Conference Transcript - VNCE 2025-10-09

Michael, Analyst — Noble

Good afternoon, everyone. I am pleased to introduce the management of Vince Holdings. The stock symbol is VNCE. Vince is covered by Noble with an outperformed rating and a $4.50 price target. The stock has been on a tear of late as the company has demonstrated its strategy of improving cash flow and profitability. I think there's more to come. I encourage you to take a look at our research report on the company on channelcheck.com. With us today are Brendan Hoffman, the CEO, UG Akamora, CFO, and Akiki Akuma, the Chief Administrative Officer. This will be a fireside chat, and I will kick the discussion off asking questions to provide some context to the company and to dive into its business strategy. And hopefully, I will address most of your investor questions. But if you have questions, please feel free to type those in a box at the bottom of your screen, and I will get to as many of those as I possibly can. And with that, let's get started. So let's just talk a little bit about the fashion industry itself and about your competitive position in that fashion industry and maybe give it a little context about where you fit into that industry.

Brendan Hoffman, CEO

Yeah, sure. Well, thanks for having us, Michael. And, yeah, the fashion industry is ever-changing. Vince has been around for 25 years now. You know, we think we're the preeminent player in the contemporary luxury apparel market. Vince is really known for its kind of quiet luxury. We deal a lot in kind of upscale essentials, you know, cashmere sweaters, silk blouses, leather jackets, denim. And mostly, well, I shouldn't say mostly, but a big part of our consumer base is a luxury customer who shops brands like Thoreau and Cuccinelli and Laura Piana and sees Vince as a value. Our competitive group is brands like Rag & Bone, Theory, Veronica Beard, and we are dual gender brands. And so while we are bigger businesses in women's, we're a full men's line as well. And so very pleased with where we sit and our ability to kind of navigate up and down depending on the way the world is going.

Michael, Analyst — Noble

I alluded to this in my opening comments. You've embarked on a strategy to improve the fundamentals through reduced discounting and increased operational efficiencies. And, you know, with the backdrop of increased tariffs in the latest quarter, the benefits of this strategy was really evident. You had a remarkable improvement in cash flow in the latest quarter, beating my expectations. I was wondering if you can just describe where the company is on its journey to improve the fundamentals at the company and maybe just describe what inning are we in, if I could use just a baseball metaphor.

Brendan Hoffman, CEO

Well, baseball metaphor is a little raw right now, considering the Yankees' performance last night, but we'll take it for what it is. You know, I'm in a unique position where I was the CEO here from 2015 to 2020, left for a few years and came back at the beginning of this year. And so I'm able to see it through the lens of the company I left, which was on the upswing into COVID, to the company I rejoined six or seven months ago. And both the evolution of the brand, Vince, and the evolution of the team, which is largely the same team that I left five years ago. I say I'm both insulted they're still here and now quite gratified because they're five years more mature, more seasoned. And the way where they were taking the business in 2024 through their transformation program, which you can talk a little bit more about, had us set up for a terrific 2025. We were very bullish coming into the year, starting to make some investments, particularly around marketing and store renovations that had been held off for the last few years. And then we got hit with tariffs and, you know, in early April when that happened, especially initially with tariffs in China being 158 percent, that was an embargo and really forced us to kind of paralyzed us and most of the industry for a couple of months. But if anything, it showed me just how right I was in coming back as I just saw the quick action of the team to all aspects of the organization to figure out how we manage tariffs, preparing for the worst, which, you know, in at the beginning was we can no longer do business in China because it's basically an embargo. And so during those few months, the team, you know, boots on the ground, very quickly diversified our sourcing base. You know, at the time, we thought maybe China was going to be completely shut down and look to other parts of Asia. I mean, where we stand now, obviously, with the moving tariffs is China is still obviously viable, given the way tariffs have been situated. but we can't have any one country be too much of our sourcing base so we are much more diversified as we end 2025 and we were entering 2025 which I think provides us a lot more flexibility in terms of your your your question on the innings I would say you know as we were entering 2025 given all the great work in 2024 maybe we were in the second or third inning you know we were still very early on, but with lots of opportunity in front of us. Tariffs forced us to kind of pause, you know, to use your baseball analogy, there was a bit of a rain delay. And so, you know, we focused on shoring up what we need to shore up for tariffs and really over the last two months have been able to get back, you know, playing ball again and thinking about not only opportunities to continue to drive efficiencies by taking out costs in improving our markup, but looking for other growth avenues and revenue streams, which was, you know, what attracted me to come back to Vince seven or eight months ago. So I'd still say we're in early innings, but really optimistic about what the final score will be. Well, yeah, your team did an amazing job.

