Vince Holding Corp. Stock

Hello, everyone. Thank you for joining us, and welcome to Vince Q2 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Nicole Lee, Vice President of Legal and Deputy General Counsel. Nicole, please go ahead.

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 expects.

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.

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 continue 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. And 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 27, 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 1 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 have driven 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 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 5 to 6 Vince stores and expand Vince's e-commerce and wholesale positioning in Canada, a market where the brand has historically been underpenetrated.

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. And 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 products.

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 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 earnings 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-plus revenue business by fiscal 2030 and see adjusted EBITDA margins in the low double-digit percentage range. This growth comes from 3 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.

Thank you, Brendan, and good morning, everyone. I'll 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-com 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 costs experienced 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 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 pretax 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. Now 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'll address separately.

We are taking this approach to ensure comparability of our performance across the quarter 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. We expect to see the $2.6 million of benefit currently in inventory to flow through in the second half and be offset by incremental cost pressures from freight and product costs we are experiencing.

As Brendan discussed, we are excited to see the momentum at Vince carrying into the start of the third quarter, and our outlook considers this performance as well as elevated comparisons to last year, along with the dynamic macro environment we continue to operate in. For the third quarter, we expect Vince net sales to increase approximately 5% to 8% compared to the prior year period. This guidance reflects an approximate increase of 11% to 14% on a 2-year basis, reflecting the strong momentum we are experiencing in the business.

We expect Vince adjusted operating income as a percentage of net sales to be approximately 7.5% to 8.5% and Vince adjusted EBITDA as a percentage of net sales to be approximately 8.5% to 9.5%. Given the momentum we have seen in the Vince business and continue to expect to see, we are raising our full year outlook. For fiscal 2026, we are now expecting Vince net sales to increase approximately 8% to 10% compared to fiscal 2025. We expect Vince adjusted operating income as a percentage of net sales to be approximately 7.5% to 8% and Vince adjusted EBITDA as a percentage of net sales to be approximately 9% to 9.5%.

Turning now to OVO. As Brendan reviewed, we see significant opportunity to scale the business and drive profitable growth through multiple levers. In the near term, following the transaction, we are beginning to reinvest in both inventory and marketing. Given this, we expect sales in the calendar 2026 on a pro forma basis to be relatively flat to calendar 2025 and expect earnings net of transaction costs to be neutral to the Vince Holding Corp. business for fiscal 2026.

Looking ahead, we expect to begin to scale the business in fiscal 2027 through the launch of U.S. wholesale and opening about 3 U.S. store locations. We continue to expect earnings from OVO to be accretive to the Vince Holding Corp. business in fiscal 2027 and look forward to sharing more on our plans on future calls. In summary, we are very excited for this next chapter for the Vince Holding Corp. platform.

Our Vince business continues to drive momentum, and we have a clear path and strategy for OVO to drive incremental sales and earnings for our combined business. We're managing the external environment effectively. And with our strong balance sheet with ample liquidity, we are continuing to invest in initiatives that drive long-term growth, and we are well positioned to execute against our plan. With that, I'll turn it back to the operator to open the line for questions.

[Operator Instructions] Your first question comes from the line of Eric Beder with SCC Research.

Congratulations on a solid quarter.

Thanks, Eric.

When you look at the Vince business, I guess where are we seeing in terms of men's becoming a larger piece? And how should we be thinking about further category expansion in the stores?

Yes. Well, men's continues to do excellent for us, around 25% of the business and growing. Fortunately, the women's business is growing as well. So it's a neck and neck race. In terms of other categories, that's obviously in partnership with ABG now, and they've done a great job extending the brand in the categories that we've talked about like tailored clothing, handbags, obviously, our legacy shoe license, looking at some other things like baby and home. And we look to see what can be accretive to our core business. At the same time, looking at how we can leverage drop ship. So we think all of that just adds to the texture and flavor of the Vince experience.

When you look at OVO, how much is Drake going to remain involved in the brand? I know he still owns about 44% of the IP, if I remember correctly. And where do you see the ability to really lever in some a little more detail the infrastructure that you have in terms of manufacturing?

Yes. So I had dinner with Drake last month, and he seems very committed. Obviously, OVO is his brand and his DNA and the owl and the clothing is a big part of that. So I was quite thrilled to see how much he wants to lean in going forward. Obviously, he's pretty busy, and we want him to continue to be the cultural icon he is. And so he's involved from an overall direction, and he will be involved on some personal appearances and making sure that the line that's created and the marketing fits in with his overall vision.

So I think we have a great pipeline with Drake and with his team and with ABG. So excited about that to see where that leads to. I'm sorry, Eric, what was the second part of your question?

My second question is, in terms of the synergies the ability to kind of leverage [ your ] manufacturing basis and your network that you've upgraded now.

Yes. No, that's obviously an important part of the decision to move forward as us thinking we could complement them quite well. So we've had a team up there now for a few weeks. We're doing a big summit next week on all hands with ABG, us and OVO and digging deeper into where we can complement, supplement and be additive to them. I'm going to Hong Kong and Vietnam at the end of the month and for Vince, but we'll also be meeting with some of their key suppliers to try and facilitate better economics where we can and just show them what the new partnership is going to look like.

So we think there's many aspects of where Vince can lean in and supplement and be additive to what OVO is already doing, whether that's around sourcing, whether that's around adding stores and wholesale in the U.S., which is a big piece of it. Whether that's OVO helping us launch Vince in Canada with some new stores there as well as some wholesale. So we think there's a lot of back-and-forth synergies that will come out of this.

And final question. The OVO also includes a store, if I remember correctly, in London. How does that help you or make it -- how does that change kind of the thought process maybe in Europe and other places for expansion there?

Yes. Well, they have a very successful store in London as we have too as well, as you know, you visited. Our main focus is the U.S., but we certainly are keeping an eye out on opportunities in Europe for Vince, as we've discussed in the past and now for OVO. So Jill Norton, our Chief Commercial Officer, she would say she's already looking for additional spaces in London and Paris for both brands. But we'll be opportunistic for OVO if those come forward. But really, our focus right now is launching wholesale in the U.S. and the additional stores, which I think are a great and wide open path for us.

Your next question comes from the line of Michael Kupinski with NOBLE Capital Markets.

Congratulations on a solid quarter and your OVO acquisition. I was just wondering if you can talk a little bit about how quickly you could get OVO into Nordstrom and Bloomingdale's and how significant could wholesale ultimately become for the brand? And then maybe as you've kind of outlined generating about $100 million in revenue, how significant would wholesale be relative to your physical footprint of stores that you're expecting? If you can just kind of give us some color on how do we get to the $100 million?

Yes. So we haven't obviously announced which partner we think is right to launch the brand. But ultimately, we think much like Vince it can have a diversified wholesale base. I think realistically, it's the summer or back half of next year to launch. I mean, right now, we, at Vince are showing February collection. And obviously, that's been in the works for a while. So that's part of the work we're doing now with OVO is developing the collection for wholesale. So I would think it would be around this time next year that we would really do a launch. Maybe we'll do a capsule earlier.

And we're in deep conversations with the different majors to solidify that partnership. And I can tell you there's great enthusiasm as the streetwear business is growing and obviously around Drake and everything he's doing. I would hope that as we look out to the future, we have a balanced business, much like Vince, that's fairly spread out between wholesale and retail. I think probably OVO will always be a little bit bigger in retail just because that's where it started much like Vince started in wholesale.

But I have great confidence, especially with the conversations we've been having that we can ramp up wholesale quite quickly based on the enthusiasm and the way the brand resonates. And I think being a direct-to-consumer brand, we understand how to merchandise the collection, how to merchandise the shops, and we'll work closely with the partner or partners to do so. But definitely, as we speak here 3 years from now, I expect to have a very balanced business across the channels.

Got you. And then does OVO validate the operating platform strategy that you previously discussed? And I was just wondering, should investors view this acquisition as kind of a blueprint for additional brands? And then I guess if you -- following on that, what characteristics would you require before adding another brand to the platform?

Yes. Well, I think -- taking that last, I think we obviously want to absorb OVO. We're not -- we appreciate that this is a new chapter for the company, and we want to make sure it's a successful chapter for the company. So we want to learn and grow from this experience, but very confident we'll be able to do that. And then yes, I do expect and hope that this is a blueprint for using Vince as a platform that we can do with other brands, most likely with Authentic Brands Group.

I think that is hopefully a rinse, lather and repeat that we can do in the future. But first things first, and that's going to be OVO and then we'll take it from there. And I love the fact that it's not just a contemporary brand, it's a streetwear brand, and it will prove that we can do other categories and serve other customers with the base that we have with the Vince Holding platform.

