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Edited Transcript of VNCE earnings conference call or presentation 28-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Vince Holding Corp Earnings Call

New York May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Vince Holding Corp earnings conference call or presentation Friday, April 28, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brendan L. Hoffman

Vince Holding Corp. - CEO and Director

* David Stefko

Vince Holding Corp. - CFO and EVP

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Conference Call Participants

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* Andrew D. North

Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst

* Jeffrey Wallin Van Sinderen

B. Riley & Co., LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vince Holding Corp. Q4 2016 Earnings Results Conference Call. (Operator Instructions) Thank you.

[Amy Levy], Vice President of Investor Relations, you may begin your conference.

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Unidentified Company Representative, [2]

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Thank you, and good morning, everyone. Welcome to Vince Holding's Fourth Quarter and Annual Fiscal 2016 Earnings Conference Call. Hosting the call today is 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.

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 presents 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 the valuation allowance reported against the company's deferred tax assets. Certain components included in the calculation of such impact are non-GAAP measures.

Discussions 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.

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [3]

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Thank you, [Amy], and thank you, everyone, for joining us today. As we look back at 2016, our organization has undergone a number of changes that were necessary to create a solid infrastructure and to reestablish Vince as a luxury fashion brand. We engaged our founders as consultants to help us recaptured our brand esthetic. We rebalanced the assortment to bring more fashion into the mix, and reset our basic replenishment business. And we once again began to work with number of our former factories and fabric mills to enhance the quality of our pieces. We also continuously gathered feedback from our wholesale partners, our store associates and our customers, much of which our design team has incorporated into our upcoming collections.

Finally, we migrated to a new IT infrastructure and new warehouse, as we separated from Kellwood Systems. Unfortunately, the complex systems transition was met with a number of challenges, including integration and processes issues, leading to a reduction in visibility in our financial reporting systems and causing a delay in our 10-K filing.

This also led to material weaknesses in our internal controls, which Dave will discuss in more detail. While we completed the implementation of these systems which ran across several functions of our business, the integration and process issues also caused delayed shipments, particularly, in the off-price channel and some order cancellations as well as returns, primarily, for pre-Spring product.

In addition, performance of our pre-Spring collections fell short of our expectations as we did not have enough buy -- enough of the buy now wear it now product, that she was looking for. These factors, in addition to the malaise in the apparel industry, continue to weigh in our business. Lastly, we significantly reduced promotional activity during the year. Our business had become far too reliant on up and down promotions, both in our own DTC business and our wholesale partners, and was not sustainable.

While this impacted both our top and bottom line in 2016, it is now behind us, as evidenced by our first quarter DTC trend. This cleanup was a necessary decision for the brand. We also realized that in the current environment, we need to be relatively competitive to our peers. Going forward, we will further refine our strategy to ensure that we balance our promotions and messaging with protecting brand integrity.

Our spring collection, which largely ships in the first quarter, has been more in line with expectations. Notably, we have some new pant silhouettes that are garnering strong positive response, in addition to the success that we're having in lux lounge items.

During the first quarter we've also seen a vast improvement in our e-commerce business with double-digit growth as well as in our retail store performance. The store is currently tracking at the high -- down in the high single range, far less than they did in the fourth quarter.

Turning now to some of the areas that we will be focusing on in 2017.

First we will continue to enhance our product offering as we work to add more fashion and femininity into the line. I think our biggest opportunity is embracing the instant gratification the customers are looking to get from their purchases by incorporating more buy now wear now pieces into our assortment. We added back a pre-Fall delivery in May, which we believe will benefit the second quarter. This delivery will feature lots of lighter-weight fabrics in transitional colors and we believe will mark the start of a more relevant wear now collection from Vince.

Overall, our assortments in 2017 will select fabrications and color palettes that are wearable in the current season, a better balanced category offering as we intensify classifications such as outerwear in bottoms, and a more appropriate mix of fashion versus core basics. These enhancements to our assortment will help our customers round out their wardrobe with great seasonal pieces and high-quality core pieces that complement our fashion offering.

We want to ensure that our floorers always have the appropriate balance of fashion product, complemented by core items and emotional pieces that are being bought in advance in the season.

