SEC Filing | Vera Bradley Designs Inc

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vra-20220730

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________

FORM 10-Q

___________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number: 001-34918

___________________________

https://cdn.kscope.io/d007d5291992b4e295383f811a2892c9-vra-20220730_g1.jpg

VERA BRADLEY, INC.

(Exact name of registrant as specified in its charter)

___________________________


Indiana						27-2935063
(State or other jurisdiction of incorporation or organization)						(I.R.S. 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)

___________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, without par value	VRA	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The registrant had 31,098,169 shares of its common stock outstanding as of August 31, 2022.

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TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of July 30, 2022, and January 29, 2022	4

	Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended July 30, 2022, and July 3 1, 2021	5

	Condensed Consolidated Statements of Comprehensive Income for the Thirteen and Twenty-Six Weeks Ended July 30, 2022, and July 31, 2021	6

	Condensed Consolidated Statements of Shareholders' Equity for the Thirteen and Twenty-Six Weeks Ended July 30, 2022, and July 31, 2021	7

	Condensed Consolidated Statements of Cash Flows for the T wenty-Six Weeks Ended July 30, 2022, and July 31, 2021	9

	Notes to the Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 6.	Exhibits	44

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FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements include references to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” and “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenues, costs, expenditures, cash flows, growth rates, and financial results, our plans and objectives for future operations, growth, initiatives, or strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to 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 consumer spending, including political unrest, social unrest, acts of war and terrorism, inflation, impacts related to variants of the novel coronavirus (COVID-19) outbreak, and other related matters;

•public health pandemics, including the continued outbreak of COVID-19 and actions to contain the spread of the virus by governmental or other actors;

•possible inability to successfully implement our long-term strategic plans;

•possible declines in our comparable sales;

•possible inability to maintain and enhance our brands;

•possible failure of our multi-channel distribution model;

•possible inability to predict and respond in a timely manner to changes in consumer demand;

•possible inability to successfully open new stores and/or operate current stores as planned;

•possible loss of key management associates or inability to attract and retain the talent required for our business;

•possible data security or privacy breaches or disruptions in our computer systems or website;

•possible disruptions in our supply chain;

•possible new or increased tariffs on our products that could lead to increased product costs and lower profit margins; and

•possible inability to successfully implement integration strategies related to the Pura Vida business and possible inability to derive expected benefits from or to successfully integrate any future business acquisition.

We derive many of our forward-looking statements from our operating plans and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

For a discussion of the above described risks and uncertainties 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 Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, as well as in Item 1A herein.

We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Vera Bradley, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)


	July 30, 2022		January 29, 2022
Assets
Current assets:
Cash and cash equivalents	$	38,321	$	88,436

Accounts receivable, net	25,593		20,681
Inventories	179,557		144,881
Income taxes receivable	5,113		9,391
Prepaid expenses and other current assets	16,913		15,928

Total current assets	265,497		279,317
Operating right-of-use assets	85,793		79,873
Property, plant, and equipment, net	60,305		59,941
Intangible assets, net	32,769		44,223
Goodwill	24,833		44,254

Deferred income taxes	9,276		3,857
Other assets	4,748		6,081
Total assets	$	483,221	$	517,546
Liabilities, Redeemable Noncontrolling Interest, and Shareholders’ Equity
Current liabilities:
Accounts payable	$	43,722	$	30,492
Accrued employment costs	16,018		12,463
Short-term operating lease liabilities	19,768		18,699

Other accrued liabilities	21,526		16,422
Income taxes payable	374		—

Total current liabilities	101,408		78,076


Long-term operating lease liabilities	84,015		80,861

Other long-term liabilities	157		195
Total liabilities	185,580		159,132
Commitments and contingencies
Redeemable noncontrolling interest	23,491		30,974
Shareholders’ equity:
Preferred stock; 5,000 shares authorized, no shares issued or outstanding	—		—
Common stock, without par value; 200,000 shares authorized, 42,834 and 42,429 shares issued and 31,166 and 33,170 shares outstanding, respectively	—		—
Additional paid-in-capital	107,941		107,907
Retained earnings	297,623		334,364
Accumulated other comprehensive loss	(135)		(29)
Treasury stock	(131,279)		(114,802)
Total shareholders’ equity of Vera Bradley, Inc.	274,150		327,440
Total liabilities, redeemable noncontrolling interest, and shareholders’ equity	$	483,221	$	517,546

