OREANDA-NEWS.  Vera Bradley, Inc. (Nasdaq:VRA) (“Vera Bradley” or the “Company”) today announced its financial results for the fiscal second quarter and six months ended July 30, 2016.

Summary of Financial Performance for the Second Quarter

Net revenues totaled $119.2 million for the second quarter ended July 30, 2016 compared to $120.7 million for the second quarter ended August 1, 2015. 

The Company posted net income of $5.1 million, or $0.14 per diluted share, for the current year second quarter, which included after-tax store impairment charges of $1.0 million, or $0.03 per diluted share.  Net income totaled $5.7 million, or $0.15 per diluted share, in the prior year second quarter. 

Summary of Financial Performance for the Six Months

Net revenues totaled $224.4 million for the six months ended July 30, 2016 compared to $221.8 million for the six months ended August 1, 2015, an increase of 1.2%. 

For the current year six month period, the Company posted net income of $7.5 million, or $0.20 per diluted share, which included the aforementioned after-tax store impairment charges of $1.0 million, or $0.03 per diluted share.    

For the prior year six month period, the Company posted net income of $1.6 million, or $0.04 per diluted share.  Those results included net after-tax charges of $4.2 million comprised of: 

  • $2.1 million related to the closing of its Indiana manufacturing facility, primarily severance and lease termination charges;  
  • $1.5 million related to other severance and restructuring charges; and
  • $0.6 million related to an income tax adjustment for an increase in income tax reserves for uncertain federal and state tax positions related to research and development tax credits.

Excluding these charges, the Company’s net income totaled $5.8 million, or $0.15 per diluted share, for the prior year six months. 

Comments on the Quarter and Looking Ahead

Robert Wallstrom, Chief Executive Officer, noted, “Second quarter diluted EPS of $0.14 was within our guidance range and ahead of consensus.

“Although the overall retail environment certainly remains challenging, we are pleased that we achieved total revenues within our guidance range.  We are also pleased with our 230 basis point gross profit expansion, primarily related to sourcing and operational efficiencies.” 

“The third fiscal quarter will be an exciting and important one for our Company and our brand,” Wallstrom continued.  “We are beginning the launch of Vera Bradley’s new brand positioning which we believe will lay the foundation for positive comparable sales growth by the end of the fiscal year.  Our comprehensive marketing initiatives, new SoHo flagship store, refreshes of key full-line stores, and launch of our new verabradley.com digital flagship will all be drivers of our growth.” 

Second Quarter Details

Current year second quarter net revenues totaled $119.2 million, within the Company’s guidance of $118 million to $123 million.  Prior year second quarter revenues totaled $120.7 million.

Current year second quarter Direct segment revenues totaled $87.2 million, a 4.1% increase over $83.8 million in the prior year second quarter.  Comparable sales (including e-commerce) decreased 5.7% for the quarter (reflecting a 5.9% decline in comparable store sales and a 5.4% decrease in e-commerce sales), which was more than offset by new store growth (the Company opened 6 full-line and 7 factory outlet stores during the past 12 months).  Second quarter comparable sales were negatively impacted by year-over-year declines in store and e-commerce traffic. 

Indirect segment revenues decreased 13.4% to $32.0 million from $36.9 million in the prior year second quarter, primarily due to lower orders from the Company’s specialty retail accounts and the timing of a product launch in the specialty channel (moving from the second quarter last year to the first quarter this year) which negatively impacted current year second quarter revenues, partially offset by higher-than-expected sales to certain non-department store key accounts.  
     
Gross profit for the quarter totaled $68.4 million, or 57.4% of net revenues, compared to $66.6 million, or 55.1% of net revenues, in the prior year second quarter.  The year-over-year 230 basis point gross profit percentage improvement primarily related to sourcing efficiencies (leveraged overhead costs resulting from the closing of the Company’s domestic manufacturing) and various operational efficiencies.  The gross profit percentage was below the low end of the guidance range of 58.0% to 58.5%, primarily due to fabrication/product mix and modestly increased promotional activity at the Company’s factory stores.     

SG&A expense totaled $60.3 million, or 50.6% of net revenues, in the current year second quarter, compared to $57.4 million, or 47.5% of net revenues, in the prior year second quarter.  As expected, SG&A dollars increased over the prior year primarily due to new store expenses and approximately $1.0 million in additional severance charges.  In addition, the Company incurred approximately $1.6 million of pre-tax store impairment charges in the quarter.  Despite the store impairment charges, the SG&A expense rate was below the Company’s guidance of 51.3% to 51.8% due to continued diligent expense management.      

