UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 31, 2024, the registrant had
VINCE HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
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Item 1. |
4 |
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a) |
Unaudited Condensed Consolidated Balance Sheets at May 4, 2024 and February 3, 2024 |
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b) |
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c) |
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d) |
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e) |
Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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INTRODUCTORY NOTE
On November 27, 2013, Vince Holding Corp. ("VHC" or the "Company"), previously known as Apparel Holding Corp., closed an initial public offering ("IPO") of its common stock and completed a series of restructuring transactions (the "Restructuring Transactions") through which Kellwood Holding, LLC acquired the non-Vince businesses, which included Kellwood Company, LLC, from the Company. The Company continues to own and operate the Vince business, which includes Vince, LLC.
Prior to the IPO and the Restructuring Transactions, VHC was a diversified apparel company operating a broad portfolio of fashion brands, which included the Vince business. As a result of the IPO and Restructuring Transactions, the non-Vince businesses were separated from the Vince business, and the stockholders immediately prior to the consummation of the Restructuring Transactions (the "Pre-IPO Stockholders") (through their ownership of Kellwood Holding, LLC) retained the full ownership and control of the non-Vince businesses.
On April 21, 2023, Vince, LLC, the Company's wholly owned indirect subsidiary, entered into an Intellectual Property Asset Purchase Agreement (the "Asset Purchase Agreement"), by and among Vince, LLC, ABG-Vince, LLC (f/k/a ABG-Viking, LLC) ("ABG Vince"), a newly formed indirect subsidiary of Authentic Brands Group, LLC, the Company and ABG Intermediate Holdings 2 LLC, whereby Vince, LLC sold its intellectual property assets related to the business operated under the Vince brand to ABG Vince at closing (the "Asset Sale"). The Company closed the Asset Sale on May 25, 2023.
On May 3, 2024, Vince, LLC completed a nominal sale (the "Transaction") for $1.00 (one dollar) of all outstanding shares of Rebecca Taylor, Inc., which held the Rebecca Taylor business prior to the wind-down (defined below), to Nova Acquisitions, LLC. Nova Acquisitions, LLC is wholly owned by James Carroll, who served as the sole director and officer of Rebecca Taylor, Inc. at the time of the Transaction, pursuant to a service agreement between Mr. Carroll and Rebecca Taylor, Inc. that was previously entered into in September 2022 in connection with the wind-down. Following the completion of the Transaction, there exists no relationship or arrangement whatsoever between Mr. Carroll and the Company or any of its affiliates. The Transaction was completed pursuant to a Stock Purchase Agreement (the “SPA”), dated May 3, 2024, entered into between Vince, LLC and Nova Acquisitions, LLC.
For purposes of this Quarterly Report, the "Company," "we," and "our," refer to Vince Holding Corp. and our wholly owned subsidiaries, including Vince Intermediate Holding, LLC ("Vince Intermediate") and Vince, LLC. References to "Vince," "Rebecca Taylor" or "Parker" refer only to the referenced brands.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, and any statements incorporated by reference herein, contain forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are indicated by words or phrases such as "may," "will," "should," "believe," "expect," "seek," "anticipate," "intend," "estimate," "plan," "target," "project," "forecast," "envision" and other similar phrases. Although we believe the assumptions and expectations reflected in these forward-looking statements are reasonable, these assumptions and expectations may not prove to be correct and we may not achieve the results or benefits anticipated. These forward-looking statements are not guarantees of actual results, and our actual results may differ materially from those suggested in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, including, without limitation: our ability to maintain the license agreement with ABG Vince; ABG Vince's expansion of the Vince brand into other categories and territories; ABG Vince's approval rights and other actions; our ability to maintain adequate cash flow from operations or availability under our revolving credit facility to meet our liquidity needs; our ability to realize the benefits of our strategic initiatives; our ability to execute and realize the enhanced profitability expectations of our transformation program; our ability to improve our profitability; the execution and management of our direct-to-consumer business growth plans; our ability to make lease payments when due; our ability to maintain our larger wholesale partners; our ability to remediate the identified material weakness in our internal control over financial reporting; our ability to comply with domestic and international laws, regulations and orders; our ability to anticipate and/or react to changes in customer demand and attract new customers, including in connection with making inventory commitments; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection and customer service; our ability to attract and retain key personnel; seasonal and quarterly variations in our revenue and income; general economic conditions; further impairment of our goodwill; our ability to mitigate system security risk issues, such as cyber or malware attacks, as well as other major system failures; our ability to optimize our systems, processes and functions; our ability to comply with privacy-related obligations; our ability to ensure the proper operation of the distribution facilities by third-party logistics providers; fluctuations in the price, availability and quality of raw materials; commodity, raw material and other cost increases; the extent of our foreign sourcing; our reliance on independent manufacturers; other tax matters; and other factors as set forth from time to time in our Securities and Exchange Commission filings, including those described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 2, 2024 (the "2023 Annual Report on Form 10-K") under the heading "Part I, Item 1A—Risk Factors." We intend these forward-looking statements to speak only as of the date of this Quarterly Report on Form 10-Q and do not undertake to update or revise them as more information becomes available, except as required by law.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
VINCE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data, unaudited)
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May 4, |
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February 3, |
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2024 |
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2024 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade receivables, net of allowance for doubtful accounts of $ |
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Inventories, net |
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Prepaid expenses and other current assets1 |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net |
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Goodwill |
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Equity method investment |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued salaries and employee benefits |
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Other accrued expenses2 |
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Short-term lease liabilities |
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Total current liabilities |
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Long-term debt3 |
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Long-term lease liabilities |
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Deferred income tax liability |
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Stockholders' equity: |
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Common stock at $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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1
2
3
See notes to unaudited condensed consolidated financial statements.
4
VINCE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share data, unaudited)
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Three Months Ended |
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May 4, |
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April 29, |
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2024 |
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2023 |
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Net sales |
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$ |
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$ |
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Cost of products sold4 |
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Gross profit |
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Gain on sale of intangible assets |
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— |
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( |
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Gain on sale of subsidiary |
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( |
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— |
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Selling, general and administrative expenses |
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Income (loss) from operations |
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Interest expense, net5 |
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Income (loss) before income taxes and equity in net loss of equity method investment |
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( |
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Benefit for income taxes |
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( |
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( |
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Income (loss) before equity in net loss of equity method investment |
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( |
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Equity in net loss of equity method investment |
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( |
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— |
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Net income (loss) |
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$ |
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$ |
( |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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( |
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Comprehensive income (loss) |
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$ |
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$ |
( |
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Earnings (loss) per share: |
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Basic earnings (loss) per share |
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$ |
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$ |
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Diluted earnings (loss) per share |
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$ |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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4
5
See notes to unaudited condensed consolidated financial statements.
5
VINCE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts, unaudited)
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Common Stock |
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Number of Shares Outstanding |
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Par Value |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive Loss |
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Total Stockholders' Equity |
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Balance as of February 3, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Comprehensive income: |
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Net income |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Restricted stock unit vestings |
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— |
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— |
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— |
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— |
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— |
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Tax withholdings related to restricted stock vesting |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Issuance of common stock related to Employee Stock Purchase Plan ("ESPP") |
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— |
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— |
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— |
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Balance as of May 4, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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|||||
See notes to unaudited condensed consolidated financial statements.
6
VINCE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts, unaudited)
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Common Stock |
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Number of Shares Outstanding |
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Par Value |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive Loss |
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Total Stockholders' Equity |
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Balance as of January 28, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Comprehensive loss: |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Restricted stock unit vestings |
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— |
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— |
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— |
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Tax withholdings related to restricted stock vesting |
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( |
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— |
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( |
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— |
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— |
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( |
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Issuance of common stock related to ESPP |
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— |
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— |
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— |
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Balance as of April 29, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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See notes to unaudited condensed consolidated financial statements.
7
VINCE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
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Three Months Ended |
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May 4, 2024 |
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April 29, 2023 |
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Operating activities |
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Net income (loss) |
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$ |
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$ |
( |
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Add (deduct) items not affecting operating cash flows: |
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Depreciation and amortization |
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Allowance for doubtful accounts |
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( |
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Gain on sale of intangible assets |
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— |
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( |
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Gain on sale of subsidiary |
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( |
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— |
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Loss on disposal of property and equipment |
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— |
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Amortization of deferred financing costs |
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Deferred income taxes |
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( |
) |
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( |
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Share-based compensation expense |
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( |
) |
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Capitalized PIK Interest due to loan with related party |
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Equity in net loss of equity method investment, net of distributions |
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— |
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Changes in assets and liabilities: |
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Receivables, net |
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( |
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Inventories |
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Prepaid expenses and other current assets |
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( |
) |
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( |
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Accounts payable and accrued expenses |
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( |
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( |
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Other assets and liabilities |
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( |
) |
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( |
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Net cash (used in) provided by operating activities |
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( |
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Investing activities |
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Payments for capital expenditures |
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( |
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( |
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Proceeds from sale of intangible assets |
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— |
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Net cash (used in) provided by investing activities |
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( |
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Financing activities |
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Proceeds from borrowings under the Revolving Credit Facilities |
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Repayment of borrowings under the Revolving Credit Facilities |
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( |
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( |
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Repayment of borrowings under the Term Loan Facilities |
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— |
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( |
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Tax withholdings related to restricted stock vesting |
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( |
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( |
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Proceeds from stock option exercises, restricted stock vesting, and issuance of common stock under employee stock purchase plan |
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Financing fees |
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( |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Increase in cash, cash equivalents, and restricted cash |
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( |
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Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
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( |
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— |
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Cash, cash equivalents, and restricted cash, beginning of period |
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Cash, cash equivalents, and restricted cash, end of period |
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Less: restricted cash at end of period |
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Cash and cash equivalents per balance sheet at end of period |
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$ |
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$ |
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Supplemental Disclosures of Cash Flow Information |
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Cash payments for interest |
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$ |
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Cash payments for income taxes, net of refunds |
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Supplemental Disclosures of Non-Cash Investing and Financing Activities |
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Capital expenditures in accounts payable and accrued liabilities |
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Deferred financing fees in accrued liabilities |
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|
|
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See notes to unaudited condensed consolidated financial statements.
