8-K


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 8-K
___________________________
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 2, 2015
___________________________ 
VERA BRADLEY, INC.
(Exact name of registrant as specified in its charter)
___________________________
 
Indiana
 
001-34918
 
27-2935063
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
12420 Stonebridge Road,
Roanoke, Indiana
 
46783
(Address of Principal Executive Offices)
 
(Zip Code)
(877) 708-8372
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
___________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
 
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
 
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
 
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 






The information in Items 2.02 and 9.01 of this Form 8-K is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
Item 2.02 Results of Operations and Financial Condition
On September 2, 2015, Vera Bradley, Inc. issued an earnings press release for the quarterly period ended August 1, 2015. The press release, including attachments, is furnished as Exhibit 99.1 to this report.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
99.1
 
Press Release dated September 2, 2015
















































SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
Vera Bradley, Inc.
 
 
 
 
(Registrant)
 
 
 
Date: September 2, 2015
 
 
 
/s/ Kevin J. Sierks
 
 
 
 
Kevin J. Sierks
Executive Vice President – Chief Financial Officer





EXHIBIT INDEX
 
Exhibit No.
 
Description
99.1
 
Press release dated September 2, 2015


Exhibit



VERA BRADLEY ANNOUNCES FISCAL SECOND QUARTER 2016 RESULTS

Second quarter net revenues from continuing operations increased 1.5% to $120.7 million

Second quarter net income from continuing operations totaled $5.7 million, or $0.15 per diluted share, exceeding guidance of $0.10 to $0.13 per diluted share

Company ended quarter with strong cash position of $76.0 million and year-over-year
inventories down 7.2%


FORT WAYNE, Ind., September 2, 2015 - Vera Bradley, Inc. (Nasdaq: VRA) (“Vera Bradley” or the “Company”) today announced its financial results for the fiscal second quarter and six months ended August 1, 2015.

Summary of Financial Performance for the Second Quarter

Net revenues from continuing operations totaled $120.7 million for the second quarter ended August 1, 2015, compared to $119.0 million for the second quarter ended August 2, 2014, an increase of 1.5%.

The Company posted net income from continuing operations of $5.7 million, or $0.15 per diluted share, for the current year second quarter. In the prior year second quarter ended August 2, 2014, net income from continuing operations totaled $7.9 million, or $0.19 per diluted share.

Summary of Financial Performance for the Six Months

Net revenues from continuing operations totaled $221.8 million for the six months ended August 1, 2015, compared to $231.2 million for the six months ended August 2, 2014.

For the current year six month period, the Company posted net income from continuing operations of $1.6 million, or $0.04 per diluted share. Those results included net after-tax charges of $4.2 million comprised of:
$2.1 million related to the closing of its Indiana manufacturing facility, primarily related to severance and lease termination charges;
$1.5 million related to other severance and restructuring charges; and
$0.6 million related to an income tax adjustment for an increase in income tax reserves for uncertain federal and state tax positions related to research and development tax credits.

Excluding these charges, the Company’s net income from continuing operations totaled $5.8 million, or $0.15 per diluted share, for the current year six months. For the six months ended August 2, 2014, net income from continuing operations totaled $14.8 million, or $0.36 per diluted share.


Comments on the Quarter and Looking Ahead

Robert Wallstrom, Chief Executive Officer, noted, “We are pleased that better than expected revenue, gross margin rate performance, and disciplined expense management drove EPS above our guidance.

“Our comparable sales trend began to improve toward the end of the quarter, which we believe is reflective of our new product offerings, improved in-store execution, and our initial marketing efforts. Our better than planned revenues were generated in spite of reduced promotional activity.”






Wallstrom continued, “We have made meaningful progress but know our turnaround will take time. We remain confident in our long-term strategic plan and believe that continuing to innovate and modernize our product offerings, prudently grow our distribution points, and elevate and target our marketing efforts will, over time, bring new customers to Vera Bradley and drive traffic and sales.”

Second Quarter Details

Second quarter and year-to-date income statement numbers referenced below reflect the Company’s continuing operations. The year-to-date results exclude the previously outlined charges related to its manufacturing facility closing, other severance and restructuring costs, and the income tax adjustment.

Current year second quarter net revenues of $120.7 million were above the Company’s guidance of $116 million to $120 million. Prior year second quarter revenues totaled $119.0 million.

