VINCE HOLDING CORP., 10-Q filed on 12/13/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Nov. 03, 2018
Nov. 30, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Nov. 03, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Trading Symbol VNCE  
Entity Registrant Name VINCE HOLDING CORP.  
Entity Central Index Key 0001579157  
Current Fiscal Year End Date --02-02  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Common Stock, Shares Outstanding   11,621,940
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Nov. 03, 2018
Feb. 03, 2018
Current assets:    
Cash and cash equivalents $ 1,050 $ 5,372
Trade receivables, net 32,323 20,760
Inventories, net 61,515 48,921
Prepaid expenses and other current assets 6,369 6,521
Total current assets 101,257 81,574
Property and equipment, net 28,158 31,608
Intangible assets, net 76,650 77,099
Goodwill 41,435 41,435
Deferred income taxes 379 379
Other assets 3,043 2,439
Total assets 250,922 234,534
Current liabilities:    
Accounts payable 27,053 22,556
Accrued salaries and employee benefits 6,514 6,715
Other accrued expenses 9,473 7,906
Current portion of long-term debt 2,750 8,000
Total current liabilities 45,790 45,177
Long-term debt 58,730 40,682
Deferred rent 15,111 15,633
Other liabilities 58,273 58,273
Commitments and contingencies (Note 8)
Stockholders' equity:    
Common stock at $0.01 par value (100,000,000 shares authorized, 11,621,012 and 11,616,500 shares issued and outstanding at November 3, 2018 and February 3, 2018, respectively) 116 116
Additional paid-in capital 1,114,285 1,113,342
Accumulated deficit (1,041,318) (1,038,624)
Accumulated other comprehensive loss (65) (65)
Total stockholders' equity 73,018 74,769
Total liabilities and stockholders' equity $ 250,922 $ 234,534
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Nov. 03, 2018
Feb. 03, 2018
Statement Of Financial Position [Abstract]    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 11,621,012 11,616,500
Common stock, shares outstanding 11,621,012 11,616,500
v3.10.0.1
Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Nov. 03, 2018
Oct. 28, 2017
Nov. 03, 2018
Oct. 28, 2017
Income Statement [Abstract]        
Net sales $ 83,526 $ 79,067 $ 201,168 $ 197,934
Cost of products sold 42,709 42,400 107,096 110,120
Gross profit 40,817 36,667 94,072 87,814
Selling, general and administrative expenses 31,850 31,358 91,893 99,558
Income (loss) from operations 8,967 5,309 2,179 (11,744)
Interest expense, net 2,154 1,693 4,740 4,013
Other expense, net 78 113 87 116
Income (loss) before income taxes 6,735 3,503 (2,648) (15,873)
Provision (benefit) for income taxes (30) (6) 46 42
Net Income (loss) and comprehensive income (loss) $ 6,765 $ 3,509 $ (2,694) $ (15,915)
Earnings (Loss) per share:        
Basic earnings (loss) per share $ 0.58 $ 0.41 $ (0.23) $ (2.58)
Diluted earnings (loss) per share $ 0.57 $ 0.41 $ (0.23) $ (2.58)
Weighted average shares outstanding:        
Basic 11,621,012 8,610,869 11,619,059 6,166,219
Diluted 11,847,606 8,611,308 11,619,059 6,166,219
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Nov. 03, 2018
Oct. 28, 2017
Operating activities    
Net loss $ (2,694) $ (15,915)
Add (deduct) items not affecting operating cash flows:    
Depreciation and amortization 6,117 7,398
Provision for inventories 266 165
Loss on disposal of property and equipment 280  
Deferred rent (885) (974)
Share-based compensation expense 945 912
Loss on debt extinguishment 816  
Other 517 1,003
Changes in assets and liabilities:    
Receivables, net (11,563) (20,942)
Inventories (12,860) (13,014)
Prepaid expenses and other current assets 580 780
Accounts payable and accrued expenses 5,649 (17,234)
Other assets and liabilities 97 (810)
Net cash used in operating activities (12,735) (58,631)
Investing activities    
Payments for capital expenditures (2,303) (3,017)
Net cash used in investing activities (2,303) (3,017)
Financing activities    
Proceeds from borrowings under the Revolving Credit Facilities 245,459 234,867
Repayment of borrowings under the Revolving Credit Facilities (226,859) (207,991)
Proceeds from borrowings under the Term Loan Facilities 27,500  
Repayment of borrowings under the Term Loan Facilities (33,000) (9,000)
Proceeds from common stock issuance, net of transaction costs   29,047
Proceeds from stock option exercises and issuance of common stock under employee stock purchase plan   40
Financing fees (2,447) (555)
Net cash provided by financing activities 10,653 46,408
Decrease in cash, cash equivalents, and restricted cash (4,385) (15,240)
Cash, cash equivalents, and restricted cash, beginning of period 5,445 21,036
Cash, cash equivalents, and restricted cash, end of period 1,060 5,796
Supplemental Disclosures of Cash Flow Information    
Cash payments on Tax Receivable Agreement obligation 351  
Cash payments for interest 3,480 3,104
Cash payments for income taxes, net of refunds (1) 78
Supplemental Disclosures of Non-Cash Investing and Financing Activities    
Capital expenditures in accounts payable and accrued liabilities $ 234 $ 89
v3.10.0.1
Description of Business and Basis of Presentation
9 Months Ended
Nov. 03, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Description of Business and Basis of Presentation

Note 1. Description of Business and Basis of Presentation

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 (“Kellwood Company” or Kellwood”), 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. The Vince business is now the sole operating business of VHC.

(A) Description of Business: Established in 2002, Vince is a global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day. The collections are inspired by the brand’s California origins and embody a feeling of warm and effortless style. Vince designs uncomplicated yet refined pieces that approach dressing with a sense of ease.  Known for its range of luxury products, Vince offers women’s and men’s ready-to-wear and footwear as well as capsule collection of handbags, and home for a global lifestyle. 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 website. 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 accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission. 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 February 3, 2018, as set forth in the 2017 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 November 3, 2018. All intercompany accounts and transactions have been eliminated. 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) Reverse Stock Split: At the close of business on October 23, 2017, the Company effected a 1-for-10 reverse stock split (the “Reverse Stock Split”). The Company’s common stock began trading on a split-adjusted basis when the market opened on October 24, 2017. Pursuant to the Reverse Stock Split, every 10 shares of the Company’s issued and outstanding common stock were automatically converted into one share of common stock. No fractional shares were issued if, as a result of the Reverse Stock Split, a stockholder would otherwise have been entitled to a fractional share. Instead, each stockholder was entitled to receive a cash payment based on a pre-split cash in lieu rate of $0.48, which was the average closing price per share on the New York Stock Exchange for the five consecutive trading days immediately preceding October 23, 2017.

The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise noted. The calculation of basic and diluted net earnings (loss) per share, as presented in the condensed consolidated statements of operations, have been determined based on a retroactive adjustment of weighted average shares outstanding for all periods presented. To reflect the reverse stock split on shareholders’ equity, the Company reclassified an amount equal to the par value of the reduced shares from the common stock par value account to the additional paid in capital account, resulting in no net impact to shareholders' equity on the condensed consolidated balance sheets.

