Vince Holding Corp.: Form 10-Q for the period ended Nov 2, 2024

This discussion summarizes our consolidated operating results, financial condition and liquidity. The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). All amounts disclosed are in thousands except store counts, share and per share data and percentages. See Note 1 "Description of Business and Basis of Presentation" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.

This discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. For a discussion of the risks facing our business see "Item 1A—Risk Factors" of this Quarterly Report as well as in our 2023 Annual Report on Form 10-K.

Executive Overview

We are a global retail company that operates the Vince brand women's and men's ready to wear business. We serve our customers through a variety of channels that reinforces our brand image. Previously, we also owned and operated the Rebecca Taylor and Parker brands until the sale of the respective intellectual property was completed, as discussed below.

Vince, established in 2002, is a leading global luxury apparel and accessories brand best known for creating elevated yet understated pieces for every day effortless style. Vince operates 47 full-price retail stores, 14 outlet stores, the e-commerce site, vince.com, and the subscription service Vince Unfold, vinceunfold.com. Vince is also available through premium wholesale channels globally.

On April 21, 2023 the Company entered into a strategic partnership ("Authentic Transaction") with Authentic Brands Group, LLC ("Authentic"), a global brand development, marketing and entertainment platform, whereby the Company will contribute its intellectual property to a newly formed Authentic subsidiary ("ABG Vince") for cash consideration and a membership interest in ABG Vince. The Company closed the Asset Sale on May 25, 2023. On May 25, 2023, in connection with the Authentic Transaction, V Opco, LLC (formerly, Vince, LLC) ("V Opco"), entered into a License Agreement (the "License Agreement") with ABG Vince, which provides V Opco with an exclusive, long-term license to use the Licensed Property in the Territory to the Approved Accounts (each as defined in the License Agreement). See Note 2 "Recent Transactions" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.

Rebecca Taylor, founded in 1996 in New York City, was a contemporary womenswear line lauded for its signature prints, romantic detailing and vintage inspired aesthetic, reimagined for a modern era. On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group. On May 3, 2024, V Opco completed the sale of all outstanding shares of Rebecca Taylor, Inc. to Nova Acquisitions, LLC. See Note 2 "Recent Transactions" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.

Parker, founded in 2008 in New York City, was a contemporary women's fashion brand that was trend focused. During the first half of fiscal 2020 the Company decided to pause the creation of new products to focus resources on the operations of the Vince and Rebecca Taylor brands. On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 2 "Recent Transactions" within the notes to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.

The Company has identified three reportable segments: Vince Wholesale, Vince Direct-to-consumer and Rebecca Taylor and Parker.

Transformation Program

Beginning in the current fiscal year, the Company has implemented a transformation program focused on driving enhanced profitability through an improved gross margin profile and optimized expense structure. The transformation program is focused on improving the Company’s gross margin profile and driving cost efficiencies. The Company expects to achieve these goals primarily through streamlining manufacturing and production operations, reducing promotional activity and optimizing the breadth and depth of markdowns, and enhancing efficiencies within store operations, corporate overhead and third-party spend.

Results of Operations

Comparable Sales

Comparable sales include our e-commerce sales in order to align with how we manage our brick-and-mortar retail stores and e-commerce online store as a combined single direct-to-consumer channel of distribution. As a result of our omni-channel sales and inventory strategy, as well as cross-channel customer shopping patterns, there is less distinction between our brick-and-mortar retail stores and our e-commerce online store and we believe the inclusion of e-commerce sales in our comparable sales metric is a more meaningful representation of these results and provides a more comprehensive view of our year over year comparable sales metric.

A store is included in the comparable sales calculation after it has completed 13 full fiscal months of operations and includes stores, if any, that have been remodeled or relocated within the same geographic market the Company served prior to the relocation. Non-comparable sales include new stores which have not completed 13 full fiscal months of operations, sales from closed stores, and relocated stores serving a new geographic market. For 53-week fiscal years, we adjust comparable sales to exclude the additional week. There may be variations in the way in which some of our competitors and other retailers calculate comparable sales.

The following table presents, for the periods indicated, our operating results as a percentage of net sales, as well as earnings per share data:

(in thousands, except per share data and percentages)

Three Months Ended November 2, 2024 Compared to Three Months Ended October 28, 2023

Net sales for the three months ended November 2, 2024 were $80,162, decreasing $3,914, or 4.7%, versus $84,076 for the three months ended October 28, 2023.

