Vera Bradley, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2013, the 13 weeks ended April 28, 2012. Financial statements are unaudited; comparisons are with the 13 weeks ended April 30, 2011, unless otherwise noted. Vera Bradley designs, markets, and sells women’s accessories through Direct and Indirect channels.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Net revenue | $117.2 million | $101.4 million | +15.6% |
| Gross profit / margin | $65.3 million / 55.7% | $56.4 million / 55.7% | +15.7%; margin unchanged |
| Operating income / margin | $20.8 million / 17.8% | $19.1 million / 18.8% | +9.2%; margin down 1.0 percentage point |
| Net income | $12.6 million | $11.2 million | +12.5% |
| Diluted EPS | $0.31 | $0.28 | +$0.03 |
| Operating cash flow | $30.7 million | $(2.0) million | Improved by $32.7 million |
| Capital expenditures | $11.5 million | $2.7 million | Increased $8.8 million |
Gross margin was stable despite higher cotton and labor costs; favorable channel mix, including growth in full-price stores and e-commerce, offset those pressures. SG&A rose 18.0% to $47.2 million and increased from 39.4% to 40.3% of revenue, primarily due to corporate staffing and store occupancy costs. Net interest expense declined to $0.2 million. The effective tax rate was 38.8%, versus 40.1%.
Segments and operating trends
- Direct: Revenue rose 34.2% to $59.2 million, helped by $9.7 million from new stores, $4.5 million of e-commerce growth, and comparable-store sales growth of 4.3%. The company had 53 full-price and nine outlet stores, compared with 38 and five, respectively, a year earlier.
- Indirect: Revenue increased 1.3% to $58.0 million. Spring and summer assortment strength was partly offset by weaker carryover patterns that affected specialty retailers’ reorders.
- Comparable-store sales growth slowed from 22.1% in the prior-year quarter to 4.3%. Direct segment operating margin declined to 26.0% from 28.0%; Indirect segment operating margin increased to 38.7% from 38.0%.
Cash, debt, and liquidity
Cash was $6.0 million at April 28, 2012, up from $4.9 million at January 28, 2012. Operating cash flow benefited mainly from lower inventory and the timing of income-tax payments; inventory declined to $98.2 million from $107.0 million. Investing used $11.5 million, principally for property and equipment. Financing used $18.0 million, including net repayments under the credit agreement.
Total debt was $7.4 million, down from $25.2 million at fiscal year-end. The company had $117.7 million available under its $125.0 million revolving credit agreement, with borrowings bearing a 1.30% rate at quarter-end. It reported compliance with credit covenants. On June 1, 2012, after quarter-end, the company amended the agreement to extend maturity from October 3, 2015 to June 1, 2017 and revise certain permitted-indebtedness covenants.
Outlook, risks, and other items
- Management expected cash from operations and available credit to fund working capital, planned capital expenditures, and debt payments for the foreseeable future.
- Fiscal 2013 capital expenditures were estimated at approximately $36 million, including approximately $19 million for distribution-center expansion. No earnings or revenue guidance is provided in the filing text.
- Key stated risks include weaker consumer confidence or spending, difficulty anticipating demand and fashion trends, brand or talent challenges, execution of growth and store-opening plans, sustaining comparable-store sales, and higher raw-material or labor costs.
- Management said ordinary-course claims and contingencies were not reasonably expected to have a material adverse effect. The filing reported no material change to previously disclosed risk factors or market risks.
- Disclosure controls were concluded to be effective as of April 28, 2012; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether Direct growth from new stores and e-commerce can continue as the store base expands, and whether comparable-store sales stabilize.
- Whether Indirect demand improves, particularly specialty retailers’ reorders of carryover patterns.
- Whether higher SG&A and store occupancy costs continue to pressure operating margins despite revenue growth.
- Execution, cost, and expected benefits of the distribution-center expansion and the approximately $36 million fiscal 2013 capital-spending plan.
- Credit-agreement terms and covenant compliance following the June 1, 2012 amendment; also assess the quarter’s cash-flow improvement in light of inventory and tax-payment timing.