VERA BRADLEY, INC. The following discussion summarizes the significant factors affecting the condensed consolidated operating results, financial condition, liquidity, and cash flows of the Company as of and for the thirteen and twenty-six weeks endedJuly 31, 2021 andAugust 1, 2020 . The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 , and our unaudited condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report. The results of operations for the thirteen and twenty-six weeks endedJuly 31, 2021 , are not necessarily indicative of the results to be expected for the full fiscal year. The COVID-19 Pandemic During the first and second quarters of the prior-year, the COVID-19 pandemic resulted in global travel restrictions, quarantines, and certain factory closures or reduced operations, as well as mall closures and reduced mall operating hours. Although the Vera Bradley andPura Vida e-commerce operations remained open during this time, the aforementioned items had a material adverse impact on overall consumer demand, traffic, and sales during the period. We took various actions to navigate the pandemic which included, but was not limited to, temporarily closing all Vera Bradley store locations onMarch 19, 2020 ; temporarily furloughing 80% of our workforce during the middle of the first quarter; temporarily reducing base compensation for certain associates; preserving cash by drawing on our Credit Agreement, which was repaid during the fourth quarter of the prior-year; and managing inventory, rent, and other expenses. During the second quarter of the prior-year, we brought back substantially all associates from furlough and began to reinstate portions of the base compensation reductions. OnMay 5, 2020 , we began to re-open our Vera Bradley retail stores in a phased approach, with 58 out of 82 full-line stores and 64 out of 65 factory stores open as of the end ofJune 2020 . All factory stores and all but three full line stores were opened as of the end of the second quarter of the prior-year, although with reduced hours, lower staffing levels, and greatly enhanced safety protocols. Our retail stores remained open during the thirteen and twenty-six weeks endedJuly 31, 2021 ; however, guidance and mandates from governments and public health officials may necessitate closures to some, or all, of our retail stores which we cannot predict. We have also experienced certain global supply chain disruptions due in part to the COVID-19 pandemic further discussed in Supply Chain Disruptions below. We cannot predict the future impact that the COVID-19 pandemic could have on our future liquidity, operating results, and financial condition, but it could have a significant adverse affect on these metrics. Supply Chain Disruptions Throughout the second quarter for the Vera Bradley brand, we faced supply chain disruptions that caused delivery delays. We have experienced, on average, delays of 30 days before a full assortment of goods was available for each of our product launches. We are working diligently to mitigate the situation, but expect shipping delays and freight expense increases to continue for the near future. We have also been impacted by higher tariffs from previously duty-free countries, where we source products, as a result of the Generalized System of Preferences ("GSP") duty-free status expiring at the end of calendar year 2020. While we anticipate the GSP duty-free status will be reinstated and retro-actively applied, we cannot guarantee that will be the case and cannot predict the timing. These matters could have a material adverse effect on our liquidity, operating results, and financial condition. Executive Summary Below is a summary of our strategic progress and financial results for the second quarter of fiscal 2022: Strategic Progress At Vera Bradley, we: •Launched our Recycled Cotton Collection, Cotton ReImagined, and reiterated our commitment to updating 100% of our fabrics to more sustainable alternatives by 2025; •Had another exciting quarter of product collaborations, including our first-ever Classic Accessories outdoor collection and additionalHarry Potter andDisney partnerships; •Increased our customer count. We believe our customer journey-centered activations and customer-level personalized messaging are meaningfully engaging new customers and aiding in the reactivation of lapsed customers; 26 -------------------------------------------------------------------------------- Table of Contents •Drove brand awareness with more social media engagement and quality media placements, with year-over-year media impressions up over 200%; and •Continued to engage customers in various ways, including: fully implementing AfterPay, allowing customers to pay for their purchases in installments; adding product distribution on Target+ Marketplace; and continuing to boost our ThredUp partnership. At Pura Vida, we: •Substantially completed our Project Novus ERP integration, which unified our technology platform company-wide; •Continued to innovate on new products, launched our backpack and hat collections, and collaborated withDisney on a launch ofDisney -themed jewelry and hair accessories; •Expanded our wholesale distribution, adding over 250 new accounts to date this year; and •Rolled outPura Vida shop-in-shops in 23 Vera Bradley full-line locations, featuring a full assortment of jewelry items. Financial Summary (all comparisons are to the second quarter of fiscal 2021) •Net revenues increased 11.6% to$147.0 million . •Vera Bradley Direct ("VB Direct") segment sales increased 19.6% to$97.1 million . •Vera Bradley Indirect segment ("VB Indirect") sales decreased 5.1% to$16.8 million . •Pura Vida segment sales increased 0.8% to$33.1 million . •Gross profit was$80.4 million , or 54.6% of net revenue. •Operating income was$12.6 million and net income attributable toVera Bradley, Inc. was$9.1 million . •Capital expenditures for the thirteen weeks totaled$1.8 million . •Cash and cash equivalents and investments were$76.5 million atJuly 31, 2021 . How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures. Net Revenues Net revenues reflect sales of our merchandise and revenue from distribution and shipping and handling fees, less returns and discounts. Revenues for the VB Direct segment reflect sales through Vera Bradley full-line and factory outlet stores; verabradley.com; our Vera Bradley online outlet site; and typically our Vera Bradley annual outlet sale inFort Wayne, Indiana . Revenues for the VB Indirect segment reflect sales of Vera Bradley-branded products to specialty retail partners; 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. Revenues for the Pura Vida segment reflect revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca and through the distribution ofPura Vida -branded products to wholesale retailers. Comparable Sales Typically, comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our Vera Bradley e-commerce operations.Pura Vida e-commerce operations are included within the Company's comparable sales beginning with the fiscal 2021 third quarter.Pura Vida e-commerce operations include sales from the subscription club. Comparable store sales are calculated based solely upon stores that have been open for at least 12 full fiscal months. Remodeled stores are included in both comparable sales and comparable store sales unless the store was closed for more than one week of the current or comparable prior period, in which case the non-comparable temporary closure periods are not included, or the remodel resulted in a significant change in square footage. Some of our competitors and other retailers calculate comparable or "same store" sales differently than we do. As a result, data in this report regarding our comparable sales and comparable store sales may not be comparable to similar data made available by other companies. Non-comparable sales include sales from stores not included in comparable sales or comparable store sales. As a result of the temporary closure of all Vera Bradley stores due to COVID-19 during portions of the first and second quarters of the prior-year, the Company's comparable store sales and comparable sales calculations are not meaningful and therefore are not provided. 27 -------------------------------------------------------------------------------- Table of Contents Typically, measuring the change in year-over-year comparable sales allows us and our investors to evaluate how our store base and e-commerce operations are performing. Various factors affect our comparable sales, including: •Overall economic trends; •Consumer preferences and fashion trends; •Competition; •The timing of our releases of new patterns and collections; •Changes in our product mix; •Pricing and level of promotions; •Amount of store, mall, and e-commerce traffic; •The level of customer service that we provide in stores and to our on-line customers; •Our ability to source and distribute products efficiently; •The number of stores we open and close in any period; and •The timing and success of promotional and marketing efforts. Gross Profit Gross profit is equal to our net revenues less our cost of sales. Cost of sales includes the direct cost of purchased merchandise, distribution center costs, operations overhead, duty, and all inbound freight costs incurred. The components of our reported cost of sales may not be comparable to those of other retail and wholesale companies. Gross profit can be impacted by changes in volume; fluctuations in sales price; operational efficiencies, such as leveraging of fixed costs; promotional activities, including free shipping; commodity prices, such as for cotton; tariffs; and labor costs. Selling, General, and Administrative Expenses ("SG&A") SG&A expenses include selling; advertising, marketing, and product development; and administrative expenses. Selling expenses include: •VB Direct business expenses, such as store expenses, employee compensation, and store occupancy and supply costs; •VB Indirect business expenses consisting primarily of employee compensation and other expenses associated with sales to Indirect retailers; and •Pura Vida business expenses primarily related to employee compensation. Advertising, marketing, and product development expenses include employee compensation, media costs, creative production expenses, marketing agency fees, new product design costs, public relations expenses, and market research expenses. A portion of our advertising expenses may be reimbursed by Indirect retailers, and such amount is classified as other income. Administrative expenses include employee compensation for corporate functions, corporate headquarters occupancy costs, consulting and software expenses, and charitable donations. Other Income, Net Other income, net primarily includes certain legal settlements and sales tax credits received for timely filings. Operating Income (Loss) Operating income (loss) is equal to gross profit less SG&A expenses plus other income, net. Operating income (loss) excludes interest income, interest expense, and income taxes. Net Income (Loss) Net income (loss) is equal to operating income (loss) plus interest income less interest expense and income taxes. Net Income Attributable to Redeemable Noncontrolling Interest Net income attributable to redeemable noncontrolling interest represents the operating results ofPura Vida that are not attributable toVera Bradley, Inc. 28 -------------------------------------------------------------------------------- Table of Contents Net Income (Loss) Attributable toVera Bradley, Inc. Net income (loss) attributable toVera Bradley, Inc. is equal to net income (loss) less net income attributable to redeemable noncontrolling interest. Pura Vida Acquisition OnJuly 16, 2019 , the Company completed its acquisition of a seventy-five percent (75%) ownership interest inCreative Genius, Inc. or "Pura Vida" (the "Transaction") in exchange for total cash consideration of approximately$75.0 million . The Company received a working capital reimbursement of$1.0 million during the first quarter of fiscal 2021. In accordance with the Interest Purchase Agreement, the Company also agreed to a contingent payment of up to$22.5 million payable during the first quarter of calendar year 2020 based on calendar year 2019 adjusted EBITDA ofPura Vida , as defined in the Interest Purchase Agreement. This contingent payment was made during the first quarter of fiscal 2021 totaling$18.7 million . The Company's existing available cash, cash equivalents, and investments funded the purchase price due at the closing of the Transaction and subsequent to the closing. Impairment Charges Property, plant, and equipment and lease right-of-use assets (the "asset group" for store-related assets) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable. The reviews are conducted at the lowest identifiable level of cash flows. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, as further defined in Note 5 to the Notes to the Condensed Consolidated Financial Statements herein. Impairment charges of$3.8 million were recognized during the twenty-six weeks endedAugust 1, 2020 for property, plant, and equipment assets and lease right-of-use assets related to underperforming stores and are included in SG&A expenses in the Condensed Consolidated Statements of Operations and in impairment charges in the Condensed Consolidated Statements of Cash Flows. The impairment charges are included in the VB Direct segment. There were no impairment charges recorded during the thirteen and twenty-six weeks endedJuly 31, 2021 and the thirteen weeks endedAugust 1, 2020 . We are unable to predict the extent of the impact that the COVID-19 pandemic will have on our operations, the economy, or other factors; therefore, it is possible additional impairments could be identified in future periods, and such amounts could be material. Results of Operations The following tables summarize key components of our condensed consolidated results of operations for the periods indicated, both in dollars and as a percentage of our net revenues ($ in thousands): 29
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Thirteen Weeks Ended Twenty-Six Weeks Ended
July 31, August 1, July 31, August 1,
2021 2020 2021 2020
Statement of Operations Data:
Net revenues $ 147,048 $ 131,770 $ 256,142 $ 201,054
Cost of sales 66,687 52,149 116,617 87,245
Gross profit 80,361 79,621 139,525 113,809
Selling, general, and administrative expenses 68,729 62,155 129,625 121,937
Other income, net 1,016 33 789 53
Operating income (loss) 12,648 17,499 10,689 (8,075)
Interest expense, net 119 485 209 557
Income (loss) before income taxes 12,529 17,014 10,480 (8,632)
Income tax expense (benefit) 2,672 8,687 2,141 (1,422)
Net income (loss) 9,857 8,327 8,339 (7,210)
Less: Net income attributable to redeemable
noncontrolling interest 807 1,111 1,434 911
Net income (loss) attributable to Vera Bradley,
Inc. $ 9,050 $ 7,216 $ 6,905 $ (8,121)
Percentage of Net Revenues:
Net revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 45.4 % 39.6 % 45.5 % 43.4 %
Gross profit 54.6 % 60.4 % 54.5 % 56.6 %
Selling, general, and administrative expenses 46.7 % 47.2 % 50.6 % 60.6 %
Other income, net 0.7 % - % 0.3 % - %
Operating income (loss) 8.6 % 13.3 % 4.2 % (4.0) %
Interest expense, net 0.1 % 0.4 % 0.1 % 0.3 %
Income (loss) before income taxes 8.5 % 12.9 % 4.1 % (4.3) %
Income tax expense (benefit) 1.8 % 6.6 % 0.8 % (0.7) %
Net income (loss) 6.7 % 6.3 % 3.3 % (3.6) %
Less: Net income attributable to redeemable
noncontrolling interest 0.5 % 0.8 % 0.6 % 0.5 %
Net income (loss) attributable to Vera Bradley,
Inc. 6.2 % 5.5 % 2.7 % (4.0) %
The following tables present net revenues and operating income by operating
segment, both in dollars and as a percentage of associated net revenues, and
store data for the periods indicated ($ in thousands, except as otherwise
indicated):
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 31, August 1, July 31, August 1,
2021 2020 2021 2020
Net Revenues by Segment:
VB Direct $ 97,138 $ 81,233 $ 163,870 $ 118,070
VB Indirect 16,832 17,730 32,096 28,959
Pura Vida 33,078 32,807 60,176 54,025
Total $ 147,048 $ 131,770 $ 256,142 $ 201,054
Percentage of Net Revenues by Segment:
VB Direct 66.1 % 61.6 % 64.0 % 58.7 %
VB Indirect 11.4 % 13.5 % 12.5 % 14.4 %
Pura Vida 22.5 % 24.9 % 23.5 % 26.9 %
Total 100.0 % 100.0 % 100.0 % 100.0 %
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Thirteen Weeks Ended Twenty-Six Weeks Ended
July 31, August 1, July 31, August 1,
2021 2020 2021 2020
Operating Income (Loss) by Segment:
VB Direct $ 23,168 $ 22,822 $ 34,028 $ 11,857
VB Indirect 5,601 6,477 10,062 9,233
Pura Vida 3,226 4,445 5,734 3,644
Less: Corporate unallocated (19,347) (16,245) (39,135) (32,809)
Total $ 12,648 $ 17,499 $ 10,689 $ (8,075)
Operating Income (Loss) as a Percentage of
Net Revenues by Segment:
VB Direct 23.9 % 28.1 % 20.8 % 10.0 %
VB Indirect 33.3 % 36.5 % 31.3 % 31.9 %
Pura Vida 9.8 % 13.5 % 9.5 % 6.7 %
Vera Bradley Store Data (1)(2):
Total stores opened during period 3 4 4 4
Total stores closed during period (1) (1) (3) (6)
Total stores open at end of period 145 149 145 149
Total gross square footage at end of period
(all stores) 393,592 389,144 393,592 389,144
Average net revenues per gross square foot
(3) $ 187 NM $ 303 NM
(1)Includes Vera Bradley full-line and factory outlet stores.
(2)As a result of the temporary closure of Vera Bradley stores due to COVID-19
during a portion of the prior-year first and second quarters, the Company's
comparable store sales and comparable sales calculations were not meaningful and
therefore were not provided.
