Vince Holding (VNCE) Q2 2026 earnings call transcript

I will now hand the conference over to Nicole Lee, Vice President of Legal and Deputy General Counsel. Nicole, please go ahead.

Thank you and good morning everyone. Welcome to Vince Holding Corps' second quarter fiscal 2026th results conference call. Hosting the call today is Brendan Hoffman, Chief Executive Officer and Eugene Okumura, Chief Financial Officer. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that the company expects.

Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that statements made during the call will remain operative at the later time and the company undertakes no obligation to update any information discussed on the call. In addition, in today's discussion, the company is presenting its financial results in conformity with GAAP and on an adjusted basis.

The adjusted results that the company presents today are non-GAAP measures. Discussions of these non-GAAP measures and information on reconciliation of them to their most comparable GAAP measures are included in today's press release and related schedules. Which are available in the Investors section of the company's website at investors. vince. com.

Now, I'll turn the call over to Brendan.

Thank you and good morning everyone. I'm very pleased to announce another fantastic quarter for Vince Holding Corp today and excited to provide more color on the new chapter we are beginning with our recent acquisition of OBO.

Let me start with our second quarter results, which reflect continued momentum across the business. We delivered sales growth of nearly 12 percent with strength across both our direct consumer and wholesale channels and delivered adjusted EBITDA of $18 million, including the benefits of tariff refunds.

Importantly, our profitability results were above our outlook, even excluding the refund benefits, as well as transaction costs incurred in the period. This marks another quarter in which our team is executed against a clear plan and delivered on what we said we would deliver. And I want to thank everyone across our organization for that consistency. Highlights from the quarter include strong sales growth in both our women's and men's businesses, driven by full price transactions across key categories, including woven tops, lightweight outerwear, and seasonal nits and sweaters. Customers also continue to embrace full outfitting, driving higher transactions across categories. Our summer and pre fall collections resonated particularly well, and that momentum extended into the Nordstrom anniversary of that.

Underpinning it all is continued growth in our full price customer base across all channels, which gives us confidence in the durability of the business. And given the continued momentum we are seeing as we enter the third quarter, we are pleased to raise our annual outlook for Vince, as Eugene will review.

Now, I want to spend some time on the most significant strategic step we've taken as a company in years. On August 27, we announced and completed the acquisition of the operating business of OVO, one of the most recognized brands in contemporary streetwear, co-founded by Drake. And only one day following the news, we saw the transaction drive more than 500,000 impressions across owned and external posts from all partners, with amplifying accounts representing a combined audience of over 40 million followers. This is the next chapter of our multi-brand platform strategy beyond Vince in partnership with authentic. And I want to walk through why we did it, why now, and why we believe in this growth opportunity.

Let me start with the one of the most loyal followings in global streetwear, anchored by a distinctive al logo and black and gold aesthetic, and a track record of collaboration led product drops that consistently sell out. It operates 12 stores today across Canada, the United States and the United Kingdom, alongside a robust e-commerce business. This is a brand with real cultural relevance and a direct connection to its customer. And it gives Vince holding core access to the fast growing global streetwear market, a category we did not previously participate in. The strategic logic is straightforward.

OVO gets access to something and has never had at scale our operating infrastructure. We bring proven capabilities in merchandising, sourcing, production, and wholesale, many of the same capabilities that driven Vince's own turnaround. And we have tend to put them to work fueling OVO's next phase of growth. That means expanding OVO store in e-commerce footprint in the US using our scale and launching OVO's wholesale business through some of the same national department store relationships we've spent years building for Vince. At the same time, this transaction gives us a Canadian-based infrastructure and local presence that we intend to leverage to open five to six VIN stores and expand Vince's e-commerce and wholesale positioning in Canada. A market with a brand has historically been under penetrated.

This transaction also deepens our relationship with authentic brands group. Authentic has acquired a majority stake in OVO's intellectual property with break maintaining a 44% stake as well. And as part of this expanded partnership, Vince holding corporate on 5% of the IP alongside a long-term license agreement to manufacture and sell OVO products. While this gives us a new revenue stream, importantly, it gives us the ability to participate in the overall growth of the OVO IP. As authentic has demonstrated its leadership in this area through monetizing and growing these types of transactions, we are proud to deepen our partnership with them. Importantly, Vince and OVO will maintain separate brand operations and creative teams. Vince will continue to serve its contemporary customer and OVO will continue to serve its streetware audience.