(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 2018 Revolving Credit Facility (as defined below) and the Company’s ability to access capital markets. The Company’s primary cash needs are funding working capital requirements, meeting debt service requirements, paying amounts due under the Tax Receivable Agreement (as defined below) and capital expenditures for new stores and related leasehold improvements.

v3.10.0.1
Goodwill and Intangible Assets
9 Months Ended
Nov. 03, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

Note 2. Goodwill and Intangible Assets

Net goodwill balances and changes therein by segment were as follows:

 

(in thousands)

 

Wholesale

 

 

Direct-to-consumer

 

 

Total Net Goodwill

 

Balance as of November 3, 2018

 

$

41,435

 

 

$

 

 

$

41,435

 

Balance as of February 3, 2018

 

$

41,435

 

 

$

 

 

$

41,435

 

 

The total carrying amount of goodwill for all periods presented was net of accumulated impairments of $69,253.

The following tables present a summary of identifiable intangible assets:

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of November 3, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

11,970

 

 

$

(6,420

)

 

$

 

 

$

5,550

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

101,850

 

 

 

 

 

 

(30,750

)

 

 

71,100

 

Total intangible assets

 

$

113,820

 

 

$

(6,420

)

 

$

(30,750

)

 

$

76,650

 

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of February 3, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

11,970

 

 

$

(5,971

)

 

$

 

 

$

5,999

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

101,850

 

 

 

 

 

 

(30,750

)

 

 

71,100

 

Total intangible assets

 

$

113,820

 

 

$

(5,971

)

 

$

(30,750

)

 

$

77,099

 

 

Amortization of identifiable intangible assets was $150 and $149 for the three months ended November 3, 2018 and October 28, 2017, respectively and $449 and $449 for the nine months ended November 3, 2018 and October 28, 2017. The estimated amortization expense for identifiable intangible assets is $599 for each fiscal year for the next five fiscal years.

v3.10.0.1
Fair Value Measurements
9 Months Ended
Nov. 03, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 3. Fair Value Measurements

Accounting Standards Codification (“ASC”) Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This guidance outlines a valuation framework, creates a fair value hierarchy to increase the consistency and comparability of fair value measurements, and details the disclosures that are required for items measured at fair value. Financial assets and liabilities are to be measured using inputs from three levels of the fair value hierarchy as follows:

 

Level 1—

 

quoted market prices in active markets for identical assets or liabilities

 

 

 

Level 2—

 

observable market-based inputs (quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active) or inputs that are corroborated by observable market data

 

 

 

Level 3—

 

significant unobservable inputs that reflect the Company’s assumptions and are not substantially supported by market data

The Company did not have any non-financial assets or non-financial liabilities recognized at fair value on a recurring basis at November 3, 2018 or February 3, 2018. At November 3, 2018 and February 3, 2018, the Company believes that the carrying value of cash and cash equivalents, receivables and accounts payable approximates fair value, due to the short-term maturity of these instruments. The Company’s debt obligations with a carrying value of $63,000 as of November 3, 2018 are at variable interest rates. The carrying value of the Company’s 2018 Revolving Credit Facility (as defined below) approximates fair value as the stated interest rate approximates market rates currently available to the Company, which are considered Level 2 inputs. The fair value of the Company’s 2018 Term Loan Facility (as defined below) was approximately $27,000 as of November 3, 2018 based upon an estimated market value calculation that factors principal, time to maturity, interest rate, and current cost of debt, which is considered a Level 3 input.

The Company’s non-financial assets, which primarily consist of goodwill, intangible assets, and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at their carrying values. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and intangible assets), non-financial assets are assessed for impairment and, if applicable, written down to (and recorded at) fair value.

v3.10.0.1
Long-Term Debt and Financing Arrangements
9 Months Ended
Nov. 03, 2018
Debt Disclosure [Abstract]  
Long-Term Debt and Financing Arrangements

Note 4. Long-Term Debt and Financing Arrangements

Long-term debt consisted of the following:

 

 

 

November 3,

 

 

February 3,

 

(in thousands)

 

2018

 

 

2018

 

Term Loan Facilities

 

$

27,500

 

 

$

33,000

 

Revolving Credit Facilities

 

 

35,500

 

 

 

16,900

 

Total debt principal

 

 

63,000

 

 

 

49,900

 

Less: current portion of long-term debt

 

 

2,750

 

 

 

8,000

 

Less: deferred financing costs

 

 

1,520

 

 

 

1,218

 

Total long-term debt

 

$

58,730

 

 

$

40,682

 

 

2018 Term Loan Facility

 

On August 21, 2018, Vince, LLC entered into a $27,500 senior secured term loan facility (the “2018 Term Loan Facility”) pursuant to a credit agreement by and among Vince, LLC, as the borrower, VHC and Vince Intermediate Holdings, LLC, a direct subsidiary of VHC and the direct parent company of Vince, LLC (“Vince Intermediate”), as guarantors, Crystal Financial, LLC, as administrative agent and collateral agent, and the other lenders from time to time party thereto. The 2018 Term Loan Facility is subject to quarterly amortization of principal equal to 2.5% of the original aggregate principal amount of the 2018 Term Loan Facility, with the balance payable at final maturity. Interest is payable on loans under the 2018 Term Loan Facility at a rate equal to the 90-day LIBOR rate (subject to a 0% floor) plus applicable margins subject to a pricing grid based on a minimum Consolidated EBITDA (as defined in the credit agreement for the 2018 Term Loan Facility) calculation. During the continuance of certain specified events of default, interest will accrue on the outstanding amount of any loan at a rate of 2.0% in excess of the rate otherwise applicable to such amount. The 2018 Term Loan Facility matures on the earlier of August 21, 2023 and the maturity date of the 2018 Revolving Credit Facility (as defined below).

