Vera Bradley(VRA) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section provides the unaudited condensed consolidated financial statements and their accompanying detailed notes Condensed Consolidated Balance Sheets | Metric | October 28, 2023 ($k) | January 28, 2023 ($k) | Change ($k) | Change (%) | | :----------------------------------- | :---------------------- | :-------------------- | :---------- | :--------- | | Assets | | | | | | Cash and cash equivalents | 52,266 | 46,595 | 5,671 | 12.17% | | Accounts receivable, net | 25,599 | 22,105 | 3,494 | 15.81% | | Inventories | 129,140 | 142,275 | (13,135) | -9.23% | | Total current assets | 221,406 | 226,562 | (5,156) | -2.28% | | Total assets | 382,834 | 404,501 | (21,667) | -5.36% | | Liabilities & Equity | | | | | | Accounts payable | 12,297 | 20,350 | (8,053) | -39.57% | | Total current liabilities | 56,967 | 67,657 | (10,690) | -15.79% | | Total liabilities | 120,953 | 142,411 | (21,458) | -15.07% | | Redeemable noncontrolling interest | — | 10,712 | (10,712) | -100.00% | | Total shareholders' equity | 261,881 | 251,378 | 10,503 | 4.18% | Condensed Consolidated Statements of Operations | Metric | 13 Weeks Ended Oct 28, 2023 ($k) | 13 Weeks Ended Oct 29, 2022 ($k) | Change ($k) | Change (%) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :---------- | :--------- | | Net revenues | 114,987 | 124,040 | (9,053) | -7.30% | | Gross profit | 63,007 | 65,876 | (2,869) | -4.36% | | Selling, general, and administrative expenses | 56,363 | 60,059 | (3,696) | -6.15% | | Operating income (loss) | 6,786 | 5,958 | 828 | 13.90% | | Net income (loss) attributable to Vera Bradley, Inc. | 5,118 | 5,167 | (49) | -0.95% | | Diluted net income (loss) per share | 0.16 | 0.17 | (0.01) | -5.88% | | Metric | 39 Weeks Ended Oct 28, 2023 ($k) | 39 Weeks Ended Oct 29, 2022 ($k) | Change ($k) | Change (%) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :---------- | :--------- | | Net revenues | 337,521 | 352,870 | (15,349) | -4.35% | | Gross profit | 186,772 | 178,907 | 7,865 | 4.40% | | Selling, general, and administrative expenses | 174,274 | 195,015 | (20,741) | -10.64% | | Impairment of goodwill and intangible assets | — | 29,338 | (29,338) | -100.00% | | Operating income (loss) | 13,271 | (45,096) | 58,367 | 129.43% | | Net income (loss) attributable to Vera Bradley, Inc. | 9,693 | (31,574) | 41,267 | 130.60% | | Diluted net income (loss) per share | 0.31 | (1.00) | 1.31 | 131.00% | Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | 13 Weeks Ended Oct 28, 2023 ($k) | 13 Weeks Ended Oct 29, 2022 ($k) | Change ($k) | Change (%) | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :---------- | :--------- | | Comprehensive income (loss) attributable to Vera Bradley, Inc. | 5,113 | 5,121 | (8) | -0.16% | | Metric | 39 Weeks Ended Oct 28, 2023 ($k) | 39 Weeks Ended Oct 29, 2022 ($k) | Change ($k) | Change (%) | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :---------- | :--------- | | Comprehensive income (loss) attributable to Vera Bradley, Inc. | 9,724 | (31,726) | 41,450 | 130.65% | Condensed Consolidated Statements of Shareholders' Equity - Total Shareholders' Equity of Vera Bradley, Inc. increased from $251,378k as of January 28, 2023, to $261,881k as of October 28, 2023[24] - Net income attributable to Vera Bradley, Inc. for the thirty-nine weeks ended October 28, 2023, was $9,254k (as of July 29, 2023) and $5,118k (as of October 28, 2023)[24] - Treasury stock purchased for the thirty-nine weeks ended October 28, 2023, amounted to $(1,900)k[30] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | 39 Weeks Ended Oct 28, 2023 ($k) | 39 Weeks Ended Oct 29, 2022 ($k) | Change ($k) | Change (%) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :---------- | :--------- | | Net cash provided by (used in) operating activities | 21,058 | (36,758) | 57,816 | 157.29% | | Net cash used in investing activities | (12,546) | (6,968) | (5,578) | 80.05% | | Net cash used in financing activities | (2,872) | (19,321) | 16,449 | -85.13% | | Net increase (decrease) in cash and cash equivalents | 5,671 | (63,199) | 68,870 | 108.98% | | Cash and cash equivalents, end of period | 52,266 | 25,237 | 27,029 | 107.18% | Notes to the Condensed Consolidated Financial