Vince Holding Corp. Reports Third Quarter 2020 Results

Rhea-AI Summary

Vince Holding Corp. (VNCE) reported a 34.0% decrease in Q3 2020 net sales, totaling $69.0 million, down from $104.5 million in Q3 2019. Gross margin declined to 45.9% from 48.8%. Operating income decreased to $6.3 million, while net income fell to $5.0 million or $0.42 per diluted share, compared to $6.0 million or $0.50 per share last year. The company benefited from $4.2 million in rent concessions. Despite a challenging environment, Vince is optimistic about brand performance and market share recovery post-COVID-19. They reported excess liquidity of $42.3 million following a recent credit facility closure.

Positive

• Net income of $5.0 million indicates better-than-expected results despite sales decline.
• Company reported $4.2 million in rent concessions, providing a financial cushion.
• Excess liquidity of $42.3 million after closing a third lien credit facility enhances financial stability.
• Sequential improvement in direct-to-consumer sales trends noted.

Negative

• Net sales decreased 34.0% year-over-year, indicating significant revenue drop.
• Gross margin dropped to 45.9%, a decline from 48.8% due to increased promotional activity.
• Income from operations declined to $6.3 million, down from $7.6 million in Q3 2019.
• Rebecca Taylor and Parker reported a 58.9% drop in sales, reflecting weak performance.

Vince Holding Corp. (NYSE:VNCE), a leading global contemporary group (“Vince” or the “Company”), today reported its financial results for the third quarter of fiscal year 2020 ended October 31, 2020.

In this press release, the Company is presenting its financial results in conformity with U.S. generally accepted accounting principles ("GAAP") as well as on an "adjusted" basis. Adjusted results presented in this press release are non-GAAP financial measures. See "Non-GAAP Financial Measures" below for more information about the Company's use of non-GAAP financial measures and Exhibit 3 to this press release for a reconciliation of GAAP measures to such non-GAAP measures.

Highlights for the third quarter ended October 31, 2020:

• Net sales decreased 34.0% to $69.0 million as compared to $104.5 million in the same period last year.
• Gross margin rate was 45.9% compared to 48.8% in the same period last year.
• Income from operations was $6.3 million compared to $7.6 million in the same period last year. Excluding costs associated with the acquisition of Rebecca Taylor and Parker, income from operations in the third quarter of fiscal 2019 was $8.3 million.
• Occupancy expense for the third quarter was positively affected by rent abatements, rent deferrals and rent reductions, totaling $4.2 million, resulting from negotiations with landlords.
• Net income was $5.0 million or $0.42 per diluted share compared to a net income of $6.0 million or $0.50 per diluted share in the same period last year. Net income for the third quarter of fiscal 2020 reflects the $4.2 million, or $0.36 per share benefit of the aforementioned rent concessions. Excluding costs associated with the acquisition of Rebecca Taylor and Parker, net income in the third quarter of fiscal 2019 was $6.7 million or $0.56 per diluted share.
• Subsequent to the end of the third quarter the Company closed the Third Lien Credit Facility resulting in excess availability of $42.3 million as of December 11, 2020.

David Stefko, Interim Chief Executive Officer and Chief Financial Officer, commented, “We saw sequential improvement in our sales trends and delivered an operating profit, even excluding the benefit of rent concessions, through prudent cost management in the third quarter. This sequential improvement in direct-to-consumer sales and gross margin continued into the fourth quarter as we entered the holiday season. While the current environment remains difficult, Vince remains a top performing brand in the contemporary luxury segment within our existing wholesale partners with strong customer demand for comfort casual luxury. We are also pleased to see the positive reaction to the brand refresh and merchandising initiatives taking place at Rebecca Taylor. Our proven ability to re-establish the brand leadership position for Vince, combined with the advancements we are making to restore the DNA of Rebecca Taylor, are generating excitement among our wholesale partners.”

Mr. Stefko continued, “Looking ahead, we believe that we have the liquidity in place to continue to navigate through the challenges presented by the COVID pandemic. For Vince, we are well-positioned to gain further market share and advance our strategic initiatives as we emerge from the pandemic. For Rebecca Taylor, we remain enthusiastic about the long term growth opportunity given the brand’s strong recognition within the contemporary luxury apparel space.”