As we add back some core replenishment items into the assortment beginning with men's, we believe that we can fill in some of these holes that we had -- previously had in our everyday offering. Secondly -- second, we will focus on growing our direct-to-consumer business. In particular, we believe that we are poised to capitalize in our e-commerce channel. As I said earlier, we are seeing a significant uptick in this business this quarter.

We believe that this is attributable to how we are showcasing our product and the favorable customer reaction to our merchandise offering as well as the recent investments that we have made to improve our e-commerce site. We are also being more thoughtful on how we interact with our customers online, enhancing the way that we message our online sales and becoming more visible in our digital media and other online marketing efforts.

Turning to our store portfolio, we are focused on methodically adding new stores, expanding select existing stores and better utilizing space across the store base. We plan to open a store in Honolulu, Hawaii in May, and we continue to have conversations about new store opportunities, potentially for later in the year or in 2018.

As part of this, we are adding men's to our flagship Madison Avenue store and have some additional store expansions that we are in the process of negotiating. As we discussed in our last call, we recently launched The Collective, which includes third-party products such as jewelry, art, bags, sunglasses, and a selection of home decor items in our Grove location in Los Angeles and our Madison Avenue store in New York as well as online.

We're very pleased with the favorable response thus far as it clearly is extending customer engagement. We will be rolling out The Collective assortment to additional stores over the next few months.

In our wholesale channel, we are taking steps to ensure that the Vince brand is optimally presented to the customer. We are analyzing this business to determine if there is an opportunity to better rationalize our points of distribution. We will have more detail on this initiative as we complete our evaluation.

We will also reassess our off-price business. As you know, this channel has been a bright spot in retail and therefore, we want to leverage the opportunity to optimize this business. In the second half of 2016, we've drastically reduced shipments to off-price retailers. We believe there is too much sale inventory built up in this channel and we wanted to allow this product to sell-through so that we can better control the quality of the product as well as supply and demand.

Going forward, we will look to rebuild this business in a more strategic way as we continue to focus on better managing the content and flow of inventory to this channel as well as the mix between excess and made for outlet product. We believe that this is more strategic approach to off-price will ultimately enable us to capture higher AUR as well as higher margins in this business.

Our last area of focus is our marketing efforts. Last year, we made the strategic decision to take a step back in terms of marketing as we work to enhance the product, reduce the amount of promotions our brand was associated with and transition the business.

Now the product better reflects the Vince brand, we feel there is an opportunity to be more competitive in how we're messaging and marketing the brand to consumers. Our efforts will be focused around digital marketing, including our social media networks, targeted e-mails and of course, our own website. Hopefully, you've already had a chance to see this in action with our recent Instagram takeover where we worked with 8 style influencers to design their own Vince look, featuring this season's illuminated color palette.

As we focused on speaking more directly to our consumers over the last 2 quarters, we are pleased to have seen accelerating engagement in our social media channels. We'll also focus on some more traditional marketing efforts such as smaller billboards and targeted magazine placements. In addition, we are working on a store level to host more intimate events for our top customers and their friends, that we believe will help to drive additional interest among our loyal customers and bring in new ones.

We are also working to gather data to better understand how our target customer prefers to interact with Vince to ensure that our efforts are focused on a most productive and efficient channels for our brand. Importantly, we'll continue to be very thoughtful about the level and frequency of promotional activity in which our brand is involved.

Finally, we are analyzing our cost structure to identify efficiencies that will enable us to better align our resources with the areas of growth in our business, which we will outline in more detail on our next call.

In conclusion, while the company was required to assess its ability to continue as a going concern in line with the new accounting standard, which Dave will discuss further, we continue to believe in the Vince brand. As we look ahead, we will continue to work on enhancing our product assortment, fine-tuning our promotional strategy and marketing programs, and completing work on our infrastructure.

We also plan to optimize our whole -- wholesale business and place greater emphasis on our direct-to-consumer segment where we have begun to see improved trends in both our online business and retail stores.

Overall, we remain encouraged about the long-term potential for the brand as Vince remains #1 or 2 brand with our wholesale partners, despite the challenges in our business. And we continue to get good anecdotal feedback from our partners about customers' affection for the brand.

With that, I'll turn it to Dave to review our financial results. Dave?

