Hello, everyone. I'm Michael Kupinski, the Director of Research at Noble Capital Markets and the analyst that follows Vince Holdings. The stock symbol is VNCE. I have an outperform rating. This presentation will be a fireside chat format with Brendan Hoffman, the CEO, and Yuji Okumura, the CFO, and I hope to address most of your questions that are on top of your mind, including questions about the recent OVO transaction. We're going to try and get to as many of these as possible. Gentlemen, welcome. Let's get started.
Thank you, Michael.
Thank you.
Thank you for joining us. Vince obviously delivered a very strong double-digit Q2 revenue performance, and that's continuing some favorable top-line momentum. Can you just tell the investors what's driving the durability of that full price demand across both of your channels, and how sustainable is that going into the back half of fiscal 2026?
Well, it starts with great product. When you are a mono-brand like Vince, it is all around the product, and our product has just continued to evolve and improve and elevate over the last few years. The customer is rewarding us for that. We feel terrific with how that momentum is going to continue in the back half of the year and into next year. Our direct-to-consumer customers are telling us that they love the product, as are our wholesale customers. Team is doing a great job taking that product and amplifying it across all channels.
It is interesting because it seems like economically, the macro environment, you have a challenging backdrop. We continue to hear that the U.S. consumer is discerning with their spend. How are you thinking about the health of the consumer today, as you are clearly continuing to drive results, but just give us your thoughts about the macro environment.
Yeah. Well, I think quite honestly, we are benefiting from the different dynamics that are going on out there. We play in the contemporary space. It is a little bit more upscale and luxury, yet it is not true luxury. Our consumer has the wherewithal to continue shopping. I think what we are also seeing is that luxury customer who can afford luxury just sees the pricing so outrageous at the super high end, and they just cannot bring themselves to pay those prices. They are gravitating towards contemporary, where we are the leader in the space. I think you see it in the department store world with Bloomingdale's. That is putting up double-digit increases, and contemporary is their sweet spot as well. I think overall, despite the challenges, it is playing to our favor.
That sounds terrific. I know you touched on this, but you have been expanding the Vince assortment beyond core apparel into categories like handbags and tailored clothing, footwear, and accessories, including your drop ship strategy. What are you learning from early customer response, and which categories do you believe could become a more meaningful revenue contributor over time?
Yeah. We're learning that Vince can expand beyond its core apparel categories. We always felt that, but in our prior life, we'd only really focused on shoes. But now with the relationship with Authentic Brands Group that bought 75% of our IP a few years ago, it's their mandate to go out and expand categories and find best-in-class partners to do that, a nd it's really proved to be very favorable for us. You mentioned drop ships, so we're able to benefit online and in our stores with the different categories without all the inventory risk, because we ship it directly from these third-party suppliers. It expands the reach of Vince. A lot more people are noticing us through these different categories.
That was always true with our footwear. I think a lot of people found Vince through footwear, b ut now when I walk into, let's say, Bloomingdale's, and I'm in the men's department, and I see Vince on the wall across the store, realize it's the tailored clothing license that's sitting next to names like Canali and other high-end names. I think it's been terrific. It's something that's going to continue to drive business and awareness for us. And we have the right partner in Authentic Brands Group to go out there and find different licensees. We've done shoes, as I've mentioned. We've done well with tailored clothing, handbags, accessories. We're starting again in other categories like home and jewelry and kids and swim, and again, it's just upside for the brand and for the business.
That's terrific, and I know that men's has been a key growth opportunity for Vince. You have a longer-term goal of increasing penetration from roughly, I think, 24% to as much as 30%. How is that business developing, and what are the biggest opportunities to get to that 30%? Is that greater penetration with existing customers, new customers, broader assortments, or additional wholesale distribution?
Yeah, I think the biggest driver has been and will be expanded distribution with our wholesale partners. And in some cases, it's rolling out to new doors in Bloomingdale's and Nordstrom, b ut in a lot of cases, it's stores we're already in, but we just have a much more expanded assortment. Nordstrom is a great example, where when I was here during my first tenure at Vince, we were in most of the stores, but it might just be a T-stand. Now we have a proper presence there. And so if you want to shop Vince men's at Nordstrom, you're getting a great reflection of the Vince assortment, and that's really supercharged the business. And so, as you mentioned, we think we can get it up to 30% of the penetration, but we also want our women's business to grow.
We are really expecting the overall pie to grow. We think that given that men's has been historically under-penetrated, we can get it up to 30%, and we are excited about that, and we are really excited about the way the collection looks.
Yeah. Brendan, as the product offering expands and the brands gain momentum, are you seeing any meaningful change in who the Vince customer is? Are you attracting a younger or broader customer while retaining the core Vince customer? How does that influence your thinking about product and marketing?
