Vince - Q1 2025

Executive Summary

• Q1 FY2025 net sales decreased 2.1% to $57.9M; gross margin held at 50.3%, but the company swung to a GAAP operating loss of $4.4M (−7.7% margin) and diluted EPS of −$0.37 due to higher freight/duty and SG&A spend.
• Results were relatively in line with internal expectations and better than prior guidance calling for ~5% sales decline; wholesale was flat (+0.1%) while direct-to-consumer fell 4.4% amid store closures/remodels and softer traffic.
• Management pivoted rapidly to mitigate evolving tariff policies: diversified sourcing, vendor negotiations, selective pricing, and expects China exposure to ~25% of COGS by spring 2026; full-year FY2025 guidance withheld given tariff uncertainty.
• Q2 FY2025 outlook: net sales flat to −3% YoY, operating income margin −1% to +1%, adjusted EBITDA margin 1%–4% (assumes ~170 bps incremental tariff costs).
• Potential stock catalysts include progress on tariff mitigation and execution vs Q2 outlook; note NYSE continued listing notice received May 6, 2025 adds headline risk pending acceptance of a remediation plan.

What Went Well and What Went Wrong

What Went Well

• Wholesale segment resilience: wholesale sales +0.1% YoY to $30.3M; segment operating income $9.4M, reflecting stable partner demand and product margin improvement ex freight/distribution.
• Rapid tariff mitigation: “significantly reduced our exposure to China… beginning with our fall product,” with target ~25% of COGS by spring 2026; diversified supply chain, negotiated with vendors, and adjusted pricing architecture.
• Product reception: strong performance in sweaters, knits (new color palettes), bottoms, and men’s (continued strong growth); e-commerce drove sequential improvement in DTC trends.

What Went Wrong

• Margin pressure from costs: gross margin rate impact of ~260 bps higher freight/duty, ~120 bps wholesale mix, ~60 bps distribution/handling, only partially offset by lower product costs/pricing and lower promotions.
• SG&A deleverage: SG&A rose to $33.6M (58.0% of sales) driven by higher marketing/advertising, legal/IT/third-party costs, and remodel/relocation expenses; contributed to GAAP operating loss.
• DTC softness and store activity: direct-to-consumer sales −4.4% amid planned closures, remodels, relocations, and softer traffic; segment operating loss of −$0.8M.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to the Vince Q1 2024 earnings conference call. All lines have been placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to hand the conference call over to our host, Akiko Okuma. Please go ahead.

Akiko Okuma (SVP, General Counsel, and Secretary)

Thank you, and good morning, everyone. Welcome to Vince Holding Corp's Q1 fiscal 2024 results conference call. Hosting the call today is 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 discussions, 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. Now, I'll turn the call over to Dave.

Dave Stefko (Interim CEO)

Thank you, Akiko, and thank you everyone for joining us this morning. I will begin with a review of highlights from our Q1 performance before turning the call over to John to discuss our financial results and outlook in more detail. Our Q1 sales results were in line with the high end of our expectations, where we delivered better than expected adjusted operating margin performance as we continued to drive gross margin expansion and maintain strong expense disciplines.

Our results also reflect our strategic actions focused on driving improved full price performance as we continue to pull back in our off-price business in our wholesale channel, as well as the reduced promotional activity in our direct-to-consumer channel. In addition to these actions, we are continuing to see strong customer reception to our assortments, focused on luxurious, contemporary wardrobe staples.

Customers continue to gravitate toward our timeless, casual pieces that can be styled up or down, depending on the occasion. During the quarter, in women's, we saw strong customer reception in our knits and casual dresses, and in men's, they responded well to our linen fabrications in both tops and bottoms. Our direct-to-consumer channel, excluding the impact from store closures, slightly outperformed our wholesale channel.

As mentioned, we continue to pull back our promotional activity across e-commerce and our stores, enabling a stronger full price business and healthier customer file. In the quarter, we delivered a mid-single-digit increase in our full price customer segment, and while this did not offset the impact of the lower promotional activity, it is yet another data point that has given us further confidence in our plans and expectations as we look ahead.