Current year second quarter Direct segment revenues totaled $83.8 million, a 7.7% increase from $77.8 million in the prior year second quarter. Comparable sales (including e-commerce) decreased 15.0% for the quarter (reflecting a 15.2% decline in comparable store sales and a 14.7% decrease in e-commerce sales), which was offset by new store growth (the Company opened 19 full-line and 17 factory outlet stores during the past 12 months). Second quarter comparable sales were negatively impacted by year-over-year declines in store and e-commerce traffic, partially as a result of reduced promotional activity.
  
Indirect segment revenues decreased 10.3% to $36.9 million from $41.2 million in the prior year second quarter, primarily due to lower average order size from the Company’s specialty retail accounts and a modest year-over-year reduction in the total number of specialty retail accounts, partially offset by the timing of the Company’s summer product launch (which shifted approximately $3.7 million of revenues into the second quarter this year from the first quarter last year).

Gross profit for the quarter totaled $66.6 million, or 55.1% of net revenues, compared to $63.4 million, or 53.3% of net revenues, in the prior year second quarter. The year-over-year gross margin rate improvement primarily related to increased sales of higher-margin made-for-outlet product in the Company’s factory outlet stores, leverage of overhead costs due to Fall 2014 cost reductions at the Company’s since-closed domestic manufacturing facility, lower levels of liquidation sales, and reduced promotional activity. The gross margin rate exceeded guidance of 54.5% to 55.0% primarily due to reduced promotional activity relative to plan.

SG&A expense totaled $57.4 million, or 47.5% of net revenues, in the current year second quarter, compared to $50.7 million, or 42.6% of net revenues, in the prior year second quarter. As expected, SG&A dollars increased over the prior year primarily due to strategic investments in new stores, incremental marketing, and e-commerce. The SG&A expense rate was better than the Company’s guidance of 48.3% to 49.3% primarily due to better than expected revenues and expense management.

Operating income totaled $9.5 million, or 7.9% of net revenues, in the current year second quarter, compared to $13.2 million, or 11.1% of net revenues, in the prior year second quarter. By segment, Direct operating income was $16.6 million, or 19.8% of sales, compared to $17.1 million, or 22.0% of sales, in the prior year, and Indirect operating income was $14.8 million, or 40.0% of sales, compared to $15.9 million, or 38.7% of sales, in the prior year.

Year-to-Date Details

Direct segment revenues for the current year six month period totaled $154.2 million, a 2.8% increase from $150.0 million in the same prior year period. Comparable sales (including e-commerce) decreased 15.8% for the period (reflecting an 18.3% decline in comparable store sales and a 12.4% decrease in e-commerce sales), which was offset by new store growth (the Company opened 19 full-line and 17 factory outlet stores during the past 12 months). Comparable sales were negatively impacted by year-over-year declines in store and e-commerce traffic, partially as a result of reduced promotional activity.

Indirect segment revenues decreased 16.7% to $67.6 million from $81.2 million in the prior year, primarily due to lower average order size from the Company’s specialty retail accounts. In addition, there was a modest year-over-year reduction in the total number of specialty retail accounts.

Excluding the aforementioned charges, gross profit for the six months totaled $121.7 million, or 54.9% of net revenues, compared to $123.2 million, or 53.3% of net revenues, in the prior year. The year-over-year gross margin rate improvement primarily related to increased sales of higher-margin made-for-outlet product in the Company’s factory outlet stores, leverage of overhead costs due to Fall 2014 cost reductions at the Company’s domestic manufacturing facility, lower levels of liquidation sales, and reduced promotional activity.






Excluding the aforementioned charges, SG&A expense totaled $112.5 million, or 50.7% of net revenues, in the current year, compared to $100.7 million, or 43.6% of net revenues, in the prior year. As expected, SG&A dollars increased over the prior year primarily due to strategic investments in new stores, incremental marketing, and e-commerce.

Excluding the aforementioned charges, operating income totaled $10.4 million, or 4.7% of net revenues, for the current year six month period, compared to $24.5 million, or 10.6% of net revenues, in the same period last year. By segment, Direct operating income was $28.0 million, or 18.2% of sales (which excluded $3.5 million of the aforementioned charges), compared to $30.9 million, or 20.6% of sales, in the prior year, and Indirect operating income was $25.8 million, or 38.2% of sales (which excluded $1.1 million of the aforementioned charges), compared to $31.4 million, or 38.7% of sales, in the prior year.