Yeah, I think there hasn't been a seismic change in who our customer is, but we continue to stretch on the boundaries, I think. I do think we are getting a slightly younger customer as we style the product a little bit differently. Focus group of one, my son, who is starting his investment banking career, says it's a big brand of choice now around his office, but that might be a little biased. I think that we do have that opportunity to introduce the brand to a younger customer. I think that's where some of the outlet stores really help. Nordstrom Rack, if you talk to the Nordstrom team, Pete Nordstrom, Jamie Nordstrom, they believe in the Rack equally to their full-price business because they believe that's the way they introduce people into Nordstrom, is through the Rack, and get them while they are younger.
I have totally bought into that. I think through our outlet strategy, through our Rack strategy, through other ways we are styling the product, we can get that younger customer who then will grow with us and evolve.
Terrific. Along with the dynamic consumer environment, the costs are going up. In Q2, excluding those tariffs, the gross margin saw greater pressure from freight and product cost. How are you thinking about the cost environment moving into the second half of this year?
Yeah. We have a great team that is constantly working with our suppliers to make sure we get favorable costs while not sacrificing the quality. I'm actually leaving this weekend to go to Vietnam and Hong Kong and meet with our key suppliers. Last year, when tariffs were so unpredictable, and really putting pressure on costs, we did raise our prices. As we've talked about in the past, we raised them about 10%-12%, not across the board, but very strategically and surgically. We actually saw units increase. The inelasticity of our product is a big weapon for us moving forward.
That being said, this year, as we got the big tariff refund, and we have some of it still to come in the back half of the year, even though there is some uncertainty and some cost pressures, we didn't feel like it was prudent to take prices up again. There's a lot of noise in the gross margin, as you mentioned about freight and some other cost pressures, but we've been hitting our forecast. We do believe that as we look to 2027, if those pressures continue to maintain, we have some pricing flexibility that we can pull that lever. But, again, given the tariff refund we just got, we felt like that more than covered any of the other cost pressures, and very comfortable with where our pricing is.
But moving forward, we will protect that gross margin, both through continuing to negotiate on the cost side, but also realizing that we do have the opportunity to raise prices because the product's so good, the consumer still sees the value as we take some pricing increases.
One thing that you've done is that you did a great job in managing your SG&A expenses. As you look ahead, how much further runway exists on your SG&A leverage as you scale past the $300 million revenue threshold that you guys were targeting?
I'll let Yuji jump in on that.
Yeah, sure. Even when you look back at Q2, excluding the transaction cost and last year's one-time ERC credit, our SG&A, as a percentage of revenue, already improved by 210 basis points in Q2 alone. When you think about that as we scale to greater than $300 million, we do believe there's continued room to leverage, especially on the corporate overhead, as well as technology and some of the store operating costs. Also when we think about the OVO platform, it gives us sort of the second growth engine, and we'll be able to share some of those back of the house infrastructure. I do want to also mention that as we continue to invest in the business, we will continue to invest in stuff like marketing and technology to continue to drive some of that growth.
We are luckily in the position, from balance sheet perspective, have the flexibility to do so.
Yuji, you might want to just touch on that because obviously the company has obviously transitioned now to be throwing off a lot of cash. The balance sheets, you might want to just talk, for some investors that may not be familiar with the story, how much improved the balance sheet is and your financial position.
Yeah. I think over the years, because of our strong sales, we were able to pay down our revolving credit facility. So when you compare the revolver between Q2 of last year and Q2 of this year, it went from a total debt was a little bit over $30 million- $12 million at the end of Q2. And obviously, the tariff refund obviously helped as well. When you receive $13 million in refund, help fund some of that debt paydown, as well as our strength overall in sales. That's greatly reduced our debt. So when you look at our overall balance sheet, we're healthier than ever.
Yeah. And that's also giving you the flexibility to do transactions like OVO.
Yeah.
I was just wondering if you can maybe walk us through the strategic logic of the OVO transaction. Why this brand? Why now? And why is Vince the right operating partner for this streetwear brand with such a different customer base, it would seem? So maybe give us a little color on the transaction.
Yeah. A lot to unpack there. Let me try to hit the points there and let me know what I missed.
Yeah.
I think just stepping back, as I alluded to, this is my second tenure at Vince. I was here for five years, left in 2020, and came back about a year and a half ago. What brought me back was, one, my love for Vince, the fact that the leadership team and beyond was largely intact, which I like to say I'm insulted they stayed, but I'm gratified they're here. Because I realized, as they had grown, that there was an opportunity to use Vince, VNCE, as a platform to go beyond just being a mono brand. That was something, a year and a half ago, we started to think about and investigate. Tariffs happened and it stopped us in our tracks, along with the Saks bankruptcy concerns.
