next 3 years which will help to offset the changes in our cost structure given the royalty fees we now incur with our partnership with Authentic Brands Group.

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Q&A Session

I will discuss more on our transformation program in a moment. But first, let me review the latest progress we have made against our growth initiatives. As we discussed last quarter, we are beginning to realize the benefits from the investments we have made in our enhanced e-commerce capabilities in CDP platform. While stores have continued to relatively outperform e-commerce from a top line perspective, we are seeing stronger AOV growth on our sites supported by a more effective digital marketing and enhanced focus on in-season engagement. In October, we launched our online gifting pages to help guide customers in the gifting journeys and showcase elevated dressing for the holidays. The gifting pages on vince.com have delivered an increase of average order value of 50% compared to the site average, and conversion from these pages is double the site average.

In addition to our enhancements on our site and focus on gifting, we also leveraged our CDP platform to drive more targeted and enhanced digital and social engagement. We are continuing to work with influencers such as Arielle Charnas to drive traffic and demand to our DTC channels. And through the data we now have, we have greater visibility into the effectiveness of our efforts. With more information about our customers, we are in a better position to more effectively drive engagement and therefore, performance especially with our most loyal customers. We are currently assessing opportunities to expand our usage of the CDP platform to increase loyalty and the lifetime value of our customers. It is exciting to see the progress we have made to date, and I believe we have a long runway ahead of us to continue to build on this momentum.

Turning next to our focus on international expansion. We recently celebrated the grand opening of our Nanjing location in Deji Plaza. This is our first freestanding store in China and is the second highest volume shopping center in Mainland China. The Deji Plaza is a highly luxurious shopping center attracting high net worth individuals across a wide variety of ages. We are excited for the latest new opening as we continue to expand our presence in the region following our Shanghai opening last year and our distribution with Lane Crawford and NETA-PORTER China site, Fengmal [ph]. We also remain on track to open our Beijing location in spring ’24 and look forward to sharing more on our expansion on future calls. With respect to our men’s business, as I mentioned, we have seen our men’s customers gravitate towards a more buy now, wear now behavior and, therefore, a bit more susceptible to weather impacts in the quarter.

That said, we continue to be pleased with our men’s business and saw a particular strength in our pre-fall assortment highlighted by our linen, knit and woven products. As we look ahead, we will continue to capitalize on the opportunity we see in growing our men’s business as a percentage of our total assortment and total sales performance. Now let me provide more detail around our transformation program. Following the initial work for Mackenzie, we have created a transformation office led by Heather Wildberger, our Chief Transportation and Information Officer. Under Heather’s leadership, we expect to deliver savings through streamlining our manufacturing and production operations, reducing our promotional activity while optimizing the breadth and depth of markdowns as well as enhancing efficiencies within store operations, corporate overhead and third-party spend.

The majority of savings will come through expanding gross profit dollars as we reduce our cost of goods sold through implementing more transparent costing with our vendors using advanced analytics and examining our manufacturing footprint. We will also drive more data-driven pricing and assortment decisions and gradually expand AUR through surgical price increases and optimizing our SKU count while increasing the penetration of our higher-priced assortment. We will also improve in-season promotional and markdown pricing management across the DTC channels to move more effective margin-accretive authors. With respect to SG&A savings, we plan to operate our store locations more efficiently and are taking a close look at all of our leases for opportunities to renegotiate terms.

Approximately 1/3 of leases are coming due in fiscal ’24. And while longer term, we continue to see opportunities to selectively grow our U.S. store base, we expect short-term impact from our upcoming negotiations to result in our store count remaining relatively flat over the next 2 years. Before I close, I want to thank all of our teams for their ongoing hard work and dedication. I especially want to thank Michael for his support over the last 5 months in leading our finance organization as we search for a permanent CFO. We look forward to welcoming John Szczepanski who will join us after the holidays and comes to us with over 20 years of experience in various corporate finance and supply chain leadership roles, primarily with Ralph Lauren.

I am grateful that Michael will also be with us to ensure a smooth transition for John and the team. As we enter the fourth quarter, we are pleased with the progress we are making across our organization and excited for the momentum we are driving. We have seen a solid start to the quarter and look forward to delivering the experience and assortment our customers are looking for this holiday season as highlighted in our recent heirloom campaign. Looking ahead, we remain focused on continuing to position Vince for long-term profitable growth while delivering value for all our stakeholders. I will now turn it over to Michael to review our financial results in more detail. Michael?