 

The 2018 Term Loan Facility contains a requirement that Vince, LLC maintain a Consolidated Fixed Charge Coverage Ratio (as defined in the credit agreement for the 2018 Term Loan Facility) as of the last day of any period of four fiscal quarters not to exceed 0.85:1.00 for the fiscal quarter ending November 3, 2018, 1.00:1.00 for the fiscal quarters ending February 2, 2019, 1.20:1.00 for the fiscal quarter ending May 4, 2019, 1.35:1.00 for the fiscal quarter ending August 3, 2019, 1.50:1.00 for the fiscal quarters ending November 2, 2019 and February 1, 2020 and 1.75:1.00 for the fiscal quarter ending May 2, 2020 and each fiscal quarter thereafter. In addition, the 2018 Term Loan Facility contains customary representations and warranties, other covenants, and events of default, including but not limited to, covenants with respect to limitations on the incurrence of additional indebtedness, liens, burdensome agreements, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of the Company’s business or its fiscal year, and distributions and dividends. The 2018 Term Loan Facility generally permits dividends to the extent that no default or event of default is continuing or would result from a contemplated dividend, so long as (i) after giving pro forma effect to the contemplated dividend and for the following six months Excess Availability will be at least the greater of 20.0% of the Loan Cap (as defined in the credit agreement for the 2018 Term Loan Facility) and $10,000, (ii) after giving pro forma effect to the contemplated dividend, the Consolidated Fixed Charge Coverage Ratio for the 12 months preceding such dividend will be greater than or equal to 1.0 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than 1.0 to 1.0 if, after giving pro forma effect to the contemplated dividend, Excess Availability for the six fiscal months following the dividend is at least the greater of 25.0% of the Loan Cap and $12,500), and (iii) the pro forma Fixed Charge Coverage Ratio after giving effect to such contemplated dividend is no less than the minimum Consolidated Fixed Charge Coverage Ratio for such quarter. In addition, the 2018 Term Loan Facility is subject to a Borrowing Base (as defined in the credit agreement of the 2018 Term Loan Facility) which can, under certain conditions, result in the imposition of a reserve under the 2018 Revolving Credit Facility.

 

The 2018 Term Loan Facility also contains an Excess Cash Flow (as defined in the credit agreement for the 2018 Term Loan Facility) sweep requirement in which Vince, LLC remits 50% of Excess Cash Flow reduced on a dollar-for-dollar basis by any voluntary prepayments of the 2018 Term Loan Facility or the 2018 Revolving Credit Facility (to the extent accompanied by a permanent reduction in commitments) during such fiscal year or after the fiscal year but prior to the date of the excess cash flow payment, to be applied to the outstanding principal balance commencing 10 business days after the filing of the Company’s Annual Report on Form 10-K starting from fiscal year ending February 1, 2020.

Through November 3, 2018, on an inception to date basis, the Company had not made any repayments on the 2018 Term Loan Facility.

 

2018 Revolving Credit Facility

 

On August 21, 2018, Vince, LLC entered into an $80,000 senior secured revolving credit facility (the “2018 Revolving Credit Facility”) pursuant to a credit agreement by and among Vince, LLC, as the borrower, VHC and Vince Intermediate, as guarantors, Citizens Bank, N.A. (“Citizens”), as administrative agent and collateral agent, and the other lenders from time to time party thereto. The 2018 Revolving Credit Facility provides for a revolving line of credit of up to $80,000, subject to a Loan Cap, which is the lesser of (i) the Borrowing Base as defined in the credit agreement for the 2018 Revolving Credit Facility and (ii) the aggregate commitments, as well as a letter of credit sublimit of $25,000. It also provides for an increase in aggregate commitments of up to $20,000. The 2018 Revolving Credit Facility matures on the earlier of August 21, 2023 and the maturity date of the 2018 Term Loan Facility. On August 21, 2018, Vince, LLC incurred $39,555 of borrowings, prior to which $66,271 was available, given the Loan Cap as of such date.  

 

Interest is payable on the loans under the 2018 Revolving Credit Facility at either the LIBOR or the Base Rate, in each case, with applicable margins subject to a pricing grid based on an average daily excess availability calculation. The “Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (i) the rate of interest in effect for such day as publicly announced from time to time by Citizens as its prime rate; (ii) the Federal Funds Rate for such day, plus 0.5%; and (iii) the LIBOR Rate for a one month interest period as determined on such day, plus 1.00%. During the continuance of certain specified events of default, at the election of Citizens, interest will accrue at a rate of 2.0% in excess of the applicable non-default rate.

 

The 2018 Revolving Credit Facility contains a requirement that, at any point when Excess Availability (as defined in the credit agreement for the 2018 Revolving Credit Facility) is less than 10.0% of the loan cap and continuing until Excess Availability exceeds the greater of such amounts for 30 consecutive days, Vince must maintain during that time a Consolidated Fixed Charge Coverage Ratio (as defined in the credit agreement for the 2018 Revolving Credit Facility) equal to or greater than 1.0 to 1.0 measured as of the last day of each fiscal month during such period.

 

The 2018 Revolving Credit Facility contains representations and warranties, other covenants and events of default that are customary for this type of financing, including covenants with respect to limitations on the incurrence of additional indebtedness, liens, burdensome agreements, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of the Company’s business or its fiscal year. The 2018 Revolving Credit Facility generally permits dividends in the absence of any event of default (including any event of default arising from a contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend and for the following six months Excess Availability will be at least the greater of 20.0% of the Loan Cap and $10 million and (ii) after giving pro forma effect to the contemplated dividend, the Consolidated Fixed Charge Coverage Ratio for the 12 months preceding such dividend will be greater than or equal to 1.0 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than 1.0 to 1.0 if, after giving pro forma effect to the contemplated dividend, Excess Availability for the six fiscal months following the dividend is at least the greater of 25.0% of the Loan Cap and $12,500).

As of November 3, 2018, $37,831 was available under the 2018 Revolving Credit Facility, net of the loan cap, and there were $35,500 of borrowings outstanding and $6,669 of letters of credit outstanding under the 2018 Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the 2018 Revolving Credit Facility as of November 3, 2018 was 4.0%.

 

2013 Term Loan Facility

On November 27, 2013, Vince, LLC and Vince Intermediate entered into a $175,000 senior secured term loan facility (as amended from time to time, the “2013 Term Loan Facility”) with the lenders party thereto, Bank of America, N.A. (“BofA”), as administrative agent, JP Morgan Chase Bank and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers, and Cantor Fitzgerald as documentation agent. The 2013 Term Loan Facility would have matured on November 27, 2019. Vince, LLC and Vince Intermediate were borrowers and VHC was a guarantor under the 2013 Term Loan Facility.

On August 21, 2018, the Company refinanced the 2013 Term Loan Facility by entering into the 2018 Term Loan Facility and the 2018 Revolving Credit Facility. All outstanding amounts under the 2013 Term Loan Facility of $29,146, including interest, were repaid in full and the 2013 Term Loan Facility was terminated.

2013 Revolving Credit Facility

On November 27, 2013, Vince, LLC entered into a $50,000 senior secured revolving credit facility (as amended from time to time, the “2013 Revolving Credit Facility”) with BofA as administrative agent. Vince, LLC was the borrower and VHC and Vince Intermediate were the guarantors under the 2013 Revolving Credit Facility. On June 3, 2015, Vince, LLC entered into a first amendment to the 2013 Revolving Credit Facility, that among other things, increased the aggregate commitments under the facility from $50,000 to $80,000, subject to a loan cap which was the lesser of (i) the Borrowing Base, as defined in the loan agreement, (ii) the aggregate commitments, or (iii) $70,000 until debt obligations under the Company’s 2013 Term Loan Facility have been paid in full, and extended the maturity date from November 27, 2018 to June 3, 2020.