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 30, 2022		July 31, 2021		July 30, 2022		July 31, 2021
Net revenues	$	130,371	$	147,048	$	228,830	$	256,142
Cost of sales	69,854		66,687		115,799		116,617
Gross profit	60,517		80,361		113,031		139,525
Selling, general, and administrative expenses	74,042		68,729		134,956		129,625
Impairment of goodwill and intangible assets	29,338		—		29,338		—
Other income, net	42		1,016		209		789
Operating (loss) income	(42,821)		12,648		(51,054)		10,689
Interest expense, net	36		119		76		209
(Loss) income before income taxes	(42,857)		12,529		(51,130)		10,480
Income tax (benefit) expense	(5,956)		2,672		(7,519)		2,141
Net (loss) income	(36,901)		9,857		(43,611)		8,339
Less: Net (loss) income attributable to redeemable noncontrolling interest	(7,134)		807		(6,870)		1,434
Net (loss) income attributable to Vera Bradley, Inc.	$	(29,767)	$	9,050	$	(36,741)	$	6,905

Basic weighted-average shares outstanding	31,429		34,001		32,051		33,795
Diluted weighted-average shares outstanding	31,429		34,500		32,051		34,502

Basic net (loss) income per share available to Vera Bradley, Inc. common shareholders	$	(0.95)	$	0.27	$	(1.15)	$	0.20
Diluted net (loss) income per share available to Vera Bradley, Inc. common shareholders	$	(0.95)	$	0.26	$	(1.15)	$	0.20

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 30, 2022		July 31, 2021		July 30, 2022		July 31, 2021
Net (loss) income	$	(36,901)	$	9,857	$	(43,611)	$	8,339
Unrealized loss on available-for-sale debt investments	—		(1)		—		(3)
Cumulative translation adjustment	(75)		(3)		(106)		(9)
Comprehensive (loss) income, net of tax	(36,976)		9,853		(43,717)		8,327
Less: Comprehensive (loss) income attributable to redeemable noncontrolling interest	(7,134)		807		(6,870)		1,434
Comprehensive (loss) income attributable to Vera Bradley, Inc.	$	(29,842)	$	9,046	$	(36,847)	$	6,893

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

(unaudited)


	Number of Shares
	Common Stock	Treasury Stock	Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity of Vera Bradley, Inc.
Balance at January 29, 2022	33,170,430	9,258,741	$	107,907	$	334,364	$	(29)	$	(114,802)	$	327,440
Net loss attributable to Vera Bradley, Inc.	—	—	—		(6,974)		—		—		(6,974)
Translation adjustments	—	—	—		—		(31)		—		(31)

Restricted shares vested, net of repurchase for taxes	404,469	—	(1,410)		—		—		—		(1,410)
Stock-based compensation	—	—	543		—		—		—		543
Treasury stock purchased	(1,423,096)	1,423,096	—		—		—		(10,454)		(10,454)

Balance at April 30, 2022	32,151,803	10,681,837	$	107,040	$	327,390	$	(60)	$	(125,256)	$	309,114
Net loss attributable to Vera Bradley, Inc.	—	—	—		(29,767)		—		—		(29,767)
Translation adjustments	—	—	—		—		(75)		—		(75)

Restricted shares vested, net of repurchase for taxes	89	—	—		—		—		—		—
Stock-based compensation	—	—	901		—		—		—		901
Treasury stock purchased	(986,023)	986,023	—		—		—		(6,023)		(6,023)

Balance at July 30, 2022	31,165,869	11,667,860	$	107,941	$	297,623	$	(135)	$	(131,279)	$	274,150

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Vera Bradley, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

(continued)