Statements 1. Description of the Company and Basis of Presentation - Vera Bradley, Inc. operates two lifestyle brands: Vera Bradley and Pura Vida, targeting emotionally-connected, multi-generational female customer bases[38] - The Company's reportable segments are Vera Bradley Direct (VB Direct), Vera Bradley Indirect (VB Indirect), and Pura Vida[41] - On January 30, 2023, the Company acquired the remaining 25% interest in Pura Vida, making it a wholly-owned subsidiary[40] 2. Revenue from Contracts with Customers Net Revenues by Product Category and Segment (Thirteen Weeks Ended October 28, 2023) | Product categories | VB Direct Segment ($k) | VB Indirect Segment ($k) | Pura Vida Segment ($k) | Total ($k) | | :----------------- | :--------------------- | :----------------------- | :--------------------- | :--------- | | Bags | 30,970 | 13,167 | 111 | 44,248 | | Travel | 15,374 | 5,038 | — | 20,412 | | Accessories | 12,782 | 3,566 | 16,757 | 33,105 | | Home | 7,824 | 1,415 | — | 9,239 | | Apparel/Footwear | 3,601 | 1,081 | 357 | 5,039 | | Other | 1,758 | 719 | 467 | 2,944 | | Total net revenues | 72,309 | 24,986 | 17,692 | 114,987 | Net Revenues by Product Category and Segment (Thirty-Nine Weeks Ended October 28, 2023) | Product categories | VB Direct Segment ($k) | VB Indirect Segment ($k) | Pura Vida Segment ($k) | Total ($k) | | :----------------- | :--------------------- | :----------------------- | :--------------------- | :--------- | | Bags | 89,267 | 31,123 | 348 | 120,738 | | Travel | 50,740 | 11,696 | — | 62,436 | | Accessories | 38,416 | 7,511 | 59,440 | 105,367 | | Home | 22,890 | 2,956 | — | 25,846 | | Apparel/Footwear | 10,591 | 1,865 | 1,117 | 13,573 | | Other | 5,012 | 2,571 | 1,978 | 9,561 | | Total net revenues | 216,916 | 57,722 | 62,883 | 337,521 | - Contract liabilities decreased from $3.2 million as of January 28, 2023, to $2.5 million as of October 28, 2023, primarily consisting of unredeemed gift cards and unearned revenue from Pura Vida clubs[59] 3. Leases Total Net Lease Cost | Period | 2023 ($k) | 2022 ($k) | Change ($k) | Change (%) | | :--------------------- | :-------- | :-------- | :---------- | :--------- | | Thirteen Weeks Ended | 7,755 | 7,703 | 52 | 0.68% | | Thirty-Nine Weeks Ended | 23,724 | 23,341 | 383 | 1.64% | - The weighted-average remaining lease term as of October 28, 2023, was 5.4 years[68] - Cash paid for amounts included in the measurement of operating lease liabilities for the thirty-nine weeks ended October 28, 2023, was $22,111k, up from $19,883k in the prior year[69] 4. Earnings Per Share Earnings Per Share (EPS) Attributable to Vera Bradley, Inc. Common Shareholders | Period | Basic EPS 2023 | Basic EPS 2022 | Diluted EPS 2023 | Diluted EPS 2022 | | :--------------------- | :------------- | :------------- | :--------------- | :--------------- | | Thirteen Weeks Ended | $0.17 | $0.17 | $0.16 | $0.17 | | Thirty-Nine Weeks Ended | $0.31 | $(1.00) | $0.31 | $(1.00) | 5. Fair Value of Financial Instruments Fair Value Measurements of Investments (October 28, 2023) | Asset | Level 1 ($k) | Level 2 ($k) | Level 3 ($k) | | :-------------- | :----------- | :----------- | :----------- | | Cash equivalents | 34,882 | — | — | - No long-lived asset impairment charges were recorded for the thirteen and thirty-nine weeks ended October 28, 2023[79] - No goodwill or intangible asset impairment charges were recorded during the thirteen and thirty-nine weeks ended October 28, 2023, contrasting with a $29.3 million charge in the prior year's thirty-nine-week period[81][83] 6. Debt - The Company's asset-based revolving Credit Agreement provides for credit facilities up to $75.0 million, with an option to increase by $50.0 million[84][90] - As of October 28, 2023, there were no borrowings outstanding and $75.0 million of availability under the Credit Agreement[94] - A Third Amendment to the Credit Agreement was entered into on August 3, 2023, extending the maturity date to May 2028 and updating interest rate calculations (CBFR, SOFR)[89][90][92] 7. Income Taxes Effective Tax Rate | Period | 2023 | 2022 | Change (pp) | | :--------------------- | :--- | :--- | :---------- | | Thirteen Weeks Ended | 27.6% | 18.4% | 9.2 | | Thirty-Nine Weeks Ended | 28.3% | 14.2% | 14.1 | - The