Cash and cash equivalents as of August 1, 2015 totaled $76.0 million compared to $79.1 million at the end of last year’s second quarter. The Company had no debt outstanding at quarter end. Quarter-end inventory was $103.9 million, below guidance of $108 million to $112 million and compared to $112.0 million at the end of last year’s second quarter, primarily due to timing of fall receipts. Net capital spending for the second quarter and six months totaled $7.8 million and $15.4 million, respectively.
During the second quarter, the Company repurchased approximately $13.3 million worth of its common stock under its share repurchase plan (equating to approximately 1.15 million shares at an average price of $11.60). This brings the total plan-to-date repurchases at the end of the second quarter to approximately $33.5 million (equating to approximately 2.20 million shares at an average price of $15.25). Subsequent to quarter end, the Company completed the balance of its $40 million share repurchase program (equating approximately 2.82 million shares at an average repurchase price of $14.19 over the life of the plan).

Third Quarter and Fiscal Year 2016 Outlook

For the third quarter of fiscal 2016, the Company expects:
Net revenues of $120 million to $123 million compared to prior year third quarter revenues of $125.2 million.
A gross margin rate of 56.8% to 57.2% compared to 52.5% in the prior year third quarter.
SG&A as a percent of sales of 46.5% to 47.0% compared to 42.5% in the prior year third quarter. The increase is primarily related to incremental spending in marketing, e-commerce, and incentive compensation.
Diluted earnings per share from continuing operations of $0.19 to $0.21, based on diluted weighted-average shares outstanding of 38.1 million and an effective tax rate of 40.4%. Diluted earnings per share from continuing operations totaled $0.21 in the prior year third quarter.
Inventory of $112 million to $118 million at the end of the third quarter, compared to $106.3 million at the end of last year’s third quarter.

For fiscal 2016, the Company expectations are as follows (which excludes the aforementioned charges):
Net revenues of $487 million to $495 million compared to $509.0 million last year.
A gross margin rate of 56.2% to 56.4% compared to 52.9% last year. The planned improvement reflects the leveraging of overhead costs related to an expected increase in units manufactured; reductions in sourcing and product costs, primarily related to made-for-outlet product and including the closure of the Company’s domestic manufacturing facility; a greater sales penetration of higher margin made-for-outlet product; and reduced promotional activity.
SG&A as a percent of sales of 46.7% to 47.0% compared to 41.0% last year. The planned increase is primarily related to incremental spending in marketing, e-commerce, and incentive compensation, on a lower sales base.
Diluted earnings per share from continuing operations of $0.72 to $0.78, based on diluted weighted-average shares outstanding of 38.8 million and an effective tax rate of 39.9%. Diluted earnings per share from continuing operations totaled $1.00 last year.
Net capital spending of approximately $31.0 million.

Discontinued Operations

In June 2014, the Company entered into a five-year agreement with Mitsubishi Corporation Fashion Company and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the Company exited its direct business in Japan during the third quarter of fiscal 2015 and has accounted for it as a discontinued operation.

Call Information

A conference call to discuss fiscal second quarter 2016 results is scheduled for today, Wednesday, September 2, 2015, at 9:30 a.m. Eastern Time. A broadcast of the call will be available via Vera Bradley’s Investor Relations section of its website,





www.verabradley.com. Alternatively, interested parties may dial into the call at (877) 723-9523, and enter the access code 8266035. A replay of the call will be available shortly after the conclusion of the call and remain available through September 16, 2015. To access the recording, listeners should dial (877) 870-5176, and enter the access code 8266035.

About Vera Bradley, Inc.

Vera Bradley is a leading designer of women’s handbags and accessories, luggage and travel items, eyewear, stationery and gifts. Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand’s iconic designs and versatile styles offer women of all ages a colorful way to accessorize every look.

Vera Bradley offers a unique, multi-channel sales model as well as a focus on service and a high level of customer engagement. The Company sells its products through two reportable segments: Direct and Indirect. The Direct business consists of sales of Vera Bradley products through the Company’s full-line and factory outlet stores in the United States, verabradley.com, eBay and its annual outlet sale in Fort Wayne, Indiana. The Indirect business consists of sales of Vera Bradley products to approximately 2,700 specialty retail locations, substantially all of which are located in the United States, as well as select department stores, national accounts, third party e-commerce sites, its wholesale business in Japan and third-party inventory liquidation.

The Company’s commitment to breast cancer research continues to increase its reach through the Vera Bradley Foundation for Breast Cancer.