(unaudited)


	Number of Shares
	Common Stock	Treasury Stock	Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders’ Equity of Vera Bradley, Inc.
Balance at January 30, 2021	33,414,490	8,393,207	$	105,433	$	316,526	$	8	$	(107,060)	$	314,907
Net loss attributable to Vera Bradley, Inc.	—	—	—		(2,145)		—		—		(2,145)
Translation adjustments	—	—	—		—		(6)		—		(6)
Unrealized loss on available-for-sale debt investments	—	—	—		—		(2)		—		(2)
Restricted shares vested, net of repurchase for taxes	570,562	—	(2,171)		—		—		—		(2,171)
Stock-based compensation	—	—	1,814		—		—		—		1,814


Balance at May 1, 2021	33,985,052	8,393,207	$	105,076	$	314,381	$	—	$	(107,060)	$	312,397
Net income attributable to Vera Bradley, Inc.	—	—	—		9,050		—		—		9,050
Translation adjustments	—	—	—		—		(3)		—		(3)
Unrealized loss on available-for-sale debt investments	—	—	—		—		(1)		—		(1)
Restricted shares vested, net of repurchase for taxes	36,278	—	(179)		—		—		—		(179)
Stock-based compensation	—	—	1,558		—		—		—		1,558


Balance at July 31, 2021	34,021,330	8,393,207	$	106,455	$	323,431	$	(4)	$	(107,060)	$	322,822

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Twenty-Six Weeks Ended
	July 30, 2022		July 31, 2021
Cash flows from operating activities
Net (loss) income	$	(43,611)	$	8,339
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation of property, plant, and equipment	4,371		4,514
Amortization of operating right-of-use assets	10,621		10,026
Goodwill and intangible asset impairment	29,338		—
Other impairment charges	1,351		—
Amortization of intangible assets	1,537		1,537
Provision for doubtful accounts	(119)		26

Stock-based compensation	1,444		3,372
Deferred income taxes	(5,419)		236



Other non-cash gain, net	—		(45)
Changes in assets and liabilities:
Accounts receivable	(4,793)		(2,380)
Inventories	(34,676)		(6,632)
Prepaid expenses and other assets	348		2,153
Accounts payable	12,759		2,696
Income taxes	4,652		762
Operating lease liabilities, net	(12,910)		(13,202)
Accrued and other liabilities	7,989		5,085
Net cash (used in) provided by operating activities	(27,118)		16,487
Cash flows from investing activities
Purchases of property, plant, and equipment	(4,391)		(2,281)

Proceeds from maturities and sales of investments	—		565

Proceeds from disposal of property, plant, and equipment	—		45
Net cash used in investing activities	(4,391)		(1,671)
Cash flows from financing activities


Tax withholdings for equity compensation	(1,410)		(2,350)
Repurchase of common stock	(16,477)		—
Distributions to redeemable noncontrolling interest	(613)		(879)





Net cash used in financing activities	(18,500)		(3,229)
Effect of exchange rate changes on cash and cash equivalents	(106)		(9)
Net (decrease) increase in cash and cash equivalents	(50,115)		11,578
Cash and cash equivalents, beginning of period	88,436		64,175
Cash and cash equivalents, end of period	$	38,321	$	75,753

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Vera Bradley, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(continued)

(unaudited)


	Twenty-Six Weeks Ended
	July 30, 2022		July 31, 2021
Supplemental disclosure of cash flow information
Cash (received) paid for income taxes, net	$	(6,755)	$	1,157
Supplemental disclosure of non-cash activity
Non-cash operating, investing, and financing activities



Purchases of property, plant, and equipment
Expenditures incurred but not yet paid as of July 30, 2022 and July 31, 2021	$	1,353	$	974
Expenditures incurred but not yet paid as of January 29, 2022 and January 30, 2021	$	250	$	343

Refer to Note 3 herein for supplemental cash flow information regarding the Company’s leases.

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1.Description of the Company and Basis of Presentation

The term “Company” refers to Vera Bradley, Inc. and its wholly and majority owned subsidiaries, except where the context requires otherwise or where otherwise indicated.

