Vera Bradley(VRA) - 2024 Q2 - Quarterly Report

General Information Filing Information The basic filing details for the Form 10-Q are provided, identifying Vera Bradley, Inc. as an accelerated filer for the quarterly period ended July 29, 2023, with 30,822,993 shares of common stock outstanding as of August 30, 2023 | Detail | Value | | :--- | :--- | | Filing Type | Form 10-Q | | Period Ended | July 29, 2023 | | Registrant | Vera Bradley, Inc. | | Commission File Number | 001-34918 | | Filer Status | Accelerated filer | | Common Stock Outstanding (as of Aug 30, 2023) | 30,822,993 shares | Forward-Looking Statements The nature of forward-looking statements within the report is outlined, emphasizing that they are subject to risks and uncertainties that could cause actual results to differ materially from current expectations and projections - Forward-looking statements are based on current expectations and projections, but actual results may differ materially due to various risks and uncertainties[10][11][13] - Key risks include inability to implement strategic plans (Project Restoration), declines in comparable sales, inability to maintain and enhance brands, failure of multi-channel distribution, adverse general economic conditions, inability to predict consumer demand, operational challenges (new stores, talent, data security, supply chain), increased tariffs, and public health pandemics[14] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The unaudited condensed consolidated financial statements are presented, including the balance sheets, statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and financial performance for the thirteen and twenty-six weeks ended July 29, 2023, compared to the prior-year periods Condensed Consolidated Balance Sheets | Metric (in thousands) | July 29, 2023 | January 28, 2023 | Change | | :-------------------- | :------------ | :--------------- | :----- | | Total Assets | $391,500 | $404,501 | $(13,001) | | Total Liabilities | $134,981 | $142,411 | $(7,430) | | Total Shareholders' Equity | $256,519 | $251,378 | $5,141 | | Cash and cash equivalents | $48,522 | $46,595 | $1,927 | | Inventories | $139,301 | $142,275 | $(2,974) | Condensed Consolidated Statements of Operations | Metric (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $128,172 | $130,371 | $222,534 | $228,830 | | Gross profit | $72,016 | $60,517 | $123,765 | $113,031 | | SG&A expenses | $59,405 | $74,042 | $117,911 | $134,956 | | Impairment of goodwill and intangible assets | $0 | $29,338 | $0 | $29,338 | | Operating income (loss) | $12,871 | $(42,821) | $6,485 | $(51,054) | | Net income (loss) attributable to Vera Bradley, Inc. | $9,254 | $(29,767) | $4,575 | $(36,741) | | Diluted EPS | $0.30 | $(0.95) | $0.15 | $(1.15) | Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $9,254 | $(36,901) | $4,575 | $(43,611) | | Comprehensive income (loss) attributable to Vera Bradley, Inc. | $9,300 | $(29,842) | $4,611 | $(36,847) | Condensed Consolidated Statements of Shareholders' Equity | Metric (in thousands) | Balance at Jan 28, 2023 | Balance at July 29, 2023 | Change | | :-------------------- | :---------------------- | :----------------------- | :----- | | Additional Paid-in Capital | $109,718 | $111,663 | $1,945 | | Retained Earnings | $274,629 | $279,204 | $4,575 | | Treasury Stock | $(132,864) | $(134,279) | $(1,415) | | Total Shareholders' Equity | $251,378 | $256,519 | $5,141 | - The company purchased the remaining noncontrolling interest in Pura Vida, resulting in a $1.3 million increase in additional paid-in capital[24][117] Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash provided by (used in) operating activities | $15,975 | $(27,118) | $43,093 | | Net cash used in investing activities | $(11,727) | $(4,391) | $(7,336) | | Net cash used in financing activities | $(2,357) | $(18,500) | $16,143 | | Net increase (decrease) in cash and cash equivalents | $1,927 | $(50,115) | $52,042 | | Cash and cash equivalents, end of period | $48,522 | $38,321 | $10,201 | - Investing activities included a $10.0 million cash payment for the acquisition of the remaining 