The pressure on Vince Holding Corp. keeps growing – from a second-quarter loss to a liquidity pinch.
In reporting results for the three months ended Aug. 1, the contemporary brand revealed it had amended a “tax receivable agreement” with an affiliate of Sun Capital to postpone a payment in order to preserve its rapidly dwindling revolving credit facility. The payment has now been postponed until Sept. 15, 2016.
“With this change to the TRA, we believe that we will have sufficient liquidity for the next 12 months,” said David Stefko, Vince’s interim chief financial officer and treasurer, on a conference call to Wall Street analysts.
The crunch results from Vince’s forecast of continued weakness in its core wholesale category. As a result, the company lowered guidance for fiscal-year 2015. The company now expects net sales of between $285 million and $295 million, with adjusted diluted earnings per share at between 31 cents and 37 cents, excluding any adjustments for the write-downs and management transition costs.
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Back in June, when the company reported first-quarter results, it had forecasted net sales for the year at between $340 million and $350 million, on diluted EPS of between 85 cents and 90 cents.
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Wall Street reacted viciously to the forecast and call. Vince released its results after the markets closed and, while its shares closed up 5.5 percent, they plummeted 30 percent in post-market trading to $6.49.
Stefko told analysts that the company had $27.9 million of availability remaining under its revolving credit facility. The liquidity pinch comes because Vince had expected to make a payment to an affiliate of Sun Capital per the TRA of $22.8 million, plus accrued interest in the third quarter. Due to the lower-than-expected cash from operations as a result of its weaker-than-projected performance and the level of projected availability under Vince’s revolving credit facility, the company renegotiated the payment to delay it until Sept. 15, 2016.
All this was revealed at the same time that Vince named Mark Brody interim chief executive officer as it seeks a successor to Jill Granoff, who exited in July.
Brody had been cfo and treasurer since June.
Brody and Stefko are both part of the senior team at Sun Capital Partners, specializing in operations. Sun Capital acquired Kellwood in 2008, and Vince was then a part of Kellwood’s umbrella of brands. Granoff continued through the transition period until Sept. 1. According to the company, Vince’s board has hired executive search firms to fill the ceo and cfo positions. Lisa Klinger, former cfo, resigned in June. Both Granoff and Klinger were part of the management team that took Vince public in November 2013.
Marc J. Leder, chairman of Vince and co-ceo of Sun Capital, said, “While this search is ongoing, I continue to be laser-focused on enhancing the brand for the long term, and am working closely with Mark, David and the entire Vince team to improve our performance in the wholesale channel, and continued inventory management.”
For the three months ended Aug. 1, the net loss was $5 million, or 14 cents a diluted share, against net income of $10.5 million, or 27 cents, a year ago. Excluding adjustments such as inventory write-down and management transition costs, net income for the quarter was $5.2 million or 14 cents a diluted share. Net sales fell 10.4 percent to $80 million from $89.3 million. By segment, wholesale sales fell 21.6 percent to $58.3 million, while the direct-to-consumer segment rose 44.7 percent to $21.7 million. Comparable-store sales rose 13.4 percent, which includes e-commerce sales.
Wall Street was expecting on average adjusted EPS of 23 cents on revenues of $86.3 million, and Vince missed on both counts.
During the call, Brody and Stefko spoke about exiting the kids’ business and broadening the entry-level product. In reviewing the latter, the company is likely to adjust its good-better-best strategy, noting that perhaps the product got too aspirational, with too much better and best product and not enough good, executives said on the call.
Brody said, “Since I took on an interim executive management role at Vince in June, I’ve spent considerable time working with the teams to gain a deeper understanding of their issues and strategies. Based on this work, I continue to believe that the overall strategy is the right one for the company, specifically enhancing our women’s assortment; further developing our men’s business; selectively opening new retail stores; leveraging e-commerce to drive awareness and sales, and broadening our international reach.
“However, to achieve these strategic goals, we need to focus more than ever on improving the product and our operational performance as well as take corrective actions to protect and enhance the strength of the Vince brand,” he said.
He said the company saw “further weakness” in its wholesale business during the quarter due to lower-than-expected sell-throughs and customer reorders, which in turn increased the company’s inventory position and resulted in inventory write-downs. He noted also that its off-price customers reported “high levels of inventory,” and with the company’s efforts to reduce sales to the channel, it elected to dispose of a “vast majority of prior-year product” that had been allocated to the off-price channel. The two actions resulted in a $14.4 million write-down for excess inventory and aged product.
Brody added that the company is exploring ways to shorten its product development cycle and improve efficiencies in the supply chain.