Gross profit increased 7.7% to $40,058 for the three months ended November 2, 2024 from $37,185 in the prior year third quarter. As a percentage of sales, gross margin was 50.0%, compared with 44.2% in the prior year third quarter. The total gross margin rate increase was primarily driven by the following factors:

• The favorable impact from lower product costing, higher pricing, and lower freight costs which contributed positively by approximately 480 basis points;
• The favorable impact from lower promotional activity in the Direct-to-consumer segment and lower discounting, which contributed positively by approximately 80 basis points; partially offset by
• The unfavorable impact of channel mix of approximately 50 basis points.

Selling, general and administrative ("SG&A") expenses for the three months ended November 2, 2024 were $34,297, decreasing $59, or 0.2%, versus $34,356 for the three months ended October 28, 2023. SG&A expenses as a percentage of sales were 42.8% and 40.9% for the three months ended November 2, 2024 and October 28, 2023, respectively. The change in SG&A expenses compared to the prior fiscal year period was primarily due to:

• $517 of decreased marketing and advertising expenses due primarily to lower spend in the current period;
• $313 of decreased rent and occupancy costs; and
• $248 decrease in total SG&A expenses resulting from transaction-related expenses associated with the Authentic Transaction in fiscal 2023; partially offset by
• $810 of increased compensation and benefits due primarily to higher severance costs and bonuses.

Interest expense, net decreased $302, or 15.2%, to $1,691 in the three months ended November 2, 2024 from $1,993 in the three months ended October 28, 2023, primarily due to lower levels of debt under the revolving credit facilities, partially offset by an increase in interest expense related to the Third Lien credit facility.

Provision (benefit) for income taxes for the three months ended November 2, 2024 was $0, as the Company has year-to-date ordinary pre-tax losses for the interim period and is anticipating annual ordinary pre-tax income for the fiscal year. The Company has determined that it is more likely than not that the tax benefit of the year-to-date ordinary pre-tax loss will not be realized in the current or future years. As such, the Company did not record any tax expense for the three months ended November 2, 2024, as tax provisions for the interim periods should not be recognized until the Company has year-to-date ordinary pre-tax income.

The provision for income taxes was $509 for the three months ended October 28, 2023, which resulted primarily from discrete tax expense associated with the Authentic Transaction.

Equity in net income of equity method investment for the three months ended November 2, 2024 and October 28, 2023 was $279 and $656, respectively, and was related to the Company's 25% membership interest in ABG Vince.

Performance by Segment

The Company has identified three reportable segments as further described below:

• Vince Wholesale segment—consists of the Company's operations to distribute Vince brand products to major department stores and specialty stores in the United States and select international markets;
• Vince Direct-to-consumer segment—consists of the Company's operations to distribute Vince brand products directly to the consumer through its Vince branded full-price specialty retail stores, outlet stores, and e-commerce platform, and its subscription service Vince Unfold; and
• Rebecca Taylor and Parker segment—consisted of the Company's operations to distribute Rebecca Taylor and Parker brand products to major department stores and specialty stores in the U.S. and select international markets, directly to the consumer through their own branded e-commerce platforms and Rebecca Taylor retail and outlet stores, and through its subscription service Rebecca Taylor RNTD.

On September 12, 2022, the Company announced its decision to wind down the Rebecca Taylor business. On December 22, 2022, the Company's indirectly wholly owned subsidiary, Rebecca Taylor, Inc., completed the sale of its intellectual property and certain related ancillary assets to RT IPCO, LLC, an affiliate of Ramani Group. Substantially all Rebecca Taylor inventory was liquidated as of January 28, 2023. Additionally, all Rebecca Taylor retail and outlet stores operated by the Company were closed as of January 28, 2023 and the e-commerce site operated by the Company ceased in December 2022.

On May 3, 2024, V Opco completed the sale of all outstanding shares of Rebecca Taylor, Inc., which held the Rebecca Taylor business prior to the wind-down, to Nova Acquisitions, LLC.

On February 17, 2023, the Company's indirectly wholly owned subsidiary, Parker Lifestyle, LLC, completed the sale of its intellectual property and certain related ancillary assets to Parker IP Co. LLC, an affiliate of BCI Brands. See Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information.

Unallocated corporate expenses are related to the Vince brand and are comprised of SG&A expenses attributable to corporate and administrative activities (such as marketing, design, finance, information technology, legal and human resource departments), and other charges that are not directly attributable to the Company's Vince Wholesale and Vince Direct-to-consumer reportable segments. In addition, unallocated corporate includes the transaction related expenses associated with the Asset Sale.

(in thousands)

Vince Wholesale

(in thousands)

Net sales from our Vince Wholesale segment decreased $1,075, or 2.2%, to $48,765 in the three months ended November 2, 2024 from $49,840 in the three months ended October 28, 2023, due primarily to lower international shipments, partially offset by increases in off-price shipments.