25% interest in Pura Vida[30][214] - Capital expenditures for fiscal 2024 are projected to be approximately $5.0 million[215] Notes to the Condensed Consolidated Financial Statements Note 1. Description of the Company and Basis of Presentation - Vera Bradley, Inc. operates two lifestyle brands: Vera Bradley (handbags, luggage, accessories, gifts) and Pura Vida (bracelets, jewelry, lifestyle accessories)[38][39][40] - The company completed the acquisition of the remaining 25% interest in Pura Vida on January 30, 2023, making it a wholly-owned subsidiary[40][114][115] - The three reportable segments are Vera Bradley Direct (stores, e-commerce, outlet sale), Vera Bradley Indirect (specialty retailers, department stores, licensing), and Pura Vida (websites, wholesale, retail stores)[41][43] Note 2. Revenue from Contracts with Customers | Product Category (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Bags | $45,200 | $48,755 | $76,490 | $84,401 | | Travel | $23,439 | $23,104 | $42,024 | $41,265 | | Accessories | $40,799 | $41,662 | $72,262 | $73,789 | | Home | $10,091 | $9,458 | $16,607 | $16,306 | | Apparel/Footwear | $4,836 | $3,880 | $8,534 | $6,719 | | Other | $3,807 | $3,512 | $6,617 | $6,350 | | Total Net Revenues | $128,172 | $130,371 | $222,534 | $228,830 | - Contract liabilities, primarily unredeemed gift cards and unearned revenue from Pura Vida clubs, decreased from $3.2 million to $2.5 million[59] Note 3. Leases | Lease Cost (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $6,502 | $6,114 | $13,067 | $12,364 | | Variable lease cost | $1,401 | $1,564 | $2,757 | $2,982 | | Short-term lease cost | $233 | $102 | $355 | $316 | | Sublease income | $(105) | $(24) | $(210) | $(24) | | Total net lease cost | $8,031 | $7,756 | $15,969 | $15,638 | - Weighted-average remaining lease term as of July 29, 2023, was 5.4 years[68] - One new Vera Bradley retail store lease, not yet commenced, has undiscounted payments of approximately $2.4 million over 10 years, starting in fiscal year 2024[66] Note 4. Earnings Per Share | Metric (in thousands, except per share data) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :----------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to Vera Bradley, Inc. | $9,254 | $(29,767) | $4,575 | $(36,741) | | Basic weighted-average shares outstanding | 30,901 | 31,429 | 30,847 | 32,051 | | Diluted weighted-average shares outstanding | 31,139 | 31,429 | 31,208 | 32,051 | | Basic net income (loss) per share | $0.30 | $(0.95) | $0.15 | $(1.15) | | Diluted net income (loss) per share | $0.30 | $(0.95) | $0.15 | $(1.15) | - All potential common shares were excluded from diluted EPS calculation in the prior year due to net loss, making them anti-dilutive[74] Note 5. Fair Value of Financial Instruments - No long-lived asset impairment charges were recorded in the current period (13 & 26 weeks ended July 29, 2023)[78] - No goodwill or intangible asset impairment charges were recorded in the current period (13 & 26 weeks ended July 29, 2023)[80] - In the prior year (13 & 26 weeks ended July 30, 2022), the company recorded $0.8 million and $1.4 million in long-lived asset impairment charges, and a $29.3 million impairment charge related to goodwill and the Pura Vida brand asset[78][82] Note 6. Debt - As of July 29, 2023, the company had no outstanding borrowings and $75.0 million availability under its Credit Agreement[89] - A Third Amendment to the Credit Agreement was executed on August 3, 2023, extending the maturity to May 2028, adding Creative Genius, LLC as a borrower, and increasing the option to expand the principal amount by up to $50.0 million[90][92] Note 7. Income Taxes | Metric | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :----- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Effective Tax Rate | 28.0% | 13.9% | 29.0% | 14.7% | - The increase in effective tax rate was primarily due to the impact of permanent and discrete items, including noncontrolling interest in the prior year and non-deductible executive compensation[95][96] Note 8. Stock-Based Compensation | Metric | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :----- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Restricted Stock Units Granted | 195,617 | 0 | 738,187 | 841,369 | | Aggregate Fair Value of RSUs Granted | $1.1 million | $0 | $4.3 million | $6.3 million | - As of July 29, 2023, $5.9 million of total unrecognized compensation cost related to nonvested restricted stock units is expected to be recognized over a weighted-average period of 2.2 years[105] Note 9. Commitments and Contingencies - A lawsuit filed by Vesi Incorporated in 2019 was dismissed in the company's favor on January 4, 2023, with judgment granted on its counterclaims. Vesi has appealed[107][228] - Management believes it is not probable that any current claims will have a material adverse effect on the company's financial condition, results of operations, or cash flows[106] Note 10. Common Stock | Metric | 26 Weeks Ended July 29, 2023 | As of July 29, 2023 | | :----- | :----------------------------- | :------------------ | | Shares Repurchased | 248,320 | N/A | | Aggregate Repurchase Amount | $1.4 million | N/A | | Remaining Repurchase Authorization | N/A | $26.3 million | | Treasury Shares Held | N/A | 12,328,010 | | Aggregate Carrying Amount of Treasury Shares | N/A | $134.3 million | Note 11. Cloud Computing Arrangements | Metric (in millions) | July 29, 2023 | January 28, 2023 | Change | | :------------------- | :------------ | :--------------- | :----- | | Unamortized CCA Implementation Costs | $4.9 | $6.4 | $(1.5) | Note 12. Redeemable Noncontrolling Interest - On January 30, 2023, the company acquired the remaining 25% interest in Pura Vida for $10.0 million cash, making it a wholly-owned subsidiary[115] | Metric (in thousands) | January 28, 2023 | July 29, 2023 | Change | | :-------------------- | :--------------- | :------------ | :----- | | Redeemable Noncontrolling Interest | $10,712 | $0 | $(10,712) | - The transaction resulted in a $1.3 million increase in additional paid-in capital[117][118] Note 13. Intangible Assets and Goodwill | Intangible Asset (in thousands) | July 29, 2023 Carrying Amount | January 28, 2023 Carrying Amount | | :------------------------------ | :------------------------------ | :------------------------------- | | Customer Relationships | $2,794 | $4,252 | | Pura Vida Brand | $11,666 | $11,666 | | Total Intangible Assets (excluding goodwill) | $14,460 | $15,918 | - No goodwill balance as of July 29, 2023, due to impairment charges recorded in fiscal 2023[126] - No impairment charge was recorded for the Pura Vida brand during the current period (fiscal 2024 test), while the prior year (fiscal 2023 test) included charges of $9.9 million for the Pura Vida brand and $19.4 million for goodwill[129] Note 14. Cost Savings Initiatives and Other Charges - Cost savings initiatives are expected to be fully realized in fiscal 2025, targeting retail store efficiencies, marketing, IT, logistics, and corporate payroll[132] | Charge Type (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Severance charges | $79 | $5,714 | $2,068 | $5,714 | | Consulting fees and other costs | $0 | $3,057 | $105 | $3,207 | | Total Charges | $79 | $8,771 | $2,173 | $8,921 | - No inventory adjustments or purchase order cancellation fees were recorded in the current period (13 & 26 weeks ended July 29, 2023). In the prior year (13 & 26 weeks ended July 30, 2022), $5.9 million in inventory adjustments and $1.1 million in purchase order cancellation fees were recorded[136] Note 15. Segment Reporting | Segment Net Revenues (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :---------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | VB Direct | $85,702 | $87,013 | $144,607 | $148,649 | | VB Indirect | $17,363 | $17,325 | $32,736 | $34,302 | | Pura Vida | $25,107 | $26,033 | $45,191 | $45,879 | | Total | $128,172 | $130,371 | $222,534 | $228,830 | | Segment Operating Income (Loss) (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | | :--------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | VB Direct | $20,621 | $10,044 | $27,961 | $15,547 | | VB Indirect | $6,204 | $3,918 | $10,910 | $9,397 | | Pura Vida | $4,000 | $(28,534) | $5,562 | $(27,478) | | Corporate unallocated | $(17,954) | $(28,249) | $(37,948) | $(48,520) | | Total Operating Income (Loss) | $12,871 | $(42,821) | $6,485 | $(51,054) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations A comprehensive analysis of the company's financial performance, condition, liquidity, and cash flows for the thirteen and twenty-six weeks ended July 29, 2023 is provided, highlighting strategic progress, macroeconomic factors, detailed results of operations by segment, and an overview of liquidity and capital resources Strategic Progress, Macroeconomic Factors, and Other Factors Impacting our Financial Condition and Results of Operations - Continued Project Restoration, focusing on Consumer, Brand, Product, and Channel pillars for long-term profitable growth[145] - Cost reduction initiatives are ongoing, expected to be fully realized in fiscal 2025, targeting retail store efficiencies, marketing, IT, logistics, and corporate payroll[148][149] - Macroeconomic challenges include inflationary pressures, high gas prices, and the expiration of GSP duty-free status, impacting consumer discretionary spending. Supply chain disruptions have stabilized, and strategic price increases were implemented[150][151][152] How We Assess the Performance of Our Business - Key performance indicators include Net Revenues, Comparable Sales (stores and e-commerce), Gross Profit, SG&A, Operating Income (Loss), Net Income (Loss), and Impairment Charges[153][154][156][157][159][161][162][163][164][166] - Comparable sales are affected by economic trends, consumer preferences, competition, new product releases, product mix, pricing, promotions, traffic, customer service, sourcing efficiency, store openings/closures, and marketing efforts[157][159] Results of Operations | Metric (in thousands) | 13 Weeks Ended July 29, 2023 | 13 Weeks Ended July 30, 2022 | YoY Change (%) | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | YoY Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Net revenues | $128,172 | $130,371 | -1.7% | $222,534 | $228,830 | -2.8% | | Gross profit | $72,016 | $60,517 | +19.0% | $123,765 | $113,031 | +9.5% | | Gross profit % | 56.2% | 46.4% | +9.8 pp | 55.6% | 49.4% | +6.2 pp | | SG&A expenses | $59,405 | $74,042 | -19.8% | $117,911 | $134,956 | -12.6% | | SG&A expenses % | 46.3% | 56.8% | -10.5 pp | 53.0% | 59.0% | -6.0 pp | | Operating income (loss) | $12,871 | $(42,821) | +130.1% | $6,485 | $(51,054) | +112.7% | | Net income (loss) attributable to Vera Bradley, Inc. | $9,254 | $(29,767) | +131.1% | $4,575 | $(36,741) | +112.5% | - VB Direct net revenues decreased by 1.5% (13 weeks) and 2.7% (26 weeks), with comparable sales down 5.3% and 4.5% respectively, impacted by reduced factory outlet and e-commerce sales, partially offset by the return of the annual outlet sale[173][190] - VB Indirect net revenues increased by 0.2% (13 weeks) but decreased by 4.6% (26 weeks), primarily due to a non-recurring key account order in the prior year[174][191] - Pura Vida net revenues decreased by 3.6% (13 weeks) and 1.5% (26 weeks) due to declines in wholesale and e-commerce, partially offset by new retail store sales[175][192] - Gross profit margin improved significantly due to decreased inbound/outbound freight costs, sell-through of previously reserved excess inventory, and the absence of prior-year inventory adjustments and purchase order cancellation fees[176][193] - SG&A expense reduction was driven by lower severance charges (including former CEO retirement in prior year), reduced cost savings initiative fees, decreased employee-related expenses (headcount reduction), and absence of prior-year store impairment charges[177][194] - Operating income for Pura Vida segment significantly improved due to the absence of prior-year goodwill and intangible asset impairment charges ($29.3 million for 13 weeks, $29.3 million for 26 weeks), decreased marketing and employee expenses, and improved gross margin[178][183][196][201] Liquidity and Capital Resources - Primary liquidity sources are cash on hand, cash equivalents, cash flow from