(3)Dollars not in thousands. Average net revenues per gross square foot are
calculated by dividing total net revenues for our stores that have been open at
least 12 full fiscal months as of the end of the period by total gross square
footage for those stores. Remodeled stores are included in average net revenues
per gross square foot unless the store was closed for a portion of the period.
As a result of the temporary closure of Vera Bradley stores due to COVID-19
during a portion of the prior-year first and second quarters, the Company's
prior-year average net revenues per square foot were not meaningful and
therefore were not provided.
Thirteen Weeks Ended July 31, 2021 , Compared to Thirteen Weeks Ended August 1,
2020
Net Revenues
For the thirteen weeks ended July 31, 2021 , net revenues increased
$15.2 million , or 11.6%, to $147.0 million , from $131.8 million in the
comparable prior-year period.
VB Direct. For the thirteen weeks ended July 31, 2021 , net revenues in the VB
Direct segment increased $15.9 million , or 19.6%, to $97.1 million , from
$81.2 million in the comparable prior-year period. The increase primarily
resulted from higher store sales in the current-year since in the prior-year the
Company's stores were temporarily closed during a portion of the quarter, as a
result of COVID-19, and began to re-open on May 5, 2020 . This increase was
partially offset by a decline in mask sales compared to the prior-year. We also
opened six Vera Bradley factory outlet stores over the past 12 months.
VB Indirect. For the thirteen weeks ended July 31, 2021 , net revenues in the VB
Indirect segment decreased $0.9 million , or 5.1%, to $16.8 million , from
$17.7 million in the comparable prior-year period. The decrease was primarily
due to a reduction in orders primarily related to mask sales, partially offset
by a rebound in specialty and key account orders in other product categories
that were negatively impacted by COVID-19 in the prior year.
Pura Vida . For the thirteen weeks ended July 31, 2021 , net revenues in the Pura
Vida segment increased $0.3 million , or 0.8%, to $33.1 million , from
$32.8 million in the comparable prior-year period. Our marketing effectiveness
for the e-commerce channel was negatively impacted by the Apple iOS 14.5 update
in the current-year resulting in a decline in e-commerce sales. This update
impacted Facebook and Instagram, which have been our primary marketing vehicles.
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Gross Profit
For the thirteen weeks ended July 31, 2021 , gross profit increased $0.8 million ,
or 0.9%, to $80.4 million , from $79.6 million in the comparable prior-year
period. As a percentage of net revenues, gross profit decreased to 54.6% for the
thirteen weeks ended July 31, 2021 , from 60.4% in the comparable prior-year
period. The decrease as a percentage of net revenues was primarily due to a
decrease in higher-margin mask sales in the current-year period compared to the
prior-year and an increase in shipping and duty costs.
Selling, General, and Administrative Expenses
For the thirteen weeks ended July 31, 2021 , SG&A expenses increased
$6.5 million , or 10.6%, to $68.7 million , from $62.2 million in the comparable
prior-year period. As a percentage of net revenues, SG&A expenses decreased to
46.7% for the thirteen weeks ended July 31, 2021 , from 47.2% in the comparable
prior-year period. SG&A expenses related to Vera Bradley and corporate
unallocated were $53.1 million compared to $46.4 million in the comparable
prior-year period. SG&A expenses related to Pura Vida were $15.6 million
compared to $15.8 million in the prior-year. The increase in consolidated SG&A
expenses for the thirteen weeks ended July 31, 2021 was primarily due to Vera
Bradley initiatives to reduce expenses in light of COVID-19 including the
temporary furlough of certain associates; temporarily reducing the base
compensation for all other salaried associates; certain expense reductions
associated with the CARES Act retention credit; and reducing other non-payroll
expenses including marketing that occurred in the prior-year period but did not
recur in the current-year period.
The aforementioned increases in SG&A expenses were partially offset by a
reduction in depreciation expense primarily as a result of legacy software
depreciation from the prior-year and a $1.5 million reduction of intangible
asset amortization associated with the Pura Vida acquisition.
SG&A expenses as a percentage of net revenues decreased primarily due to the
aforementioned items, as well as SG&A expense leverage associated with increased
sales.
Other Income, Net
For the thirteen weeks ended July 31, 2021 , net other income increased to
$1.0 million compared to $33.0 thousand in the comparable prior-year period. The
increase in net other income was primarily due to a legal settlement in the
current-year period.
Operating Income
For the thirteen weeks ended July 31, 2021 , operating income decreased
$4.9 million to $12.6 million in the current-year period, from $17.5 million in
the comparable prior-year period. As a percentage of net revenues, operating
income was 8.6% and 13.3% for the thirteen weeks ended July 31, 2021 and August
1, 2020 , respectively. Operating income decreased due to the factors described
in the captions above.
VB Direct. For the thirteen weeks ended July 31, 2021 , operating income in the
VB Direct segment increased $0.4 million , to $23.2 million from $22.8 million in
the comparable prior-year period. As a percentage of VB Direct segment net
revenues, operating income in the VB Direct segment was 23.9% and 28.1% for the
thirteen weeks ended July 31, 2021 and August 1, 2020 , respectively. The
decrease in operating income as a percentage of VB Direct segment net revenues
was primarily due to a decrease in gross margin as a percentage of net revenues
as described above and COVID-19-related expense savings from the prior-year
period that did not recur. This decrease was partially offset by SG&A expense
leverage associated with increased sales.