8
VINCE HOLDING CORP. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share data)
Note 1. Description of Business and Basis of Presentation
(A) Description of Business: The Company is a global retail company that operates the Vince brand women's and men's ready to wear business. Vince, established in 2002, is a leading global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day effortless style. Previously, the Company also owned and operated the Rebecca Taylor and Parker brands until the sale of the respective intellectual property was completed, as discussed below.
On April 21, 2023 the Company entered into a strategic partnership ("Authentic Transaction") with Authentic Brands Group, LLC ("Authentic"), a global brand development, marketing and entertainment platform, whereby the Company contributed its intellectual property to a newly formed Authentic subsidiary ("ABG Vince") for cash consideration and a membership interest in ABG Vince. The Company closed the Asset Sale (as defined below) on May 25, 2023. On May 25, 2023, in connection with the Authentic Transaction, Vince, LLC entered into a License Agreement (the "License Agreement") with ABG-Vince LLC, which provides Vince, LLC with an exclusive, long-term license to use the Licensed Property in the Territory to the Approved Accounts (each as defined in the License Agreement). See Note 2 "Recent Transactions" for additional information.
Rebecca Taylor, founded in 1996 in New York City, was a contemporary womenswear line lauded for its signature prints, romantic detailing and vintage inspired aesthetic, reimagined for a modern era. On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group.
On May 3, 2024, Vince, LLC completed the sale of all outstanding shares of Rebecca Taylor, Inc., which held the Rebecca Taylor business prior to the wind-down, to Nova Acquisitions, LLC. See Note 2 "Recent Transactions" for further information.
Parker, founded in 2008 in New York City, was a contemporary women's fashion brand that was trend focused. During the first half of fiscal 2020 the Company decided to pause the creation of new products for the Parker brand to focus resources on the operations of the Vince and Rebecca Taylor brands. On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 2 "Recent Transactions" for additional information.
The Company reaches its customers through a variety of channels, specifically through major wholesale department stores and specialty stores in the United States ("U.S.") and select international markets, as well as through the Company's branded retail locations and the Company's websites. The Company designs products in the U.S. and sources the vast majority of products from contract manufacturers outside the U.S., primarily in Asia. Products are manufactured to meet the Company's product specifications and labor standards.
(B) Basis of Presentation: The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with VHC's audited financial statements for the fiscal year ended February 3, 2024, as set forth in the 2023 Annual Report on Form 10-K.
The condensed consolidated financial statements include the Company's accounts and the accounts of the Company's wholly-owned subsidiaries as of May 4, 2024. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) and disclosures necessary for a fair statement. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or the fiscal year as a whole.
(C) Use of Estimates: The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements which affect revenues and expenses during the period reported. Estimates are adjusted when necessary to reflect actual experience. Significant estimates and assumptions may affect many items in the financial statements. Actual results could differ from estimates and assumptions in amounts that may be material to the condensed consolidated financial statements.
9
(D) Sources and Uses of Liquidity: The Company's sources of liquidity are cash and cash equivalents, cash flows from operations, if any, borrowings available under the 2023 Revolving Credit Facility (as defined in Note 5 "Long-Term Debt and Financing Arrangements") and the Company's ability to access the capital markets, including the Sales Agreement entered into with Virtu Americas LLC in June 2023 (see Note 8 "Stockholders' Equity" for further information). The Company's primary cash needs are funding working capital requirements, including royalty payments under the License Agreement, meeting debt service requirements and capital expenditures for new stores and related leasehold improvements. The most significant components of the Company's working capital are cash and cash equivalents, accounts receivable, inventories, accounts payable and other current liabilities. Based on our current expectations, we believe that our sources of liquidity will generate sufficient cash flows to meet our obligations during the next twelve months from the date these financial statements are issued.
(E) Revenue Recognition: The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs upon the transfer of control in accordance with the contractual terms and conditions of the sale. Sales are recognized when the control of the goods are transferred to the customer for the Company's wholesale business, upon receipt by the customer for the Company's e-commerce business, and at the time of sale to the consumer for the Company's retail business. See Note 13 "Segment Financial Information" for disaggregated revenue amounts by segment.
Revenue associated with gift cards is recognized upon redemption and unredeemed balances are considered a contract liability and recorded within other accrued expenses, which are subject to escheatment within the jurisdictions in which the Company operates. As of May 4, 2024 and February 3, 2024, the contract liability was $
(F) Recent Accounting Pronouncements: Except as noted below, the Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements that may have a material impact on its Consolidated Financial Statements, based on current information.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07: Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows as a result of this ASU.
In December 2023, the FASB issued ASU 2023-09: Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires expanded disclosure within the rate reconciliation as well as disaggregation of annual taxes paid. This amendment is effective for annual periods beginning after December 15, 2024, and is applied prospectively. Early adoption is permitted. The Company is currently evaluating the impact that this new guidance may have on its financial statement disclosures.
In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275: The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires new disclosures regarding information about a registrant’s climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. In addition, certain disclosures related to severe weather events and other natural conditions will also be required in a registrant’s audited financial statements. Based on our smaller reporting company and non-accelerated filer status, certain disclosures are effective for fiscal years beginning after December 15, 2026, with certain remaining disclosures effective for fiscal years beginning after December 15, 2027. As a smaller reporting company, we are exempt from emissions disclosures and related assurance requirements. We will evaluate the SEC rule to determine its impact on our future financial reporting requirements and related disclosures.
10
Note 2. Recent Transactions
Wind Down and Sale of Rebecca Taylor Business
On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On September 30, 2022, the Company entered into amendments to the Term Loan Credit Facility, the 2018 Revolving Credit Facility and the Third Lien Credit Facility (as defined in Note 5 "Long-Term Debt and Financing Arrangements"), which in part, permitted the sale of the intellectual property of the Rebecca Taylor, Inc. and the Rebecca Taylor, Inc. liquidation.
On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group for $
On July 7, 2023, Rebecca Taylor, Inc. and Rebecca Taylor Retail Stores, LLC, each as an assignor, made a General Assignment for the Benefit of the Creditors (the "Assignment") to a respective assignee, an unaffiliated California limited liability company, pursuant to California state law. The Assignment resulted in the residual rights and assets of each of Rebecca Taylor, Inc. and Rebecca Taylor Retail Stores, LLC being assigned and transferred to such assignees. As a result, Rebecca Taylor, Inc. and Rebecca Taylor Retail Stores, LLC no longer hold any assets.
On May 3, 2024, Vince, LLC completed the sale of all outstanding shares of Rebecca Taylor, Inc., which held the Rebecca Taylor business prior to the wind-down, to Nova Acquisitions, LLC. Nova Acquisitions, LLC is wholly owned by James Carroll, who served as the sole director and officer of Rebecca Taylor, Inc. at the time of the Transaction, pursuant to a service agreement between Mr. Carroll and Rebecca Taylor, Inc. that was previously entered into in September 2022 in connection with the wind-down. While serving as the sole director and officer of Rebecca Taylor, Inc., Mr. Carroll did not serve as an agent to the Company and was not a related party to the Company. Following the completion of the Transaction, there exists no relationship or arrangement whatsoever between Mr. Carroll and the Company or any of its affiliates. The Transaction was completed pursuant to the SPA, dated May 3, 2024, entered into between the Seller and Nova Acquisitions, LLC. The SPA contains customary representations, warranties and covenants for a transaction of this nature, but does not include any indemnification provisions for the benefit of either party. Following the completion of the Transaction, there is no ongoing involvement between the Company and Rebecca Taylor, Inc. As Rebecca Taylor Inc. was in a net liability position, as a result of the Transaction, the Company recognized a gain on sale of subsidiary of $
There were
Sale of Parker Intellectual Property
On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands, for $
Sale of Vince Intellectual Property
On April 21, 2023 the Company entered into the Asset Purchase Agreement (defined below), pursuant to which Vince, LLC agreed to sell and transfer to ABG-Vince LLC (f/k/a ABG-Viking, LLC) ("ABG Vince"), an indirect subsidiary of Authentic, all intellectual property assets related to the business operated under the Vince brand in exchange for total consideration of $
Upon the closing of the Asset Sale, the Company derecognized the intellectual property assets at their carrying amount of $
11
incurred total transaction related costs of approximately $
Operating Agreement
On May 25, 2023, in connection with the closing (the "Closing") of the Asset Sale pursuant to the Intellectual Property Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of April 21, 2023, by and among Vince, LLC, ABG Vince, the Company and ABG Intermediate Holdings 2 LLC, Vince, LLC and ABG Vince entered into an Amended and Restated Limited Liability Company Agreement of ABG-Vince, LLC (the "Operating Agreement"), which, among other things, provides for the management of the business and the affairs of ABG Vince, the allocation of profits and losses, the distribution of cash of ABG Vince among its members and the rights, obligations and interests of the members to each other and to Vince, LLC.