In wholesale, we have also continued to strengthen our partnerships. During the quarter, we continued to be a top brand for many of our key partners. In Nordstrom's latest earnings call, they noted that we were among their top contemporary brands in fiscal Q1. As we announced on our last earnings call, we are looking forward to expanding our men's presence across all Nordstrom stores in time for this year's Anniversary Sale.

This development is an important milestone as we continue to expand our men's business across our channels. We remain on track with expanding men's to 30% of total revenues over the next three years, while also growing our women's business. We are excited about the progress we are making on this growth initiative and look to build on the momentum we are driving, especially following the strong reception we saw in the 2025 Pre-Spring market this past month.

In addition to expanding our men's business, we are also continuing to enhance our customer acquisition efforts. Being in a cost management position over the last few years, we did not make investments in brand awareness or top-of-funnel marketing strategies. While we are continuing to maintain strong expense disciplines, we are beginning to reengage in driving brand awareness and enhancing our marketing efforts to attract new customers and build increased loyalty with existing customers.

During the spring, Cultured Magazine, which targets a very affluent subscriber base, well-balanced between men and women, with focused distribution in key markets for us, including New York, L.A., and Miami, published an article featuring our Chief Creative Officer, Caroline Belhumeur. In celebration of this publication, we hosted a dinner at the end of May in L.A. with approximately 100 Cultured subscribers. By hosting this event, we introduced Vince to potential new customers in an organic fashion and expanded our brand awareness in an important market.

In addition to these types of events, we are also looking to leverage our customer data platform to enhance customer engagement and drive further loyalty with top customers. Our store associates are continuing to leverage the database to engage with past customers and drive reactivation efforts for those customers that have not shopped with us in the past 12 months.

For our top customers, who represent about 10% of our customer base and drive approximately 35% of demand across our full price direct-to-consumer business, we are evaluating strategies and identifying opportunities aimed at increasing customer lifetime value through driving higher average order value and purchase frequency. We look forward to sharing more on these plans later this year.

Along with our growth initiatives, we also plan to benefit from our partnership with Authentic Brands and our ownership stake in ABG Vince. As a reminder, ABG Vince owns the Vince brand IP, and as it enters into new licensing agreements for the Vince IP, we in turn benefit from the growth in ABG Vince. We are looking forward to Peerless's launch of the Vince tailored clothing line later this year, and we are excited for the recent announcement that Centric Brands will be producing a collection of handbags, belts, and small leather goods under the Vince label beginning in 2025.

We believe the earnings received from our ownership in the growing ABG Vince subsidiary, along with our transformation plan, will more than offset the royalty expenses we now incur. Our transformation plan, which is targeting over $30 million in savings over three years, remains on track. We are very pleased with the initial progress we are making, which is materializing in our results thus far and reflected in our outlook as well. As we look ahead, we remain confident that the actions we have taken to date are positioning us well to deliver on our objectives.

We are carefully investing to support the growth we see, while maintaining strong expense and inventory management disciplines. We are focused on continuing to drive improved customer engagement and foster our relationships with our loyal top customers, which we believe will continue to yield results, and we have a strong wholesale order book in place for the remainder of the year.

In closing, we are making significant progress in executing our objectives and remain focused on driving long-term profitable growth. I want to thank all of our teams for their talent, hard work, and dedication as we continue to deliver on our goals. I'll now turn it over to John to discuss our financial results and outlook in more detail. John?

John Szczepanski (CFO)

Thank you, Dave, and good morning, everyone. As Dave discussed, we are pleased to have delivered Q1 revenue in line with the high end of our guidance, along with better-than-expected adjusted operating margin as we continue to execute an improved full price business, manage expenses with discipline, and deliver on our transformation plan objectives.

Turning now to our results in more detail. Total company net sales for the Q1 decreased 7.6% to $59.2 million, compared to $64.1 million in the Q1 of fiscal 2023, which included $0.1 million in Rebecca Taylor and Parker segment sales, which has been wound down.