On August 21, 2018, the Company refinanced the 2013 Revolving Credit Facility by entering into the 2018 Term Loan Facility and the 2018 Revolving Credit Facility. All outstanding amounts under the 2013 Term Loan Facility of $40,689, including interest, were repaid in full and the 2013 Revolving Credit Facility was terminated.

v3.10.0.1
Inventory
9 Months Ended
Nov. 03, 2018
Inventory Disclosure [Abstract]  
Inventory

Note 5. Inventory

Inventories consisted of finished goods. As of November 3, 2018 and February 3, 2018, finished goods, net of reserves were $61,515 and $48,921, respectively.

v3.10.0.1
Share-Based Compensation
9 Months Ended
Nov. 03, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

Note 6. Share-Based Compensation

Employee Stock Plans

Vince 2013 Incentive Plan

In connection with the IPO, the Company adopted the Vince 2013 Incentive Plan, which provides for grants of stock options, stock appreciation rights, restricted stock and other stock-based awards. In May 2018, the Company filed Registration Statement on Form S-8 to register an additional 660,000 shares of common stock available for issuance under the Vince 2013 Incentive Plan. The aggregate number of shares of common stock which may be issued or used for reference purposes under the Vince 2013 Incentive Plan or with respect to which awards may be granted may not exceed 1,000,000 shares, as adjusted to reflect the Reverse Stock Split. The shares available for issuance under the Vince 2013 Incentive Plan may be, in whole or in part, either authorized and unissued shares of the Company’s common stock or shares of common stock held in or acquired for the Company’s treasury. In general, if awards under the Vince 2013 Incentive Plan are cancelled for any reason, or expire or terminate unexercised, the shares covered by such award may again be available for the grant of awards under the Vince 2013 Incentive Plan. As of November 3, 2018, there were 478,122 shares under the Vince 2013 Incentive Plan available for future grants. Options granted pursuant to the Vince 2013 Incentive Plan typically vest in equal installments over four years, subject to the employees’ continued employment and expire on the earlier of the tenth anniversary of the grant date or upon termination as outlined in the Vince 2013 Incentive Plan. Restricted stock units (“RSUs”) granted vest in equal installments over a three-year period or vest in equal installments over four years, subject to the employees’ continued employment, except for RSUs issued under the exchange offer described below.

The consultancy agreements with the non-employee consultants ended in February 2017 and as a result, 17,659 shares were forfeited. In May 2017, the remaining 29,432 previously vested shares expired.

On April 26, 2018, the Company commenced a tender offer to exchange certain options to purchase shares of its common stock, whether vested or unvested, from eligible employees and executive officers for replacement restricted stock units (“Replacement RSUs”) granted under the Vince 2013 Incentive Plan (the “Option Exchange”). Employees and executive officers of the Company on the date of offer commencement and those who remained an employee or executive officer of the Company through the expiration date of the offer and held at least one option as of the commencement of the offer that was granted under the Vince 2013 Incentive Plan were eligible to participate.  The exchange ratio of this offer was a 1-to-1.7857 basis (one stock option exchanged for every 1.7857 Replacement RSUs). This tender offer expired on 11:59 p.m. Eastern Time on May 24, 2018 (the “Offer Expiration Date”). The Replacement RSUs were granted on the business day immediately following the Offer Expiration Date.  As a result of the Option Exchange, 149,819 stock options were cancelled and 267,538 Replacement RSUs were granted with a grant date fair value of $9.15 per unit. All Replacement RSUs vest pursuant to the following schedule: 10% on April 19, 2019; 20% on April 17, 2020; 25% on April 16, 2021; and 45% on April 15, 2022, subject to the holder’s remaining continuously employed with the Company through each such applicable vesting date. Replacement RSUs have the new vesting schedule regardless of whether the surrendered eligible options were partially vested at the time it was exchanged. The purpose of this exchange was to foster retention, motivate our key contributors, and better align the interests of our employees and stockholders to maximize stockholder value.

Employee Stock Purchase Plan

The Company maintains an employee stock purchase plan (“ESPP”) for its employees. Under the ESPP, all eligible employees may contribute up to 10% of their base compensation, up to a maximum contribution of $10 per year. The purchase price of the stock is 90% of the fair market value, with purchases executed on a quarterly basis. The plan is defined as compensatory, and accordingly, a charge for compensation expense is recorded to selling, general and administrative expense for the difference between the fair market value and the discounted purchase price of the Company’s Stock. During the nine months ended November 3, 2018, 928 shares of common stock were subscribed under the ESPP. During the nine months ended October 28, 2017, 4,244 shares of common stock were issued under the ESPP, as adjusted to reflect the Reverse Stock Split. As of November 3, 2018, there were 94,051 shares available for future issuance under the ESPP, as adjusted to reflect the Reverse Stock Split.

Stock Options

A summary of stock option activity for both employees and non-employees for the nine months ended November 3, 2018 is as follows:

 

 

 

Stock Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (years)

 

 

Aggregate Intrinsic Value

(in thousands)

 

Outstanding at February 3, 2018

 

 

170,757

 

 

$

42.23

 

 

 

8.1

 

 

$

32

 

Granted

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Forfeited or expired1

 

 

(170,553

)

 

$

42.23

 

 

 

 

 

 

 

 

 

Outstanding at November 3, 2018

 

 

204

 

 

$

31.71

 

 

 

6.9

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable at November 3, 2018

 

 

154

 

 

$

38.87

 

 

 

6.9

 

 

$

 

1 Includes 149,819 options that were exchanged as part of the Option Exchange.

Of the above outstanding shares, 50 are expected to vest.

Restricted Stock Units

A summary of restricted stock unit activity for the nine months ended November 3, 2018 is as follows:

 

 

 

Restricted Stock Units

 

 

Weighted Average Grant Date Fair Value

 

Nonvested restricted stock units at February 3, 2018

 

 

13,236

 

 

$

29.19

 

Granted2

 

 

543,851

 

 

$

8.97

 

Vested

 

 

(4,784

)

 

$

34.16

 

Forfeited

 

 

(40,585

)

 

$

9.91

 

Nonvested restricted stock units at November 3, 2018

 

 

511,718

 

 

$

9.18

 

2 Includes 267,538 units that were granted as part of the Option Exchange.

Share-Based Compensation Expense

The Company recognized share-based compensation expense of $352 and $429, including expense of $43 and $296 respectively, related to non-employees, during the three months ended November 3, 2018 and October 28, 2017, respectively. The Company recognized share-based compensation expense of $945 and $912, including expense of $114 and $709 respectively, related to non-employees, during the nine months ended November 3, 2018 and October 28, 2017, respectively.

v3.10.0.1
Earnings Per Share
9 Months Ended
Nov. 03, 2018
Earnings Per Share [Abstract]  
Earnings Per Share

Note 7. Earnings Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Except when the effect would be anti-dilutive, diluted earnings (loss) per share is calculated based on the weighted average number of shares of common stock outstanding plus the dilutive effect of share-based awards calculated under the treasury stock method.

At the close of business on October 23, 2017, the Company effected a 1-for-10 reverse stock split of its common stock. The calculation of basic and diluted net earnings (loss) per share, as presented in the condensed consolidated statements of operations, have been determined based on a retroactive adjustment of weighted average shares outstanding for all periods presented.