The Company accounts for its
The Company reviews its investment in ABG Vince for impairment when events or changes in circumstances indicate that an other-than-temporary decline in value may have occurred. If the carrying value of the investment exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired and reduced to fair value, and the impairment is recognized in the period identified. Factors providing evidence of such a loss include changes in ABG Vince's operations or financial condition, significant continuing losses, and significant negative economic conditions, among others. During the three months ended May 4, 2024, there was
License Agreement
On May 25, 2023, in connection with the Closing, Vince, LLC and ABG Vince entered into a License Agreement (the "License Agreement"), which provides Vince, LLC with a license to use the Licensed Property in the Territory, which is defined as the United States, Canada, Andorra, Austria, Germany, Switzerland, Belgium, Netherlands, Luxembourg, France, Monaco, Liechtenstein, Italy, San Marino, Vatican City, Iceland, Norway, Denmark, Sweden, Finland, Spain, Portugal, Greece, Republic of Cyprus (excluding Northern Cyprus), United Kingdom, Ireland, Australia, New Zealand, Mainland China, Hong Kong, Macau, Taiwan, Singapore, Japan and Korea (the "Core Territory"), together with all other territories (the "Option Territory"), to the Approved Accounts (each as defined in the License Agreement). Vince, LLC is required to operate and maintain a minimum of
Additionally, the License Agreement provides Vince, LLC with a license to use the Licensed Property to design, manufacture, promote, market, distribute, and sell ready-to-wear Sportswear Products and Outerwear Products (the "Core Products") and Home Décor and Baby Layettes (the "Option Products," together with the Core Products, the "Licensed Products"), which Option Products may be changed unilaterally by ABG Vince at any time after the effective date of the License Agreement.
The initial term of the License Agreement began on May 25, 2023, the date on which the Closing actually occurred, and ends at the end of the Company's 2032 fiscal year, unless sooner terminated pursuant to the terms of the License Agreement. Vince, LLC has the option to renew the License Agreement on the terms set forth in the License Agreement for eight consecutive periods of ten years each, unless the License Agreement is sooner terminated pursuant to its terms or Vince, LLC is in material breach of the License Agreement and such breach has not been cured within the specified cure period. Vince, LLC may elect not to renew the term for a renewal term.
Vince, LLC is required to pay ABG Vince a royalty on net sales of Licensed Products and committed to an annual guaranteed minimum royalty of $
12
percentage as set forth in the License Agreement of the guaranteed minimum net royalty or the minimum net sales (as applicable) of the immediately preceding contract year, and (ii) the average of actual Royalties (as defined in the License Agreement, with respect to the guaranteed minimum royalty) or actual Net Sales (as defined in the License Agreement, with respect to the annual minimum net sales) during certain years as set forth in the License Agreement of the preceding initial term or renewal term (as applicable). Vince, LLC is required to pay royalties comprised of a low single digit percentage of net sales arising from retail and e-commerce sales of Licensed Products and a mid single digit percentage of net sales arising from wholesale sales of such Licensed Products.
In the event that the annual guaranteed minimum royalty paid to ABG Vince in any given contract year is greater than the actual royalties earned by ABG Vince in the same contract year, the difference between the royalty actually earned and the annual guaranteed minimum royalty paid is credited for the next two contract years against any amount of royalty earned by ABG Vince in excess of the annual guaranteed minimum royalty paid during each such contract year, if any.
Royalty expense is included within Cost of product sold on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Note 3. Goodwill and Intangible Assets
Net goodwill balances and changes therein by segment were as follows:
(in thousands) |
|
Vince Wholesale |
|
|
Vince |
|
|
Rebecca Taylor and Parker |
|
|
Total Net Goodwill |
|
||||
Balance as of February 3, 2024 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Balance as of May 4, 2024 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
The total carrying amount of goodwill is net of accumulated impairments of $
On April 21, 2023, the Company entered into the Authentic Transaction with Authentic and as a result, the Vince tradename and Vince customer relationships were classified as held for sale and amortization of the Vince customer relationships ceased. The Company closed the Asset Sale on May 25, 2023. See Note 2 "Recent Transactions" for further information.
On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 2 "Recent Transactions" for further information.
Amortization of identifiable intangible assets was $
Note 4. Fair Value Measurements
We define the fair value of a financial instrument as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of the value of the investments carried at fair value and the supporting methodologies and assumptions. The Company's financial assets and liabilities are to be measured using inputs from three levels of the fair value hierarchy as follows:
Level 1— |
|
quoted market prices in active markets for identical assets or liabilities |
|
|
|
Level 2— |
|
observable market-based inputs (quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active) or inputs that are corroborated by observable market data |
|
|
|
Level 3— |
|
significant unobservable inputs that reflect the Company's assumptions and are not substantially supported by market data |
The Company did
The Company's non-financial assets, which primarily consist of goodwill, operating lease right-of-use ("ROU") assets, and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at their carrying values.
13
However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial assets are assessed for impairment and, if applicable, written down to (and recorded at) fair value. During the three months ended May 4, 2024, there was
Determining the fair value of goodwill is judgmental in nature and requires the use of significant estimates and assumptions, including estimates of projected revenues, EBITDA margins, long-term growth rates, working capital and discount rates. The inputs used in determining the fair value of the ROU assets are the current comparable market rents for similar properties and a store discount rate. The fair value of the property and equipment is based on its estimated liquidation value. The measurement of fair value of these assets are considered Level 3 valuations as certain of these inputs are unobservable and are estimated to be those that would be used by market participants in valuing these or similar assets.
Note 5. Long-Term Debt and Financing Arrangements
Debt obligations consisted of the following:
|
|
May 4, |
|
|
February 3, |
|
||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Long-term debt: |
|
|
|
|
|
|
||
Term Loan Facilities |
|
$ |
— |
|
|
$ |
|
|
Revolving Credit Facilities |
|
|
|
|
|
|
||
Third Lien Credit Facility |
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|
|
|
|
|
||
Total debt principal |
|
|
|
|
|
|
||
Less: current portion of long-term debt |
|
|
— |
|
|
|
|
|
Less: deferred financing costs |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
Term Loan Credit Facility
On September 7, 2021, Vince, LLC entered into a $
On May 25, 2023, utilizing proceeds from the Asset Sale, the Company repaid all outstanding amounts of $
2023 Revolving Credit Facility
On June 23, 2023, Vince, LLC, entered into a new $
All outstanding amounts under the 2018 Revolving Credit Facility (as defined below) were repaid in full and such facility was terminated pursuant to the terms thereof as a result of all parties completing their obligations under such facility.
The 2023 Revolving Credit Facility provides for a revolving line of credit of up to the lesser of (i) the Borrowing Base (as defined in the 2023 Revolving Credit Agreement) and (ii) $
14
Interest is payable on the loans under the 2023 Revolving Credit Facility, at Vince LLC's request, either at Term SOFR, the Base Rate, or SOFR Daily Floating Rate, in each case, with applicable margins subject to a pricing grid based on an average daily excess availability calculation. The "Base Rate" means, for any day, a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate for such day, plus
The applicable margins for SOFR Term and SOFR Daily Floating Rate Loans are: (i)
The 2023 Revolving Credit Facility contains a financial covenant requiring Excess Availability at all times to be no less than the greater of (i)
The 2023 Revolving Credit Facility contains representations and warranties, covenants and events of default that are customary for this type of financing, including limitations on the incurrence of additional indebtedness, liens, burdensome agreements, investments, loans, asset sales, mergers, acquisitions, prepayment of certain other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year. The 2023 Revolving Credit Facility generally permits dividends in the absence of any default or event of default (including any event of default arising from a contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend and on a pro forma basis for the 30-day period immediately preceding such dividend, Excess Availability will be at least the greater of
All obligations under the 2023 Revolving Credit Facility are guaranteed by the Company and Vince Intermediate and any future subsidiaries of the Company (other than Excluded Subsidiaries as defined in the 2023 Revolving Credit Agreement) and secured by a lien on substantially all of the assets of the Company, Vince, LLC and Vince Intermediate and any future subsidiary guarantors, other than among others, equity interests in ABG Vince, as well as the rights of Vince, LLC under the License Agreement.