Vera Bradley, Inc. operates two unique lifestyle brands – Vera Bradley and Pura Vida. We believe Vera Bradley and Pura Vida are complementary businesses, both with devoted, emotionally-connected, and multi-generational female customer bases; alignment as causal, comfortable, affordable, and fun brands; positioning as “gifting” and socially-connected brands; strong, entrepreneurial cultures; a keen focus on community, charity, and social consciousness; multi-channel distribution strategies; and talented leadership teams aligned and committed to the long-term success of their brands.

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.

In July 2019, Vera Bradley, Inc. acquired a 75% interest in Creative Genius, Inc., which also operates under the name Pura Vida Bracelets (“Pura Vida”). Pura Vida, based in La Jolla, California, is a digitally native lifestyle brand that we believe deeply resonates with its loyal consumer following. The Pura Vida brand has a differentiated and expanding offering of bracelets, jewelry, and other lifestyle accessories.

The Company has three reportable segments: Vera Bradley Direct (“VB Direct”), Vera Bradley Indirect (“VB Indirect”), and Pura Vida.

•The VB Direct business consists of sales of Vera Bradley products through Vera Bradley full-line and factory outlet stores in the United States; verabradley.com and verabradley.ca; the Vera Bradley online outlet site; and typically the Vera Bradley annual outlet sale in Fort Wayne, Indiana. As of July 30, 2022, the Company operated 64 full-line stores and 79 factory outlet stores. In light of the COVID-19 pandemic, the Company cancelled its calendar year 2022 and 2021 annual outlet sales.

•The VB Indirect business consists of sales of Vera Bradley products to approximately 1,700 specialty retail locations, substantially all of which are located in the United States, as well as department stores, national accounts, third-party e-commerce sites, third-party inventory liquidators, and royalties recognized through licensing agreements related to the Vera Bradley brand.

•The Pura Vida segment represents revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca, the distribution of Pura Vida-branded products to wholesale retailers, substantially all of which are located in the United States, as well as through its two retail stores which opened in August 2021 and July 2022.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as permitted by such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022, filed with the SEC.

The interim financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the results for the interim periods presented. All such adjustments are of a normal, recurring nature. The results of operations for the thirteen and twenty-six weeks ended July 30, 2022, are not necessarily indicative of the results to be expected for the full fiscal year due to, in part, the uncertainty of macroeconomic factors on future periods, including inflation and supply chain challenges, among other related matters.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned subsidiary, Pura Vida. The Company has eliminated intercompany balances and transactions in consolidation.

Fiscal Periods

The Company’s fiscal year ends on the Saturday closest to January 31. References to the fiscal quarters ended July 30, 2022 and July 31, 2021 refer to the thirteen week periods ended on those dates.

Recently Issued Accounting Pronouncements

There were no new accounting pronouncements issued or which became effective during the thirteen and twenty-six weeks ended July 30, 2022, which had, or are expected to have, a significant impact on the Company's Consolidated Financial Statements.

2.Revenue from Contracts with Customers

Disaggregation of Revenue

The following presents the Company's net revenues disaggregated by product category for the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021 (in thousands):


	Thirteen Weeks Ended
	July 30, 2022
	VB Direct Segment			VB Indirect Segment			Pura Vida Segment			Total
Product categories
Bags	$	38,373		$	9,603		$	779		$	48,755
Travel	20,071			3,033			—			23,104
Accessories	15,757			2,636			23,269			41,662
Home	8,726			732			—			9,458
Apparel/Footwear(6)	2,161			360			1,359			3,880
Other	1,925		(1)	961		(2)	626		(3)	3,512
Total net revenues	$	87,013	(4)	$	17,325	(5)	$	26,033	(4)	$	130,371

(1) Primarily includes net revenues from stationery, freight, and gift card breakage.
(2) Primarily includes net revenues from licensing agreements and freight.
(3) Related to freight.
(4) Net revenues were related to product sales recognized at a point in time.
(5) $16.6 million of net revenues related to product sales recognized at a point in time and $0.7 million of net revenues related to sales-based royalties recognized over time.
(6) Includes mask sales.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)


