Vince.(US:VNCE)2023-04-28 20:02Part I Business Vince Holding Corp. is a contemporary retailer undergoing major restructuring, divesting brands and selling Vince IP - The company consists of three brands: Vince, Rebecca Taylor, and Parker, but is undergoing a major restructuring18 - A significant portion of net sales comes from a single wholesale partner, Nordstrom, accounting for 16% in fiscal 2022 and 20% in fiscal 202119 - The company announced its decision to wind down the Rebecca Taylor business in September 2022 and completed the sale of its intellectual property in December 2022, with all Rebecca Taylor stores closed by January 28, 20233031 - The intellectual property for the Parker brand was sold on February 17, 202333 - Subsequent to the fiscal year-end, on April 21, 2023, the company agreed to sell the Vince brand's intellectual property to a subsidiary of Authentic Brands Group, LLC226364 Net Sales by Business Segment (Fiscal Years 2022 vs. 2021) | Segment | FY 2022 Net Sales (in thousands) | % of Total | FY 2021 Net Sales (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Vince Wholesale | $169,375 | 47.4% | $147,817 | 45.8% | | Vince Direct-to-consumer | $149,770 | 41.9% | $135,720 | 42.1% | | Rebecca Taylor and Parker | $38,297 | 10.7% | $39,146 | 12.1% | | Total net sales | $357,442 | 100.0% | $322,683 | 100.0% | Risk Factors The company faces critical risks including potential failure of the IP sale, liquidity issues, internal control weaknesses, and foreign sourcing reliance - A primary risk is the potential failure to close the recently signed intellectual property asset sale to Authentic Brands Group, LLC, which is subject to closing conditions69 - The company's ability to maintain liquidity to service debt and fund operations is a significant concern, dependent on generating sufficient cash flow and maintaining availability under its credit facilities7172 - A material weakness in internal control over financial reporting, first identified in fiscal 2016, continued to exist in fiscal 2022, which could result in material misstatements in financial statements87 - The company is heavily reliant on foreign sourcing, with 82% of its products produced in China in fiscal 2022, exposing it to political, economic, and trade-related risks117118 - The company is a "controlled company," with affiliates of Sun Capital owning approximately 69% of outstanding common stock as of March 31, 2023, giving them significant influence over corporate matters124 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments127 Properties The company leases all corporate facilities, showrooms, and 67 Vince retail stores, including 50 full-price and 17 outlet locations - The company leases all of its significant corporate facilities and showrooms, with locations in New York, NY; Los Angeles, CA; and Paris, France129130 - As of January 28, 2023, the company operated 67 Vince retail stores, consisting of 50 full-price stores and 17 outlet stores130131133 Legal Proceedings Ongoing legal proceedings are not expected to materially impact the company's financial position or results - The company does not expect any ongoing legal proceedings to have a material adverse impact on its financial position, results of operations, or cash flows134 Mine Safety Disclosures This item is not applicable to the company - Not applicable135 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on NYSE (VNCE); no cash dividends paid or anticipated due, partly due to debt restrictions - Common stock is traded on the NYSE under the symbol "VNCE"137 - The company has never paid cash dividends and does not plan to in the foreseeable future, partly due to restrictions in its debt agreements139 - No shares of common stock were repurchased in the three months ended January 28, 2023141 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations FY2022 net sales increased 10.8% to $357.4 million, but gross margin declined, resulting in a $25.4 million operating loss and $38.3 million net loss Consolidated Statement of Operations Summary (Fiscal Year 2022 vs. 2021) | Metric (in thousands) | FY 2022 | FY 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $357,442 | $322,683 | $34,759 | 10.8% | | Gross Profit | $137,970 | $146,570 | ($8,600) | (5.9)% | | (Loss) Income from Operations | ($25,422) | $483 | ($25,905) | * | | Net Loss | ($38,346) | ($12,704) | ($25,642) | 201.8% | | Diluted Loss per Share | ($3.14) | ($1.07) | - | - | - Gross margin rate decreased to 38.6% from 45.4% in the prior year, with key negative impacts from increased promotional activity (-440 bps), higher inventory reserves (-320 bps), and Rebecca Taylor wind-down costs (-270 bps)156158 Income (Loss) from Operations by Segment (Fiscal Year 2022 vs. 2021) | Segment (in thousands) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Vince Wholesale | $43,592 | $45,839 | | Vince Direct-to-consumer | $2,397 | $10,873 | | Rebecca Taylor and Parker | ($21,255) | ($9,213) | | Unallocated corporate | ($50,156) | ($47,016) | | Total (Loss) Income from Operations | ($25,422) | $483 | - The Rebecca Taylor and Parker segment's loss from operations increased by 130.7% to $21.3 million, primarily driven by costs associated with the wind-down of the Rebecca Taylor business and impairment charges171 Liquidity and Capital Resources Liquidity relies on cash and credit facilities; FY2022 saw $19.3 million net cash used in operations, with the pending IP sale expected to strengthen liquidity - The company expects the Authentic Transaction to strengthen its liquidity position by using the proceeds to prepay its Term Loan Credit Facility in full and repay a portion of its Revolving Credit Facility174 Summary of Cash Flows (Fiscal Year 2022 vs. 2021) | Cash Flow Activity (in thousands) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($19,261) | ($221) | | Net cash provided by (used in) investing activities | $1,468 | ($5,055) | | Net cash provided by financing activities | $17,811 | $2,514 | - As of January 28, 2023, there were $58.5 million of borrowings outstanding under the 2018 Revolving Credit Facility, with $24.0 million available208 - The Third Lien Credit Facility is with SK Financial Services, LLC, an affiliate of Sun Capital, the company's majority stockholder210211 Critical Accounting Estimates Critical accounting estimates include revenue reserves, inventory valuation, goodwill/intangible asset impairment, and deferred tax asset valuation allowances - Estimates for revenue reserves are significant; a hypothetical 1% change would have impacted net sales by $81 thousand as of January 28, 2023225227 - Inventory valuation is highly subjective; a hypothetical 1% change in the inventory obsolescence reserve would have changed inventory value by $65 thousand as of January 28, 2023228230 - In Q2 2022, a triggering event led to a quantitative impairment test, resulting in a $1.7 million impairment charge for the Rebecca Taylor tradename235 - The company maintained a full valuation allowance on all definite-lived deferred tax assets in fiscal 2022, as it does not believe it is more likely than not that they will be recognized251 Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide this information as it qualifies as a "smaller reporting company" - The company is not required to provide this information as it qualifies as a "smaller reporting company"254 Financial Statements and Supplementary Data This section refers to the index of audited consolidated financial statements, located on page F-1 - This item directs the reader to the consolidated financial statements included at the end of the Annual Report255 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported256 Controls and Procedures Disclosure controls were ineffective as of January 28, 2023, due to a material weakness in IT general controls, with remediation ongoing - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of January 28, 2023259 - A material weakness in internal control over financial reporting related to IT general controls (inadequate user access controls and segregation of duties) continues to exist265266 - Management is implementing a remediation plan, which includes routine reviews of user system access and ensuring timely removal of access upon termination270 Other Information The company reports no other information under this item - None274 Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement277 Executive Compensation Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement278 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement279 Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement280 Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2023 definitive proxy statement - Information is incorporated by reference from the company's definitive proxy statement281 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and all exhibits filed as part of the Annual Report on Form 10-K - This item provides an index to the audited consolidated financial statements and a list of all exhibits filed with the report284 Form 10-K Summary The company reports no Form 10-K summary - None289