Got you. If I can squeeze one more in here. You previously talked about breaking through the $300 million revenue ceiling as an important threshold for generating SG&A leverage. I was just wondering if you can just given the momentum that you've seen in the first half and certainly as we're seeing in the second half as well, what incremental EBITDA margin should we think about as revenues continue to grow here?

Well, we gave our guidance on EBITDA. Obviously, there's a lot of noise right now with the tariff refunds and the future tariffs and the freight and everything. So there's lots of puts and takes. And we are doing some investment back in the business in marketing in terms of trying to continue to drive the increase. So other than what we've given in the guidance, I don't think I can get more granular than that. But it's certainly growing this business like we have and with the guidance we've given well past that $300 million barrier.

It gives us a lot -- a much stronger balance sheet that allows us to make decisions and investments in the future, whether it's OVO, investing in marketing, investing in people, investing in stores. So we feel really good about where we are and the profitability that we're going to continue to throw off.

We have reached the end of the Q&A session. I will now turn the call back to Brendan Hoffman for closing remarks.

Thank you, everyone. We apologize for the glitches earlier, but hopefully, the message got through, and I know it will be on replay. And we look forward to updating you on our Q3 results in December. Thanks very much.

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you. Hello everyone. Thank you for joining us and welcome to Vince First Quarter 2026 earnings conference call. [Operator Instructions]. I will now hand the conference over to Akiko Okuma, Chief Administrative Officer. Please go ahead.

Thank you, and good morning, everyone. Welcome to Vince Holding Corp.'s First 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 expects. 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.

Good morning, everyone. Thank you for joining us today to discuss Vince Holding Corp.'s First Quarter Fiscal 2026 results. The momentum we built throughout fiscal 2025 has accelerated into the new year, and we are executing our strategic priorities with precision and confidence.

I'm pleased to report that Vince delivered a first quarter performance with net sales up 10.5% compared to the prior year, reflecting strength across both of our channels. Direct-to-consumer sales grew 15.6% and wholesale increased to 5.9%. Our direct-to-consumer segment continues to be a standout performer from store remodels to enhanced e-commerce capabilities, from expanded marketing support to the launch of drop-ship capabilities, we are creating more touch points and more compelling reasons for customers to engage with Vince.

Q1 delivered outstanding performance in full-price customer acquisition, driving double-digit growth in both new and reactivated customers, proof that our brand is resonating and our strategy is working. Our wholesale business is equally robust with at the register sales up low double digits with U.S. major accounts and relationships with key partners strengthening and benefiting from the broader resurgence in contemporary.

Customers see real value in our product, appreciating the quality of the design and the effortless style of buying since. In women's, our strongest category was woven tops, including solid blouses, prints and new cotton woven programs. We also saw strength in pants for the expansion of our core pant fabrications and additional color options and novelty prints. Dresses gained momentum at the end of Q1, driven by knit dresses and elevated event dressing and printed silks.

In men's, we continue to see significant growth across all channels, driven by novelty textured knits and polos. We're also seeing increases across all women categories and sets. Head-to-toe dressing is elevated at our average transaction values, with expanded offerings driving higher bottom sales penetration. Our men's business remains a significant growth opportunity. We're on a clear path towards 30% penetration over time. We are leaning into high potential areas, particularly in our direct-to-consumer channel.

In e-commerce, our drop-ship business is expanding our reach without inventory risk. While still a small portion of the business, we recently launched handbags, belts and accessories in Q2 in addition to shoes, adding another dimension to our offering.

In our store business, we are continuing targeted remodels and strategically looking to reposition in existing markets and lifestyle centers where traffic and productivity trends are strongest. This summer, we will amplify store traffic through activations in key markets.

Looking ahead, I'm more confident than I've ever been in this business, and we are pleased to be raising our full year outlook. Over the last 12 months, we have fundamentally raised the bar for Vince, establishing a new baseline for growth. We're executing with discipline. Our brand is resonating and our customers are responding. This performance has extended into the second quarter with sales trends running above low double-digit quarter-to-date.

As Yuji will discuss, we're balancing the strong performance with prudent planning. With half the quarter remaining and macroeconomic volatility persisting, we're maintaining a disciplined approach to our Q2 and fiscal year outlook.

In summary, we're operating from a position of tremendous strength on pace to deliver strong growth for the year. We remain excited for the opportunities we continue to see to maximize Vince Holding Corp. as a platform, and I want to thank the team for their continued hard work. I look forward to updating you on our continued progress.

Now I'll turn it over to Yuji to walk through the financials in more detail.

Thank you, Brendan, and good morning, everyone. I'll walk you through our first quarter results and provide some additional color on our outlook for the second quarter and full year fiscal 2026.

Total company net sales for the first quarter increased 10.5% to $64 million compared to $57.9 million in the first quarter of fiscal 2025. With respect to channel performance, our direct-to-consumer segment grew 15.6%, driven by strong performances across both our e-commerce business and stores and our wholesale segment increased 5.9% year-over-year. Gross profit in the first quarter was $32.4 million or 50.6% of net sales. This compares to $29.2 million or 50.3% of net sales in the first quarter of last year. The increase in gross margin rate was primarily driven by approximately 130 basis points due to favorable impact from higher pricing and 100 basis points due to favorable impact from lower discounting, largely offset by unfavorable impact of higher tariffs.

Selling, general and administrative expenses in the quarter were $35 million or 54.7% of net sales as compared to $33.6 million or 58% of net sales for the first quarter of last year. The increase in SG&A dollars was primarily driven by higher benefit costs as well as higher marketing and advertising costs.

Loss from operations for the first quarter was $2.6 million compared to loss from operations of $4.4 million in the same period last year. This represents a $1.8 million improvement year-over-year, reflecting both top line growth and operating leverage. Net interest expense for the quarter decreased to $0.6 million compared to $0.9 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 first quarter of fiscal 2026, our long-term debt balance was $29.1 million. Income tax benefit was $0.4 million compared to 0 income tax benefit in the same period last year. The benefit is due to the impact of applying company's estimated annual effective tax rate to the year-to-date ordinary pretax loss.

Net loss for the first quarter was $2.1 million or a loss per share of $0.16 compared to net loss of $4.8 million or a loss per share of $0.37 for the first quarter of last year. Adjusted EBITDA was negative $1.1 million for the first quarter compared to negative $3 million in the prior year, representing an improvement of $1.9 million.

Turning to the balance sheet. Net inventory was $70.8 million at the end of first quarter as compared to $62.3 million at the end of first quarter last year. The year-over-year increase was primarily driven approximately $4.5 million higher inventory carrying value due to tariffs.

Now turning to our outlook. As Brendan discussed, we are thrilled to see the momentum carry into the start of the second quarter, and our outlook considers the strong growth we are driving as well as dynamic macro environment.

For the second quarter, we expect net sales for the period to increase approximately 10% to 12% compared to the prior year period. We expect adjusted operating income as a percentage of net sales to be approximately 6.5% to 7% and adjusted EBITDA as a percentage of net sales to be approximately 8% to 8.5%.

Given the momentum we have seen in the business and continue to expect to see, we are raising our full year outlook. For fiscal 2026, we now expect net sales to increase approximately 7% to 8% compared to fiscal 2025. We expect adjusted operating income as a percentage of net sales to be approximately 4% to 4.5% and our adjusted EBITDA as a percentage of net sales to be approximately 5.5% to 6%. Our outlook now contemplates the net impact of higher input costs and lower reciprocal tariff rates based on what we know today. And while we received a portion of tariff refunds, given the uncertainty on timing and ultimate amount of any reimbursement, we are not factoring tariff refunds into our guidance.

In summary, we're pleased with our year-to-date performance and the trajectory of the business. We're managing the external environment effectively. And with our strong balance sheet with ample liquidity, we are continuing to invest in initiatives that drive long-term growth, and we are well positioned to execute against our plans.

With that, I'll turn it back to the operator to open the line for questions.

[Operator Instructions]. Your first question comes from the line of Michael Kupinski from NOBLE Capital Markets.

First of all, congratulations on your quarter. I was just wondering, to what extent do you believe the current acceleration in revenue is being driven by favorable category trends versus company-specific execution? And how sustainable do you think that advantage is over the coming years?

Yes. Thanks, Michael. Well, as I said in my remarks, I definitely think the contemporary segment is having a moment now with some tailwinds. But I feel even more confident that Vince is at the top of the list. I mean we speak to our wholesale partners, and we see where we rank. We see the increases we're getting.