year-over-year increase in effective tax rates was primarily due to the relative impact of permanent items (noncontrolling interest in the prior-year period, non-deductible executive compensation) and discrete items (stock-based compensation)[96][97] 8. Stock-Based Compensation - During the thirteen weeks ended October 28, 2023, the Company granted 15,267 restricted stock units with an aggregate fair value of $0.1 million[101] - During the thirty-nine weeks ended October 28, 2023, the Company granted 753,454 restricted stock units with an aggregate fair value of $4.4 million, compared to 841,369 units with a fair value of $6.3 million in the prior year[102] - As of October 28, 2023, total unrecognized compensation cost related to nonvested restricted stock units was $5.1 million, expected to be recognized over a weighted-average period of 2.0 years[106] 9. Commitments and Contingencies - Management believes that current claims and contingencies will not have a material adverse effect on the Company's financial condition, results of operations, or cash flows[107] - On November 9, 2023, the U.S. Court of Appeals for the Sixth Circuit affirmed the District Court's judgment in favor of the Company, dismissing Vesi Incorporated's claims and granting the Company's counterclaims[108] 10. Common Stock - The 2021 Share Repurchase Program authorized up to $50.0 million for common stock repurchases, expiring in December 2024[110] - The Company purchased 320,127 shares for $1.9 million during the thirty-nine weeks ended October 28, 2023[111] - $25.8 million remained available under the 2021 Share Repurchase Program as of October 28, 2023[111] 11. Cloud Computing Arrangements Unamortized CCA Implementation Costs | Date | Amount ($k) | | :---------------- | :---------- | | October 28, 2023 | 4,300 | | January 28, 2023 | 6,400 | - Amortization expense for CCA implementation costs is recorded within selling, general, and administrative expenses[113] 12. Redeemable Noncontrolling Interest - On January 30, 2023, the Company acquired the remaining 25% interest in Pura Vida for $10.0 million cash, resulting in 100% ownership[116] - The transaction resulted in a $10.7 million decrease to redeemable noncontrolling interest and a $1.3 million increase in additional paid-in capital[118][120] - There was no redeemable noncontrolling interest as of October 28, 2023[120] 13. Intangible Assets and Goodwill Intangible Assets, Excluding Goodwill (October 28, 2023) | Asset Category | Gross Basis ($k) | Accumulated Amortization ($k) | Carrying Amount ($k) | | :----------------------------- | :--------------- | :---------------------------- | :------------------- | | Customer Relationships | 24,208 | (22,143) | 2,065 | | Non-competition Agreements | 788 | (788) | — | | Pura Vida Brand (indefinite-lived) | 11,666 | — | 11,666 | | Total | 36,662 | (22,931) | 13,731 | - There was no goodwill balance as of October 28, 2023, due to impairment charges recorded during fiscal 2023[125] - No impairment charge was recorded for the Pura Vida brand during the second quarter of fiscal 2024 or for the thirteen and thirty-nine weeks ended October 28, 2023. In the prior year, impairment charges of $9.9 million for the Pura Vida brand and $19.4 million for goodwill were recorded[128] 14. Cost Savings Initiatives and Other Charges - The Company is implementing targeted cost reductions across various areas (retail store efficiencies, marketing, IT, professional services, logistics, corporate payroll) expected to be fully realized in fiscal 2025[133] Cost Savings Initiatives and Severance Charges | Period | Severance Charges ($k) | Consulting Fees and Other Costs ($k) | Total Expense ($k) | | :--------------------- | :--------------------- | :----------------------------------- | :----------------- | | 13 Weeks Ended Oct 28, 2023 | 304 | — | 304 | | 13 Weeks Ended Oct 29, 2022 | 406 | 1,133 | 1,539 | | 39 Weeks Ended Oct 28, 2023 | 2,372 | 105 | 2,477 | | 39 Weeks Ended Oct 29, 2022 | 6,120 | 4,340 | 10,460 | - No similar 'Other Charges' (inventory adjustments, purchase order cancellation fees) were recorded during the thirteen and thirty-nine weeks ended October 28, 2023, compared to $6.7 million in the prior year's thirty-nine-week period[141] 