For more information about Vera Bradley (Nasdaq: VRA), visit www.verabradley.com/mediaroom.

Website Information

We routinely post important information for investors on our website www.verabradley.com in the "Investor Relations" section. We intend to use this webpage as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document.

Vera Bradley Safe Harbor Statement

Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected, including: possible adverse changes in general economic conditions and their impact on consumer confidence and spending; possible inability to predict and respond in a timely manner to changes in consumer demand; possible loss of key management or design associates or inability to attract and retain the talent required for our business; possible inability to maintain and enhance our brand; possible inability to successfully implement our growth strategies or manage our growing business; possible inability to successfully open new stores as planned; adverse changes in the cost of raw materials and labor used to manufacture our products; and possible adverse effects resulting from a significant disruption in our single distribution facility. For a discussion of these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2015. We undertake no obligation to publicly update or revise any forward-looking statement. Financial schedules are attached to this release.

CONTACTS:
Investors:
Julia Bentley, VP of Investor Relations and Communications
jbentley@verabradley.com
(260) 207-5116

Media:    
877-708-VERA (8372)
    

    





Vera Bradley, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
 
 
August 1,
2015
 
January 31,
2015
 
August 2,
2014
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
76,042

 
$
112,292

 
79,091

Accounts receivable, net
 
33,863

 
31,374

 
31,784

Inventories
 
103,921

 
98,403

 
112,023

Income taxes receivable
 
3,199

 
3,208

 
3,852

Prepaid expenses and other current assets
 
10,620

 
9,100

 
9,486

Deferred income taxes
 
13,473

 
13,320

 
14,307

Total current assets
 
241,118

 
267,697

 
250,543

Property, plant, and equipment, net
 
115,013

 
109,003

 
93,180

Other assets
 
1,046

 
584

 
847

Total assets
 
$
357,177

 
$
377,284

 
$
344,570

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable
 
$
28,734

 
$
32,906

 
19,633

Accrued employment costs
 
10,264

 
14,595

 
10,151

Other accrued liabilities
 
15,107

 
15,548

 
17,783

Income taxes payable
 
286

 

 

Total current liabilities
 
54,391

 
63,049

 
47,567

Deferred income taxes
 
6,163

 
5,297

 
3,849

Other long-term liabilities
 
29,057

 
24,467

 
22,485

Total liabilities
 
89,611

 
92,813

 
73,901

Shareholders’ equity:
 
 
 
 
 
 
Additional paid-in-capital
 
83,023

 
80,992

 
79,520

Retained earnings
 
218,030

 
216,451

 
192,167

Accumulated other comprehensive loss
 
(14
)
 
(15
)
 
(1,018
)
Treasury stock
 
(33,473
)
 
(12,957
)
 

Total shareholders’ equity
 
267,566

 
284,471

 
270,669

Total liabilities and shareholders’ equity
 
$
357,177

 
$
377,284

 
$
344,570






Vera Bradley, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
 
August 1,
2015
 
August 2,
2014
 
August 1,
2015
 
August 2,
2014
Net revenues
 
$
120,724

 
$
118,960

 
$
221,828

 
$
231,157

Cost of sales
 
54,170

 
55,516

 
103,580

 
107,958

Gross profit
 
66,554

 
63,444

 
118,248

 
123,199

Selling, general, and administrative expenses
 
57,351

 
50,663

 
114,963

 
100,708

Other income
 
283

 
465

 
1,230

 
2,042

Operating income
 
9,486

 
13,246

 
4,515

 
24,533

Interest expense, net
 
72

 
24

 
149

 
104

Income from continuing operations before income taxes
 
9,414

 
13,222

 
4,366

 
24,429

Income tax expense
 
3,699

 
5,328

 
2,787

 
9,658

Income from continuing operations
 
5,715

 
7,894

 
1,579

 
14,771

Loss from discontinued operations, net of taxes
 

 
(296
)
 

 
(606
)
Net income
 
$
5,715

 
$
7,598

 
$
1,579

 
$
14,165

Basic weighted-average shares outstanding
 
39,315

 
40,686

 
39,600

 
40,663

Diluted weighted-average shares outstanding
 
39,328

 
40,719

 
39,606

 
40,722

Net income per share - basic
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.15

 
$
0.19

 
$
0.04

 
$
0.36

Discontinued operations
 

 
(0.01
)
 