	Thirteen Weeks Ended
	July 31, 2021
	VB Direct Segment			VB Indirect Segment			Pura Vida Segment			Total
Product categories
Bags	$	41,250		$	8,883		$	574		$	50,707
Travel	23,837			3,325			—			27,162
Accessories	18,298			2,597			30,448			51,343
Home	9,348			718			—			10,066
Apparel/Footwear(6)	2,494			180			1,156			3,830
Other	1,911		(1)	1,129		(2)	900		(3)	3,940
Total net revenues	$	97,138	(4)	$	16,832	(5)	$	33,078	(4)	$	147,048

(1) Primarily includes net revenues from stationery, freight, and gift card breakage.
(2) Primarily includes net revenues from licensing agreements and freight.
(3) Related to freight.
(4) Net revenues were related to product sales recognized at a point in time.
(5) $15.9 million of net revenues related to product sales recognized at a point in time and $0.9 million of net revenues related to sales-based royalties recognized over time.
(6) Includes mask sales.


	Twenty-Six Weeks Ended
	July 30, 2022
	VB Direct Segment			VB Indirect Segment			Pura Vida Segment			Total
Product categories
Bags	$	64,505		$	19,054		$	842		$	84,401
Travel	35,159			6,106			—			41,265
Accessories	27,256			4,404			42,129			73,789
Home	14,448			1,858			—			16,306
Apparel/Footwear(6)	4,064			860			1,795			6,719
Other	3,217		(1)	2,020		(2)	1,113		(3)	6,350
Total net revenues	$	148,649	(4)	$	34,302	(5)	$	45,879	(4)	$	228,830

(1) Primarily includes net revenues from stationery, freight, and gift card breakage.
(2) Primarily includes net revenues from licensing agreements and freight.
(3) Related to freight.
(4) Net revenues were related to product sales recognized at a point in time.
(5) $32.8 million of net revenues related to product sales recognized at a point in time and $1.5 million of net revenues related to sales-based royalties recognized over time.
(6) Includes mask sales.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)


	Twenty-Six Weeks Ended
	July 31, 2021
	VB Direct Segment			VB Indirect Segment			Pura Vida Segment			Total
Product categories
Bags	$	67,688		$	16,933		$	574		$	85,195
Travel	39,016			5,892			—			44,908
Accessories	30,159			4,824			55,959			90,942
Home	15,886			1,455			—			17,341
Apparel/Footwear(6)	7,855			851			1,784			10,490
Other	3,266		(1)	2,141		(2)	1,859		(3)	7,266
Total net revenues	$	163,870	(4)	$	32,096	(5)	$	60,176	(4)	$	256,142

(1) Primarily includes net revenues from stationery, freight, and gift card breakage.
(2) Primarily includes net revenues from licensing agreements and freight.
(3) Related to freight.
(4) Net revenues were related to product sales recognized at a point in time.
(5) $30.4 million of net revenues related to product sales recognized at a point in time and $1.7 million of net revenues related to sales-based royalties recognized over time.
(6) Includes mask sales.

Contract Balances

Contract liabilities as of July 30, 2022 and January 29, 2022, were $2.9 million and $3.9 million, respectively. The balance as of July 30, 2022 and January 29, 2022 consisted of unredeemed gift cards, unearned revenue related to the monthly bracelet and jewelry clubs of the Pura Vida segment, Pura Vida loyalty club points, Pura Vida customer deposits and payments collected before shipment, and an immaterial amount of unearned revenue for pre-payments of royalties in certain of the Company’s licensing arrangements. These contract liabilities are recognized within other accrued liabilities on the Company’s Condensed Consolidated Balance Sheets. Substantially all contract liabilities are recognized within one year. The Company did not have contract assets as of July 30, 2022 and January 29, 2022.