VB Indirect. For the thirteen weeks ended July 31, 2021 , operating income in the
VB Indirect segment decreased $0.9 million , or 13.5%, to $5.6 million from
$6.5 million in the comparable prior-year period. As a percentage of VB Indirect
segment net revenues, operating income in the VB Indirect segment was 33.3% and
36.5% for the thirteen weeks ended July 31, 2021 and August 1, 2020 ,
respectively. The decrease in operating income as a percentage of VB Indirect
segment net revenues was primarily due to a decrease in gross margin as a
percentage of net revenues as described above, partially offset by a decrease in
the bad debt provision compared to the prior-year period.
Pura Vida . For the thirteen weeks ended July 31, 2021 , operating income in the
Pura Vida segment decreased $1.2 million to $3.2 million from $4.4 million in
the comparable prior-year period. As a percentage of Pura Vida segment net
revenues, operating income in the Pura Vida segment was 9.8% and 13.5% for the
thirteen weeks ended July 31, 2021 and August 1, 2020 , respectively. The
decrease in operating income as a percentage of Pura Vida net revenues was
primarily due to a decrease in gross margin as a percentage of net revenues
partly due to channel mix changes as a result of the impact of the COVID-19
pandemic on wholesale sales in the prior-year period, partially offset by a
decrease in the intangible asset amortization expense compared to the prior-year
period.
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Corporate Unallocated. For the thirteen weeks ended July 31, 2021 , unallocated
expenses increased $3.1 million , or 19.1%, to $19.3 million from $16.2 million
in the comparable prior-year period. The increase in unallocated expenses was
primarily due to prior-year period initiatives to reduce expenses in light of
COVID-19 that did not recur in the current-year including the temporary furlough
of certain associates; temporarily reducing the base compensation for all other
salaried associates; and reducing other non-payroll expenses including
marketing. These increases in SG&A expense were partially offset by a decrease
in depreciation expense, as described above.
Income Tax Expense
The effective tax rate for the thirteen weeks ended July 31, 2021 , was 21.3%,
compared to 51.1% for the thirteen weeks ended August 1, 2020 . The year-over
year effective tax rate decrease was primarily due to the reversal of the impact
from the net operating loss ("NOL") carryback in the prior-year that was
estimated in the first quarter as a result of the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act") that was enacted on March 27, 2020 in
response to the COVID-19 pandemic.
Net Income
For the thirteen weeks ended July 31, 2021 , net income increased $1.6 million to
$9.9 million from $8.3 million in the comparable prior-year period due to the
factors described in the captions above.
Net Income Attributable to Redeemable Noncontrolling Interest
For the thirteen weeks ended July 31, 2021 , net income attributable to
redeemable noncontrolling interest was $0.8 million compared to $1.1 million in
the prior-year period. This represents the allocation of the Pura Vida net
income to the noncontrolling interest. The reduction in net income was due to
the factors described above in the Pura Vida operating segment.
Net Income Attributable to Vera Bradley, Inc.
For the thirteen weeks ended July 31, 2021 , net income attributable to Vera
Bradley, Inc. increased $1.9 million to $9.1 million from $7.2 million in the
comparable prior-year period due to the factors described in the captions above.
Twenty-Six Weeks Ended July 31, 2021 , Compared to Twenty-Six Weeks Ended
August 1, 2020
Net Revenues
For the twenty-six weeks ended July 31, 2021 , net revenues increased $55.0
million , or 27.4%, to $256.1 million , from $201.1 million in the comparable
prior-year period.
VB Direct. For the twenty-six weeks ended July 31, 2021 , net revenues in the VB
Direct segment increased $45.8 million , or 38.8%, to $163.9 million , from $118.1
million in the comparable prior-year period. The increase primarily resulted
from higher store sales in the current-year since in the prior-year the
Company's stores temporarily closed, as a result of COVID-19, beginning on March
19, 2020 . The stores began to re-open on May 5, 2020 of the prior-year. The
increase was partially offset by a decline in mask sales compared to the
prior-year period. We also opened six Vera Bradley factory outlet stores over
the past 12 months.
VB Indirect. For the twenty-six weeks ended July 31, 2021 , net revenues in the
VB Indirect segment increased $3.1 million , or 10.8%, to $32.1 million , from
$29.0 million in the comparable prior-year period. The increase was primarily
due to an increase in orders from specialty and certain key accounts, largely
related to the impacts of COVID-19 in the prior-year period, partially offset by
a decline in mask sales in the current-year period.
Pura Vida . For the twenty-six weeks ended July 31, 2021 , net revenues in the
Pura Vida segment increased $6.2 million , or 11.4%, to $60.2 million , from
$54.0 million in the comparable prior-year period. Pura Vida wholesale sales
increased over the prior-year period, which was impacted by the COVID-19
pandemic. Our marketing effectiveness for the e-commerce channel was negatively
impacted by the Apple iOS 14.5 update in the current-year resulting in a decline
in e-commerce sales. This update impacted Facebook and Instagram, which have
been our primary marketing vehicles.