Income from operations from our Vince Wholesale segment increased $3,056, or 20.1%, to $18,223 in the three months ended November 2, 2024 from $15,167 in the three months ended October 28, 2023, primarily driven by improved gross margin.

Vince Direct-to-consumer

(in thousands)

Net sales from our Vince Direct-to-consumer segment decreased $2,839, or 8.3%, to $31,397 in the three months ended November 2, 2024 from $34,236 in the three months ended October 28, 2023. Comparable sales, including e-commerce, decreased $888, or 2.9%, driven primarily by a decrease in retail stores traffic. Non-comparable sales, including Vince Unfold, declined $1,951. Since October 28, 2023, five net stores have closed bringing our total retail store count to 61 (consisting of 47 full price stores and 14 outlet stores) as of November 2, 2024, compared to 66 (consisting of 49 full price stores and 17 outlet stores) as of October 28, 2023.

Our Vince Direct-to-consumer segment had income from operations of $614 in the three months ended November 2, 2024 compared to a loss from operations of $48 in the three months ended October 28, 2023. The change was primarily driven by an increase in gross margin and lower operating costs driven by labor efficiencies.

Rebecca Taylor and Parker

(in thousands)

As a result of the wind down of the Rebecca Taylor and Parker businesses, there were no net sales from our Rebecca Taylor and Parker segment for the three months ended November 2, 2024 and October 28, 2023.

Our Rebecca Taylor and Parker segment had no income from operations in the three months ended November 2, 2024 compared to a loss from operations of $6 in the three months ended October 28, 2023. The change was driven by the wind down and sale of the Rebecca Taylor business.

Nine Months Ended November 2, 2024 Compared to Nine Months Ended October 28, 2023

Net sales for the nine months ended November 2, 2024 were $213,502, decreasing $4,077, or 1.9%, versus $217,579 for the nine months ended October 28, 2023.

Gross profit increased 6.0% to $105,102 for the nine months ended November 2, 2024 from $99,125 in the nine months ended October 28, 2023. As a percentage of sales, gross margin was 49.2%, compared with 45.6% in the nine months ended October 28, 2023. The total gross margin rate increase was primarily driven by the following factors:

• The favorable impact from lower promotional activity in the Direct-to-consumer segment and lower discounting, which contributed positively by approximately 340 basis points;
• The favorable impact from lower product costing and freight costs, and higher pricing, which contributed positively by approximately 340 basis points; partially offset by
• The unfavorable impact from royalty expense associated with the License Agreement with ABG Vince, which contributed negatively by approximately 200 basis points; and
• The unfavorable impact of channel and product mix, which contributed negatively by approximately 80 basis points.

Gain on sale of intangible assets for the nine months ended October 28, 2023 was $32,808, of which $32,043 is related to the sale of the Vince intellectual property and certain related ancillary assets and $765 is related to the sale of the Parker intellectual property and certain ancillary assets. See Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.

Gain on sale of subsidiary for the nine months ended November 2, 2024 was $7,634 related to the sale of Rebecca Taylor. See Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information.

SG&A expenses for the nine months ended November 2, 2024 were $100,241, increasing $1,611, or 1.6%, versus $98,630 for the nine months ended October 28, 2023. SG&A expenses as a percentage of sales were 47.0% and 45.3% for the nine months ended November 2, 2024 and October 28, 2023, respectively. The change in SG&A expenses compared to the prior fiscal year period was primarily due to:

• $3,682 increase in rent and occupancy primarily due to lease modifications effective in the second quarter of fiscal 2023;
• $3,173 of increased compensation and benefits due primarily to higher severance and bonuses; and
• $310 of increased marketing and advertising costs; partially offset by
• $5,030 decrease due to transaction-related expenses associated with the Asset Sale in fiscal 2023; and
• $504 decrease in total SG&A expenses resulting from the wind down of the Rebecca Taylor brand.

Interest expense, net decreased $4,436, or 47.1%, to $4,984 in the nine months ended November 2, 2024 from $9,420 in the nine months ended October 28, 2023 primarily due to a $1,755 write-off of deferred financing costs and a $553 prepayment penalty both associated with the termination of the Term Loan Credit Facility, as well as an $828 write-off of deferred financing costs associated with the termination of the 2018 Revolving Credit Facility, incurred in the prior quarter ended July 29, 2023. In addition, the decrease was attributable to an overall reduction of debt primarily through the termination of the Term Loan Credit Facility in the second quarter of fiscal 2023 and lower levels of debt under the revolving credit facilities, partially offset by an increase in interest expense related to the Third Lien Credit Facility.