Operating income totaled $8.3 million, or 7.0% of net revenues, in the current year second quarter, compared to $9.5 million, or 7.9% of net revenues, in the prior year second quarter.  By segment, Direct operating income was $18.1 million, or 20.8% of sales, compared to $16.6 million, or 19.8% of sales, in the prior year, and Indirect operating income was $12.0 million, or 37.5% of sales, compared to $14.8 million, or 40.0% of sales, in the prior year.

Year-to-Date Details

Prior year income statement numbers referenced below exclude the previously outlined charges related to the Company’s manufacturing facility closing, other severance and restructuring costs, and the income tax adjustment.

Net revenues for the current year six months totaled $224.4 million, a 1.2% increase over $221.8 million last year.

Direct segment revenues for the current year six month period totaled $160.2 million, a 3.9% increase over $154.2 million in the same prior year period.  Comparable sales (including e-commerce) decreased 6.1% for the period (reflecting a 5.1% decline in comparable store sales and an 8.1% decrease in e-commerce sales), which was more than offset by new store growth (the Company opened 6 full-line and 7 factory outlet stores during the past 12 months).  Comparable sales were negatively impacted by year-over-year declines in store and e-commerce traffic.  E-commerce and full-line store sales were also negatively impacted by lower levels of promotional activity.

Indirect segment revenues decreased 5.0% to $64.2 from $67.6 million in the prior year, primarily due to lower orders from the Company’s specialty retail accounts, partially offset by higher than expected sales to certain non-department store key accounts. 

Gross profit for the six months totaled $128.0 million, or 57.1% of net revenues, compared to $121.7 million, or 54.9% of net revenues, in the prior year.  The year-over-year 220 basis point gross profit percentage improvement primarily related to sourcing and operational efficiencies and increased sales penetration of higher-margin made-for-outlet (MFO) products, partially offset by fabric/product mix and increased promotional activity at the Company’s factory stores.

SG&A expense totaled $116.7 million, or 52.0% of net revenues, compared to $112.5 million, or 50.7% of net revenues, in the prior year.  As expected, SG&A dollars increased over the prior year primarily due to new store expenses and approximately $1.0 million in additional severance charges.  In addition, the Company incurred approximately $1.6 million of store impairment charges in the second quarter.

Operating income totaled $12.2 million, or 5.4% of net revenues, for the current year six months, compared to $10.4 million, or 4.7% of net revenues, for the same period last year.  By segment, Direct operating income was $30.3 million, or 18.9% of sales, compared to $28.1 million, or 18.2% of sales (which excluded $3.5 million of the aforementioned charges), in the prior year, and Indirect operating income was $24.6 million, or 38.3% of sales, compared to $25.8 million, or 38.2% of sales (which excluded $1.1 million of the aforementioned charges), in the prior year.

Balance Sheet Details

Cash and cash equivalents and short-term investments as of July 30, 2016 totaled $85.5 million compared to $76.0 million at the end of last year’s second quarter.  The Company had no debt outstanding at quarter end.  Quarter-end inventory was $96.5 million, compared to $103.9 million at the end of last year’s second quarter and below guidance of $105 million to $110 million due to timing of receipts and diligent inventory management.

Net capital spending for the second quarter and six months totaled $6.1 million and $11.7 million, respectively.

During the second quarter, the Company repurchased approximately $10.0 million of its common stock under its $50 million share repurchase plan (approximately 638,000 shares at an average price of $15.67).  This brings year-to-date repurchases under the $50 million plan to approximately $15.7 million (approximately 992,000 shares at an average price of $15.81) and plan-to-date repurchases to approximately $19.8 million (approximately 1,275,000 shares at an average price of $15.55).

Third Quarter and Fiscal Year 2017 Outlook

For the third quarter of fiscal 2017, the Company expects:

  • Net revenues of $128 million to $133 million compared to prior year third quarter revenues of $126.7 million. 
  • A gross profit percentage of 58.0% to 58.5% compared to 57.9% in the prior year third quarter.  The modest planned improvement reflects sourcing and operational efficiencies.
  • SG&A as a percentage of net revenues of 47.6% to 48.6% compared to 45.0% in the prior year third quarter.  Third quarter SG&A will include approximately $3.0 million of incremental year-over-year expenses related to marketing, store renovations, and e-commerce.
  • Diluted earnings per share of $0.22 to $0.24, based on diluted weighted-average shares outstanding of 36.6 million and an effective tax rate of 38.1%.  Diluted earnings per share totaled $0.27 in the prior year third quarter.
  • Inventory of $95 million to $100 million at the end of the third quarter, compared to $118.2 million at the end of last year’s third quarter.     