So I think a lot of it is our execution, the great product that continues to flow through. I mentioned to -- mentioned that the consistency of the team that's now been together largely for 7 years is a big factor, and they just keep evolving and elevating the product and then the team behind it finds ways to expand it commercially. So I think it's a combination of both things. And as I said, we haven't seen any slowdown right now.

Got you. And then with your debt of $29 million, $31 million excess revolver availability, how are you thinking about balance sheet priorities as profitability improves here?

Well, we have a revolver that we're very comfortable right now with the availability, and it's in better shape than it probably has been in a long time or maybe ever. And we still have a little bit of long-term debt that Sun Capital holds with PIK interest that we're in discussion to figure out how to handle, but it's less than $10 million at this point. So greatly reduced from where it was 16, 18 months ago.

So we feel, given the strength of the business and the balance sheet, we're in a position to play some offense here and make some investments in business. And as I mentioned, also look for ways to use our platform to extend beyond Vince if the opportunity presents itself.

Your next question comes from the line of Eric Beder from SCC Research.

So can we get an update on Saks where that stands and how that fit into the guidance for this quarter and the year?

Yes. Well, we're certainly in a much better place with Saks Global, which is Saks, Neimans and Bergdorf for us than we were a year ago. We continue to manage it very closely with their senior management team. But -- we came into the year planning it very conservatively and planning it down from last year. I think we mentioned last year, it was about 7% of our business. So certainly much smaller than our other wholesale accounts at this point.

But we've been pleasantly surprised with the strength of the business there. And so we're seeing orders increase, and they've been good partners in terms of going through this bankruptcy process. I read what you read that they're coming close to emerging and a healthy Saks Global, even though it's slightly reduced in terms of footprint from what was 1.5 years ago, is terrific for Vince and good for the industry. So that presents some upside for us as we look in the back half of the year and into 2027.

Right. When you look at renovations to stores. A, how many should we be thinking about this year and maybe next? And b, what's kind of the financial impact from those kind of I don't know, payback or what kind of metrics do you see when you upgrade a store?

Yes. Well, last year, we did quite a few renovations at the beginning of the year. And in many cases, it's to kind of retrofit the age stores that we don't really need cash wraps and big registers in the stores. What opens up the stores. I know you've seen Greenwich and seen it firsthand and gotten great payback where we've done -- did the renovations last year in Greenwich, in Stanford, California, in Mercer Street, just to name a few.

This year, over the summer, we have plans to upgrade Abbot Kinney in California, in Scottsdale. But we're not going to close the stores. The stores are just doing too much business at this point to want to shut them down for a period like we did last year. So working with our team and the centers, we found ways to be able to do it off hours where we cannot lose the momentum we're building.

So I think I'm curious to see how that goes and how we're able to execute as we think about renovations in 2027 and beyond, if we're able to do it with less disruption of the business, given the momentum that will further incentivize us to make those investments.

Okay. When you look at the drop-ship, I see you expanded it out. Help us out here, how does those -- how does the drop ship help change kind of the ability for stores and for your ability to drive higher returns?

Yes. Well, I think it certainly is a tool for the stores, but it's more directly impacting e-commerce. And I think that anything we can do to expand the offering to the consumer beyond just what's traditionally been an apparel and shoe-based company provides the consumer more choice and more reason to spend time on the site or in the store. And I think -- I know it increases our units per transaction as they have further opportunities.

So we continue to be thrilled with shoes, which was what we launched 6 months ago. Now we've added these other categories just recently. And we're tracking to where we hope to be, if not a little bit more in terms of the annual projection. And it's a meaningful number in terms of just continuing to grow the business. And so we have our store manager conference next month, and that's one of the topics is how do we better utilize drop ship that's online in our stores, and the stores are keen to do that.

So we continue to get great support from Authentic Brands Group, our partners there, as they look to further expand categories. And I think it's pleasantly surprised us how accretive that's been both as we said, in things like drop ship, but also in brand awareness. And so they're looking to do or have signed up licenses in categories like home and kids and swim. And we're very active in terms of partnering with them to make sure it fits into the Vince aesthetics and design and creative team is very involved. So it's been a really energizing and beneficial relationship for both sides.

And one last one on suiting. We saw that this summer, you guys switched over some women suiting that went really well. How should we be thinking about that in terms of expanding men's suiting in more stores this year after testing it last year?

Yes. Well, again, that's through Peerless, one of the ABG licenses. I happen to have done business with them for 30 years at this point. So I know them quite well, and they're the leaders in the field. And I've been really impressed with how they've elevated their product from what I've dealt with them in the past. And the customers definitely reacting to it, as you mentioned from last summer.

And that's part of what we're thinking about is how do we better incorporate that into the stores. The stores were not originally set up for all these additional categories. And as you know, floor space is precious, but that's where balancing the ability to drop ship with having some merchandise on site is kind of the next phase of figuring out the way to optimize this. And we're experimenting with things like alterations.

So things that we didn't really have to think about before are nice opportunities that we're kind of in the process of experimenting and solving.

Great. Congratulations and good luck for the rest of the year.

At this time, there are no further questions. I will now turn the call back to Brendan Hoffman, CEO, for closing remarks.

Great. Well, thank you, everyone, for your continued interest in Vince, and we look forward to updating you again in September for our Q2 earnings call. Thanks again.

This concludes today's call. Thank you all for attending. You may now disconnect.

Hello, and welcome to the Vince Holding Corp. Fourth Quarter and Full Year Fiscal 2025 Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to Akiko Okuma, Chief Administrative Officer and General Counsel. You may begin.

Thank you, and good morning, everyone. Welcome to Vince Holding Corp. Fourth Quarter and Full Year Fiscal 2025 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 expects. 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.

Thank you, and good morning, everyone. I'm incredibly proud of the strong operating results we are announcing today, highlighting the exceptional momentum we delivered at the end of the year that has continued into the start of fiscal 2026.

As we announced earlier this year, we saw incredible strength in our direct-to-consumer business over the holiday period, and that remained the case throughout the full quarter. For the fourth quarter, sales in our direct-to-consumer business increased about 10% compared to last year, supported by our ongoing efforts in improving the customer experience and by the strategic pricing actions taken earlier in the fall.

For the overall quarter, sales were up nearly 5% compared to last year and profitability outpacing the high end of our prior guidance range. We are especially proud of this performance given the disruption we experienced with developments from Saks Global, which presented a headwind to sales of approximately $2 million in the quarter. With the recent reorganization of Saks Global, we now have more clarity into the situation and are working with our partners there as they move forward in their plans. As a reminder, Saks Global recently represented less than 7% of our total sales. We remain supportive and confident in the new leadership team's ability to stabilize the business.

We believe any change in penetration from this one partner going forward will be offset by strength elsewhere in the channel, given our diversified base and strong relationships across our wholesale business. This is a credit to not only our strong partnerships, but to the great product that is resonating across both men's and women's. We were also really pleased as we continue to elevate the product offering appealing to our broad customer base.

This strong performance supported by our fiscal 2025 results, which delivered sales growth of over 2% and adjusted EBITDA growth of about 8% despite contending with approximately $8 million of incremental tariff costs. As we have discussed, our teams have done a tremendous job in mitigating the tariff pressures we faced. We acted swiftly, diversifying our sourcing across Asia and globally while working closely with manufacturing partners to maintain the quality standards that define Vince.

We also implemented strategic pricing increases while maintaining unit sales validating the strength and quality of our product. As we enter fiscal 2026, I am encouraged by the growth we are continuing to drive, and I'm more confident than ever in the trajectory ahead for Vince Holding Corp. Given this, we are exploring opportunities to continue to invest in the customer experience within our full-price direct-to-consumer business. We are looking at areas like special events, people and store operations, including remodels and new store openings, while also continuing to leverage our digital platform and expand drop ship to additional categories.

In spring 2026, these categories will include handbags, tailored clothing, belts and accessories, creating revenue opportunity with minimal inventory risk for the business. In addition, we are continuing to scale our men's business. We ended the year with men's representing approximately 24% of total sales and continue to see opportunity to expand this to 30% penetration, driven by growth in wholesale partnerships and expanded assortments in our own stores and online.

And with respect to our international business, our second London store in Marylebone exceeded expectations this year and validated our thoughts on further international expansion. This success gives us confidence to explore additional flagship opportunities in gateway cities like Paris in the next 2 years. Finally, the strategy, I believe, will really help to accelerate our growth is our focus on maximizing Vince Holding Corp as a platform. While we do not have anything yet to report, we are continuing to look for opportunities to leverage our platform our world-class team and capabilities to support additional brands. This will create a new revenue stream for Vince Holding Corp.

