With near-term visibility nonexistent, investors continued to punish Vince Holding Corp. shares in Friday’s trading session.
Shares of Vince fell a further 43.5 percent to close at $5.24. That drop is on top of the 30 percent plunge in after-market trading Thursday. Vince posted losses for the second quarter after the markets closed Thursday, missing both Wall Street’s adjusted earnings a share estimate by 9 cents and a revenue estimate by $6.3 million.
The company, which saw the resignation of its senior management team in the past three months, is in the process of a search for a new chief executive officer and chief financial officer.
While the company in July hired a new senior vice president of merchandising, Livia Lee, the problem for investors is that she won’t be able to impact the product line until fall 2016. That’s a long way off for the investment community, whose focus is primarily from one quarter to the next.
Mark Altschwager, analyst at Robert W. Baird & Co., said, “Near-term visibility remains difficult as the management team is rebuilt and product/channel issues are resolved. While we see long-term value in the Vince brand, shares are hardly cheap today based on traditional valuation metrics.” Altschwager concluded: “Beyond a takeout scenario, the investment case remains difficult.”
Interim ceo Mark Brody and interim cfo David Stefko said during the earnings conference call that the company has written off the majority of prior-year product slated for the off-price channel, as well as current year product at the wholesale level. Total write-down for aged product and excess inventory is $14.4 million. In addition, they didn’t expect the lackluster sales trend in the wholesale channel — weaker-than-expected performance due to lower sell-throughs and customer re-orders — to abate anytime soon. That led to a lowering of fiscal 2015 guidance, with adjusted earnings a share now in the range of 31 cents to 37 cents from 85 cents to 90 cents, and sales in the range of $285 million to $295 million from prior estimates of $340 million to $350 million.
Stifel Nicloaus’ Richard E. Jaffe has a “hold” rating, noting that the outlook is uncertain given the “lack of visibility for improvement and the risk inherent to executing a turnaround.” He also said that Livia Lee has a challenging task that includes “directing and inspiring designers and merchants to create product that is highly appealing and desirable.”
Jaffe noted that management expects continued gross margin erosion due to increased markdowns as well as “expected assistance to wholesale partners, likely the product of uninspiring product assortments.” He also said that while changes were made to the handbag line to improve functionality, price points were also lowered to be more competitive.
Meanwhile, the company, concerned about a potential liquidity crunch, amended a “tax receivable agreement” with an affiliate of Sun Capital Partners Inc., the private equity firm that acquired Kellwood — from which Vince was spun off in 2008. The payment of $22.8 million plus accrued interest in the third quarter, is now owed by Sept. 15, 2016. The TRA is part of a series of agreements connected with the separation of Vince from Kellwood when it completed its initial public offering. At the time, Sun also made a capital contribution of $407.5 million to effect the separation from Kellwood. Sun still has a 56 percent stake in Vince.