Vince Holding Corp. (NYSE:VNCE) Q4 2023 Earnings Call Transcript

Vince Holding Corp. (NYSE:VNCE) Q4 2023 Earnings Call Transcript April 30, 2024

Vince Holding Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Vince Fourth Quarter 2023 Earnings Conference Call. All lines have been placed on muted during the presentation portion of this call. I would now like to hand the conference call over to our host, Caitlin Churchill, Investor Relations. Please go ahead.

Caitlin Churchill: Thank you, and good morning, everyone. Welcome to Vince Holding Corp’s Fourth Quarter Fiscal 2023 Results Conference Call. Hosting the call today are Dave Stefko, Interim Chief Executive Officer; and John Szczepanski, 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 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 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 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 Dave. Dave?

Dave Stefko: Thank you, Caitlin, and thank you, everyone for joining us this morning. I am pleased to be speaking with you once again since retiring as CFO earlier in 2023 as a member of the Board of Directors, I have remained focused and engaged on the progress the teams have been making in positioning Vince for long-term success. While the Board is actively looking for our permanent CEO, I am committed to leading the company through this transition, while we continue to execute our transformation plan and drive improved performance, including building on the progress we have made this year and the reenergized focus in enhancing our growth initiatives, including driving customer acquisition. Now let me turn to review our full year and fourth quarter highlights and progress against our initiatives.

As previously discussed, fiscal 2023 was a transformative year for Vince. We completed the wind down of the Rebecca Taylor business, entered into a strategic partnership with Authentic Brands, successfully refinanced our credit facilities and launched our transformation plan aimed at delivering over $30 million in cost savings over the next three years to help mitigate royalty fees now incurred in our go-forward operating model. In addition, we maintained a very disciplined approach to inventory management and prioritize driving a healthier full-price business. While some of the actions we had taken in mid to late 2023 hindered our top line growth, particularly as we decreased our promotional activity and pulled back on our off-price wholesale business, as reflected in our fourth quarter results, we are pleased to have delivered on our profitability objectives for the fourth quarter and fiscal 2023 as evidenced by the strong operating margin expansion in both periods despite incurring royalty fees that we did not incur in the prior year period.

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Q&A Session

As we enter fiscal 2024, we believe we are now better positioned to execute our initiatives and focus on capitalizing on the growth opportunities we see ahead. As discussed on our last call, we are very pleased with the enhancements we made to our e-commerce site for holiday season. While stores continue to outperform e-commerce, we saw nice strength in our holiday gifting pages and are incorporating learnings from the changes we made in 2023 to our plans for 2024. In addition, we continue to leverage the capabilities from our customer data platform and are now able to provide our store associates with more consistent information to support their customer engagement efforts to help drive traffic and conversion. Looking ahead, we are continuing to explore ways to leverage the data we now have to increase our customer lifetime value to drive further loyalty with our top customers and to enhance our customer acquisition efforts.

We look forward to sharing more on our marketing and customer engagement plans as the year progresses. Part of our customer acquisition strategy is through our own doors. We continue to value our store channel for the opportunities it creates in welcoming new customers to the brand. As discussed in prior calls, we are taking a measured approach to store growth as we stay focused on more near-term opportunities in driving profitability, while maintaining disciplined expense management. In fiscal 2023, we closed two full-price locations and two outlet stores. But over time, we strive to be in a position to expand our fleet domestically. With respect to international, similar to our store plans, we are taking a measured approach to further expansion and are evaluating next steps with certain markets, which we plan to provide an update on when appropriate.

We continue to see a long runway of opportunity to expand Vince brand in both Europe and Asia. Turning next to our focus on growing our men’s business. During the fourth quarter, we continued to see nice reception to our assortment and saw an elongated season in our core sweater business while identifying opportunities within our bottoms program. We are particularly pleased that Nordstrom is planning to expand our men’s presence and Vince will be a dual-gender brand in all Nordstrom doors for the coming fall season. Finally, with respect to our transformation plan, we remain on track with our plans to improve our gross margin profile and drive cost efficiencies to offset the ABG royalty expenses we now incur. As John will discuss, while we expect Q1 top line results to reflect trends similar to what we saw in Q4, as we remain focused on driving profitability through lower promotions and a pullback in the off-price channel.

We believe for the year, we will continue to achieve strong year-over-year margin improvement. I want to thank all of our teams for their continued hard work and dedication over the past year. Through their work and with the actions we have taken, we have strengthened our foundation and we believe are better positioned to drive long-term profitable growth. I’ll now turn it over to John.

John Szczepanski: Thank you, Dave, and good morning, everyone. As Dave discussed, we are pleased to have delivered on our profitability objectives for the full year, supported by a strong gross margin expansion as we focused on our higher-margin Vince brand business, maintain disciplined inventory management and drove a healthier full-price business, while also incurring royalty fees beginning earlier this year with the closing of our transaction with Authentic. While sales came in slightly lower than planned in Q4 as we maintain our promotional stance in a highly promotional period for retail while also balancing tightly managed inventories across DTC and wholesale, we are pleased with the improvement in operating margin we delivered.

Before I review our results in detail, as a reminder, fourth quarter and full year 2023 included a 14th and 53rd week, respectively, which represented approximately $2.2 million in sales and $0.4 million in operating loss. All results reported today are inclusive of this 53rd week impact. Turning now to our results in more detail. Total company net sales for the fourth quarter decreased 17.5% to $75.3 million compared to $91.3 million in the fourth quarter of fiscal 2022. The year-over-year decline was driven by the completion of the previously announced wind down of the Rebecca Taylor business, which delivered net sales of $11 million in the prior year period and a 6.3% decline in Vince brand sales compared to fiscal 2022. The Vince brand net sales decrease was driven by year-over-year declines in both our wholesale and direct-to-consumer segments.

As I mentioned, our top line performance was impacted by the strategic decision to maintain a disciplined promotional cadence despite the increased promotional activity across retail, the pullback in our off-price business within our wholesale channel and tightly managed inventory balances driven by more conservative buys for current season inventory. Gross profit in the fourth quarter was $34.2 million or 45.4% of net sales. This compares to $36.2 million or 39.6% of net sales in the fourth quarter of last year. The increase in gross margin rate was driven by approximately 790 basis points related to lower promotional activity and approximately 190 basis points related to the wind down of the Rebecca Taylor business, which historically operated at lower overall gross margins.

These factors were partially offset by approximately 430 basis points of royalty expenses associated with the licensing agreement with Authentic Brands Group. Selling, general and administrative expenses in the quarter were $35.8 million or 47.6% of net sales as compared to $42.3 million or 46.3% of net sales for the fourth quarter of last year. The decrease in SG&A dollars was primarily driven by the wind down of the Rebecca Taylor business resulting in a $5.6 million net expense favorability in the fourth quarter of fiscal 2023 as well as lower expenses in the Vince business related to product development, staffing and marketing. These lower costs were partially offset by an increase in rent and occupancy costs as well as transformation-related consulting costs.