Vera Bradley, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the 13 weeks ended April 30, 2022; compared with the 13 weeks ended May 1, 2021. Vera Bradley operates the Vera Bradley and Pura Vida brands through Direct, Indirect, and Pura Vida segments. Financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net revenue | $98.5 million | $109.1 million |
| Gross profit / gross margin | $52.5 million / 53.3% | $59.2 million / 54.2% |
| Operating loss | $8.2 million | $2.0 million |
| Net loss attributable to Vera Bradley, Inc. | $7.0 million; $0.21 per diluted share | $2.1 million; $0.06 per diluted share |
| Cash used in operating activities | $11.1 million | $10.0 million |
Revenue fell 9.7%. Gross margin declined 0.9 percentage points, while SG&A was nearly flat at $60.9 million; SG&A consequently rose to 61.9% of revenue from 55.8%. Cash and cash equivalents were $64.0 million at quarter-end, down from $88.4 million at fiscal year-end. Inventory was $161.8 million, up from $144.9 million. Capital expenditures were $1.7 million. Cash used in investing and financing activities was $1.7 million and $11.6 million, respectively; financing use included $10.0 million of share repurchases.
The company had no borrowings and reported $75.0 million available under its asset-based revolving credit facility, which matures September 7, 2023. It reported compliance with credit covenants. Operating lease liabilities totaled approximately $98.8 million, current and long-term combined.
Segment results and changes
- Vera Bradley Direct: Revenue decreased 7.6% to $61.6 million; segment operating income declined to $5.5 million from $10.9 million. Comparable sales fell 11.1%, including e-commerce down 11.8% and comparable-store sales down 10.7%.
- Vera Bradley Indirect: Revenue increased 11.2% to $17.0 million, primarily from higher orders by key accounts and specialty retailers, partly reflecting product-launch timing. Segment operating income rose to $5.5 million from $4.5 million.
- Pura Vida: Revenue decreased 26.8% to $19.8 million, primarily due to lower e-commerce sales amid changes in digital-media effectiveness following Apple’s IDFA update and higher digital advertising costs. Segment operating income fell to $1.1 million from $2.5 million.
Consolidated comparable sales, including e-commerce, declined 16.5%; the prior-year comparison was not provided because COVID-19 store closures made it not meaningful. Inbound and outbound freight and shipping costs pressured gross margin. Corporate unallocated expenses increased to $20.3 million from $19.8 million.
Outlook, risks, and notable items
- Management expects fiscal 2023 capital expenditures of approximately $10 million to $12 million. The filing provides no full-year revenue or earnings guidance.
- The company began strategic price increases in late fiscal 2022 and expects to continue them during fiscal 2023 to offset inflation and supply-chain pressures. It was conducting a cost-reduction and efficiency process, with identification of reductions expected to be completed and implementation to begin in the second quarter.
- Management cited inflation, higher fuel and freight costs, supply-chain delays, tariffs following the expiration of GSP duty-free status, COVID-19 disruption, and pressure on consumer discretionary spending as risks that could materially affect results, liquidity, and financial condition.
- A $0.6 million lease right-of-use asset impairment charge was recorded. Management found no goodwill or Pura Vida brand impairment, but estimated fair values exceeded carrying values by only a nominal amount; further deterioration in assumptions could lead to potentially material impairment charges.
- A pending Vesi lawsuit seeks damages of at least $10 million. The company denies liability and is defending the case; it stated that a possible loss or range of loss cannot currently be estimated.
- The company repurchased 1.42 million shares for $10.5 million during the quarter; $35.3 million remained under the $50 million repurchase authorization at April 30, 2022.
Important facts for investors to verify
- Whether Direct and Pura Vida sales stabilize, particularly Pura Vida e-commerce, and how much of the revenue decline reflects demand versus channel, marketing, or launch timing.
- Whether pricing actions and cost reductions offset freight, inflation, tariff, and labor pressures without further weakening sales or margins.
- Inventory levels, operating cash use, and available liquidity as the company funds planned capital expenditures and any further repurchases.
- Whether the small estimated valuation cushion for Pura Vida goodwill and brand assets persists, and whether the Vesi litigation or other contingencies change.