10-Q 1 vnce-20231028.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2023

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: 001-36212

 

VINCE HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

75-3264870

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

500 5th Avenue20th Floor

New York, New York 10110

(Address of principal executive offices) (Zip code)

(212) 944-2600

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value per share

 

VNCE

 

New York Stock Exchange

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. Yes No

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). Yes No

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

Emerging growth company

 

 

 

 

 

 

 

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 November 30, 2023, the registrant had 12,502,747 shares of common stock, $0.01 par value per share, outstanding.

 

 


 

VINCE HOLDING CORP. AND SUBSIDIARIES

TABLE OF CONTENTS

 

Page

Number

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Condensed Consolidated Financial Statements:

4

 

 

 

a)

Unaudited Condensed Consolidated Balance Sheets at October 28, 2023 and January 28, 2023

4

 

 

 

b)

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended October 28, 2023 and October 29, 2022

5

 

 

 

 

 

c)

Unaudited Condensed Consolidated Statements of Stockholders' Equity for the nine months ended October 28, 2023 and October 29, 2022

6

 

 

 

 

d)

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended October 28, 2023 and October 29, 2022

8

 

 

e)

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

Item 4.

Controls and Procedures

36

 

 

PART II. OTHER INFORMATION

37

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

Item 1A.

Risk Factors

37

 

 

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

43

 

 

 

Item 3.

Defaults Upon Senior Securities

43

 

 

 

Item 4.

Mine Safety Disclosures

43

 

 

 

Item 5.

Other Information

43

 

 

 

Item 6.

Exhibits

44

 

 


 

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.

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 April 28, 2023 (the "2022 Annual Report on Form 10-K") under the heading "Part I, Item 1A—Risk Factors." and our subsequently filed Quarterly Reports on Form 10-Q. 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)

 

 

 

October 28,

 

 

January 28,

 

 

 

2023

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,217

 

 

$

1,079

 

Trade receivables, net of allowance for doubtful accounts of $247 and $759 at October 28, 2023 and January 28, 2023, respectively

 

 

28,334

 

 

 

20,733

 

Inventories, net

 

 

69,560

 

 

 

90,008

 

Prepaid expenses and other current assets

 

 

5,082

 

 

 

3,515

 

Total current assets

 

 

104,193

 

 

 

115,335

 

Property and equipment, net

 

 

7,651

 

 

 

10,479

 

Operating lease right-of-use assets, net

 

 

72,591

 

 

 

72,616

 

Intangible assets, net

 

 

 

 

 

70,106

 

Goodwill

 

 

31,973

 

 

 

31,973

 

Assets held for sale

 

 

 

 

 

260

 

Equity method investment

 

 

26,500

 

 

 

 

Other assets

 

 

2,384

 

 

 

2,576

 

Total assets

 

$

245,292

 

 

$

303,345

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

30,451

 

 

$

49,396

 

Accrued salaries and employee benefits

 

 

3,726

 

 

 

4,301

 

Other accrued expenses

 

 

10,824

 

 

 

15,020

 

Short-term lease liabilities

 

 

18,477

 

 

 

20,892

 

Current portion of long-term debt

 

 

 

 

 

3,500

 

Total current liabilities

 

 

63,478

 

 

 

93,109

 

Long-term debt

 

 

57,926

 

 

 

108,078

 

Long-term lease liabilities

 

 

69,447

 

 

 

72,098

 

Deferred income tax liability

 

 

3,029

 

 

 

8,934

 

Other liabilities

 

 

 

 

 

869

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock at $0.01 par value (100,000,000 shares authorized, 12,502,343 and 12,335,405 shares issued and outstanding at October 28, 2023 and January 28, 2023, respectively)

 

 

125

 

 

 

123

 

Additional paid-in capital

 

 

1,144,345

 

 

 

1,143,295

 

Accumulated deficit

 

 

(1,092,966

)

 

 

(1,123,080

)

Accumulated other comprehensive loss

 

 

(92

)

 

 

(81

)

Total stockholders' equity

 

 

51,412

 

 

 

