Even insiders got blindsided last week
Stocks that plunge more than 43% in one day tend to catch your attention. When they were fairly recent IPOs, at much higher prices, that becomes doubly true.
NYSE-listed, high-end designer/retailer Vince Holding (NYSE:VNCE) came public on Nov. 22, 2013, at $20 per share. That was above the originally indicated range of $17 to $19. Once unleashed, the stock ran quickly to $32.76. By August 2014, the shares topped $39. VNCE could be had last Friday, though, for just over $5.
A confluence of factors contributed to the stock’s sharp fall from grace. Same-store sales have been weak lately, and upper management has been deserting a sinking ship
The firm’s CFO resigned in June. Vince’s CEO left the company less than one month later. Fiscal Q2 (ended July 31) disappointed with a GAAP loss of 14 cents per share and an adjusted profit of 14 cents which excluded a major inventory write-down to account for slower-than-expected sales and a major revamping of the marketing strategy.
- Warning! GuruFocus has detected 1 Warning Sign with VNCE. Click here to check it out.
- VNCE 15-Year Financial Data
- The intrinsic value of VNCE
- Peter Lynch Chart of VNCE
Management now says adjusted FY 2015 EPS will range from $0.31 to $0.37, less than half the previous guidance for $0.85 to $0.90.
Vince’s casual chic merchandise looks good to me. You’ll find plenty of their items at physical stores like Nordstrom’s (NYSE:JWN), and privately held Nieman Marcus and Saks 5th Avenue. Vince also sells through the company’s own outlets and website. Some of the posted mark-downs look steep, but Vince’s MSRPs were quite high to begin with.
Is this former high-flyer now a bargain or a bankruptcy candidate?
At the present quote VNCE is more like a long-term call option than a normal equity play.
A dearth of cash has seen a large scheduled balloon debt payment to Sun Capital V. LP, a private equity group which holds over 15 million VNCE shares, be delayed to give the company time to right its operations.
The pre-IPO period, in retrospect, appears to have been one of channel stuffing to make the shares more attractive. The previous management team clearly was not candid with investors.
Current leaders were quick to cancel their old high-priced stock options while replacing them with newly issued ones at much lower strike prices. Previous earnings power ranged from $0.83 to $0.93 per share if the audited, and reported, numbers for 2013 and 2014 were correct.
Believers in the brand’s recovery potential can now own VNCE at less than 7X those previous profit levels.
Sun Capital Partners V. LP was blindsided by the latest news despite owning more than 15 million shares, or about 47%, of Vince Holding’s outstanding shares. They made numerous additions a few months ago at prices from $17.00 to $19.52 per share.
The last reported insider sale of VNCE dates back to July 1, 2014, at $32.69 per share.
That large stake gives Sun Capital a major incentive towards helping Vince stay fiscally healthy and get back on track. Nothing is assured in the fashion industry but reward now seems to outweigh risk after VNCE’s decline to under $6.
Today’s buyers are paying only 25% of April’s price and less than 14% of 2014’s peak. This play is for speculators only, but it could pay off big on even a partial recovery.