Afternoon to everyone on the East Coast and the Midwest, and good morning to those of you in other parts of the country. Welcome to the May 2024 Sidoti MicroCap Conference. My name is Anthony Lebiedzinski, and I'm one of the equity research analysts here at Sidoti. Today we are hosting Vince Holding Corp, ticker VNCE. It is my pleasure to introduce Dave Stefko, Interim CEO, and John Szczepanski, CFO. The format for today will be a 30-minute fireside chat. So again, welcome, Dave and John. I'll let you guys introduce yourselves, and then we'll get into the questions. Great. Thanks, Anthony. Hi, everybody. I appreciate and thank you for joining us today. You know, hopefully you've all seen, or if not, you know, we recently released our 2023 fiscal earnings. 2023, we view as a transformational year for the company. We entered the year wrapping up the liquidation of a Rebecca Taylor business and also in an over-inventoried position. So as we worked through 2023, you know, we were more promotional than we would normally want to be as a brand. You know, we also completed a transaction in 2023 with Authentic Brands Group, where we sold the intellectual property, and we'll touch on that a little bit. And then we also finally launched a transformation plan. So we view 2023 as a year where we improve the overall health of the company and position the company for growth. A little bit of my background: I am the Interim CEO at this point in time. I've been with Vince for over 10 years. I was the CFO from 2016. Up Up until the COVID period in the summer of 2020, I also took on the role of Interim CEO and served in that function as we went through the back end of COVID and came out of COVID until the spring of 2021 when I returned back to the CFO role. I then retired in February 2023 but stayed on as an advisor to help the company manage through the transformational progress of last year. Then in August 2023, I joined our board of directors. I have been intimately involved with the company, as you can tell, for a number of years. I know the management team very well. I know the strategies of the company. I know the culture and all the people and our partners. And so we are in a good transitional period as we search for our new CEO, permanent CEO. So with that, you know, we're excited about where the business is right now. We feel as we enter 2024, we've reclaimed or regained the liquidity of the business and reestablished our ability to grow going forward. So with that, I'll turn it over to John, who looks like he's coming in and out of frame here. I apologize, folks. I seem to be appearing and disappearing. There's something with maybe the background and my Vince shirt that I'm wearing here. Pleased to have everyone join. John Szczepanski, I'm CFO of Vince Holding. Been with the company for 4 months. Prior experience: 18 years with Ralph Lauren in various roles across finance and operations and supporting different elements of the business, but primarily in the wholesale finance lane as well as supporting the functions around design, merchandising, and supply chain. Very operationally focused and, you know, excited to work at Vince to work with this great team to manage forward. You know, we're very pleased to be here to talk about the opportunities that we see ahead of us. As Dave mentioned, fiscal 2023 was a transformative year for the company with major activities around reinjecting and reinvigorating the balance sheet, reducing and refinancing our debt positions, as well as improving our inventory positions and our margins, especially in, as we now go forward, have a royalty stream to Authentic Brands Group that is in play. With that, we can go through the questions. Okay, very good. Yeah, thanks to Dave and John for sharing your overview here. Before I kick off with questions, within the chat function, there is an article that was shared, actually, from the company that talks more about Vince. For those that are interested, you can go to the chat function, and there should be a link to an article there. Fiscal 2023 was a transformative year for Vince, certainly. You had the transaction with Authentic Brands Group. You implemented a new transformation plan. Can you go over the details of the relationship with Authentic Brands Group and how that's changed your operations? Sure, Anthony. Yes. So last May, we had a transaction with Authentic Brands whereby the company contributed its intellectual property to a newly formed subsidiary under Authentic called ABG Vince. In that transaction, the company received consideration in cash of $76.5 million and a 25% ownership interest in the new subsidiary. With the proceeds, we used the proceeds to pay down debt, improve our balance sheet. And within that, we also entered into an exclusivity to be the primary operating company to produce and sell the Vince products in the territories that were in existence at the time. With the transactions, we incur royalty fees. And in conjunction with that, we created a transformation effort to look at our costs and expenses and our cost structure so that we can more than satisfy those new obligations that we have with Authentic. But materially, our operations haven't changed. We're still managing the business the same way as we always have. But what we are looking forward to is the potential that Authentic and their network brings to the equation in terms of product extension and business growth. An example of that is the recently announced Peerless men's tailored clothing line with the Vince label, as well as last week, Centric announced that they will be producing a handbag and small leather goods line under the Vince label. So that's really exciting. I think one other follow-up to that, too, is, you know, one advantage is you see in the photograph behind us or the backdrop behind us, you