20,257

 

Total liabilities and stockholders' equity

 

$

245,292

 

 

$

303,345

 

 

 

 

 

 

 

 

 

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)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

84,076

 

 

$

98,564

 

 

$

217,579

 

 

$

266,134

 

Cost of products sold

 

 

46,891

 

 

 

68,761

 

 

 

118,454

 

 

 

164,324

 

Gross profit

 

 

37,185

 

 

 

29,803

 

 

 

99,125

 

 

 

101,810

 

Impairment of intangible assets

 

 

 

 

 

 

 

 

 

 

 

1,700

 

Impairment of long-lived assets

 

 

 

 

 

 

 

 

 

 

 

866

 

Gain on sale of intangible assets

 

 

 

 

 

 

 

 

(32,808

)

 

 

 

Selling, general and administrative expenses

 

 

34,356

 

 

 

39,198

 

 

 

98,630

 

 

 

119,128

 

Income (loss) from operations

 

 

2,829

 

 

 

(9,395

)

 

 

33,303

 

 

 

(19,884

)

Interest expense, net

 

 

1,993

 

 

 

2,456

 

 

 

9,420

 

 

 

6,222

 

Income (loss) before income taxes and equity in net income of equity method investment

 

 

836

 

 

 

(11,851

)

 

 

23,883

 

 

 

(26,106

)

Provision (benefit) for income taxes

 

 

509

 

 

 

(6,615

)

 

 

(5,368

)

 

 

1,288

 

Income (loss) before equity in net income of equity method investment

 

 

327

 

 

 

(5,236

)

 

 

29,251

 

 

 

(27,394

)

Equity in net income of equity method investment

 

 

656

 

 

 

 

 

 

863

 

 

 

 

Net income (loss)

 

$

983

 

 

$

(5,236

)

 

$

30,114

 

 

$

(27,394

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(16

)

 

 

24

 

 

 

(11

)

 

 

20

 

Comprehensive income (loss)

 

$

967

 

 

$

(5,212

)

 

$

30,103

 

 

$

(27,374

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.08

 

 

$

(0.43

)

 

$

2.42

 

 

$

(2.25

)

Diluted earnings (loss) per share

 

$

0.08

 

 

$

(0.43

)

 

$

2.41

 

 

$

(2.25

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

12,492,278

 

 

 

12,307,952

 

 

 

12,420,991

 

 

 

12,186,490

 

Diluted

 

 

12,497,328

 

 

 

12,307,952

 

 

 

12,472,878

 

 

 

12,186,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares Outstanding

 

 

Par Value

 

 

Additional Paid-In Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Loss

 

 

Total Stockholders' Equity

 

Balance as of January 28, 2023

 

 

12,335,405

 

 

$

123

 

 

$

1,143,295

 

 

$

(1,123,080

)

 

$

(81

)

 

$

20,257

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(381

)

 

 

 

 

 

(381

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Share-based compensation expense

 

 

 

 

 

 

 

 

420

 

 

 

 

 

 

 

 

 

420

 

Restricted stock unit vestings

 

 

34,983

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Tax withholdings related to restricted stock vesting

 

 

(1,148

)

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

 

(8

)

Issuance of common stock related to Employee Stock Purchase Plan ("ESPP")

 

 

1,885

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

Balance as of April 29, 2023

 

 

12,371,125

 

 

$

124

 

 

$

1,143,721

 

 

$

(1,123,461

)

 

$

(83

)

 

$

20,301

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

29,512

 

 

 

 

 

 

29,512

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Share-based compensation expense

 

 

 

 

 

 

 

 

393

 

 

 

 

 

 

 

 

 

393

 

Restricted stock unit vestings

 

 

134,995

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Tax withholdings related to restricted stock vesting

 

 

(23,695

)

 

 

 

 

 

(126

)

 

 

 

 

 

 

 

 

(126

)

Issuance of common stock related to ESPP

 

 

4,239

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Balance as of July 29, 2023

 

 

12,486,664

 

 

$

125

 

 

$

1,143,999

 

 

$

(1,093,949

)

