Vera Bradley Announces Fiscal Year 2015 First Quarter Results

Vera Bradley Announces Fiscal Year 2015 First Quarter Results                       Net revenues totaled $113.5 million           Net income totaled $6.6 million, or $0.16 per diluted share                      Company updates guidance for full year  FORT WAYNE, Ind., June 5, 2014 (GLOBE NEWSWIRE) -- Vera Bradley, Inc. (Nasdaq:VRA) ("Vera Bradley" or the "Company") today announced its financial results for the first quarter ended May 3, 2014.  Net revenues totaled $113.5 million for the current year first quarter, compared to $123.0 million in the prior year first quarter ended May 4, 2013. Net income totaled $6.6 million, or $0.16 per diluted share, for the current year first quarter compared to net income of $9.2 million, or $0.23 per diluted share, in the prior year first quarter.  Robert Wallstrom, Chief Executive Officer, noted, "While our first quarter revenues were modestly below our expectations, we were able to post earnings per share above our guidance due to better than expected gross margin and expense performance."  "However, we continue to face a difficult environment, one that is proving much more challenging than we anticipated just two short months ago," Wallstrom continued.  "Direct segment revenues are weaker than we expected," Wallstrom also noted. "Sales from existing customers have been relatively stable, but our traditional patterns and products simply are not attracting enough new customers to our brand, and overall traffic is down substantially. In our Indirect segment, while orders from our major accounts are up, orders from our specialty gift channel retailers are down significantly on a year-over-year basis. Until we can make meaningful changes to our product offering and marketing initiatives, we don't expect these sales trends to substantially improve. As a result, we are lowering our revenue and earnings per share projections for the fiscal year.  "As we have noted, this will be an important year of transition and transformation for Vera Bradley. We believe that the product, distribution, and marketing initiatives we previously outlined as part of our long-term strategic plan are absolutely the right ones for the future. While the short-term will remain challenging, I am pleased with the progress we are making against these key elements of our five-year plan. Importantly, we have assembled a team of talented and seasoned retail executives – both from within the organization and new to the Company – that will help us achieve our long-term goals."  First Quarter Details  Current year first quarter revenues of $113.5 million fell modestly below the Company's guidance of $116 million to $120 million. The sales miss to guidance primarily was due to lower than expected orders from the Company's Indirect specialty retail partners, weaker than expected comparable store sales performance in the Company's retail stores, and a shortfall at the Company's annual outlet sale.  Current year first quarter Direct segment revenues totaled $73.4 million, essentially flat with $73.7 million in the prior year first quarter. In the Company's stores, first quarter year-over-year net revenues grew 5.9%, reflecting the opening of 16 full-line and three outlet stores during the past 12 months, which was partially offset by a comparable-store sales decline. Total company comparable store sales fell 9.4% for the quarter (which includes a 14.4% decline in store sales and a 3.2% decline in e-commerce sales). Comparable store revenues were negatively impacted by year-over-year declines in traffic and underperformance of the product offering. Severe winter weather negatively affected store traffic during the first two months of the quarter.  Indirect segment revenues decreased 18.9% to $40.0 million from $49.3 million in the prior year first quarter, primarily due to lower orders from the Company's specialty retail accounts.  Gross profit for the quarter totaled $60.5 million, or 53.3% of net revenues, compared to $68.5 million, or 55.6% of net revenues, in the prior year first quarter. The year-over-year decline in gross margin rate was primarily related to overhead costs deleveraging and increased year-over-year promotional activity. The first quarter gross margin rate was better than guidance of 52.0% to 52.6%, primarily due to the timing of a portion of the inventory liquidation initially planned for the first quarter that will now occur later in the year.  SG&A expense totaled $51.3 million, or 45.2% of net revenues, in the current year first quarter, compared to $55.2 million, or 44.9% of net revenues, in the prior year first quarter. In spite of lower than expected revenues, the SG&A expense rate was favorable to guidance of 46.0% to 46.6% primarily due to cost containment efforts as well as payroll associated with certain management positions that were budgeted but unfilled in the first quarter.  Operating income totaled $10.8 million, or 9.5% of net revenues, in the current year first quarter, compared to operating income of $15.2 million, or 12.3% of net revenues, in the prior year first quarter.  The effective tax rate was 38.7% for the quarter compared to 38.9% in the prior year first quarter.  Cash flow from operations for the first quarter totaled $27.0 million, compared to $14.9 million for last year's first quarter. The improvement was driven primarily by a reduction in inventory levels.  Cash and cash equivalents as of May 3, 2014 totaled $81.5 million compared to $8.2 million at the end of last year's first quarter. The Company had no debt outstanding at May 3, 2014. Quarter-end inventory was $126.6 million, modestly below guidance of $128 million to $133 million and compared to $138.9 million last year. Net capital spending for the quarter totaled $7.1 million.  