Vince delivered EPS of $0.04, versus our $0.01 estimate and the Street’s $0.00, while it raised guidance to $0.88-$0.92 (from $0.85-$0.90) representing 20%-25% growth. Vince’s excellent quarter amid a highly promotional backdrop at both retail and wholesale underscores the strength of and evolution to a global lifestyle brand. The operating margin expanded 190 basis points, to 9.7%, despite increased investment. We are encouraged by the continued momentum, and while the stock is not inexpensive, we believe that the multiple can be sustained since Vince is one of the few unique growth stories in our space.
Vince’s robust 45% two-year comp trend is roughly in line with the 47% two-year comp trend in the fourth quarter. While DTC (including e-commerce) is a smaller part of total revenue (20%), penetration is increasing.
Gross margin was strong, up 600 basis points, to 49.4%, versus our 46.1% estimate and the Street’s 46.9%, with improvement across channels despite a highly promotional environment. The improvement was driven by 370 basis points from lapping an inventory reserve write-down from last year, 50 basis points from increasing retail mix, and the remainder from product mix favorability and other operational initiatives.
Wholesale performed well, up 29% in the quarter (18% excluding a timing shift). The company continues to forecast double-digit growth in this channel for the near future.
Vince paid down $20 million of debt in the quarter (planned for $5 million), with plans to pay down $45 million in total for the year ($25 million previously), resulting in a balance of roughly $125 million by year end.
Near-term product initiatives include expanding existing product categories, with greater focus on outerwear and dresses within apparel, elevated men’s assortment this fall, and the introduction of children’s apparel (initial production quantities are sold out) and men’s footwear in July. Handbags are still slated for a 2015 launch.
The company announced Thursday that Natalie Ratabesi is joining as creative director of women’s design reporting to President Karin Gregersen and based in Los Angeles. Most recently, Ms. Ratabesi worked at Philosophy, and before that she worked at Dior under John Galliano and Oscar de la Renta.
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