15. Segment Reporting Segment Net Revenues and Operating Income (Loss) (Thirteen Weeks Ended) | Segment | Net Revenues 2023 ($k) | Net Revenues 2022 ($k) | Operating Income (Loss) 2023 ($k) | Operating Income (Loss) 2022 ($k) | | :-------------- | :--------------------- | :--------------------- | :-------------------------------- | :-------------------------------- | | VB Direct | 72,309 | 80,061 | 15,708 | 17,060 | | VB Indirect | 24,986 | 22,314 | 8,967 | 9,012 | | Pura Vida | 17,692 | 21,665 | (580) | (1,353) | | Total Segment | 114,987 | 124,040 | 24,095 | 24,719 | Segment Net Revenues and Operating Income (Loss) (Thirty-Nine Weeks Ended) | Segment | Net Revenues 2023 ($k) | Net Revenues 2022 ($k) | Operating Income (Loss) 2023 ($k) | Operating Income (Loss) 2022 ($k) | | :-------------- | :--------------------- | :--------------------- | :-------------------------------- | :-------------------------------- | | VB Direct | 216,916 | 228,710 | 43,669 | 32,607 | | VB Indirect | 57,722 | 56,616 | 19,877 | 18,409 | | Pura Vida | 62,883 | 67,544 | 4,982 | (28,831) | | Total Segment | 337,521 | 352,870 | 68,528 | 22,185 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis covers financial performance, condition, liquidity, and cash flows, emphasizing strategic progress and macroeconomic impacts Strategic Progress, Macroeconomic Factors, and Other Factors Impacting our Financial Condition and Results of Operations - The Company is continuing 'Project Restoration,' focusing on Consumer, Brand, Product, and Channel pillars to drive long-term profitable growth, including product innovation and collaborations[151] - Cost reductions are being identified across retail store efficiencies, marketing, IT contracts, professional services, logistics, and corporate payroll, with full realization expected in fiscal 2025[152][153] - Macroeconomic challenges include higher tariffs due to the expiration of GSP duty-free status and inflationary pressures impacting consumer discretionary spending[154] - Supply chain disruptions have stabilized, leading to reduced inbound and outbound shipping costs in the third quarter of fiscal 2024[155] How We Assess the Performance of Our Business - Key performance indicators include Net Revenues, Comparable Sales, Gross Profit, Selling, General, and Administrative Expenses (SG&A), Operating Income (Loss), Net Income (Loss), Net Income (Loss) Attributable to Vera Bradley, Inc., and Impairment Charges[157][158][159][160][162][163][164][167][168] - The annual impairment test for the indefinite-lived Pura Vida brand (and goodwill in prior years) is performed in the second quarter. No additional impairment was found for the Pura Vida brand as of October 28, 2023, despite an operating loss in the third quarter[168][169] Results of Operations Thirteen Weeks Ended October 28, 2023, Compared to Thirteen Weeks Ended October 29, 2022 - Net revenues decreased by $9.0 million (7.3%) to $115.0 million, primarily due to declines in VB Direct and Pura Vida, partially offset by a significant one-time key account order in VB Indirect[179][180][181][182] - Gross profit margin increased to 54.8% from 53.1%, favorably impacted by lower inbound/outbound freight expense and sell-through of previously-reserved inventory, partially offset by increased promotional activity[183] - SG&A expenses decreased by $3.7 million (6.2%) to $56.4 million, mainly due to reduced employee-related expenses and cost savings initiatives, but increased as a percentage of net revenues (49.0% vs 48.4%) due to sales deleverage[184] - Operating income increased by $0.8 million (13.9%) to $6.8 million, and net income attributable to Vera Bradley, Inc. slightly decreased by $0.1 million to $5.1 million[187][196] Thirty-Nine Weeks Ended October 28, 2023, Compared to Thirty-Nine Weeks Ended October 29, 2022 - Net revenues decreased by $15.4 million (4.4%) to $337.5 million, with declines in VB Direct and Pura Vida, partially offset by increased key account orders in VB Indirect and the return of the Vera Bradley annual outlet sale[197][198][199][200] - Gross profit increased by $7.9 million (4.4%) to $186.8 million, with the gross profit margin improving to 55.3% from 50.7%, driven by lower freight expense and sell-through of reserved