Vince Holding Corp. (NYSE:VNCE) Q1 2019 Earnings Conference Call June 13, 2019 4:30 PM ET
Amy Levy - Vice President, Investor Relations
Brendan Hoffman - Chief Executive Officer
Dave Stefko - Chief Financial Officer
- Amy Levy - 投资者关系副总裁
- Brendan Hoffman - 首席执行官
- Dave Stefko - 首席财务官
Dana Telsey - Telsey Advisory Group
- 达纳特尔西 - 特尔西咨询集团
Good afternoon. My name is Julian and I will be your conference operator today. At this time, I would like to welcome everyone to the Vince Q1 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. Amy Levy, VP of Investor Relations, you may begin your conference.
下午好。 我叫Julian，今天我将成为您的会议运营商。 在这个时候，我想欢迎大家参加Vince Q1 2019年度收益电话会议。 所有线路都已静音以防止任何背景噪音。 发言者发言后，将会有一个问答环节。 [操作说明]
谢谢。 投资者关系副总裁Amy Levy可以开始你的会议。
Thank you. Good afternoon everyone. Welcome to Vince Holding Corp.'s first quarter fiscal 2019 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 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. 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.
谢谢。 大家下午好。 欢迎来到Vince Holding Corp.的2019财年第一季度财报电话会议。 今天召开电话会议的是首席执行官Brendan Hoffman; 和首席财务官Dave Stefko。
Thank you, Amy. Good afternoon everyone and thank you for joining us today. Overall, sales in the first quarter came in largely as expected. While we did see topline pressure in direct-to-consumer business, performance has improved in the second quarter-to-date.
Overall, stores that we've opened near department stores we exited continued to perform better than the company average. In the wholesale channel, sales were below last year as a result of timing of shipments, but came in better than expected.
Our product continues to perform at the register despite the overall challenges within the department store space and we believe we are gaining further market share with our women's collections. Importantly, our consistent performance has enabled us to gain both premium placement and expanded space in the selling floor.
Looking at the first quarter, net sales grew 1%, gross margin expanded 450 basis points to 51.3%. Our operating loss was essentially flat to last year excluding the $1.4 million in strategic consulting fees.
Looking at our direct-to-consumer segment, revenue increased 6.7% attributable to the four new store openings since the end of the first quarter last year as well as growth in our e-commerce channel which includes our Vince UNFOLD business.
While the overall comp performance was below our expectations, we are encouraged with the recent performance reflecting higher full-price sell-through of our spring/summer collection as we saw warmer weather. We also continue to benefit from targeted marketing efforts across mobile, e-commerce, and social channels focused on customers who had shopped us at exited partner stores.
Turning to the wholesale channel, revenue was down 4% related to the shift in timing of shipments as we said last quarter. As stated earlier, our brand is performing well at both Neiman Marcus and Nordstrom as well as across our specialty retail and third-party e-commerce partners globally.
While we believe we are continuing to gain market share, the department store channel and broader retail environment has been challenged which could potentially impact our reorder business as our wholesale partners tighten inventory levels.
We will remain focused on delivering collections that capture our California roots honoring the casual luxury and relaxed spirit of Vince brand which we believe will position us to gain further market share in the wholesale channel.
Looking ahead, we will continue to advance on our strategic initiatives which include driving growth to our direct-to-consumer business, building our international presence, testing new product categories, and refining our marketing efforts to drive traffic in our stores and conversion on our website.
Looking at our direct-to-consumer business, we will continue to strategically expand our retail presence as well as grow our e-commerce channel. We have done a lot of work to enhance our stores and website to optimally capture the essence of the brand and create an exceptional shopping experience.
As we mentioned last quarter in April, we opened a new full-line location at the premier Aventura Mall in Miami. We are on track to open our Santana Row store in San Jose, California in mid-July and our 609 Fifth Avenue store this fall. This is a premium location in the heart of Midtown Manhattan where we expect to benefit from high foot traffic.
In addition, we are opening an outlet store in the National Harbor Center in Washington D.C. at the end of this month. This is consistent with our strategy to seek opportunistic shorter term leases. We expect to announce one additional full-price store opening before year's end.
The expansion of our Prince Street store in NoHo is also on track to be completed this summer and will enable us to optimally showcase our full assortment. Our U.S. retail expansion plan was launched 12 months ago and we've been very pleased with the sales and profitability performance of these stores. We have already extended two of our short-term leases and are in the process of negotiating extensions and others that are delivering expected cash-on-cash returns.