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Gross Profit
For the twenty-six weeks ended July 31, 2021 , gross profit increased $25.7
million , or 22.6%, to $139.5 million , from $113.8 million in the comparable
prior-year period. As a percentage of net revenues, gross profit decreased to
54.5% for the twenty-six weeks ended July 31, 2021 , from 56.6% in the comparable
prior-year period. The decrease as a percentage of net revenues was primarily
due to a decline in higher-margin mask sales in the current-year period compared
to the prior-year and an increase in shipping and duty costs. The prior-year
period also included charges for the cancellation of certain purchase orders due
to COVID-19 which totaled $1.3 million and negatively impacted gross margin as a
percentage of net revenues by 0.7%.
Selling, General, and Administrative Expenses
For the twenty-six weeks ended July 31, 2021 , SG&A expenses increased $7.7
million , or 6.3%, to $129.6 million , from $121.9 million in the comparable
prior-year period. As a percentage of net revenues, SG&A expenses decreased to
50.6% for the twenty-six weeks ended July 31, 2021 , from 60.6% in the comparable
prior-year period. SG&A expenses related to Vera Bradley and corporate
unallocated were $101.2 million compared to $93.5 million in the comparable
prior-year period. SG&A expenses related to Pura Vida were consistent at
$28.4 million for the current and prior-year periods. The increase in
consolidated SG&A expenses for the twenty-six weeks ended July 31, 2021 was
primarily due to:
•Vera Bradley initiatives to reduce expenses in light of COVID-19 including the
temporary furlough of certain associates; temporarily reducing the base
compensation for all other salaried associates; certain expense reductions
associated with the CARES Act retention credit; and reducing other non-payroll
expenses including marketing that occurred in the prior-year period but did not
recur in the current-year period;
•An increase in incentive compensation expense due to Company performance
estimates compared to the prior-year period; and
•Amortization expense of certain cloud computing costs associated with Project
Novus technology enhancements.
The aforementioned increases in SG&A expenses were partially offset by:
•$3.8 million of Vera Bradley store impairment charges in the prior-year period
that did not recur in the current-year period;
•A reduction in depreciation expense primarily as a result of legacy software
depreciation from the prior-year; and
•A $3.2 million reduction of intangible asset amortization associated with the
Pura Vida acquisition.
SG&A expenses as a percentage of net revenues decreased primarily due to the
aforementioned items, as well as SG&A expense leverage associated with increased
sales.
Other Income, Net
For the twenty-six weeks ended July 31, 2021 , net other income increased $0.7
million to $0.8 million compared to net other income of $0.1 million in the
comparable prior-year period. The increase in net other income was primarily due
to legal settlements in the current-year period.
Operating Income (Loss)
For the twenty-six weeks ended July 31, 2021 , operating income increased $18.8
million to $10.7 million in the current-year period, from an operating loss of
$(8.1) million in the comparable prior-year period. As a percentage of net
revenues, operating income was 4.2% and operating loss was (4.0)% for the
twenty-six weeks ended July 31, 2021 and August 1, 2020 , respectively. Operating
income increased due to the factors described in the captions above.
VB Direct. For the twenty-six weeks ended July 31, 2021 , operating income in the
VB Direct segment increased $22.1 million , to $34.0 million from $11.9 million
in the comparable prior-year period. As a percentage of VB Direct segment net
revenues, operating income in the VB Direct segment was 20.8% and 10.0% for the
twenty-six weeks ended July 31, 2021 and August 1, 2020 , respectively. The
increase in operating income as a percentage of VB Direct segment net revenues
was primarily due to SG&A expense leverage associated with increased sales and a
decrease in SG&A expense primarily as a result of store impairment charges in
the prior-year period and a reduction in depreciation expense in the
current-year, partially offset by a decrease in gross margin as a percentage of
net revenues as described above and COVID-19-related expense savings from the
prior-year period that did not recur.
VB Indirect. For the twenty-six weeks ended July 31, 2021 , operating income in
the VB Indirect segment increased $0.9 million , or 9.0%, to $10.1 million from
$9.2 million in the comparable prior-year period. As a percentage of VB Indirect
segment net revenues, operating income in the VB Indirect segment was 31.3% and
31.9% for the twenty-six weeks ended July 31, 2021 and August 1, 2020 ,
respectively. The decrease in operating income as a percentage of VB Indirect
segment net revenues was primarily due to a decrease in gross margin as a
percentage of net revenues, partially offset by SG&A expense leverage associated
with increased sales and a decrease in the bad debt provision compared to the
prior-year period.
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Pura Vida . For the twenty-six weeks ended July 31, 2021 , operating income in the
Pura Vida segment increased $2.1 million to $5.7 million from $3.6 million in
the comparable prior-year period. As a percentage of Pura Vida segment net
revenues, operating income in the Pura Vida segment was 9.5% and 6.7% for the
twenty-six weeks ended July 31, 2021 and August 1, 2020 , respectively. The
increase in operating income as a percentage of Pura Vida net revenues was
primarily due to SG&A expense leverage associated with increased sales and a
decrease in the intangible asset amortization expense compared to the prior-year
period, partially offset by a decrease in gross margin as a percentage of net
revenues partly due to channel mix changes as a result of the impact of the
COVID-19 pandemic on wholesale sales in the prior-year period.