Michael, Analyst — Noble

Part of the efforts to drive efficiency was through the transformation program. So, you know, what changes or what areas were in focus with respect to product cost and changes in optimizing logistics?

Brendan Hoffman, CEO

Yeah, I'm going to let Yuji take that since he was really the driving force behind that.

Yuji Okumura, CFO

Yeah. So, you know, last year we embarked on a transformation journey where, you know, we set ourselves a goal of saving $10 million over the course of the year. And we're very happy that we achieved that as part of that, you know, certainly lowering our product cost and the COGS focus was certainly one of the initiatives that was in play, reducing our direct costs as well as both indirect costs as well from looking at air and boat shipping methods. And then that's the cost reduction sort of component. And there's also, you know, looking at our promotionality, how much discount we were offering, what was our promotional calendar look like? And re-strategizing that was part of the 24 efforts. And we also had, you know, a decent amount of SG&A and cost savings initiatives that was baked into the 24 program.

Michael, Analyst — Noble

Gotcha. And Brendan, I'd like to go back to, you know, you're talking a little bit about the tariffs and the trade policy. And obviously trade policy shifts have kind of created some ripples across the spectrum of sourcing and manufacturing. Can you outline the risk that you see from specific countries? You mentioned that you had shift away a little bit from China and whether whether it be from sourcing or manufacturing and what what are you doing to mitigate those risks

Brendan Hoffman, CEO

now? Yeah. So, you know, we went through a bit of this during the first Trump administration, you know, when when he first implemented tariffs and I was at Vince and I went down to Washington to testify about the impact it would have because China for brands like ours are just so unique in their ability to bring this product to market, not just because of the cost advantages, but just because of the technical skills they have. So when tariffs hit this time and then being so severe, I think the difference was they were so extreme that when our team went to China and Asia to meet with our partners, unlike six, seven years ago, where there was still pushback on resourcing out of China, this time everybody realized we had no choice at 158 percent tariffs. And so fortunately, our partners in China stood up sister factories in other parts of Asia, and not only stood up those factories, but staffed them with some of their expertise. And so very quickly, that gave us comfort that equality, which is not something we can ever compromise on, wouldn't be at risk. And so now it's a little bit like whack-a-mole with the tariffs changing so much but you know again as i mentioned i think the the the sound strategy is just not to be overly penetrated in any one country so where we were going to be north of 60 china in 2025 will end about 25 in china and then balanced not just throughout uh asia but uh south america and other parts of europe as we we look for uh new places to to source products. So I think that's a much healthier place for us to be. The tariffs, even though we're not 158%, are still meaningful, obviously. And so, you know, the burden has been really shared between the factories working shorter, us working a little bit shorter, at least in 2025, and then strategically passing on some price changes to the consumer. And, you know, I think we benefit from being in the contemporary luxury space where we have some room, if done smartly, to raise some prices to protect margins. And as I mentioned on our earnings call a few months ago, last month, when the department stores came to market and saw the price changes, we were really pleased that while nobody likes to see them, they still felt we held our value proposition compared to our peer brands as they were raising prices too. And those price changes are just starting to hit the market, you know, in the back half of the year. And so far, you know, pleased with the response. So, you know, there's still some risk as you know, we get closer to holiday in terms of how those price changes will fully be embraced. On the other hand, it's an opportunity because, you know, we have to sell less units. And if we're able to maintain our unit sales, you know there's there's upside more upside in terms of the overall revenue so it's it's certainly not something we we're looking forward to having to deal with but feel really comfortable and confident and proud of the way we've handled it over the last five or six months and and setting us back up for