Each with the creative independence has made it successful. What we are bringing together is the operating backbone underneath both brands, sourcing, production, logistics, and back-of-house infrastructure. We think that this is the right way to capture the benefits of scale without diluting what makes either brand distinct. And it reflects how we think about running a multi-brand platform going forward. From a financial standpoint, OVO ended calendar year 2025 with nearly $50 million in net sales and will be earnings neutral for us this year with plans to be earning a creative next year.

Looking forward, we have a clear path to grow this business meaningfully over time. Using disciplined assumptions with respect to channel mix, market penetration, and measured investments, we see opportunity to grow OVO to $100 million plus revenue business by fiscal 2030. And see adjusted EBITDA margins in the low double-digit percentage range.

This growth comes from three primary drivers, expanding OVO's retail footprint from our current 12 doors to approximately 20 doors by 2030, focusing on the U. S. market, launching U. S. wholesale, and enhancing e-commerce through marketing and site optimization as has proven successful events. We've been thinking about building a true multi-brand platform for some time. Given the momentum we have in the core events business today, we believe this is the right moment to take that step. We are thrilled to further our relationship with authentic and to welcome OVO, Drake, and the entire OVO team into the events holding core family.

With that, let me turn it over to Eugene who will walk you through the second quarter financials and outlook in more detail.

Thank you, Brendan. And good morning, everyone. I'll walk you through our second quarter results and provide some additional color on our outlook for the third quarter and full year, fiscal 2026.

Total company net sales for the second quarter increased 11.7 percent to 81.8 million compared to 73.2 million in the second quarter of fiscal 2025. With respect to channel performance, our direct-to-consumer segment grew 13.7 percent driven by strong performances across both our e-comm business, end stores, and our wholesale segment increased 10.4 percent year over year. Gross profit in the second quarter was 49.8 million or 60.9 percent of net sales. This compares to 36.9 million or 50.4 percent of net sales in the second quarter of last year.

This includes the benefit of 10.4 million from tariff refunds. Excluding this benefit, gross margin decreased 290 basis points in line with our expectations given the higher input cost experience related to product and freight costs. Selling general and administrative expenses in the quarter were 36.3 million or 44.3 percent of net sales as compared to 25.8 million or 35.2 percent of net sales for the second quarter of last year.

As a reminder, last year included a benefit of approximately 5.6 million related to the receipt of the payroll tax credit payments from the U. S. Department of Treasury under the Employee Retention Credit Program. Excluding this benefit from the prior year as well as 2.9 million in transaction costs, including the second quarter of fiscal 2026 related to the OVO acquisition, SG&A as a percentage of net sales leveraged approximately 210 basis points compared to the second quarter last year, primarily driven by leverage of fixed costs on the higher set.

Income from operations for the second quarter was 13.6 million compared to income from operations of 11.2 million in the same period last year. Adjusted income from operations, which includes the benefit of tariff refund in the second quarter of fiscal 2026 or 16.4 million compared to 5.5 million in the same period last year. Net interest expense for the quarter decreased to 0.7 million compared to 0.8 million in the prior year. The decrease was primarily due to lower levels of debt under the revolving credit facility. At the end of the second quarter of fiscal 2026, our long-term debt balance was 12.3 million. Income tax expense was 3.1 million compared 100,000 in the same period last year. Expenses due to the impact of replying company's estimated annual effective tax rate to the year to date ordinary pre-tax income.

Net income for the second quarter was 10.6 million or diluted earnings per share of 80 cents compared to net income of 12.1 million or diluted earnings per share of 93 cents in the second quarter of last year. Adjust the net income, which includes the benefit from tariff refunds in the second quarter of fiscal 2026 was 13.5 million or a dollar two cents for diluted share compared to 4.9 million or 38 cents in the same period last year. Adjusted EBITDA, which includes the tariff refund benefit, was 18 million for the second quarter compared to 6.7 million in the prior year excluding ERC benefits.

Turning to the balance sheet, net inventory was 73.4 million at the end of second quarter as compared to 76.7 million at the end of the second quarter last year. The year-over-year decrease was primarily driven by the IITA tariff refunds of 2.6 million.