We could not be more enthused by our partnership with ABG, which not only opens channels for us, but also provides great opportunities with respect to marketing and engaging customers. We are thrilled to partner with the ABG team with a recent event at the Masters last week, and we are looking forward to doing similar types of interactive activations with the team for future high-profile events. This is in addition to the elevated outreach that we are also doing in partnership with our wholesale partners.

Following the successful brand events at the end of last year with Nordstrom and celebrating our holiday campaign at our Madison Avenue, New York City flagship, we have continued the storytelling around the Vince brand. We recently celebrated an exclusive capsule collection for Spring 2026 as part of Bloomingdale's California Love campaign and hosted an influencer and editor event to showcase the capsule and preview of our Spring 2026 collection with over 100 editors and influencers in attendance.

As part of the event, we also co-hosted a private VIC dinner with Bloomingdale VICs complete with a fashion show and model presentation to great success. Fiscal '26 is off to a strong start in all accounts. As Yuji will review and as seen in our outlook in today's press release, the momentum we ended fiscal '25 with has continued across all channels. Our full-price business has never been stronger, reflecting the customers' continued love for the product and value they see for the brand. We believe macro events aside, we are positioned well to continue to deliver healthy profitable growth.

A little over a year ago, I returned to Vince as CEO. I cannot emphasize enough the pride that I have in our team, our business and the results we have delivered to date. I want to thank our incredible associates for their dedication and execution throughout fiscal '25. Their ability to evolve the product, maintain quality and execute against our strategic priorities gives me tremendous confidence in the future. We are operating from a position of strength with disciplined execution and a clear road map for growth. I look forward to updating you on our progress as we move through the year.

Now I'll turn it over to Yuji to discuss our financial results and outlook in more detail.

Thank you, Brendan, and good morning, everyone. As Brendan reviewed, our fourth quarter performance reflected ongoing strong momentum in our direct-to-consumer segment that we are pleased to see continue into the start of the new year.

Before I discuss our first quarter and fiscal 2026 outlook, let me review our fourth quarter results in more detail. Total company net sales for the fourth quarter increased 4.7% to $83.7 million compared to $80 million in the fourth quarter of fiscal 2024. With respect to channel performance, our direct-to-consumer segment increased 10.4%, driven by strong performances across both our e-commerce business and stores. This performance offset the 1.2% decline in our wholesale channel, largely driven by the decision to pause shipments to Saks Global.

Gross profit in the fourth quarter was $41.1 million or 49.1% of net sales. This compares to $40.1 million or 50.1% of net sales in the fourth quarter of last year. The decrease in gross margin rate was primarily driven by approximately 300 basis points due to the unfavorable impact of higher tariffs, 160 basis points due to the success of our promotional Black Friday and Cyber Monday events and approximately 125 basis points due to increased freight costs. These factors were partially offset by a favorable impact of approximately 380 basis points, primarily due to higher pricing.

Selling, general and administrative expenses in the quarter were $44 million or 52.6% of net sales as compared to $37.8 million or 47.2% of net sales for the fourth quarter of last year. The increase in SG&A dollars was primarily driven by $6 million of bad debt expense related to Saks reorganization. Loss from operations for the fourth quarter was $2.9 million compared to loss from operations of $29.7 million in the same period last year. Adjusted operating income, which excludes the $6 million related to the Saks reorganization, was $3.1 million.

This is compared to adjusted operating income of $2.5 million in the same period last year, excluding the impact of goodwill impairment charges and P180 transaction expenses incurred in the period. Net interest expense for the quarter decreased to $0.7 million compared to $1.6 million in the prior year. The decrease was primarily due to paydown of the third lien facility which occurred during January 2025. At the end of the fourth quarter of fiscal 2025, our long-term debt balance was $19.5 million. Income tax expense was $0.5 million compared to $2 million income tax benefit in the same period last year. The year-over-year change is primarily driven by tax benefit taken in the prior comparative quarter due to the reversal of the noncash deferred tax liability associated with the goodwill impairment, which previously could not be used as a source of income to support the realization of certain deferred tax assets related to company's net operating losses.

Net loss for the fourth quarter was $3.6 million or a loss per share of $0.28 compared to a net loss of $28.3 million or a loss per share of $2.24 in the fourth quarter of last year. Adjusted net income for the fourth quarter of fiscal 2025, which excludes the bad debt expense previously reviewed, was $2.4 million or $0.18 per share. This is compared to the prior year period adjusted net income of $0.8 million or $0.06 per share, which excludes the impact of the goodwill impairment charge and its associated tax impact and the transaction expenses incurred during that period.

Adjusted EBITDA was $4.5 million for the fourth quarter compared to $5.4 million in the prior year. This performance capped off a solid year overall despite navigating a highly dynamic environment, resulting in a net sales growth of 2.2% reported net income of $6.4 million and adjusted EBITDA of $15.1 million. Please refer to our press release for more details on our full year performance and reconciliation of non-GAAP measures.

Moving to the balance sheet. Net inventory was $66.2 million at the end of fourth quarter as compared to $59.1 million at the end of fourth quarter last year. The year-over-year increase was primarily driven by approximately $4.8 million higher inventory carrying value due to tariffs. Turning to our outlook. As discussed, we have seen the momentum experienced in the fourth quarter continue into the start of fiscal 2026.

In addition, our outlook assumes a reduced reciprocal tariff rate of 15% which we expect any benefit to be largely offset by the increase in supply chain costs driven by the rise in fuel and shipping costs. We are also not assuming any benefit with respect to potential tariff refunds. For the first quarter, we expect total net sales growth of approximately 8.5% to 10.5%, adjusted operating loss as a percentage of net sales of approximately negative 3.5% to negative 4.5% and adjusted EBITDA as a percentage of net sales to be approximately negative 1.5% to negative 2.5%, reflecting year-over-year expansion compared to negative 5.2% in the prior year period.

For the full year fiscal 2026, we expect net sales growth to be approximately 3% to 6%, adjusted operating income as a percentage of net sales to be approximately 3.5% to 4% and for adjusted EBITDA as a percentage of net sales to be approximately 5% to 5.5%, compared to the 5% in the prior year. In summary, we are very pleased with our strong end of fiscal 2025 and the momentum we are driving to start fiscal 2026, underscoring our team's disciplined approach and our commitment to executing on our objectives.

This concludes our remarks, and I'll now turn it over to the operator to open the call for questions.

[Operator Instructions] Your first question comes from Eric Beder with SCC Research.

Congratulations on a great year. I want to talk a little bit about some of the changes you're doing in terms of the stores. So talk to me about -- so in our store business, we saw continued emphasis kind of on showing more color and a growing emphasis on some of the newer categories like drop shipping and suiting and handbags. So what should we be seeing as we move through 2026 in terms of how the stores are going to tweak for kind of these changes to maximize kind of further growth?

Yes. I think we're continuing to experiment with some of our store setups, especially as we do some renovations. We pull out some legacy cash wraps, which opens up the stores, allows us to better showcase the way Caroline and the team envisioned kind of the way people are outfitting, mixing and matching and some doing group sets with our product. I think in terms of the other categories you mentioned, drop ship is a tool we are able to use online to take advantage of our licensed partners inventory. We started with shoes, with Caleres and we'll add in handbags, suitings, accessories in Q2. But to your point about being able to showcase some of these categories in the stores, I've always felt that was taught by our founders that it's important to have some more texture in the store that can only be given by having additional categories beyond just apparel.

And so I think we are strategically utilizing those categories like handbags and accessories and cold weather and some others to provide more interest when the consumer is shopping. To the extent they become real revenue drivers, I mean, that's a bonus. And I think we have that potential, but more so online because of the drop ship. But it also allows us to storytell better, both in-store and with some of our social media and digital marketing. So we're really pleased with the way we've been able to expand categories and the partnership with Authentic Brands to drive that.

Great. And when we look at -- I know that there was some of a -- what's the word here. There were some of -- the tariffs kind of was kind of a little bit of shock in terms of this. But how should we be thinking about for this year and going forward in terms of the potential for both domestic and international stores? I know you mentioned Paris and London stores have done really well. How should we be thinking about the potential here in the U.S. now that we're, for you to say it's somewhat more normalized than we were last year.

