Vera Bradley(VRA) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, along with detailed notes explaining the company's financial position and performance for the reported periods Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | August 3, 2024 | February 3, 2024 | | :-------------------------------- | :------------- | :--------------- | | Total Assets | $379,214 | $380,786 | | Total Liabilities | $136,680 | $120,857 | | Total Shareholders' Equity | $242,534 | $259,929 | | Cash and Cash Equivalents | $44,147 | $77,303 | | Inventories | $133,047 | $118,278 | | Accounts Payable | $37,949 | $14,155 | - Total assets decreased slightly by $1.6 million, while total liabilities increased by $15.8 million, leading to a $17.4 million decrease in total shareholders' equity from February 3, 2024, to August 3, 2024[11] - Cash and cash equivalents saw a significant decrease of $33.2 million, and accounts payable more than doubled, indicating changes in working capital management[11] Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income (loss) over specific reporting periods Thirteen Weeks Ended August 3, 2024 vs. July 29, 2023 (in thousands, except per share data) | Metric | August 3, 2024 | July 29, 2023 | Change (%) | | :-------------------------------- | :------------- | :------------ | :--------- | | Net Revenues | $110,822 | $128,172 | -13.5% | | Gross Profit | $56,361 | $72,016 | -21.7% | | Operating Income (Loss) | $2,872 | $12,871 | -77.7% | | Net Income (Loss) | $5,706 | $9,254 | -38.4% | | Diluted Net Income (Loss) Per Share | $0.19 | $0.30 | -36.7% | Twenty-Six Weeks Ended August 3, 2024 vs. July 29, 2023 (in thousands, except per share data) | Metric | August 3, 2024 | July 29, 2023 | Change (%) | | :-------------------------------- | :------------- | :------------ | :--------- | | Net Revenues | $191,425 | $222,534 | -14.0% | | Gross Profit | $98,271 | $123,765 | -20.6% | | Operating Income (Loss) | $(8,557) | $6,485 | -232.0% | | Net Income (Loss) | $(2,415) | $4,575 | -152.8% | | Diluted Net Income (Loss) Per Share | $(0.08) | $0.15 | -153.3% | - The company experienced significant declines in net revenues, gross profit, and operating income for both the thirteen and twenty-six-week periods, with a shift from net income to net loss for the twenty-six-week period[13] Condensed Consolidated Statements of Comprehensive Income (Loss) Reports net income (loss) and other comprehensive income (loss) components for the periods Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Thirteen Weeks Ended Aug 3, 2024 | Thirteen Weeks Ended July 29, 2023 | | :-------------------------------- | :------------------------------- | :-------------------------------- | | Net Income (Loss) | $5,706 | $9,254 | | Comprehensive Income (Loss) | $5,698 | $9,300 | | Metric | Twenty-Six Weeks Ended Aug 3, 2024 | Twenty-Six Weeks Ended July 29, 2023 | | :-------------------------------- | :------------------------------- | :-------------------------------- | | Net Income (Loss) | $(2,415) | $4,575 | | Comprehensive Income (Loss) | $(2,415) | $4,611 | - Comprehensive income (loss) largely mirrored net income (loss) for both periods, with a significant decrease in the thirteen-week period and a shift from income to loss in the twenty-six-week period[15] Condensed Consolidated Statements of Shareholders' Equity Outlines changes in shareholders' equity, including additional paid-in capital, retained earnings, and treasury stock Changes in Shareholders' Equity (in thousands) | Metric | Balance at Feb 3, 2024 | Balance at Aug 3, 2024 | | :-------------------------------- | :--------------------- | :--------------------- | | Additional Paid-in Capital | $112,590 | $113,503 | | Retained Earnings | $282,467 | $280,052 | | Treasury Stock | $(135,056) | $(150,949) | | Total Shareholders' Equity | $259,929 | $242,534 | - Total shareholders' equity decreased by $17.4 million, primarily driven by a $15.9 million increase in treasury stock purchases and a $2.4 million reduction in retained earnings[17][60] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Twenty-Six Weeks Ended Aug 3, 2024 | Twenty-Six Weeks Ended July 29, 2023 | | :-------------------------------- | :------------------------------- | :-------------------------------- | | Net Cash (Used in) Provided by Operating Activities | $(13,151) | $15,975 | | Net Cash Used in Investing Activities | $(3,649) | $(11,727) | | Net Cash Used in Financing Activities | $(16,356) | $(2,357) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(33,156) | $1,927 | | Cash and Cash Equivalents, End of Period | $44,147 | $48,522 | - Operating activities shifted from providing $16.0 million in cash in the prior year to using $13.2 million in the current twenty-six-week period, primarily due to a net loss and changes in assets and liabilities[21][127] - Cash used in financing activities significantly increased to $16.4 