Corporate Unallocated. For the twenty-six weeks ended July 31, 2021 , unallocated
expenses increased $6.3 million , or 19.3%, to $39.1 million from $32.8 million
in the comparable prior-year period. The increase in unallocated expenses was
primarily due to prior-year period initiatives to reduce expenses in light of
COVID-19 that did not recur in the current-year including the temporary furlough
of certain associates; temporarily reducing the base compensation for all other
salaried associates; and reducing other non-payroll expenses including
marketing, as well as an increase in incentive compensation expense due to
Company performance estimates and amortization expense associated with certain
cloud computing costs for Project Novus technology enhancements. These increases
in SG&A expense were partially offset by a decrease in depreciation expense, as
described above.
Income Tax Expense (Benefit)
The effective tax rate for the twenty-six weeks ended July 31, 2021 , was 20.4%,
compared to 16.5% for the twenty-six weeks ended August 1, 2020 . The year-over
year effective tax rate increase was primarily due to the relative impact of
permanent and discrete items in the current-year period compared to the
prior-year period, primarily as a result of stock-based compensation.
Net Income (Loss)
For the twenty-six weeks ended July 31, 2021 , net income increased $15.5 million
to $8.3 million from a net loss of $(7.2) million in the comparable prior-year
period due to the factors described in the captions above.
Net Income Attributable to Redeemable Noncontrolling Interest
For the twenty-six weeks ended July 31, 2021 , net income attributable to
redeemable noncontrolling interest was $1.4 million compared to $0.9 million in
the prior-year period. This represents the allocation of the Pura Vida net
income to the noncontrolling interest. The increase in net income was due to the
factors described above in the Pura Vida operating segment.
Net Income (Loss) Attributable to Vera Bradley, Inc.
For the twenty-six weeks ended July 31, 2021 , net income attributable to Vera
Bradley, Inc. increased $15.0 million to $6.9 million from a net loss of $(8.1)
million in the comparable prior-year period due to the factors described in the
captions above.
Liquidity and Capital Resources
General
Our primary sources of liquidity are cash on hand and cash equivalents,
investments, and cash flow from operations. We also have access to additional
liquidity, if needed, through borrowings under our $75.0 million asset-based
revolving credit agreement (the "Credit Agreement"). There was no debt
outstanding as of July 31, 2021 . Historically, our primary cash needs have been
for merchandise inventories; payroll; store rent; capital expenditures
associated with operational equipment, buildings, information technology, and
opening new stores; and share repurchases. The most significant components of
our working capital are cash and cash equivalents, merchandise inventories,
accounts receivable, accounts payable, and other current liabilities.
We believe that cash on hand and cash equivalents, investments, cash flows from
operating activities, and the availability of borrowings under our Credit
Agreement or other financing arrangements will be sufficient to meet working
capital requirements and anticipated capital expenditures, and other strategic
uses of cash, if any, for the foreseeable future.
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Cash Flow Analysis
A summary of operating, investing, and financing activities is shown in the
following table (in thousands):
Twenty-Six Weeks Ended
July 31, August 1,
2021 2020
Net cash provided by (used in) operating activities $ 16,487 $ (77)
Net cash (used in) provided by investing activities (1,671) 18,901
Net cash (used in) provided by financing activities (3,229) 6,816
Net Cash Provided by (Used in) Operating Activities
Net cash provided by (used in) operating activities consists primarily of net
income adjusted for non-cash items, including depreciation, amortization,
impairment charges, deferred taxes, and stock-based compensation; and the effect
of changes in assets and liabilities.
Net cash provided by operating activities for the twenty-six weeks ended
July 31, 2021 was $16.5 million compared to cash used in operating activities of
$0.1 million for the twenty-six weeks ended August 1, 2020 . The increase in cash
provided by operating activities was primarily related to the change in assets
and liabilities and an increase in the net income adjusted for non-cash items.
Changes in assets and liabilities resulting in a source of cash were primarily
related to an increase in trade accounts receivable collections, mostly due to
the impact of COVID-19 on the prior-year period, as well as a decrease in
inventory receipts compared to the prior-year. Changes in assets and liabilities
resulting in a use of cash were primarily related to the timing of payments,
including rent payments which were impacted by payment deferrals in the
prior-year. There was also a change in the income tax receivable due to the loss
in the prior-year period.
Net Cash (Used in) Provided by Investing Activities
Investing activities consist primarily of investments and capital expenditures
related to new store openings, buildings, operational equipment, and information
technology investments.
Net cash used in investing activities was $1.7 million for the twenty-six weeks
ended July 31, 2021 compared to cash provided by investing activities of $18.9
million for the twenty-six weeks ended August 1, 2020 . The increase in cash used
in investing activities was primarily a result of proceeds from investment
activity in the prior-year period that did not recur in the current-year period.
Capital expenditures for fiscal 2022 are expected to be approximately
$8.0 million to $10.0 million .
Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities was $3.2 million for the twenty-six weeks
ended July 31, 2021 compared to cash provided by financing activities of $6.8
million for the twenty-six weeks ended August 1, 2020 . The increase in cash used
in financing activities was primarily due to financing activities that occurred
in the prior-year period but did not recur in the current-year period including
net borrowings of $30.0 million under our Credit Agreement, partially offset by
$18.7 million for a contingent consideration payment associated with the July
2019 acquisition of Pura Vida and $3.1 million in common stock repurchases.
On September 7, 2018 , VBD, a wholly-owned subsidiary of the Company, entered
into an asset based revolving Credit Agreement (the "Credit Agreement") among
VBD, JPMorgan Chase Bank, N.A ., as administrative agent, and the lenders from
time to time party thereto. The Credit Agreement provides for certain credit
facilities to VBD in an aggregate principal amount not to initially exceed the
lesser of $75.0 million or the amount of borrowing availability determined in
accordance with a borrowing base of certain assets. Any proceeds of the credit
facilities will be used to finance general corporate purposes of VBD and its
subsidiaries, including but not limited to Vera Bradley International, LLC and
Vera Bradley Sales, LLC (collectively, the "Named Subsidiaries"). The Credit
Agreement also contains an option for VBD to arrange with lenders to increase
the aggregate principal amount by up to $25.0 million .
Amounts outstanding under the Credit Agreement bear interest at a per annum rate
equal to either (i) for CBFR borrowings (including swingline loans), the CB
Floating Rate, where the CB Floating Rate is the prime rate which shall never be
less than the adjusted one month LIBOR rate on such day, plus the Applicable
Rate, where the Applicable Rate is a percentage spread ranging from -1.00% to
-1.50% or (ii) for each eurodollar borrowing, the Adjusted LIBO Rate, where the
Adjusted LIBO Rate is the LIBO rate for such interest period multiplied by the
statutory reserve rate, for the interest period in effect for such borrowing,
plus the Applicable Rate, where the Applicable Rate is a percentage ranging from
1.00% to 1.30%. The applicable
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CB Floating Rate, Adjusted LIBO Rate, or LIBO Rate shall be determined by the
administrative agent. The Credit Agreement also requires VBD to pay a commitment
fee for the unused portion of the revolving facility of up to 0.20% per annum.
VBD's obligations under the Credit Agreement are guaranteed by the Company and
the Named Subsidiaries. The obligations of VBD under the Credit Agreement are
secured by substantially all of the respective assets of VBD, the Company, and
the Named Subsidiaries and are further secured by the equity interests in VBD
and the Named Subsidiaries.
The Credit Agreement contains various affirmative and negative covenants,
including restrictions on the Company's ability to incur debt or liens; engage
in mergers or consolidations; make certain investments, acquisitions, loans, and
advances; sell assets; enter into certain swap agreements; pay dividends or make
distributions or make other restricted payments; engage in certain transactions
with affiliates; and amend, modify, or waive any of its rights related to
subordinated indebtedness and certain charter and other organizational,
governing, and material agreements. The Company may avoid certain of such
restrictions by meeting payment conditions defined in the Credit Agreement. The
Company was in compliance with these covenants as of July 31, 2021 .
The Credit Agreement also requires the Loan Parties to maintain a minimum fixed
charge coverage ratio of 1.00 to 1.00 during periods when borrowing availability
is less than the greater of (A) $7.5 million , and (B) 10% of the lesser of (i)
the aggregate revolving commitment, and (ii) the borrowing base. The fixed
charge coverage ratio, availability, aggregate revolving commitment, and the
borrowing base are further defined in the Credit Agreement.
The Credit Agreement contains customary events of default, including, among
other things: (i) the failure to pay any principal, interest, or other fees
under the Credit Agreement; (ii) the making of any materially incorrect
representation or warranty; (iii) the failure to observe or perform any
covenant, condition, or agreement in the Credit Agreement or related agreements;
(iv) a cross default with respect to other material indebtedness; (v) bankruptcy
and insolvency events; (vi) unsatisfied material final judgments; (vii) Employee
Retirement Income Security Act of 1974 ("ERISA") events that could reasonably be
expected to have a material adverse effect; and (viii) a change in control (as
defined in the Credit Agreement).
Any commitments made under the Credit Agreement mature on September 7, 2023 .
As of July 31, 2021 and January 30, 2021 , the Company had no borrowings
outstanding and availability of $75.0 million under the Credit Agreement.
Off-Balance-Sheet Arrangements
We do not have any off-balance-sheet financing or unconsolidated special-purpose
entities.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses, as well as the related disclosures of contingent assets
and liabilities at the date of the financial statements. A summary of the
Company's significant accounting policies is included in Note 2 to the Company's
consolidated financial statements in the Company's Annual Report on Form 10-K
for the fiscal year ended January 30, 2021 .
Certain accounting policies and estimates of the Company are considered
critical, as these policies and estimates are the most important to the
depiction of the Company's consolidated financial statements and require
significant, difficult, or complex judgments, often about the effect of matters
that are inherently uncertain. Such policies are summarized in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021 .
There were no significant changes to any of the critical accounting policies and
estimates described in the Annual Report as of July 31, 2021 .
Recently Issued Accounting Pronouncements
Refer to Note 1 "Description of the Company and Basis of Presentation" within
Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q for a
discussion of recently issued accounting pronouncements.
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