 

$

(76

)

 

$

50,099

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

983

 

 

 

 

 

 

983

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

(16

)

Share-based compensation expense

 

 

 

 

 

 

 

 

342

 

 

 

 

 

 

 

 

 

342

 

Restricted stock unit vestings

 

 

11,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholdings related to restricted stock vesting

 

 

(3,245

)

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

(7

)

Issuance of common stock related to ESPP

 

 

7,778

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Balance as of October 28, 2023

 

 

12,502,343

 

 

$

125

 

 

$

1,144,345

 

 

$

(1,092,966

)

 

$

(92

)

 

$

51,412

 

 

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)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares Outstanding

 

 

Par Value

 

 

Additional Paid-In Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Loss

 

 

Total Stockholders' Equity

 

Balance as of January 29, 2022

 

 

11,986,127

 

 

$

120

 

 

$

1,140,516

 

 

$

(1,084,734

)

 

$

(122

)

 

$

55,780

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,169

)

 

 

 

 

 

(7,169

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

Common stock issuance, net of certain fees

 

 

36,874

 

 

 

 

 

 

305

 

 

 

 

 

 

 

 

 

305

 

Share-based compensation expense

 

 

 

 

 

 

 

 

609

 

 

 

 

 

 

 

 

 

609

 

Restricted stock unit vestings

 

 

118,831

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Tax withholdings related to restricted stock vesting

 

 

(16,962

)

 

 

 

 

 

(148

)

 

 

 

 

 

 

 

 

(148

)

Issuance of common stock related to ESPP

 

 

2,663

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Balance as of April 30, 2022

 

 

12,127,533

 

 

$

121

 

 

$

1,141,304

 

 

$

(1,091,903

)

 

$

(128

)

 

$

49,394

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,989

)

 

 

 

 

 

(14,989

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Common stock issuance, net of certain fees

 

 

68,106

 

 

 

1

 

 

 

519

 

 

 

 

 

 

 

 

 

520

 

Share-based compensation expense

 

 

 

 

 

 

 

 

551

 

 

 

 

 

 

 

 

 

551

 

Restricted stock unit vestings

 

 

102,137

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Tax withholdings related to restricted stock vesting

 

 

(6,164

)

 

 

 

 

 

(49

)

 

 

 

 

 

 

 

 

(49

)

Issuance of common stock related to ESPP

 

 

2,416

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Balance as of July 30, 2022

 

 

12,294,028

 

 

$

123

 

 

$

1,142,342

 

 

$

(1,106,892

)

 

$

(126

)

 

$

35,447

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,236

)

 

 

 

 

 

(5,236

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

24

 

Share-based compensation expense

 

 

 

 

 

 

 

 

477

 

 

 

 

 

 

 

 

 

477

 

Restricted stock unit vestings

 

 

36,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax withholdings related to restricted stock vesting

 

 

(1,694

)

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

(13

)

Issuance of common stock related to ESPP

 

 

2,187

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Balance as of October 29, 2022

 

 

12,331,328

 

 

$

123

 

 

$

1,142,823

 

 

$

(1,112,128

)

 

$

(102

)

 

$

30,716

 

 

See notes to unaudited condensed consolidated financial statements.

 

7


 

VINCE HOLDING CORP. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

 

 

 

Nine Months Ended

 

 

 

October 28, 2023

 

 

October 29, 2022

 

Operating activities

 

 

 

 

 

 

Net income (loss)

 

$

30,114

 

 

$

(27,394

)

Add (deduct) items not affecting operating cash flows:

 

 

 

 

 

 

Impairment of intangible assets

 

 

 

 

 

1,700

 

Impairment of long-lived assets

 

 

 

 

 

866

 

Depreciation and amortization

 

 

3,703

 

 

 

5,828

 

Provision for bad debt

 

 

(17

)

 

 

149

 

Gain on sale of intangible assets

 

 

(32,808

)

 

 

 

Loss on disposal of property and equipment

 

 

230

 

 

 

72

 

Amortization of deferred financing costs

 

 

673

 

 

 