On September 8, 2017, in connection with the 2017 Rights Offering and related 2017 Investment Agreement, the Company issued an aggregate of 6,666,666 shares of its common stock as adjusted for the Reverse Stock Split. See Note 11 “Related Party Transactions” for additional information.

The following is a reconciliation of weighted average basic shares to weighted average diluted shares outstanding:  

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

November 3,

 

 

October 28,

 

 

November 3,

 

 

October 28,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Weighted-average shares—basic

 

 

11,621,012

 

 

 

8,610,869

 

 

 

11,619,059

 

 

 

6,166,219

 

Effect of dilutive equity securities

 

 

226,594

 

 

 

439

 

 

 

 

 

 

 

Weighted-average shares—diluted

 

 

11,847,606

 

 

 

8,611,308

 

 

 

11,619,059

 

 

 

6,166,219

 

 

Because the Company incurred a net loss for the nine months ended November 3, 2018 and October 28, 2017, weighted-average basic shares and weighted-average diluted shares outstanding are equal for these periods.

For the three months ended November 3, 2018 and October 28, 2017, 2,466 and 183,566 weighted average shares of share-based compensation, respectively, were excluded from the computation of weighted average shares for diluted earnings per share, as their effect would have been anti-dilutive.

For the nine months ended November 3, 2018 and October 28, 2017, 117,831 and 189,060 weighted average shares of share-based compensation, respectively, were excluded from the computation of weighted average shares for diluted earnings per share, as their effect would have been anti-dilutive.

v3.10.0.1
Commitments and Contingencies
9 Months Ended
Nov. 03, 2018
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 8. Commitments and Contingencies

Litigation

 

On September 7, 2018, a complaint was filed in the United States District Court for the Eastern District of New York by certain stockholders, naming the Company as well as Brendan Hoffman, the Company’s Chief Executive Officer, David Stefko, the Company’s Executive Vice President, Chief Financial Officer, one of the Company’s directors, certain of the Company’s former officers and directors, and Sun Capital Partners, Inc. and certain of its affiliates, as defendants. The complaint generally alleges that the Company and the named parties made false and/or misleading statements and/or failed to disclose matters relating to the transition of the Company’s ERP systems from Kellwood. The complaint brings causes of action for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated under the Exchange Act against the Company and the named parties and for violations of Section 20(a) of the Exchange Act against the individual parties, Sun Capital Partners, Inc. and its affiliates.  The complaint seeks unspecified monetary damages and unspecified costs and fees. 

The Company currently believes that the likelihood of an unfavorable judgment arising from this matter is remote based on the information currently available and that the ultimate resolution of this matter will not have a material adverse effect on the Company’s business in a future period. However, given the inherent unpredictability of litigation and the fact that this litigation is still in its very early stages, the Company is unable to predict with certainty the outcome of this litigation or reasonably estimate a possible loss or range of loss, if any, associated with this litigation at this time. In addition, the Company will be required to expend resources to defend this matter.

Additionally, the Company is a party to other legal proceedings, compliance matters, environmental, as well as wage and hour and other labor claims that arise in the ordinary course of business. Although the outcome of such items cannot be determined with certainty, management believes that the ultimate outcome of these items, individually and in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

v3.10.0.1
Recent Accounting Pronouncements
9 Months Ended
Nov. 03, 2018
New Accounting Pronouncements And Changes In Accounting Principles [Abstract]  
Recent Accounting Pronouncements

Note 9. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of cash flows (Topic 230): Restricted cash”. This guidance requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2018 using the retrospective transition method to each period presented. The Company’s restricted cash is reserved for payments for claims for its insurance program, which is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statement of cash flows.

 

 

 

November 3,

 

 

February 3,

 

(in thousands)

 

2018

 

 

2018

 

Cash and cash equivalents

 

$

1,050

 

 

$

5,372

 

Restricted cash

 

10

 

 

73

 

Total Cash, cash equivalents, and restricted cash

 

$

1,060

 

 

$

5,445

 

 

Adoption of Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers”

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”.  This guidance on revenue recognition accounting requires entities to recognize revenue when promised goods or services are transferred to customers and in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since its issuance, the FASB has amended several aspects of the new guidance. The Company adopted this guidance in the first quarter of fiscal 2018 using the modified retrospective cumulative effect transition method. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The impact to the financial statements of this adoption are primarily related to balance sheet reclassification, including amounts associated with the change in balance sheet classification of the sales returns reserves, with no material impact to the statement of operations and comprehensive loss as the Company’s existing revenue recognition policies are in line with the new guidance.  

 

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 10 “Segment Information” for disaggregated revenue amounts by segment.

 

Revenue associated with gift cards is recognized upon redemption and unredeemed balances are considered contract liability and recorded within other accrued expenses, which are subject to escheatment within the jurisdictions in which it operates. As of November 3, 2018 and February 3, 2018, contract liability was $1,253 and $1,229, respectively.  For the three and nine months ended November 3, 2018, the Company recognized $52 and $252 of revenue respectively that was previously included in contract liability as of February 3, 2018.

 

Amounts billed to customers for shipping and handling costs are not significant.  Such shipping and handling costs are accounted for as a fulfillment cost and are included in cost of products sold. Sales taxes that are collected by the Company from a customer are excluded from revenue.     

 

Sales are measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration mainly includes discounts, chargebacks, markdown allowances, cooperative advertising programs, and sales returns. Estimated amounts of discounts, chargebacks, markdown allowances, cooperative advertising programs, and sales returns are accounted for as reductions of sales when the associated sale occurs. These estimated amounts are adjusted periodically based on changes in facts and circumstances when the changes become known. On the Company’s condensed consolidated balance sheet, reserves for sales returns are included within other accrued liabilities, and the value of inventory associated with reserves for sales returns are included in prepaid expenses and other current assets. The Company continues to estimate the amount of sales returns based on known trends and historical return rates.  

 

The following table summarizes the impacts of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of November 3, 2018.