inventory[201] - SG&A expenses decreased by $20.7 million (10.6%) to $174.3 million, primarily due to reduced employee-related expenses, lower severance charges, decreased professional fees, and reduced marketing spend[202] - Operating income significantly improved by $58.4 million (129.4%) to $13.3 million, from an operating loss of $(45.1) million in the prior year, largely due to the absence of $29.3 million in goodwill and intangible asset impairment charges[203][205] - Net income attributable to Vera Bradley, Inc. increased by $41.3 million to $9.7 million, from a net loss of $(31.6) million in the prior year[213] Liquidity and Capital Resources - Primary liquidity sources are cash on hand, cash equivalents, and cash flow from operations, supplemented by a $75.0 million asset-based revolving credit agreement with no outstanding debt as of October 28, 2023[214][94] - Net cash provided by operating activities for the thirty-nine weeks ended October 28, 2023, was $21.1 million, a significant improvement from net cash used of $36.8 million in the prior year[216][218] - Net cash used in investing activities increased to $12.5 million, primarily due to the $10.0 million purchase of the remaining 25% interest in Pura Vida[216][220] - Net cash used in financing activities decreased to $2.9 million from $19.3 million in the prior year, mainly due to lower common stock repurchases[216][222] - Capital expenditures for fiscal 2024 are expected to be approximately $4.0 million[221] Critical Accounting Policies and Estimates - There were no significant changes to the critical accounting policies and estimates as of October 28, 2023, compared to those described in the Annual Report on Form 10-K for the fiscal year ended January 28, 2023[228] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in the Company's market risks have occurred since the disclosures in its Annual Report on Form 10-K - No material change in market risks as of October 28, 2023, compared to the Annual Report on Form 10-K[230] Item 4. Controls and Procedures The Company's disclosure controls and procedures were effective as of October 28, 2023, with no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were effective as of October 28, 2023[231] - There has been no material change in internal control over financial reporting during the most recent fiscal quarter[232] PART II. OTHER INFORMATION Item 1. Legal Proceedings An update on the Vesi Incorporated lawsuit confirms the U.S. Court of Appeals affirmed the District Court's judgment in favor of the Company, dismissing Vesi's claims - On November 9, 2023, the U.S. Court of Appeals for the Sixth Circuit affirmed the District Court's judgment in favor of the Company, dismissing Vesi Incorporated's claims and granting the Company's counterclaims[234] - The Company does not believe other legal proceedings in the ordinary course of business would have a material adverse impact[235] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K have occurred - There have been no material changes to the risk factors previously set forth in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the share repurchase activity under the 2021 Share Repurchase Program for the thirteen weeks ended October 28, 2023 Share Repurchase Activity (Thirteen Weeks Ended October 28, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Program ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------------------------------------------------------------------------- | | July 30, 2023 - August 26, 2023 | 22,000 | 6.80 | 26,165,760 | | August 27, 2023 - September 30, 2023 | 28,300 | 6.71 | 25,975,768 | | October 1, 2023 - October 28, 2023 | 21,507 | 6.79 | 25,829,670 | | Total | 71,807 | 6.76 | | Item 5. Other Information This section reports that no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the thirteen weeks ended October 28, 2023 - None of the Company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the thirteen weeks ended October 28, 2023[239] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including CEO and CFO certifications and various Inline XBRL documents - Exhibits include CEO Section 302 Certification, CFO Section 302 Certification, Section 906 Certifications, and various Inline XBRL documents[240]