Vera Bradley Designs, Inc
Jun 1, 2016

Vera Bradley Announces Fiscal First Quarter 2017 Results

First quarter net revenues increased 4.0% to $105.2 million

Company posts solid year-over-year net income improvement; first quarter net income totaled $2.4 million, or $0.06 per diluted share

Management reiterates EPS guidance for the fiscal year

FORT WAYNE, Ind., June 01, 2016 (GLOBE NEWSWIRE) -- Vera Bradley, Inc. (Nasdaq:VRA) ("Vera Bradley" or the "Company") today announced its financial results for the fiscal first quarter ended April 30, 2016.

Summary of Financial Performance

Net revenues totaled $105.2 million for the current year first quarter ended April 30, 2016, compared to $101.1 million in the prior year first quarter ended May 2, 2015, an increase of 4.0%. 

For the current year first quarter, the Company posted net income of $2.4 million, or $0.06 per diluted share.  For the prior year first quarter, the Company posted a net loss of $4.1 million, or $0.10 per diluted share.  Those results included net after-tax charges of $4.2 million comprised of:


Excluding these charges, the Company's net income totaled $0.1 million, or $0.00 per diluted share, in the prior year first quarter. 

Comments on the Quarter and Looking Ahead

Robert Wallstrom, Chief Executive Officer, noted, "Our year-over-year improvement in diluted EPS was primarily related to our 220 basis point gross profit expansion, largely driven by sourcing and operational efficiencies and an increased sales penetration of higher-margin made-for-outlet (MFO) products.

"First quarter diluted EPS was at the high end of our guidance, primarily due to diligent expense management and a lower than planned tax rate.  We achieved this EPS despite revenues at the low end of our guidance range, a reflection of a more challenging retail environment." 

Wallstrom added, "We are beginning the third year of our multi-year turnaround.  Our team is committed to executing our long-term strategic plan, focusing on the core areas of product, distribution, and marketing, and we are encouraged by our progress to return the business to sustainable growth."

"Our three main objectives for fiscal 2017 are to complete our brand transformation, to drive core growth, and to begin to explore additional licensing and international growth opportunities," Wallstrom concluded.  "Our exciting new brand positioning will be launched in September, and we believe this will lay the foundation for comparable sales growth in the second half of this year as we introduce our fall product assortment; launch our comprehensive fall creative campaign; open our SoHo flagship store; begin to update key full-line stores, incorporating our new logo and modern visual package; and launch our new digital flagship, verabradley.com.  We remain energized and excited about the future of Vera Bradley." 

First Quarter Details

Prior year income statement numbers referenced below exclude the previously outlined charges related to the Company's manufacturing facility closing, other severance and restructuring costs, and the income tax adjustment.

Current year first quarter net revenues of $105.2 million were at the low end of the Company's guidance of $105 million to $109 million.  Prior year first quarter revenues totaled $101.1 million.

Current year first quarter Direct segment revenues totaled $72.9 million, a 3.6% increase from $70.4 million in the prior year first quarter.  Comparable sales (including e-commerce) decreased 6.7% for the quarter (reflecting a 3.8% decline in comparable store sales and an 11.0% decrease in e-commerce sales), which was more than offset by new store growth (the Company opened 11 full-line and 7 factory outlet stores during the past 12 months).  First quarter comparable sales were negatively impacted by year-over-year declines in store and e-commerce traffic.  E-commerce sales were also negatively impacted by modestly lower levels of promotional activity.      

Indirect segment revenues increased 5.1% to $32.2 million from $30.7 million in the prior year first quarter, primarily due to higher than expected sales to certain non-department store key accounts and to the timing of a product launch in the specialty channel (moving from the second quarter last year to the first quarter this year) which positively impacted current year first quarter revenues, partially offset by lower orders from the Company's specialty retail accounts.  

Gross profit for the quarter totaled $59.7 million, or 56.7% of net revenues, compared to $55.1 million, or 54.5% of net revenues, in the prior year first quarter.  The year-over-year 220 basis point gross profit percentage improvement primarily related to sourcing efficiencies (leveraged overhead costs resulting from the closing of the Company's domestic manufacturing combined with lower product sourcing costs), operational efficiencies, and increased sales penetration of higher-margin MFO products.  The gross profit percentage was at the low end of the guidance range of 56.7% to 57.2%, primarily due to modestly increased promotional activity at the Company's factory stores and higher-than-expected sales to certain lower-margin key accounts.  

