Additional Corporate Reorganization and Cost Reduction Plans

Showing Progress; Reports 4QFY2023 Results

Streamlined Leadership

Results Top Estimates; Environment Remains Challenging

Joe Gomes

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Consumer Cyclical

Manufacturing - Apparel & Accessories

Vera Bradley Inc.

Third Quarter Fiscal 2023 Operating Results
Vera Bradley reported results for the fiscal third quarter ended October 29, 2022 that exceeded expectations, with revenue modestly above management&#8217;s expectation and the first year-over-year EPS increase in six quarters, largely driven by implementation of targeted expense reductions.&nbsp;
Nonetheless, the Company continues to&nbsp;see bifurcation in the spending of the customer base. At Vera Bradley, Direct Full-Price Channel comparable revenues were down 7.6% year-over-year. Inflationary pressures continued to negatively affect the purchases of customers with lower household incomes as well as traffic and spending in the Vera Bradley factory stores. The Vera Bradley Indirect Channel experienced its third consecutive quarter of year-over-year growth. Pura Vidaâ€™s e-commerce revenues continued to be affected by the shift in social and digital media effectiveness and escalating digital media costs.
In the fiscal third quarter, consolidated net revenues totaled $124.0 million, compared to $134.7 million in the prior year third quarter. We had projected consolidated revenue of $120 million. Vera Bradley Direct segment revenues totaled $80.1 million, a 7.6% decrease from $86.6 million last year. Comparable sales declined 9.6% in the third quarter. We would note Direct segment revenue was off 10.1% with comp sales down 13.8% in the fiscal second quarter of 2023. The Company permanently closed 12 full-line stores and opened five factory outlet stores in the last twelve months. At the end of the quarter, the Company operated 60 full-line stores and 80 factory outlets. Vera Bradley Indirect segment revenues totaled $22.3 million, a 6.7% increase over $20.9 million in the prior year third quarter. Pura Vida segment revenues totaled $21.7 million, a 20.3% decrease from $27.2 million last year.&nbsp;
Logistics costs, deleveraging of overhead costs, and channel mix changes all impacted gross margin in the quarter. Third quarter consolidated gross profit totaled $65.6 million, or 53.1% of net revenues, compared to $72.3 million, or 53.6% of net revenues, in the prior year. On a non-GAAP basis, current year gross profit totaled $65.6 million, or 53.1% of net revenues.
Third quarter consolidated SG&amp;A expense totaled $60.1 million, or 48.4% of net revenues, compared to $64.5 million, or 47.8% of net revenues, in the prior year. On a non-GAAP basis, consolidated SG&amp;A expense totaled $57.6 million, or 46.4% of net revenues, for the current year third quarter, compared to $63.7 million, or 47.3% of net revenues, in the prior year. As expected, Vera Bradleyâ€™s non-GAAP SG&amp;A current year expenses were lower than the prior year primarily due to cost reduction initiatives and a reduction in variable-related expenses due to the lower sales volume.
The Companyâ€™s third quarter consolidated operating income totaled $6.0 million, or 4.8% of net revenues, compared to consolidated operating income of $8.0 million, or 5.9% of net revenues, in the prior year third quarter. On a non-GAAP basis, the Companyâ€™s current year consolidated operating income totaled $8.2 million, or 6.6% of net revenues, compared to $8.7 million, or 6.5% of net revenues, in the prior year.
On a segment basis, Vera Bradley Direct operating income was $17.1 million, or 21.3% of Direct net revenues, for the third quarter, compared to $17.8 million, or 20.6% of Direct net revenues, in the prior year. On a non-GAAP basis, current year Direct operating income totaled $16.8 million, or 21% of Direct revenues.
 Vera Bradley Indirect operating income was $9 million, or 40.4% of Indirect net revenues, compared to $7.3 million, or 35.1% of Indirect net revenues, in the prior year. On a non-GAAP basis, current year Indirect operating income totaled $9 million, or 40.2% of Indirect net revenues. Pura Vidaâ€™s operating loss was $1.4 million, or 6.2% of Pura Vida net revenues, in the current year, compared to operating income of $1.8 million, or 6.6% of Pura Vida net revenues, in the prior year. On a non-GAAP basis, Pura Vidaâ€™s operating loss was $0.1 million, or 0.3% of Pura Vida net revenues, compared to operating income of $2.6 million, or 9.4% of Pura Vida net revenues, in the prior year.
In the third quarter, Vera Bradley, Inc.â€™s consolidated net income totaled $5.2 million, or $0.17 per diluted share for the current fiscal third quarter. These results included $1.1 million of net after tax charges. We had estimated net income of $3.6 million, or $0.11 per share. On a non-GAAP basis, Vera Bradley, Inc.â€™s consolidated third quarter net income totaled $6.3 million, or $0.20 per diluted share. For the prior year third quarter, Vera Bradley, Inc.â€™s consolidated net income totaled $5.8 million, or $0.17 per diluted share. These results included $0.4 million of net after tax charges related to intangible asset amortization. On a non-GAAP basis, Vera Bradley, Inc.â€™s consolidated third quarter net income last year totaled $6.2 million, or $0.18 per diluted share.&nbsp;
New CEO
New CEO&nbsp;Jacqueline Ardrey assumed the reins of Vera Bradley effective November 1, 2022. On the conference call, Ms. Ardrey expressed her conviction on Vera Bradley&#8217;s iconic brands, high brand recognition, multigenerational customer base, and untapped potential in the marketplace. While it is early, Ms. Ardrey has spent the past month meeting with senior executives and visiting stores. Given her background in omnichannel retailing, we anticipate a focus on a further rollout of the existing omnichannel movement for both the Vera Bradley and Pura Vida brands as well as a focus on leveraging opportunities in merchandising and marketing. We expect Ms. Ardrey to provide a more complete game plan for the turnaround of Vera Bradley on the fiscal fourth quarter call.&nbsp;
Pura Vida Brick &amp; Mortar 
 