operations, and a $75.0 million asset-based revolving credit agreement (no outstanding debt as of July 29, 2023)[207][208][217] | Cash Flow Activity (in thousands) | 26 Weeks Ended July 29, 2023 | 26 Weeks Ended July 30, 2022 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash provided by (used in) operating activities | $15,975 | $(27,118) | $43,093 | | Net cash used in investing activities | $(11,727) | $(4,391) | $(7,336) | | Net cash used in financing activities | $(2,357) | $(18,500) | $16,143 | - The increase in cash used in investing activities was primarily due to the $10.0 million purchase of the remaining 25% interest in Pura Vida[214] - The decrease in cash used in financing activities was primarily due to lower common stock repurchases ($1.4 million in current period vs. $16.5 million in prior year)[216] Critical Accounting Policies and Estimates No significant changes to critical accounting policies and estimates as of July 29, 2023, from those disclosed in the Annual Report on Form 10-K for the fiscal year ended January 28, 2023 Recently Issued Accounting Pronouncements No new accounting pronouncements issued or effective during the period had a significant impact on the financial statements[47][223] Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes to the market risks previously described in the company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 - No material changes in market risks as of July 29, 2023, compared to the prior Annual Report on Form 10-K[224] Item 4. Controls and Procedures The company's disclosure controls and procedures were effective as of July 29, 2023, and there have been no material changes in internal control over financial reporting during the most recent fiscal quarter - Disclosure controls and procedures were effective as of July 29, 2023[225] - No material changes in internal control over financial reporting during the most recent fiscal quarter[226] PART II. OTHER INFORMATION Item 1. Legal Proceedings A legal proceeding with Vesi Incorporated is detailed, where the court granted the company's motion for summary judgment in January 2023, dismissing Vesi's claims and granting judgment on the company's counterclaims. Vesi has appealed, but management believes the company has meritorious defenses and cannot estimate a material adverse effect at this time - A lawsuit by Vesi Incorporated was dismissed in the company's favor on January 4, 2023, with judgment granted on counterclaims; Vesi has appealed[228] - Management believes the company has meritorious legal defenses and cannot estimate a possible material loss from this matter[228] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 - No material changes to risk factors previously set forth in the Annual Report on Form 10-K for the fiscal year ended January 28, 2023[230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's share repurchase activity under the 2021 Share Repurchase Program is reported, noting that 120,220 shares were repurchased for an average price of $5.68 per share during the thirteen weeks ended July 29, 2023, with approximately $26.3 million remaining available under the program | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Approximate Dollar Value Remaining | | :-------------------------- | :--------------------- | :--------------------------- | :----------------------------------------- | | April 30, 2023 - May 27, 2023 | 47,620 | $5.25 | $26,748,176 | | May 28, 2023 - July 1, 2023 | 44,100 | $5.72 | $26,496,016 | | July 2, 2023 - July 29, 2023 | 28,500 | $6.34 | $26,315,414 | | Total (13 weeks) | 120,220 | $5.68 | N/A | Item 5. Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans for company securities during the thirteen weeks ended July 29, 2023 - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the thirteen weeks ended July 29, 2023[234] Item 6. Exhibits The exhibits filed with the Form 10-Q are listed, including CEO and CFO certifications, Section 906 Certifications, and various Inline XBRL documents - Exhibits include CEO and CFO Section 302 Certifications, Section 906 Certifications, and Inline XBRL documents[235]