We plan to open our first European store in the South Kensington area of London where other luxury brands have been building a presence. We expect timing to be late August or early September. This will provide an opportunity for customers to experience the easy luxury of Vince brand firsthand and contribute to build brand awareness in this region.
In terms of our e-commerce site, we continue to experience high demand evidenced by double-digit growth in order shipments. We will continue to leverage those channel as an online flagship store, driving sales across all channels and reinforcing the brand. This will continue to take on more significance in light of the DTC first strategy. We are implementing site changes focused on conversion opportunities based on learnings from our data analytics.
In terms of products, we continue to focus on buy now, wear now product supplemented with higher AUR items in fall to drive AOV. We are also beginning to utilize customer segmentation and tailor interaction with our customers based on past behavior.
In terms of new product categories, we are pleased with the performance of our relaunched handbag collection particularly with the strong response to our small leather good categories. We will continue to explore expanding our assortment as well as introducing other brand-appropriate categories both in-house and through licensing agreements.
Turning to our marketing initiatives. We are shifting our focus from traditional seasonal campaigns to create a robust and diverse pool of content that is uniquely suited for our site, e-mail, digital and social marketing as well as telling a story that is compelling for PR and media.
We've focused on growing our network of influencers partnering to create authentic content at the micro, mid and macro level. We've also benefited from positive celebrity and influencer organically generated content.
We have also expanded our influencer outreach to markets outside the U.S. with a focus in Paris and London. We have identified key moments in product categories such as the launch of our summer beach capsule, a new handbag collection to create excitement and engagement while always keeping the brand visible and top of mind.
We recently launched Vince stories, our editorial blog, which will serve as a gathering place for conversations, inspirations, collections and event announcements where the reader can immerse themselves in the Vince brand.
We continue to invest in proven media partners including Goop and Do Re, expanding on creative impactful custom content experiential moments such as exclusive events. We are also testing new partners including GQ in support of the men's business.
As we continue to grow our e-mail distribution list and increase segmentation, we will provide more meaningful and relevant messaging to the various segments such as testing promotions on select groups.
We've started the process of building out our CRM, CEM capabilities and are currently defining the future customer journey. We will focus on acquisition and retention goals towards becoming a customer focused direct-to-consumer omni-channel organization. This will tie into our efforts to build behaviorally triggered e-mail communication.
We are focused on driving brand awareness with some of the higher level initiatives as mentioned social media, advertising, brand partnerships, non-branded search to draw new customers to the Vince brand while deepening the engagement with our existing customers by leading with customer centricity to create a more positive, engaging experience that creates loyal repeat customers.
Vince UNFOLD, the subscription model we launched in mid-November is building momentum. We continue to see new customers sign up to receive unlimited access to a broad selection of our women's apparel. We believe this model aligns with customer shopping patterns and our retention rates provide further confidence that this creates another growth opportunity for our brand as well as access to new customers.
We are extremely excited to share that Microsoft will be doing a test featuring Vince UNFOLD in select windows this summer along with other innovative brands. We will continue to monitor this channel and evaluate additional opportunities.
As it relates to our strategic consultant, we have recently completed the first phase of our evaluation and look forward to sharing more details as we develop our longer term strategy. As part of this plan, we may explore potential acquisitions that we believe are complementary to the Vince brand where we can diversify our portfolio and gain strategic and operational synergies.
As we continue to monitor for updates on pending tariffs related to List 4, we are exploring mitigation efforts for both List 3 and 4.
Near-term efforts include, accelerating shipments, negotiating pricing with our vendors and strategically raising prices. At the same time, we are looking at longer-term strategies including sourcing opportunities. That said, we believe that the superior craftsmanship in luxury products in China will be challenging to duplicate elsewhere and we would not sacrifice quality for price. We will update you on these initiatives as we progress.
In conclusion, we see multiple growth strategies for the Vince brand as we continue to grow our retail presence, gain traction in the wholesale channel and expand brand awareness globally. We look forward to building on this momentum to drive long-term sustainable growth for our shareholders.
Now, I'll turn it over to Dave Stefko.
Thank you, Brendan. To reiterate, our first quarter results were largely as expected. First quarter net sales increased 1.1% to $55.1 million compared to $54.5 million in the same prior year period. Also, wholesale channel sales were down 4% to $27.4 million, primarily due to the shift in the timing of seasonal wholesale shipments.
