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

Summary of Financial Performance

Net revenues totaled $105.2 million for the current year first quarter ended April 30, 2016, compared to $101.1 million in the prior year first quarter ended May 2, 2015, an increase of 4.0%. 

For the current year first quarter, the Company posted net income of $2.4 million, or $0.06 per diluted share.  For the prior year first quarter, the Company posted a net loss of $4.1 million, or $0.10 per diluted share.  Those results included net after-tax charges of $4.2 million comprised of:

  • $2.1 million related to the planned closing of its Indiana manufacturing facility, primarily related to 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 $0.1 million, or $0.00 per diluted share, in the prior year first quarter. 

Comments on the Quarter and Looking Ahead

Robert Wallstrom, Chief Executive Officer, noted, “Our year-over-year improvement in diluted EPS was primarily related to our 220 basis point gross profit expansion, largely driven by sourcing and operational efficiencies and an increased sales penetration of higher-margin made-for-outlet (MFO) products.

“First quarter diluted EPS was at the high end of our guidance, primarily due to diligent expense management and a lower than planned tax rate.  We achieved this EPS despite revenues at the low end of our guidance range, a reflection of a more challenging retail environment.” 

Wallstrom added, “We are beginning the third year of our multi-year turnaround.  Our team is committed to executing our long-term strategic plan, focusing on the core areas of product, distribution, and marketing, and we are encouraged by our progress to return the business to sustainable growth.”

“Our three main objectives for fiscal 2017 are to complete our brand transformation, to drive core growth, and to begin to explore additional licensing and international growth opportunities,” Wallstrom concluded.  “Our exciting new brand positioning will be launched in September, and we believe this will lay the foundation for comparable sales growth in the second half of this year as we introduce our fall product assortment; launch our comprehensive fall creative campaign; open our SoHo flagship store; begin to update key full-line stores, incorporating our new logo and modern visual package; and launch our new digital flagship, verabradley.com.  We remain energized and excited about the future of Vera Bradley.” 

First Quarter 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.

Current year first quarter net revenues of $105.2 million were at the low end of the Company’s guidance of $105 million to $109 million.  Prior year first quarter revenues totaled $101.1 million.

Current year first quarter Direct segment revenues totaled $72.9 million, a 3.6% increase from $70.4 million in the prior year first quarter.  Comparable sales (including e-commerce) decreased 6.7% for the quarter (reflecting a 3.8% decline in comparable store sales and an 11.0% decrease in e-commerce sales), which was more than offset by new store growth (the Company opened 11 full-line and 7 factory outlet stores during the past 12 months).  First quarter comparable sales were negatively impacted by year-over-year declines in store and e-commerce traffic.  E-commerce sales were also negatively impacted by modestly lower levels of promotional activity.      

Indirect segment revenues increased 5.1% to $32.2 million from $30.7 million in the prior year first quarter, primarily due to higher than expected sales to certain non-department store key accounts and to the timing of a product launch in the specialty channel (moving from the second quarter last year to the first quarter this year) which positively impacted current year first quarter revenues, partially offset by lower orders from the Company’s specialty retail accounts.  

Gross profit for the quarter totaled $59.7 million, or 56.7% of net revenues, compared to $55.1 million, or 54.5% of net revenues, in the prior year first quarter.  The year-over-year 220 basis point gross profit percentage improvement primarily related to sourcing efficiencies (leveraged overhead costs resulting from the closing of the Company’s domestic manufacturing combined with lower product sourcing costs), operational efficiencies, and increased sales penetration of higher-margin MFO products.  The gross profit percentage was at the low end of the guidance range of 56.7% to 57.2%, primarily due to modestly increased promotional activity at the Company’s factory stores and higher-than-expected sales to certain lower-margin key accounts.  

SG&A expense totaled $56.4 million, or 53.6% of net revenues, in the current year first quarter, compared to $55.1 million, or 54.5% of net revenues, in the prior year first quarter.  As expected, SG&A dollars increased over the prior year primarily due to new store expenses.  The SG&A expense rate was at the low end of the Company’s guidance of 53.5% to 54.8% due to diligent expense management.       

The effective income tax rate was 36.5%, lower than guidance of 45.7%, primarily related to the tax treatment of restricted stock vesting. 

Operating income totaled $3.9 million, or 3.7% of net revenues, in the current year first quarter, compared to $0.9 million, or 0.9% of net revenues, in the prior year first quarter.  By segment, Direct operating income was $12.1 million, or 16.6% of sales, compared to $11.5 million, or 16.3% of sales (which excluded $3.5 million of the aforementioned charges), in the prior year, and Indirect operating income was $12.6 million, or 39.1% of sales, compared to $11.1 million, or 36.0% of sales (which excluded $1.1 million of the aforementioned charges), in the prior year.

Cash and cash equivalents and short-term investments as of April 30, 2016 totaled $81.8 million compared to $96.6 at the end of last year’s first quarter.  The Company had no debt outstanding at quarter end.  Quarter-end inventory was $113.4, slightly below guidance of $114 million to $119 million and compared to $101.8 million at the end of last year’s first quarter.  Net capital spending for the quarter totaled $5.6 million.

During the first quarter, the Company repurchased approximately $5.7 million shares of its common stock under its $50 million share repurchase plan (equating to approximately 354,000 shares at an average price of $16.05).  This brings the total repurchases under the $50 million plan to approximately $9.8 million (equating to approximately 637,000 shares at an average price of $15.42).

Second Quarter and Fiscal Year 2017 Outlook

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

  • Net revenues of $118 million to $123 million compared to prior year second quarter revenues of $120.7 million. 
  • A gross profit percentage of 58.0% to 58.5% compared to 55.1% in the prior year second quarter.  The planned improvement reflects sourcing efficiencies and increased sales penetration of higher-margin MFO products.
  • SG&A as a percentage of net revenues of 51.3% to 51.8% (which includes approximately $1.0 million of year-over-year incremental severance charges) compared to 47.5% in the prior year second quarter. 
  • Diluted earnings per share of $0.13 to $0.15, based on diluted weighted-average shares outstanding of 37.1 million and an effective tax rate of 37.9%.  Diluted earnings per share totaled $0.15 in the prior year second quarter.
  • Inventory of $105 million to $110 million at the end of the second quarter, compared to $103.9 million at the end of last year’s second quarter.

Prior year full-year numbers referenced below exclude the aforementioned charges.

For fiscal 2017, the Company expectations are as follows: 

  • Net revenues of $510 million to $520 million compared to $502.6 million last year. 
  • A gross profit percentage of 57.7% to 58.2% compared to 56.6% last year.  The planned improvement reflects sourcing 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, e-commerce, severance, and incentive compensation. 
  • Diluted earnings per share of $0.90 to $0.98, based on diluted weighted-average shares outstanding of 36.9 million and an effective tax rate of 38.3%.  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.