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David Stefko, Vince Holding Corp. - CFO and EVP [4]

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Thank you, Brendan. Before I begin the overview of our financial results, I would like to take a moment to address our 10-K filing extension and the material weaknesses noted in the filing.

First, we'll file our 10-K later today within the allowable period. During the transition from legacy Kellwood systems, we experienced some issues related to integrating our new ERP system with our internal business processes and third-party systems. Ultimately, we believe these systems will serve to increase our operational efficiency.

However, this systems transition and implementation resulted in delays in compiling financial reports and other data in addition to material weaknesses in our internal controls. As a result of the material weakness identified, we performed additional analysis, substantive testing and other post-closing procedures to help ensure that our consolidated financial statements were prepared in accordance with U.S. GAAP, and we believe they present fairly, in all material respects, the financial results of the company.

We have made progress in our remediation plan to address these material weaknesses relating to both IT general controls and governance of IT projects. We have been remediating our control weaknesses over the last 2 months and have implemented a number of controls to address these weaknesses.

However, we will need to test the effectiveness of these fixes and make adjustments as necessary. There are still additional controls to be implemented and tested, which we are diligently working on. Until our systems and material weaknesses are fully remediated, which we expect to be completed by the end of fiscal 2017, we'll continue to conduct additional diligence around our quarterly closing procedures to ensure the accuracy of our financial results.

Now turning to our financial performance. As Brendan mentioned, our fourth quarter top line sales results did not meet our expectations, primarily due to the challenges we encountered as a result of our complex systems conversion as well as lower-than-expected performance of our pre-Spring collection and the general difficulties in the apparel industry.

While sales in both of our business segments were challenged, our wholesale business was significantly below our plan due to these factors, while the retail segment came in just slightly below our expectations.

Fourth quarter net sales decreased 21.9% to 662 -- to $63.9 million compared to $81.8 million in the prior-year period. Our wholesale channel sales were down 28.4% to $34.4 million. Our direct-to-consumer segment sales decreased 12.6% to $29.4 million in the fourth quarter and comparable sales, including e-commerce, declined 20.5%.

Gross profit in the fourth quarter was $29.2 million or 45.7% of net sales. This compares to $41 million or 50.1% net sales in the fourth quarter of last year, which included a $2.2 million benefit from a recovery on the $14.4 million inventory write-down that was taken in the second quarter of last year.

Selling, general and administrative expenses in the quarter were $39.1 million or 61.1% of net sales, including a $2.1 million noncash asset impairment charge related to certain retail stores.

SG&A was $36.2 million or 44.2% of sales in the fourth quarter of last year, which included a $323,000 payroll adjustment to management transition cost taken in the second quarter. Operating loss was $62.9 million, which includes a $55.1 million in noncash long-lived asset impairment charges, of which $53.1 million was related to goodwill associated with our direct-to-consumer business and the trade name intangible asset and $2.1 million was related to the aforementioned noncash charge with retail stores. Operating income for the fourth quarter of fiscal 2015 was $4.8 million and included the aforementioned benefits from the recovery on the inventory write-down and favorable adjustments to management transition cost totaling $2.5 million.

Provision for income taxes for the fourth quarter fiscal year 2016 was $98.2 million. During the quarter, we incurred $121.8 million charge reflecting the recording of an income tax valuation allowance against our deferred tax assets.

As you'll recall, our tax rate earlier in the year was higher than normal due to certain nondeductible expenses. As a result of an internal business event that occurred in the fourth quarter, we now expect these expenses to be deductible for income tax purposes, which resulted in an adjustment to our tax rate in the fourth quarter of this year, bringing our full year adjusted tax rate to 40.8%, which excludes the impact of the tax valuation allowance. Due to the combination of this significant valuation allowance and net operating loss carryforwards, we expect any tax expense or benefit for the company in fiscal 2017 will be near zero.

Net loss was $162.1 million or $3.28 per share including an estimated impact of $3.13 per share related to the aforementioned noncash long-lived asset impairment charges as well as the valuation allowance against the company's deferred tax assets. This compares to net income of $1.8 million or $0.05 per diluted share for the fourth quarter of fiscal 2015, which included a $0.04 per diluted share benefit from the recovery on the inventory write-down and favorable adjustment to management transition cost. We did not record any noncash long-lived asset impairment charges in the fourth quarter of fiscal 2015.