For the third quarter ended October 31, 2020:

• Total Company net sales decreased 34.0% to $69.0 million compared to $104.5 million in the third quarter of fiscal 2019.

• Gross profit was $31.7 million, or 45.9% of net sales, compared to gross profit of $51.0 million, or 48.8% of net sales, in the third quarter of fiscal 2019. The decrease in the gross margin rate was primarily due to increased promotional activity and channel mix partially offset by lower sales allowances.

• Selling, general, and administrative expenses, were $25.4 million, or 36.8% of sales, compared to $43.4 million, or 41.6% of sales, in the third quarter of fiscal 2019. The decrease in SG&A dollars was primarily the result of lower payroll and compensation expense, landlord rent concessions, reduced marketing spend and prudent expense management.

• Income from operations was $6.3 million compared to income from operations of $7.6 million in the same period last year. Excluding costs associated with the acquisition of Rebecca Taylor and Parker, income from operations in the third quarter of fiscal 2019 was $8.3 million.

• Net income was $5.0 million or $0.42 per diluted share compared to a net income of $6.0 million or $0.50 per diluted share in the same period last year. Net income in fiscal 2020 reflects the $4.2 million, or $0.36 per share benefit of the aforementioned rent concessions. Excluding costs associated with the acquisition of Rebecca Taylor and Parker, net income in the third quarter of fiscal 2019 was $6.7 million or $0.56 per diluted share.

• The Company ended the quarter with 70 company-operated Vince and Rebecca Taylor stores, a net increase of 1 store since the third quarter of fiscal 2019.

Vince

• Net sales decreased 28.7% to $61.6 million as compared to the third quarter of fiscal 2019.
• Wholesale segment sales decreased 24.2% to $38.7 million compared to the third quarter of fiscal 2019.
• Direct-to-consumer segment sales decreased 35.4% to $22.8 million compared to the third quarter of fiscal 2019.
• Income from operations excluding unallocated corporate expenses was $15.9 million compared to $22.6 million in the same period last year.

Rebecca Taylor and Parker

• Net sales decreased 58.9% to $7.5 million as compared to the third quarter of fiscal 2019.
• Loss from operations was $1.9 million compared to a loss of $1.5 million in the same period last year.

Net Sales and Operating Results by Segment:

		Three Months Ended
		October 31,				November 2,
(in thousands)		2020				2019**
Net Sales:
Vince Wholesale		$	38,746			$	51,102
Vince Direct-to-consumer			22,822				35,302
Rebecca Taylor and Parker			7,454				18,135
Total net sales		$	69,022			$	104,539
Income (loss) from operations:
Vince Wholesale		$	16,027			$	18,497
Vince Direct-to-consumer			(141	)			4,133
Rebecca Taylor and Parker			(1,907	)			(1,506	)
Subtotal			13,979				21,124
Unallocated corporate*			(7,715	)			(13,574	)
Total income from operations		$	6,264			$	7,550

* Unallocated corporate expenses are related to the Vince brand and are comprised of selling, general and administrative expenses attributable to corporate and administrative activities (such as marketing, design, finance, information technology, legal and human resource departments), and other charges that are not directly attributable to the Company’s Vince Wholesale and Vince Direct-to-consumer reportable segments.

**Fiscal 2019 amounts reflect the retrospective combination of the entities.

Financing Activities

As disclosed in the December 14, 2020 press release, the Company entered into a $20 million Third Lien Credit Facility with SK Financial Services, LLC (“SK Financial”) on December 11, 2020. Interest and fees under the Third Lien Credit Facility are payable in kind. Proceeds from this facility were used to pay down borrowings under the Company’s existing Revolving Credit Facility. SK Financial is an affiliate of Sun Capital Partners, Inc. (“Sun Capital”), whose affiliates own approximately 72% of the Company’s common stock. The Third Lien Credit Facility was reviewed and approved by the Special Committee of the Company’s Board of Directors, consisting solely of directors not affiliated with Sun Capital, which was represented by independent legal advisors.