Benefit for income taxes for the nine months ended November 2, 2024 was $1,681. The benefit represents the discrete tax benefit recorded during the first quarter of fiscal 2024 primarily recognized from the reversal of a portion of the non-cash deferred tax liability related to the Company's equity method investment, which a portion can now be used as a source of income to support the realization of certain deferred tax assets related to the Company's net operating losses.

The benefit for income taxes was $5,368 for the nine months ended October 28, 2023. This benefit was due to a $6,022 discrete tax benefit resulting from the change in classification of the Company's Vince tradename indefinite-lived intangibles to Assets Held for Sale during the first quarter of fiscal 2023, partially offset by $499 of discrete state tax expense associated with the Authentic Transaction and tax expense from applying the Company's estimated effective tax rate for the fiscal year to the nine-month income (loss) before income taxes and equity in net income of equity method investment, excluding discrete items. The change in classification of the Company's Vince tradename indefinite-lived intangibles resulted in a reversal of the non-cash deferred tax liability previously created by the amortization of indefinite-lived tradename intangible asset recognized for tax, but not for book purposes, as this non-cash deferred tax liability can now be used as a source to support the realization of certain deferred tax assets related to the Company's net operating losses.

Equity in net income of equity method investment for the nine months ended November 2, 2024 and October 28, 2023 was $106 and $863, respectively, and was related to the Company's 25% membership interest in ABG Vince.

Performance by Segment

(in thousands)

(1) Unallocated corporate for the nine months ended October 28, 2023 includes the $32,043 gain related to the sale of the Vince intellectual property and certain related ancillary assets.

Vince Wholesale

(in thousands)

Net sales from our Vince Wholesale segment increased $7,492, or 6.3%, to $126,206 in the nine months ended November 2, 2024 from $118,714 in the nine months ended October 28, 2023, primarily due to higher full-price shipments.

Income from operations from our Vince Wholesale segment increased $9,972, or 28.4%, to $45,070 in the nine months ended November 2, 2024 from $35,098 in the nine months ended October 28, 2023, primarily driven by increased net sales and improved gross margin. This gross margin improvement was partially offset by the unfavorable impact of royalty expense associated with the License Agreement with ABG Vince, as royalty expenses were not incurred for the full duration of the comparative period due to the commencement of the License Agreement occurring in the second quarter of the prior fiscal year.

Vince Direct-to-consumer

(in thousands)

29

Net sales from our Vince Direct-to-consumer segment decreased $11,378, or 11.5%, to $87,296 in the nine months ended November 2, 2024 from $98,674 in the nine months ended October 28, 2023. Comparable sales, including e-commerce, decreased $5,637, or 6.4%, primarily due to a decrease in e-commerce volume. Non-comparable sales, including Vince Unfold, declined $5,741. Since October 28, 2023, five net stores have closed bringing our total retail store count to 61 (consisting of 47 full price stores and 14 outlet stores) as of November 2, 2024, compared to 66 (consisting of 49 full price stores and 17 outlet stores) as of October 28, 2023.

Our Vince Direct-to-consumer segment had a loss from operations of $848 in the nine months ended November 2, 2024 compared to income from operations of $2,151 in the nine months ended October 28, 2023. The change was primarily driven by lower net sales and an increase in SG&A expenses, due mainly to lower rent expense in the prior comparative period related to lease modifications, partially offset by lower expenses primarily related to staffing and an improved gross margin. This gross margin improvement was partially offset by the unfavorable impact of royalty expense associated with the License Agreement with ABG Vince, as royalty expenses were not incurred for the full duration of the comparative period due to the commencement of the License Agreement occurring in the second quarter of the prior fiscal year.

Rebecca Taylor and Parker

(in thousands)

Net sales from our Rebecca Taylor and Parker segment decreased $191, or 100.0%, to $0 in the nine months ended November 2, 2024 from $191 in the nine months ended October 28, 2023 primarily due to the wind down of the Rebecca Taylor and Parker businesses.

Our Rebecca Taylor and Parker segment had income from operations of $7,633 in the nine months ended November 2, 2024 compared to income from operations of $2,443 in the nine months ended October 28, 2023. The change was driven by the gain on sale of Rebecca Taylor. In addition, income from operations for the nine months ended October 28, 2023 includes a net benefit of $1,750 from the wind down of the Rebecca Taylor business, primarily related to the release of operating lease liabilities as a result of lease terminations, a $765 gain associated with the sale of the Parker tradename and $150 of transaction related expenses associated with the sale of the Parker tradename.

