Vice President of Legal and Deputy General Counsel - Nicole Lee
Operator: Hello, everyone. Thank you for joining us, and welcome to Vince Q2 2026 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Nicole Lee, Vice President of Legal and Deputy General Counsel. Nicole, please go ahead.
Nicole Lee: Thank you, and good morning, everyone. Welcome to Vince Holding Corp's second quarter fiscal 2026 results conference call. Hosting the call today is Brendan Hoffman, Chief Executive Officer, and Yuji Okumura, Chief Financial Officer. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that the company expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website.
Investors should not assume that statements made during the call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call. In addition, in today's discussion, the company is presenting its financial results in conformity with GAAP and on an adjusted basis. The adjusted results that the company presents today are non-GAAP measures. Discussions of these non-GAAP measures and information on reconciliations of them to their most comparable GAAP measures are included in today's press release and related schedules, which are available in the Investors section of the company's website at investors.vince.com. Now, I'll turn the call over to Brendan.
Brendan Hoffman: Thank you, and good morning, everyone. I'm very pleased to announce another fantastic quarter for Vince Holding Corp today and excited to provide more color on the new chapter we are beginning with our recent acquisition of OVO. Let me start with our second quarter results, which reflect continued momentum across the business. We delivered sales growth of nearly 12% with strength across both our direct-to-consumer and wholesale channels and delivered adjusted EBITDA of $18 million, including the benefits of tariff refunds. Importantly, our profitability results were above our outlook, even excluding the refund benefits as well as transaction costs incurred in the period.
This marks another quarter in which our team has executed against a clear plan and delivered on what we said we would deliver, and I want to thank everyone across our organization for that consistency. Highlights from the quarter include strong sales growth in both our women's and men's businesses, driven by full-price transactions across key categories, including woven tops, lightweight outerwear, and seasonal knits and sweaters. Customers also continued to embrace full outfitting, driving higher transactions across categories. Our summer and pre-fall collections resonated particularly well, and that momentum extended into the Nordstrom anniversary event. Underpinning it all is continued growth in our full-price customer base across all channels, which gives us confidence in the durability of the business.
Given the continued momentum we are seeing as we enter the third quarter, we are pleased to raise our annual outlook for Vince, as Yuji will review. Now I want to spend some time on the most significant strategic step we've taken as a company in years. On August 27th, we announced and completed the acquisition of the operating business of OVO, one of the most recognized brands in contemporary streetwear, co-founded by Drake. In only one day following the news, we saw the transaction drive more than 500,000 impressions across owned and external posts from all partners, with amplifying accounts representing a combined audience of over 40 million followers.
This is the next chapter of our multi-brand platform strategy beyond Vince in partnership with Authentic, and I want to walk through why we did it, why now, and why we believe in this growth opportunity. Let me start with the brand itself. OVO has built one of the most loyal followings in global streetwear, anchored by a distinctive owl logo and black and gold aesthetic, and a track record of collaboration-led product drops that consistently sell out. It operates 12 stores today across Canada, the United States, and the United Kingdom, alongside a robust e-commerce business.
This is a brand with real cultural relevance and a direct connection to its customer, and it gives Vince Holding Corp access to the fast-growing global streetwear market, a category we did not previously participate in. The strategic logic is straightforward. OVO gets access to something it has never had at scale, our operating infrastructure. We bring proven capabilities in merchandising, sourcing, production, and wholesale. Many of the same capabilities that drove Vince's own turnaround, and we intend to put them to work fueling OVO's next phase of growth.
That means expanding OVO's store and e-commerce footprint in the U.S., using our scale, and launching OVO's wholesale business through some of the same national department store relationships we've spent years building for Vince. At the same time, this transaction gives us a Canadian-based infrastructure and local presence that we intend to leverage to open five to six Vince stores and expand Vince's e-commerce and wholesale positioning in Canada, a market where the brand has historically been under-penetrated. This transaction also deepens our relationship with Authentic Brands Group. Authentic has acquired a majority stake in OVO's intellectual property, with Drake maintaining a 44% stake as well.
As part of this expanded partnership, Vince Holding Corp owns 5% of the IP, alongside a long-term license agreement to manufacture and sell OVO product. While this gives us a new revenue stream, importantly, it gives us the ability to participate in the overall growth of the OVO IP, as Authentic has demonstrated its leadership in this area through monetizing and growing these types of transactions. We are proud to deepen our partnership with them. Importantly, Vince and OVO will maintain separate brand operations and creative teams. Vince will continue to serve its contemporary customer, and OVO will continue to serve its streetwear audience, each with the creative independence that has made it successful.