During the fiscal third quarter, Vera Bradley opened two new Pura Vida stores, one in Phoenix and one in Myrtle Beach, South Carolina. Both locations are exceeding expectations and all four of the Pura Vida retail locations are profitable and are driving increased e-commerce traffic and revenue in their respective trade areas. The stores are playing a key role in driving new customer acquisition as Vera Bradley continues to diversify its marketing platforms, and they demonstrate the power a retail presence has in driving digital sales, omnichannel loyalty, and spending.
Looking forward, we expect management to watch closely the comp performance of the San Diego store as it has now reached an anniversary. Assuming the comps remain favorable, we would anticipate additional new brick and mortar locations for fiscal 2024 and beyond.&nbsp;
Liquidity and Cash Flows 
 
Cash, cash equivalents, and investments as of October 29, 2022 totaled $25.2 million, down from $38.3 million at the end of the fiscal second quarter and compared to $75.3 million at the end of last yearâ€™s third quarter. The Company had no borrowings on its $75 million ABL credit facility at quarter end.
Total quarter-end inventory remained elevated at $178.3 million, flat with the $179.6 million of inventory reported at the end of the fiscal second quarter and compared to $148.3 million at the end of the third quarter of fiscal 2022. Current year inventory was higher than the prior year primarily due to approximately $17 million of incremental logistics costs, as well as incremental Vera Bradley factory inventory due to lower than anticipated revenue.
During the fiscal third quarter, Vera Bradley used $9.6 million of cash from operations, bringing the nine month use of cash to $36.8 million. Capital expenditures in the fiscal third quarter totaled $2.6 million and $7.0 million in the first nine months of fiscal 2023. For the remainder of the year, we anticipate $3 million of additional capital spending. 
 
Although cash levels have declined year-over-year, we believe fiscal 2024 could see stronger cash flows, assuming improvements in the overall economy as the elevated inventory levels are worked down to a more normalized level.
Share Repurchases
During the fiscal third quarter, the Company repurchased approximately $0.6 million of its common stock (approximately 0.2 million shares at an average price of $3.56), bringing year-to-date purchases through the end of the fiscal third quarter to approximately $17.3 million (approximately 2.6 million shares at an average price of $6.56). The Company has $28.5 million of remaining availability under its $50.0 million repurchase authorization that expires in December 2024. We anticipate the level of share repurchases to remain modest as the Company takes a more conservative stance on cash given the current economic environment.
Updated Projections 
 
We expect the challenging macroeconomic environment to continue for the balance of the year and anticipate it will take additional time to return the Pura Vida e-commerce business to growth. Inflationary pressures will continue to impact the Vera Bradley factory channel, and there will be continued pressure on gross margin partly due to increased promotional activity.
For the fiscal fourth quarter, we are projecting revenue of $138 million, level with our prior estimate. Our net income projection is $4.6 million, or $0.15 per share, compared to a prior $7.7 million, or $0.24 per share. The decline in our projected net income reflects the continued difficult operating environment and reduced gross margin expectations, somewhat offset by savings from the cost reduction plan. In the fourth quarter of fiscal 2022, the Company reported revenue of $149.6 million and net income of $5.2 million, or $0.15 per share on a GAAP basis and $0.17 per share on an adjusted basis. For the full year, on a reported basis, we are projecting revenue of $490.9 million and a net loss of $27 million, or a loss of $0.85 per share. On a non-GAAP basis, we estimate EPS of $0.24 per share. Previously, we were at revenue of $486.8 million and a net loss of $25.4 million, or $0.80 per share, and non-GAAP EPS of $0.24.

Vera Bradley Inc. (VRA)

Results Top Estimates; Environment Remains Challenging

Fundamental Analysis:

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Additional Corporate Reorganization and Cost Reduction Plans (VRA)

Showing Progress; Reports 4QFY2023 Results (VRA)

Streamlined Leadership (VRA)

Results Top Estimates; Environment Remains Challenging (VRA)

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