Vera Bradley, Inc. — Form 10-Q Summary
Business context and period. Vera Bradley designs and sells handbags, travel goods, accessories, home products, and gifts through its Direct and Indirect channels. This unaudited report covers the 13 weeks ended May 4, 2019, the first quarter of fiscal 2020; comparisons are with the 13 weeks ended May 5, 2018.
Financial results and liquidity
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Net revenue | $91.0 million | $86.6 million |
| Gross profit / margin | $50.5 million / 55.5% | $48.6 million / 56.1% |
| SG&A | $54.3 million | $50.7 million |
| Operating loss | $3.6 million | $1.9 million |
| Net loss | $2.4 million; $0.07 per diluted share | $1.4 million; $0.04 per diluted share |
| Cash used in operating activities | $5.2 million | $1.8 million |
| Cash and cash equivalents | $99.8 million | $113.5 million at February 2, 2019 |
- Direct revenue grew 8.6% to $71.1 million; Indirect revenue declined 5.7% to $19.9 million. Comparable sales, including e-commerce, increased 5.2%.
- Cash and investments totaled $144.2 million at May 4, 2019. Current assets were $231.3 million and current liabilities were $55.7 million.
- The company had no borrowings under its $75 million asset-based revolving credit facility, with $75 million available. It reported compliance with credit agreement covenants.
- Operating lease liabilities totaled $140.3 million following adoption of ASC 842. The company reported no other debt outstanding.
- Investing activities used $4.6 million, including $3.4 million of capital expenditures. Financing activities used $3.8 million, primarily including $2.9 million of share repurchases.
Changes versus the prior-year quarter
- Revenue rose 5.1%, supported by Direct sales and comparable-sales growth; e-commerce comparable sales increased 9.2% and comparable store sales increased 4.0%.
- Gross margin fell 0.6 percentage points, primarily due to Chinese tariffs, partly offset by improved full-price selling, sourcing, and operational efficiencies.
- SG&A increased 7.1%, reflecting approximately $1.4 million more in advertising and marketing expense, $1.2 million in new-store expenses, and $0.8 million in consulting charges.
- Corporate unallocated expenses increased $2.2 million to $19.7 million. Direct segment operating income increased to $8.4 million; Indirect segment operating income declined to $7.7 million.
- Operating cash use increased to $5.2 million, primarily due to $2.9 million in income tax payments, principally a timing impact.
Outlook, commentary, and risks
- Management expected fiscal 2020 capital expenditures of approximately $13 million and stated that available cash, investments, operating cash flow, and credit availability should cover foreseeable working-capital needs and planned uses of cash.
- Management highlighted store-network actions, mobile-site improvements, product and marketing collaborations, and ongoing efforts to reduce exposure to China sourcing and mitigate tariff impacts.
- Five factory outlet stores opened and two underperforming full-line stores closed during the quarter. The company had 159 stores at period-end.
- Key disclosed risks include execution of the strategic plan, comparable-sales declines, brand and distribution challenges, shifting consumer demand, economic conditions, talent retention, cyber or privacy incidents, and new or increased tariffs. Management reported no material change to the risk factors in its latest Form 10-K.
- The company recorded a $0.2 million opening retained-earnings adjustment on lease-standard adoption. ASC 842 added substantial right-of-use assets and lease liabilities to the balance sheet; management reported no impact on the quarter’s income statement or cash flows from adoption.
- Management said ordinary-course claims and contingencies were not considered probable to have a material adverse effect, while noting legal outcomes remain uncertain. No impairment charges were recorded in the quarter.
Important facts for investors to verify
- Whether comparable-sales growth and Direct-channel gains can continue while Indirect sales contract.
- How tariffs, sourcing changes, and pricing affect gross margin and product costs.
- Whether higher SG&A and corporate costs moderate, and whether the company can return to operating profitability.
- The cash-flow impact of seasonal working capital, tax-payment timing, store investment, and share repurchases; fiscal 2020 capex was estimated at approximately $13 million.
- Lease obligations, including $140.3 million of recognized liabilities and approximately $11.5 million of undiscounted commitments for leases not yet commenced.
- Credit-facility availability, borrowing-base restrictions, and covenant triggers if liquidity conditions change.