Recent Event  On June 4, 2014, the Company entered into a five-year agreement with Mitsubishi Corporation and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the Company will exit its direct business in Japan during the third quarter and will account for this business as a discontinued operation from that point forward. The Company expects to incur pre-tax charges related to the exit from Japan during the third quarter of approximately $2.0 million, equating to $.03 per share, which will be reflected in discontinued operations. Approximately $1.0 million of that amount relates to a non-cash charge for a currency translation loss that has accumulated in equity since entering the Japan market over three years ago. The remaining charge relates to the write off of certain assets, employee severance, and other exit charges. The new wholesale business in Japan is included in the Indirect segment guidance below, but given that the new Look-operated distribution points are not expected to be opened until late in the year, the impact to the current year sales and earnings guidance is minimal.  Outlook  For the second quarter of fiscal 2015, the Company expects:    *Net revenues to be in the range of $113 million to $120 million compared     to prior year second quarter revenues of $125.4 million.   *The gross margin rate to range from 53.5% to 54.0% compared to 57.2% in     the prior year second quarter.   *SG&A as a percent of sales to range from 43.0% to 44.5% compared to 38.6%     in the prior year second quarter.   *Diluted earnings per share to be in the range of $0.18 to $0.20, based on     diluted weighted-average shares outstanding of 40.7 million and an     effective tax rate of 40.0%. Diluted earnings per share totaled $.37 in     the prior year second quarter.  The Company expects inventory to be $118 million to $128 million at the end of the second quarter, compared to $142.9 million at the end of last year's second quarter.  For fiscal 2015, the Company expects:    *Net revenues to be in the range of $510 million to $530 million compared     to $530.9 million last year.   *The gross margin rate to range from 52.5% to 53.5% compared to 55.1% last     year.   *SG&A as a percent of sales to range from 40.0% to 41.5% compared to 38.4%     last year.   *Diluted earnings per share from continuing operations to be in the range     of $1.00 to $1.10, based on diluted weighted-average shares outstanding of     40.7 million and an effective tax rate of 38.4%. Diluted earnings per     share from continuing operations totaled $1.48 last year.   *Net capital spending of approximately $40 million.  Call Information  A conference call to discuss fiscal 2015 first quarter results is scheduled for today, June 5, 2014, at 9:30 a.m. Eastern Time. A broadcast of the call will be available via Vera Bradley's Investor Relations section of its website, www.verabradley.com. Alternatively, interested parties may dial into the call at (888) 500-6974, and enter the access code 9338959. A replay of the call will be available shortly after the conclusion of the call and remain available through June 19, 2014. To access the recording, listeners should dial (877) 870-5176, and enter the access code 9338959.  About Vera Bradley, Inc.  Vera Bradley is a leading designer of women's handbags and accessories, luggage and travel items, eyewear, stationery and gifts. Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand's iconic designs and versatile styles offer women of all ages a colorful way to accessorize every look.  Vera Bradley offers a unique, multi-channel sales model as well as a focus on service and a high level of customer engagement. The Company sells its products through two reportable segments: Direct and Indirect. The Direct business consists of sales of Vera Bradley products through the Company's full-price and outlet stores in the United States; department store locations in Japan; its websites, verabradley.com and verabradley.co.jp; and its annual outlet sale in Fort Wayne, Indiana. The Indirect business consists of sales of Vera Bradley products to approximately 3,000 specialty retail doors, substantially all of which are located in the United States, as well as select department stores, national accounts, third party e-commerce sites, and third-party inventory liquidation.  The Company's commitment to breast cancer research continues to increase its reach through the Vera Bradley Foundation for Breast Cancer.  For more information about Vera Bradley (Nasdaq:VRA), visit www.verabradley.com/mediaroom.  Website Information  We routinely post important information for investors on our website www.verabradley.com in the "Investor Relations" section. We intend to use this webpage as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document.  Vera Bradley Safe Harbor Statement  Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected, including: possible adverse changes in general economic conditions and their impact on consumer confidence and spending; possible inability to predict and respond in a timely manner to changes in consumer demand; possible loss of key management or design associates or inability to attract and retain the talent required for our business; possible inability to maintain and enhance our brand; possible inability to successfully implement our growth strategies or manage our growing business; possible inability to successfully open new stores as planned; and possible inability to sustain levels of comparable-store sales. For a discussion of these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 1, 2014. 