The Company incurred a total of $
As of May 4, 2024, the Company was in compliance with applicable covenants. As of May 4, 2024, $
2018 Revolving Credit Facility
On August 21, 2018, Vince, LLC entered into an $
On June 23, 2023, all outstanding amounts under the 2018 Revolving Credit Facility were repaid in full and the 2018 Revolving Credit Facility was terminated pursuant to the terms thereof as a result of all parties completing their obligations under the 2018 Revolving Credit Facility. The Company recorded expense of $
15
Third Lien Credit Facility
On December 11, 2020, Vince, LLC entered into a $
SK Financial is an affiliate of Sun Capital Partners, Inc. ("Sun Capital"), whose affiliates own, as of May 4, 2024, approximately
Interest on loans under the Third Lien Credit Facility is payable in kind at a rate revised in connection with the Third Lien Third Amendment (as defined and discussed below) to be equal to the Daily Simple SOFR, subject to a credit spread adjustment of
The Company incurred $
All obligations under the Third Lien Credit Facility are guaranteed by the Company, Vince Intermediate and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries and are secured on a junior basis relative to the 2023 Revolving Credit Facility by a lien on substantially all of the assets of the Company, Vince Intermediate, Vince, LLC and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries.
On April 21, 2023, Vince, LLC entered into that certain Consent and Third Amendment to Credit Agreement (the "Third Lien Third Amendment"), which, among other things, (a) permitted the sale of the intellectual property of the Vince Business contemplated in the Asset Sale, (b) replaced LIBOR as an interest rate benchmark in favor of Daily Simple SOFR, subject to a credit spread adjustment of
On June 23, 2023, Vince, LLC entered into the
Note 6. Inventory
Note 7. Share-Based Compensation
Employee Stock Plans
Vince 2013 Incentive Plan
In connection with the IPO, the Company adopted the Vince 2013 Incentive Plan, which provides for grants of stock options, stock appreciation rights, restricted stock, and other stock-based awards. In May 2018, the Company filed a Registration Statement on Form S-8 to register an additional
16
of May 4, 2024, there were
Employee Stock Purchase Plan
The Company maintains an employee stock purchase plan ("ESPP") for its employees. Under the ESPP, all eligible employees may contribute up to
Stock Options
There were
Restricted Stock Units
A summary of restricted stock unit activity for the three months ended May 4, 2024 is as follows:
|
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Restricted Stock Units |
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|
Weighted Average Grant Date Fair Value |
|
||
Non-vested restricted stock units at February 3, 2024 |
|
|
|
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$ |
|
||
Granted |
|
|
— |
|
|
$ |
— |
|
Vested |
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( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Non-vested restricted stock units at May 4, 2024 |
|
|
|
|
$ |
|
||
Share-Based Compensation Expense
The Company recognized share-based compensation expense of $(
Note 8. Stockholders' Equity
At-the-Market Offering
On September 9, 2021, the Company filed a shelf registration statement on Form S-3, which was declared effective on September 21, 2021 (the "Registration Statement"). Under the Registration Statement, the Company may offer and sell up to
On June 30, 2023, the Company entered into a Sales Agreement with Virtu Americas LLC ("Virtu"), as sales agent and/or principal (the "Virtu At-the-Market Offering") under which, the Company may sell from time to time through Virtu shares of the Company's common stock, par value $
The Company previously entered into an Open Market Sale AgreementSM with Jefferies LLC ("Jefferies At-the-Market Offering"), under which the Company was able to offer and sell, from time to time, up to
17
Note 9. Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Except when the effect would be anti-dilutive, diluted earnings (loss) per share is calculated based on the weighted average number of shares of common stock outstanding plus the dilutive effect of share-based awards calculated under the treasury stock method. In periods when the Company incurs a net loss, share-based awards are excluded from the calculation of earnings per share as their inclusion would have an anti-dilutive effect.
The following is a reconciliation of weighted average basic shares to weighted average diluted shares outstanding:
|
|
Three Months Ended |
|
|||||
|
|
May 4, |
|
|
April 29, |
|
||
|
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2024 |
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2023 |
|
||
Weighted-average shares—basic |
|
|
|
|
|
|
||
Effect of dilutive equity securities |
|
|
|
|
|
— |
|
|
Weighted-average shares—diluted |
|
|
|
|
|
|
||
For the three months ended May 4, 2024,
Because the Company incurred a net loss for the three months ended April 29, 2023, weighted-average basic shares and weighted-average diluted shares outstanding are equal for this period.
Note 10. Commitments and Contingencies
Litigation
The Company is a party to legal proceedings, compliance matters, environmental, as well as wage and hour and other labor claims that arise in the ordinary course of business. Although the outcome of such items cannot be determined with certainty, management believes that the ultimate outcome of these items, individually and in the aggregate, will not have a material adverse impact on the Company's financial position, results of operations or cash flows.
Note 11. Income Taxes
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. In interim periods where the entity is experiencing losses, an entity must make assumptions concerning its future taxable income and determine whether the realization of future tax benefits is more likely than not.
The benefit for income taxes of $
The benefit for income taxes of $
Each reporting period, the Company evaluates the realizability of its deferred tax assets and has maintained a full valuation allowance against its deferred tax assets. These valuation allowances will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that these deferred tax assets will be realized.
Note 12. Leases
The Company determines if a contract contains a lease at inception.
18
require the payment of additional rent if store sales exceed a negotiated amount. These percentage rent expenses are considered as variable lease costs and are recognized in the consolidated financial statements when incurred. In addition, the Company's real estate leases may also require additional payments for real estate taxes and other occupancy-related costs which it considers as non-lease components.
ROU assets and operating lease liabilities are recognized based upon the present value of the future lease payments over the lease term. As the Company's leases do not provide an implicit borrowing rate, the Company uses an estimated incremental borrowing rate based upon a combination of market-based factors, such as market quoted forward yield curves and company specific factors, such as the Company's credit rating, lease size and duration to calculate the present value.
Total lease cost is included in SG&A expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and is recorded net of immaterial sublease income. Some leases have a non-cancelable lease term of less than one year and therefore, the Company has elected to exclude these short-term leases from its ROU asset and lease liabilities. Short term lease costs were immaterial for the three months ended May 4, 2024 and April 29, 2023.
|
|
Three Months Ended |
|
|||||
|
|
May 4, |
|
|
April 29, |
|
||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Variable operating lease cost |
|
|
|
|
|
|
||
Total lease cost |
|
$ |
|
|
$ |
|
||
The operating lease cost for the three months ended April 29, 2023, included a benefit of $
As of May 4, 2024, the future maturities of lease liabilities were as follows:
|
|
|
|
May 4, |
|
|
(in thousands) |
|
|
|
2024 |
|
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Fiscal 2024 |
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Fiscal 2025 |
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Fiscal 2026 |
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Fiscal 2027 |
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Fiscal 2028 |
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Thereafter |
|
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|
|
Total lease payments |
|
|
|
|
|
|
Less: Imputed interest |
|
|
|
|
( |
) |
Total operating lease liabilities |
|
|
|
$ |
|
|
The operating lease payments do not include any renewal options as such leases are not reasonably certain of being renewed as of May 4, 2024, and do not include $
Note 13. Segment Financial Information
The Company has identified
19
On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group. Substantially all Rebecca Taylor inventory was liquidated as of January 28, 2023. Additionally, all Rebecca Taylor retail and outlet stores operated by the Company were closed as of January 28, 2023 and the e-commerce site operated by the Company ceased in December 2022.
On May 3, 2024, Vince, LLC completed the sale of all outstanding shares of Rebecca Taylor, Inc., which held the Rebecca Taylor business prior to the wind-down, to Nova Acquisitions, LLC. See Note 2 "Recent Transactions" for further information.
On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands.
The accounting policies of the Company's reportable segments are consistent with those described in Note 1 to the audited consolidated financial statements of VHC for the fiscal year ended February 3, 2024 included in the 2023 Annual Report on Form 10-K. Unallocated corporate expenses are related to the Vince brand and are comprised of SG&A expenses attributable to corporate and administrative activities (such as marketing, design, finance, information technology, legal and human resource departments), and other charges that are not directly attributable to the Company's Vince Wholesale and Vince Direct-to-consumer reportable segments. Unallocated corporate assets are related to the Vince brand and are comprised of the carrying values of the Company's goodwill, equity method investment and other assets that will be utilized to generate revenue for the Company's Vince Wholesale and Vince Direct-to-consumer reportable segments.
Summary information for the Company's reportable segments is presented below.
(in thousands) |
|
Vince Wholesale |
|
|
Vince Direct-to-consumer |
|
|
Rebecca Taylor and Parker |
|
|
Unallocated Corporate |
|
|
Total |
|
|||||
Three Months Ended May 4, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Income (loss) before income taxes and equity in net loss of equity method investment (1) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Three Months Ended April 29, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Income (loss) before income taxes and equity in net loss of equity method investment (3)(4) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
(in thousands) |
|
Vince Wholesale |
|
|
Vince Direct-to-consumer |
|
|
Rebecca Taylor and Parker |
|
|
Unallocated Corporate |
|
|
Total |
|
|||||
May 4, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
February 3, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
________
20
(1) Income (loss) before income taxes and equity in net loss of equity method investment for the Rebecca Taylor and Parker reportable segment for the three months ended May 4, 2024 primarily consists of the gain recognized on the sale of Rebecca Taylor. See Note 2 "Recent Transactions" for further information.