Liquidity and Capital Resources

Our sources of liquidity are cash and cash equivalents, cash flows from operations, if any, borrowings available under the 2023 Revolving Credit Facility and our ability to access the capital markets, including our Sales Agreement entered into with Virtu Americas LLC in June 2023 (see Note 8 "Stockholders' Equity" to the Condensed Consolidated Financial Statements in this Quarterly Report for further information). Our primary cash needs are funding working capital requirements, including royalty payments under the License Agreement, meeting our debt service requirements, and capital expenditures for new stores and related leasehold improvements. The most significant components of our working capital are cash and cash equivalents, accounts receivable, inventories, accounts payable and other current liabilities. Based on our current expectations, we believe that our sources of liquidity will generate sufficient cash flows to meet our obligations during the next twelve months from the date these financial statements are issued.

Operating Activities

(in thousands)

Net cash used in operating activities during the nine months ended November 2, 2024 was $633, which consisted of net income of $9,298, impacted by non-cash items of $938 and cash used in working capital of $10,869. Net cash used in working capital primarily resulted from cash outflows due to an increase in receivables driven by the timing of sales, an increase in inventories, and cash outflows in prepaid expenses and other current assets, partially offset by cash inflows in accounts payable and accrued expenses.

Net cash used in operating activities during the nine months ended October 28, 2023 was $13,121, which consisted of a net income of $30,114, impacted by non-cash items of $(27,433) and cash used in working capital of $15,802. Net cash used in working capital primarily resulted from cash outflows in accounts payable and accrued expenses of $23,921 primarily due to the timing of payments to vendors, and an increase in receivables driven by the timing of sales, partially offset by a reduction in inventory levels related to more efficient inventory management.

Investing Activities

(in thousands)

Net cash used in investing activities of $2,725 during the nine months ended November 2, 2024 represents capital expenditures primarily related to retail store buildouts, including leasehold improvements and store fixtures.

Net cash provided by investing activities of $76,080 during the nine months ended October 28, 2023 primarily represents $76,500 of proceeds received from the sale of the Vince intangible assets and $1,025 of proceeds received from the sale of the Parker intangible assets (see Note 2 "Recent Transactions" to the Condensed Consolidated Financial Statements in this Quarterly Report for additional information).

Financing Activities

(in thousands)

Net cash provided by financing activities was $3,087 during the nine months ended November 2, 2024, primarily consisting of $3,130 of net borrowings under the Company's revolving credit facilities.

Net cash used in financing activities was $61,614 during the nine months ended October 28, 2023, primarily consisting of $29,121 of net repayments of borrowings under the Company's revolving credit facilities, the repayment of $29,378 of borrowings under the Term Loan Credit Facility, and financing fees of $3,012 (which includes a $553 prepayment penalty associated with the termination of the Term Loan Credit Facility during the nine months ended October 28, 2023).

Term Loan Credit Facility

On September 7, 2021, V Opco entered into a $35,000 senior secured term loan credit facility (the "Term Loan Credit Facility") pursuant to a Credit Agreement (the "Term Loan Credit Agreement"), as amended from time to time, by and among V Opco, as the borrower, the guarantors named therein, PLC Agent, LLC, as administrative agent and collateral agent, and the other lenders from time to time party thereto. Vince Holding Corp. and Vince Intermediate Holding, LLC ("Vince Intermediate") were guarantors under the Term Loan Credit Facility. The Term Loan Credit Facility would have matured on the earlier of September 7, 2026, and 91 days after the maturity date of the 2018 Revolving Credit Facility.

On May 25, 2023, utilizing proceeds from the Asset Sale, the Company repaid all outstanding amounts of $28,724, which included accrued interest and a prepayment penalty of $553 (which is included within financing fees on the Condensed Consolidated Statements of Cash Flows), under the Term Loan Credit Facility. The Term Loan Credit Facility was terminated. The Company also repaid $850 of fees due in accordance with an amendment entered into on September 30, 2022. Additionally, the Company recorded expenses of $0 and $1,755 during the three and nine months ended October 28, 2023, respectively, related to the write-off of the remaining deferred financing costs. Prior to May 25, 2023, on an inception to date basis, the Company had made repayments of $7,335 on the Term Loan Credit Facility.

2023 Revolving Credit Facility

On June 23, 2023, V Opco, entered into a new $85,000 senior secured revolving credit facility (the "2023 Revolving Credit Facility") pursuant to a Credit Agreement (the "2023 Revolving Credit Agreement") by and among V Opco, the guarantors named therein, Bank of America, N.A. ("BofA"), as Agent, the other lenders from time to time party thereto, and BofA Securities, Inc., as sole lead arranger and sole bookrunner.

All outstanding amounts under the 2018 Revolving Credit Facility (as defined below) were repaid in full and such facility was terminated pursuant to the terms thereof as a result of all parties completing their obligations under such facility.