In addition, on December 11, 2020, the Company entered into amendments to its existing Revolving Credit Facility and to its existing Term Loan Credit Facility. The amendments, among others, extended the period during which the testing under a financial covenant is suspended, lowered the fixed charge coverage ratio to be maintained thereafter, extended the applicability of certain revised eligibility criteria for trade receivables and waived certain term loan amortization payments. For more information about the Third Lien Credit Facility as well as the amendments to the Term Loan Facility and the Revolving Credit Facility, please refer to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on December 14, 2020.

After giving effect to the closing of the Third Lien Credit Facility on December 11, 2020, the Company had excess availability of $42.3 million under its Revolving Credit Facility.

Inventory

Net inventory at the end of the third quarter of fiscal 2020 was $88.6 million compared to $71.6 million at the end of the third quarter of fiscal 2019. The Company continued to work through seasonal inventory through promotions and will continue to move product through a combination of promotional activity, its outlet stores and the off-price channel.

Outlook

Due to the uncertainty related to the impact of the COVID-19 pandemic, the Company is not providing an outlook for fiscal 2020, as previously announced.

The COVID-19 pandemic remains volatile and continues to evolve on a daily basis, which could negatively affect the outcome of the measures intended to address its impact and/or our current expectations of the Company’s future business performance.

2020 Third Quarter Earnings Conference Call

A conference call to discuss the third quarter results will be held today, December 21, 2020, at 4:30 p.m. ET, hosted by Vince Holding Corp. Interim Chief Executive Officer and Chief Financial Officer, David Stefko. During the conference call, the Company may make comments concerning business and financial developments, trends and other business or financial matters. The Company's comments, as well as other matters discussed during the conference call, may contain or constitute information that has not been previously disclosed.

Those who wish to participate in the call may do so by dialing (833) 392-0629, conference ID 6757388. Any interested party will also have the opportunity to access the call via the Internet at http://investors.vince.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. For those who cannot listen to the live broadcast, a recording will be available for 12 months after the date of the event. Recordings may be accessed at http://investors.vince.com.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company has provided, with respect to financial results relating to nine months ended October 31, 2020, adjusted operating income (loss), adjusted income (loss) before income taxes, adjusted income taxes, adjusted net income (loss) and adjusted earnings (loss) per share, which are non-GAAP measures, in order to eliminate the effect of non-cash asset impairment charges and the TRA adjustment. In addition, with respect to financial results relating to the third quarter and nine months ended November 2, 2019, adjusted operating income (loss), adjusted income (loss) before income taxes, adjusted income taxes, adjusted net income (loss) and adjusted earnings (loss) per share, which are non-GAAP measures, in order to eliminate the effect on operating results of cash asset impairment charges and costs associated with the acquisition of Rebecca Taylor and Parker. The Company believes that the presentation of these non-GAAP measures facilitates an understanding of the Company's continuing operations without the impact associated with the aforementioned items. While these types of events can and do recur periodically, they are excluded from the indicated financial information due to their impact on the comparability of earnings across periods. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of GAAP to non-GAAP results has been provided in Exhibit 3 to this press release.

ABOUT VINCE HOLDING CORP.

Vince Holding Corp. is a global contemporary group, consisting of three brands: Vince, Rebecca Taylor and Parker. Vince, established in 2002, is a leading global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day effortless style. Known for its range of luxury products, Vince offers women’s and men’s ready-to-wear, footwear and accessories through 48 full-price retail stores, 15 outlet stores, and its e-commerce site, vince.com and through its subscription service Vince Unfold, www.vinceunfold.com, as well as through premium wholesale channels globally. Rebecca Taylor, founded in 1996 in New York City, is a high-end women’s contemporary lifestyle brand inspired by beauty in the everyday. The Rebecca Taylor collection is available at 10 retail stores, through our e-commerce site at rebeccataylor.com and through its subscription service Rebecca Taylor RNTD, www.rebeccataylorrntd.com, as well as through high-end department and specialty stores in select international markets. Parker, founded in 2008 in New York City, is a contemporary women’s fashion brand that is trend focused. The Parker collection is available at high-end department and specialty stores in select international markets. Please visit www.vince.com for more information.