Michael, Analyst — Noble

future success certainly we're putting out some fires and at the same time delivering on some really strong results i was just wondering in terms of now that we have more clarity on these tariffs you mentioned in your last earnings call you'll be beginning to invest back into your business and i was just wondering if you can maybe add some color on your plans for

Brendan Hoffman, CEO

the second half yeah well i mean fingers crossed we have clarity on the tariffs who knows if they go up or down although we'd be very happy if they went back down but but yeah we did say that on q2 because on the earnings call because you know again we felt like we had put a mitigation plan in place that allows us to be much more nimble regardless of of where the tariffs uh uh end up and as i as i said earlier we had entered the year with um the ability to invest back in the business and a lot of that's around marketing um you know given the um uh challenges over the last few years we really haven't been able to uh invest in top of funnel marketing you know really brand awareness marketing and we had started to do that at the beginning of the year and then paused that during tariffs but i think our um part of our success in q2 in our retail stores which we alluded to on our earnings call was because we had done some of that top of funnel marketing and that usually has a bit of a lag effect so as we entered into q3 feeling a little more confident you know we have cautiously added back in some of that top of funnel marketing uh which you know should pay off as we get closer to the holiday season so for example if you're in la and go down sunrise boulevard you'll see a couple huge vince uh billboards and uh we're we're excited to be able to bring that to life and and hopeful we can expand on that and then also making some uh investments in technology specifically around dropship capabilities for us so the reason that's and and so what that means is we don't have to own the inventory uh we can just uh have it be sent from the manufacturer and directly the consumer and where that most specifically uh comes into play for us or through our licensees which are expanding under our partnership of authentic brand group so as we as as they have licensed out things like handbags and men's tailored clothing uh we we can showcase those on our website but don't have to take the risk of inventory because of the dropship technology that uh actually goes live next week well um i'm a fan of fashion not

Michael, Analyst — Noble

that i'm always fashionable but um i know for you uh the second half is historically important um you know the season is coming up um and i was just wondering if you can maybe just talk a little bit about um the plans for the holiday season and any new products styles colors and things that we

Brendan Hoffman, CEO

should expect from vince this season yeah well as you said i mean like for us and all retailers this is where we make make our money is the back half of the year and uh uh being here in new york where it's 60 degrees out is the much better place to be than on monday when it's 82 degrees out because we're trying to sell uh sweaters and and leather coats and um the weather certainly helps but you know i think in the back half of the year in terms of product you know it's just an evolution of what we've been doing you know some new novelty on some of the stuff we're known for like boiled cashmere our silks and our knits that have different finishing details than they had in the past I would say that's the biggest evolution I've seen in the product having been gone for five years I mean I think one of the great strengths Vince has and one of the things that attracted me back as I mentioned was the continuity of the team and nowhere is that more important than in our design and production bringing the product to market. We're a product first company, obviously, and that team has been together now for seven years. Having lived through and we've had to make changes there, you end up in a year and a half limbo as new product is brought to market and kind of keep your fingers crossed that you're going to hit the mark. We don't have that concern because of the continuity of the team. And the danger could be that the product gets stale, but I think it's doing just the opposite here with Vince is they've taken what we do well and just added some touches to it that just make it seem, look more sophisticated and give the consumer another reason to buy. So as we enter into the back half of the year, you know, optimistic, cautiously, as I always say, that both in our wholesale accounts with the majors like Nordstrom's and Bloomingdale's, as well as our stores and e-commerce, that the customer is going to continue to react favorably.

Michael, Analyst — Noble

Well, Brendan, I was kind of hoping that you were going to tell me what color of Vince sweater I was supposed to wear to my cocktail party, you know, my Christmas cocktail party.

Brendan Hoffman, CEO

So, you know, it's like you can never go wrong with black, but, you know, we also have some more pop colors that are a little risky for me. So I usually stay in the darker neutrals.