know, this is one of our Vince stores. This is Fashion Island Mall in San Diego. The products you see, the core products of what Vince has always been from an apparel perspective, you know, you see that here in the store. It allows us really to focus on that core business but also get the benefit, as John said, of categories that ABG brings to the table. You see right in the center of the screen on that back roundabout shoes. Shoes are a licensed product today, and that's a licensed product that we contributed to the partnership. As John said, you know, we're very excited, especially about the Centric's opportunity with handbags, you know, belts, and small leather goods as another opportunity for our store. That's an advantage that ABG can certainly help us ramp faster on. Understood. Okay. And then as far as the transformation plan, how is that progressing? What areas are you seeing the most significant cost savings or efficiencies? And what's a reasonable time frame as to when you would expect to complete this transformation program? Yeah, as mentioned, we identified an opportunity to look at our cost structure after closing on the Authentic transaction. Last summer, we brought in McKinsey to help us with the effort, which looked at essentially and identified opportunities to save $30 million over three years. And when we look at the breakup, the makeup of that, more than half of that we see coming from product cost efficiencies with the mandate that product quality cannot be compromised. And that is a consistent theme as we go through this journey. The other elements of the program will look at improving and optimizing pricing and promotions and our discounting and markdown activities and optimizing that, as well as looking at our operating expense and the structure around OpEx. When we look at the guidance that we just provided for Q1, the benefits and the early stages of that effort is reflected in the guidance. Gotcha. Got it. Okay. And then, you know, so the second half of fiscal 2023, your operating margin benefited from actions you took during the year with respect to inventory and pullback and lower margin businesses. Yeah, as far as how should we think about the strategy progressing in fiscal 2024? And, you know, if you could tie that in as to how it relates to your Q1 guidance, if you could provide more details, that'd be helpful. Yeah, if you look at our results for the second half of 2023, you know, our top-line business was down. You know, as you referenced, we were very heavy selling product into the off-price channel. We were very, very promotional in our stores. And again, that was the right thing to do to help us move through the inventory position we entered 2023 with, which the inventory position was really caused by, you know, an extended recovery from COVID. And to talk about it briefly, you look as we came out of COVID in 2021, and our wholesale partners, who again are today about 50% of our business, you know, while they had indicated in 2021 and early 2022, you know, returns to normal levels of inventory buys, they tightly managed their inventories, and we had aggressively bought to fuel that wholesale recovery time. We were able to work through the inventory issue through the mid-portion, early Q3 of 2023, which then allowed our margin growth to start improving. That's what you'll see in our forecast for the first quarter, is the same, you know, reduction in promotionality and reduction in off-price market selling. You know, that is going to drive margins higher in Q1 and throughout 2024, but at a price of sales until we annualize our reduction in off-price selling, which will happen late Q2 or early Q3. Then, you know, that benefit of margin, as you look at our guidance, you know, will be somewhat offset by the royalty fees. We don't finish annualizing the new royalty fees until the second quarter of 2024. Then we also have wage inflation, obviously, that affects us in 2024. Also the final wind-down of Rebecca Taylor that I talked about in the beginning, we had some benefits in the first quarter of 2023 from wrapping up that liquidation process. Those benefits in our P&L obviously don't repeat. They were one-time benefits in 2023. Gotcha. Okay. So, you know, as far as, you know, near-term opportunities or maybe low-hanging fruit, can you speak to those? You know, what could be first kind of tackled here in fiscal 2024? Yeah, if you again, we talked about beginning of 2024 being such a, you know, ability to grow and kind of a repositioning of the company for growth. You know, first and foremost, as John mentioned, is the transformation program where we anticipate driving, you know, over $30 million of savings over the next three years. You know, and that really kicked in in late 2023. So we hit the ground running with that as we entered 2024. And then also our men's business. If you look at, again, the photograph behind us, we started as a women's business, and we're still probably, you know, 80%-85% women's today. You know, one of our strategies is for men's to be 30% of our business over the next three years, to grow it to 30% over the next three years. And we'll talk a little bit later, you know, about how we're going to do that. And then other investments we've made since COVID. It started with an investment in point of sale at the store to improve customer experience and allow for things like buy online, pick up in store, and ship from store. We also enhanced and made investments in the replatforming of our website to modernize the customer experience there and expand the benefits from a consumer-facing perspective. We also invested in a customer data platform two years ago, and we've been gathering customer data for the last few years. So it's our ability to utilize that customer data to both, you know, drive increased selling