Brendan Hoffman - CEO Dave Stefko - CFO Amy Levy - IR.

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Vince Fourth Quarter and Annual 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there’ll be a question-and-answer session. [Operator Instructions].

I will now turn the call over to Amy Levy, Vice President, Investor Relations. You may begin your conference..

Thank you, and good afternoon, everyone. Welcome to Vince Holding Corp’s fourth quarter and annual fiscal 2017 earnings conference call. Hosting the call today are Brendan Hoffman, Chief Executive Officer; and Dave Stefko, 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 present today are non-GAAP measures.

In addition, the company is presenting an estimated impact to earnings per share related to certain asset impairment charges as well as a tax receivable agreement adjustment related to the new Tax Cuts and Jobs Act, and the impact of updated five year projections, and the valuation allowance reported against the company’s deferred tax assets.

Certain components included in the calculation of such impact are non-GAAP measures.

Discussion of these non-GAAP measures and reconciliations of them to their most comparable GAAP measures are included in today's press release and related schedules, which are available in the investor section of the company's website at Investors.Vince.com After the prepared remarks, management will be available to take your questions for as long as time permits.

Now, I'll turn the call over to Brendan..

Thank you, Amy and thank you everyone for joining us today. We are extremely pleased to see that the work we have done over the past several quarters, has resulted in a strong finish to the year, and is helping us regain market share.

We saw great response to our product offering in both our direct to consumer and wholesale channels, which drove strong sales growth in the fourth quarter, including a double digit increase in comparable sales.

Our increased emphasis on our direct to consumer business at both the store and e-commerce level, as well as the steps we have taken to deepen our wholesale partnerships with Nordstrom and Neiman Marcus, continue to yield positive results.

The enthusiasm around our brand, combined with the favorable response to our spring collections, are highly encouraging and we believe this shows that we are moving in the right direction.

In fact, the momentum in our direct to consumer business has extended into the first quarter with strong double digit growth in comparable sales thus far for both full price retail stores and e-commerce. We're also seeing strong regular price sell-throughs at Nordstrom's and Neiman Marcus.

Given the planned reduction in sell-ins as we transition out of Saks and Bloomingdale's, we expect wholesale sales to be down for the quarter, which is in line with our plan. We do expect improved earnings performance, stemming from higher gross margin and disciplined expense management.

For fiscal 2018, we remain focused on building upon our momentum, as we continue to execute on our strategic initiatives to drive sustainable profitable growth over the long term for the Vince brand. Turning back to our fourth quarter financial results.

We achieved sales growth of 17%, which included approximately $1.6 million from the 14th week, will strength in both our direct to consumer and wholesale businesses. In direct to consumer, we saw a favorable response to our offering in our stores and on our e-commerce website, which drove sales growth of 23% for the quarter.

This was led by a 13 week comp of 16.1%, as well as more than 30% growth in our e-commerce business. Adjusted operating loss improved by over $6 million, with adjusted operating loss for the quarter of $1.5 million, as compared to adjusted operating loss of $7.8 million in the same period last year.

Our direct to consumer comparable sales results illustrate the progress we have made in improving our product assortments, as well as enhancing the customer experience in both our store and e-commerce channels.

As we look to build our direct to consumer presence, we launched a retail strategy with greater focus on profitability, and we plan to open stores with shorter lease term commitments and more favorable provisions. As part of this strategy, we are excited to have opened our Short Hills Mall store on March 29.

We are also working on openings in Palm Desert, California and Naples, Florida within the next two months, and anticipate opening additional locations in key street and mall locations that are appropriate for the Vince brand during fiscal 2018. We will also continue to evaluate stores that do not meet our four wall EBITDA targets.

The vast majority of our store openings will be strategically located in close proximity to the apartment store doors we exited as part of our wholesale transition plan. We know there is existing demand in these locations, which is expected to create a nice tailwind for these new stores.

Looking at our performance across regions, not surprisingly, we are seeing the highest comp growth in locations adjacent or near department stores that we have exited.

This reinforces to us that we have the right strategy in place to capture these customers, and we will continue to focus our efforts on driving traffic from new, existing and lapsed customers. Our e-commerce business is another priority, and we continue to take steps to further enhance the user experience.

We launched our mobile app late in the third quarter, with strong initial results. The app provides a rich user experience when customers shop on their mobile phone and provides easier checkout. We also use the app to notify consumers of new arrivals and promotions.

Conversions on the mobile app was significantly higher than our standard mobile site, with higher page views and average order value.

We are seeing our customers gravitate more towards shopping on their smartphones, and we look forward to leveraging our mobile app as one more way in which we can strengthen our engagement with our current customers, as well as target a younger demographic.

For fiscal 2018, our priority will be to implement additional e-commerce strategies designed to drive traffic conversion and average order value. As part of advancing our online strategies, we will continue to introduce state of the art technology, along with new tools that will allow us to further expand our brand reach and awareness online.

We plan to launch new international e-commerce capabilities for both Europe and Asia in the second half of this year, which will include local currency and payment providers. We will continue to capitalize on Vince’s luxury brand positioning and product aesthetic as we build brand awareness and expand globally.