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)                                                                                                                                                                           May 3,     February 1, May 4,                                            2014       2014        2013 Assets                                                           Current assets:                                                  Cash and cash equivalents                  $81,524  $59,215   $8,229 Accounts receivable, net                   18,557    27,718     26,758 Inventories                                126,562   136,923    138,949 Prepaid expenses and other current assets  9,417     9,952      9,211 Deferred income taxes                      13,981    13,094     11,860 Total current assets                       250,041   246,902    195,007                                                                 Property, plant, and equipment, net        88,433    84,940     79,652 Other assets                               879       1,085      1,630 Total assets                               $339,353 $332,927  $276,289                                                                 Liabilities and Shareholders' Equity                             Current liabilities:                                             Accounts payable                           $23,686  $27,745   $17,768 Accrued employment costs                   10,871    10,586     9,571 Other accrued liabilities                  22,365    20,403     18,335 Income taxes payable                       3,397     1,625      5,761 Current portion of long-term debt          --        --         42 Total current liabilities                  60,319    60,359     51,477                                                                 Long-term debt                             --       --        5,030 Other long-term liabilities                12,645    12,778     10,134 Deferred income taxes                      4,267     4,643      6,102 Total liabilities                          77,231    77,780     72,743                                                                 Shareholders' equity:                                            Additional paid-in-capital                 78,551    78,153     76,032 Retained earnings                          184,569   178,002    128,379 Accumulated other comprehensive loss       (998)     (1,008)    (865) Total shareholders' equity                 262,122   255,147    203,546 Total liabilities and shareholders' equity $339,353 $332,927  $276,289      Vera Bradley, Inc. Consolidated Statements of Income (in thousands, except per share amounts) (unaudited)                                                                                                                                                              Thirteen Weeks Ended                                              May 3,     May 4,                                               2014       2013                                                         Net revenues                                  $113,461 $ 123,033 Cost of sales                                 52,936    54,567 Gross profit                                  60,525    68,466 Selling, general, and administrative expenses 51,312    55,227 Other income                                  1,577     1,951 Operating income                              10,790    15,190 Interest expense, net                         80        141 Income before income taxes                    10,710    15,049 Income tax expense                            4,143     5,860 Net income                                    $6,567   $9,189                                                         Basic weighted-average shares outstanding     40,639    40,580 Diluted weighted-average shares outstanding   40,725    40,624 Basic net income per share                    $0.16    $0.23 Diluted net income per share                  0.16      0.23      Vera Bradley, Inc. Consolidated Statements of Cash Flows (in thousands) (unaudited)                                                                                                                                                                                                Thirteen Weeks Ended                                                          May 3,    May 4,                                                           2014      2013 Cash flows from operating activities                                Net income                                                $6,567  $9,189 Adjustments to reconcile net income to net cash provided            by operating activities: Depreciation and amortization of property, plant, and     3,563    3,323 equipment Recovery of doubtful accounts                             (115)    (213) Loss on disposal of property, plant, and equipment        --      2 Stock-based compensation                                  980      806 Deferred income taxes                                     (1,263)  (548) Changes in assets and liabilities:                                  Accounts receivable                                       9,276    8,266 Inventories                                               10,373   (7,567) Other assets                                              741      1,943 Accounts payable                                          (7,075)  2,915 Income taxes payable                                      1,772    (1,333) Accrued and other liabilities                             2,138    (1,904) Net cash provided by operating activities                 26,957   14,879                                                                    Cash flows from investing activities                                Purchases of property, plant, and equipment               (4,040)  (5,811) Net cash used in investing activities                     (4,040)  (5,811)                                                                    Cash flows from financing activities                                Payments on financial-institution debt                    --       (35,000) Borrowings on financial-institution debt                  --       25,000 Shares surrendered for tax withholding                    (582)    (389) Other financing activities, net                           (24)     (23) Net cash used in financing activities                     (606)    (10,412) Effect of exchange rate changes on cash and cash          (2)      (30) equivalents                                                                    Increase (decrease) in cash and cash equivalents          $22,309 $(1,374) Cash and cash equivalents, beginning of period            59,215   9,603 Cash and cash equivalents, end of period                  $81,524 $8,229                                                                    Supplemental