in the stores and a better customer experience and, you know, maybe focus on our more important customers. We have a lot of data from that. And then finally is a customer acquisition strategy. As you can imagine, if you're in a cost management position in the inventory position and liquidity we were in 2023, we were not investing in brand awareness or customer acquisition. We want to talk about that because the link that Anthony talked about in the chat, I hope you all take the time to look at it. It is an article as part of our customer awareness investments that we're making. It's an article in Cultured magazine. Cultured magazine is a magazine for the very affluent. Its targeted subscriber base is incomes over $1.5 million. It is 45% male and 55% female, which supports our men's growth objective. The average age is 38 years old, which is important to us. We're a little bit older consumer, but at the high-income level. Obviously, that consumer can afford Vince also. And then most importantly, its subscriber base is focused in cities like New York, Miami, Los Angeles, Paris. And, you know, New York and L.A. is where we have a concentration of stores. We have probably 25% of our store count exist in the L.A. and the New York area. So it's very targeted to the consumer that we're after. And this article, we believe, will help from a brand awareness. To support it, at the end of May here, we also are hosting, along with the editor who is in the article of Cultured, we're hosting a dinner in L.A. Market, and we anticipate 100 Cultured subscribers to be introduced to the brand. So we're very excited about the opportunities that this investment will make for the brand. Got it. Okay. So obviously, there continues to be a lot of uncertainty with the economy, with interest rates high, inflation still with us. So just curious to get your take. How are you viewing the consumer environment, the potential impact that the macro factors are having on your customer, and, you know, how that, you know, relates to the ABG agreement requirements that you've laid out in your deal? Yeah, we are looking at the macro environment, especially, as you mentioned, the inflation situation, which seems to be pretty stubborn despite the rate increases that we've experienced over the last year plus. But, you know, our consumer, we believe, is very resilient, tends to be an affluent customer, very loyal, and we feel that consumer is less affected by those kind of macroeconomic factors. The other thing that we note is that our product is timeless, it's core, it's casual, and not very fashion-forward. So the product can live a longer life than a pure fashion product would, and that can help with the ebbs and flows of a macroeconomic cycle. And lastly, you know, we're really looking at the luxury marketplace. The level of price inflation to that luxury consumer has really increased over time. We see that as an advantage where those customers can potentially trade over to our product, and we can attract some more customers that way. So those three factors are really giving us confidence in our outlook as well. Yeah, and I would say one to add to that is, you know, Vince is meant to be and what it has become is the everyday wear for the luxury consumer. You know, and so to the points John made, you know, because we are a, you know, the somewhat basic, everyday, comfy, casual, multi, you know, you can wear us from many events, you know, we feel that we can manage well through macroeconomic environment. Okay. Gotcha. Okay. So can you talk about relationships with your wholesale partners, given all the changes that you are implementing? How are you thinking about growth in the wholesale channel, you know, near-term and longer-term? Sure. So Vince started, you know, it started as a 100% wholesale business, you know, and today, you know, we're 50/50, 50% wholesale, 50% direct-to-consumer business. We feel we're in all the right places. You know, we are in Nordstrom's, we're in Saks, we're in Neiman Marcus, we're in Bloomingdale's. You know, so we believe we're positioned well. We've been there with those partners, obviously, since the inception. As you look at what happened during COVID, many of you probably know that the department stores, you know, they narrowed the brands that they sold. Vince has always been the number one or number two brand across those department stores. Vince remains that today. So it's a thinner landscape of partners, you know, of brands that are in the department stores and especially in our marketplace. From a growth perspective, as we look at growth, you know, that seems like the men's business. You know, we are like today, when we look at we are while we were in all Nordstrom stores, our men's business is only in a half to two-thirds of Nordstrom stores. In the fall, we will be in all Nordstrom stores. So it's growth like that across our product categories is where we see the growth. Gotcha. Okay. So what gives you confidence that your top-line trends will improve as you move beyond Q1, as your guidance implies? Yeah, well, for Q1, we really expect similar trends that we've been seeing in the back half of last fiscal year, excluding the impact of the Rebecca Taylor distortion that we had. So sales down in the low single digits, but that's really as a result of pulling back from off-price and promotions and really going for more full-price sales and less promotionality. And we feel good about the profitability profile of the company in that quarter. As we look to the balance of the year, we really expect total sales to grow. And for the year, it's a low single-digit growth. So it's really a back half of the year story. As we get into our fall selling season, we are seeing our demand, especially in the wholesale channel, really pick up, and we expect to participate in