Now moving on to the balance sheet. Inventory at the end of the quarter was $38.5 million compared to $36.6 million at the end of last year's fourth quarter. This year-over-year increase was due to lower inventory reserves as we had less excess and aged inventory requiring lower reserves as compared to last year.

We ended the fourth quarter with $21 million of cash. We had $50.2 million of borrowings under our debt agreements and availability in excess of $27 million remaining under our revolving credit facility at the end of the fourth quarter.

During the month of April, we made specified equity contributions totaling $6.2 million to meet our net total leverage covenant requirements as of the end of the 2016 fiscal year. In accordance with new accounting guidelines that became effective for fiscal year ended January 20, 2017, we concluded that there is substantial doubt about our ability to continue as a growing concern, especially relating to our ability to comply with the consolidated net total leverage ratio under our term loan facility in future periods.

Our future projections consider the uncertainty of trends in the retail environment in which we operate and anticipate that we'll make an additional specified equity contribution for the first fiscal quarter of 2017. Although we expect to continue to use the remaining $15.2 million of cash retained at Vince Holding Corp. to make additional contributions, there are limits on the number of contributions that can be made in any fourth fiscal quarter period and there is a limit on the amount of cash that has been retained with the purpose of making specified equity contributions.

On April 14, we announced that we entered into a side letter with Bank of America which amends and restates the initial side letter dated March 6, 2017. The side letter provides the company with the ability through July 21st, 2017, to borrow against a portion of the $15.2 million of cash currently held at Vince Holding Corp. In addition to the equity contributions and amended side letter, we're looking at other strategies to increase our liquidity including cost rationalization initiatives. We have also had discussions with lenders and with our majority shareholder on additional financing options and actions to improve the capital structure of the company.

Note that while we believe each of these actions is reasonably possible and could alleviate the substantial doubt, most of these actions have not been executed at this time and therefore, cannot be considered under the existing accounting guidelines.

Capital expenditures for the quarter totaled $1.6 million, primarily attributable to IT migration cost. As of today, the company operates 54 stores in the U.S., including 40 full-price stores and 14 outlet stores.

Now looking ahead to fiscal 2017. We have made the prudent decision to suspend our sales and EPS guidance as we work to make our new systems more efficient and complete our business transition.

Normally we do want to provide you with some considerations to keep in mind as you think about our first quarter performance. First, in terms of product timing, as we previously discussed, a portion of our spring deliveries, originally planned for January, were shipped in the first quarter of fiscal 2017. However, due to our systems issues, a portion of these shipments missed shipping windows and were ultimately canceled. In addition, we eliminated our April summer delivery this year. Finally, as you may recall, excess inventory shipped in the off-price channel in the first quarter of last year drove higher wholesale sales.

We did not have the same level of off-price shipments in this year's first quarter, given the reduced levels of excess inventory. Therefore, year-over-year shipments in the first quarter were lower this year than last.

With the absence of excess inventory shipments, we expect wholesale gross margin rate to improve for the first quarter. On the expense side, we expect to incur additional systems related cost in the first half of fiscal 2017 as we work to correct the issues we have previously discussed. As you think about the rest of the year, in last year's second quarter we eliminated one of our pre-fall shipments. We will be adding back that pre-fall collection in the second quarter of this year.

For the fourth quarter of 2017, we do not anticipate shipping delays similar to those experienced in the fourth quarter of 2016. We expect CapEx to be approximately $5 million for the year. We anticipate opening 1 new retail store in fiscal 2017, and to make investments in existing stores as well as continued investments in our systems.

First quarter is our trough and cash receipts due to end of year allowances to customers which were higher than last year. At the end of Q1, we anticipate an increase in our borrowings, which is also impacted by the timing of working capital needs. Also remember, we improved our liquidity with the side letter with BofA. We expect no borrowings under that facility.

This concludes my comments regarding our fourth quarter financial performance and outlook for 2017. We will now take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Drew North of Robert W. Baird.