Turning to our outlet business, as we've mentioned in the past, we had previously reduced the amount of made for product we offered in our outlet channel to well below historical levels, which negatively impacted the business. We are making progress towards creating a better balance between made for and excess inventory in these stores.

We believe the steps we're taking will drive improved sales and margin rates in our outlet business. Turning to our wholesale business, sales grew 12% in the fourth quarter. We continued to build back our off price business in a more brand appropriate and profitable way, with improved inventory flow and a better balanced product mix.

In our full price business, as I mentioned, we are also pleased with the progress we have made on our planned transition within the department store channel.

The enhanced assortment inspired increased full price selling, as well as cleaner inventory levels at our wholesale partners, and led to improved profitability within these department store doors.

We have been working closely with both Nordstrom and Neiman Marcus, our limited distribution partners, and we are extremely pleased with these arrangements thus far.

Our merchandising, marketing, sales, and logistic teams continue to work collaboratively with the respective teams at Nordstrom and Neiman's, with efforts centered around optimizing our product assortment, driving efficient and timely inventory flow, and heightening our brand exposure.

As we continue to deepen these relationships, we believe that these partnerships will be successful for Vince as well as for Nordstrom's and Neiman’s.

As we believe we are now on the right track with our product assortment, we are further investing in targeted marketing initiatives to enhance brand awareness and drive customer acquisition through mobile, e-commerce and social media strategies.

We are focused on strengthening our connection with existing customers, as well as winning lapsed and new customers. For example, we executed a number of strategic brand partnerships across a variety of channels.

During the quarter, we invested in digital advertising partnerships, creating custom content with influential websites such as The New York Times T Brand Studio, Goop, GQ and Net-a-Porter, along with other brand appropriate sites, in addition to select targeted print advertising.

We are also working with cultural connectors through social media to diversify our voice and add more personality and life to our Instagram feed. We collaborated on several editorial features to introduce Patrik Ervell as our menswear designer ahead of his first collection, emphasizing our focus on reenergizing the men's business.

In addition, we are continuing to test third party vendors, powered by location data and purchase intelligence in order to create more relevant customer experiences and drive exited department store customers to the nearest Vince location.

We're also working closely with the marketing teams of our key wholesale partners to cross promote the brand through in-store events, social channels and national ad campaigns.

Finally, during the year, we continued working through our systems conversions and are now better positioned with an improved foundation that will enable us to effectively and efficiently support the growth of our company.

As we look ahead, we are focused on continuing to optimize our processes to ensure that we are getting product to our partners and consumers in the most effective and efficient manner.

To that end, we have recently entered into a relationship with a third party warehouse provider in Hong Kong, to further enhance our ability to support our global partners. In summary, we have made tremendous progress in the business in a number of areas, and we are excited about 2018.

We remain focused on further refining the product assortment, building upon the momentum in our direct to consumer business, and collaborating with our wholesale partners.

Our momentum in our direct to consumer business has continued thus far into the first quarter, and we continue to see strong sell-throughs in both this channel and in our wholesale business. However, as a reminder, we expect our wholesale segment sales to be impacted by our decision to exit certain department store partners.

Despite the anticipated reduction in wholesale shipments, we are highly encouraged to see that our transformation strategy is working. We also do expect that our combined initiatives will enable us to drive both sales and earnings growth in the fiscal year 2018.

Overall, we believe we are moving the business in the right direction and are positioned to drive profitable and sustainable growth in our business over the long term. With that, I'll turn it to Dave to review our financial results. .

Thank you, Brendan. We are pleased with the continued momentum that we have seen in both our direct to consumer business, as well as with our wholesale transformation, and believe that this leaves us well positioned to continue executing on the initiatives that will enable us to drive growth in the business over the longer term.

Turning to the details of our financial results. Fourth quarter net sales increased 16.9% to $74.6 million, including a $1.6 million impact from the 14th week, compared to $63.9 million in the prior year period.

Our direct to consumer segment sales increased 22.9% to $36.2 million in the fourth quarter, including the $1.6 million in sales from the 14th week. Comparable sales on a 13 week basis, including e-commerce, increased by 16.1%, reflecting an increase in average unit retail.

Results in the DTC business were driven by solid growth in both our full price and e-commerce businesses. Our wholesale channel sales were up 11.7% to $38.5 million, primarily due to an increase in off price sales. The 14th week had an immaterial impact on the wholesale segment.

In terms of our off price business, we've continued to build back this business in a healthy way, after significantly reducing our presence in this channel in fiscal 2016.

The growth in our off price business was partially offset by the expected decrease in the full price channel as we exited two department store partners as part of our transformation strategy. Gross profit in the fourth quarter was $34 million or 45.5% of net sales.

This compares to $29.2 million or 45.7% of net sales in the fourth quarter of last year.

The decrease in gross margin rate was largely due to a mix shift in the wholesale channel, and an unfavorable adjustment to inventory reserves, partially offset by lower supply chain cost and a favorable adjustment to reserves related to the cost of executing the wholesale distribution portion of our transformation strategy.