Now, turning to our outlook. Today, we are providing an updated outlook that is specific to the business and does not include the OVO business, which I address separately. We are taking this approach to ensure compatibility of our performance across the quarter and to provide ongoing visibility into the business. This outlook also excludes the transaction and integration costs related to the acquisition and now includes the benefit of the tariff refunds. We expect to see the 2.6 million of benefit currently in inventory to flow through in the second half and be offset by incremental cost pressures from freight and product costs we are experiencing. As Brendan discussed, we are excited to see the momentum at VINs carrying into the start of the third quarter and our outlook considers this performance as well as elevated comparisons to last year along with the dynamic matter environment we continue to operate in.

For the third quarter, we expect VINs net sales to increase approximately 5% to 8% compared to the prior year period. This guidance reflects an approximate increase of 11% to 14% on a two-year basis reflecting the strong momentum we are experiencing in the business. We expect VINs adjusted operating income as a percentage of net sales to be approximately 7.5% to 8.5% and VINs adjusted EBITDA as a percentage of net sales to be approximately 8.5% to 9.5%.

Given the momentum we have seen in the VINs business and continue to expect to see, we are raising our full year outlook. For fiscal 2026, we are now expecting VINs net sales to increase approximately 8% to 10% compared to fiscal 2025. We expect VINs adjusted operating income as a percentage of net sales to be approximately 7.5% to 8% and VINs adjusted EBITDA as a percentage of net sales to be approximately 9% to 9.5%. Turning now to OVO. As Brendan reviewed, we see significant opportunity to scale the business and drive profitable growth through multiple levels. In the near term, following the transaction, we are beginning to reinvest in both inventory and marketing. Given this, we expect sales in the calendar 2026 on a performance basis to be relatively flat to calendar 2025 and expect earnings net of transaction cost to be neutral to the VINs holding for business for fiscal 2026.

Looking ahead, we expect to begin the scale of the business in fiscal 2027 through the launch of US wholesale and opening about three US store locations. We continue to expect earnings from OVO to be agreed to the VINs holding for business in fiscal 2027 and look forward to sharing more on our plans on future calls.

In summary, we are very excited for this next chapter for the VINs holding court platform. Our VINs business continue to drive momentum and we have a clear path and strategy for OVO to drive incremental sales and earnings for our combined business. We're managing the external environment effectively and with our strong balance sheet, with ample liquidity, we're continuing to invest in initiatives that drive long-term growth and we're well positioned to execute against our plan.

With that, I'll turn it back to the operator to open online for questions.

Thanks, Eric. When you look at the VINs business, where are we seeing in terms of men becoming a larger piece and how should we be thinking about further category expansion in the source? Yeah, well, you know, men's continues to do excellent for us, you know, around 25% of the business and growing. Fortunately, the women's business is growing as well, so it's a neck and neck race. In terms of other categories, you know, that's obviously in partnership with ABG now, and they've done a great job extending the brand in the categories that we've talked about like tailored clothing, handbags, obviously a legacy shoe license, looking at some of the things like baby and home. And, you know, we look to see what can be treated to our store business.

At the same time, looking at how we can leverage dropship. So, we think all of that just adds to the texture and flavor of the VINs experience.

When you look at OBO, how much is Drake going to remain involved in the brand? I know he still owns about 44% of the IP, if I'm correct. And, you know, where do you see the ability to really leverage some of the little more detailed infrastructure that you have in terms of manufacturing? Thank you. Yeah, so, you know, I had dinner with Drake last month, and he seems very committed. Obviously, OBO is his brand and his DNA, and the owl and the clothing is a big part of that. So, I was quite thrilled to see how much he wants to lean in going forward. Obviously, he's pretty busy, and we want him to continue to be the cultural icon he is.

And so, you know, he's involved from an overall direction, and he will be involved on some personal appearances and making sure that the line that's created and the marketing fits in with his overall vision. So, I think we have a great pipeline with Drake and with his team and with ABG. So, excited about that and to see where that leads to. I'm sorry, Eric, what was the second part of your question?