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Andrew D. North, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [2]

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You mentioned rebuilding your off-price business in a strategic way. What do you see as an optimal mix of full-price versus off-price business for the brand over time?

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [3]

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Yes. Well, as we've been discussing for the last year and a half, one of our issues we believed was how much our off-price shipments had risen over the previous few years. When I first got here and walked into a lot of the off-pricers, I mean, there was just a statement that, Vince dwarfed our competition. Dave mentioned, we kind of flushed that out in the first quarter last year, but did so at unfavorable margins for us. So we pulled back and tried to reset the supply and demand. During the course of the year we got -- had conversations with the leaders of the -- our biggest wholesale partners to encourage us to support this channel as it's become so important to them as they continue to open up more and more locations. So as we went through the back half of last year, we really worked hard to try and see how we can take advantage of the opportunity, support our partners, yet do it in a way that was accretive to the brand and to our profitability. Not sure exactly where the number ends up, because some of that has to do with other factors in the business, but I can tell you the 2 things we are most conscientious about is, one, what price are we selling this off at, because that's the biggest thing that tells us, are we flooding the market, which we are committed not to do, and how do we look relative to our peers out there in the stores. And so right now, we're in a very advantageous situation, where there is tremendous demand because of how much we've cut back the supply. I mean, I've gotten countless notes from the different partners saying that their inventories are down over 50% from last year, and really imploring us to ship them product. So as Dave said, a lot of the constraint was due to our systems in the last 3 months, not getting a little bit more product out there. But we feel that we'll be able to get a normalized flow out there that, that best calibrates the business for us and for them.

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Andrew D. North, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [4]

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Regarding your wholesale partners, how has the end of the consulting agreement with the founders impacted these conversations? Are you seeing any change in their willingness to commit to orders over the upcoming seasons? Or I guess, more broadly, what are you hearing from them on order plans given the tough traffic in apparel spending environment?

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [5]

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I'm sorry, can you repeat that? You cut out for a second. I apologize.

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Andrew D. North, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [6]

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Sure. Not a problem. Just regarding your wholesale partners. Has the end of the consulting agreement with the founders impacted those conversations? And what are you hearing more broadly from them on order plans given the tough traffic in apparel spending environment?

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [7]

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Yes, sure. No, I mean, I think, everyone understood Rea and Christopher, the timing of their re-retirement, timing as I call it. I mean, they were incredibly important to me and to the company and to our wholesale partners to help redefine and reset the brand. But as I said, when they left, their work was done, and now we needed to move the business forward in for today's customer, which has changed over the last few years as we continually talk about. And I think our wholesale partners recognize that as well, that they were very pleased that they were here, they reestablished those relationships, they reset the brand. But that -- they understood the timing of them leaving, and we're very comfortable with the team in place here. I think that to the second part of your question, business is rough out there. I mean, we hear that from all angles. And certainly, the department stores are being very cautious in terms of their receipt placements. They want to put more and more of the burden on the brands to hold inventory. And as I mentioned in my remarks, although I heard maybe they -- the line cut out, we are analyzing the wholesale business to determine if there is a better opportunity to rationalize our points of distribution. I mean, we need to be smarter about how we get Vince to the end consumer, and certainly wholesale is a big part of that. But as they change their buying patterns, we have to make sure that we are being smart about the way we distribute the brand.

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Operator [8]

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Your next question comes from the line of Jeff Van Sinderen of B. Riley.

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Jeffrey Wallin Van Sinderen, B. Riley & Co., LLC, Research Division - Senior Analyst [9]

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So given, Christopher and Rea's departure, just wondering if -- and obviously they gave up the -- a fairly short time ago, is the recent improvement in trend in business that you're seeing their business? Or is that due to changes that were made since they left again? I guess, what gives you confidence that you can turn the business around at this point?