The 2023 Revolving Credit Facility provides for a revolving line of credit of up to the lesser of (i) the Borrowing Base (as defined in the 2023 Revolving Credit Agreement) and (ii) $85,000, as well as a letter of credit sublimit of $10,000. The 2023 Revolving Credit Agreement also permits V Opco to request an increase in aggregate commitments under the 2023 Revolving Credit Facility of up to $15,000, subject to customary terms and conditions. The 2023 Revolving Credit Facility matures on the earlier of June 23, 2028, and 91 days prior to the earliest maturity date of any Material Indebtedness (as defined in the 2023 Revolving Credit Agreement), including the subordinated indebtedness pursuant to the Third Lien Credit Agreement.

Interest is payable on the loans under the 2023 Revolving Credit Facility, at Vince LLC's request, either at Term SOFR, the Base Rate, or SOFR Daily Floating Rate, in each case, with applicable margins subject to a pricing grid based on an average daily excess availability calculation. The "Base Rate" means, for any day, a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate for such day, plus 0.5%; (ii) the rate of interest in effect for such day as publicly announced from time to time by BofA as its prime rate; (iii) the SOFR Daily Floating Rate on such day, plus 1.0%; and (iv) 1.0%. During the continuance of certain specified events of default, at the election of BofA in its capacity as Agent, interest will accrue at a rate of 2.0% in excess of the applicable non-default rate.

The applicable margins for SOFR Term and SOFR Daily Floating Rate Loans are: (i) 2.0% when the average daily Excess Availability (as defined in the 2023 Revolving Credit Agreement) is greater than 66.7% of the Loan Cap (as defined in the 2023 Revolving Credit Agreement); (ii) 2.25% when the average daily Excess Availability is greater than or equal to 33.3% but less than or equal to 66.7% of the Loan Cap; and (iii) 2.5% when the average daily Excess Availability is less than 33.3% of the Loan Cap. The applicable margins for Base Rate Loans are: (a) 1.0% when the average daily Excess Availability is greater than 66.7% of the Loan Cap; (b) 1.25% when the average daily Excess Availability is greater than or equal to 33.3% but less than or equal to 66.7% of the Loan Cap; and (c) 1.5% when the average daily Excess Availability is less than 33.3% of the Loan Cap.

The 2023 Revolving Credit Facility contains a financial covenant requiring Excess Availability at all times to be no less than the greater of (i) 10.0% of the Loan Cap in effect at such time and (ii) $7,500.

The 2023 Revolving Credit Facility contains representations and warranties, covenants and events of default that are customary for this type of financing, including limitations on the incurrence of additional indebtedness, liens, burdensome agreements, investments, loans, asset sales, mergers, acquisitions, prepayment of certain other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year. The 2023 Revolving Credit Facility generally permits dividends in the absence of any default or event of default (including any event of default arising from a contemplated dividend), so long as (i) after giving pro forma effect to the contemplated dividend and on a pro forma basis for the 30-day period immediately preceding such dividend, Excess Availability will be at least the greater of 20.0% of the Loan Cap and $15,000 and (ii) after giving pro forma effect to the contemplated dividend, the Consolidated Fixed Charge Coverage Ratio (as defined in the 2023 Revolving Credit Agreement) for the 12 months preceding such dividend will be greater than or equal to 1.0 to 1.0.

All obligations under the 2023 Revolving Credit Facility are guaranteed by the Company and Vince Intermediate and any future subsidiaries of the Company (other than Excluded Subsidiaries as defined in the 2023 Revolving Credit Agreement) and secured by a lien on substantially all of the assets of the Company, V Opco and Vince Intermediate and any future subsidiary guarantors, other than among others, equity interests in ABG Vince, as well as the rights of V Opco under the License Agreement.

The Company incurred a total of $0 and $8 of financing costs during the three and nine months ended November 2, 2024, respectively, and incurred $1,150 of financing costs during the fiscal year 2023 ($23 and $1,147 was incurred during the three and nine months ended October 28, 2023, respectively). In accordance with ASC Topic 470, "Debt", these financing costs were recorded as deferred debt issuance costs (which is presented within Other assets on the Condensed Consolidated Balance Sheets) and are amortized over the term of the 2023 Revolving Credit Facility.

As of November 2, 2024, the Company was in compliance with applicable covenants. As of November 2, 2024, $44,078 was available under the 2023 Revolving Credit Facility, net of the Loan Cap, and there were $17,357 of borrowings outstanding and $6,215 of letters of credit outstanding under the 2023 Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the 2023 Revolving Credit Facility as of November 2, 2024 was 7.8%.