growth. We recently announced that we would be an all-door resource in men's for Nordstrom. Those proof points give us pretty good confidence that our outlook is pretty sound. Okay. And then in terms of inventory management, how are you ensuring the right balance between channels? You know, it must be a bit hard to do, but how are you guys managing those efforts as far as inventory management? Yeah, last year was a very strong focus on inventory management and to drive a healthier overall business. Part of that was also constraints. We were constrained in what we could buy, given some of the liquidity challenges we had before the ABG transaction. As we pivot into fiscal 2024, those liquidity challenges have been relieved, and we feel like we can better balance the supply with the demand that we see in our forward-looking business. And that gives us pretty good confidence that we are managing that. We've really built some good cross-functional structures around pivoting to the supply to make sure that we're balancing that supply-demand equation in all our channels globally. And for the year, we expect inventory to be flat to last year. We are definitely continuing to keep a mindful eye on our inventory and ensuring that we've got maximizing and optimizing that inventory through the year. Got it. And then just to follow up about the improved liquidity. So does that mean that you will not require any outside financing to complete the turnaround? Just curious about that. How should investors think about that? Yeah, at this point, we are not anticipating requiring any additional funding, given our outlook and our plans for fiscal 2024. All right. That's good to hear. We have less than five minutes here to go, so I'll try to squeeze in as many as possible here. How are you thinking about the evolution of your direct-to-consumer omnichannel offering? Where do you see the most opportunity for growth? Is it e-commerce or brick-and-mortar stores? Maybe walk us through that, please. Sure. So we've seen a shift, obviously, as you know, as we all know, as we went through the COVID period, many consumers migrated to e-commerce. We've now seen over the last year, year plus, consumers are now back in stores. So at this point in time, we're seeing greater growth in our stores than we are in the e-commerce, not unlike any other retailer. We have, as I mentioned earlier, made investments in our e-commerce, you know, from a platform to a customer database, and opportunities to exploit that. So that'll provide us growth in both our stores and our e-commerce world. When you look at our stores, when you look at the dispersion of our stores in the U.S., we're heavily concentrated, where we have maybe around 10 stores in New York and 10 stores in Los Angeles. You look at markets like Chicago, we have one full-price store. You know, Dallas, we have one full-price store. Nashville, we have no full-price stores. There's a lot of opportunity for us to grow our store count also. We are, as we get into 2024, you know, there is focus on both e-commerce and store growth. Gotcha. Okay. So it sounds like a lot of opportunities to backfill there. So I guess, do you guys have a long-term vision for the number of stores that you want to have at some point, let's say 3, 5, or 3 or 5 years from now, or you can pick a time frame? What's the long-term vision for that store footprint? Yeah, I'd say right now we're at 63 stores in our network, 62 of them in the U.S., one in London. We are in 16 of the top 25 markets in the U.S., and we think we've got, obviously, room to grow based on that. And to Dave's point, we're highly concentrated in New York and L.A., so we feel that there's opportunity and white space on the store side in the U.S. And we're going to be monitoring our cash positions and ensuring that we execute on our plans, but very shortly thereafter, we're going to be evaluating our U.S. fleet and our ability to expand there. You know, when we look at international, I mentioned that, you know, the one store, but we're trading with partners in 44 different countries. So we do have a presence for the brand internationally in Europe and in Asia, and we'll certainly look at the network there. We recently announced plans to expand into China with a partner. Right now, we have 2 stores in China. We're taking a measured approach there and evaluating our future plans. Given some of the macroeconomic factors that we're seeing in the China market, we don't want to get too far out ahead of ourselves. So we'll be taking a wait-and-see approach for that market. But overall, we think there's good potential for this brand in Europe and Asia. Gotcha. Okay. So I know we're pretty much out of time. I'll squeeze one last question in here. You know, as far as your men's business, I know you touched on it a little bit before, but will this be more focused on the wholesale channel or your direct-to-consumer? How should investors think about that? It's both. Again, you think of us trying to grow the business to 30% of our total sales over the next three years. So, you know, we are testing a men's-only store at Roosevelt Field. We opened that store last year. So it's our first test of a, like I said, a men's-only store. It's next door to a women's-only store. And then also, we talked about Nordstrom's, where we are expanding into all doors for men's in the fall of this year. And so it's a growth across the entire business. All right. Well, sounds good. So, you know, we're pretty much out of time, actually, at this point here. Certainly, thank you very much, Dave and John, for sharing the Vince stories. Thank you also, everyone listening in here and, you know, taking part of the presentation. So we'll wrap it up here. Everyone, please have a nice day. Thank you very much. Thanks, everybody. All right. Take care. Thanks.