In retrospect, that was good because it allowed us to really focus on Vince, allowed me to get back in the business and really understand the strengths and opportunities. We started about six months ago, working with Authentic Brands Group, who is the major dominant player out there in terms of buying IP in the space, to think about what we could partner on together to bring to market. We looked at a lot of different things, and when OVO was brought up a few months back, I immediately liked it, for a number of reasons. One, what Jamie Salter likes to say is content drives commerce and we've seen that at Vince in a different way with some of the content and how well that's done to drive consumer interaction.
You think about a pop culture icon like Drake, and to be honest, I didn't even realize how enormous he is in terms of where he ranks on historical musical charts. But with 140 million Instagram followers, he is the epitome of content. Yet he's had this brand for 12 years or so, this apparel brand, OVO, and it does about $50 million in business, mostly through its own stores, eight in Canada, three in the U.S. and one in the U.K., as well as its website. I just saw so much opportunity and white space to be able to do what we do really well in terms of the operations, and that means opening up stores in the U.S. because they only have three. They have no wholesale business here in the U.S. or anywhere, actually. We obviously are best in class at wholesale.
Had started to talk with the different partners about their enthusiasm for Drake to find the right launch partner. Then, knowing we can grow e-commerce through all these different levers. I liked it so much better than if it had been in wholesale or had a lot of stores and just hadn't done well. In this case, it really just hadn't had the right leadership and the right growth capital to be a growth engine. Doing it with ABG, the timing just felt right. I felt like Vince was ready to do it, given the strength of the brand. The team was ready to do it. Importantly, you mentioned it's streetwear, it's not contemporary apparel. We didn't want to confuse our teams in terms of the people doing design and bringing product to market. They're walled off.
Vince has their team, OVO has their team, and that's not where we will look to intermingle. It will be a lot of other parts where we'll look to complement each other to drive the business.
I think it's an exciting opportunity for you guys. One thing is, a lot of questions that we get from investors is, how involved will Drake be to the day-to-day operations at the company?
He's pretty busy, as you can imagine. I think he's probably going to go out and tour sometime later this year or next year. Not trying to break any news there, but he has his hands in a lot of different things. He's not involved day-to-day, but he's very involved in terms of the direction of the brand. He's working with the creative team there to make sure the direction and the collaborations are intact and on message. I had dinner with him last month, along with Jamie Salter, just to make sure that he was invested in this, and he was really enthusiastic. I was really blown away and very impressed by him beyond his musical and creative acumen. He will be involved in when we do store openings or when we do launch with our partner.
He'll lean in and we'll try to match it around his schedule, but he's very excited and OVO is more than just a clothing brand to him. It's his music brand. It really is his whole persona. Along with ABG being able to amplify that, I think we will get tremendous exposure for OVO and really be able to double this brand over the next few years through all the different levers we have.
Brendan, you described this as validating your multi-brand platform strategy with Authentic Brands Group. Should investors view OVO as a repeatable blueprint, and what characteristics would you require before adding a future brand?
Yeah. The long-term strategy is that this is kind of a rinse, lather, repeat opportunity for us. We really like the relationship with Authentic Brands Group. I've known Jamie Salter for 15 years now, and our teams have gotten to know each other over the last three years, so there's a real comfort level there. And so, I'm glad we're partnered with him and connected with him and his team. We want to get this one done first. As confident as I am and even more confident three or four weeks into it, we've had multiple trips to Toronto to work with the teams, that this will be a really accretive opportunity that we can handle quite easily and seamlessly, and allow us to then have the confidence to do other opportunities that might come along. Now, Jamie's timeline might be a little quicker. We'll see.
He's constantly out there and looking, and we really are happy that they seem to have chosen us as their partner, as they go more upscale. We're actually part of Authentic Luxury Group, and that's something I believe they're looking to expand with OVO and other things. I think it's just terrific that we've gotten this one under our belt, and we're going to learn a lot from this and hopefully be able to grow into a true multi-brand platform.
Now, I know that you've laid out a path to grow OVO to $100 million plus in revenue by fiscal 2030 with low double-digit EBITDA margins. I was just wondering maybe if you could just walk us through how you get there, and which would you consider is the biggest swing factor and the biggest lever maybe to get there? Would it be the expansion of the stores, the U.S. wholesale launch, e-commerce? Maybe just add your thoughts in terms of how you get to the $100 million-plus revenue.
Yeah. No doubt the launching wholesale with the right partner and then expanding beyond that is the most critical factor because opening up stores in the U.S. is going to be easy for us. We have 50-plus stores for Vince. We know how to do that. I'm actually really excited that we have this wide-open map. With Vince, it's hard to find new stores because we're in all the gateway cities, but with OVO only having one New York, one L.A., and Vegas, we literally have the entire rest of the country to look for the right opportunities. So it could be Philadelphia, could be Dallas, could be Chicago, could be Boston, could be San Fran. I'm really confident we'll be able to get a few stores open in early 2027.