What we are bringing together is the operating backbone underneath both brands, sourcing, production, logistics, and back-of-house infrastructure. We think that this is the right way to capture the benefits of scale without diluting what makes either brand distinct, and it reflects how we think about running a multi-brand platform going forward. From a financial standpoint, OVO ended calendar year 2025 with nearly $50 million in net sales and will be earnings neutral for us this year, with plans to be earning accretive next year. Looking forward, we have a clear path to grow this business meaningfully over time.
Using disciplined assumptions with respect to channel mix, market penetration, and measured investments, we see opportunity to grow OVO to $100 million+ revenue business by fiscal 2030 and see adjusted EBITDA margins in the low double-digit percentage range. This growth comes from three primary drivers: expanding OVO's retail footprint from our current 12 doors to approximately 20 doors by 2030, focusing on the U.S. market, launching U.S. wholesale, and enhancing e-commerce through marketing and site optimization, as has proven successful at Vince. We've been thinking about building a true multi-brand platform for some time. Given the momentum we have in the core Vince business today, we believe this is the right moment to take that step.
We are thrilled to further our relationship with Authentic and to welcome OVO, Drake, and the entire OVO team into the Vince Holding Corp family. With that, let me turn it over to Yuji, who will walk you through the second quarter financials and outlook in more detail.
Yuji Okumura: Thank you, Brendan, and good morning, everyone. I will walk you through our second quarter results and provide some additional color on our outlook for the third quarter and full year fiscal 2026. Total company net sales for the second quarter increased 11.7% to $81.8 million, compared to $73.2 million in the second quarter of fiscal 2025. With respect to channel performance, our direct-to-consumer segment grew 13.7%, driven by strong performances across both our e-commerce business and stores, and our wholesale segment increased 10.4% year-over-year. Gross profit in the second quarter was $49.8 million, or 60.9% of net sales. This compares to $36.9 million or 50.4% of net sales in the second quarter of last year.
This includes the benefit of $10.4 million from tariff refunds. Excluding this benefit, gross margin decreased 290 basis points, in line with our expectations, given the higher input cost experience related to product and freight costs. Selling, general, and administrative expenses in the quarter were $36.3 million or 44.3% of net sales as compared to $25.8 million or 35.2% of net sales for the second quarter of last year. As a reminder, last year included a benefit of approximately $5.6 million related to the receipt of the payroll tax credit payments from the U.S. Department of the Treasury under the Employee Retention Credit program.
Excluding this benefit from the prior year, as well as $2.9 million in transaction costs incurred in the second quarter of fiscal 2026 related to the OVO acquisition, SG&A as a percentage of net sales leveraged approximately 210 basis points compared to the second quarter last year, primarily driven by leverage of fixed costs on the higher sales. Income from operations for the second quarter was $13.6 million compared to income from operations of $11.2 million in the same period last year. Adjusted income from operations, which includes the benefit of tariff refunds in the second quarter of fiscal 2026, was $16.4 million, compared to $5.5 million in the same period last year.
Net interest expense for the quarter decreased to $0.7 million, compared to $0.8 million in the prior year. The decrease was primarily due to lower levels of debt under the revolving credit facility. At the end of the second quarter of fiscal 2026, our long-term debt balance was $12.3 million. Income tax expense was $3.1 million, compared to $100,000 in the same period last year. The expense is due to the impact of applying company's estimated annual effective tax rate to the year-to-date ordinary pre-tax income.
Net income for the second quarter was $10.6 million or diluted earnings per share of $0.80, compared to net income of $12.1 million or diluted earnings per share of $0.93 in the second quarter of last year. Adjusted net income, which includes the benefit from tariff refunds in the second quarter of fiscal 2026, was $13.5 million or $1.02 per diluted share, compared to $4.9 million or $0.38 in the same period last year. Adjusted EBITDA, which includes the tariff refund benefit, was $18 million for the second quarter compared to $6.7 million in the prior year, excluding ERC benefit. Turning to the balance sheet.
Net inventory was $73.4 million at the end of second quarter as compared to $76.7 million at the end of the second quarter last year. The year-over-year decrease was primarily driven by the IEEPA tariff refunds of $2.6 million. Turning to our outlook. Today, we are providing an updated outlook that is specific to the Vince business and does not include the OVO business, which I address separately. We are taking this approach to ensure comparability of our performance across the quarters and to provide ongoing visibility into the Vince business. This outlook also excludes the transaction and integration costs related to the acquisition and now includes the benefit of the tariff refunds.
