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Vince 4Q Sales Results Miss Forecasts, but Earnings Deliver a Two-Cent Beat

Vince Holding Corp. (VNCE), owner of the contemporary fashion brand Vince, on Thursday reported fourth quarter and fiscal year results that missed on the top line due to disappointing wholesale business results, but exceeded bottom-line expectations.

Thirteen-year-old Vince is headquartered in New York and offers a wide range of women’s, men’s and children’s apparel; women’s and men’s footwear; and handbags. The brand’s products are sold in over 2,400 distribution locations across 45 countries, including the company’s own 28 full-price retail stores, 10 outlet stores and Vince.com. The company was formerly a division of Kellwood, from which it was spun off in an IPO in November 2013.

Net sales at the company increased 7.9% to $94.7 million, missing Wall Street estimates of $99 million. Sales in the wholesale segment declined by 0.6% to $68.9 million, hurt by the highly promotional environment at U.S. department stores in the period, particularly in women’s apparel. Direct-to-consumer sales rose by 39.7% to $25.8 million. Comparable store sales excluding e-commerce increased 8.7% (15.5% including e-commerce) over the fourth quarter of fiscal 2013. Quarterly gross margin increased 260 basis points to 48.3% from 45.7% in fiscal 2013. SG&A expense was $25.5 million or 26.9% of sales, compared to $25.2 million or 28.7% of sales in the prior year period, including public company transition costs.

Fourth-quarter net income increased to $10.5 million, or 11.1% of sales, compared to $0.6 million for the fourth quarter of fiscal 2013, including public company transition costs.

On a per-share basis, earnings were $0.28, compared to a loss of $0.02 in the prior year period, and beating analyst estimates by two cents per share.

For the year ending Jan. 31, 2015, its first as a public company, net sales increased 18.1% to $340.4 million. Wholesale segment sales increased by 13.2% to $259.4 million and direct-to-consumer increased 37.1% to $81.0 million. Comparable store sales increased by 7.8% over the prior year excluding e-commerce (12.1% including e-commerce sales). Full-year gross margin increased 280 basis points to 49 percent from 46.2% in 2013. SG&A expenses in 2014 were $96.6 million or 28.4% of sales, compared to $83.7 million or 29.0% of sales in fiscal year 2013, including offering and transition costs.

Net income increased to $35.7 million, compared to a net loss of $27.4 million in fiscal 2013.  Diluted earnings per share were $0.93 compared to a net loss per share for the same period in fiscal 2013 of $0.98.

Chairman and CEO Jill Granoff said in a statement: “We are proud of our strong performance in our first full year as a public company. We delivered record sales in 2014, with double-digit increases across all product categories and distribution channels.  We are particularly pleased with the exceptional growth in our retail, ecommerce, international and licensing businesses, building a platform for the future.  In addition, our adjusted profits grew by nearly 29%, outpacing our sales growth, driven primarily by better than expected gross margin expansion of 280 basis points.  We were also pleased with our performance in the fourth quarter, in which we achieved solid sales growth, gross margin expansion, and a nearly 22% adjusted earnings increase.”

During the quarterly earnings conference call, management told analysts that during the year, brand awareness increased significantly due to improvements in marketing and an increase in the marketing budget from 2 percent to over 3 percent of sales. In 2015, the company plans to increase both its digital marketing and co-op advertising with department stores.

Inventory at the end of fiscal year 2014 increased 10.2% to $37.4 million versus $34.0 million at the end of fiscal year 2013.  Capital expenditures for fiscal 2014 totaled $19.7 million, attributable to new and remodeled stores and shop-in-shop build-outs, our new headquarter and showrooms in New York, new design studio in LA, and new Paris showroom.

For fiscal 2015, the Company expects to achieve mid-single-digit net sales growth to around $365 million, including revenues from 8-10 new retail stores and comparable sales growth inclusive of e-commerce sales in the low double-digit range, considerably below the 15-20 percent annual topline growth that the company targeted at the time of the IPO, due due a rethinking of its wholesale strategy. Gross margin is expected to expand by 50-100 basis points, and SG&Aas a percent of net sales is slated to increase by 175-200 basis points over the adjusted fiscal 2014 rate of 28.2%. The company expects to spend $17 million-$20 million in capital expenditures, primarily for new store openings, and to generate diluted earnings per share of $1.00-$1.05 in the current year.

The company said it ultimately expects to have a total of 100 stores, of which 75 will be full-price and 25 will be outlet stores.

“Our customers remain passionate about our everyday luxury products, and we are seeing increasing demand on a global basis,” Ms. Granoff continued. “While we are resetting our near-term growth plans in domestic wholesale for the long-term health of our brand, we have many growth opportunities in our domestic wholesale business and will continue to focus on strategically driving our productivity within existing doors while maintaining our brand’s luxury profile. At the same time, we will aggressively pursue our other meaningful growth levers from a product, channel, and international expansion perspective to realize the full potential of the VINCE brand and deliver double-digit growth in sales and profit over the long term.”

The stock was trading down about 14 percent on Thursday in the wake of the earnings announcement, bringing its year-to-date decline to over 30 percent.

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