Vera Bradley Designs, Inc
Sep 10, 2014

Vera Bradley Announces Fiscal Year 2015 Second Quarter Results

Second quarter net revenues totaled $120.1 million

Net income totaled $7.6 million, or $0.19 per diluted share, for the quarter

Company reconfirms EPS guidance for full year

Company ends quarter with strong cash position of $79.1 million and year-over-year inventories down 21.6%

Board approves share repurchase plan up to $40 million

FORT WAYNE, Ind., Sept. 10, 2014 (GLOBE NEWSWIRE) -- Vera Bradley, Inc. (Nasdaq:VRA) ("Vera Bradley" or the "Company") today announced its financial results for the second quarter and six months ended August 2, 2014.

Net revenues totaled $120.1 million for the current year second quarter, compared to $125.4 million in the prior year second quarter ended August 3, 2013. Net income totaled $7.6 million, or $0.19 per diluted share, for the current year second quarter compared to net income of $15.0 million, or $0.37 per diluted share, in the prior year second quarter.

For the six months ended August 2, 2014, net revenues totaled $233.6 million, compared to $248.4 million in the prior year six months ended August 3, 2013. Net income totaled $14.2 million, or $0.35 per diluted share, for the current year six month period compared to net income of $24.1 million, or $0.59 per diluted share, in the comparable prior year period.

Robert Wallstrom, Chief Executive Officer, noted, "We achieved our earnings per share guidance for the quarter and are reconfirming our EPS guidance for the full year. Second quarter sales were at the high end of our expectations, and, as a percent of sales, SG&A expenses were at the low end of our target."

"Even though the short-term continues to be challenging, I am very pleased with the progress we are making against our long-term product, distribution, and marketing strategies. We are evolving and modernizing our product assortments, expanding our reach through opening new full-line and factory outlet stores, transitioning to a 'made-for-outlet' format in our factory outlet stores, enhancing our online presence, and intensifying and focusing our marketing efforts. We carefully managed our inventories and ended the quarter with a strong cash position and no debt. Importantly, we have assembled the talented and experienced leadership team that will drive the execution of our five-year strategic plan."

Second Quarter Results

Current year second quarter net revenues of $120.1 million were at the top end of the Company's guidance of $113 million to $120 million. Prior year second quarter revenues totaled $125.4 million.

Current year second quarter Direct segment revenues totaled $78.9 million, a 5.2% increase over $75.0 million in the prior year second quarter. In the Company's stores, second quarter year-over-year net revenues grew 3.5%, reflecting the opening of nine full-line and six outlet stores during the past 12 months, which was partially offset by a comparable store sales decline. Total company comparable sales fell 5.3% for the quarter (which includes a 14.2% decline in store sales, partially offset by a 9.3% increase in e-commerce sales, including direct-to-consumer eBay sales). Going forward, the Company will include eBay sales in its comparable sales calculations; refer to the attached schedule for historical comparable sales data adjusted to include eBay sales. Excluding eBay, total company comparable sales fell 8.8% for the quarter. As expected, second quarter comparable sales were negatively impacted by year-over-year declines in traffic and underperformance of the product offering.   

Indirect segment revenues decreased 18.2% to $41.2 million from $50.4 million in the prior year second quarter, primarily due to lower orders from the Company's specialty retail accounts as well as a reduction in the number of specialty retail accounts.   

Gross profit for the quarter totaled $64.1 million, or 53.3% of net revenues, compared to $71.8 million, or 57.2% of net revenues, in the prior year second quarter. The year-over-year decline in gross margin rate was primarily related to overhead costs deleveraging and modestly increased year-over-year online promotional activity. The second quarter gross margin rate was slightly below guidance of 53.5% to 54.0%, primarily due to a modest increase in online promotional activity.

SG&A expense totaled $51.8 million, or 43.1% of net revenues, in the current year second quarter, compared to $48.3 million, or 38.6% of net revenues, in the prior year second quarter. As expected, SG&A dollars increased over the prior year primarily due to investments related to achieving the five-year strategic plan including key management additions, new store expenses, and marketing and e-commerce initiatives. The SG&A expense rate was at the low end of the 43.0% to 44.5% guidance primarily due to cost containment efforts and sales at the high end of guidance.    

Operating income totaled $12.8 million, or 10.6% of net revenues, in the current year second quarter, compared to operating income of $24.1 million, or 19.2% of net revenues, in the prior year second quarter.   

The effective tax rate was 40.3% for the quarter compared to 37.7% in the prior year second quarter. The year-over-year increase in the effective rate was due primarily to state tax matters including an incremental reserve related to an ongoing state income tax audit.