(2) Net sales for the Rebecca Taylor and Parker reportable segment for the three months ended April 29, 2023 consisted of $
(3) Rebecca Taylor and Parker reportable segment includes a $
(4) Unallocated Corporate includes $
Note 14. Related Party Transactions
Operating Agreement
On May 25, 2023, Vince, LLC and ABG Vince entered into the Operating Agreement, which, among other things, provides for the management of the business and the affairs of ABG Vince, the allocation of profits and losses, the distribution of cash of ABG Vince among its members and the rights, obligations and interests of the members to each other and to Vince, LLC. See Note 2 "Recent Transactions" for further information.
During the three months ended May 4, 2024, the Company received $
License Agreement
On May 25, 2023, Vince, LLC and ABG Vince entered into the License Agreement, whereby Vince, LLC is required to pay ABG Vince a royalty on net sales of Licensed Products and committed to an annual guaranteed minimum royalty of $
During the three months ended May 4, 2024, the Company paid $
Third Lien Credit Agreement
On December 11, 2020, Vince, LLC entered into the $
See Note 5 "Long-Term Debt and Financing Arrangements" for additional information.
Tax Receivable Agreement
VHC entered into a Tax Receivable Agreement with the Pre-IPO Stockholders on November 27, 2013, which expired in November of 2023 with no outstanding obligations due from the Company. The Company and its former subsidiaries generated certain tax benefits (including net operating losses and tax credits) prior to the Restructuring Transactions consummated in connection with the Company's IPO and will generate certain section 197 intangible deductions (the "Pre-IPO Tax Benefits"), which would reduce the actual liability for taxes that the Company might otherwise be required to pay. The Tax Receivable Agreement provided for payments to the Pre-IPO Stockholders in an amount equal to
Sun Capital Consulting Agreement
On
During the three months ended May 4, 2024 and April 29, 2023, the Company incurred expenses of $
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes our consolidated operating results, financial condition and liquidity. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). All amounts disclosed are in thousands except store counts, share and per share data and percentages. See Note 1 "Description of Business and Basis of Presentation" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
This discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. For a discussion of the risks facing our business see "Item 1A—Risk Factors" of this Quarterly Report as well as in our 2023 Annual Report on Form 10-K.
Executive Overview
We are a global retail company that operates the Vince brand women's and men's ready to wear business. We serve our customers through a variety of channels that reinforces our brand image. Previously, we also owned and operated the Rebecca Taylor and Parker brands until the sale of the respective intellectual property was completed, as discussed below.
Vince, established in 2002, is a leading global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day effortless style. Vince operates 47 full-price retail stores, 15 outlet stores, the e-commerce site, vince.com, and the subscription service Vince Unfold, vinceunfold.com. Vince is also available through premium wholesale channels globally.
On April 21, 2023 the Company entered into a strategic partnership ("Authentic Transaction") with Authentic Brands Group, LLC ("Authentic"), a global brand development, marketing and entertainment platform, whereby the Company will contribute its intellectual property to a newly formed Authentic subsidiary ("ABG Vince") for cash consideration and a membership interest in ABG Vince. The Company closed the Asset Sale on May 25, 2023. On May 25, 2023, in connection with the Authentic Transaction, Vince, LLC, entered into a License Agreement (the "License Agreement") with ABG Vince, which provides Vince, LLC with an exclusive, long-term license to use the Licensed Property in the Territory to the Approved Accounts (each as defined in the License Agreement). See Note 2 "Recent Transactions" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
Rebecca Taylor, founded in 1996 in New York City, was a contemporary womenswear line lauded for its signature prints, romantic detailing and vintage inspired aesthetic, reimagined for a modern era. On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group. On May 3, 2024, Vince, LLC completed the sale of all outstanding shares of Rebecca Taylor, Inc. to Nova Acquisitions, LLC. See Note 2 "Recent Transactions" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
Parker, founded in 2008 in New York City, was a contemporary women's fashion brand that was trend focused. During the first half of fiscal 2020 the Company decided to pause the creation of new products to focus resources on the operations of the Vince and Rebecca Taylor brands. On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 2 "Recent Transactions" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
The Company has identified three reportable segments: Vince Wholesale, Vince Direct-to-consumer and Rebecca Taylor and Parker.
Transformation Program
The Company is implementing a transformation program focused on driving enhanced profitability through an improved gross margin profile and optimized expense structure, beginning in the current fiscal year. The transformation program is focused on improving the Company’s gross margin profile and driving cost efficiencies. The Company expects to achieve these goals primarily through streamlining manufacturing and production operations, reducing promotional activity and optimizing the breadth and depth of markdowns, and enhancing efficiencies within store operations, corporate overhead and third-party spend.
22
Results of Operations
Comparable Sales
Comparable sales include our e-commerce sales in order to align with how we manage our brick-and-mortar retail stores and e-commerce online store as a combined single direct-to-consumer channel of distribution. As a result of our omni-channel sales and inventory strategy, as well as cross-channel customer shopping patterns, there is less distinction between our brick-and-mortar retail stores and our e-commerce online store and we believe the inclusion of e-commerce sales in our comparable sales metric is a more meaningful representation of these results and provides a more comprehensive view of our year over year comparable sales metric.
A store is included in the comparable sales calculation after it has completed 13 full fiscal months of operations and includes stores, if any, that have been remodeled or relocated within the same geographic market the Company served prior to the relocation. Non-comparable sales include new stores which have not completed 13 full fiscal months of operations, sales from closed stores, and relocated stores serving a new geographic market. For 53-week fiscal years, we adjust comparable sales to exclude the additional week. There may be variations in the way in which some of our competitors and other retailers calculate comparable sales.
The following table presents, for the periods indicated, our operating results as a percentage of net sales, as well as earnings (loss) per share data:
|
|
Three Months Ended |
|
|||||||||||||
|
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||||||||||
|
|
|
|
|
% of Net |
|
|
|
|
|
% of Net |
|
||||
|
|
Amount |
|
|
Sales |
|
|
Amount |
|
|
Sales |
|
||||
(in thousands, except per share data and percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Statements of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
59,171 |
|
|
|
100.0 |
% |
|
$ |
64,056 |
|
|
|
100.0 |
% |
Cost of products sold |
|
|
29,258 |
|
|
|
49.4 |
% |
|
|
34,464 |
|
|
|
53.8 |
% |
Gross profit |
|
|
29,913 |
|
|
|
50.6 |
% |
|
|
29,592 |
|
|
|
46.2 |
% |
Gain on sale of intangible assets |
|
|
— |
|
|
|
0.0 |
% |
|
|
(765 |
) |
|
|
(1.2 |
)% |
Gain on sale of subsidiary |
|
|
(7,634 |
) |
|
|
(12.9 |
)% |
|
|
— |
|
|
|
0.0 |
% |
Selling, general and administrative expenses |
|
|
31,943 |
|
|
|
54.0 |
% |
|
|
32,733 |
|
|
|
51.1 |
% |
Income (loss) from operations |
|
|
5,604 |
|
|
|
9.5 |
% |
|
|
(2,376 |
) |
|
|
(3.7 |
)% |
Interest expense, net |
|
|
1,646 |
|
|
|
2.8 |
% |
|
|
3,290 |
|
|
|
5.1 |
% |
Income (loss) before income taxes and equity in net loss of equity method investment |
|
|
3,958 |
|
|
|
6.7 |
% |
|
|
(5,666 |
) |
|
|
(8.8 |
)% |
Benefit for income taxes |
|
|
(887 |
) |
|
|
(1.5 |
)% |
|
|
(5,285 |
) |
|
|
(8.2 |
)% |
Income (loss) before equity in net loss of equity method investment |
|
|
4,845 |
|
|
|
8.2 |
% |
|
|
(381 |
) |
|
|
(0.6 |
)% |
Equity in net loss of equity method investment |
|
|
(465 |
) |
|
|
(0.8 |
)% |
|
|
— |
|
|
|
0.0 |
% |
Net income (loss) |
|
$ |
4,380 |
|
|
|
7.4 |
% |
|
$ |
(381 |
) |
|
|
(0.6 |
)% |
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share |
|
$ |
0.35 |
|
|
|
|
|
$ |
(0.03 |
) |
|
|
|
||
Diluted earnings (loss) per share |
|
$ |
0.35 |
|
|
|
|
|
$ |
(0.03 |
) |
|
|
|
||
Three Months Ended May 4, 2024 Compared to Three Months Ended April 29, 2023
Net sales for the three months ended May 4, 2024 were $59,171, decreasing $4,885, or 7.6%, versus $64,056 for the three months ended April 29, 2023.
Gross profit increased 1.1% to $29,913 for the three months ended May 4, 2024 from $29,592 in the prior year first quarter. As a percentage of sales, gross margin was 50.6%, compared with 46.2% in the prior year first quarter. The total gross margin rate increase was primarily driven by the following factors:
Gain on sale of intangible assets for the three months ended April 29, 2023 was $765 related to the sale of the Parker intellectual property and certain related ancillary assets. See Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
23
Gain on sale of subsidiary for the three months ended May 4, 2024 was $7,634 related to the sale of Rebecca Taylor. See Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
Selling, general and administrative ("SG&A") expenses for the three months ended May 4, 2024 were $31,943, decreasing $790, or 2.4%, versus $32,733 for the three months ended April 29, 2023. SG&A expenses as a percentage of sales were 54.0% and 51.1% for the three months ended May 4, 2024 and April 29, 2023, respectively. The change in SG&A expenses compared to the prior fiscal year period was primarily due to:
Interest expense, net decreased $1,644, or 50.0%, to $1,646 in the three months ended May 4, 2024 from $3,290 in the three months ended April 29, 2023, due to an overall reduction of debt primarily through the termination of the term loan credit facility in the second quarter of fiscal 2023 and lower levels of debt under the revolving credit facilities, partially offset by an increase in interest expense related to the Third Lien credit facility.