2018 Revolving Credit Facility

On August 21, 2018, V Opco entered into an $80,000 senior secured revolving credit facility (the "2018 Revolving Credit Facility") pursuant to a credit agreement, as amended and restated from time to time, by and among V Opco, as the borrower, VHC and Vince Intermediate, as guarantors, Citizens Bank, N.A. ("Citizens"), as administrative agent and collateral agent, and the other lenders from time to time party thereto. On January 31, 2023, the Company repaid $125 of fees due in accordance with an amendment entered into on September 30, 2022. Upon the contemporaneous consummation of the Asset Sale, the lenders' commitments to extend credit was reduced to $70,000. The 2018 Revolving Credit Facility would have matured on June 30, 2024.

On June 23, 2023, all outstanding amounts under the 2018 Revolving Credit Facility were repaid in full and the 2018 Revolving Credit Facility was terminated pursuant to the terms thereof as a result of all parties completing their obligations under the 2018 Revolving Credit Facility. The Company recorded expense of $0 and $828 during the three and nine months ended October 28, 2023, respectively, related to the write-off of the remaining deferred financing costs As of November 2, 2024, no letters of credit remained in place with Citizens that were secured with restricted cash. Restricted cash is included in Prepaid Expenses and other current assets in the Condensed Consolidated Balance Sheets.

Third Lien Credit Facility

On December 11, 2020, V Opco entered into a $20,000 subordinated term loan credit facility (the "Third Lien Credit Facility") pursuant to a credit agreement (the "Third Lien Credit Agreement"), as amended from time to time, dated December 11, 2020, by and among V Opco, as the borrower, VHC and Vince Intermediate, as guarantors, and SK Financial Services, LLC ("SK Financial"), as administrative agent and collateral agent, and other lenders from time to time party thereto. The proceeds were received on December 11, 2020 and were used to repay a portion of the borrowings outstanding under the 2018 Revolving Credit Facility.

SK Financial is an affiliate of Sun Capital Partners, Inc. ("Sun Capital"), whose affiliates own, as of November 2, 2024, approximately 67% of the Company's common stock. The Third Lien Credit Facility was reviewed and approved by the Special Committee of the Company's Board of Directors, consisting solely of directors not affiliated with Sun Capital, which committee was represented by independent legal advisors.

Interest on loans under the Third Lien Credit Facility is payable in kind at a rate revised in connection with the Third Lien Third Amendment (as defined and discussed below) to be equal to the Daily Simple SOFR, subject to a credit spread adjustment of 0.10% per annum, plus 9.0%. During the continuance of certain specified events of default, interest may accrue on the loans under the Third Lien Credit Facility at a rate of 2.0% in excess of the rate otherwise applicable to such amount. The Third Lien Credit Facility contained representations, covenants, and conditions that were substantially similar to those under the 2018 Revolving Credit Facility.

The Company incurred $485 in deferred financing costs associated with the Third Lien Credit Facility of which a $400 closing fee is payable in kind and was added to the principal balance. These deferred financing costs are recorded as deferred debt issuance costs which will be amortized over the remaining term of the Third Lien Credit Facility.

All obligations under the Third Lien Credit Facility are guaranteed by the Company, Vince Intermediate and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries and are secured on a junior basis relative to the 2023 Revolving Credit Facility by a lien on substantially all of the assets of the Company, Vince Intermediate, V Opco and the Company's existing material domestic restricted subsidiaries as well as any future material domestic restricted subsidiaries.

On April 21, 2023, V Opco entered into that certain Consent and Third Amendment to Credit Agreement (the "Third Lien Third Amendment"), which, among other things, (a) permitted the sale of the intellectual property of the Vince Business contemplated in the Asset Sale, (b) replaced LIBOR as an interest rate benchmark in favor of Daily Simple SOFR, subject to a credit spread adjustment of 0.10% per annum, plus 9.0% (c) amended the Third Lien Credit Agreement's maturity date to the earlier of (i) March 30, 2025 and (ii) 180 days after the maturity date under the 2018 Revolving Credit Facility, (d) reduced the capacity to incur indebtedness and liens, make investments, restricted payments and dispositions and repay certain indebtedness and (e) modified certain representations and warranties, covenants and events of default in respect of documentation related to the Asset Sale. The Third Lien Third Amendment became effective upon the consummation of the Asset Sale, the prepayment of the Term Loan Credit Facility in full and other transactions contemplated by the Asset Purchase Agreement.

On June 23, 2023, V Opco entered into the Fourth Amendment (the "Third Lien Fourth Amendment") to the Third Lien Credit Agreement which, among other things, (a) extended the Third Lien Credit Agreement's maturity date to the earlier of (i) September 30, 2028 and (ii) 91 days prior to the earliest maturity date of any Material Indebtedness (as defined therein) other than the 2023 Revolving Credit Facility and (b) modified certain representations and warranties, covenants and events of default in respect of documentation conforming to the terms of the 2023 Revolving Credit Facility.

