Vince (VNCE) Q1 2025 Earnings Call Transcript

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DATE

Tuesday, June 17, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Brendan L. Hoffman
• Chief Financial Officer — Yuji Okumura

TAKEAWAYS

• Net Sales -- $57.9 million, down 2.1% compared to $59.2 million.
• Wholesale Segment Sales -- Flat versus prior year, indicating stability in the channel.
• Direct-to-Consumer (DTC) Segment Sales -- Declined 4.4%, primarily due to planned store activity (closures, remodels, relocations) and softer traffic trends.
• Gross Profit -- $29.2 million (50.3% of sales), slightly down from $29.9 million (50.6%).
• Gross Margin Rate Decline -- Driven by ~260 bps higher freight and duty costs, ~120 bps negative channel mix, and ~60 bps higher distribution/handling costs; partially offset by ~330 bps lower product cost/higher pricing and ~80 bps lower promotional activity.
• Selling, General, and Administrative (SG&A) Expenses -- $33.6 million (58% of sales), up from $31.9 million (54%), attributed to higher marketing spend, store relocations/remodels, increased legal, IT, and third-party costs.
• Operating Loss -- $4.4 million, compared to operating income of $5.6 million (last year period included a gain on sale; excluding this, margin declined ~425 basis points).
• Net Interest Expense -- Decreased to $0.8 million from $1.7 million, due to lower debt levels.
• Long-Term Debt -- $34.7 million, reduced from $50.1 million in the prior-year period.
• Income Tax Provision -- $0, compared to a $0.9 million tax benefit in the prior year, due to judgment that tax benefit for the loss will likely not be realized this year.
• Net Loss / Loss Per Share -- $4.8 million net loss, or $0.37 per share, versus net income of $4.4 million, or $0.35 per share.
• Adjusted EBITDA -- Negative $3 million, compared to negative $1.5 million.
• Inventory -- $62.3 million, up from $56.7 million, driven by decreased inventory reserves and incremental costs from freight and increased duty.
• Q2 2025 Sales and Profit Guidance -- Net sales expected flat to down 3%; operating income margin guided to negative 1% to positive 1%; adjusted EBITDA margin 1%-4%, versus 3.7% last year; forecast includes ~170 bps incremental tariff costs.
• Tariff Exposure -- Dramatic reduction in China sourcing for fall product; expected China exposure to cost of goods by spring 2026 is ~25%.
• Store Network Developments -- Opened new Marylebone (London) location; Nashville and Sacramento (U.S.) openings on track for later in year; Greenwich, Stanford, and Mercer stores remodeled with anticipated future benefits.
• Freight Strategy -- CFO Okumura said, "we did air more products...[in Q1]" to manage Chinese New Year timing and tariff shifts; still expect higher freight and tariff costs in Q2.
• Pricing Adjustments -- CEO Hoffman said, "We did a little bit in the front half of the year...I don't think it will be hugely noticeable by the consumer. I think we're smart about it." Department store feedback to pricing and assortment changes described as a "nonevent."
• Spring Product Sell-Through -- Delay in pre-fall shipments due to port holds extended the full-price spring selling season and maintained demand despite delayed receipts.

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RISKS

• Gross margin decreased due to approximately 260 basis points in higher freight and duty costs, with CFO Okumura confirming, "we do still continue to see -- expected to see higher freight and tariff costs from those impacts" in Q2.
• SG&A ratio increased to 58% (up from 54%) as management cited higher expenses across marketing, store transformation, legal, IT, and third-party activities, pressuring profitability.
• No income tax benefit recognized for the quarter, with CFO Okumura stating, "the company is anticipating annual ordinary income for the fiscal year and has determined that it is likely than not that the tax benefit of the year-to-date loss will not be realized in the current year."
• Ongoing macroeconomic uncertainty and the evolving tariff landscape led management to suspend full-year guidance, with CEO Hoffman noting, "it is prudent to maintain our perspective to not provide full year guidance at this time."

SUMMARY

Management described immediate action to reduce China sourcing exposure and minimize tariff impact, reporting substantial progress beginning with fall shipments. The company emphasized product margin improvement (excluding distribution/freight) through higher pricing and decreased promotional activity. Store expansion included the opening of a Marylebone (London) location, with more locations and ongoing remodel investments in key U.S. markets planned. Direct-to-consumer sales trends improved sequentially within the quarter, particularly in e-commerce, and product categories like knits and bottoms delivered "solid growth" as consumers responded to expanded assortment and color introductions. Guidance for the next quarter anticipates flattish sales and an operating income margin ranging from negative 1% to positive 1%, reflecting continued uncertainty around tariffs and consumer sentiment.