The balance for accounts receivable from contracts with customers, net of allowances, as of July 30, 2022 and January 29, 2022, was $24.3 million and $18.1 million, respectively, which is recognized within accounts receivable, net, on the Company’s Condensed Consolidated Balance Sheets. The provision for doubtful accounts was $1.1 million and $1.2 million as of July 30, 2022 and January 29, 2022, respectively. The provision for doubtful accounts is based upon the likelihood of default expected during the life of the receivable.

Performance Obligations

The performance obligations for the VB Direct, VB Indirect, and Pura Vida segments include the promise to transfer distinct goods (or a bundle of distinct goods). The VB Indirect segment also includes the right to access intellectual property (“IP”) related to the Vera Bradley brand.

Remaining Performance Obligations

The Company does not have remaining performance obligations in excess of one year or contracts that it does not have the right to invoice as of July 30, 2022.

3.Leases

Discount Rate

The weighted-average discount rate as of July 30, 2022, and July 31, 2021 was 4.6% and 4.7%, respectively. The discount rate is not readily determinable in the lease; therefore, the Company estimated the incremental borrowing

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

rate, at the commencement date of each lease, which is the rate of interest it would have to borrow on a collateralized basis over a similar term with similar payments.

Leases Not Yet Commenced

As of July 30, 2022, the Company had a total of three Vera Bradley retail store leases which were executed, but it did not have control of the underlying assets; therefore, the lease liability and right-of-use asset are not recorded on the Condensed Consolidated Balance Sheet. These leases contain undiscounted lease payments, which will be included in the determination of the lease liability, totaling approximately $6.4 million and have terms of up to 10 years commencing in fiscal year 2023.

Amounts Recognized in the Condensed Consolidated Financial Statements

The following lease expense is recorded within cost of sales for the Asia sourcing office and certain equipment leases and within selling, general, and administrative expenses for all other leases, including retail store leases, in the Company's Condensed Consolidated Statement of Operations for the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021 (in thousands):


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 30, 2022		July 31, 2021		July 30, 2022		July 31, 2021
Operating lease cost	$	6,114	$	6,303	$	12,364	$	12,173
Variable lease cost	1,564		2,052		2,982		3,534
Short-term lease cost	102		49		316		242
Less: Sublease income (1)	(24)		—		(24)		—
Total net lease cost	$	7,756	$	8,404	$	15,638	$	15,949
(1) Related to the sublease of a former Company location.

The weighted-average remaining lease term as of July 30, 2022 and July 31, 2021 was 5.4 years.

Supplemental operating cash flow information was as follows (in thousands):


	Twenty-Six Weeks Ended
	July 30, 2022		July 31, 2021
Cash paid for amounts included in the measurement of operating lease liabilities (1)	$	14,910	$	18,327
Right-of-use assets increase as a result of new and modified operating lease liabilities, net	$	17,225	$	7,961
(1) $2.5 million of lease liabilities were recorded within accounts payable on the Company's Consolidated Balance Sheets as of January 30, 2021, and were paid in the first quarter of fiscal 2022.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

4.Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding, plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares represent outstanding restricted stock units.

On July 16, 2019, as contemplated by the Interest Purchase Agreement, the Company and certain of its subsidiaries and the owners of the remaining twenty-five percent (25%) ownership interest in Pura Vida (the “Sellers”) which was not acquired by the Company (the “Remaining Pura Vida Interest”) entered into a Put/Call Agreement (the “Put/Call Agreement”). Pursuant to the Put/Call Agreement, and subject to the terms and conditions thereof, the Sellers have the right to sell all of the Remaining Pura Vida Interest to the Company, and the Company has the right to purchase all of the Remaining Pura Vida Interests from Sellers, in each case generally at any time following the fifth anniversary of the closing date of the transaction until the tenth anniversary thereof. The purchase price for any Remaining Pura Vida Interest put to, or called by, the Company will be determined based on the arithmetic average of a multiple of adjusted EBITDA of Pura Vida and a multiple of adjusted EBITDA of the Company, as defined in the Put/Call Agreement, over the twelve-month period ending on the last day of the month immediately preceding the month in which an exercise notice is delivered by a relevant party.