Seasonality

The apparel and fashion industry in which we operate is cyclical and, consequently, our revenues are affected by general economic conditions and the seasonal trends characteristic to the apparel and fashion industry. Purchases of apparel are sensitive to a number of factors that influence the level of consumer spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates and consumer confidence as well as the impact of adverse weather conditions. In addition, fluctuations in the amount of sales in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events affecting direct-to-consumer sales; as such, the financial results for any particular quarter may not be indicative of results for the fiscal year. We expect such seasonality to continue.

Critical Accounting Estimates

Management's discussion and analysis of financial condition and results of operations relies on our condensed consolidated financial statements, as set forth in Part I, Item 1 of this Quarterly Report, which are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. While we believe that these accounting policies are based on reasonable measurement criteria, actual future events can and often do result in outcomes materially different from these estimates.

A summary of our critical accounting estimates, which includes the fair value assessment of goodwill, is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2023 Annual Report on Form 10-K. As of November 2, 2024, there have been no material changes to the critical accounting estimates contained therein.

In accordance with Financial Accounting Standards Board ASC Topic 350, "Intangibles-Goodwill and Other", goodwill is tested for impairment at least annually and in an interim period if a triggering event occurs. In the fourth quarter of fiscal 2023, the date of the Company’s last annual impairment test, the Company’s Vince Wholesale reporting unit exceeded its carrying value by 7.9%. Determining the fair value of goodwill is judgmental in nature and requires the use of significant estimates and assumptions. Actual future results may differ from those estimates. Any changes in fair value could potentially result in the carrying amount of the Company’s Vince Wholesale reporting unit exceeding its estimated fair value, and therefore could require an impairment loss. There can be no assurances that the Company will not be required to record further charges in its financial statements, which would negatively impact the Company’s results of operations during the period in which any impairment of our goodwill is determined.

As a "smaller reporting company," as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we are not required to provide the information in this Item.

Evaluation of Disclosure Controls and Procedures

Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our interim Chief Executive Officer and Chief Financial Officer. Rule 13a-14 of the Exchange Act requires that we include these certifications with this report. This Controls and Procedures section includes information concerning the disclosure controls and procedures referred to in the certifications. You should read this section in conjunction with the certifications.

Under the supervision and with the participation of our interim Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of November 2, 2024.

Based upon that evaluation, our interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting as described below.

As a result of the material weakness identified, we performed additional analysis, substantive testing and other post-closing procedures intended to ensure that our condensed consolidated financial statements were prepared in accordance with U.S. GAAP. Accordingly, management believes that the condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q fairly state, in all material respects, the Company's financial condition, results of operations and cash flows for the periods presented.

Material Weakness in Internal Control over Financial Reporting

As described in Management's Annual Report On Internal Control Over Financial Reporting in Part II, Item 9A of our Annual Report on Form 10-K for the year ended February 3, 2024, we did not maintain adequate user access controls to ensure appropriate segregation of duties and to adequately restrict access to financial applications and data.

This material weakness did not result in a material misstatement to the annual or interim consolidated financial statements. However, this material weakness could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in a misstatement impacting account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Efforts to Address the Material Weakness

To date, we made continued progress on our comprehensive remediation plan related to this material weakness by implementing the following controls and procedures:

• The Company modified its system access rights to limit the use of generic ID's, particularly in instances where those ID's possessed privileged access rights; and
• The Company effectively designed and implemented a full recertification of AX user access rights.

To fully address the remediation of deficiencies related to segregation of duties, we will need to fully remediate the deficiencies regarding systems access.

Management continues to follow a comprehensive remediation plan to fully address this material weakness. The remediation plan includes implementing and effectively operating controls related to the routine reviews of user system access and user re-certifications, inclusive of those related to users with privileged access, as well as to ensure user's access rights to systems are removed timely upon termination.

While we have reported a material weakness that is not yet remediated, we believe we have made continued progress in addressing financial, compliance, and operational risks and improving controls across the Company. Until the material weakness is remediated, we will continue to perform additional analysis, substantive testing, and other post-closing procedures to ensure that our consolidated financial statements are prepared in accordance with U.S. GAAP.

Limitations on the Effectiveness of Disclosure Controls and Procedures

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure system are met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended November 2, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The risk factors disclosed in the Company's 2023 Annual Report on Form 10-K, in addition to the other information set forth in this Quarterly Report on Form 10-Q, could materially affect the Company's business, financial condition or results.

The Company’s risk factors have not changed materially from those disclosed in its 2023 Annual Report on Form 10-K.