734

 

Deferred income taxes

 

 

(5,905

)

 

 

1,039

 

Share-based compensation expense

 

 

1,155

 

 

 

1,637

 

Capitalized PIK Interest

 

 

2,875

 

 

 

1,917

 

Loss on debt extinguishment

 

 

3,136

 

 

 

 

Equity in net income of equity method investment, net of distributions

 

 

(475

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables, net

 

 

(7,584

)

 

 

(301

)

Inventories

 

 

20,441

 

 

 

(37,913

)

Prepaid expenses and other current assets

 

 

(366

)

 

 

718

 

Accounts payable and accrued expenses

 

 

(23,921

)

 

 

20,954

 

Other assets and liabilities

 

 

(4,372

)

 

 

1,108

 

Net cash used in operating activities

 

 

(13,121

)

 

 

(28,886

)

Investing activities

 

 

 

 

 

 

Payments for capital expenditures

 

 

(920

)

 

 

(2,100

)

Transaction costs related to equity method investment

 

 

(525

)

 

 

 

Proceeds from sale of intangible assets

 

 

77,525

 

 

 

 

Net cash provided by (used in) investing activities

 

 

76,080

 

 

 

(2,100

)

Financing activities

 

 

 

 

 

 

Proceeds from borrowings under the Revolving Credit Facilities

 

 

219,266

 

 

 

304,952

 

Repayment of borrowings under the Revolving Credit Facilities

 

 

(248,387

)

 

 

(272,375

)

Repayment of borrowings under the Term Loan Facilities

 

 

(29,378

)

 

 

(1,750

)

Proceeds from common stock issuance, net of certain fees

 

 

 

 

 

825

 

Tax withholdings related to restricted stock vesting

 

 

(141

)

 

 

(210

)

Proceeds from stock option exercises, restricted stock vesting, and issuance of common stock under employee stock purchase plan

 

 

38

 

 

 

58

 

Financing fees

 

 

(3,012

)

 

 

(406

)

Net cash (used in) provided by financing activities

 

 

(61,614

)

 

 

31,094

 

Increase in cash, cash equivalents, and restricted cash

 

 

1,345

 

 

 

108

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(7

)

 

 

(12

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

1,116

 

 

 

1,096

 

Cash, cash equivalents, and restricted cash, end of period

 

 

2,454

 

 

 

1,192

 

Less: restricted cash at end of period

 

 

1,237

 

 

 

35

 

Cash and cash equivalents per balance sheet at end of period

 

$

1,217

 

 

$

1,157

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

Cash payments for interest

 

$

5,807

 

 

$

2,479

 

Cash payments for income taxes, net of refunds

 

 

437

 

 

 

68

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

Non-cash equity method investment

 

 

25,500

 

 

 

 

Capital expenditures in accounts payable and accrued liabilities

 

 

102

 

 

 

76

 

Deferred financing fees in accrued liabilities

 

 

323

 

 

 

1,675

 

 

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 "(F) Recent Transactions" below 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. See Note 2 "Wind Down of Rebecca Taylor Business" 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 "(F) Recent Transactions" below 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 January 28, 2023, as set forth in the 2022 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 October 28, 2023. 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 consolidated financial statements.

(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

 

9


 

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 October 28, 2023 and January 28, 2023, the contract liability was $1,506 and $1,617, respectively. For the three and nine months ended October 28, 2023, the Company recognized $59 and $234, respectively, of revenue that was previously included in the contract liability as of January 28, 2023.

(F) Recent Transactions: The following transactions have occurred during fiscal 2023. In addition, see Note 2 "Wind Down of Rebecca Taylor Business" for further information.

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 $1,025. The Company recognized a gain of $765 on the sale, which was recorded within Gain on sale of intangible assets in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the nine months ended October 28, 2023. Net cash proceeds from the sale were used to repay $838 of borrowings under the Term Loan Credit Facility (as defined in Note 5 "Long-Term Debt and Financing Arrangements").