 

 

 

Impact of changes in accounting standard

 

 

 

As

 

 

 

 

 

 

Balances without

 

(in thousands)

 

reported

 

 

Adjustments

 

 

adoption of Topic 606

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

32,323

 

 

 

(1,397

)

 

 

30,926

 

Prepaid expenses and other current assets

 

 

6,369

 

 

 

(1,237

)

 

 

5,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

 

9,473

 

 

 

(2,634

)

 

 

6,839

 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02: “Leases (Topic 842)”, a new lease accounting standard. The guidance requires lessees to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases currently classified as operating leases. In July 2018, the FASB issued ASU 2018-11: “Leases (Topic 842): Targeted improvements” which provides companies with an additional transition method to apply the new guidance at the adoption date instead of the earliest period presented in the financial statements. The Company expects to utilize this transition method upon adoption. The Company is currently compiling an inventory of lease arrangements in order to determine the impact the new guidance will have on the consolidated financial statements and disclosures. The Company has selected new lease accounting software in preparation for the standard's additional reporting requirements. The Company continues to evaluate the impact of adopting this guidance on the consolidated financial statements.  However, based on the assessment to date, the Company expects that the adoption of the guidance will result in a material increase in lease-related assets and liabilities recognized in the Company’s Consolidated Balance Sheets, but the Company is unable to quantify the impact at this time.

v3.10.0.1
Segment Financial Information
9 Months Ended
Nov. 03, 2018
Segment Reporting [Abstract]  
Segment Financial Information

Note 10. Segment Financial Information

The Company operates and manages its business by distribution channel and has identified two reportable segments, as further described below. Management considered both similar and dissimilar economic characteristics, internal reporting and management structures, as well as products, customers, and supply chain logistics to identify the following reportable segments:

 

Wholesale segment—consists of the Company’s operations to distribute products to major department stores and specialty stores in the United States and select international markets; and

 

Direct-to-consumer segment—consists of the Company’s operations to distribute products directly to the consumer through its branded full-price specialty retail stores, outlet stores, and e-commerce platform.

The accounting policies of the Company’s reportable segments are consistent with those described in Note 1 to the audited consolidated financial statements of VHC for the fiscal year ended February 3, 2018 included in the 2017 Annual Report on Form 10-K. Unallocated corporate expenses are comprised of selling, general, and administrative expenses attributable to corporate and administrative activities (such as marketing, design, finance, information technology, legal and human resource departments), and other charges that are not directly attributable to the Company’s reportable segments. Unallocated corporate assets are comprised of the carrying values of the Company’s goodwill and tradename, deferred tax assets, and other assets that will be utilized to generate revenue for both of the Company’s reportable segments.

Summary information for the Company’s reportable segments is presented below.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

November 3,

 

 

October 28,

 

 

November 3,

 

 

October 28,

 

(in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

$

52,986

 

 

$

52,990

 

 

$

119,325

 

 

$

127,647

 

Direct-to-consumer

 

 

30,540

 

 

 

26,077

 

 

 

81,843

 

 

 

70,287

 

Total net sales

 

$

83,526

 

 

$

79,067

 

 

$

201,168

 

 

$

197,934

 

Income (loss) before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

$

19,031

 

 

$

16,454

 

 

$

35,340

 

 

$

35,882

 

Direct-to-consumer

 

 

2,702

 

 

 

3,000

 

 

 

4,354

 

 

 

(84

)

Subtotal

 

 

21,733

 

 

 

19,454

 

 

 

39,694

 

 

 

35,798

 

Unallocated corporate expenses

 

 

(12,766

)

 

 

(14,145

)

 

 

(37,515

)

 

 

(47,542

)

Interest expense, net

 

 

2,154

 

 

 

1,693

 

 

 

4,740

 

 

 

4,013

 

Other expense, net

 

 

78

 

 

 

113

 

 

 

87

 

 

 

116

 

Total income (loss) before income taxes

 

$

6,735

 

 

$

3,503

 

 

$

(2,648

)

 

$

(15,873

)

 

 

 

 

November 3,

 

 

February 3,

 

(in thousands)

 

2018

 

 

2018

 

Total Assets:

 

 

 

 

 

 

 

 

Wholesale

 

$

76,211

 

 

$

58,733

 

Direct-to-consumer

 

 

47,301

 

 

 

40,751

 

Unallocated corporate

 

 

127,410

 

 

 

135,050

 

Total assets

 

$

250,922

 

 

$

234,534

 

 

v3.10.0.1
Related Party Transactions
9 Months Ended
Nov. 03, 2018
Related Party Transactions [Abstract]  
Related Party Transactions

Note 11. Related Party Transactions

Sourcing Arrangement

On July 13, 2017, Vince, LLC (“Vince”), an indirect wholly-owned subsidiary of the Company, entered into an agreement (the “Sourcing Arrangement”) with Rebecca Taylor, Inc. (“RT”) relating to the purchase and resale of certain Vince branded finished goods (“Vince Goods”), whereby RT agreed to purchase Vince Goods from approved suppliers pursuant to purchase orders issued to such suppliers (each, a “RT Purchase Order”) at a price specified therein (a “RT Price”) and Vince agreed to purchase such Vince Goods from RT pursuant to purchase orders issued to RT (each, a “Vince Purchase Order”) at a price specified therein (a “Vince Price”). The Vince Price was at all times equal to 103.5% of the RT price.

Upon receipt of the Vince Purchase Order, RT issued the RT Purchase Order and a letter of credit was issued to the applicable supplier in the amount equal to the RT Price, which was subject to availability under RT’s credit facility.  When the Vince Goods were ready to be delivered, RT invoiced Vince in the amount equal to the Vince Price, which invoice was payable by Vince within two business days of receipt of the invoice, which payment term could have been extended by RT. In the event Vince failed to make timely payment for any Vince Goods, RT had the right to liquidate such goods in a manner and at a price it deemed appropriate in its sole discretion. 

The Sourcing Arrangement contained customary indemnification and representations and warranties. The Sourcing Arrangement could have been terminated by either party upon 60 days’ prior written notice to the other party. 

RT is owned by affiliates of Sun Capital Partners, Inc., whose affiliates owned approximately 73% of the outstanding common stock of the Company as of November 3, 2018. During the three and nine months ended November 3, 2018, the Company has paid $0 and $29 respectively for orders placed under the Sourcing Arrangement. During the three and nine months ended October 28, 2017, the Company had paid $14,163 and $14,163 respectively for orders placed under the Sourcing Arrangement. No new orders have been placed under the Sourcing Arrangement since September 2017. On May 30, 2018, the Company terminated the Sourcing Arrangement with RT effective as of February 3, 2018. There were no early termination penalties incurred by the Company as a result of the termination.

Tax Receivable Agreement

VHC entered into a Tax Receivable Agreement with the Pre-IPO Stockholders on November 27, 2013. The Company and its former subsidiaries generated certain tax benefits (including NOLs and tax credits) prior to the Restructuring Transactions consummated in connection with the Company’s IPO and will generate certain section 197 intangible deductions (the “Pre-IPO Tax Benefits”), which would reduce the actual liability for taxes that the Company might otherwise be required to pay. The Tax Receivable Agreement provides for payments to the Pre-IPO Stockholders in an amount equal to 85% of the aggregate reduction in taxes payable realized by the Company and its subsidiaries from the utilization of the Pre-IPO Tax Benefits (the “Net Tax Benefit”).