 
(0.01
)
Net income
 
$
0.15

 
$
0.19

 
$
0.04

 
$
0.35

Net income per share - diluted
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.15

 
$
0.19

 
$
0.04

 
$
0.36

Discontinued operations
 

 
(0.01
)
 

 
(0.01
)
Net income
 
$
0.15

 
$
0.19

 
$
0.04

 
$
0.35






Vera Bradley, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Twenty-Six Weeks Ended
 
 
August 1,
2015
 
August 2,
2014
Cash flows from operating activities
 
 
 
 
Net income
 
$
1,579

 
$
14,165

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
Depreciation of property, plant, and equipment
 
9,904

 
7,150

Provision for doubtful accounts
 
436

 
(63
)
Loss on disposal of property, plant, and equipment
 
52

 

Stock-based compensation
 
2,515

 
1,962

Deferred income taxes
 
713

 
(2,007
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(2,925
)
 
(895
)
Inventories
 
(5,518
)
 
24,897

Prepaid expenses and other assets
 
(1,982
)
 
704

Accounts payable
 
(5,931
)
 
(11,271
)
Income taxes
 
295

 
(5,477
)
Accrued and other liabilities
 
(136
)
 
3,591

Net cash (used in) provided by operating activities
 
(998
)
 
32,756

Cash flows from investing activities
 
 
 
 
Purchases of property, plant, and equipment
 
(15,359
)
 
(12,231
)
Net cash used in investing activities
 
(15,359
)
 
(12,231
)
Cash flows from financing activities
 
 
 
 
Tax withholdings for equity compensation
 
(484
)
 
(595
)
Repurchase of common stock
 
(19,364
)
 

Other financing activities, net
 
(46
)
 
(47
)
Net cash used in financing activities
 
(19,894
)
 
(642
)
Effect of exchange rate changes on cash and cash equivalents
 
1

 
(7
)
Net (decrease) increase in cash and cash equivalents
 
$
(36,250
)
 
$
19,876

Cash and cash equivalents, beginning of period
 
112,292

 
59,215

Cash and cash equivalents, end of period
 
$
76,042

 
$
79,091

Supplemental disclosure of cash flow information
 
 
 
 
Non-cash operating, investing, and financing activities
 
 
 
 
Repurchase of common stock incurred but not yet paid
 
$
1,152

 
$

Property, plant, and equipment expenditures incurred but not yet paid
 
$
607

 
$
3,159
















Vera Bradley, Inc.
GAAP to Non-GAAP Reconciliation Twenty-Six Weeks Ended August 1, 2015
(in thousands, except per share amounts)
(unaudited)
 
 
Twenty-Six Weeks Ended
 
 
As Reported
 
Restructuring Items & Other Items
 
Non-GAAP (Excluding Items)
Gross profit (loss)
 
$
118,248

 
$
(3,434
)
1 
$
121,682

Selling, general, and administrative expenses
 
114,963

 
2,483

2 
112,480

Operating income (loss)
 
4,515

 
(5,917
)
 
10,432

Income (loss) from continuing operations before income taxes
 
4,366

 
(5,917
)
 
10,283

Income tax expense (benefit)
 
2,787

 
(1,698
)
3 
4,485

Income (loss) from continuing operations
 
1,579

 
(4,219
)
 
5,798

Diluted net income (loss) per share from continuing operations
 
$
0.04

 
$
(0.11
)
 
$
0.15

 
 
 
 
 
 
 
Direct segment operating income (loss)
 
$
24,584

 
$
(3,470
)
4 
$
28,054

Indirect segment operating income (loss)
 
$
24,692

 
$
(1,146
)
5 
$
25,838

Unallocated corporate expenses
 
$
(44,761
)
 
$
(1,301
)
6 
$
(43,460
)
 
 
 
 
 
 
 
1Items include one-time exit costs related to the Company's manufacturing facility closure, including employee severance, a lease termination payment and fixed asset acceleration charges
2Includes $1,301 for a severance charge related to the termination of the Company's Chief Marketing Officer and $1,182 related to a lease termination
3Includes $575 related to an additional income tax reserve and a benefit of $2,273 related to the tax impact of the charges mentioned above
4Includes an allocation of $2,288 related to the one-time exit costs for the Company's manufacturing facility closure and $1,182 related to a lease termination
5Related to an allocation of $1,146 for the one-time exit costs for the Company's manufacturing facility closure
6Related to a severance charge for the termination of the Company's Chief Marketing Officer