Six Month Results

Current year net revenues for the six months totaled $233.6 million, compared to $248.4 million in the same period last year. 

Direct segment revenues totaled $152.4 million for the six months ended August 2, 2014, a 2.5% increase over $148.7 million in the prior year comparable period. In the Company's stores, current year-over-year net revenues grew 4.5%, reflecting the opening of nine full-line and six outlet stores during the past 12 months, which was partially offset by a comparable store sales decline. Total company comparable sales fell 6.4% for the six months (which includes a 14.3% decline in store sales, partially offset by a 5.0% increase in e-commerce sales, including eBay). Excluding eBay sales, total company comparable sales fell 9.1% for the six months. 

For the six months, Indirect segment revenues decreased 18.6% to $81.2 million from $99.7 million in the prior year, primarily due to lower orders from the Company's specialty retail accounts as well as a reduction in the number of specialty retail accounts.   

Gross profit for the six months totaled $124.6 million, or 53.3% of net revenues, compared to $140.2 million, or 56.5% of net revenues, in the comparable prior year period. The year-over-year decline in gross margin rate was primarily related to overhead costs deleveraging and increased year-over-year promotional activity. 

SG&A expense totaled $103.1 million, or 44.1% of net revenues, in the current year six months, compared to $103.6 million, or 41.7% of net revenues, in the prior year period. 

Operating income totaled $23.6 million, or 10.1% of net revenues, in the current year six-month period, compared to operating income of $39.3 million, or 15.8% of net revenues, in the prior year period.    

The effective tax rate was 39.6% for the six months compared to 38.2% in the prior year six months.  

Cash flow from operations for the six months totaled $32.8 million, compared to $27.0 million for the same period last year. The improvement was driven primarily by a reduction in inventory levels.

Cash and cash equivalents as of August 2, 2014 totaled $79.1 million compared to $9.3 million at the end of last year's second quarter. The Company had no debt outstanding at August 2, 2014. Quarter-end inventory was $112.0 million, below guidance of $118 million to $128 million and compared to $142.9 million last year. Net capital spending for the six months totaled $12.2 million.

Recent Events

On June 4, 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 will exit its direct business in Japan during the third quarter of fiscal 2015 and will account for this business as a discontinued operation from that point forward.  The Company expects to incur pre-tax charges related to the exit from Japan during the third quarter of approximately $2.0 million, equating to $0.03 per share, which will be reflected in discontinued operations.  Approximately $1.0 million of that amount relates to a non-cash charge for a currency translation loss that has accumulated in equity since entering the Japanese market over three years ago. The remaining charge relates to the write off of certain assets, employee severance, and other exit charges. The new wholesale business in Japan is included in the Indirect segment guidance below, but given that the new Look-operated distribution points are not expected to be opened until late in the year, the impact to the current year sales and earnings guidance is minimal.   

On September 9, 2014, the Company's board of directors approved a share repurchase program authorizing up to $40 million in common stock repurchases. The new share repurchase program expires in October 2016. 

Third Quarter and Fiscal Year 2015 Outlook

For the third quarter of fiscal 2015, on a continuing operations basis, the Company expects:

The Company expects inventory to be $125 million to $135 million at the end of the third quarter, compared to $150.5 million at the end of last year's third quarter.

For fiscal 2015, on a continuing operations basis, the Company expects:

Investor and Analyst Day

The Company will host an Investor and Analyst Day on Tuesday, October 7 in its New York City Design Center, located at 730 5th Avenue. If you are interested in attending, please RSVP to Julia Bentley, VP of Investor Relations and Communications, by September 19 at jbentley@verabradley.com. Please indicate your preference for the morning session (7:30 a.m. until 12:15 p.m.) or the afternoon session (1:00 p.m. until 5:15 p.m.). Space is limited.

Presenters will include:

Call Information

A conference call to discuss fiscal 2015 second quarter results is scheduled for today, Wednesday, September 10, 2014, 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 (888) 297-0356, and enter the access code 1567633. A replay of the call will be available shortly after the conclusion of the call and remain available through September 24, 2014. To access the recording, listeners should dial (877) 870-5176, and enter the access code 1567633.

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; department store locations in Japan; its websites, verabradley.com and verabradley.co.jp; eBay; and its annual outlet sale in Fort Wayne, Indiana.  The Indirect business consists of sales of Vera Bradley products to approximately 3,000 specialty retail doors, substantially all of which are located in the United States, as well as select department stores, national accounts, third party e-commerce sites, 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 February 1, 2014 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended August 2, 2014. We undertake no obligation to publicly update or revise any forward-looking statement. Financial schedules are attached to this release.