The year-over-year decline in total company net sales was driven by the 7.5% decline in Vince brand sales due to year-over-year declines in both our wholesale and direct-to-consumer segments as we continued to pull back in our off-price business within our wholesale channel, as well as on promotions in the direct-to-consumer segment.

In addition, our direct-to-consumer segment was impacted by the closure of three full-price and two outlet stores, as well as the temporary closure of one of our full-price stores due to renovations. The impact from these closures resulted in approximately half of the decline we experienced in the direct-to-consumer channel. Excluding the impact from store closures, we continued to see stores outperform e-commerce and attribute some of this to a greater impact from the pullback in promotions on the online business compared to stores.

As Dave noted, we are pleased with the full price business we are driving, as reflected in our customer file as well as sales mix. In the quarter, full price sales penetration increased almost 500 basis points compared to the prior year. Gross profit in the Q1 was $29.9 million, or 50.6% of net sales. This compares to $29.6 million, or 46.2% of net sales, in the Q1 of last year.

The increase in gross margin rate was driven by approximately 770 basis points related to lower promotional activity and lower discounting, and approximately 240 basis points related to lower product costing and freight cost, driven in part by actions related to our transformation plan.

These factors were partially offset by 460 basis points of royalty expenses associated with the licensing agreement with Authentic Brands Group. Selling, general and administrative expenses in the quarter were $31.9 million, or 54% of net sales, as compared to $32.7 million or 51.1% of net sales in the Q1 of last year.

The decrease in SG&A dollars was primarily driven by expense favorability compared to last year, given the transaction-related expenses associated with the Authentic transaction, and was partially offset by an increase in rent and occupancy costs due to lease adjustments in the prior year, as well as increased short-term incentive compensation and benefits. Operating income for the Q1 was $5.6 million, compared to an operating loss of $2.4 million in the same period last year.

Following the completion of the wind down of the Rebecca Taylor business in fiscal 2023, in the Q1, we completed a nominal sale of all outstanding shares of the Rebecca Taylor entity, which resulted in a one-time gain of $7.6 million, realized from the release of liabilities on our balance sheet. Excluding this one-time item, adjusted loss from operations in the Q1 of fiscal 2024 was $2 million, compared to $0.3 million in the prior year, which excluded the impact from transaction-related expenses and the Parker IP sale gain.

Adjusted operating margin declined approximately 300 basis points compared to the prior year, driven primarily by the wind down of the Rebecca Taylor business, which delivered income from operations of $1.2 million in the Q1 of fiscal 2023, as well as the lease adjustments in the prior year period. This performance exceeded our expectations as we diligently managed expenses during the period.

Net interest expense for the Q1 decreased to $1.7 million, compared to $3.3 million in the prior year. The decrease was driven by the year-over-year reduction in debt, given the previously announced refinancing actions we took last year. Income tax expense for the Q1 was $0.9 million, primarily driven by $1.7 million of discrete tax benefit, primarily recognized from the reversal of a portion of the non-cash deferred tax liability related to the equity method investment.

This was offset by tax expense of $0.8 million, due to the impact of applying the estimated effective tax rate for the fiscal year to the three-month pre-tax loss, excluding discrete items, which we detailed in today's press release. The tax expense in the Q1 of fiscal 2024 compares to an income tax expense of $5.3 million in the same period last year.

Net income for the Q1 was $4.4 million, or an earnings per share of $0.35, compared to a net loss of $0.4 million, or a loss per share of $0.03 in the Q1 last year. Adjusted net loss, which excludes the one-time items previously reviewed, was $3.3 million, or $0.26 per share in the Q1 of fiscal 2024, compared to adjusted net loss of $4.4 million, or $0.36 per share.

Moving to the balance sheet. Net inventory was $56.7 million at the end of the Q1, as compared to $80 million at the end of the Q1 last year. The year-over-year decrease in inventory was primarily driven by our disciplined approach as we invest back into inventory to help support the growth we see, especially in the back half of the year with our key holiday selling season. We continue to expect inventory for fiscal 2024 to be relatively flat to fiscal 2023.