Our direct-to-consumer segment sales increased 6.7% to $27.8 million in the first quarter, while comparable sales including e-commerce increased 1.1%, mainly due to an increase in average dollar sale. Note, we are lapping a benefit to e-commerce sales in the first quarter of 2018 related to a favorable adjustment to expected product returns, which negatively impacted the DTC comp growth rate for the first quarter of 2019.
Gross profit in the first quarter was $28.3 million or 51.3% of net sales. This compares to $25.5 million or 46.8% of net sales in the first quarter last year. The 450 basis point increase in gross margin rate was due to the non-recurrence of an unfavorable adjustment to inventory reserves in the prior year, stronger full-price selling and lower product cost.
Selling, general and administrative expenses in the quarter were $34 million or 61.7% of net sales as compared to $29.9 million or 54.8% of net sales for the first quarter of last year. The increase in SG&A dollars was primarily the result of strategic consulting cost of $1.4 million related to Phase 1, higher compensation and benefits and investments in marketing and new stores.
Operating loss was $5.7 million or 10.4% of net sales. Excluding the aforementioned strategic consulting cost of $1.4 million, operating loss was $4.3 million as compared to an operating loss of $4.4 million for the fourth quarter of fiscal 2018. Net loss for the first quarter including the strategic consulting cost was $7 million or $0.60 per share compared to a net loss of $5.6 million or $0.49 per share in the first quarter of last year.
Moving to the balance sheet. We ended the first quarter with $45.6 million of borrowings under our debt agreements. We decreased overall borrowings under our debt agreements by $5 million since the same period last year. This was primarily the result of $4.2 million in net repayments to the term loan facilities. Effective February 3, 2019, the company adopted the new Lease Accounting Standards Codification Topic 842 using the modified retrospective approach. The adoption of this standard resulted in a recording of operating lease assets of $80.4 million and lease liabilities of $95.4 million as of May 4, 2019.
In accordance with this adoption, we recognized a cumulative effect adjustment in retained earnings of $589,000 at the beginning of the period of adoption. The application of this new accounting standard has a negligible impact on our results of operation and cash flows as compared to the previous accounting method.
Capital expenditures for the quarter totaled $0.5 million primarily attributable to new stores. At the end of the quarter, we operated 59 stores in the U.S. reflecting a net increase of two full-price stores over the prior year period.
Turning to our outlook for fiscal 2019, our guidance reflects only the current Section 301 tariffs in place on goods imported from China. We have not incorporated any future potential increases in tariffs on additional goods that are included on List four imported from China into the U.S..
As Brendan stated in his remarks, we are closely monitoring the situation and actively looking at mitigation initiatives. Our second quarter is off to a solid start as weather improves and we are beginning to see the benefit of accelerated shipments.
While we do not provide quarterly guidance, we would share that we expect year-over-year sales growth in the second quarter to be significantly above that of the first quarter for the reasons I just mentioned and also anticipate improved operating performance.
For fiscal 2019, we continue to expect net sales to be in the range of $290 million to $300 million reflecting mid single digit sales growth at the midpoint of our range. Operating income is still expected to be between $7 million and $9 million reflecting a nearly 40% growth from adjusted operating income last year at the midpoint of the range.
We expect operating margin to be driven by gross margin expansion partially offset by SG&A deleverage in part due to strategic consulting fees that we recorded in the first quarter as well as continued investments in the business. Interest expense for the year is expected to be approximately $4 million. We continue to expect capital expenditures of between $4 million to $4.5 million.
We remain very pleased with our continued progress across our strategic initiatives and stay committed to returning shareholder value. This concludes my comments regarding our first quarter financial performance. We will now take your questions. Operator?
[Operator Instructions] Your first question comes from Dana Telsey from Telsey Advisory Group. Your line is open.
[操作员说明]您的第一个问题来自Telsey Advisory Group的Dana Telsey。 你的线是开放的。
Good afternoon everyone. Congratulations on the progress you made. It was a very choppy first quarter and certainly on that top line side and the gross margin you came through very nicely. Brendan as you think about the categories that worked for you and what you saw both from your own stores and what you saw from wholesale, what was the difference in terms of what you saw? How promotional was it and what resonated? Thank you.
大家下午好。 祝贺你取得的进步。 这是一个非常不稳定的第一季度，当然在顶线方面和你通过非常好的毛利率。 Brendan在考虑适合您的类别以及您从自己的商店看到的内容以及从批发中看到的内容时，您所看到的内容有何不同？ 它是如何促销的，是什么引起了共鸣？ 谢谢。
Yes. Thanks Dana. Well, what's working for us now both in our own stores and wholesale is regular price. As we've changed our cadence to be really buy now wear now, the product that hits the stores is perfect for that selling season.