Yes. I think in terms of domestic stores. We're going to open some, we're going to close some. We obviously are very enthusiastic about the performance we had in Q4 with our stores. And as we mentioned in our remarks, that's continued in Q1. Probably the best performance I've seen over the course of 6 months in our stores in my 6 years here on and off. So I'm more bullish than ever on our ability to really drive productivity in our stores. And that gives me more confidence and the team more confidence to go out there and look for new locations.

I don't think at the end of the day, you will see a huge increase in our store count. I think it will be -- hopefully, incrementally, we'll be able to add a few. But I think in large part, we're in most of the markets we want to be in, and it's more about rationalizing some of the stores and driving more productivity through the existing boxes. I think internationally, as you mentioned, Paris would be probably first on our wish list in terms of the next international gateway.

We've had such great success with our Marylebone store in London, and I visited it in about 6 weeks ago. And truly, it's as good as stores we have in our fleet in terms of representing the Vince brand, where it's located amongst our peers. And I think if anything, it's just raised the bar for us in Paris because to the extent we are able to find something in Paris, it really needs to be a flagship store.

We don't really have much representation in Paris. So we want to put our best foot forward, which just makes it a little bit more difficult to find the right location as opposed to finding a secondary store, but I think it's all for the right reasons. And so we'll continue to assess and update you as we have more information.

And last question on wholesale. So Nordstrom, you've expanded now to all Nordstrom stores, both men and women. When you look -- and they are a significant part of your business. When you look at the whole wholesale piece, is it adding new partners becoming deeper into the partners you have? How should we be thinking about how wholesale can continue to evolve?

Yes. Thanks, Eric. Yes. I think it's becoming more -- continuing to become more important with the partners we have only because we're in most of the partners that are appropriate for men's, whether it be department stores or specialty stores. We clearly have a lot more growth in Bloomingdale's based on the fact that we've only been back with them for about 4 or 5 years, just gone men's all doors. And you see their results, and we have a great relationship with Olivier and Denise and the team there.

We just did an event with them out in L.A. that was terrific. We just did an event with the Nordstrom team, Jamie Nordstrom in Dallas. So continuing to push that relationship. And then cautiously optimistic that Saks Global, Saks and Neiman and Bergdorf will -- are moving in the right direction. We obviously went through the trials and tribulations last year and took a hit in Q4.

But with the new -- the old team, new team back with Geoffrey and Lana and then, of course, Tracy at Bergdorf. We know all of them well, and Darcy. And so we're hopeful that we can get that business back on track. But currently, clearly, Nordstrom's and Bloomingdale's are what's driving our wholesale business.

Your next question comes from Michael Kupinski with Noble Capital.

I offer my congratulations on a great quarter and a great year as well. I was just wondering, there's been some reports that there has been renewed amount of traffic in malls and stores as well. And I was just wondering overall, are we -- are you seeing that trend? Or is that just some headline news that it's just not really translating into what is actual out there?

Yes. I can't speak to the macro environment. But certainly, us, as an example, is consistent with that. Again, we've had a great 6-month run with our store business, driven by traffic, driven by conversion, driven by the increased prices that have been so well absorbed.

And we have some malls, but then we have a lot of lifestyle and street front centers. And just couldn't be more pleased with some of the outsized performance we're seeing. And I think some of it has to do with the centers themselves and how they've kind of expanded and reinvented themselves. We have a great lifestyle store in Chestnut Hill. I hadn't been there in 5, 6 years since I've been going from Vince. I went and visited and the center is double what it once was. So that just brings more traffic and we're advantaged there.

So some of these malls are investing in themselves and adding in new tenants are expanding, and that's all really positive for bringing qualified traffic that then we could take advantage of.

Great. And have you seen more -- where have you seen more of the pressure from competitors recently? I was just wondering if you can just kind of give us the lay of the land on the competition in your lane.

Again, I think we're taking market share in our lane. So we certainly respect the peer brands we sit with and a lot of them are -- they're all navigating the same issues we are and some doing it well and some struggling. But I don't think our peer group has shifted all that much in the last few years.

And as I just kind of implied with the retail locations, the centers, we actually do better when we're surrounded by our peer group and some luxury players to provide some context in, because I think we show up so well, especially with the product doing so well right now when people can compare and contrast us to some of the others that we're neighbors with.

And I know that you tapped on this with a couple of Eric's good questions. I was just wondering, where do you see the most operating leverage that you have untapped right now? And what are some of the more internal bottlenecks that you might be actively working on to remove?

Yes. Well, I think prior to me returning, the team did a great job with their transformation process and really improved margin through IMU. And some of that. Thankfully, we did that because obviously, there were in our challenges now with some of the input costs with -- depending on what happens with tariffs. And as Yuji mentioned, with some of the disruption around fuel. But as those things start to play out and hopefully normalize, I think we'll have an opportunity longer term to recapture gross margin accretion.

I think also as we start to grow the business and you saw our forecast for this year, that would really be a breakout for us to get out of that $300 million collar we've been in, we should start to get some SG&A leverage and be able to make some investments back in the business to sustain this growth or be more of a catalyst for this growth. And then as I've mentioned in the past, we're actively looking at other ways we can utilize our platform in partnerships. So we think we have a lot of different levers to pull, and we're hoping that some of the macro issues start to subside, but really proud of the way we got through the last 12 months and couldn't be more confident with how we're situated for success.

This concludes the question-and-answer session. I'll turn the call to Brendan for closing remarks.

Great. Thank you, everyone. We appreciate your continued interest in Vince, and we look forward to updating you on our Q1 results in June. Have a good day.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good morning or good afternoon, and welcome to the Vince Q3 2025 Earnings Conference Call. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand the floor to Akiko Okuma to begin. So please go ahead whenever you are ready.

Thank you, and good afternoon, everyone. Welcome to Vince Holding Corp., Third Quarter Fiscal 2025 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 expects. 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.

Thank you, Akiko, and good morning, everyone. We are extremely proud of our third quarter performance as we drove healthy sales growth across all channels and exceeded our expectations for both top and bottom line. Our assortments are resonating across both our women's and men's businesses. But most encouraging is the acceptance we have seen to the strategic price increases implemented this quarter as well as in the momentum in our DTC segment, given the enhancements we have made to the customer experience. In our women's assortment, which has the highest impact from tariffs, prices increased more than our overall average increase of approximately 6%, but units were nearly flat to last year, validating the quality and value of our product in the marketplace.

Beyond the pricing actions, our teams have done an exceptional job in continuing to manage the evolving tariff environment. Our goods are flowing smoothly despite significant changes in sourcing and importantly, we've maintained our quality standards throughout this transition. With respect to customer experience, following the store renovations from earlier this year, we enhanced our e-commerce site in Q3 with a strategic site refresh, increased marketing support and the launch of dropship. Our e-commerce site refresh elevated the customer experience with more modern, creative elements and enhanced site merchandising.

We are now using AI-generated video content to enrich product detail pages and introduce more service elements like our Cashmere care guide. This investment in our digital platform contributed meaningfully to our strong performance, and we're seeing the benefits flow through in both conversion rates and average order values. Our e-commerce site also significantly benefited from the marketing investments we made in mid-funnel marketing this quarter. Through this work, we grow triple-digit growth in site traffic late in the quarter and supported full price new customer acquisition as well.

And at the end of the quarter, we went live with a new dropship strategy, which we believe will be a significant growth opportunity for us moving forward. In the first month since launch, we have seen significant increase in volume. Our initial launch focused only on shoes, but we have plans to expand to other categories, capitalizing on our partnership with Authentic Brands and the category expansion opportunities that provides. The dropship strategy allows us to not only offer more fashion-forward products that we might typically feel comfortable procuring directly, but enables us to showcase a more diverse assortment to our customer providing learnings on customer preferences that we may incorporate into our store channel as well.

In addition to these initiatives, we opened 2 new stores this quarter in Nashville and Sacramento, following our successful store opening in Marylebone, London earlier this year, which continues to exceed our expectations. Moving to our wholesale business. We delivered solid growth versus last year, with some of this reflecting the timing benefits from the Q2 shipment delays that we discussed previously, as well as ongoing performance of key partners. We were excited to recently celebrate our 2025 holiday collection, along with our continued partnership with Nordstrom with an immersive experience in L.A. with Nordstrom's top clientele, Nordstrom's VP Fashion Director; and our Creative Director, Caroline Belhumeur. It was a great event to kick off the holiday season and highlight our holiday campaign, which celebrates our brand spirit and showcases connections through stories and gift giving with a 360-degree omnichannel strategy.

