Vince Holding Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 31, 2021; comparisons are to periods ended August 1, 2020. The request metadata says “2020 Q2,” but this filing reports the second quarter of fiscal 2021. Unless stated otherwise, dollar amounts below are USD millions.
Business context and results
Vince Holding operates the Vince, Rebecca Taylor and Parker brands through wholesale, retail, e-commerce and subscription channels. The company had paused new product development for Parker to focus resources on Vince and Rebecca Taylor and preserve liquidity. Nearly all stores had reopened, subject to local conditions. Management said pandemic-related closures and disruptions made comparable sales an unsuitable metric for the periods presented.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $78.673 | $37.022 | $136.206 | $76.040 |
| Gross profit | $35.378 | $13.340 | $60.861 | $29.340 |
| Gross margin | 45.0% | 36.0% | 44.7% | 38.6% |
| Operating income (loss) | $2.635 | $(14.008) | $(4.466) | $(63.426) |
| Net income (loss) | $(0.590) | $(15.062) | $(12.212) | $(63.240) |
| Diluted loss per share | $(0.05) | $(1.28) | $(1.03) | $(5.39) |
Q2 sales rose 112.5% year over year; six-month sales rose 79.1%. Management attributed the recovery largely to increased wholesale orders and direct-to-consumer traffic compared with the prior-year period, when COVID-19 closures disrupted stores and wholesale partners. Gross-margin improvement reflected channel mix, lower promotional activity and more favorable inventory-reserve adjustments. Prior-year six-month results also included $26.874 million of goodwill, intangible-asset and long-lived-asset impairment charges.
Segments and expenses
- Q2 sales: Vince Wholesale $35.170 million; Vince Direct-to-consumer $31.982 million; Rebecca Taylor and Parker $11.521 million. Segment operating income (loss) was $9.441 million, $6.126 million and $(1.571) million, respectively.
- Six-month sales: Vince Wholesale $61.969 million; Vince Direct-to-consumer $55.914 million; Rebecca Taylor and Parker $18.323 million. Segment operating income (loss) was $16.938 million, $5.799 million and $(4.834) million, respectively.
- Q2 SG&A was $32.743 million, up 19.7%; six-month SG&A was $65.327 million, down 0.9%. Higher compensation, marketing and transaction costs were partly offset by rent concessions, lower bad-debt expense and reduced consulting costs.
- Interest expense increased to $1.927 million in Q2 and $3.805 million for six months, mainly reflecting higher rates and debt composition. Six-month tax expense was $3.941 million, including non-cash deferred tax expense and an $0.882 million correction relating to a prior-period state tax calculation.
Cash flow, balance sheet and debt
- Six-month operating cash use was $0.290 million, compared with $21.252 million in the prior-year period. Investing cash use was $1.919 million, primarily capital expenditures; financing cash use was $0.093 million.
- Cash and cash equivalents at July 31, 2021 were $1.524 million, plus $0.042 million of restricted cash. Inventory was $74.336 million, versus $68.226 million at January 30, 2021.
- Debt principal was $87.339 million at July 31, 2021: $24.750 million under the 2018 term loan, $40.584 million under the revolving facility and $22.005 million under the third-lien facility. Revolver availability, net of the borrowing-base loan cap, was $34.400 million; letters of credit were $5.253 million. The company reported covenant compliance at quarter-end.
- Operating lease liabilities totaled $114.886 million, including $24.231 million classified as current. The filing reports total assets of $331.192 million and stockholders’ equity of $54.903 million.
Outlook, risks and material developments
Management stated that, based on its measures and current expectations, available liquidity sources should be sufficient to meet obligations for the twelve months following issuance of the financial statements. This is subject to substantial risks, including COVID-19 impacts on demand, store and partner operations, supply chains, receivables, inventory and liquidity. The company also cites debt-service and lease-payment needs, wholesale-partner dependence, consumer-demand shifts, sourcing and cost pressures, and impairment risk. No numerical sales or earnings guidance is provided.
On September 7, 2021, after quarter-end, Vince refinanced its prior term loan with a new $35 million senior secured term loan, repaid and terminated the prior term facility, amended and extended its revolving facility, and amended the third-lien facility. The new term loan carries interest at 90-day LIBOR (or an alternate reference rate), subject to a 1.0% floor, plus 7.0%; the third-lien rate was amended to LIBOR plus 9.0%. The amended revolver requires minimum availability of the greater of $9.5 million or 10% of commitments and extends maturity subject to specified conditions. The third-lien lender is affiliated with Sun Capital, whose affiliates own approximately 71% of the company.
Disclosure controls were deemed ineffective because of an unremediated material weakness in user-access controls and segregation of duties over financial systems. Management reported remediation progress but continues additional testing and procedures. A shareholder securities lawsuit was dismissed and appeals were voluntarily withdrawn in July 2021; other ordinary-course claims remain, with management not expecting a material adverse outcome.
Key facts for investors to verify
- Whether the post-quarter debt refinancing improves liquidity and covenant flexibility, and the resulting borrowing costs, availability and repayment obligations.
- Whether sales and gross-margin recovery persist after the pandemic-distorted comparison periods, including by channel and brand.
- Cash generation and working-capital needs, particularly inventory, vendor payments, debt service and lease obligations.
- Progress in remediating the material weakness in financial reporting controls.
- Potential effects of COVID-19, supply-chain disruption, customer demand changes, and the related-party nature of Sun Capital-affiliated lending.