And I can't correct that. It's in some terms of the synergy. Oh, yeah, the operation. Thank you for manufacturing basis and your network that you've upgraded, Dale. Oh, yeah. Thank you. Yeah, no, that's obviously an important part of the decision to move forward, as I was thinking we could compliment them quite well. So, we've had a team up there now for a few weeks. We're doing a big summit next week, all hands, but all hands with ABG, us and OBO, and digging deeper into where we can compliment and be additive to them. I'm going to Hong Kong and Vietnam at the end of the month and for Vince, but we'll also be meeting with some of their key suppliers to try and facilitate better economics where we can and just show them what the department is going to look like.

So, we think there's many aspects of where Vince can lean in and supplement and be additive to what OBO is already doing, whether that's around sourcing, whether that's around adding, adding stores and wholesale in the U. S. , which is a big piece of it, whether that's OBO, helping us launch Vince in Canada with some new stores there as well as some wholesale. So, we think there's a lot of back and forth synergies that will come out of us.

Thank you. Yeah, well, they have a very special story in London as we have too as well as you know, he visited. Our main focus is the U. S. , but we certainly are keeping an eye out and opportunities in Europe for Vince as we've discussed in the past. And now for OBO. So, Jill Norton, we're on our Chief Commercial Officers. She would say she's already looking for additional spaces in London and Paris for both brands, but you know, we'll be opportunistic for OBO if those come forward. But really, our focus right now is launching wholesale in the U. S. and the additional stores, which are the great and wide open path for us.

Thanks, Eric.

Yeah. So, you know, we haven't obviously announced which partner we think is right to launch the brand. But ultimately, we think much like things that can have a diversified wholesale base. I think realistically, it's the summer of back up of next year to launch. I mean, right now, we advanced are showing a February collection and obviously that's been in the works for a while. So that's part of the work we're doing now with OBO is developing the collection for wholesale. So I would think it would be around this time next year that we would really do a launch. Maybe we'll do a capsule earlier and we're in deep conversations with the different majors to solidify that partnership.

And I can tell you this great enthusiasm as the street where business is growing and obviously around Drake and everything he's doing. You know, I would hope that as we look out to the future, we have a balanced business much like Vince that's fairly bred out between wholesale and retail. I think probably OBO will always be a little bit bigger in retail just because that's where it started. Much like Vince started in wholesale, but I have a great confidence especially with the conversations we've been having that we can ramp up wholesale quite quickly based on the enthusiasm and the way the brand resonates. And I think, you know, being a direct consumer brand, we understand how to merchandise the collection, how to merchandise the shops and we'll work closely with the partner partners to do so.

But definitely, as we speak here three years from now, I expect that very balanced business across the channels.

Well, I think, you know, taking that last, I think we will obviously want to absorb OBO. We appreciate that this is a new chapter for the company and we want to make sure it's a professional chapter for the company. So we want to learn and grow from this experience. So very confident we'll be able to do that. And then, yeah, I do expect and hope that this is a platform, a blueprint for using Vince as a platform that we can do with other brands, most likely with authentic brands group. I think, you know, that is hopefully a rinse, lather and repeat that we can do in the future. But, you know, first things first and that's going to be OBO and then we'll take it from there.

And, you know, I love the fact that it's not just a contemporary brand. It's a streetwear brand and it will prove that we can do other categories and serve other customers with the base that we had with the Vince holding platform.

I was just wondering if you can just, given the momentum that you've seen the first tap and certainly as we're seeing in the second half as well, what incremental if it doesn't margin should we think about as revenues continue to grow here?

Well, you know, we gave our guidance on even though obviously there's a lot of noise right now with the tower free funds and the future tariffs and the freight and everything. So there's lots of puts and takes and we are, you know, doing some investment back in the business, you know, marketing in terms of trying to continue to drive the increase. So, you know, other than what we've given in the guidance, I don't think I can get more granular than that, but it's certainly growing the business like we have and with the guidance we've given well past that 300 million dollar barrier. It gives us a much stronger balance sheet that allows us to make decisions and investments in the future, whether it's OVO investing in marketing, investing in people, investing in stores.

So, we feel really good about where we are and the profitability that we're going to continue to throw off.

Thanks, Mike.

Yeah. Thank you, everyone. We apologize for the glitches earlier, but hopefully the message got through and I know it will be on replay. And we look forward to updating you on our Q3 results in December. Thanks very much.