Turning now to our outlook. For Q2 fiscal 2024, we expect total net sales to be relatively flat to down low single digits to the prior year period, as we better match supply with demand in our wholesale business, with a more normalized penetration of off-price following the pullback in that business over the past year. In addition, with respect to our DTC channel, we are seeing some deceleration across online and stores as we continue to pull back in our promotional activity. As we have said, while these actions have near-term impacts on top line, we believe they better support the full price model we are executing.

With respect to the operating margin, we expect Q2 fiscal 2024 operating margin to decline approximately 500-750 basis points compared to last year's adjusted operating margin of 4.1%. As a reminder, Q2 of fiscal 2023 was our strongest period from an operating margin perspective, and along with a difficult compare, we expect this contraction to be driven by SG&A de-leverage due to the reestablishment of our short-term incentive compensation plan, as well as two other main factors.

Similar to Q1, we will continue to lap expense favorability due to the wind down of the Rebecca Taylor business, creating an approximately 160 basis points headwind for Q2 fiscal 2024. Given recent actions we have taken to streamlining our organization as part of our transformation plan, we expect to incur a headwind of approximately 130 basis points related to one-time severance expenses.

Partially offsetting the SG&A de-leverage is the expectation for gross margin expansion, driven by improved full price penetration, lower promotions, and the impact of our transformation initiatives. That said, we do not expect the level of expansion we saw in Q1, given the expected headwind of 190 basis points from royalty expenses that were not incurred in the prior year period due to the expected mix shift due to the increased penetration of wholesale as our off-price business is normalized, and we continue to pull back on promotional activity in DTC compared to last year.

With respect to our full-year fiscal 2024 outlook, we continue to expect total net sales to grow in the low single digits compared to fiscal 2023. We expect trends to improve as we move through the year as we normalize shipments to our wholesale partners, including the expansion of our business in Nordstrom, which Dave reviewed, and as we capitalize on our key fall and winter selling season.

With more than 85% of our wholesale order book filled for the shipments for this fiscal year, we feel confident in our sales outlook for the remainder of the year. We continue to expect operating margin to be flat to up 25 basis points compared to fiscal 2023 adjusted operating margin. This outlook continues to include a headwind of approximately 140 basis points associated with royalty fees through May 2024, which were not incurred in the comparable fiscal 2023 period, as well as the impact from the reestablishment of our short-term incentive compensation plan.

As we look beyond this year, we continue to believe in the opportunity we see in front of us and are confident in our plans to deliver long-term profitable growth. This concludes our remarks, and I will now turn it over to the operator to open the call for questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad, remembering to unmute your mic locally. If you'd like to withdraw your question at any time, you can do so by pressing star followed by two. Our first question comes from the line of Eric Beder of Small Cap Consumer Research. Your line is now open. Please go ahead.

Eric Beder (CEO, and Senior Research Analyst)

Good morning. Congratulations on the quarter upside.

John Szczepanski (CFO)

Thanks, Eric.

Eric Beder (CEO, and Senior Research Analyst)

I have a few questions here. Let's start with, you know, what are you seeing in terms of international? I know that's primarily a wholesale business. as you talked about, the wholesale book has been strong. What are you seeing internationally, and what are the opportunities there, going forward?

Dave Stefko (Interim CEO)

We're seeing, we're seeing similar performance internationally as we are in, in the US. And, you know, we've talked in the past, about growth opportunities, specifically, in, in Asia. You know, those... We have opened, two stores in Asia we have seen, you know, I would say, inconsistent performance to date, amongst those two stores and looking at, you know, similar to here in the US, in some investments that we should be, be making from a, a marketing, perspective. But we're right now, Eric, we're, we're focused, you know, long term on trying to understand the Asia market.

Eric Beder (CEO, and Senior Research Analyst)

Okay. You mentioned that, you know, store closures were part of the reason why the year-over-year sales were down. I know that you've kind of—I don't expect you're going to be doing stores this year, but how do stores fit in as a longer-term growth opportunity here as you refocus even more on the full-price customer and providing that higher level of service, and driving, I mentioned, the stores? Where do stores fit in terms of potential expansion going forward?