million, mainly due to higher common stock repurchases of $15.9 million in the current period[21][129] - Overall, cash and cash equivalents decreased by $33.2 million, ending the period at $44.1 million[21] Notes to the Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Description of the Company and Basis of Presentation Describes the company's brands, segments, and the basis for preparing the unaudited financial statements - Vera Bradley, Inc. operates two lifestyle brands: Vera Bradley (handbags, luggage, accessories, gifts) and Pura Vida (bracelets, jewelry, accessories), both targeting emotionally-connected female customer bases[26] - The company has three reportable segments: VB Direct (stores, e-commerce), VB Indirect (specialty retailers, key accounts, licensing), and Pura Vida (websites, wholesale, retail stores)[26] - The unaudited financial statements are prepared in accordance with SEC rules, with certain GAAP disclosures condensed or omitted[26] 2. Revenue from Contracts with Customers Details net revenues by segment and changes in contract liabilities and accounts receivable Net Revenues by Segment (in thousands) | Segment | Thirteen Weeks Ended Aug 3, 2024 | Thirteen Weeks Ended July 29, 2023 | | :---------------- | :------------------------------- | :-------------------------------- | | VB Direct | $72,241 | $85,702 | | VB Indirect | $21,762 | $17,363 | | Pura Vida | $16,819 | $25,107 | | Total | $110,822 | $128,172 | | Segment | Twenty-Six Weeks Ended Aug 3, 2024 | Twenty-Six Weeks Ended July 29, 2023 | | :---------------- | :------------------------------- | :-------------------------------- | | VB Direct | $128,665 | $144,607 | | VB Indirect | $33,286 | $32,736 | | Pura Vida | $29,474 | $45,191 | | Total | $191,425 | $222,534 | - For the thirteen weeks, VB Direct and Pura Vida net revenues decreased by 15.7% and 33.0% respectively, while VB Indirect increased by 25.3% due to a significant liquidation order[31][33][99][100] - Contract liabilities decreased from $2.6 million to $2.0 million, while accounts receivable, net, increased from $16.4 million to $24.5 million[37] 3. Leases Outlines lease obligations, weighted-average discount rates, and total net lease costs - The weighted-average discount rate for leases increased slightly to 4.9% as of August 3, 2024, from 4.7% in the prior year[40] - The company has six executed leases not yet commenced, totaling approximately $5.9 million in undiscounted payments over a 5-year term, starting in fiscal year 2025[41] Total Net Lease Cost (in thousands) | Period | August 3, 2024 | July 29, 2023 | | :---------------- | :------------- | :------------ | | Thirteen Weeks | $7,488 | $8,031 | | Twenty-Six Weeks | $15,249 | $15,969 | 4. Earnings Per Share Presents basic and diluted earnings per share calculations and related factors Earnings Per Share (EPS) | Period | Basic EPS (Aug 3, 2024) | Basic EPS (July 29, 2023) | Diluted EPS (Aug 3, 2024) | Diluted EPS (July 29, 2023) | | :---------------- | :---------------------- | :------------------------ | :------------------------ | :------------------------ | | Thirteen Weeks | $0.19 | $0.30 | $0.19 | $0.30 | | Twenty-Six Weeks | $(0.08) | $0.15 | $(0.08) | $0.15 | - Diluted EPS decreased by 36.7% for the thirteen weeks and shifted from a positive $0.15 to a negative $(0.08) for the twenty-six weeks[45] - For the twenty-six weeks ended August 3, 2024, all potential common shares were excluded from the diluted share calculation due to the net loss, making them anti-dilutive[45] 5. Fair Value of Financial Instruments Discusses the classification and fair value of financial instruments, including cash equivalents - The company classifies fair value measurements into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[47] - Cash equivalents, primarily money market funds, are considered Level 1 and their carrying value approximates fair value due to short maturity[49] - No long-lived asset or intangible asset impairment charges were recorded for the thirteen and twenty-six weeks ended August 3, 2024, or July 29, 2023, but future impairments are possible if economic conditions deteriorate[50] 6. Debt Details the company's credit agreement, borrowing availability, and associated covenants - The company has a $75.0 million asset-based revolving Credit Agreement, amended on August 3, 2023, maturing in May 2028[51][52] - As of August 3, 2024, and February 3, 2024, there were no borrowings outstanding, with $75.0 million availability under the Credit Agreement[52] - The Credit Agreement includes various affirmative and negative covenants, such as restrictions on debt, liens, and a minimum fixed charge coverage ratio of 1.00 to 1.00 under certain conditions[52] 7. Income Taxes Explains the effective tax rates and the factors influencing them for the reported periods Effective Tax Rate | Period | August 3, 2024 | July 29, 2023 | | :---------------- | :------------- | :------------ | | Thirteen Weeks | (77.5)% | 28.0% | | Twenty-Six Weeks | 68.3% | 29.0% | - The effective tax rate for the thirteen weeks ended August 3, 2024, was (77.5)%, a significant change from 28.0% in the prior year, primarily due to a change in the projection of annual income[53] - The effective tax rate for the twenty-six weeks ended August 3, 2024, was 68.3%, up from 29.0% in the prior year, also mainly due to changes in annual income projection and the impact of non-deductible executive compensation[54] 8. Stock-Based Compensation Reports on restricted stock unit grants, fair values, and unrecognized compensation costs - The company granted 14,612 restricted stock units (RSUs) with an aggregate fair value of $0.1 million during the thirteen weeks ended August 3, 2024, a decrease from 195,617 units ($1.1 million) in the prior year[56] - For the twenty-six weeks, 755,647 RSUs ($5.1 million fair value) were granted in 2024, compared to 738,187 units ($4.3 million) in 2023[56] - As of August 3, 2024, there was $5.8 million of total unrecognized compensation cost related to nonvested RSUs, expected to be recognized over a weighted-average period of 1.9 years[58] 9. Commitments and Contingencies Discloses legal proceedings, specifically a class-action lawsuit, and management's assessment - A class-action lawsuit was filed in August 2024 by Marishka Filio, alleging violations of the California Invasion of Privacy Act and Unfair Competition Law related to purchases from Verabradley.com[59] - Management denies all liability and intends to vigorously defend the case, believing that any potential loss would not have a material adverse effect on the company's financial condition or results of operations[59] 10. Common Stock Details common stock repurchases, remaining authorization, and treasury share holdings - Under the 2021 Share Repurchase Program, the company repurchased 2,321,434 shares for $15.9 million during the twenty-six weeks ended August 3, 2024[60] - As of August 3, 2024, $9.6 million remained available for share repurchases under the program, which expires in December 2024[60] - The company held 14,760,678 treasury shares with an aggregate carrying amount of $151.0 million as of August 3, 2024[60] 11. Cloud Computing Arrangements Explains capitalization and amortization of cloud computing arrangement implementation costs - The company capitalizes implementation costs for Cloud Computing Arrangements (CCA) and amortizes them over the hosting agreement term, recording the expense within SG&A[61] - Unamortized CCA implementation costs totaled $3.0 million as of August 3, 2024, down from $3.8 million on February 3, 2024[61] 12. Redeemable Noncontrolling Interest Describes the acquisition of the remaining interest in Pura Vida and its financial impact - On January 30, 2023, the company acquired the remaining 25% interest in Pura Vida for $10.0 million in cash, resulting in 100% ownership[62][63] - The transaction led to a $10.7 million decrease in redeemable noncontrolling interest and a $1.3 million increase in additional paid-in capital (APIC) during the thirteen weeks ended April 29, 2023[63] 13. Intangible Assets Provides details on definite-lived and indefinite-lived intangible assets and any impairment charges Intangible Assets (in thousands) | Asset Type | August 3, 2024 (Carrying Amount) | February 3, 2024 (Carrying Amount) | | :---------------- | :------------------------------- | :-------------------------------- | | Customer Relationships (Definite-lived) | $0 | $1,336 | | Pura Vida Brand (Indefinite-lived) | $6,237 | $6,237 | | Total Intangible Assets | $6,237 | $7,573 | - Customer Relationships, a definite-lived intangible asset from the Pura Vida acquisition, is now fully amortized as of August 3, 2024[67] - An impairment charge of $5.4 million was recorded for the Pura Vida Brand during the fourth quarter of fiscal 2024[68] 14. Cost Savings Initiatives and Other Charges Outlines cost savings initiatives, severance charges, and remaining liabilities - The company initiated cost savings initiatives in fiscal 2023, expected to be fully realized in fiscal 2025, targeting efficiencies across retail, marketing, IT, professional services, logistics, and corporate payroll[69] Severance Charges (in thousands) | Period | August 3, 2024 | July 29, 2023 | | :---------------- | :------------- | :------------ | | Thirteen Weeks | $353 | $79 | | Twenty-Six Weeks | $789 | $2,068 | - The remaining severance liability as of August 3, 2024, was $58 thousand, significantly reduced from $541 thousand at February 3, 2024[72] 15. Segment Reporting Presents detailed financial performance, including net revenues and operating income, by reportable segment Segment Net Revenues (in thousands) | Segment | Thirteen Weeks Ended Aug 3, 2024 | Thirteen Weeks Ended July 29, 2023 | | :---------------- | :------------------------------- | :-------------------------------- | | VB Direct | $72,241 | $85,702 | | VB Indirect | $21,762 | $17,363 | | Pura Vida | $16,819 | $25,107 | | Total | $110,822 | $128,172 | | Segment | Twenty-Six Weeks Ended Aug 3, 2024 | Twenty-Six Weeks Ended July 29, 2023 | | :---------------- | :------------------------------- | :-------------------------------- | | VB Direct | $128,665 | $144,607 | | VB Indirect | $33,286 | $32,736 | | Pura Vida | $29,474 | $45,191 | | Total | $191,425 | $222,534 | Segment Operating Income (Loss) (in thousands) | Segment | Thirteen Weeks Ended Aug 3, 2024 | Thirteen Weeks Ended July 29, 2023 | | :---------------- | :------------------------------- | :-------------------------------- | | VB Direct | $13,433 | $20,621 | | VB Indirect | $4,743 | $6,204 | | Pura Vida | $89 | $4,000 | | Total Segment Operating Income | $18,265 | $30,825 | | Segment | Twenty-Six Weeks Ended Aug 3, 2024 | Twenty-Six Weeks Ended July 29, 2023 | | :---------------- | :------------------------------- | :-------------------------------- | | VB Direct | $17,426 | $27,961 | | VB Indirect | $8,569 | $10,910 | | Pura Vida | $(1,112) | $5,562 | | Total Segment Operating Income | $24,883 | $44,433 | - VB Direct comparable sales decreased 11.2% for the thirteen weeks and 10.5% for the twenty-six weeks, primarily due to reduced traffic and lower average transaction size[97][99][110] - Pura Vida's operating income significantly declined by 97.8% for the thirteen weeks and shifted to a loss for the twenty-six weeks, primarily due to SG&A expense deleverage associated with decreased e-commerce and wholesale revenues[80][106][119] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, condition, liquidity, and cash flows for the thirteen and twenty-six weeks ended August 3, 2024. It highlights strategic initiatives like Project Restoration, the impact of macroeconomic factors, and detailed analysis of revenue, gross profit, SG&A, and operating results by segment Strategic Progress, Macroeconomic Factors, and Other Factors Impacting our Financial Condition and Results of Operations Discusses strategic initiatives, macroeconomic challenges, and their impact on the company's financial performance - The company launched customer-facing stages of 'Project Restoration' in July fiscal 2025, focusing on new products, store remodels, website redesigns, and marketing to drive long-term profitable growth[83] - Ongoing cost reduction initiatives are targeting efficiencies across retail, marketing, IT, professional services, logistics, and corporate payroll[84] - Macroeconomic challenges, including higher tariffs due to GSP expiration and inflationary pressures, continue to impact consumer discretionary spending and business performance, particularly in Vera Bradley outlet and full-line stores[84] How We Assess the Performance of Our Business Explains the key performance indicators used to evaluate business performance, including comparable sales and gross profit - Key performance indicators include Net Revenues, Comparable Sales, Gross Profit, Selling, General, and Administrative Expenses (SG&A), Operating Income (Loss), Net Income (Loss), and Impairment Charges[85][86][87][89][90][91][92][93] - Comparable sales are calculated for stores open at least 12 full fiscal months and Vera Bradley e-commerce operations, with various factors affecting them including economic trends, consumer preferences, pricing, and promotional efforts[87][88] - Gross profit is influenced by sales volume, pricing, freight costs, operational efficiencies, promotional activities, commodity prices, tariffs, and labor costs[89] Results of Operations Analyzes the company's net revenues, gross profit, SG&A expenses, and operating income (loss) for the periods Key Financial Highlights (Thirteen Weeks Ended Aug 3, 2024 vs. July 29, 2023) | Metric | Aug 3, 2024 | July 29, 2023 | Change | | :-------------------------------- | :---------- | :------------ | :----- | | Net Revenues | $110.8M | $128.2M | -13.5% | | Gross Profit | $56.4M | $72.0M | -21.7% | | SG&A Expenses | $53.6M | $59.4M | -9.7% | | Operating Income | $2.9M | $12.9M | -77.7% | | Net Income | $5.7M | $9.3M | -38.4% | Key Financial Highlights (Twenty-Six Weeks Ended Aug 3, 2024 vs. July 29, 2023) | Metric | Aug 3, 2024 | July 29, 2023 | Change | | :-------------------------------- | :---------- | :------------ | :----- | | Net Revenues | $191.4M | $222.5M | -14.0% | | Gross Profit | $98.3M | $123.8M | -20.6% | | SG&A Expenses | $107.4M | $117.9M | -8.9% | | Operating Income (Loss) | $(8.6)M | $6.5M | -232.0% | | Net Income (Loss) | $(2.4)M | $4.6M | -152.8% | - Gross margin percentage decreased for both periods due to increased liquidation sales in the Indirect segment and promotional activity in the Direct segment, as well as one-time vendor charges for the twenty-six weeks[101][113] - SG&A expenses decreased