Selling, general and administrative expenses in the quarter were $40.5 million or 54.3% of net sales, which includes non-cash asset impairment charges related to certain retail stores of $5.1 million.

This compares to $39.1 million or 61.1% of net sales for the fourth quarter of last year, which included a $2.1 million non-cash asset impairment charge related to certain retail stores.

The decline in SG&A dollars for the fourth quarter of fiscal 2017, excluding the impairment charges, was primarily the result of the non-recurrence of investments related to the transition of IT systems made last year, as well as lower product development cost and savings associated with the ending of the consulting arrangements with our founders.

This was partially offset by increased incentive compensation cost and investments related to the remediation and optimization of IT systems. We will continue to focus on cost savings and liquidity improving opportunities that make sense for Vince and reinvest a portion of our savings where appropriate into the business during the year.

Operating loss was $6.6 million, which included $5.1 million related to the aforementioned non-cash retail store impairment charges.

This compares to an operating loss of $62.9 million in the fourth quarter of fiscal 2016, which included impairment charges of $22.3 million related to goodwill associated with our direct to consumer business, $30.8 million related to the trade name intangible asset, and $2.1 million as a result of the aforementioned non-cash charge for retail stores.

Excluding the aforementioned charges, adjusted operating loss was $1.5 million in the fourth quarter of fiscal 2017, as compared to an adjusted operating loss of $7.8 million in the fourth quarter of fiscal 2016.

Other income reflects a tax receivable agreement adjustment of $82 million related to lower federal tax rates due to the new Tax Cuts and Jobs Act, and the impact of updated five year projections.

The income tax benefit for the fourth quarter of fiscal 2017 was negligible compared to an income tax expense of $98.2 million in the prior year quarter, which included a $121.8 million charge reflecting the recording of an income tax valuation allowance against our deferred tax assets.

The income tax benefit for the fourth quarter of 2017, reflects the utilization of an alternative minimum tax credit, as well as the expected refundability of remaining credits due to a partial reversal of the just discussed valuation allowance.

As we have mentioned previously, due to the offsetting impact of the valuation allowance, our tax expense throughout fiscal 2017 was near zero, and we expect a similar tax expense for fiscal 2018.

Net income was $74.5 million or $6.41 per diluted share, compared to a net loss of $162.1 million, or $32.81 per share for the fourth quarter of fiscal 2016.

The net income for the fourth quarter of fiscal 2017 includes the aforementioned TRA adjustment, a negligible benefit from income taxes due to the offsetting impact of the tax valuation allowance, and the aforementioned non-cash asset impairment charge, all of which positively impacted earnings per share by $6.62.

The net loss per share in the fourth quarter of fiscal 2016, included a negative impact of $31.26 per share related to the aforementioned non-cash long lived asset impairment charges, as well as the valuation allowance recorded against the company's deferred tax assets.

Excluding the aforementioned charges, adjusted net loss for the fourth quarter of fiscal 2017 was $2.4 million or $0.20 per share, as compared to an adjusted net loss of $7.7 million or $1.55 per share in the same period last year.

The increase in diluted weighted average shares outstanding in 2017 is a result of the issuance of common stock in connection with the completion of the rights offering and related backstop commitment that took place in the third quarter of 2017. Now moving to the balance sheet.

We ended the fourth quarter of fiscal 2017 with $5.4 million in cash and cash equivalents, and $49.9 million of borrowings under our debt agreements. The small decrease in borrowings versus the prior year is due to $12 million of payments to the term loan facility, offset by net higher borrowings under the revolving credit facility.

At the end of the fourth quarter of fiscal 2017, we had $38.6 million of availability under our revolving credit facility. Net inventory at the end of the fourth quarter of fiscal 2017 was $48.9 million, compared to $38.5 million at the end of the fourth quarter of fiscal 2016.

The increase in net inventory was primarily due to the growth of off price shipments to a more appropriate level, and lower than normal inventories in fiscal 2016. Capital expenditures for the quarter totaled $400,000. And as of the end of the quarter, we operated 55 stores in the US, including 41 full price stores and 14 outlet stores.

Now looking ahead to the full year of fiscal 2018. As Brendan mentioned in his remarks, we expect sales growth and improvement in our adjusted operating results.

While we expect wholesale sales to decline in each quarter of fiscal 2018 as a result of the wholesale portion of our transformation initiative, this will be offset by the expected increase in direct to consumer sales, with the exception of the first quarter.

Additionally, our new limit wholesale distribution model, should allow for improved full price selling and flow of inventory, resulting in lower customer allowances and give-backs, and better profitability overall.

In conclusion, we are pleased with the continued progress that we are making, and are well positioned heading into fiscal 2018 as we enhance our product assortments, capitalize on opportunities within our wholesale and retail segments, and continue to manage costs.

This concludes my comments regarding our fourth quarter financial performance and outlook for 2018. We will now take questions.

Operator?.

We thank you for your participation today and look forward to updating you on our Q1 earnings call in June. Thank you very much. .

This concludes today's conference call. You may now disconnect..