Vera Bradley, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
       
 August 2,
2014
February 1,
2014
August 3,
2013
Assets      
Current assets:      
Cash and cash equivalents  $ 79,091  $ 59,215  $ 9,331
Accounts receivable, net  28,676  27,718  35,494
Inventories  112,023  136,923  142,864
Income taxes receivable  3,852  --  --
Prepaid expenses and other current assets  9,486  9,952  9,706
Deferred income taxes  14,307  13,094  12,372
Total current assets  247,435  246,902  209,767
       
Property, plant, and equipment, net  93,180  84,940  82,346
Other assets  847  1,085  1,438
Total assets  $ 341,462  $ 332,927  $ 293,551
       
Liabilities and Shareholders' Equity      
Current liabilities:      
Accounts payable  $ 19,633  $ 27,745  $ 26,224
Accrued employment costs  10,151  10,586  8,442
Other accrued liabilities  22,532  20,403  19,967
Income taxes payable  --  1,625  2,026
Total current liabilities  52,316  60,359  56,659
       
Deferred income taxes  3,849  4,643  6,123
Other long-term liabilities  14,628  12,778  11,300
Total liabilities  70,793  77,780  74,082
       
Shareholders' equity:      
Additional paid-in-capital  79,520  78,153  77,029
Retained earnings  192,167  178,002  143,330
Accumulated other comprehensive loss  (1,018)  (1,008)  (890)
Total shareholders' equity  270,669  255,147  219,469
Total liabilities and shareholders' equity  $ 341,462  $ 332,927  $ 293,551
 
Vera Bradley, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
         
         
 Thirteen Weeks EndedTwenty-Six Weeks Ended
 August 2, 2014August 3, 2013August 2, 2014August 3, 2013
         
Net revenues  $ 120,104  $ 125,372  $ 233,565  $ 248,405
Cost of sales  56,045  53,599  108,981  108,166
Gross profit  64,059  71,773  124,584  140,239
Selling, general, and administrative expenses  51,763  48,336  103,075  103,563
Other income  465  630  2,042  2,581
Operating income  12,761  24,067  23,551  39,257
Interest expense, net  24  82  104  223
Income before income taxes  12,737  23,985  23,447  39,034
Income tax expense  5,139  9,034  9,282  14,894
Net income  $ 7,598  $ 14,951  $ 14,165  $ 24,140
         
Basic weighted-average shares outstanding  40,686  40,603  40,663  40,592
Diluted weighted-average shares outstanding  40,719  40,623  40,722  40,624
Basic net income per share  $ 0.19  $ 0.37  $ 0.35  $ 0.59
Diluted net income per share  0.19  0.37  0.35  0.59
 
Vera Bradley, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
     
     
 Twenty-Six Weeks Ended
 August 2,
2014
August 3,
2013
Cash flows from operating activities    
Net income  $ 14,165  $ 24,140
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation of property, plant, and equipment  7,150  6,796
Provision for doubtful accounts  (63)  (117)
Loss on disposal of property, plant, and equipment  --   9
Stock-based compensation  1,962  1,820
Deferred income taxes  (2,007)  (1,039)
Changes in assets and liabilities:    
Accounts receivable  (895)  (566)
Inventories  24,897  (11,507)
Prepaid expenses and other assets  704  1,640
Accounts payable  (11,271)  11,371
Income taxes payable  (5,477)  (5,068)
Accrued and other liabilities  3,591  (475)
Net cash provided by operating activities  32,756  27,004
     
Cash flows from investing activities    
Purchases of property, plant, and equipment  (12,231)  (11,976)
Net cash used in investing activities  (12,231)  (11,976)
     
Cash flows from financing activities    
Payments on financial-institution debt  --  (45,000)
Borrowings on financial-institution debt  --  30,000
Tax withholdings for equity compensation  (595)  (406)
Other financing activities, net  (47)  145
Net cash used in financing activities  (642)  (15,261)
Effect of exchange rate changes on cash and cash equivalents  (7)  (39)
     
Net increase (decrease) in cash and cash equivalents  $ 19,876  $ (272)
Cash and cash equivalents, beginning of period  59,215  9,603
Cash and cash equivalents, end of period  $ 79,091  $ 9,331
     
Supplemental disclosure of cash-flow information    
Non-cash operating and investing activities    
Property, plant, and equipment expenditures incurred but not yet paid  $ 3,159  $ --
 
