Vera Bradley, Inc. (VRA) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for being with us on Vera Bradley's earnings call. A number of the remarks we make in our prepared comments and in answering your questions could be forward-looking statements, made under and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Both known and unknown risks and uncertainties apply to those forward-looking statements, and actual results could differ materially from what we expect. For a discussion of known risks and uncertainties, please see today's press release and the company's most recent Form 10-K filed with the SEC. Investors should not assume that what is said on the call will remain operative at a later time. We assume no obligation to update any information discussed on the call. I'll now hand things over to Vera Bradley's CEO, Rob Wallstrom. Rob?

Thanks, Mark, and good morning, everyone. We appreciate you being with us on today's call. John Enwright, our CFO, is here with me as well. I'm very happy with how the second quarter turned out — results came in above what we had expected and above last year's performance, even with the COVID-19 headwinds. The credit goes to our whole team, whose agility, tenacity, collaboration, and ingenuity turned these results into reality. We showed that by concentrating on innovation that improves the customer experience, along with product marketing and technology, and by controlling the things within our control, we can deliver strong results, generate strong cash flow, and put ourselves in position to come out of this as a stronger company. Second quarter revenue for the total company rose 10% year over year, fueled by a full quarter of Pura Vida plus Vera Bradley ecommerce sales doubling, partly offset by lower Vera Bradley store revenues from COVID-19 related closings during part of the quarter. At Vera Bradley and at Pura Vida, customers responded to new product launches and marketing initiatives, and cotton mask sales generated meaningful revenue growth. Our consolidated gross margin rate expanded significantly in the quarter, thanks to cotton mask sales, product collaborations, careful inventory management, and tightly controlled promotional activity; we also managed expenses carefully, achieving expense leverage in the quarter. Our balance sheet remains strong. Even after paying down $30 million on our ABL facility during the quarter, we finished with cash and investments of $77.1 million. On May 5, 2020, we started reopening Vera Bradley stores in phases, and by the end of June, 58 of our 82 full line stores and 64 of our 65 factory stores were open. As of the second quarter end, all factory stores and all but three full line stores were open, though with reduced hours, lower staffing levels, and greatly enhanced customer capacity and safety protocols. We aren't making any assumptions about future growth performance based on a limited number of days of sales data, but the 133 existing stores that were open for the entire fiscal month of July collectively generated roughly 70% of the prior year's sales. Traffic was typically down by more than the sales level, yet higher conversion and units per transaction let us significantly outperform the traffic trend. Our ecommerce business — Vera Bradley and Pura Vida combined — was very strong in the quarter even as stores began reopening. We know the pandemic will leave a lasting mark on how consumers act and shop, and that our digital competencies matter even more in this new environment. Our acquisition of digitally native Pura Vida, which made ecommerce a larger share of total company revenues, together with our continued investment in Vera Bradley's ecommerce site and infrastructure, has positioned us well for the future. We truly appreciate each of our associates, and we’re particularly grateful to the team members who have served on the front lines in our distribution center—keeping our ecommerce business strong—and in our stores, making sure customers remain safe and enjoy excellent experiences; we were very pleased to give a $500 bonus to our distribution center, store, and customer service associates who worked full time during the quarter, prorated for our full-time and part-time associates who worked a portion of the quarter, in recognition of their exceptional hard work and commitment during this period. That dedication across our associate base reflects the strong culture we have created and continue to foster at both of our brands. Our latest associate engagement survey again showed that our associates are highly engaged and feel deeply passionate about our company. We continually aim to build on our strengths, and an important element of that is strengthening our diversity and inclusion initiatives, and while we have a track record of fostering an inclusive environment, we want to improve further and cultivate a more diverse community. We have named a talented, long-serving Vera Bradley associate as diversity and inclusion manager to lead these efforts, beginning with the launch of a project quilt and the creation of a diversity and inclusion committee whose members reflect diverse communities throughout our organization. This marks just the start of our work, but we intend to take serious, thoughtful steps to keep advancing diversity, equality, and inclusion across our company and within the communities we serve. We will concentrate on three key areas: the associate experience, the customer experience, and the community experience, and we look forward to updating you on our progress. Now I’ll hand the call to John to review the financial results. John?