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 $76,500 in cash and a 25% membership interest in ABG Vince (the "Asset Sale"). The Asset Sale was consummated in accordance with the terms of the Asset Purchase Agreement on May 25, 2023 (the "Closing Date"). Through the agreement, Authentic will own the majority stake of 75% membership interest in ABG Vince.

Upon the closing of the Asset Sale, the Company derecognized the intellectual property assets at their carrying amount of $69,957. In exchange for the Company's sale of its intellectual property assets, which included the Vince tradename and Vince customer relationships, to ABG Vince, Authentic paid $76,500 in cash and a 25% interest in ABG Vince valued at $25,500. As a result, the Company recognized a gain of $32,043, which was recorded within Gain on sale of intangible assets in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the nine months ended October 28, 2023. Additionally, during the three and nine months ended October 28, 2023, the Company incurred total transaction related costs of approximately $248 and $5,555, respectively. Of these transaction costs, approximately $525 was incurred to acquire the investment in ABG Vince. As such, these costs were included in the initial measurement of the investment and recorded as part of the equity method investment on the Condensed Consolidated Balance Sheets. The remaining transaction related costs are included in selling, general and administrative ("SG&A") expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The Company utilized the net proceeds received to prepay in full the Term Loan Credit Facility and to repay a portion of the outstanding borrowings under the 2018 Revolving Credit Facility (as defined in Note 5 "Long-Term Debt and Financing Arrangements"). See Note 5 "Long-Term Debt and Financing Arrangements" for further information.

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.

 

10


 

The Company accounts for its 25% interest in ABG Vince under the equity method. In applying the equity method, the Company recorded the initial investment at cost and subsequently increases or decreases the carrying amount of the investment by the Company's proportionate share of net income or loss. Distributions received from ABG Vince are recognized as a reduction of the carrying amount of the investment. The Company's proportionate share of ABG Vince's net income or loss is recorded within Equity in net income of equity method investment on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The carrying value for the Company's investment in ABG Vince is recorded within Equity method investment on the Condensed Consolidated Balance Sheets. The Company records its share of net income or loss using a one-month lag. This convention does not materially impact the Company's results.

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.

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 45 Retail Stores and Shop-in-Shops in the Territory. The Option Territory may be changed unilaterally by ABG Vince at any time after the effective date of the License Agreement.

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 $11,000 and annual minimum net sales as specified in the License Agreement, in each case, during the initial term of the License Agreement, except that the guaranteed minimum royalty and minimum net sales for the first contract year during the initial term will be prorated to the period beginning on the Closing Date and ending at the end of the Company's 2023 fiscal year. The annual guaranteed minimum royalty and annual minimum net sales for each subsequent renewal term will be the greater of (i) a 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).

 

11


 

(G) 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 Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13: "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The ASU requires an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, each reporting entity should estimate an allowance for expected credit losses, which is intended to result in more timely recognition of losses. The new standard applies to trade receivables arising from revenue transactions. Under Accounting Standards Codification 606, revenue is recognized when, among other criteria, it is probable that an entity will collect the consideration it is entitled to when goods or services are transferred to a customer. When trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The Company adopted the guidance on January 29, 2023, the first day of fiscal 2023, which did not have a material effect on the Company's consolidated financial statements.

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. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

 

Note 2. Wind Down 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 $4,250. The Company recognized a gain of $1,620 on the sale, which was recorded within Gain on sale of intangible assets in the Consolidated Statements of Operations and Comprehensive Income (Loss) during fiscal 2022. Net cash proceeds from the sale were used to repay $2,997 of borrowings under the Term Loan Credit Facility and $427 of borrowings under the 2018 Revolving Credit Facility during fiscal 2022.

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.

The following table presents a summary of Rebecca Taylor wind down related charges (benefits), reported within the Rebecca Taylor and Parker segment, incurred for fiscal 2023. There were no wind down related charges (benefits) for the three months ended October 28, 2023.

 

 

 

Nine Months Ended

 

 

 

October 28,

 

(in thousands)

 

2023

 

Selling, general and administrative expenses:

 

 

 

Benefit from release of operating lease liabilities

 

$

(2,025

)