Vince Holding Corp.
Q3 2020 Earnings Call Transcript

Published: 21 Dec 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Vince Holding Corporation's Third Quarter 2020 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today Ms. Amy Levy, Vice President, FD&A and Investor Relations. Thank you. Please go ahead.

[Amy Levy:]

Thank you, and good afternoon, everyone. Welcome to Vince Holding Corp.'s third 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.

[David Stefko:]

Thank you, Amy. Good afternoon, everyone. Thanks for joining us today. As we announced with our preliminary results last week, we saw sequential improvement in our sales trends and delivered an operating profit, even excluding the benefit of rent concessions, through prudent cost management for the third quarter. For the Vince DTC business, sales and gross margin recovery extended into the fourth quarter as we enter the holiday season, demonstrating the strength of events planned. Although the current environment remains difficult, we continue to see customer demand for the comfort casual luxury Vince offers. Vince remains a top performing brand in the contemporary luxury segment within our existing wholesale partners. Rebecca Taylor, we are also pleased to see the positive reaction to the brand refresh and merchandising initiatives taking place. Our proven ability to reestablish the brand leadership position for Vince and buying with the advancements we are making to restore the DNA of Rebecca Taylor, are generating excitement internally and with our wholesale partners. As we continue to navigate the near-term headwinds resulting from COVID, we've also taken steps to enhance our liquidity position to support the continued execution of our strategies. The actions resulted in $42.3 million in excess availability under revolving credit facility, which I will discuss in more detail shortly. Overall, we believe we're well-positioned to advance our growth strategies for our respective brands as we emerge from this crisis in the back half of 2021. That said, with the recent rise in COVID cases, and the newly imposed restrictions across the globe, the health and safety of our customers and team members remains our number one priority. I want to thank our team members across the organization for their hard work and commitment to supporting our brand expansion efforts and serving our customers throughout this period.

[Operator:]

And your first question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is open.

[Dana Telsey:]

Good morning, Dave. Good morning. Good afternoon, Dave and Amy. Hi, how are you?

[David Stefko:]

Good. Thanks. Good.

[Dana Telsey:]

Nice to see the sequential improvement in sales results. And can you just talk a little bit about any particular category DTC, what you saw in e-commerce and obviously stores didn't get the traffic, but in wholesale and how that wholesale business is progressing? Thank you. And then a couple of follow-ups.

[David Stefko:]

Yes. Obviously, we're seeing sweaters and tops performing well, as we've said. Consumer -- obviously, we've seen this on both sides, wholesale and in our own DTC business. The consumer has been responding to promotions, obviously, but the consumer has also been responding to newness. So, as we see new products that fit as the season comes, we're certainly as full price buying going on from that perspective. And we're all looking forward to Spring, the Spring launch products at the end of January or early February from that perspective to see some back to more full price on.

[Dana Telsey:]

Got it. And then on the expense leverage that you're seeing, what stays -- what comes back? How do you break out the buckets of expenses?

[David Stefko:]

Well, when we publish our 10-Q, kind of give you the rest, the largest we look at the $18 million reduction, the largest reduction, obviously came in payroll. It's our largest expense beyond the cost of product. And so from a payroll perspective and around furloughs across the company that we did, and furloughs towards the end of the third quarter, and unlike many, many companies from a permanent look forward as we went through a reduction in force. And so we haven't seen the results from the reduction in force on the impact of that on the third quarter, but that is complete from that perspective. And then there is, of course, the benefit we talked about some lease negotiations, some of which will continue into the fourth quarter. There will be other adjustments as leases are signed, amendments are signed for things we have negotiated, there'll be a reflective pickup similar to customer dollars with centers and the type that you saw in the third quarter. And then we like -- we again like many really tried to manage our marketing spending, I mean, it was easier to actually when stores were closed, and we invested more in ecom to help drive the ecom business, and so I say that's representative in the third quarter. And then we have and we'll continue to prudently manage every other spending category, whether it would be travel, when to make investments or not, we just will manage those prudently until we see a return in sales back to more normalized levels.

[Dana Telsey:]

Got it. And then you had mentioned in terms of rent and abatements, deferrals, how much lower does occupancy costs go? And with new leases that you're signing, are they short-term in terms of the year, and are you able to get more variable rent structures?

[David Stefko:]

Yes, I would say, as you know our strategy, on a pre-COVID, we were doing short-term low rent, some percentage rent, some not percentage rent, low investment leases, and that strategy is very successful for us. Again, we -- that's what we have continued on with leases we've signed, and that's how we'll view opportunities as we go forward. And so, you will see a combination, you will see low rent leases that are short-term in nature. There'll be very low capital investment leases, and there'll be some that will also be variable from that perspective. So it's a similar mix to what we successfully have started 2 years ago prior to COVID. And when you trying every opportunity we are in, obviously, we're able to see some rents that probably 12 months ago, we obviously wouldn't see because of the lenders are looking for occupancy also.

[Dana Telsey:]

And two last things. First, on the new credit facility. How does your interest expense adjust and any updates on CEO search?

[David Stefko:]

So from a -- the new credit facility, so it's a timeline -- so it's obviously a Third Lien Credit Facility. So it would be the most expensive debt that we will carry. So it'll carry the highest interest cost in our rate perspective, but it -- so it'll drive our interest expense higher. We didn't obviously use it to pay down the revolving credit facility, which is the cheapest facility, so we'll see higher interest expense. But the flip side of it is, the interest is all paid well in kind, so it gets added to the debt, there's no cash outlay. So from a cash interest cost, we'll actually see a decline in our cash interest costs, and allow us to keep more money in the business and that we use for investing in the brands. And as the, CEO search continues on, it’s a subcommittee of our Board is involved in it. Myself and the leadership team is 100% focused on running the business and making sure we stay on path and get through the pandemic and keep driving these brands.

[Dana Telsey:]

And then just on the department store channel, the wholesale channel, how big -- where do you expect that to go as a percentage of the business? Does it become a 50

[David Stefko:]

Yes, well, I mean, we've really not given a kind of the go forward view right now. Obviously, some of this, Dana, are somewhat where COVID wants to go from that perspective. What happens after holiday, we have commitments like many into next year, but we also understand the variability. The things we do, we do feel really good about is how Vince has performed during COVID. We do believe that we take in market shares in many wholesale partners and the interest in our brands remains strong, and our performance remains strong, if not stronger. So we see Vince and they’re going to believe there will be less brands on the other side, both by brands that are not able to survive financially. And just by the desire to the department stores of how many brands that might carry going forward. So we look through the department store side, the wholesale side to be very strong and a significant growth opportunity going forward. But we also have investments that we continue to make in our e-commerce platform, which we will strategically do in 2020. We didn't invest in combining our inventory. So we had one inventory, where some of the growth we've seen is due to that and there are other investments that we make -- we will be making in 2021 to help grow from the ecom perspective. And then we look at the stores, as we've talked about going to opportunistically continue to look at stores and invest in stores. So that gives you a flavor of how we view the future as we go forward. But I know it doesn't directly answer your question on the mix that we see in the business.

[Dana Telsey:]

Got it. Thank you.

[David Stefko:]

Okay. Thank you, Dana.

[Operator:]

And this concludes our question-and-answer session. Mr. David Stefko, I turn the call back over to you for some closing remarks.

[David Stefko:]

Okay. Well, thank you for joining us today. I hope you're having a great holiday season. We look forward to updating you on our fourth quarter and annual results in April. Happy New Year. Thank you.

[Operator:]

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