Prior year full-year numbers referenced below exclude the aforementioned charges related to the Company’s manufacturing facility closing, other severance and restructuring costs, and the income tax adjustment.

For fiscal 2017, the Company expectations are as follows: 

  • Net revenues of $510 million to $515 million compared to $502.6 million last year. 
  • A gross profit percentage of 57.3% to 57.5% compared to 56.6% last year.  The planned improvement reflects sourcing and operational efficiencies and increased sales penetration of higher-margin MFO products.
  • SG&A as a percentage of net revenues of 47.3% to 47.5% compared to 46.6% last year.  The planned increase is primarily related to incremental expenses related to new stores, store renovations, e-commerce, severance, and second quarter store impairment charges.    
  • Diluted earnings per share (including second quarter impairment charges) of $0.88 to $0.92, based on diluted weighted-average shares outstanding of 36.9 million and an effective tax rate of 37.6%.  Diluted earnings per share totaled $0.82 last year.
  • Net capital spending of approximately $20.0 million compared to $26.3 million in the prior year. 

 

Vera Bradley Safe Harbor Statement

Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements reflect the Company's current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected, including: possible adverse changes in general economic conditions and their impact on consumer confidence and spending; possible inability to predict and respond in a timely manner to changes in consumer demand; possible loss of key management or design associates or inability to attract and retain the talent required for our business; possible inability to maintain and enhance our brand; possible inability to successfully implement our growth strategies or manage our growing business; possible inability to successfully open new stores as planned; adverse changes in the cost of raw materials and labor used to manufacture our products; and possible adverse effects resulting from a significant disruption in our single distribution facility.  More information on potential factors that could affect the Company’s financial results is included from time to time in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended January 30, 2016.  We undertake no obligation to publicly update or revise any forward-looking statement.  Financial schedules are attached to this release.

Vera Bradley, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
           
  July 30,
2016		   January 30,
2016		   August 1,
2015
Assets          
Current assets:          
Cash and cash equivalents $ 55,456     $ 97,681     $ 76,042  
Short-term investments   30,051       -       -  
Accounts receivable, net   29,226       31,294       33,863  
Inventories   96,547       113,590       103,921  
Income taxes receivable   2,014       785       3,199  
Prepaid expenses and other current assets   12,220       10,292       10,620  
Deferred income taxes   -       -       13,473  
Total current assets   225,514       253,642       241,118  
           
Property, plant, and equipment, net   114,792       113,711       115,013  
Deferred income taxes   10,894       11,363       -  
Other assets   2,430       1,963       1,046  
Total assets $ 353,630     $ 380,679     $ 357,177  
           
Liabilities and Shareholders' Equity          
Current liabilities:          
Accounts payable $ 17,283     $ 24,606     $ 28,734  
Accrued employment costs   10,318       14,937       10,264  
Other accrued liabilities   17,803       16,924       15,107  
Income taxes payable   -       10,085       286  
Total current liabilities   45,404       66,552       54,391  
           
Deferred income taxes   -       -       6,163  
Other long-term liabilities   29,719       28,872       29,057  
Total liabilities   75,123       95,424       89,611  
           
Shareholders' equity:          
Additional paid-in-capital   86,848       85,436       83,023  
Retained earnings   251,536       244,009       218,030  
Accumulated other comprehensive loss   (46 )     (43 )     (14 )
Treasury stock   (59,831 )     (44,147 )     (33,473 )
Total shareholders' equity   278,507       285,255       267,566  
Total liabilities and shareholders' equity $ 353,630     $ 380,679     $ 357,177  
 

 

Vera Bradley, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
                 
                 
  Thirteen Weeks Ended     Twenty-Six Weeks Ended
  July 30,
2016		   August 1,
2015		     July 30,
2016		   August 1,
2015
                 
Net revenues $ 119,245     $ 120,724       $ 224,426     $ 221,828  
Cost of sales   50,857       54,170         96,382       103,580  
Gross profit   68,388       66,554         128,044       118,248  
Selling, general, and administrative expenses   60,305       57,351         116,681       114,963  
Other income   220       283         797       1,230  
Operating income   8,303       9,486         12,160       4,515  
Interest expense, net   63       72         111       149  
Income before income taxes   8,240       9,414         12,049       4,366  
Income tax expense   3,131       3,699         4,522       2,787  
Net income $ 5,109     $ 5,715       $ 7,527     $ 1,579  
                 
Basic weighted-average shares outstanding   37,030       39,315         37,288       39,600  
Diluted weighted-average shares outstanding   37,113       39,328         37,419       39,606  
                 