Provision (benefit) for income taxes for the three months ended May 4, 2024 was a benefit of $887, which was primarily driven by $1,681 of discrete tax benefit primarily recognized from the reversal of a portion of the non-cash deferred tax liability related to the Company's equity method investment, which a portion can now be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses. This was partially offset by tax expense of $794 due to the impact of applying the Company’s estimated effective tax rate for the fiscal year to the three-month pre-tax loss excluding discrete items.
The benefit for income taxes was $5,285 for the three months ended April 29, 2023 and primarily reflected the impact of a decrease in the Company’s estimated effective tax rate for the full fiscal year. The Company's estimated effective tax rate for the fiscal year was driven by the non-cash deferred tax expense created by the current period amortization of indefinite-lived goodwill and intangible assets for tax but not for book purposes. See Note 11 "Income Taxes" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.
Equity in net loss of equity method investment for the three months ended May 4, 2024 was a loss of $465 related to the Company's 25% membership interest in ABG Vince.
Performance by Segment
The Company has identified three reportable segments as further described below:
On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group. Substantially all Rebecca Taylor inventory was liquidated as of January 28, 2023. Additionally, all Rebecca Taylor retail and outlet stores operated by the Company were closed as of January 28, 2023 and the e-commerce site operated by the Company ceased in December 2022.
On May 3, 2024, Vince, LLC completed the sale of all outstanding shares of Rebecca Taylor, Inc., which held the Rebecca Taylor business prior to the wind-down, to Nova Acquisitions, LLC.
On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information.
24
Unallocated corporate expenses are related to the Vince brand and are comprised of SG&A expenses attributable to corporate and administrative activities (such as marketing, design, finance, information technology, legal and human resource departments), and other charges that are not directly attributable to the Company's Vince Wholesale and Vince Direct-to-consumer reportable segments. In addition, unallocated corporate includes the transaction related expenses associated with the Asset Sale.
|
|
Three Months Ended |
|
|||||
|
|
May 4, |
|
|
April 29, |
|
||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Net Sales: |
|
|
|
|
|
|
||
Vince Wholesale |
|
$ |
30,257 |
|
|
$ |
32,467 |
|
Vince Direct-to-consumer |
|
|
28,914 |
|
|
|
31,508 |
|
Rebecca Taylor and Parker |
|
|
— |
|
|
|
81 |
|
Total net sales |
|
$ |
59,171 |
|
|
$ |
64,056 |
|
|
|
|
|
|
|
|
||
Income (loss) from operations: |
|
|
|
|
|
|
||
Vince Wholesale |
|
$ |
10,184 |
|
|
$ |
8,571 |
|
Vince Direct-to-consumer |
|
|
(64 |
) |
|
|
1,101 |
|
Rebecca Taylor and Parker |
|
|
7,633 |
|
|
|
1,192 |
|
Subtotal |
|
|
17,753 |
|
|
|
10,864 |
|
Unallocated corporate |
|
|
(12,149 |
) |
|
|
(13,240 |
) |
Total income (loss) from operations |
|
$ |
5,604 |
|
|
$ |
(2,376 |
) |
Vince Wholesale
|
|
Three Months Ended |
|
|||||||||
(in thousands) |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
|
$ Change |
|
|||
Net sales |
|
$ |
30,257 |
|
|
$ |
32,467 |
|
|
$ |
(2,210 |
) |
Income from operations |
|
|
10,184 |
|
|
|
8,571 |
|
|
|
1,613 |
|
Net sales from our Vince Wholesale segment decreased $2,210, or 6.8%, to $30,257 in the three months ended May 4, 2024 from $32,467 in the three months ended April 29, 2023, primarily due to lower off-price sales, partially offset by increases in full-price sales.
Income from operations from our Vince Wholesale segment increased $1,613, or 18.8%, to $10,184 in the three months ended May 4, 2024 from $8,571 in the three months ended April 29, 2023, primarily due to improved gross margin which was unfavorably impacted by royalty expenses associated with the License Agreement with ABG Vince.
Vince Direct-to-consumer
|
|
Three Months Ended |
|
|||||||||
(in thousands) |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
|
$ Change |
|
|||
Net sales |
|
$ |
28,914 |
|
|
$ |
31,508 |
|
|
$ |
(2,594 |
) |
(Loss) Income from operations |
|
|
(64 |
) |
|
|
1,101 |
|
|
|
(1,165 |
) |
Net sales from our Vince Direct-to-consumer segment decreased $2,594, or 8.2%, to $28,914 in the three months ended May 4, 2024 from $31,508 in the three months ended April 29, 2023. Comparable sales decreased $1,023, or 3.6%, including e-commerce, primarily due to a decrease in e-commerce volume. Non-comparable sales declined $1,571, which includes new stores which have not completed 13 full fiscal months of operations and Vince Unfold. Since April 29, 2023, five net stores have closed bringing our total retail store count to 62 (consisting of 47 full price stores and 15 outlet stores) as of May 4, 2024, compared to 67 (consisting of 50 full price stores and 17 outlet stores) as of April 29, 2023.
Our Vince Direct-to-consumer segment had a loss from operations of $64 in the three months ended May 4, 2024 compared to income from operations of $1,101 in the three months ended April 29, 2023. The change was primarily driven by an increase in SG&A expenses, due mainly to lower rent expense in the prior comparative quarter related to lease modifications, which was partially offset by an improved gross margin that was unfavorably impacted by royalty expenses associated with the License Agreement with ABG Vince.
25
Rebecca Taylor and Parker
|
|
Three Months Ended |
|
|||||||||
(in thousands) |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
|
$ Change |
|
|||
Net sales |
|
$ |
— |
|
|
$ |
81 |
|
|
$ |
(81 |
) |
Income from operations |
|
|
7,633 |
|
|
|
1,192 |
|
|
|
6,441 |
|
Net sales from our Rebecca Taylor and Parker segment decreased $81, or 100.0%, to $0 in the three months ended May 4, 2024 from $81 in the three months ended April 29, 2023, as a result of the wind down of the Rebecca Taylor and Parker businesses.
Our Rebecca Taylor and Parker segment had a gain from operations of $7,633 in the three months ended May 4, 2024 compared to a gain from operations of $1,192 in the three months ended April 29, 2023. The change was driven by the gain on sale of Rebecca Taylor.
Liquidity and Capital Resources
Our sources of liquidity are cash and cash equivalents, cash flows from operations, if any, borrowings available under the 2023 Revolving Credit Facility and our ability to access the capital markets, including our Sales Agreement entered into with Virtu Americas LLC in June 2023 (see Note 8 "Stockholders' Equity" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information). Our primary cash needs are funding working capital requirements, including royalty payments under the License Agreement, meeting our debt service requirements, and capital expenditures for new stores and related leasehold improvements. The most significant components of our working capital are cash and cash equivalents, accounts receivable, inventories, accounts payable and other current liabilities. Based on our current expectations, we believe that our sources of liquidity will generate sufficient cash flows to meet our obligations during the next twelve months from the date these financial statements are issued.
Operating Activities
|
|
Three Months Ended |
|
|||||
(in thousands) |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||
Operating activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
4,380 |
|
|
$ |
(381 |
) |
Add (deduct) items not affecting operating cash flows: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
1,013 |
|
|
|
1,366 |
|
Provision for bad debt |
|
|
(51 |
) |
|
|
126 |
|
Gain on sale of intangible assets |
|
|
— |
|
|
|
(765 |
) |
Gain on sale of subsidiary |
|
|
(7,634 |
) |
|
|
|
|
Loss on disposal of property and equipment |
|
|
10 |
|
|
|
— |
|
Amortization of deferred financing costs |
|
|
79 |
|
|
|
519 |
|
Deferred income taxes |
|
|
(1,346 |
) |
|
|
(5,285 |
) |
Share-based compensation expense |
|
|
(5 |
) |
|
|
420 |
|
Capitalized PIK Interest |
|
|
1,131 |
|
|
|
913 |
|
Equity in net loss of equity method investment, net of distributions |
|
|
1,072 |
|
|
|
— |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Receivables, net |
|
|
(1,527 |
) |
|
|
3,235 |
|
Inventories |
|
|
2,100 |
|
|
|
9,974 |
|
Prepaid expenses and other current assets |
|
|
(1,952 |
) |
|
|
(683 |
) |
Accounts payable and accrued expenses |
|
|
(871 |
) |
|
|
(1,723 |
) |
Other assets and liabilities |
|
|
(277 |
) |
|
|
(2,438 |
) |
Net cash (used in) provided by operating activities |
|
$ |
(3,878 |
) |
|
$ |
5,278 |
|
Net cash used in operating activities during the three months ended May 4, 2024 was $3,878, which consisted of net income of $4,380, impacted by non-cash items of $(5,731) consisting primarily of the gain on sale of subsidiary, and cash used in working capital of $2,527. Net cash used in working capital primarily resulted from cash outflows in prepaid expenses and other current assets of $1,952, primarily due to prepaid royalty expenses, an increase in receivables driven by the timing of sales, and cash outflows in accounts payable and accrued expenses of $871, primarily due to the timing of payments to vendors, partially offset by a reduction in inventory of $2,100.
