Vera Bradley, Inc. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2015 (52 weeks). The filing also reports the fourth quarter, a 13-week period. Vera Bradley designs and sells handbags, accessories, travel goods, and related products through Direct channels and an Indirect wholesale network.
Financial results and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net revenue | $509.0 million | $530.9 million |
| Gross profit / margin | $269.0 million / 52.9% | $292.2 million / 55.0% |
| Operating income / margin | $64.1 million / 12.6% | $95.8 million / 18.0% |
| Income from continuing operations | $40.8 million | $60.1 million |
| Net income | $38.4 million | $58.8 million |
| Diluted EPS | $0.95; $1.00 from continuing operations | $1.45; $1.48 from continuing operations |
| Operating cash flow | $103.8 million | $87.9 million |
| Capital expenditures | $37.1 million | $22.9 million |
- FY2015 cash and cash equivalents were $112.3 million; working capital was $204.6 million. The company had no borrowings outstanding and $125.0 million available under its revolving credit facility. It reported compliance with credit covenants.
- Total assets were $377.3 million and shareholders’ equity was $284.5 million. Operating lease commitments totaled $191.2 million; purchase obligations were $48.2 million.
- Fourth-quarter revenue was $152.6 million, gross profit $80.0 million, operating income $25.9 million, and net income $17.3 million. Prior-year fourth-quarter amounts were $156.4 million, $82.6 million, $31.3 million, and $19.4 million, respectively.
Material changes versus the prior comparable period
- Annual revenue declined 4.1%, while gross profit fell 7.9% and operating income fell 33.1%. Net income declined 34.6%.
- Direct revenue increased 4.5% to $335.6 million, supported by new stores, but comparable sales including e-commerce declined 7.6%; comparable store sales fell 16.1%. E-commerce sales increased 3.9%.
- Indirect revenue fell 17.4% to $173.4 million, primarily due to lower specialty-retailer orders and fewer specialty accounts.
- Gross margin declined 2.1 percentage points, primarily because of increased promotional activity. SG&A rose 3.7% and increased as a share of revenue, reflecting store, management, marketing, and e-commerce investments.
- Operating cash flow rose, driven largely by a $44.2 million inventory reduction, despite lower net income. Cash increased to $112.3 million.
- The company exited its direct Japan retail operations in Q3 FY2015 and entered a five-year agreement for partners to import and distribute its products in Japan. Japan is presented as discontinued operations; its FY2015 after-tax loss was $2.4 million.
Outlook, management commentary, risks, and unusual items
- Management planned 15 new full-line stores and 10 factory outlet stores in FY2016, and expected FY2016 capital expenditures of approximately $31 million. It said it would reassess future store openings in light of demand and performance.
- Management intended to reduce promotions of 70% or more, acknowledging this could negatively affect FY2016 revenue. The stated rationale was long-term brand health.
- After year-end, the company announced plans to close its New Haven, Indiana manufacturing facility, which produced approximately 5% of products and employed about 250 associates. It recorded approximately $3.0 million of FY2015 charges, principally inventory write-downs, and estimated additional FY2016 Q1 restructuring and related charges of $6–$7 million. Management expected approximately $12 million in annual operating-cost savings beginning in FY2016 Q4, with production shifted to third-party suppliers.
- Key risks include declining comparable sales and consumer traffic, changing fashion demand, competition and promotional pressure, execution of the strategic plan and store expansion, reliance on overseas suppliers and a single distribution center, raw-material and labor costs, cybersecurity, and substantial lease commitments.
- The company reported $0.4 million of store impairment charges in FY2015. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether comparable-sales trends and store traffic improve, particularly in full-line stores, and whether Direct growth offsets continued Indirect weakness.
- Whether the lower-promotion strategy supports brand positioning without causing a material revenue or margin decline.
- Actual closure costs, timing, and realized savings from the New Haven facility; verify that outsourced production maintains quality and supply reliability.
- FY2016 store-opening and capital-spending execution, alongside cash generation, inventory levels, and the use of the credit facility.
- How the Japan wholesale arrangement performs compared with the discontinued direct business, and the effect of the reported discontinued-operation loss.