• CFO Okumura said, "by spring 2026, our exposure to China will be approximately 25% of our cost of goods," underscoring the company's sourcing transition timeline.
• CEO Hoffman detailed that "linen, for sure, you hit on that, especially as the weather got warm here in the East. We saw a pickup in linen," linking consumer demand shifts to weather-driven factors in spring product categories.
• Marketing spend and third-party costs drove SG&A increases, with expectations that benefits from store remodels will materialize in future periods.
• Net interest expense fell meaningfully due to reduced term loan debt.

INDUSTRY GLOSSARY

• DTC (Direct-to-Consumer): Sales channel where products are sold directly to end customers through company-managed stores and e-commerce, bypassing third-party retailers.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding certain non-recurring or non-cash charges, used to assess underlying operating performance.
• Basis Points (bps): A unit of measure equal to 1/100th of 1%, commonly used to describe percentage changes in interest rates, margins, or ratios.

Full Conference Call Transcript

Brendan L. Hoffman: Thank you, Akiko, and thank you, everyone, for joining us today. Given it has not been that long since we last spoke, my remarks today will be relatively brief. Before I review highlights from the first quarter, I want to spend a moment to discuss where we are with respect to our mitigation efforts related to the evolving tariff policies. I cannot overstate how proud I am of our organization and how quickly our team sprung into action over the past few weeks, negotiating with vendors, working closely with supportive partners and exploring diversification and other opportunities within the supply chain to mitigate impact.

In short order, we have already significantly reduced our exposure to China, beginning with our fall product, leveraged opportunities to mitigate near-term costs and made selective strategic adjustments to our pricing architecture. While we are pleased to see some reprieve in the tariff policy for the moment, given the fluidity of the situation, we are maintaining a disciplined approach to all plans going forward, and believe it is prudent to maintain our perspective to not provide full year guidance at this time. Now let me discuss a few highlights from the quarter. We have continued to see relative outperformance in our Wholesale segment compared to our direct-to-consumer.

However, we were pleased to see the sequential improvement in trend within our direct business in the quarter. This was largely driven by our e-commerce channel. But our stores, excluding the impact from closures and remodels, also delivered a nice performance on a like-for-like basis despite contending with headwinds associated with weather and the evolving macroeconomic backdrop that impacted consumer sentiment. In addition to the top line performance, we delivered improved product margins, excluding freight and other distribution costs, a testament to the ongoing success we are seeing in managing a healthier-margin business as we continue to balance our promotional activity as well as extend our full-price seasonal offering. Across both men's and women's, sweaters continue to perform well.

We also saw a nice reception to our more traditional spring product like [indiscernible] tees for women and linen for men towards the end of the quarter, in line with warmer weather. In our knits business, we introduced new color pallets, which drove solid growth in the category. And our bottoms business also performed nicely with both men's and women's. Our men's business delivered another quarter of strong growth and continues to serve as a key driver as we extend our reach for this offering. As we look ahead, we are also excited for our expanded international presence with the recent opening of our Marylebone location.

We have always believed in London as a key city for us as it attracts both local residents and international travelers from around the globe. We are thrilled to have a location in Marylebone, which is a vibrant location in Central London, and will complement our Draycott, Chelsea, South Kensington store nicely, welcoming both new and existing customers to Vince. In the U.S., we are on track to open our Nashville and Sacramento stores later this year and are continuing to assess plans going forward.

We believe in the importance of our store channel and have continued to invest in refreshing and remodeling our stores to ensure we are creating the customer experience that aligns with the look and feel of the Vince brand. We recently remodeled our Greenwich, Stanford and Mercer stores and are thrilled with the refreshed look each have now. While too early to speak to any lift associated with these remodels, we believe introducing a new flow to the store, leveraging our mobile POS and opening additional capacity will benefit these locations and provide a nice return to the investments we have made thus far.

In closing, our first quarter reflects the dynamic environment in which we are operating as well as the underlying strength of our operations and Vince's brand positioning in the marketplace. As we look to the second quarter, while the tariff situation has delayed pre-fall product shipments, we have been able to extend the full-price selling season for spring, creating a nice support to current trends in the business. This perhaps is a lesson that we can take away from the current situation. As we have talked in the past on how best to align our floor sets to the buy now, wear now behavior customers have shifted to over the last few years.