Matching that with launching with this wholesale partner, and we had these discussions before OVO closed to make sure that there was enthusiasm for the brand, and there was. We will, I'm very confident, find the right partner that will give us a big splash to get the exposure that OVO needs in the U.S. as well as drive the volume. As I said, with Drake leaning in to help perpetuate and amplify that. I would say that the U.S. wholesale is the thing to watch, and we would expect to launch that right around this time next year, probably September of 2027, just given the long lead times, and hope to have a couple stores open right around then or before then.
In the meantime, we expect to see some positive opportunity just through doing some of the blocking and tackling that we know how to do and being able to put some investment behind marketing. They've virtually been dark the last four or five months because they've been so cash-strapped, but we can quickly solve some of those things. We like everything we see and are really confident that we'll be sitting here a year from now doing this conference and being able to talk about the wholesale launch and the new stores that we've opened.
Yeah. On the flip side, Vince also gains Canadian operating footprint through this deal. You had already had plans to open five or six Vince stores in Canada. How does this change Vince's own multi-year store growth strategy?
Yeah. I'm glad you asked about Canada. Let me just correct one. The last thing you said, we didn't have plans to open up five stores in Canada.
Oh.
We always thought we could open up five stores in Canada, but doing business in Canada, regardless of the current geopolitical environment, has always been difficult. Now that we have a Canadian entity up there, now we will be able to open up the five doors that we believe, a couple in Vancouver, a couple in Toronto, one or two else in Canada, as well as open up wholesale because we have very minimal wholesale for the same reasons of getting things across the border. That was just an added benefit and the cherry on top to be able to grow Vince into a market that knows us so well. They shop us already, and it will just be a natural given our product for Canada.
Perfect. And them, you talked a little bit about operational synergies and was just wondering, what are you targeting in terms of integrating OVO into the business, and at what time frame should investors expect to see them show up in the model?
Yeah. That's exactly what we're working on now. We have a 30, 60, 90 process right now as we evaluate, implement, and execute to really understand how the two companies can come together and support each other. As we've talked about, this is a growth story, so this was not we're going to go in and suddenly cut all this overhead. We obviously think there are some places to optimize, and that's what we're looking to do now. But as we just discussed, we're going to use them to support our Vince business in Canada. So, we'll have a more robust model by the end of the year as we go out to speak to your investors and others to really put some meat behind the three-year plan, both for Vince and for OVO. But there'll be efficiencies, but that's not what this was meant to do.
This was meant to recognize that this has top side opportunity that we want to go after, and then with the combined scale, it's going to provide synergies and efficiencies that will drop to the bottom line.
Brendan, I know that we're running out of time here, but looking three years out, what does success look like for the platform and the balance between organic Vince growth and contributions for OVO and maybe any future additions?
Yeah. Well, I don't want to give guidance right now for three years. As I just said, we'll talk about that at a later time. But certainly continuing the Vince momentum, there's no reason why we shouldn't be able to continue to organically grow the business as well as grow it through some of these other categories we talked about. We've talked about the OVO levers that we can play and as we get validity on some of the things we just discussed for OVO, hopefully we'll be able to accelerate those numbers. Again, a lot of it is how many stores we want to open, so that's completely in our control.
As I said, I fully expect the wholesale opportunity to manifest itself, a nd certainly three years from now, if we're on that trajectory, I would expect to have one or two other brands that we've added to the portfolio. I think this just will validate the flexibility we have in our model, that we can play in different categories, contemporary streetwear, others. Because while the product team needs to be specific to that category and that product, a lot of the other, like Yuji's team in finance, I don't want to say it's a widget, but they can be great finance people across a lot of different categories.
Same with a lot of our back of house logistics and other things. Our marketing team, a lot of the same tactics apply. So I think this will prove and validate and give us the confidence that we can do this over multiple brands.
Again, I'm really happy to have Jamie Salter's confidence and support because I think we've touched on a model that can work for us. I think one thing to note is we do own part of the IP for OVO. ABG owns the majority, Drake owns a large stake, 44%, and we have 5% because I know ABG expects big things out of OVO beyond just what we're able to do. As the main core licensee, we want to be part of that upside. I think as we do future brands, their balance sheet will allow us to make even greater investments, own a little bit more portion of the IP. In this case, because it was a trilateral agreement and we all wanted Drake to have significant skin in the game, 5% felt like the right number.
But that could increase with future deals that provide another opportunity for us to grow our overall enterprise value.
Well, it's exciting times for Vince, for sure. Thank you, gentlemen. Thank you, Brendan, thank you, Yuji, for your time today, and a big thanks to all that are listening. Vince is a very compelling story. The shares are rated outperform. As a reminder, my research on Vince Holdings is available to you for free on channelchek.com. Again, thank you, gentlemen.
Thanks, Michael.
Thank you.