26
Net cash provided by operating activities during the three months ended April 29, 2023 was $5,278, which consisted of a net loss of $381, impacted by non-cash items of $(2,706) and cash used in working capital of $8,365. Net cash provided by working capital primarily resulted from a cash inflow in inventory of $9,974 primarily due to conservative inventory management and the sell-through of excess inventory, a cash inflow in receivables, net of $3,235 primarily due to the timing of collections, partly offset by a cash outflow in accounts payable and accrued expenses of $1,723 primarily due to the timing of payments to vendors.
Investing Activities
|
|
Three Months Ended |
|
|||||
(in thousands) |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||
Investing activities |
|
|
|
|
|
|
||
Payments for capital expenditures |
|
$ |
(740 |
) |
|
$ |
(115 |
) |
Proceeds from sale of intangible assets |
|
|
— |
|
|
|
1,025 |
|
Net cash (used in) provided by investing activities |
|
$ |
(740 |
) |
|
$ |
910 |
|
Net cash used in investing activities of $740 during the three months ended May 4, 2024 represents capital expenditures primarily related to retail store buildouts, including leasehold improvements and store fixtures.
Net cash provided by investing activities of $910 during the three months ended April 29, 2023 primarily represents the proceeds received from the sale of the Parker intangible assets (see Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information).
Financing Activities
|
|
Three Months Ended |
|
|||||
(in thousands) |
|
May 4, 2024 |
|
|
April 29, 2023 |
|
||
Financing activities |
|
|
|
|
|
|
||
Proceeds from borrowings under the Revolving Credit Facilities |
|
$ |
46,400 |
|
|
$ |
63,827 |
|
Repayment of borrowings under the Revolving Credit Facilities |
|
|
(41,400 |
) |
|
|
(68,841 |
) |
Repayment of borrowings under the Term Loan Facilities |
|
|
— |
|
|
|
(1,713 |
) |
Tax withholdings related to restricted stock vesting |
|
|
(2 |
) |
|
|
(8 |
) |
Proceeds from stock option exercises, restricted stock vesting, and issuance of common stock under employee stock purchase plan |
|
|
7 |
|
|
|
15 |
|
Financing fees |
|
|
(2 |
) |
|
|
(125 |
) |
Net cash provided by (used in) financing activities |
|
$ |
5,003 |
|
|
$ |
(6,845 |
) |
Net cash provided by financing activities was $5,003 during the three months ended May 4, 2024, primarily consisting of $5,000 of net borrowings under the Company's revolving credit facilities.
Net cash used in financing activities was $6,845 during the three months ended April 29, 2023, primarily consisting of $5,014 of net repayments of borrowings under the 2018 Revolving Credit Facility and the repayment of $1,713 of borrowings under the Term Loan Credit Facility (as defined below).
Term Loan Credit Facility
On September 7, 2021, Vince, LLC entered into a $35,000 senior secured term loan credit facility (the "Term Loan Credit Facility") pursuant to a Credit Agreement (the "Term Loan Credit Agreement"), as amended from time to time, by and among Vince, LLC, as the borrower, the guarantors named therein, PLC Agent, LLC, as administrative agent and collateral agent, and the other lenders from time to time party thereto. Vince Holding Corp. and Vince Intermediate Holding, LLC ("Vince Intermediate") were guarantors under the Term Loan Credit Facility. The Term Loan Credit Facility would have matured on the earlier of September 7, 2026, and 91 days after the maturity date of the 2018 Revolving Credit Facility.
On May 25, 2023, utilizing proceeds from the Asset Sale, the Company repaid all outstanding amounts of $28,724, which included accrued interest and a prepayment penalty of $553 (which is included within financing fees on the Condensed Consolidated Statements of Cash Flows), under the Term Loan Credit Facility. The Term Loan Credit Facility was terminated. The Company also repaid $850 of fees due in accordance with an amendment entered into on September 30, 2022. Additionally, the Company recorded expense of $1,755 during fiscal 2023, related to the write-off of the remaining deferred financing costs. Prior to May 25, 2023, on an inception to date basis, the Company had made repayments of $7,335 on the Term Loan Credit Facility.
27
2023 Revolving Credit Facility
On June 23, 2023, Vince, LLC, entered into a new $85,000 senior secured revolving credit facility (the "2023 Revolving Credit Facility") pursuant to a Credit Agreement (the "2023 Revolving Credit Agreement") by and among Vince, LLC, the guarantors named therein, Bank of America, N.A. ("BofA"), as Agent, the other lenders from time to time party thereto, and BofA Securities, Inc., as sole lead arranger and sole bookrunner.
All outstanding amounts under the 2018 Revolving Credit Facility (as defined below) were repaid in full and such facility was terminated pursuant to the terms thereof as a result of all parties completing their obligations under such facility.
The 2023 Revolving Credit Facility provides for a revolving line of credit of up to the lesser of (i) the Borrowing Base (as defined in the 2023 Revolving Credit Agreement) and (ii) $85,000, as well as a letter of credit sublimit of $10,000. The 2023 Revolving Credit Agreement also permits Vince, LLC to request an increase in aggregate commitments under the 2023 Revolving Credit Facility of up to $15,000, subject to customary terms and conditions. The 2023 Revolving Credit Facility matures on the earlier of June 23, 2028, and 91 days prior to the earliest maturity date of any Material Indebtedness (as defined in the 2023 Revolving Credit Agreement), including the subordinated indebtedness pursuant to the Third Lien Credit Agreement.
Interest is payable on the loans under the 2023 Revolving Credit Facility, at Vince LLC's request, either at Term SOFR, the Base Rate, or SOFR Daily Floating Rate, in each case, with applicable margins subject to a pricing grid based on an average daily excess availability calculation. The "Base Rate" means, for any day, a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate for such day, plus 0.5%; (ii) the rate of interest in effect for such day as publicly announced from time to time by BofA as its prime rate; (iii) the SOFR Daily Floating Rate on such day, plus 1.0%; and (iv) 1.0%. During the continuance of certain specified events of default, at the election of BofA in its capacity as Agent, interest will accrue at a rate of 2.0% in excess of the applicable non-default rate.
The applicable margins for SOFR Term and SOFR Daily Floating Rate Loans are: (i) 2.0% when the average daily Excess Availability (as defined in the 2023 Revolving Credit Agreement) is greater than 66.7% of the Loan Cap (as defined in the 2023 Revolving Credit Agreement); (ii) 2.25% when the average daily Excess Availability is greater than or equal to 33.3% but less than or equal to 66.7% of the Loan Cap; and (iii) 2.5% when the average daily Excess Availability is less than 33.3% of the Loan Cap. The applicable margins for Base Rate Loans are: (a) 1.0% when the average daily Excess Availability is greater than 66.7% of the Loan Cap; (b) 1.25% when the average daily Excess Availability is greater than or equal to 33.3% but less than or equal to 66.7% of the Loan Cap; and (c) 1.5% when the average daily Excess Availability is less than 33.3% of the Loan Cap.
The 2023 Revolving Credit Facility contains a financial covenant requiring Excess Availability at all times to be no less than the greater of (i) 10.0% of the Loan Cap in effect at such time and (ii) $7,500.
The 2023 Revolving Credit Facility contains representations and warranties, covenants and events of default that are customary for this type of financing, including limitations on the incurrence of additional indebtedness, liens, burdensome agreements, investments, loans, asset sales, mergers, acquisitions, prepayment of certain other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year. The 2023 Revolving Credit Facility generally permits dividends in the absence of any default or event of default (including any event of default arising from a contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend and on a pro forma basis for the 30-day period immediately preceding such dividend, Excess Availability will be at least the greater of 20.0% of the Loan Cap and $15,000 and (ii) after giving pro forma effect to the contemplated dividend, the Consolidated Fixed Charge Coverage Ratio (as defined in the 2023 Revolving Credit Agreement) for the 12 months preceding such dividend will be greater than or equal to 1.0 to 1.0.
All obligations under the 2023 Revolving Credit Facility are guaranteed by the Company and Vince Intermediate and any future subsidiaries of the Company (other than Excluded Subsidiaries as defined in the 2023 Revolving Credit Agreement) and secured by a lien on substantially all of the assets of the Company, Vince, LLC and Vince Intermediate and any future subsidiary guarantors, other than among others, equity interests in ABG Vince, as well as the rights of Vince, LLC under the License Agreement.
The Company incurred a total of $8 and $1,150 of financing costs during the quarter ended May 4, 2024 and the fiscal year 2023, respectively. In accordance with ASC Topic 470, "Debt", these financing costs were recorded as deferred debt issuance costs (which is presented within Other assets on the Condensed Consolidated Balance Sheets) and are amortized over the term of the 2023 Revolving Credit Facility.
As of May 4, 2024, the Company was in compliance with applicable covenants. As of May 4, 2024, $25,909 was available under the 2023 Revolving Credit Facility, net of the Loan Cap, and there were $19,227 of borrowings outstanding and $5,560 of letters of credit outstanding under the 2023 Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the 2023 Revolving Credit Facility as of May 4, 2024 was 8.2%.