Basic net income per share $ 0.14     $ 0.15       $ 0.20     $ 0.04  
Diluted net income per share $ 0.14     $ 0.15       $ 0.20     $ 0.04  
                                 
Vera Bradley, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
         
         
    Twenty-Six Weeks Ended
    July 30,
2016		   August 1,
2015
Cash flows from operating activities        
Net income   $ 7,527     $ 1,579  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Depreciation of property, plant, and equipment     9,555       9,904  
Impairment charges     1,578       -  
Provision for doubtful accounts     273       436  
Loss on disposal of property, plant, and equipment     10       52  
Stock-based compensation     2,043       2,515  
Deferred income taxes     469       713  
Gain on short-term investment     (51 )     -  
Changes in assets and liabilities:        
Accounts receivable     1,795       (2,925 )
Inventories     17,043       (5,518 )
Prepaid expenses and other assets     (2,395 )     (1,982 )
Accounts payable     (7,632 )     (5,931 )
Income taxes     (11,314 )     295  
Accrued and other liabilities     (3,127 )     (136 )
Net cash provided by (used in) operating activities     15,774       (998 )
         
Cash flows from investing activities        
Purchases of property, plant, and equipment     (11,651 )     (15,359 )
Purchase of short-term investments     (30,000 )     -  
Proceeds from disposal of property, plant, and equipment     8       -  
Net cash used in investing activities     (41,643 )     (15,359 )
         
Cash flows from financing activities        
Tax withholdings for equity compensation     (631 )     (484 )
Repurchase of common stock     (15,695 )     (19,364 )
Other financing activities, net     (27 )     (46 )
Net cash used in financing activities     (16,353 )     (19,894 )
Effect of exchange rate changes on cash and cash equivalents     (3 )     1  
         
Net decrease in cash and cash equivalents   $ (42,225 )   $ (36,250 )
Cash and cash equivalents, beginning of period     97,681       112,292  
Cash and cash equivalents, end of period   $ 55,456     $ 76,042  
         
Supplemental disclosure of cash flow information        
Cash paid for income taxes, net   $ 15,396     $ 960  
Supplemental disclosure of non-cash activity        
Non-cash operating, investing, and financing activities        
Repurchase of common stock        
Expenditures incurred but not yet paid as of July 30, 2016 and August 1, 2015   $ 425     $ 1,268  
Expenditures incurred but not yet paid as of January 30, 2016 and January 31, 2015   $ 436     $ 116  
Purchases of property, plant, and equipment        
Expenditures incurred but not yet paid as of July 30, 2016 and August 1, 2015   $ 3,453     $ 2,779  
Expenditures incurred but not yet paid as of January 30, 2016 and January 31, 2015   $ 2,872     $ 2,172  
         
Vera Bradley, Inc.  
GAAP to Non-GAAP Reconciliation Twenty-Six Weeks Ended August 1, 2015  
(in thousands, except per share amounts)  
(unaudited)  
  Twenty-Six Weeks Ended  
  As Reported   Restructuring Items
& Other Items		   Non-GAAP
(Excluding Items)		  
Gross profit (loss) $ 118,248     $ (3,434 ) 1 $ 121,682    
Selling, general, and administrative expenses   114,963       2,483   2   112,480    
Operating income (loss)   4,515       (5,917 )     10,432    
Income (loss) before income taxes   4,366       (5,917 )     10,283    
Income tax expense (benefit)   2,787       (1,698 ) 3   4,485    
Net income (loss)   1,579       (4,219 )     5,798    
Diluted net income (loss) per share $ 0.04     $ (0.11 )   $ 0.15    
             
Direct segment operating income (loss) $ 24,584     $ (3,470 ) 4 $ 28,054    
Indirect segment operating income (loss) $ 24,692     $ (1,146 ) 5 $ 25,838    
Unallocated corporate expenses $ (44,761 )   $ (1,301 ) 6 $ (43,460 )  
             
1Items include one-time exit costs related to the Company's manufacturing facility closure, including employee severance, a lease termination payment and fixed asset acceleration charges  
2Includes $1,301 for a severance charge and $1,182 related to a lease termination  
3Includes $575 related to an additional income tax reserve and a benefit of $2,273 related to the tax impact of the charges mentioned above  
4Includes an allocation of $2,288 related to the one-time exit costs for the Company's manufacturing facility closure and $1,182 related to a lease termination  
5Related to an allocation of $1,146 for the one-time exit costs for the Company's manufacturing facility closure  
6Related to a severance charge