Vera Bradley, Inc. — Form 10-Q Summary
Business context and period. This filing covers the 13 weeks ended May 1, 2021 (fiscal 2022 first quarter), compared with the 13 weeks ended May 2, 2020. Vera Bradley operates its Vera Bradley Direct and Indirect businesses and Pura Vida. The comparison is significantly affected by COVID-19: Vera Bradley stores were temporarily closed during part of the prior-year quarter, while all stores were open in the current quarter.
Financial performance
| Metric | May 1, 2021 | May 2, 2020 |
|---|---|---|
| Net revenue | $109.1 million | $69.3 million |
| Gross profit / margin | $59.2 million / 54.2% | $34.2 million / 49.3% |
| Operating loss | $2.0 million | $25.6 million |
| Net loss | $1.5 million | $15.5 million |
| Net loss attributable to Vera Bradley, Inc. | $2.1 million; $0.06 per diluted share | $15.3 million; $0.66 per diluted share |
| Cash used in operating activities | $10.0 million | $24.7 million |
| Capital expenditures | $0.5 million | $2.2 million |
Revenue grew 57.5%. By segment, VB Direct revenue was $66.7 million (+81.2%), VB Indirect was $15.3 million (+35.9%), and Pura Vida was $27.1 million (+27.7%). Segment operating income was $10.9 million for VB Direct, $4.5 million for VB Indirect, and $2.5 million for Pura Vida; unallocated corporate expenses of $19.8 million resulted in the consolidated operating loss. SG&A rose 1.9% to $60.9 million, but declined to 55.8% of revenue from 86.3%.
Financial position and liquidity
At May 1, 2021, cash and cash equivalents were $51.4 million and short-term investments were $1.3 million, totaling $52.7 million. Cash declined $12.8 million during the quarter. Inventory was $150.3 million, versus $141.4 million at January 30, 2021. Total assets were $501.2 million and total liabilities were $158.5 million. The company had no borrowings and reported $75.0 million available under its asset-based revolving credit facility; it was in compliance with its covenants. The facility matures September 7, 2023. Lease liabilities were $109.4 million in total, current and long-term combined.
Changes, outlook, and risks
- The improvement in revenue and losses largely reflects the prior-year store closures and pandemic disruption, alongside stronger current-period demand; therefore, the comparison should not be treated as a normalized growth trend. Comparable sales were not provided because the prior-year comparison was not meaningful.
- Gross margin improved by 4.9 percentage points. Prior-year purchase-order cancellation charges reduced margin by 1.9 percentage points; management attributed the remaining improvement mainly to channel mix and more full-price selling, partly offset by higher shipping and duty costs.
- Management cited increased consumer confidence, traffic, and spending as vaccines became more available, stimulus funds were distributed, and customers returned to work, social events, and travel. It cautioned that COVID-19 could still materially affect liquidity, results, and financial condition.
- Fiscal 2022 capital expenditures were expected to be approximately $8 million to $10 million. The filing provides no earnings or revenue guidance.
- Risks include supply-chain and port delays, container and vessel capacity constraints, higher freight costs, inventory shortages, and missed sales. Other disclosed risks include consumer demand, brand execution, systems and data security, and Pura Vida integration.
- A licensing-related lawsuit seeks damages of at least $10 million; the company denies liability, is defending the case, and says it cannot estimate a possible loss or range. A California employment class action was settled for an immaterial amount. No current-quarter store impairment was recorded, compared with $3.8 million in the prior-year quarter; future impairment charges remain possible.
Important facts for investors to verify
- How much of the sharp year-over-year sales increase reflects reopening and pandemic-related comparison effects versus sustained demand, particularly in Vera Bradley Direct.
- Whether gross margin gains and SG&A leverage persist as demand normalizes and freight, duty, and other costs evolve.
- Inventory growth, operating cash use, and the company’s ability to fund working capital and planned capital expenditures without drawing on its credit facility.
- Potential exposure and developments in the Vesi litigation, and any future impairment of stores or Pura Vida-related assets.
- Execution and benefits of the Pura Vida ERP integration, scheduled for completion in the fall, and the effect of the remaining 25% noncontrolling interest and its put/call provisions.