Vera Bradley, Inc. — Q3 Fiscal 2022 Form 10-Q
Reporting period: Unaudited results for the 13 and 39 weeks ended October 30, 2021, compared with the corresponding periods ended October 31, 2020. The company operates Vera Bradley and Pura Vida across Direct, Indirect, and Pura Vida segments.
Financial results
| Metric | Q3 FY2022 | Q3 FY2021 | 39 weeks FY2022 | 39 weeks FY2021 |
|---|---|---|---|---|
| Revenue | $134.7m | $124.8m | $390.9m | $325.9m |
| Gross profit / margin | $72.3m / 53.6% | $73.8m / 59.1% | $211.8m / 54.2% | $187.6m / 57.6% |
| SG&A | $64.5m | $61.7m | $194.1m | $183.6m |
| Operating income / margin | $8.0m / 5.9% | $12.2m / 9.7% | $18.6m / 4.8% | $4.1m / 1.3% |
| Net income attributable to Vera Bradley, Inc. | $5.8m | $8.9m | $12.7m | $0.8m |
| Diluted EPS | $0.17 | $0.26 | $0.37 | $0.02 |
| Operating cash flow | Not provided separately | Not provided separately | $19.2m | $1.6m |
Q3 revenue rose 7.9%, but gross profit fell 2.1% and operating income fell $4.2m year over year. For the 39-week period, revenue increased 19.9% and operating income increased substantially from the prior-year period. The year-to-date comparison is affected by COVID-related Vera Bradley store closures in the prior-year period; management said year-to-date comparable sales were not meaningful.
Segments and operating drivers
- Q3 segment revenue: VB Direct $86.6m, up 10.8%; VB Indirect $20.9m, down 6.4%; Pura Vida $27.2m, up 11.7%.
- Q3 company comparable sales increased 6.1%. VB Direct comparable sales increased 7.8%, including store comparable sales growth of 18.3%, partly offset by a 10.4% decline in e-commerce sales.
- Gross margin pressure reflected higher shipping costs and the expiration of Generalized System of Preferences duty-free treatment; lower prior-year mask sales also reduced the comparison benefit.
- All Vera Bradley stores were open during the current-year first nine months. The company operated 147 Vera Bradley stores at quarter end and opened its first Pura Vida retail store in August.
Cash, debt, and liquidity
- Cash and cash equivalents were $74.8m at October 30, 2021, versus $64.2m at January 30, 2021; short-term investments were $0.5m. Management reported cash and investments of $75.3m.
- Net cash provided by operations was $19.2m for the 39 weeks. Investing used $3.2m and financing used $5.4m; cash increased by $10.6m over the period.
- No borrowings were outstanding under the $75.0m asset-based revolving credit facility, and the company reported $75.0m available. The facility matures September 7, 2023; the company reported covenant compliance.
- Capital expenditures were $4.0m year to date. Management expected full-year fiscal 2022 capital expenditures of approximately $6m to $8m and believed available cash, operating cash flow, and credit availability would meet foreseeable needs.
- Operating lease liabilities totaled approximately $103.9m, comprising $19.9m current and $83.9m long-term.
Outlook, risks, and notable items
- The filing provides no specific revenue or earnings guidance. Management expected shipping delays and higher freight costs to continue in the near future.
- Supply-chain congestion, shipping capacity constraints, and increased duties following the GSP expiration could cause higher costs, inventory shortages, missed sales, and adverse financial results.
- COVID-19 remained an uncertain risk to demand, store operations, liquidity, and asset values. Management noted that future impairment charges could be material; no impairment charges were recorded in the current-year 39 weeks.
- Pura Vida e-commerce marketing effectiveness was negatively affected by Apple’s iOS 14.5 update, which affected Facebook and Instagram advertising.
- A Vesi lawsuit seeks damages of at least $10m; the company disputes liability, is defending the case, and said it could not estimate a possible loss or range. A California wage-and-hour class action was settled for an immaterial amount in Q1 FY2022.
- The company repurchased 214,030 shares for $2.1m during the 39 weeks. Subsequent to quarter end, the board authorized a new share repurchase program of up to $50m, effective December 13, 2021.
- Management reported effective disclosure controls as of October 30, 2021, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether supply-chain and freight disruption, higher duties, and inventory availability persist or worsen, and their effect on gross margin.
- Whether the Q3 sales trends continue, particularly Direct store growth, weaker e-commerce performance, and Indirect account demand.
- Cash conversion and working-capital needs, including inventory levels, lease payments, and planned capital spending.
- Developments in the Vesi litigation and any resulting financial exposure.
- Use of the new $50m repurchase authorization and its effect on cash and share count.