For purposes of the Tax Receivable Agreement, the Net Tax Benefit equals (i) with respect to a taxable year, the excess, if any, of (A) the Company’s liability for taxes using the same methods, elections, conventions and similar practices used on the relevant company return assuming there were no Pre-IPO Tax Benefits over (B) the Company’s actual liability for taxes for such taxable year (the “Realized Tax Benefit”), plus (ii) for each prior taxable year, the excess, if any, of the Realized Tax Benefit reflected on an amended schedule applicable to such prior taxable year over the Realized Tax Benefit reflected on the original tax benefit schedule for such prior taxable year, minus (iii) for each prior taxable year, the excess, if any, of the Realized Tax Benefit reflected on the original tax benefit schedule for such prior taxable year over the Realized Tax Benefit reflected on the amended schedule for such prior taxable year; provided, however, that to the extent any of the adjustments described in clauses (ii) and (iii) were reflected in the calculation of the tax benefit payment for any subsequent taxable year, such adjustments shall not be taken into account in determining the Net Tax Benefit for any subsequent taxable year. To the extent that the Company is unable to make the payment under the Tax Receivable Agreement when due under the terms of the Tax Receivable Agreement for any reason, such payment would be deferred and would accrue interest at a default rate of LIBOR plus 500 basis points until paid, instead of the agreed rate of LIBOR plus 200 basis points per annum in accordance with the terms of the Tax Receivable Agreement.

As of November 3, 2018, the Company’s total obligation under the Tax Receivable Agreement is estimated to be $58,273, which is included as a component of Other liabilities on the condensed consolidated balance sheet. The tax benefit payment of $351, including accrued interest, with respect to the 2016 taxable year was paid in the first quarter of fiscal 2018. The Tax Receivable Agreement expires on December 31, 2023. The obligation was originally recorded in connection with the IPO as an adjustment to additional paid-in capital on the Company’s condensed consolidated balance sheet.

2017 Investment Agreement and 2017 Rights Offering

On August 10, 2017, the Company entered into an Investment Agreement (the “2017 Investment Agreement”) with Sun Cardinal, LLC and SCSF Cardinal, LLC (collectively, the “Sun Cardinal Investors”) pursuant to which the Company agreed to issue and sell to the Sun Cardinal Investors, and the Sun Cardinal Investors agreed to purchase, an aggregate number of shares of the Company’s common stock equal to (x) $30,000 minus (y) the aggregate proceeds of the 2017 Rights Offering, at the 2017 Rights Offering subscription price per share (prior to adjustment for the Reverse Stock Split) of $0.45, subject to the terms and conditions set forth in the 2017 Investment Agreement (the “Backstop Commitment”). The 2017 Investment Agreement superseded the Rights Offering Commitment Letter, dated May 18, 2017, from Sun Capital Partners V, L.P.

On August 15, 2017, the Company commenced the 2017 Rights Offering, whereby the Company distributed, at no charge, to stockholders of record as of August 14, 2017 (the “2017 Rights Offering Record Date”), rights to purchase new shares of the Company’s common stock at $0.45 per share (prior to adjustment for the Reverse Stock Split). Each stockholder as of the Rights Offering Record Date (“2017 Rights Holders”) received one non-transferrable right to purchase 1.3475 shares for every share of common stock owned on the 2017 Rights Offering Record Date (the “subscription right”). 2017 Rights Holders who fully exercised their subscription rights were entitled to subscribe for additional shares that remained unsubscribed as a result of any unexercised subscription rights (the “over-subscription right”). The over-subscription right allowed a 2017 Rights Holder to subscribe for an additional amount equal to up to an aggregate of 9.99% of the Company’s outstanding shares of common stock after giving effect to the consummation of the transactions contemplated by the 2017 Rights Offering and the 2017 Investment Agreement, subject to certain limitations and pro rata allocations. Subscription rights could only be exercised for whole numbers of shares; no fractional shares of common stock were issued in the 2017 Rights Offering. The 2017 Rights Offering period expired on August 30, 2017 at 5:00 p.m. New York City time and the Company received subscriptions and oversubscriptions from its existing stockholders (including the Sun Cardinal Investors and their affiliates) resulting in aggregate gross proceeds of $21,976. Additionally, in accordance with the related 2017 Investment Agreement, the Company received $8,024 of gross proceeds from the Sun Cardinal Investors. In total, the Company received gross proceeds of $30,000 as a result of the 2017 Rights Offering and related 2017 Investment Agreement transactions and the Company issued 6,666,666 shares of its common stock.

The Company used a portion of the net proceeds received from the 2017 Rights Offering and related 2017 Investment Agreement to (1) repay $9,000 under the Company’s Term Loan Facility and (2) repay $15,000 under the Company’s Revolving Credit Facility, without a concurrent commitment reduction. The Company used the remaining net proceeds for general corporate purposes, except for $1,823 which was retained at VHC.

As of November 3, 2018, affiliates of Sun Capital Partners, Inc., including the Sun Cardinal Investors, collectively beneficially owned approximately 73% of the Company’s outstanding common stock.

Sun Capital Consulting Agreement

On November 27, 2013, the Company entered into an agreement with Sun Capital Management to (i) reimburse Sun Capital Management Corp. (“Sun Capital Management”) or any of its affiliates providing consulting services under the agreement for out-of-pocket expenses incurred in providing consulting services to the Company and (ii) provide Sun Capital Management with customary indemnification for any such services.

During the three months ended November 3, 2018 and October 28, 2017, the Company incurred expenses of $8 and $11, respectively, under the Sun Capital Consulting Agreement. During the nine months ended November 3, 2018 and October 28, 2017, the Company incurred expenses of $31 and $29, respectively, under this agreement.

v3.10.0.1
Description of Business and Basis of Presentation (Policies)
9 Months Ended
Nov. 03, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Description of Business

(A) Description of Business: Established in 2002, Vince is a global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day. The collections are inspired by the brand’s California origins and embody a feeling of warm and effortless style. Vince designs uncomplicated yet refined pieces that approach dressing with a sense of ease.  Known for its range of luxury products, Vince offers women’s and men’s ready-to-wear and footwear as well as capsule collection of handbags, and home for a global lifestyle. 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 website. 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.

Basis of Presentation

(B) Basis of Presentation: The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission. 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 February 3, 2018, as set forth in the 2017 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 November 3, 2018. All intercompany accounts and transactions have been eliminated. 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.

Reverse Stock Split

(C) Reverse Stock Split: At the close of business on October 23, 2017, the Company effected a 1-for-10 reverse stock split (the “Reverse Stock Split”). The Company’s common stock began trading on a split-adjusted basis when the market opened on October 24, 2017. Pursuant to the Reverse Stock Split, every 10 shares of the Company’s issued and outstanding common stock were automatically converted into one share of common stock. No fractional shares were issued if, as a result of the Reverse Stock Split, a stockholder would otherwise have been entitled to a fractional share. Instead, each stockholder was entitled to receive a cash payment based on a pre-split cash in lieu rate of $0.48, which was the average closing price per share on the New York Stock Exchange for the five consecutive trading days immediately preceding October 23, 2017.

The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise noted. The calculation of basic and diluted net earnings (loss) per share, as presented in the condensed consolidated statements of operations, have been determined based on a retroactive adjustment of weighted average shares outstanding for all periods presented. To reflect the reverse stock split on shareholders’ equity, the Company reclassified an amount equal to the par value of the reduced shares from the common stock par value account to the additional paid in capital account, resulting in no net impact to shareholders' equity on the condensed consolidated balance sheets.