As a result of this redemption feature, the Company recorded the noncontrolling interest as redeemable and classified it in temporary equity within its Condensed Consolidated Balance Sheets initially at its acquisition-date fair value. The noncontrolling interest is adjusted each reporting period for income (or loss) attributable to the noncontrolling interest. A measurement period adjustment, if any, is then made to adjust the noncontrolling interest to the higher of the redemption value or carrying value each reporting period. These adjustments are recognized through retained earnings and are not reflected in net income or net income attributable to Vera Bradley, Inc. When calculating earnings per share attributable to Vera Bradley, Inc., the Company adjusts the net income attributable to Vera Bradley, Inc. for the measurement period adjustment to the extent the redemption value exceeds the fair value of the noncontrolling interest on a cumulative basis.

The components of basic and diluted earnings per share were as follows (in thousands, except per share data):


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 30, 2022		July 31, 2021		July 30, 2022		July 31, 2021
Numerator:
Net (loss) income	$	(36,901)	$	9,857	$	(43,611)	$	8,339
Less: Net (loss) income attributable to redeemable noncontrolling interest	(7,134)		807		(6,870)		1,434
Net (loss) income attributable to Vera Bradley, Inc.	$	(29,767)	$	9,050	$	(36,741)	$	6,905



Denominator:
Weighted-average number of common shares (basic)	31,429		34,001		32,051		33,795
Dilutive effect of stock-based awards	—		499		—		707
Weighted-average number of common shares (diluted)	31,429		34,500		32,051		34,502

Net (loss) income per share available to Vera Bradley, Inc. common shareholders:
Basic	$	(0.95)	$	0.27	$	(1.15)	$	0.20
Diluted	$	(0.95)	$	0.26	$	(1.15)	$	0.20

For the thirteen and twenty-six weeks ended July 30, 2022, all potential common shares were excluded from the diluted share calculation because they were anti-dilutive due to the net loss in the period.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

For the thirteen and twenty-six weeks ended July 31, 2021, there were an immaterial number of additional shares issuable upon the vesting of restricted stock units that were excluded from the diluted share calculations because they were anti-dilutive.

5.Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

•Level 1 – Quoted prices in active markets for identical assets or liabilities;

•Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;

•Level 3 – Unobservable inputs based on the Company’s own assumptions.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.

The carrying amounts reflected on the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, other current assets, and accounts payable as of July 30, 2022 and January 29, 2022, approximated their fair values.

The following table details the fair value measurements of the Company's investments as of July 30, 2022 and January 29, 2022 (in thousands):


	Level 1				Level 2				Level 3
	July 30, 2022		January 29, 2022		July 30, 2022		January 29, 2022		July 30, 2022		January 29, 2022
Cash equivalents(1)	$	358	$	2,856	$	—	$	—	$	—	$	—














(1) Cash equivalents represent a money market fund that has a maturity of three months or less at the date of purchase. Due to the short maturity, the Company believes the carrying value approximates fair value.

The Company assesses potential impairments to its long-lived assets, which includes property, plant, and equipment and lease right-of-use assets, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Store-level assets and right-of-use assets are grouped at the individual store-level for the purpose of the impairment assessment. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. The fair value of the store assets is determined using the discounted future cash flow method of anticipated cash flows through the store’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The Company recorded $0.8 million and $1.4 million for store property, plant, and equipment impairment charges and a corporate lease right-of-use asset impairment charge for the thirteen and twenty-six weeks ended July 30, 2022, respectively. There were no long-lived asset impairment charges for the thirteen and twenty-six weeks ended July 31, 2021.

On a nonrecurring basis, assets recognized or disclosed at fair value on the consolidated financial statements include items such as property, plant, and equipment, including leasehold improvements, and operating lease assets, as well as assets related to the Pura Vida acquisition including goodwill and intangible assets. These assets are measured at fair value if determined to be impaired. During the thirteen and twenty-six weeks ended July 30, 2022, the Company recorded a $