Forward-Looking Statements: This document, and any statements incorporated by reference herein, contains forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding, among other things, our current expectations about the Company's future results and financial condition, revenues, store openings and closings, margins, expenses and earnings and are indicated by words or phrases such as “may,” “will,” “should,” “believe,” “expect,” “seek,” “anticipate,” “intend,” “estimate,” “plan,” “target,” “project,” “forecast,” “envision” and other similar phrases. Although we believe the assumptions and expectations reflected in these forward-looking statements are reasonable, these assumptions and expectations may not prove to be correct and we may not achieve the results or benefits anticipated. These forward-looking statements are not guarantees of actual results, and our actual results may differ materially from those suggested in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, including, without limitation: the impact of the novel coronavirus (COVID-19) pandemic on our business, results of operations and liquidity; our ability to continue having the liquidity necessary to service our debt, meet contractual payment obligations, and fund our operations; changes in global economics and credit and financial markets; the expected effects of the acquisition of the Acquired Businesses on the Company; our ability to integrate the Acquired Businesses with the Company, including our ability to retain customers, suppliers and key employees; our ability to realize the benefits of our strategic initiatives; our ability to maintain our larger wholesale partners; the loss of certain of our wholesale partners; our ability to make lease payments when due; the execution and management of our retail store growth plans; our ability to expand our product offerings into new product categories, including the ability to find suitable licensing partners; our ability to remediate the identified material weakness in our internal control over financial reporting; our ability to optimize our systems, processes and functions; our ability to mitigate system security risk issues, such as cyber or malware attacks, as well as other major system failures; our ability to comply with privacy-related obligations; our ability to comply with domestic and international laws, regulations and orders; changes in laws and regulations; our ability to ensure the proper operation of the distribution facilities by third-party logistics providers; our ability to anticipate and/or react to changes in customer demand and attract new customers, including in connection with making inventory commitments; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection and customer service; our ability to keep a strong brand image; our ability to attract and retain key personnel; our ability to protect our trademarks in the U.S. and internationally; the execution and management of our international expansion, including our ability to promote our brand and merchandise outside the U.S. and find suitable partners in certain geographies; our current and future licensing arrangements; the extent of our foreign sourcing; fluctuations in the price, availability and quality of raw materials; commodity, raw material and other cost increases; our reliance on independent manufacturers; seasonal and quarterly variations in our revenue and income; further impairment of our goodwill and indefinite-lived intangible assets; competition; other tax matters; and other factors as set forth from time to time in our Securities and Exchange Commission filings, including those described under “Item 1A—Risk Factors” in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. We intend these forward-looking statements to speak only as of the time of this release and do not undertake to update or revise them as more information becomes available, except as required by law.

Vince Holding Corp. and Subsidiaries										Exhibit (1)
Condensed Consolidated Statements of Operations
(Unaudited, amounts in thousands except percentages, share and per share data)
		Three Months Ended								Nine Months Ended
		October 31,				November 2,				October 31,				November 2,
		2020				2019*				2020				2019*
Net sales		$	69,022			$	104,539			$	145,062			$	270,779
Cost of products sold			37,368				53,542				84,068				138,536
Gross profit			31,654				50,997				60,994				132,243
as a % of net sales			45.9	%			48.8	%			42.0	%			48.8	%
Impairment of goodwill and intangible assets			—				—				13,848				19,491
Impairment of long-lived assets			—				—				13,026				641
Selling, general and administrative expenses			25,390				43,447				91,282				129,200
as a % of net sales			36.8	%			41.6	%			62.9	%			47.7	%
Income (loss) from operations			6,264				7,550				(57,162	)			(17,089	)
as a % of net sales			9.1	%			7.2	%			(39.4	)%			(6.3	)%
Interest expense, net			1,259				1,326				3,306				3,906
Other (income) expense, net			(1	)			7				(2,304	)			126
Earnings (loss) before income taxes			5,006				6,217				(58,164	)			(21,121	)
Provision for income taxes			43				216				113				167
Net earnings (loss)		$	4,963			$	6,001			$	(58,277	)		$	(21,288	)
Earnings (loss) per share:
Basic earnings (loss) per share		$	0.42			$	0.51			$	(4.96	)		$	(1.83	)
Diluted earnings (loss) per share		$	0.42			$	0.50			$	(4.96	)		$	(1.83	)
Weighted average shares outstanding:
Basic			11,796,860				11,679,380				11,758,327				11,660,710
Diluted			11,807,498				11,967,757				11,758,327				11,660,710

* November 2, 2019 amounts reflect the retrospective combination of the entities.