We will be thinking through this in our plans going forward. But for the immediate term, our focus is ensuring we are well positioned as we move into the heart of our selling season later this year. We feel very good with the trends we are seeing to date as reflected in the sequential improvement our outlook implies, but we remain cautious given the level of uncertainty there continues to be with respect to the macroeconomic environment. As discussed on our last call, while we believe in the great opportunities ahead for Vince Holding Corp. and I look forward to sharing more with you on thoughts regarding strategic growth initiatives, our priority at the moment remains navigating today's environment.

Once there is more certainty with respect to tariffs, we look forward to updating you on our longer-term plans and growth opportunities that we see propel Vince Holding Corp. into its next chapter. I'll now turn it over to Yuji to discuss our financial results and outlook in more detail.

Yuji Okumura: Thank you, Brendan, and good morning, everyone. Our first quarter performance reflected the trends and drivers we previously discussed on our prior earnings call with our top line reflecting stability in our wholesale business, while our direct-to-consumer segment was more inconsistent as we navigated challenging weather in the beginning of the period and increased macroeconomic uncertainties and declines in our consumer sentiment. With that said, as Brendan reviewed, we are very proud of how our teams have continued to stay flexible and deliver on objectives, including delivering customers the quality and experience they expect from Vince.

Now with respect to our first quarter performance, the total company net sales for the first quarter decreased 2.1% to $57.9 million compared to $59.2 million in the first quarter of fiscal 2024. With respect to channel performance, our wholesale segment was relatively flat compared to the prior year, while our direct-to-consumer segment declined 4.4%, primarily due to planned store activity, including closures, remodels and relocations along with softer trends in traffic. Gross profit in the fourth quarter was $29.2 million or 50.3% of net sales. This compares to $29.9 million or 50.6% of net sales in the first quarter of last year.

The decrease in gross margin rate was primarily driven by approximately 260 basis points related to higher freight and duty costs and approximately 120 basis points related to wholesale channel mix and approximately 60 basis points due to higher distribution and handling cost. These factors were partially offset by approximately 330 basis points related to lower product costs and higher pricing and approximately 80 basis points related to lower promotional activity. Selling, general and administrative expenses in the quarter were $33.6 million or 58% of net sales as compared to $31.9 million or 54% of net sales for the first quarter of last year.

The increase in SG&A dollars compared to the prior year was relatively in line to our expectations given the increased marketing spend earlier in the quarter and other expenses related to timing of store relocations and remodels. In addition, we incurred higher legal, information technology and third-party costs during the period compared to the prior year. Operating loss for the first quarter was $4.4 million compared to an operating income of $5.6 million in the same period last year. Excluding the gain on sale recorded in the prior-year period, operating margin declined approximately 425 basis points compared to last year. Net interest expense for the quarter decreased to $0.8 million compared to $1.7 million in the prior year.

The decrease was primarily due to lower levels of debt under our term loan credit facility. At the end of the first quarter of fiscal 2025, our long-term debt balance was $34.7 million, a reduction of $15.4 million compared to $50.1 million in the prior year period. The provision for income tax this quarter was 0 as the company is anticipating annual ordinary income for the fiscal year and has determined that it is likely than not that the tax benefit of the year-to-date loss will not be realized in the current year. 0 tax for the first quarter of fiscal 2025 compares to an income tax benefit of $0.9 million in the same period last year.

Net loss for the first quarter was $4.8 million or loss per share of $0.37, compared to net income of $4.4 million or income per share of $0.35 in the first quarter of last year. Adjusted EBITDA was negative $3 million for the first quarter compared to negative $1.5 million in the prior year. Moving to the balance sheet. Net inventory was $62.3 million at the end of the first quarter as compared to $56.7 million at the end of first quarter last year. The year-over-year increase was driven by a decrease in inventory reserves as well as incremental costs primarily related to freight and increased duty. Moving now to our thoughts on the balance of the year.

While we are not providing full year guidance, given the ongoing volatility and uncertainty in the macroeconomic backdrop and current tariff policies. Our teams remain committed to disciplined expense management and operating with excellence. With respect to our expectations for the second quarter, as Brendan reviewed, we are pleased with the momentum we have continued to see in the business. For the second quarter, we expect net sales to be approximately flat to down 3% compared to the prior-year period, operating income as a percentage of net sales to be approximately negative 1% to positive 1%. And for adjusted EBITDA as a percentage of net sales to be approximately 1% to 4%, compared to 3.7% in the prior-year period.

This guidance assumes approximately 170 basis points in incremental tariff costs for the period. We are very proud of how quickly our organization has jumped into action to mitigate the impact of the increased tariffs are expected to have on our business. We have already dramatically reduced our exposure to China beginning with our fall product and believe by spring 2026, our exposure to China will be approximately 25% of our cost of goods. As we continue to diversify our sourcing base outside of China, the focus on product quality and integrity remains our top priority.