Thus far, we have seen a very strong start to the holiday quarter, including record sales across the Black Friday and Cyber Monday weekend in our direct-to-consumer business. Given the strength of Q3 and the momentum we are continuing to drive, I am more confident than ever in the trajectory ahead for Vince Holding Corp., and the prospects we have to leverage our platform further to drive growth. We continue to successfully navigate the tariff challenges while maintaining the quality and brand integrity we are known for. We are beginning to reinvest in the business, particularly in marketing initiatives that we had pulled back on earlier in the year and we're seeing positive returns on these investments. The underlying fundamentals of our business remain strong. We're operating with disciplined execution, while positioning for growth. With that strong foundation and the momentum we're building, I'll now turn it over to Yuji to discuss our financial results in more detail and provide our updated outlook.

Thank you, Brendan, and good morning, everyone. As Brendan reviewed, we are very pleased with our third quarter performance as we saw momentum continue across the business, enabling us to begin to reinvest in key areas of the business. Total company net sales for the third quarter increased 6.2% to $85.1 million compared to $80.2 million in the third quarter of fiscal 2024. With respect to channel performance, our wholesale channel increased 6.7% and our direct-to-consumer segment increased 5.5%. As Brendan reviewed, part of the growth in wholesale reflects the timing of shipments, given the delays we experienced earlier in the year with tariff disruption.

Our teams are doing an excellent job and continuing to manage our supply chain and our goods are flowing smoothly and expect to be back in line to normal course timing by the spring. Gross profit in the third quarter was $41.9 million or 49.2% of net sales. This compares to $40.1 million or 50% of net sales in the third quarter of last year. The decrease in gross margin rate was primarily driven by approximately 260 basis points due to the unfavorable impact of higher tariffs and approximately 100 basis points due to increased freight costs partially offset by 140 basis point increase due to favorable impact of lower product costing and higher pricing and approximately 110 basis points due to favorable impact of lower discounting.

As Brendan reviewed, we are very encouraged by customers' response to our strategic price changes and our team's ongoing focus on tariff mitigation efforts. Given timing and mix of sales, we experienced less of a headwind than originally expected from tariffs during the quarter but expect these costs to ramp into the Q4. Selling, general and administrative expenses in the quarter are $36.5 million or 42.8% of net sales as compared to $34.3 million or 42.8% of net sales for the third quarter of last year. The increase in SG&A dollars was primarily driven by approximately $1.1 million related to compensation and benefits and $760,000 of increase in marketing and advertising costs as we reinvested into mid-funnel activities.

Operating income for the third quarter was $5.4 million compared to operating income of $5.8 million in the same period last year. Net interest expense for the quarter decreased to $1 million compared to $1.7 million in the prior year. The decrease was primarily due to lower levels of debt under our term loan credit facility. At the end of third quarter of fiscal 2025, our long-term debt balance was $36.1 million, a reduction of $14.5 million compared to $50.6 million in the prior year period. Income tax expense was $2 million compared to 0 income tax provision in the same period last year. The increase is due to the impact of applying our estimated annual effective tax rate to the year-to-date ordinary pretax income. In the prior comparative period, we had a year-to-date ordinary pretax losses for the interim period, and as such, we did not record any tax expense for the same period last year.

As a reminder, following the change in controls that earlier this calendar year, we have limitations to use of the NOLs that we did not have last year also impacting the cash tax expense comparison to previous years. Net income for the third quarter was $2.7 million or income per share of $0.21 compared to net income of $4.3 million or income per share of $0.34 in the third quarter of last year. The year-over-year decline in net income was driven by the increase in tax expense. Adjusted EBITDA was $6.5 million for the third quarter compared to $7.4 million in the prior year. Moving to the balance sheet. Net inventory was $75.9 million at the end of the third quarter as compared to $63.8 million at the end of the third quarter last year. The year-over-year increase was primarily driven by approximately $4.2 million higher inventory carrying value due to tariffs.

Turning to our outlook. As Brendan discussed, we have seen a very strong start to the fourth quarter with a record holiday weekend sales performance in our DTC segment. Our outlook for the period assumes that this momentum continues with the growth in DTC segment expected to outpace our total net sales growth for the period, which is expected to increase approximately 3% to 7%. This guidance also takes into account potential shift in timing with respect to wholesale shipments given end of the year seasonality. In addition, we expect adjusted operating income as a percentage of net sales for the quarter to be approximately flat to 2% and for the adjusted EBITDA as a percentage of net sales to be approximately 2% to 4% compared to 6.7% in the prior year period.

Our guidance for the quarter takes into account approximately $4 million to $5 million of estimated incremental tariff costs that we continue to expect to partially offset with our mitigation strategy. Given our year-to-date performance, and our outlook for the fourth quarter, we expect full year net sales growth to be approximately 2% to 3%. Adjusted operating income as a percentage of net sales to be approximately 2% to 3%, and for the adjusted EBITDA as a percentage of net sales to be approximately 4% to 5% compared to 4.8% in the prior year period despite incurring approximately $8 million to $9 million of incremental tariff costs compared to last year. This concludes our remarks. And I'll now turn it over to the operator to open the call for questions.

[Operator Instructions] And our first question comes from Eric Beder at SCC Research.

Congratulations on a great Q3. I want to talk a little bit about some of the potential drivers here. So you have just started to roll out some of the licensed product, we've seen handbags and suiting in our store tours. I'm curious, you mentioned it also in your comments, where do you think that goes? And I know that the tariffs kind of slowed down the rollouts. What should we be thinking about the potential for that in 2026 and beyond?

Well, I think it's -- I'm even more bullish now after the last month based on my comments on dropship. So what we saw with dropship with Caleres and shoes in the last 4 or 5 weeks, is truly spectacular. And so the opportunity to launch that on e-commerce in the spring on these other categories and then figure out how to better utilize that within the stores, in addition to obviously showcasing the product I think it has -- it can have a real impact on our business more than I was anticipating prior to the dropship launch.

And when you look at -- I know that you've been also looking at putting -- you put some COH denim into some of the stores. How should we be thinking about that potential opportunity to kind of collaborate with other our key fashion brands to kind of help both of you?

Yes. That's something that we're going to continue to explore and prioritize. Very happy with the Citizens of Humanity collab. It also highlights the opportunity we have in denim. So whether we do that in-house, although that's a long haul or continue to do partnerships in denim with Citizens and look for other categories that perhaps ABG isn't licensing at this point. And we can bring to kind of round out our assortment. So that was another good win for Vince.

Great. And you opened up 2 new stores in new markets. I know it's very short. Could you give us a little bit of thought process? And then kind of what should we be thinking about -- I know that we pulled back on that a little bit this year just because of all things going on this year. But given the results here, what is the store opportunity kind of back on full swing for next year and going forward?

Yes. I mean we're pleased with the way the Nashville and Sacramento have been received within the community. It's still early days. Also, we'll be monitoring what it does to our e-commerce business. I think we have 60 stores now between the outlets and full price. And I wouldn't expect that number to move much, maybe a couple more, a couple less depending on opportunities. We continue to be really pleased with our Marylebone store in London. So I'm going to see if there's opportunities in other parts of Europe, both to do business where we can be profitable like Marylebone and also provide some visibility for us in regions where we have a wholesale business and stores can just reinforce that. So we'll continue to monitor the direct-to-consumer opportunity led by e-commerce. But as I've always said, it's not an either/or with direct-to-consumer and our wholesale business. It's both. It's an and. And I think they just reinforce each other, and we saw that in Q3 and continue to see that in Q4.

Great. Congrats and good luck for the rest of the holiday season.

The next question comes from Michael Kupinski from Noble Capital Markets.

And I'd like to offer my congratulations as well. Sales were obviously much better than what we were looking for. Were there any particular bottlenecks or limitations that could have delivered even better sales? And I'm thinking any inventory constraints for particular items, for instance?

I mean, there's never a crystal ball. So you always -- there are certain things you wish you had a little bit more. But I think overall, we were in a good inventory position. Really working through the first half of the year, disruption from tariffs as we discussed. So as I'm doing my store tours, I'm not getting too much pushback from the stores about where they need more inventory. I think Vince also since I was here last, is doing a much better job with our logistics and operations, refilling the stores on a timely basis. So I think we have a good handle on that. Again, not to harp on it, but I am so excited about it, this dropship opportunity, which allows us to take full advantage of Caleres' shoe inventory. I mean that's a big deal because that's where we did have some holes in our inventory assortment because it's a little bit more difficult with our third-party partners to properly procure ahead of time.

So this opens up a really big opportunity for us going forward, as I've been saying. But overall, the inventories, I think we're in a good position and help fuel the growth we saw.