28
2018 Revolving Credit Facility
On August 21, 2018, Vince, LLC entered into an $80,000 senior secured revolving credit facility (the "2018 Revolving Credit Facility") pursuant to a credit agreement, as amended and restated from time to time, by and among Vince, LLC, as the borrower, VHC and Vince Intermediate, as guarantors, Citizens Bank, N.A. ("Citizens"), as administrative agent and collateral agent, and the other lenders from time to time party thereto. On January 31, 2023, the Company repaid $125 of fees due in accordance with an amendment entered into on September 30, 2022. Upon the contemporaneous consummation of the Asset Sale, the lenders' commitments to extend credit was reduced to $70,000. The 2018 Revolving Credit Facility would have matured on June 30, 2024.
On June 23, 2023, all outstanding amounts under the 2018 Revolving Credit Facility were repaid in full and the 2018 Revolving Credit Facility was terminated pursuant to the terms thereof as a result of all parties completing their obligations under the 2018 Revolving Credit Facility. The Company recorded expense of $828 during fiscal 2023, related to the write-off of the remaining deferred financing costs. Certain letters of credit remain in place with Citizens which were secured with restricted cash, totaling $262 as of May 4, 2024. Restricted cash is included in Prepaid Expenses and other current assets in the Condensed Consolidated Balance Sheets.
Third Lien Credit Facility
On December 11, 2020, Vince, LLC entered into a $20,000 subordinated term loan credit facility (the "Third Lien Credit Facility") pursuant to a credit agreement (the "Third Lien Credit Agreement"), as amended from time to time, dated December 11, 2020, by and among Vince, LLC, as the borrower, VHC and Vince Intermediate, as guarantors, and SK Financial Services, LLC ("SK Financial"), as administrative agent and collateral agent, and other lenders from time to time party thereto. The proceeds were received on December 11, 2020 and were used to repay a portion of the borrowings outstanding under the 2018 Revolving Credit Facility.
SK Financial is an affiliate of Sun Capital Partners, Inc. ("Sun Capital"), whose affiliates own, as of May 4, 2024, approximately 68% of the Company's common stock. The Third Lien Credit Facility was reviewed and approved by the Special Committee of the Company's Board of Directors, consisting solely of directors not affiliated with Sun Capital, which committee was represented by independent legal advisors.
Interest on loans under the Third Lien Credit Facility is payable in kind at a rate revised in connection with the Third Lien Third Amendment (as defined and discussed below) to be equal to the Daily Simple SOFR, subject to a credit spread adjustment of 0.10% per annum, plus 9.0%. During the continuance of certain specified events of default, interest may accrue on the loans under the Third Lien Credit Facility at a rate of 2.0% in excess of the rate otherwise applicable to such amount.
The Company incurred $485 in deferred financing costs associated with the Third Lien Credit Facility of which a $400 closing fee is payable in kind and was added to the principal balance. These deferred financing costs are recorded as deferred debt issuance costs which will be amortized over the remaining term of the Third Lien Credit Facility.
All obligations under the Third Lien Credit Facility are guaranteed by the Company, Vince Intermediate and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries and are secured on a junior basis relative to the 2023 Revolving Credit Facility by a lien on substantially all of the assets of the Company, Vince Intermediate, Vince, LLC and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries.
On April 21, 2023, Vince, LLC entered into that certain Consent and Third Amendment to Credit Agreement (the "Third Lien Third Amendment"), which, among other things, (a) permitted the sale of the intellectual property of the Vince Business contemplated in the Asset Sale, (b) replaced LIBOR as an interest rate benchmark in favor of Daily Simple SOFR, subject to a credit spread adjustment of 0.10% per annum, plus 9.0% (c) amended the Third Lien Credit Agreement's maturity date to the earlier of (i) March 30, 2025 and (ii) 180 days after the maturity date under the 2018 Revolving Credit Facility, (d) reduced the capacity to incur indebtedness and liens, make investments, restricted payments and dispositions and repay certain indebtedness and (e) modified certain representations and warranties, covenants and events of default in respect of documentation related to the Asset Sale. The Third Lien Third Amendment became effective upon the consummation of the Asset Sale, the prepayment of the Term Loan Credit Facility in full and other transactions contemplated by the Asset Purchase Agreement.
On June 23, 2023, Vince, LLC entered into the Fourth Amendment (the "Third Lien Fourth Amendment") to the Third Lien Credit Agreement which, among other things, (a) extended the Third Lien Credit Agreement's maturity date to the earlier of (i) September 30, 2028 and (ii) 91 days prior to the earliest maturity date of any Material Indebtedness (as defined therein) other than the 2023 Revolving Credit Facility and (b) modified certain representations and warranties, covenants and events of default in respect of documentation conforming to the terms of the 2023 Revolving Credit Facility.
29
Seasonality
The apparel and fashion industry in which we operate is cyclical and, consequently, our revenues are affected by general economic conditions and the seasonal trends characteristic to the apparel and fashion industry. Purchases of apparel are sensitive to a number of factors that influence the level of consumer spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates and consumer confidence as well as the impact of adverse weather conditions. In addition, fluctuations in the amount of sales in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events affecting direct-to-consumer sales; as such, the financial results for any particular quarter may not be indicative of results for the fiscal year. We expect such seasonality to continue.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of operations relies on our condensed consolidated financial statements, as set forth in Part I, Item 1 of this Quarterly Report, which are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. While we believe that these accounting policies are based on reasonable measurement criteria, actual future events can and often do result in outcomes materially different from these estimates.
A summary of our critical accounting estimates is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2023 Annual Report on Form 10-K. As of May 4, 2024, there have been no material changes to the critical accounting estimates contained therein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company," as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we are not required to provide the information in this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our interim Chief Executive Officer and Chief Financial Officer. Rule 13a-14 of the Exchange Act requires that we include these certifications with this report. This Controls and Procedures section includes information concerning the disclosure controls and procedures referred to in the certifications. You should read this section in conjunction with the certifications.
Under the supervision and with the participation of our interim Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of May 4, 2024.
Based upon that evaluation, our interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting as described below.
As a result of the material weakness identified, we performed additional analysis, substantive testing and other post-closing procedures intended to ensure that our condensed consolidated financial statements were prepared in accordance with U.S. GAAP. Accordingly, management believes that the condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q fairly state, in all material respects, the Company's financial condition, results of operations and cash flows for the periods presented.
Material Weakness in Internal Control over Financial Reporting
As described in Management's Annual Report on Internal Control Over Financial Reporting in Part II, Item 9A of our Annual Report on Form 10-K for the year ended February 3, 2024, we did not maintain adequate user access controls to ensure appropriate segregation of duties and to adequately restrict access to financial applications and data.
This material weakness did not result in a material misstatement to the annual or interim consolidated financial statements. However, this material weakness could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in a misstatement impacting account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
30
Remediation Efforts to Address the Material Weakness
To date, we made continued progress on our comprehensive remediation plan related to this material weakness by implementing the following controls and procedures:
To fully address the remediation of deficiencies related to segregation of duties, we will need to fully remediate the deficiencies regarding systems access.
Management continues to follow a comprehensive remediation plan to fully address this material weakness. The remediation plan includes implementing and effectively operating controls related to the routine reviews of user system access and user re-certifications, inclusive of those related to users with privileged access, as well as to ensure user's access rights to systems are removed timely upon termination.
While we have reported a material weakness that is not yet remediated, we believe we have made continued progress in addressing financial, compliance, and operational risks and improving controls across the Company. Until the material weakness is remediated, we will continue to perform additional analysis, substantive testing, and other post-closing procedures to ensure that our consolidated financial statements are prepared in accordance with U.S. GAAP.
Limitations on the Effectiveness of Disclosure Controls and Procedures
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure system are met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended May 4, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to legal proceedings, compliance matters, environmental, as well as wage and hour and other labor claims that arise in the ordinary course of our business. Although the outcome of such items cannot be determined with certainty, we believe that the ultimate outcome of these items, individually and in the aggregate will not have a material adverse impact on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
The risk factors disclosed in the Company's 2023 Annual Report on Form 10-K, in addition to the other information set forth in this Quarterly Report on Form 10-Q, could materially affect the Company's business, financial condition or results.
The Company’s risk factors have not changed materially from those disclosed in its 2023 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
31
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None of our directors or officers
ITEM 6. EXHIBITS
Exhibit Number |
|
Exhibit Description |
10.1 |
|
Confidential Severance Agreement and Release, dated March 26, 2024, by and between the Company and Jonathan Schwefel |
10.2 |
|
Amendment No. 2 to License Agreement, dated as of February 21, 2024 (incorporated by reference to Exhibit 10.54 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 2, 2024). |
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
32.2 |
|
|
101.INS |
|
Inline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation |
101.LAB |
|
Inline XBRL Taxonomy Extension Labels |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date |
|
|
Vince Holding Corp. |
|
|
|
|
June 18, 2024 |
|
By: |
/s/ John Szczepanski |
|
|
|
John Szczepanski |
|
|
|
Executive Vice President, Chief Financial Officer |
|
|
|
(as duly authorized officer, and principal financial officer) |
33