Michael, Analyst — Noble

All right. So more importantly, you know, I was just wondering if you can just talk a little bit about um your customers and you know obviously we've begun we've been going through this turbulent economic environment i was just wondering how are your customers reacting to the current economic

Brendan Hoffman, CEO

environment yeah so uh if you're talking about uh the trade you know our department store customers specifically um you know i i again i'll use the word cautiously optimistic and and uh i probably use that word for 33 in the 35 years i've been in this industry so it's nothing new it's just different reasons for that caution caution or optimism but um uh i will say specifically to vince all the major department stores are very bullish on the brand uh so you know we're very pleased with our order book uh very pleased with the way it's it's it's selling at the register uh men's is a growing category for us you know we're we're very proud of being a dual gender brand and you know we've grown to all doors in both uh bloomingdale's and nordstrom's and not just uh being in all doors but the way we're presented in these doors it's it's again from five years ago noticeably different the way that uh they've expanded uh our uh presentation to where the consumer really feels like they're shopping vince as opposed to maybe just some key items and so uh and then you know the industry has been shaken up a bit by sax global and the and the merger between uh neiman's and and sax but um you know we feel positive about the opportunity there as well uh you know i have a long history with richard baker having run lord and taylor and we have a great close relationship with the sax and neiman's team and also we're all part of the same authentic luxury group carve out of abg so i feel like there's opportunity there and are optimistic that they've shored up a lot of their capital needs and that as we look into 2026, that's going to be a growth opportunity for us as well.

Michael, Analyst — Noble

I want to take a little bit of a break here and just remind investors that feel free to go ahead and ask questions and type those in the chat box if you have questions. If not, I'm going to go ahead and continue to ask mine. um i brendan i was wondering if you can just talk a little bit about your um plans for future growth you know we you know i know that you uh talked a little bit about your previous calls about opening and domestic stores and international expansion and maybe maybe even talk a little

Brendan Hoffman, CEO

bit about um acquisitions yeah so i think i think the the thing that's really exciting from my standpoint us advances we have a couple paths now we can go down we're five years ago six years ago we were only talking about vince now we think we we have great opportunity in vince and and uh as we expand uh some of the categories we're known for uh as abg comes in and license out some additional categories as i mentioned earlier which uh we get uh 25 of the of the royalty stream but but also the opportunity to showcase that product in our direct-to-consumer vehicles, as I mentioned, as well as just expanding the brand recognition through these other categories. We just opened up two stores domestically in the last six weeks, one in Nashville and one in Sacramento. I think as we look at our domestic store base, that probably won't change materially over the next few years. We have close to 50 full-price stores and about 14 outlet stores, and we'll continue to look to open up some stores, but there'll probably also be stores as they come up for renewal. If we can't get better lease terms, we might look to close or rationalize. So I would say that that's not going to be a big change. But internationally, I think there could be some room there to open up some stores. We just opened up our second store in London earlier this year, and it's doing great. And so I think it's giving us renewed confidence to look at other gateway cities throughout Europe and maybe Asia and see if we could open up stores that not only pencil out from an economic standpoint, but provide us more brand recognition. I mean, we've always had an international business. We have a showroom in Paris, but as I benchmark us against our peer group, we have some more opportunity there. So I think there's lots to be excited about for the Vince brand, but then I think equally as exciting, and one of the things that drew me here was using our platform for other business opportunities. I don't necessarily want to say acquisitions because we're not really in the market for acquisitions, but what we are in the market for in conversations pre-tariffs and now is how we can use our platform, whether it be our design, production, sourcing, store base, back of house, for brands that we could be a licensee of. So, you know, natural places with Authentic Brands Group, our partner there, and whether it's brands that they currently have that need some capabilities or brands that are out there in the market looking for, we're kind of their luxury partner when it comes to apparel, and we have a great relationship there. So I think that's another revenue stream that hopefully we'll be able to add some clarity to as we put tariffs behind us and can focus on some more growth opportunities.