And how much of the strong revenue growth was driven by price versus product volume? I know that you touched on that in your comments, but I was wondering if you could just expand on that.

Yes. Well, I mean we are really pleased that the units held steady and actually grew at the higher price points. So we had anticipated given the price changes that we would see a little bit of erosion in our unit velocity. But so far, we haven't seen that. And the customer seems to be trading up with us. I don't know if that's because they're trading down from other luxury brands. And as those prices skyrocket, but our core customer continues to see us as a value. And as I said in my comments, women's was where we had to take the largest price changes. And the units held strong. So it was a win-win, and that's continued into all of it. So we'll continue to monitor that, continue to see if there's even a little bit more opportunity to push up price where we think the customer will react positively. But definitely a driver was the strength in the units.

And then given that wholesale and direct-to-consumer looked like revenues were -- the revenue growth were pretty much similar. But I was wondering if there was any divergence between the 2 channels in terms of product sales and particularly as you go into the fourth quarter.

No. I mean we -- our e-commerce was clearly the big winner and driver when you look across all the channels. But overall, saw strength at the register with our wholesale partners. We continue to work with Saks Global to make sure that we're able to properly service their business while they go through their transformation. So that creates a little bit of noise. But overall, as we start December, the product is checking at the register everywhere.

Got you. My final question is, can you just talk a little bit about trends in freight costs. I know that I was just wondering if you negotiate annual contracts. And if you could just talk a little bit about what you're seeing there.

Yes, certainly. So yes, we are seeing freight cost increases. That's also partially due to the fact that we are changing sources as well of where we are sourcing the product. So it's really more the product of -- depending on the shift in timing, we're airing more stuff or certain pieces are taking longer in terms of distance wise to get here. So it's not so much of the actual inherent sort of freight contracts and the pricing related to that. It's really more along the lines of the timing of when we want to bring in the product, which method we're using to bring in the product.

[Operator Instructions] We have no further questions so I'll hand the call back to the management team for any closing comments.

Okay. Well, thank you all again for your participation today, and we look forward to updating you on our year-end results in the spring, and happy holidays to all. Thank you.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

Good afternoon, everyone, and thank you for attending today's Vince Q2 Earnings Conference Call. My name is Jasmin, and I will be your moderator today. [Operator Instructions] At this time, I would now like to pass the conference over to your host, Akiko Okuma. You may now proceed.

Thank you, and good afternoon, everyone. Welcome to Vince Holding Corp.'s Second Quarter Fiscal 2025 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 expects.

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.

Thank you, Akiko, and good afternoon, everyone. I will begin with an overview of highlights from the second quarter before turning the call over to Yuji to provide more details on our financial performance and outlook. We are very proud of the second quarter results we delivered with sales coming in at the high end of our expectations and profitability far exceeding our guidance. The outperformance in our bottom line is a testament to our team, our incredible product and the disciplines we continue to operate with as we contend with an evolving macro landscape.

Let me start with our channel performance, where we saw encouraging trends across both wholesale and direct-to-consumer. Our DTC business showed particularly strong results in both our stores and e-commerce channels contributing to the growth we delivered. What's especially encouraging is that across both channels, we successfully elongated our full price selling season from spring, which supported our margin performance overall. In wholesale, we continue to be pleased with our performance at key partners.

At Nordstrom's anniversary sale this year, we continue to be one of the top overall brands and across all partners, we're seeing strong momentum in our contemporary market positioning. With that said, our overall top line performance did reflect some delays in the shipping of fall orders at the end of the quarter as we recalibrated the supply chain amidst the evolving tariff landscape. Our product assortments continue to resonate with customers. In Q2, we saw strength in women's wovens and knits as well as with our buy now, wear now bottoms category, including pants and skirts.

Our outfitting approach combining tops and bottoms, both knits and wovens has been a clear winner. Our men's business delivered another solid quarter with knits leading the way through elevated textures, while we also continue to benefit from nice results in our bottoms assortment. We're continuing to refine our messaging around fits for bottoms, maintaining consistency in our communication to male customers, and we're seeing a nice return of the customer. Women remain strong and wovens have picked up significantly for men's.

Globally, I'm encouraged by our newly opened Marylebone store, which far exceeded expectations, and we will continue to evaluate opportunities longer term abroad. Here in the U.S., we're excited about our store openings this fall. Nashville opened up this past weekend, and we look forward to our upcoming Sacramento store opening. These markets represent strategic opportunities to fill gaps in our geographic coverage while supporting our e-commerce business in these regions. In addition, we are pleased with the results driven from our store remodels, validating our investment in enhancing our retail experience.

There is a lot of momentum in the business right now. And as I mentioned, I've been very proud of our teams and our ability to successfully navigate the current environment. During the first half of this year, the bulk of our attention has been focused on dealing with the evolving tariff landscape. So far, we've done a phenomenal job with our mitigation strategies and expect to reduce the estimated impact from incremental tariffs by approximately 50% for the second half of the year through moving country of origin, vendor negotiations and strategic price increases.

We are encouraged that we have not seen a change in quality of product and/or changes in our order book amidst these actions. This validates not only our strong value proposition, but our competitive positioning with contemporary. With more certainty around the tariff situation, we are now beginning to reinvest in the business. We're primarily focused on restoring top-of-funnel marketing dollars that we had pulled back on in the latter half of Q1. In addition, we're starting to think more about our longer-term growth opportunities. One of our most exciting prospects is leveraging our platform to bring other brands to life.

As we look ahead, I'm more confident than ever in our strategic positioning. We are successfully navigating the tariff challenges, demonstrating our value proposition and maintaining the quality and brand integrity that Vince is known for. Our diverse sourcing approach is working. Our retail partners remain supportive. And most importantly, our customers continue to respond positively to our product offering. While we remain confidently cautious given the dynamic environment, the underlying fundamentals of our business are strong, and we're excited about the growth trajectory for Vince Holding Corp. With that, I'll turn it over to Yuji to discuss our financial results in more detail. Yuji?

Thank you, Brendan, and good afternoon, everyone. As Brendan reviewed, our second quarter performance reflected our disciplined execution of our objectives as we deliver strong bottom line results with sales in line with the higher end of our expectations. Total company net sales for the second quarter decreased 1.3% to $73.2 million compared to $74.2 million in the second quarter of fiscal 2024. With respect to channel performance, our direct-to-consumer segment increased 5.5% with both our e-commerce and store channels contributing to the growth.

This was offset, however, by a 5.1% decline in our wholesale segment as fall shipments went out later than the prior year as tariff mitigation strategies pushed the timing of receipts back by approximately 3 weeks. Despite the impact on the top line, the delays in our supply chain enabled us to elongate our spring selling season, contributing to strong gross margin performance for the quarter. Gross profit in the second quarter was $36.9 million or 50.4% of net sales. This compares to $35.1 million or 47.4% of net sales in the second quarter of last year.

The increase in gross margin rate was primarily driven by approximately 340 basis points due to the favorable impact of lower product costing and higher pricing, approximately 210 basis points due to favorable impact of lower discounting, partially offset by approximately 170 basis points due to higher tariffs and 100 basis points due to higher freight costs. Selling, general and administrative expenses in the quarter were $25.8 million or 35.2% of net sales as compared to $34 million or 45.8% of net sales for the second quarter of last year.

The decrease in SG&A dollars was primarily driven by decreased compensation and benefit expenses due to the receipt of approximately $7.2 million of payments from the U.S. Department of Treasury under the Employee Retention Credit Program, of which $5.6 million was recorded as an offset to SG&A and $1.6 million was recorded in other income. Excluding this benefit, underlying SG&A still leveraged as we maintained strong expense discipline in light of evolving tariff policies and broader macroeconomic environment. Operating income for the second quarter was $11.2 million compared to an operating income of $1.1 million in the same period last year.

Excluding the ERC payments received, adjusted income from the operations as a percentage of sales was 7.6%, reflecting an increase of 604 basis points compared to the prior year period. Net interest expense for the quarter decreased to $0.8 million compared to $1.6 million in the prior year. The decrease was primarily due to lower levels of debt under our term loan credit facility. At the end of the second quarter of fiscal 2025, our long-term debt balance was $31.1 million, a reduction of $23.3 million compared to the $54.4 million in the prior year period.