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [10]

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I think that it's a combination. It's hard to separate them, I mean, separate it. As I said, there's so much value we got from them coming back and pointing us in the right direction and imprinting kind of the Vince DNA in the organization. I do think there are some things we've done since they left in our own direct-to-consumer business that have helped message the brand a little bit more aggressively. That's spurred some of the improved trends we've seen, both online and in the stores, and better balancing the mix of end of season sale with new product. The way we are remerchandising the store. I think a lot of this was started and taught by Rea and Christopher, but I do think to a certain extent there, their re-retirement has freed up the organization to be a little bit more empowered and make decisions at a local level to drive business. And I think that's helped our Q1 trends. So I think it's building on the foundation that they helped rebuild here, but also recognizing that the consumer's changing and the way she wants to shop and be talked to. And obviously, the product's the same in our stores, as it is in the wholesale channels, more or less. And I just think it speaks to our understanding of our brand, our connection with our customer, the way we present the merchandise, the way we romance the merchandise. That has allowed for far improved performance.

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Jeffrey Wallin Van Sinderen, B. Riley & Co., LLC, Research Division - Senior Analyst [11]

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Okay. And then you also mentioned that you're bringing back a pre-fall shipment. I think you said that had shipped out in the May. Just wondering if that, I guess, what kind of merchandise is in that shipment? Is that summer [weighed] merchandise or how should we think about that merchandise?

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [12]

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Yes. So that was a delivery that had always been important to Vince, but due to the timing 1.5 years ago, when the founders came back, we just could not get that delivery executed. So we had to cut it. So it's a big plus to have that back. It is exactly as you suggest. It's transitional merchandise that is wearable in ways that are wearable for June, July. But in colors that will start to transition to have a longer life as we move on into early fall. And I think this goes back exactly what to we've talked about so much in the last few months with this buy now, wear now, whereas that delivery, 2 years ago, would have been much more heavily geared towards fall, with heavier weights and darker colors. And while there still will be, as I said in my remarks, some emotional pieces that really are meant to be worn in fall, it has a much greater balance of instant gratification. So we're really excited about that collection. The collection has gotten great response from our specialty store accounts. And the reason I call that out is, specialty store accounts, there is no -- there are long-term relationships, but there's not the same agreements that go on with the majors. So they buy it if they like it. And the fact that we've gotten an increased response there, both for pre-fall and fall, as the teams hit the road, is exciting for us to see that the merchandise is really getting on track.

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Jeffrey Wallin Van Sinderen, B. Riley & Co., LLC, Research Division - Senior Analyst [13]

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Okay. Another one if I could just add. As far as the stores go, your own stores, I'm just wondering what needs to happen for you to get back to positive contributions from those stores? In other words, what sort of comp would you need to run? For how long? What sort of gross margin improvement would you need to have? Just trying to get some sort of a gauge on that, and I guess, how far away you might be from getting those back deposit contributions?

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [14]

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Well, I mean, we're not going to lay out quite as specific as you suggest. But again, directionally, really pleased with what we're seeing in Q1. The website has been phenomenal, and the full price of the -- all the stores have shown tremendous improvement in trend from where they were in 2016. I think a big part of this is the great reduction in promotional activity that we did in 2016. I mean, we kept trying to call out how much that hurt our comps in 2016, not anniversarying all those month-long, buy more, save more events that we had previously and the aggressive nature of our friends and family promotions. Now we're up against a much cleaner business that we can build off of, and we're starting to see the benefits of that in Q1. So as I mentioned in my remarks, we are really focused on what we can do to drive more through the direct-to-consumer omni-channel business, because we make a lot more margin based -- if we get past the fixed costs as you're alluding to. So we'll certainly have more on that as the year goes on, but it's definitely a focus of ours and starting to see some real momentum.

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Jeffrey Wallin Van Sinderen, B. Riley & Co., LLC, Research Division - Senior Analyst [15]

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Okay. One final one if I could. Just wondering if there's anything you could say about the potential resolutions the powers that be over there are weighing in terms of how to write the capital structure?

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [16]

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Well, I think, Sun has been and continues to be a great partner for Vince. They have very senior representatives on the board and are fully engaged on a day-to-day basis with management. As Marc Leder was quoted in our press release, they're supportive of the company and its business plans, and look forward to continuing to work with them on solutions and opportunities.

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Operator [17]

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There are no further questions at this time. I will turn the call back over to Brendan Hoffman.

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Brendan L. Hoffman, Vince Holding Corp. - CEO and Director [18]

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Thank you, everyone, for your interest in Vince Holdings. We look forward to updating you on our progress on our next conference call.

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Operator [19]

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