SG&A expense totaled $56.4 million, or 53.6% of net revenues, in the current year first quarter, compared to $55.1 million, or 54.5% of net revenues, in the prior year first quarter.  As expected, SG&A dollars increased over the prior year primarily due to new store expenses.  The SG&A expense rate was at the low end of the Company's guidance of 53.5% to 54.8% due to diligent expense management.       

The effective income tax rate was 36.5%, lower than guidance of 45.7%, primarily related to the tax treatment of restricted stock vesting. 

Operating income totaled $3.9 million, or 3.7% of net revenues, in the current year first quarter, compared to $0.9 million, or 0.9% of net revenues, in the prior year first quarter.  By segment, Direct operating income was $12.1 million, or 16.6% of sales, compared to $11.5 million, or 16.3% of sales (which excluded $3.5 million of the aforementioned charges), in the prior year, and Indirect operating income was $12.6 million, or 39.1% of sales, compared to $11.1 million, or 36.0% of sales (which excluded $1.1 million of the aforementioned charges), in the prior year.

Cash and cash equivalents and short-term investments as of April 30, 2016 totaled $81.8 million compared to $96.6 at the end of last year's first quarter.  The Company had no debt outstanding at quarter end.  Quarter-end inventory was $113.4, slightly below guidance of $114 million to $119 million and compared to $101.8 million at the end of last year's first quarter.  Net capital spending for the quarter totaled $5.6 million.

During the first quarter, the Company repurchased approximately $5.7 million shares of its common stock under its $50 million share repurchase plan (equating to approximately 354,000 shares at an average price of $16.05).  This brings the total repurchases under the $50 million plan to approximately $9.8 million (equating to approximately 637,000 shares at an average price of $15.42).

Second Quarter and Fiscal Year 2017 Outlook

For the second quarter of fiscal 2017, the Company expects:

Prior year full-year numbers referenced below exclude the aforementioned charges.

For fiscal 2017, the Company expectations are as follows: 

Call Information

A conference call to discuss first quarter is scheduled for today, Wednesday, June 1, 2016, 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) 428-9470, and enter the access code 1933445. A replay will be available shortly after the conclusion of the call and remain available through June 15, 2016. To access the recording, listeners should dial (877) 870-5176, and enter the access code 1933445.

About Vera Bradley, Inc.

Vera Bradley is a leading designer of women's handbags, luggage and travel items, fashion and home accessories, and unique gifts.  Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand's innovative designs, iconic patterns, and brilliant colors continue to inspire and connect women unlike any other brand in the global marketplace. 

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 2,600 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 liquidators.

The Company's commitment to bringing more beauty into women's lives includes its dedication to breast cancer research 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.  More information on potential factors that could affect the Company's financial results is included from time to time in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's public reports filed with the SEC, including the Company's Form 10-K for the fiscal year ended January 30, 2016.  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) 
       
 April 30,
2016
 January 30,
2016
 May 2,
2015
 
Assets      
Current assets:      
  Cash and cash equivalents$  51,813  $  97,681  $  96,579  
  Short-term investments   30,013     -     -  
  Accounts receivable, net   27,691     31,294     26,241  
  Inventories   113,412     113,590     101,794  
  Income taxes receivable   2,766     785     5,731  
  Prepaid expenses and other current assets   11,947     10,292     9,377  
  Deferred income taxes   -     -     13,397  
    Total current assets   237,642     253,642     253,119  
       
Property, plant, and equipment, net   114,904     113,711     112,526  
Deferred income taxes   11,142     11,363     -  
Other assets   2,057     1,963     627  
    Total assets$  365,745  $  380,679  $  366,272  
       
Liabilities and Shareholders' Equity      
Current liabilities:      
  Accounts payable$  26,378  $  24,606  $  31,478  
  Accrued employment costs   10,503     14,937     11,768  
  Other accrued liabilities   17,155     16,924     15,815  
  Income taxes payable   -     10,085     -  
    Total current liabilities   54,036     66,552     59,061  
       
Deferred income taxes   -     -     5,722  
Other long-term liabilities   29,445     28,872     27,397  
    Total liabilities   83,481     95,424     92,180  
       
Shareholders' equity:      
  Additional paid-in-capital   85,706     85,436     81,918  
  Retained earnings   246,427     244,009     212,315  
  Accumulated other comprehensive loss   (38)    (43)    (5) 
  Treasury stock   (49,831)    (44,147)    (20,136) 
    Total shareholders' equity   282,264     285,255     274,092  
    Total liabilities and shareholders' equity$  365,745  $  380,679  $  366,272  
       