Sources and Uses of Liquidity

(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 2018 Revolving Credit Facility (as defined below) and the Company’s ability to access capital markets. The Company’s primary cash needs are funding working capital requirements, meeting debt service requirements, paying amounts due under the Tax Receivable Agreement (as defined below) and capital expenditures for new stores and related leasehold improvements.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of cash flows (Topic 230): Restricted cash”. This guidance requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2018 using the retrospective transition method to each period presented. The Company’s restricted cash is reserved for payments for claims for its insurance program, which is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the condensed consolidated statement of cash flows.

 

 

 

November 3,

 

 

February 3,

 

(in thousands)

 

2018

 

 

2018

 

Cash and cash equivalents

 

$

1,050

 

 

$

5,372

 

Restricted cash

 

10

 

 

73

 

Total Cash, cash equivalents, and restricted cash

 

$

1,060

 

 

$

5,445

 

 

Adoption of Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers”

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”.  This guidance on revenue recognition accounting requires entities to recognize revenue when promised goods or services are transferred to customers and in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Since its issuance, the FASB has amended several aspects of the new guidance. The Company adopted this guidance in the first quarter of fiscal 2018 using the modified retrospective cumulative effect transition method. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The impact to the financial statements of this adoption are primarily related to balance sheet reclassification, including amounts associated with the change in balance sheet classification of the sales returns reserves, with no material impact to the statement of operations and comprehensive loss as the Company’s existing revenue recognition policies are in line with the new guidance.  

 

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 10 “Segment Information” for disaggregated revenue amounts by segment.

 

Revenue associated with gift cards is recognized upon redemption and unredeemed balances are considered contract liability and recorded within other accrued expenses, which are subject to escheatment within the jurisdictions in which it operates. As of November 3, 2018 and February 3, 2018, contract liability was $1,253 and $1,229, respectively.  For the three and nine months ended November 3, 2018, the Company recognized $52 and $252 of revenue respectively that was previously included in contract liability as of February 3, 2018.

 

Amounts billed to customers for shipping and handling costs are not significant.  Such shipping and handling costs are accounted for as a fulfillment cost and are included in cost of products sold. Sales taxes that are collected by the Company from a customer are excluded from revenue.     

 

Sales are measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration mainly includes discounts, chargebacks, markdown allowances, cooperative advertising programs, and sales returns. Estimated amounts of discounts, chargebacks, markdown allowances, cooperative advertising programs, and sales returns are accounted for as reductions of sales when the associated sale occurs. These estimated amounts are adjusted periodically based on changes in facts and circumstances when the changes become known. On the Company’s condensed consolidated balance sheet, reserves for sales returns are included within other accrued liabilities, and the value of inventory associated with reserves for sales returns are included in prepaid expenses and other current assets. The Company continues to estimate the amount of sales returns based on known trends and historical return rates.  

 

The following table summarizes the impacts of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of November 3, 2018.

 

 

 

Impact of changes in accounting standard

 

 

 

As

 

 

 

 

 

 

Balances without

 

(in thousands)

 

reported

 

 

Adjustments

 

 

adoption of Topic 606

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables, net

 

 

32,323

 

 

 

(1,397

)

 

 

30,926

 

Prepaid expenses and other current assets

 

 

6,369

 

 

 

(1,237

)

 

 

5,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

 

9,473

 

 

 

(2,634

)

 

 

6,839

 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02: “Leases (Topic 842)”, a new lease accounting standard. The guidance requires lessees to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases currently classified as operating leases. In July 2018, the FASB issued ASU 2018-11: “Leases (Topic 842): Targeted improvements” which provides companies with an additional transition method to apply the new guidance at the adoption date instead of the earliest period presented in the financial statements. The Company expects to utilize this transition method upon adoption. The Company is currently compiling an inventory of lease arrangements in order to determine the impact the new guidance will have on the consolidated financial statements and disclosures. The Company has selected new lease accounting software in preparation for the standard's additional reporting requirements. The Company continues to evaluate the impact of adopting this guidance on the consolidated financial statements.  However, based on the assessment to date, the Company expects that the adoption of the guidance will result in a material increase in lease-related assets and liabilities recognized in the Company’s Consolidated Balance Sheets, but the Company is unable to quantify the impact at this time.

v3.10.0.1
Goodwill and Intangible Assets (Tables)
9 Months Ended
Nov. 03, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Summary of Net Goodwill Balances

Net goodwill balances and changes therein by segment were as follows:

 

(in thousands)

 

Wholesale

 

 

Direct-to-consumer

 

 

Total Net Goodwill

 

Balance as of November 3, 2018

 

$

41,435

 

 

$

 

 

$

41,435

 

Balance as of February 3, 2018

 

$

41,435

 

 

$

 

 

$

41,435

 

Summary of Identifiable Intangible Assets

The following tables present a summary of identifiable intangible assets:

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of November 3, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

11,970

 

 

$

(6,420

)

 

$

 

 

$

5,550

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

101,850

 

 

 

 

 

 

(30,750

)

 

 

71,100

 

Total intangible assets

 

$

113,820

 

 

$

(6,420

)

 

$

(30,750

)

 

$

76,650

 

 

(in thousands)

 

Gross Amount

 

 

Accumulated Amortization

 

 

Accumulated Impairments

 

 

Net Book Value

 

Balance as of February 3, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

11,970

 

 

$

(5,971

)

 

$

 

 

$

5,999

 

Indefinite-lived intangible asset:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

101,850

 

 

 

 

 

 

(30,750

)

 

 

71,100

 

Total intangible assets

 

$

113,820

 

 

$

(5,971

)

 

$

(30,750

)

 

$

77,099

 

v3.10.0.1
Long-Term Debt and Financing Arrangements (Tables)
9 Months Ended
Nov. 03, 2018
Debt Disclosure [Abstract]  
Summary of Long-Term Debt

Long-term debt consisted of the following:

 

 

 

November 3,

 

 

February 3,

 

(in thousands)

 

2018

 

 

2018

 

Term Loan Facilities

 

$

27,500

 

 

$

33,000

 

Revolving Credit Facilities

 

 

35,500

 

 

 

16,900

 

Total debt principal

 

 

63,000

 

 

 

49,900

 

Less: current portion of long-term debt

 

 

2,750

 

 

 

8,000

 

Less: deferred financing costs

 

 

1,520

 

 

 

1,218

 

Total long-term debt

 

$

58,730

 

 

$

40,682

 

 

v3.10.0.1
Share-Based Compensation (Tables)
9 Months Ended
Nov. 03, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Summary of Stock Option Activity for Both Employees and Non-employees

A summary of stock option activity for both employees and non-employees for the nine months ended November 3, 2018 is as follows:

 

 

 

Stock Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (years)

 

 

Aggregate Intrinsic Value

(in thousands)

 

Outstanding at February 3, 2018

 

 

170,757

 

 

$

42.23

 

 

 

8.1

 

 

$

32

 

Granted

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Exercised