Vince Holding Corp. and Subsidiaries										Exhibit (2)
Condensed Consolidated Balance Sheets
(Unaudited, amounts in thousands)
		October 31,				February 1,				November 2,
		2020				2020				2019*
ASSETS
Current assets:
Cash and cash equivalents		$	704			$	466			$	838
Trade receivables, net			32,862				40,660				38,825
Inventories, net			88,552				66,393				71,611
Prepaid expenses and other current assets			4,407				6,725				10,845
Total current assets			126,525				114,244				122,119
Property and equipment, net			18,228				25,274				26,118
Operating lease right-of-use assets			96,187				94,632				93,642
Intangible assets, net			76,655				81,533				81,697
Goodwill			31,973				41,435				41,435
Deferred income taxes and other assets			4,886				5,184				4,195
Total assets		$	354,454			$	362,302			$	369,206
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	43,497			$	43,075			$	35,083
Accrued salaries and employee benefits			7,200				9,620				7,449
Other accrued expenses			14,794				14,194				14,256
Short-term lease liabilities			20,386				20,638				20,275
Short-term borrowings			—				—				19,099
Current portion of long-term debt			—				2,750				2,750
Total current liabilities			85,877				90,277				98,912
Long-term debt			92,823				48,680				43,469
Long-term lease liabilities			101,744				90,211				89,825
Other liabilities			864				2,354				58,444
Stockholders' equity			73,146				130,780				78,556
Total liabilities and stockholders' equity		$	354,454			$	362,302			$	369,206

* November 2, 2019 amounts reflect the retrospective combination of the entities.

Vince Holding Corp. and Subsidiaries																			Exhibit (3)
Reconciliation of GAAP to Non-GAAP measures
(Unaudited, amounts in thousands)
	For the three months ended October 31, 2020
	As Reported (GAAP)				Long-lived Assets Impairment Charge				Goodwill and Intangibles Impairment Charge				TRA Adjustment				Cost Associated with Acquisition				As Adjusted (Non-GAAP)
Earnings from operations	$	6,264			$	—			$	—			$	—			$	—			$	6,264
Interest expense, net		1,259				—				—				—				—				1,259
Other (income) expense, net		(1	)			—				—				—				—				(1	)
Earnings before income taxes		5,006				—				—				—				—				5,006
Provision for income taxes		43				—				—				—				—				43
Net earnings	$	4,963			$	—			$	—			$	—			$	—			$	4,963
Earnings per share	$	0.42			$	—			$	—			$	—			$	—			$	0.42		(1)
	For the three months ended November 2, 2019*
	As Reported (GAAP)				Long-lived Assets Impairment Charge				Goodwill and Intangibles Impairment Charge				TRA Adjustment				Cost Associated with Acquisition				As Adjusted (Non-GAAP)
Earnings from operations	$	7,550			$	—			$	—			$	—			$	(718	)		$	8,268
Interest expense, net		1,326				—				—				—				—				1,326
Other (income) expense, net		7				—				—				—				—				7
Earnings before income taxes		6,217				—				—				—				(718	)			6,935
Provision for income taxes		216				—				—				—				—				216
Net earnings	$	6,001			$	—			$	—			$	—			$	(718	)		$	6,719
Earnings per share	$	0.50			$	—			$	—			$	—			$	(0.06	)		$	0.56		(2)

⁽¹⁾ Based on weighted-average shares outstanding of 11,807,498 for the three months ended October 31, 2020

⁽²⁾ Based on weighted-average shares outstanding of 11,967,757 for the three months ended November 2, 2019.

* November 2, 2019 amounts reflect the retrospective combination of the entities.

For the nine months ended October 31, 2020

As Reported (GAAP)

Long-lived Assets Impairment Charge

Goodwill and Intangibles Impairment Charge

TRA Adjustment

Cost Associated with Acquisition

As Adjusted (Non-GAAP)

Loss from operations

$

(57,162

)

$

(13,026

)

$

(13,848

)

$

—

$

—

$

(30,288

)

Interest expense, net

3,306

—

—

—

—

3,306

Other (income) expense, net

(2,304

)

—

—

(2,320

)

—

16

(Loss) income before income taxes

(58,164

)

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