Dave Stefko (Interim CEO)

You know, it's certainly part of the longer-term growth strategy again, if you go back, you know, 2023 for us was more of a transformative year, you know, as we improve the health of the business. You know, in late 2023 and mid 2024, as we've been discussing, has kind of been a focus on the core business of resetting the promotional cadence and the wholesale off-price and focusing on our transformation program and looking at, you know, our customer data platform, you know, how do we utilize that, you know, to drive growth? So, from a customer data platform, we get a lot of information.

You know, we are doing a market study. You know, as we've talked about, if you look at concentration of our over 60 stores, you know, we have a lot of stores in the New York, L.A. area, but when you look at markets like, you know, Chicago, we have one or two stores you know, in Dallas, you know, we have one store in Houston, we have two stores you know, there's just so many markets that we have opportunities in.

So we certainly are looking at that and as we look into late, you know, 2024 and 2025, you know, we will look at new and existing store opportunities, you know, in the U.S. and international also but, the focus right now for 2024 is on the core business and making sure we achieve our goals for this year.

Eric Beder (CEO, and Senior Research Analyst)

And kind of speaking about the core, you've talked before about how the drive to lower prices has been kind of pushed to the exact opposite, and you're clearing out the outlet channel. You know, when do you expect that to be done, and when do you expect the pricing to be kind of where you want it to be in terms of the mix of outlet, non-outlet, in terms of the pricing, also in terms of, you know, full price and non-full price? When do you think that process is nearing the end?

John Szczepanski (CFO)

Yeah, Eric, it's John. I'll take that. I think when we look at how we completed Q1, that's really the end of that reset period we're now going into, starting in our fiscal Q2, certainly recapitalizing into the demand that we see in the wholesale channel, and having an appropriate balance between wholesale full price and off price, certainly from here on out.

From an outlet perspective, from a DTC outlet perspective, we're also looking at the fleet and then looking at our pricing strategies with regards to, you know, a more healthier excess liquidation, if you will, going forward. Between normalizing wholesale off-price and the fact that we're managing inventory so much better now and expected into the future, we expect that equation to be optimized as we go through the balance of this year and then setting us up for, you know, good position going forward.

Eric Beder (CEO, and Senior Research Analyst)

Let's, I'll just choose the next follow-in. How do you think about? normalizing an SG&A? I know you have multiple flows here in terms of project transformation, in terms of short-term incentive comp. So how should we be thinking about how the SG&A flows? and when does that kind of hit what we should consider kind of normalized levels, I guess, for comparison purposes going forward?

Dave Stefko (Interim CEO)

Yeah, Eric, great question. So when you think about where the company has been last year, there was no short-term incentive plan established because of the challenging situation, financial situation of the company. As we reset into this year, as we set goals for our teams, it was appropriate to reset and reestablish a short-term incentive comp program.

And as you saw in the quarter, that impact was the primary driver for the SG&A deleverage that we saw year-over-year. Certainly, Q1 is our lightest quarter in terms of revenue footprint. So the impact of that should mitigate as we go through the balance of the year as our, as our sales build, especially in the back half of the year, into our, our key selling season. Our outlook includes the incorporation of, of a program, again, not to the same order of magnitude as what we've seen in, in Q1.

Eric Beder (CEO, and Senior Research Analyst)

Great. Well, congrats, and, look forward to seeing what's happening the rest of the year. It should be positive. Thank you.

Dave Stefko (Interim CEO)

Thanks, Eric.

John Szczepanski (CFO)

Thanks, Eric.

Operator (participant)

The next question comes from Michael Kupinski of Noble Capital Markets. Your line is now open. Please go ahead.