Vera Bradley, Inc.
Supplemental Statements of Income Second Quarter 20151
(in thousands, except per share amounts)
(unaudited)
             
  Thirteen Weeks Ended August 2, 2014  Thirteen Weeks Ended August 3, 2013 
  As Reported  Discontinued Operations  Continuing Operations  As Reported  Discontinued Operations  Continuing Operations 
Net revenues  $ 120,104  $ 1,144  $ 118,960  $ 125,372  $ 1,403  $ 123,969
Cost of sales  56,045  529  55,516  53,599  494  53,105
Gross profit  64,059  615  63,444  71,773  909  70,864
Selling, general, and administrative expenses  51,763  1,100  50,663  48,336  1,180  47,156
Other income  465  --   465  630  --   630
Operating income (loss)  12,761  (485)  13,246  24,067  (271)  24,338
Interest expense, net  24  --   24  82  --   82
Income (loss) before income taxes  12,737  (485)  13,222  23,985  (271)  24,256
Income tax expense  5,139  (178)  5,317  9,034  --   9,034
Net income  $ 7,598  $ (307)  $ 7,905  $ 14,951  $ (271)  $ 15,222
             
Basic weighted-average shares outstanding  40,686  40,686  40,686  40,603  40,603  40,603
Diluted weighted-average shares outstanding  40,719  40,719  40,719  40,623  40,623  40,623
Basic net income per share  $ 0.19 $ (0.01)   $ 0.19  $ 0.37  $ (0.01)  $ 0.37
Diluted net income per share  0.19  (0.01)   0.19  0.37  (0.01)  0.37
             
  Twenty-Six Weeks Ended August 2, 2014  Twenty-Six Weeks Ended August 3, 2013 
  As Reported  Discontinued Operations  Continuing Operations  As Reported  Discontinued Operations  Continuing Operations 
Net revenues  $ 233,565  $ 2,408  $ 231,157  $ 248,405  $ 2,877  $ 245,528
Cost of sales  108,981  1,023  107,958  108,166  976  107,190
Gross profit  124,584  1,385  123,199  140,239  1,901  138,338
Selling, general, and administrative expenses  103,075  2,367  100,708  103,563  2,329  101,234
Other income  2,042  --   2,042  2,581  --   2,581
Operating income (loss)  23,551  (982)  24,533  39,257  (428)  39,685
Interest expense, net  104  --   104  223  --   223
Income (loss) before income taxes  23,447  (982)  24,429  39,034  (428)  39,462
Income tax expense  9,282  (360)  9,642  14,894  --   14,894
Net income  $ 14,165  $ (622)  $ 14,787  $ 24,140  $ (428)  $ 24,568
             
Basic weighted-average shares outstanding  40,663  40,663  40,663  40,592  40,592  40,592
Diluted weighted-average shares outstanding  40,722  40,722  40,722  40,624  40,624  40,624
Basic net income per share  $ 0.35  $ (0.02)  $ 0.36  $ 0.59  $ (0.01)  $ 0.61
Diluted net income per share  0.35  (0.02)  0.36  0.59  (0.01)  0.60
             
1On June 4, 2014, the Company entered into a five-year agreement with Mitsubishi Corporation and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the Company will exit its direct retail business in Japan in the third quarter. The supplemental schedule provided above recasts the Company's fiscal 2015 and fiscal 2014 thirteen and twenty-six weeks ended second quarter income statements to present the Japan results as discontinued operations.
 
Vera Bradley, Inc.
Supplemental Recast of Total Comparable Sales Growth Fiscal 2015 and 20141
(unaudited)
               
 Thirteen Weeks EndedFifty-two Weeks EndedThirteen Weeks Ended
 August 2, 2014May 3, 2014February 1, 2014February 1, 2014November 2, 2013August 3, 2013May 4, 2013
               
               
Comparable Sales excluding E-commerce & eBay -14.2% -14.4% -5.7% -10.2% -6.5% -3.7% 0.9%
Comparable Sales excluding eBay -8.8% -9.4% -3.2% -8.6% -6.9% -1.6% 10.9%
Total Comparable Sales  -5.3% -7.8% -2.0% -6.5% -5.0% -1.6% 10.9%
               
               
1Effective the third quarter of fiscal 2015, the Company will include direct-to-consumer eBay sales in its total comparable sales calculations. The schedule above recasts historical total comparable sales to include eBay sales. 
CONTACT: Investors:

         Julia Bentley, VP of Investor Relations and Communications

         jbentley@verabradley.com

         (260) 207-5116

         

         Media:

         877-708-VERA (8372)

         Mediacontact@verabradley.com