     
Vera Bradley, Inc. 
Consolidated Statements of Income 
(in thousands, except per share amounts) 
(unaudited) 
     
     
 Thirteen Weeks Ended 
 April 30,
2016
 May 2,
2015
 
     
Net revenues$  105,181  $  101,104  
Cost of sales   45,525     49,410  
  Gross profit   59,656     51,694  
Selling, general, and administrative expenses   56,376     57,612  
Other income   577     947  
  Operating income (loss)   3,857     (4,971) 
Interest expense, net   48     77  
  Income (loss) before income taxes   3,809     (5,048) 
Income tax expense (benefit)   1,391     (912) 
  Net income (loss)$  2,418  $  (4,136) 
     
Basic weighted-average shares outstanding   37,547     39,884  
Diluted weighted-average shares outstanding   37,724     39,884  
     
Basic net income (loss) per share$  0.06  $  (0.10) 
Diluted net income (loss) per share$  0.06  $  (0.10) 
         


     
Vera Bradley, Inc. 
Consolidated Statements of Cash Flows 
(in thousands) 
(unaudited) 
     
     
 Thirteen Weeks Ended 
 April 30,
2016
 May 2,
2015
 
Cash flows from operating activities    
Net income (loss)$  2,418  $  (4,136) 
Adjustments to reconcile net income (loss) to net cash used in operating activities:    
  Depreciation of property, plant, and equipment   4,702     5,174  
  Provision for doubtful accounts   23     (381) 
  Loss on disposal of property, plant, and equipment   -      52  
  Stock-based compensation   842     1,404  
  Deferred income taxes   221     348  
  Gain on short-term investment   (13)    -   
  Changes in assets and liabilities:    
    Accounts receivable   3,580     5,514  
    Inventories   178     (3,391) 
    Prepaid expenses and other assets   (1,749)    (320) 
    Accounts payable   1,262     (2,905) 
    Income taxes   (12,066)    (2,523) 
    Accrued and other liabilities   (3,395)    394  
Net cash used in operating activities   (3,997)    (770) 
     
Cash flows from investing activities    
  Purchases of property, plant, and equipment   (5,594)    (7,530) 
  Purchase of short-term investment   (30,000)    -   
Net cash used in investing activities   (35,594)    (7,530) 
     
Cash flows from financing activities    
  Tax withholdings for equity compensation   (572)    (478) 
  Repurchase of common stock   (5,694)    (6,921) 
  Other financing activities, net   (16)    (24) 
Net cash used in financing activities   (6,282)    (7,423) 
Effect of exchange rate changes on cash and cash equivalents   5     10  
     
Net decrease in cash and cash equivalents$  (45,868) $  (15,713) 
Cash and cash equivalents, beginning of period   97,681     112,292  
Cash and cash equivalents, end of period$  51,813  $  96,579  
     
Supplemental disclosure of non-cash activity    
Non-cash operating, investing, and financing activities    
  Repurchase of common stock    
    Expenditures incurred but not yet paid as of April 30, 2016 and May 2, 2015$  426  $  374  
    Expenditures incurred but not yet paid as of January 30, 2016 and January 31, 2015$  436  $  116  
  Purchases of property, plant, and equipment    
    Expenditures incurred but not yet paid as of April 30, 2016 and May 2, 2015$  3,173  $  3,391  
    Expenditures incurred but not yet paid as of January 30, 2016 and January 31, 2015$  2,872  $  2,172  
     


  
Vera Bradley, Inc. 
GAAP to Non-GAAP Reconciliation Thirteen Weeks Ended May 2, 2015 
(in thousands, except per share amounts) 
(unaudited) 
 Thirteen Weeks Ended  
 As Reported Restructuring Items
& Other Items
 Non-GAAP
(Excluding Items)
  
Gross profit (loss)$  51,694  $  (3,434)1$  55,128   
Selling, general, and administrative expenses   57,612     2,483 2   55,129   
Operating (loss) income   (4,971)    (5,917)    946   
(Loss) income before income taxes   (5,048)    (5,917)    869   
Income tax (benefit) expense   (912)    (1,698)3   786   
Net (loss) income   (4,136)    (4,219)    83   
Diluted net (loss) income per share$  (0.10) $  (0.11) $  0.00   
        
Direct segment operating income (loss)$  8,027  $  (3,470)4$  11,497   
Indirect segment operating income (loss)$  9,904  $  (1,146)5$  11,050   
Unallocated corporate expenses$  (22,902) $  (1,301)6$  (21,601)  
        
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 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       
        


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

Media:
877-708-VERA (8372)