The provision for income taxes this quarter was $0.1 million related to discrete state tax impact associated with the interest portion of the ERC. The ordinary income tax expense was 0 as the company is anticipating annual ordinary income for the fiscal year and has determined that it is more likely than not that the tax benefit of the year-to-date loss will not be realized in the current year. This compares to an income tax benefit of $0.8 million in the same period last year. Net income for the second quarter was $12.1 million or income per share of $0.93 compared to the net income of $0.6 million or income per share of $0.05 in the second quarter of last year.

Excluding the payments from the U.S. Department of Treasury under the ERC, the adjusted net income was $4.9 million or $0.38 per share in the second quarter of fiscal 2025. Adjusted EBITDA was $6.7 million for the second quarter compared to $2.7 million in the prior year. Moving to the balance sheet. Net inventory was $76.7 million at the end of second quarter as compared to $66.3 million at the end of second quarter last year. The year-over-year increase was driven by approximately $5.2 million higher inventory carrying value due to tariffs as well as our strategic decision to ship goods earlier in advance of the expiration of reciprocal tariff extensions.

Turning to our outlook. For the third quarter, we expect net sales to be approximately flat to up low single digits compared to the prior year period, operating income as a percentage of net sales to be approximately 1% to 4% and for adjusted EBITDA as a percentage of net sales to be approximately 2% to 5% compared to the 9.2% in the prior year period. Our guidance takes into account our plans to begin to reinvest into the business, as Brendan reviewed, as well as approximately $4 million to $5 million of estimated incremental tariff costs that we expect to mitigate approximately half of through moving country of origin, vendor negotiations and strategic price increases.

And while we have not seen any changes in our customer trends thus far, our guidance also assumes fairly cautious view on our consumers heading into the second half of the year, given the uncertainty that remains in the industry content with the incremental tariff pressures. With that said, as we have demonstrated to date, despite navigating a dynamic environment, our teams have remained committed to disciplined execution while delivering on our objectives and that we will continue to be our focus as we enter important fall and holiday selling season. This concludes our remarks, and I will now turn it over to the operator to open the call for questions.

[Operator Instructions] Our first question comes from Eric Beder with SCC Research.

I'm curious, so the Q2, you shifted -- tariffs kind of led you to shift around the collection a bit in terms of timing and in terms of timing of discounting and some other pieces. And obviously, it paid off pretty well. How are you -- when you look at next year or in general, how you want to flow your collections, kind of what is the learning that you take from this? And kind of how can you sit back and maximize it kind of, I guess, next year when you start doing the collections again and kind of resetting?

Yes. I mean, listen, I've been doing this now for over 30 years, and we've talked about how deliveries have gotten out of whack with the actual seasonality. So I think we did get a little bit of a benefit in the learning from having to stretch out spring. We'll certainly analyze that more fully as we can look at over more than one quarter and see if it's a learning for next year. It does become a little difficult just with the whole industry. You don't want to be behind in terms of new deliveries. So I think we'll just have to study that and make a decision based on kind of a longer set of data. But it definitely was encouraging that we got -- we were able to stretch out spring while we had paused pre-fall because of the tariffs.

Okay. And on the wholesale front, what do you look at here as kind of the ability to maintain the wholesale? And do you look upon kind of your decisions to maintain the quality, maintain the pieces as an opportunity here to pick up maybe more physical share in the wholesale as other players were not as kind of adept or as quick to respond as you were?

Yes. I mean I can't speak to others, but if that's the case, certainly, our ability to be as nimble as we were and get on track so quickly, I think, is a competitive advantage. I've said it before. I think it's a testament to the seniority and continuity of the team we have around creative design, product development, logistics, et cetera, that allowed us to really hit the ground running. And we've had a pretty much constant presence in Asia since this happened. So I feel that we're doing it as well as anybody. I think the other thing as we start to see how the strategic price increases are accepted, hopefully, there's some room there because I think we still offer tremendous value. So if we can see any unit drop be more than offset by the price increases, that's another headwind -- tailwind for us.

When you look at the price increases, your customer -- I would think your customer base has the ability to absorb those price increases ahead of many others, right? It's a somewhat more affluent customer. I mean when you look at it, what -- how do you think about the elasticity of increasing prices? And how should we think about the customer base you have kind of affluent versus the aspirational and how to continue to, I guess, satisfy both of them?

Yes. I mean, no doubt, we have -- as we said, we sit in a great place where to some, we are kind of value for that true designer customer and others, we're aspirational. And we think carefully about both ends of that spectrum. When we take price changes, we don't just do it across the board. We do it very surgically, style by style to really understand if we evaluate, if we feel like the value is still there at the price point that we might be moving to.

So it's by no means a blanket. And I think the team has had experience in doing that before. We did some of that at the beginning of the year, and we're seeing that come through in the margin. So I feel like we are in a good place. And as you said, being a little bit more higher end and elevated it gives us some room over more lower-priced product where the price increases are probably more painful.

Okay. And last question. I know that at the beginning of the year, you guys have talked about increasing with some -- increasing in fall with some more accessories and other pieces. How has the tariff issues affected that? And what should we be thinking about and seeing in the stores in terms of new categories or new accessories for the back half?

Yes. So remember, those are really licenses. So those are ABG licensing out things like handbags and accessories and tailored clothing. So those partners who we work closely with, they're having the same sort of conversations and discussions we are in terms of resourcing and taking price changes that make sense for the consumer. But that's really less about us in terms of -- since we're just a -- we're buying directly from them.

Our next question comes from Jacob Mutchler with NOBLE Capital Partners.

I was just curious if you could let me know what percentage of products are currently sourced from China. I know it was mentioned in Q1 that roughly 80% of products came in were from China in '24 and then roughly 60% in Q1. So just curious where you're at in Q2 and how the company is progressing on reducing exposure to China.

Yes. Well, the company is progressing amazingly. I mean that's kind of what I was alluding to before, just the experience of this team and the boots on the ground. So the product that's hitting the floor now fall, that really wasn't impacted. I mean that was already produced. That was kind of the stuff that was being held. It's really as we get to pre-spring or holiday, where we made a lot of the movement. And as we mentioned before, it's somewhat less about China now because these tariffs keep moving around.

It's really more about not being overexposed in any one country. And we're targeting 25% to kind of be that cap in terms of any one country. And I think we'll get there for holiday and certainly as we get into spring and continue to monitor these kinds of moving targets on the tariffs. Important to note, we've never done any -- India has not been a sourcing country for us. So we're not impacted by the high tariffs there.

Got you. Thanks for the color. And would you be able to talk about some of the freight cost trends you're seeing in the back half of the year? And I know you mentioned some shipping delays. And could you give a little bit of color around some of the drivers of those delays?

Yes, I'll talk about the delays and then Yuji can talk about some of the costing. I mean the delays were purposeful. I mean it was back in April and May when the tariffs were 150% and us like lots of people paused everything at Port of Origin. When the tariffs got brought down to the current levels, we, like everybody else, started to bring things in quite quickly to make sure that we beat any additional incremental tariffs. So we actually had the goods here. But because of what was mentioned on the earlier question by Eric, the delayed and the extended timing, it's kind of just backed everything else up.

So pre-fall got in a little bit later, which, again, spring benefited from that. So we didn't want to have fall land right on top of that in store. So while we had a lot of the merchandise here, we held it for a few more weeks to give everything a chance to sell and breathe. I think that will normalize as we get into the back half of the year just because Christmas is a natural stopping point. So we'll have to manage backwards from Christmas. And so I think it will be more normalized. In terms of the freight costs, Yuji?

Yes. For the freight cost, I mean, as you saw in Q2, it did have an effect on our gross margin. When you're looking ahead, like in terms of the trend, we don't see like significant uptick in our overall freight cost. But again, as we kind of trigger and move around the timing of goods, we have to think about the air and boat ratio as well. So that will continue to be fluid for the back half of the year.

Got you. And then one last question. As far as the number of stores that the company had in the quarter, could you just remind me of how many locations were opened in this quarter compared to last year? And then also, I know you mentioned the Nashville location and Sacramento location opening up. Are there any other openings planned this year outside of Sacramento?

Yes. We just opened our Nashville location last week, and Sacramento is slated to open in October. We really -- we don't have any scheduled store openings for the remainder of the year.

Got you. And then the -- could you remind me of what the number of locations that were opened in the second quarter and then for the second quarter of last year as well?

Repeat that question, I'm sorry.

We have 45 full-price stores opened and 14 outlets in last year. Just to double check, 47 full-price, yes, I think it was 14 outlets as well.

There are no additional questions waiting at this time. So I'll pass the conference back over to Brendan Hoffman for any further remarks.

Okay. Well, thank you, everybody, for joining us, and we look forward to updating you on Q3 in December. Thanks.

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.