Michael, Analyst — Noble

I was going to put a little bug in your ear. I was kind of hoping that we were going to get a Vince Outlet in Orlando. You know, we do get a lot of international visitors here, so can kind of build that brand. So just put the little bug in your ear.

Brendan Hoffman, CEO

Well, no, no, we had a Vince Orlando store when I was here the last time. And we just got priced out of the market because it just got so expensive due to all the traffic. traffic, but I'll be down there in a few months and we're going to kind of tour the outlet markets because it's a great, as you know, it's a great outlet market. So that's not impossible, but that would happen sometime in the future. All right. Let's do lunch when you come in.

Michael, Analyst — Noble

Just kind of continue on. Let's talk a little bit about the balance sheet. I don't really think that the company gets enough credit on how well you've strengthened the balance sheet over the past few years. And maybe if you can just spend a little bit of time kind of reminding some investors that might be new to the story where you've come from and how the balance sheet is in a much better spot than it has been in the past and maybe some of the actions that you've taken and how you're

Yuji Okumura, CFO

feeling about the balance sheet today. Go ahead, Eugene. Yeah. So, you know, just over probably two and a half years ago we were probably carrying approximately like 120 million or over 120 million in long-term debt balance and those were like two term loan debts and we we always had our revolver so um through through various um transaction whether it was the abg transaction or some of the change in control event and through through our efforts we were able to add our latest earnings, our long-term debt balance is now at 31 million or so. So, you know, we were able to reduce our debt by a significant margin. And then when you look at the, you know, the makeup of that 30 somewhat million, really, you know, 7 million or so is really a term loan. And the rest is all related to Revolver that obviously goes up and down depending on our business needs. And, And, you know, when you look at our cash balance, you know, it's not a high cash balance, but that's somewhat deliberate in nature where whenever we do have some excess cash, we do pay down our revolver debt so that we don't incur our interest. So, you know, we have, you know, decent availability in that respect in terms of, and we're very happy with where we are in, you know, our balance sheet structure. And we believe we made progress in that regard over the past two years. Terrific.

Michael, Analyst — Noble

And it looks like investors are pleased with the questions I'm asking. So I'm going to squeeze one more in here. And let's just talk a little bit about capital allocations, kind of following on your comments on the balance sheet. What are your thoughts in terms of returning capital to shareholders in terms of stock buybacks or dividends and things like that?

Yuji Okumura, CFO

Go ahead, Eiji. yeah i mean you know depending uh depending on you know our growth strategy and how we want to raise capital you know we will certainly look into some of those stuff um obviously we are you know currently um it really dry depending on our needs and in in terms of um you know funding and our growth in our internal bins business for now, we are able to manage that through our own available liquidity and our capital structure. So, you know, we're not too focused on a change related to that. And from shareholders, from like dividends and perspective, we don't have any potential plans in the immediate future.

Michael, Analyst — Noble

Okay. I have a couple of questions that have come in here. A couple of questions here is asking, do you have any warrants left?

Yuji Okumura, CFO

No, we don't have any warrants.

Michael, Analyst — Noble

And then the other question is, how much debt do you have left?

Yuji Okumura, CFO

Like I said, we have $31 million in our long-term debt, and $7 million is with our previous majority shareholders on capital uh we have a pick interest debt with them um but outside of that it's

Michael, Analyst — Noble

all um our asset-based lending revolver debt actually well we're coming up against our a lot of time here well and okay they said thanks um we're coming up against our a lot of time here but uh in closing i i really want to thank uh the management of uh vince today and taking the time to present to us but also i i wanted to thank them because uh obviously the stock has performed well and at the same time i wanted to remind investors that i believe that there's still a lot large pathway for growth here and don't be shy about buying the stock even though the stock has gone up in my view i think that there's still a lot of upside with this story and i would uh encourage you to take a look at our research reports on channelcheck.com and with that thank you for uh participating in our conference and uh thank you for listening to the vince story Thank you, guys.

Yuji Okumura, CFO

Thank you.