primarily due to reductions in employee-related costs and other cost reduction initiatives, partially offset by increased advertising spend for Project Restoration[102][114] Liquidity and Capital Resources Examines the company's sources of liquidity, cash flow activities, and ability to meet financial obligations - Primary liquidity sources include cash on hand, cash equivalents, cash flow from operations, and a $75.0 million asset-based revolving credit agreement, with no outstanding debt as of August 3, 2024[124] - Net cash from operating activities shifted from a $16.0 million inflow in the prior year to a $13.2 million outflow in the current twenty-six-week period, driven by a net loss[127] - Net cash used in financing activities significantly increased to $16.4 million, primarily due to $15.9 million in common stock repurchases[129] - Management believes current liquidity and available credit will be sufficient to meet working capital, capital expenditures, and strategic needs for the foreseeable future[125] Critical Accounting Policies and Estimates Confirms no significant changes to critical accounting policies and estimates from the prior annual report - There were no significant changes to the critical accounting policies and estimates previously disclosed in the Annual Report on Form 10-K for the fiscal year ended February 3, 2024[135] Recently Issued Accounting Pronouncements States that no new accounting pronouncements had a significant impact on the financial statements - No new accounting pronouncements issued or effective during the thirteen and twenty-six weeks ended August 3, 2024, had, or are expected to have, a significant impact on the company's financial statements[29][136] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section confirms that there have been no material changes to the market risks previously identified and discussed in the Company's Annual Report on Form 10-K - As of August 3, 2024, there were no material changes in the market risks described in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2024[138] ITEM 4. CONTROLS AND PROCEDURES This section reports on the effectiveness of the Company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the most recent fiscal quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of August 3, 2024[139] - There has been no change in the internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting[139] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section provides an update on legal proceedings, specifically a class-action lawsuit filed in August 2024, and reiterates management's assessment of its potential impact - A class-action lawsuit was filed in August 2024 by Marishka Filio, alleging violations of the California Invasion of Privacy Act and Unfair Competition Law related to purchases from Verabradley.com[141] - The company denies all liability and intends to vigorously defend itself, believing that any potential loss would not have a material adverse effect on its financial condition or results of operations[141] ITEM 1A. RISK FACTORS This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - 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 February 3, 2024[142] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the Company's share repurchase activity under the 2021 Share Repurchase Program during the thirteen weeks ended August 3, 2024 - The 2021 Share Repurchase Program, authorizing up to $50.0 million for common stock repurchases, remains active and expires in December 2024[144] Share Repurchase Activity (Thirteen Weeks Ended August 3, 2024) | Period | Total Shares Purchased | Average Price Per Share | | :-------------------------------- | :--------------------- | :---------------------- | | May 5, 2024 - June 1, 2024 | 522,011 | $7.64 | | June 2, 2024 - July 6, 2024 | 510,625 | $6.67 | | July 7, 2024 - August 3, 2024 | 329,612 | $6.51 | | Total | 1,362,248 | $6.94 (approx. weighted avg.) | - As of August 3, 2024, approximately $9.6 million remained available for repurchases under the program[144] ITEM 5. OTHER INFORMATION This section reports on securities trading plans of directors and executive officers, noting no new or terminated Rule 10b5-1 plans during the period - None of the Company's directors or executive officers adopted or terminated any Rule 10b5-1(c) trading plans or non-Rule 10b5-1 trading arrangements during the thirteen weeks ended August 3, 2024[145] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Exhibits include CEO Section 302 Certification (31.1), CFO Section 302 Certification (31.2), Section 906 Certifications (32.1), and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[146] SIGNATURE This is the official signature page for the Quarterly Report on Form 10-Q, confirming its submission - The report was signed on September 11, 2024, by Michael Schwindle, Chief Financial Officer of Vera Bradley, Inc[148]