So for example, if you go into our stores now, as we said, business is off to a good start this quarter, you see what we call pre-fall, but look very summer, with yellow and lilac. And it's doing great, because it's matching the weather.
Where we actually had some trouble in the first quarter and something we're figuring out how to manage through is, when that product gets marked down three months later, it's not as seasonably relevant as it was in years past. So, I'd say, that was what we saw in both channels, was regular price doing really well; and then sales, we're struggling with. So we're going to think through how to take advantage of that. And you also saw it in the margin and the margin results that we mentioned.
是。 谢谢达娜。 嗯，现在我们在自己的商店和批发商店工作的是正常价格。 由于我们现在已经改变了我们的节奏，现在正在购买，所以在商店销售的产品非常适合销售季节。
我们在第一季度确实遇到了一些麻烦，我们正在弄清楚如何管理，当三个月后该产品被标记下来时，它并不像过去几年那样及时。 所以，我会说，这就是我们在两个渠道看到的，正常价格做得很好; 然后销售，我们正在努力。 所以我们将考虑如何利用它。 你还看到了我们提到的保证金和保证金结果。
And on the strategic consulting learnings, any initial learnings of what you're learning from that so far?
Yes. I think, it helped to validate and crystallize the opportunity we have with the Vince brand and all the different levers we need to pull in order to maximize our top and bottom line, but doing it in a way that feels appropriate for the brand and is sustainable, that's repeatable.
And so, we think a lot of good has come out of that. And as Dave mentioned, we're in the process now of developing what that's going to look like moving forward, while we obviously deal with some of these other macro pressures with the tariffs that have taken up a lot of time from me and management over the last month or so.
是。 我认为，它有助于验证和明确我们与Vince品牌的合作机会以及我们需要提供的所有不同杠杆，以最大限度地提高我们的顶线和底线，但是以适合品牌的方式进行，并且 可持续的，这是可重复的。
因此，我们认为已经有很多好处。 正如戴夫所说，我们现在正在开发那些看起来像是向前发展的过程，而我们显然正在处理其中一些其他宏观压力的关税，这些关税已经占用了我和管理层的大量时间。 上个月左右。
Got it. And then just lastly, on the wholesale business with Nordstrom and Neiman and we've seen some of their results. Certainly it sounds like, your brands resonating with both of them and not feeling the impact that they had felt in terms of overall apparel sales being sluggish.
得到它了。 最后，与Nordstrom和Neiman的批发业务，我们已经看到他们的一些结果。 当然，听起来，你的品牌与他们两个产生共鸣，并没有感受到他们在整体服装销售低迷方面所感受到的影响。
Right. No. I mean we're clearly -- we believe, we're clearly taking market share, based on our results and seeing their results. And when they come into market, them telling us how well we're doing. We feel more bullish going into the back half of the year that some of the chasing of receipts will open up on us.
As Nordstrom mentioned, they've corrected some things. And actually, we're really excited about anniversary sale with them that we're shipping in some more products as we speak. So while we didn't get the full benefit in Q1 of the results we had with our department store partners, we think there's more upside in the back half of the year.
对。 不，我的意思是我们很清楚 - 我们相信，根据我们的结果并看到他们的结果，我们显然占据了市场份额。 当他们进入市场时，他们会告诉我们我们的表现如何。 在今年下半年，我们感觉更加看好一些收据的追逐将对我们开放。
正如Nordstrom所说，他们纠正了一些事情。 实际上，我们对与他们一起出售周年纪念日感到非常兴奋，因为我们说的是我们正在运送更多产品。 因此，虽然我们在第一季度没有得到我们与百货商店合作伙伴的结果的全部好处，但我们认为今年下半年有更多的好处。
We have no further questions. I turn the call back over to Mr. Brendan Hoffman for closing remarks.
我们没有其他问题。 我将电话转回Brendan Hoffman先生的闭幕词。
Well, thank you everyone for joining us today. We look forward to updating you on our Q2 results in September. Thanks very much.
好的，谢谢大家今天加入我们。 我们期待在9月份更新您的第二季度业绩。 非常感谢。
This concludes today's conference call. You may now disconnect.
今天的电话会议结束了。 您现在可以断开连接。如果您对美股 或者 港股也感兴趣, 或者想要了解如何开户, 可以加我wechat: xiaobei006006, 同时也可以拉您进美股交流群哦。