Our strategy is to partner with several of the factories with whom we have long and successful history, that have established factories outside of China. We can leverage the skill set of the team who is proficient at maintaining the quality standards for which Vince is known. This concludes our remarks. And I'll now turn it over to the operator to open the call for questions.

Operator: [Operator Instructions] And our first question comes from Michael Kupinski from NOBLE.

Michael A. Kupinski: First of all, congratulations on -- you beat my expectations, and it looks like your second quarter are exceeding my expectations as well. So congratulations on all the efforts that you have going on there. A couple of questions. You mentioned freight cost as a contributing factor weighing on margins. Can you talk a little bit about trends in freight cost? And has the company shifted distribution from ocean shipping to air in light of U.S. trade policy issues? I was just wondering if you could kind of give us a framework of how those costs are looking.

Yuji Okumura: Yes, sure. I can take that. In Q1, as we discussed, we did air more products and that -- we saw the impact of that as we navigated around the timing of Chinese New Year. For -- in terms of Q2, there has been a lot of news about increase in -- starting to see increases in freight costs, which we do expect to see. And we are navigating sort of the -- we are navigating sort of the air and boat vessel methods, depending on the timing. And we -- for the Q2, it was -- we predominantly shifted that depending on how we try to navigate around the tariff announcement.

So for the Q2, we do still continue to see -- expected to see higher freight and tariff costs from those impacts. But we did -- we were able to avoid the highest of the tariffs for the most part.

Michael A. Kupinski: Got you. And I guess if you were looking at the third and fourth quarters, would you see the impact of the trade policy issues being more felt in those quarters given that you have a little bit of runway, I guess, in terms of mitigating those costs. But can you kind of give us just thoughts just in general, I know that you're not giving guidance, but just thoughts in general, in terms of the cost trends and how the third and fourth quarters might be affected.

Brendan L. Hoffman: Yes. Well, I think in the back half of the year, as you suggest, we've had -- gives us an opportunity to mitigate some of the -- what we assume to be the tariffs with some of the discounts we've gotten from our suppliers who have been great, some of the rebalancing of the sourcing countries. And we always do some strategic pricing increases.

Really pleased that we just came off our pre-spring market, which is essentially holiday, which would be the first time we showed kind of a product with what we think tariffs will look like and some of the country rebalancing and some of the pricing changes, and the reception was terrific, both in terms of the product, but also keeping the quality in terms of the value that they expect to come from Vince.

Michael A. Kupinski: Got you. And you had mentioned that you had plans or have plans to raise prices. And I was just wondering if you have a general idea of what those price increases are looking like?

Brendan L. Hoffman: It's really -- it's something we always do. We did a little bit in the front half of the year, as I think we had mentioned. And so we just -- again, given the new pricing structure, item by item and where we thought there was some room and maintaining the value. So I don't think it will be hugely noticeable by the consumer. I think we're smart about it. And again, the first litmus test was the buyers from the department stores coming in and gauging their reaction, which was really a nonevent.

Michael A. Kupinski: And it seems like -- just last question, it seems like the underlying trends, as you mentioned, from a consumer standpoint is looking very good. I was just wondering if the -- those trends are a factor of some of the current fashion trends. I noticed that you introduced a line of linens and so forth that seem to get a lot of floor space in some of the stores that I've looked at. And I was just wondering if you could just talk a little bit about what is driving the consumer at this point because the underlying trends look really positive.

Brendan L. Hoffman: Yes. So linen, for sure, you hit on that, especially as the weather got warm here in the East. We saw a pickup in linen. What was interesting about May, which we were pleased with was that was with the delay in the pre-fall receipts because of the holding stuff at port last month. So pre-fall actually just gets set up today, which is about 3 weeks later than we typically would do it, yet despite that business hung in there. And I think we were able to stretch out our traditional spring assortment a little bit longer.

And I think it just spoke to the strength of the collection around color and some of the novelty and some of the different silhouettes. So excited now that we can fully launch pre-fall, as I said today, we launched it last week as a test in our Grove store and saw great results over the weekend. So I think we did a really nice job balancing around fact that we knew these shipments were going to be late while we saw where tariffs landed.

Operator: We have no further questions at this time. So I'll hand the call back to Brendan.

Brendan L. Hoffman: Okay. Well, we appreciate you joining us for today's call, and we look forward to updating you on Q2 in September. Thanks very much.

Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

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