Michael Kupinski (Director)

Thank you, and let me offer my congratulations as well. First of all, given the improvement in margins, I was just wondering if you can identify for us how much of the cost initiatives? I know you're targeting $10 million for the year. How much of that was reflected in the quarter? And I know that you mentioned 240 basis points, which I would assume would be, like, maybe $1.2 million, if my math is correct. And I was just wondering if that was the number that you realized towards that $10 million goal. And then, if you can just talk a little bit about what will be the cadence of those cost-cut initiatives throughout the year.

John Szczepanski (CFO)

Great, great question, Mike. So as you think about our margin improvement, the year is just starting. Our cadence for transformation, since it's more COGS related, will definitely follow the penetration of sales by quarter throughout the year. Again, with Q1 being our lightest quarter? you know, we should see a build as it relates to the COGS portion going through the course of the year. We're happy with where we ended transformation in Q1.

We feel we're ahead of schedule in terms of what we were expecting. What we are monitoring right now is really our the impacts of DTC deceleration as we come off of that promotional cadence, as well as the return rates that are amplified, given, especially in e-com, given the fact that, we're definitely moving away from higher discounts and last year we had, really the promotions were tied to end of sale activities with no returns. So, that piece is becoming more magnified, and we're monitoring that as potential offsets to the real upside that we're seeing in transformation.

Michael Kupinski (Director)

Gotcha. And so if you were to look at the margin prospect, I suppose, if, assuming that the $10 million is fully realized, would that largely fall into the Q3 then? I mean, proportionately.

John Szczepanski (CFO)

I would say it would be more proportional with our level of COGS and sales as we progress. Not completely back half of the year weighted, but, certainly more weighted to the back half of the year, given that penetration of business flow.

Michael Kupinski (Director)

Gotcha. And then on the revenue side, can you talk a little bit about the variables that are baked into your favorable revenue guide for the year? Because certainly, based on your 2Q guide, you would look for a much stronger performance in the second half and I was just wondering if you can just talk a little bit about maybe some of the... you know, while you obviously have identified some positive outlook, I was just wondering what would be the possible challenges in terms of achieving your revenue targets for the fiscal full year as you see it?

John Szczepanski (CFO)

Yeah, we are monitoring our DTC trends, as we called out we're monitoring some of that sales deceleration from the promotional activity, the return rates in our e-com channel. But we're really, as we approach our key selling season in fall and holiday, that's where our product performs best we expect really a good trend reversal as we get into Q3, Q4, the back half of the year. And we're also, we've talked a lot, and Dave has mentioned this, too, about the work we've done around the customer database. We expect a lot of those efforts to start getting traction as we enter those key selling seasons.

The other driver in our back half of the year weight in terms of revenue is our wholesale business you know, we talked to the fact that because of the financial constraints we had last year, we really couldn't match supply with the demand we saw in the wholesale channel. This is really our moment to level set that for fall holiday, for our Q3, Q4 selling cycle in the wholesale channel.

And we're looking to capitalize on that demand. You know, right now, where we stand, we've completed all of the major markets, that relate to the shipping cycle this fiscal year. And we can say that we've got more than 85% of our order book filled for those shipping windows through the balance of the year that also gives us some good confidence about the back half of the year guide.

Michael Kupinski (Director)

Gotcha. And in terms of, just the product itself, you mentioned men's as being a, a really key category for you, and you mentioned linens, but I was just wondering, in terms of, categories that you might find that are growth opportunities in the men's category, if you could just kind of identify for us what are some of the bets that you're making in terms of the back half in terms of that, that particular category?

Dave Stefko (Interim CEO)

Yeah. I mean, the biggest category we're focused on from a growth perspective is a new pants program that we're working on. And so, we hope that we see some value from that in the back half of the year.

Michael Kupinski (Director)

Gotcha. Okay, that's all I have. Thank you.

Dave Stefko (Interim CEO)

Great. Thank you.

Operator (participant)

As there are no additional questions waiting at this time, I'd like to hand the conference back over to Dave Stefko for closing remarks.

Dave Stefko (Interim CEO)

Okay, thanks. Thank you all for joining us today. We will speak to you again on our Q2 earnings call, which will be in September. With that, have a great day. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes today's call. Have a great rest of your day. You may now disconnect your lines.