disclosure of cash-flow information                    Non-cash operating and investing activities                         Property, plant, and equipment expenditures incurred but  $3,016  $-- not yet paid      Vera Bradley, Inc. SupplementalStatement of Income First Quarter 2015^1 (in thousands, except per share amounts) (unaudited)                                                                                                                                                                     Thirteen Weeks Ended, May 3, 2014  Thirteen Weeks Ended, May 4, 2013                 As        Discontinued Continuing As        Discontinued Continuing                  Reported  Operations   Operations Reported  Operations   Operations Net revenues     $113,461 $1,264      $112,197  $123,033 $1,474      $121,559 Cost of sales    52,936    494          52,442     54,567    482          54,085 Gross profit     60,525    770          59,755     68,466    992          67,474 Selling, general, and     51,312    1,079        50,233     55,227    1,149        54,078 administrative expenses Other income     1,577     --          1,577      1,951     --          1,951 Operating income 10,790    (309)        11,099     15,190    (157)        15,347 (loss) Interest         80        --          80         141       --          141 expense, net Income (loss) before income    10,710    (309)        11,019     15,049    (157)        15,206 taxes Income tax       4,143     (118)        4,261      5,860     --          5,860 expense Net income       $6,567   $(191)      $6,758    $9,189   $(157)      $9,346                                                                           Basic weighted-average 40,639    40,639       40,639     40,580    40,580       40,580 shares outstanding Diluted weighted-average 40,725    40,725       40,725     40,624    40,624       40,624 shares outstanding Basic net income $0.16    $(0.01)     $0.17     $0.23    $(0.00)     $0.23 per share Diluted net      0.16      (0.01)       0.17       0.23      (0.00)       0.23 income per share                                                                           ^1On June 4, 2014, the Company entered into a five-year agreement with Mitsubishi Corporation and Look Inc. to import and distribute Vera Bradley products in Japan.As a result of moving to this wholesale business model, the Company will exit its direct retail business in Japan in the third quarter. The supplemental schedule provided above recasts the Company's fiscal 2014 income statement to present the Japan results as discontinued operations.      Vera Bradley, Inc. SupplementalStatement of Income Fiscal 2014^1 (in thousands, except per share amounts) (unaudited)                                                                                  Thirteen Weeks Ended                      Fifty Two Weeks Ended                 Continuing Operations                     Continuing As                                                            Operations Reported                  May 4,   August 3,  November   February   February   February                 2013     2013       2,         1,         1,         1,                                      2013       2014       2014       2014                                                                  Net revenues     $       $123,969 $128,949 $156,419 $530,896 $536,021                  121,559 Cost of sales    54,085  53,104    57,710    73,784    238,683   240,589 Gross profit     67,474  70,865    71,239    82,635    292,213   295,432 Selling, general, and     54,078  47,157    47,646    52,540    201,421   205,957 administrative expenses Other income     1,951   630       1,027     1,168     4,776     4,776 Operating income from continuing  15,347  24,338    24,620    31,263    95,568    94,251 operations Interest         141     82        58        101       382       382 expense, net Income from continuing operations       15,206  24,256    24,562    31,162    95,186    93,869 before income taxes Income tax       5,860   9,034     8,905     11,258    35,057    35,057 expense Income from continuing       9,346   15,222    15,657    19,904    60,129    58,812 operations Discontinued operations, net  (157)   (271)     (431)     (458)     (1,317)   -- of income taxes Net income       $9,189 $14,951  $15,226  $19,446  $58,812  $58,812                                                                  Basic weighted-average 40,580  40,603    40,605    40,606    40,599    40,599 shares outstanding Diluted weighted-average 40,624  40,623    40,652    40,694    40,648    40,648 shares outstanding                                                                  Basic net income                                                  per share Continuing       $0.23  $0.38    $0.38    $0.49    $1.48     operations Discontinued     (0.00)  (0.01)    (0.01)    (0.01)    (0.03)     operations As reported                                                      1.45                                                                  Diluted net                                                       income per share Continuing       0.23    0.38      0.38      0.49      1.48       operations Discontinued     (0.00)  (0.01)    (0.01)    (0.01)    (0.03)     operations As reported                                                      1.45                                                                  ^1On June 4, 2014, the Company entered into a five-year agreement with Mitsubishi Corporation and Look Inc. to import and distribute Vera Bradley products in Japan.As a result of moving to this wholesale business model, the Company will exit its direct retail business in Japan in the third quarter. The supplemental schedule provided above recasts the Company's fiscal 2014 income statement to present the Japan results as discontinued operations.   CONTACT: Investors:          Julia Bentley, VP of Investor Relations and Communications          jbentley@verabradley.com          (260) 207-5116                   Media:          877-708-VERA (8372)          Mediacontact@verabradley.com