Thanks, Rob, and good morning, everyone. I'd like to walk through some key points from the quarter. Just as a reminder, our financial results have been consolidated to include Pura Vida starting July 17, 2019 — the first full day after the acquisition closed. We have not restated prior period figures. All the numbers I'll cover today are non-GAAP. For a full reconciliation of GAAP to non-GAAP figures, please see the schedules that accompany today's press release. The non-GAAP second quarter income statement figures for the current year leave out intangible asset amortization as well as Project Novus expenses. Non-GAAP EPS for the current quarter also excludes the ASC 480 measurement adjustment described in today's release. The non-GAAP income statement figures for last year's second quarter exclude Pura Vida acquisition related charges and Project Novus expenses. Consolidated net revenues came to $131.8 million for the current year second quarter, up 10% versus the prior year. Leaving out Pura Vida, Vera Bradley net revenues were $99 million, down 13.5% from $114.4 million in the prior year second quarter. Cotton masks accounted for more than 10% of consolidated revenues in the quarter. Excluding charges, Vera Bradley incorporated non-GAAP consolidated net income was $10.9 million, or $0.32 per diluted share, for the second quarter, versus $8.7 million, or $0.25 per diluted share, last year. Vera Bradley direct segment revenues were $81.2 million, a 13.9% decline from $94.4 million in the prior year second quarter. That drop was mainly driven by stores that were temporarily closed due to COVID-19 for roughly half of the second quarter, partly offset by a 99.1% rise in ecommerce revenues for the quarter. Over the last 12 months, we closed 12 full line stores and opened five factory stores. Vera Bradley indirect segment revenues were $17.7 million, down 11.4% from $20 million in the prior year second quarter, reflecting fewer orders primarily tied to COVID-19 and a reduction in the number of specialty and department store accounts. Pura Vida segment revenues were $32.8 million, compared to $5.4 million in the prior year, which represented revenues for the partial period post acquisition. Second quarter consolidated gross margin was $79.6 million, or 60.4% of net revenues, versus $68.4 million, or 57.1%, in the prior year on a non-GAAP basis. Pura Vida benefited the current year second quarter non-GAAP percentage by roughly 40 basis points. We substantially expanded our gross margin rate in the quarter through cotton mask sales, product collaborations, careful inventory management, and tightly controlled promotional activity. Cotton masks contributed close to 300 basis points to gross margin for the quarter. On a non-GAAP basis, consolidated SG&A expense was $58.6 million, or 44.5% of net revenues, for the current year second quarter, compared to $57.8 million, or 48.2% of net revenues, last year. On a non-GAAP basis, Pura Vida contributed $13.5 million of SG&A expenses in the current year and $2.4 million in the prior year. Once you strip out those extra Pura Vida costs, Vera Bradley's SG&A came in below the previous year, largely because of both temporary and permanent cutbacks tied to COVID-19; on a non-GAAP basis, consolidated operating income for this year's second quarter was $21.1 million, or 16%, versus $11.3 million, or 9.5% of net revenues, a year ago. Because of the ongoing uncertainty around COVID-19, fiscal 2021 financial performance is very hard to forecast. So we aren't offering forward-looking guidance. You shouldn't treat second quarter results as a signal of what's ahead, especially since mask sales may soften over the rest of the year; let me now move to the balance sheet. Net capital spending came to $2 million for the second quarter and $4.3 million for the six months. For the full year, we expect capital expenditures of roughly $8 million to $10 million, mostly for new factory stores plus technology and logistics improvements. Cash, cash equivalents and investments stood at $77.1 million as of August 1, 2020, up from $70.5 million at the close of last year's second quarter. As Rob mentioned, during the second quarter we paid down $30 million on our ABL credit facility, which leaves $30 million outstanding on the $75 million facility. Inventory at quarter end was $136.2 million versus $130.7 million at the end of the second quarter a year ago. Given COVID-19, the company has cancelled some fall product orders and anticipates inventory will stay fairly flat through the remainder of the year. The good news is that a lot of our inventory isn't seasonal and doesn't carry the shelf life of fashion apparel. We'll be rational and prudent in clearing inventory, as we always strive to be. Rob?

Thanks, John. To start, I’ll bring you up to speed on the technology system overhaul we recently completed. In early August, following over a year of strenuous effort and commitment, our net technology platform—Project Novus—went live. Our ecommerce sites were shifted onto Shopify Plus, a best-in-class cloud-based platform. Our prior ERP, POS, business intelligence, and order management systems were replaced by cloud-based Microsoft D365, which streamlined and simplified how we work and opened up added capabilities like mobile POS. This switch didn’t just reduce the complexity of our IT systems—it gave us a more efficient technology platform that will let the whole enterprise reach the goals we have for the future. To thrive in the current climate and beyond, we must make rapid choices based on data from our databases and keep enhancing how customers experience us; our new systems excite us for what they can achieve and the opportunities they open up, and we will continue putting money into technology and building up our capabilities going forward. Thanks to these systems, we can gather customer information and feedback earlier and far more immediately, and that will fuel innovation throughout product, marketing, and stores. We have likewise brought in new warehouse automation systems at our distribution center, which ought to raise productivity, grow our capacity, and better the consumer experience. Moving on to news about our two brands: our attention stays fixed on advancing Vera Bradley and Pura Vida alike via innovation, product marketing, and technology. COVID-19 has altered how customers live and work in ways both dramatic and lasting, and since our casual, comfortable brands align perfectly with that shift, we hold an especially strong position. I'll start with Vera Bradley. Our offerings will remain authentic and faithful to our brand heritage, yet innovation matters more and more for our current customers and for keeping new ones coming in. We already have a strong fabric innovation process for refreshing our cotton collection and for creating fabric alternatives. Our latest complete lines—performance twill and ReActive, the recycled range—are winning customers over and earning great ratings; we've also just launched an ultra-light fabric in our factory stores, and early results look strong. Expect further fabric innovation from us across the coming 12 to 24 months. In addition, we'll continue launching fresh patterns, styles, and distinctive silhouettes to serve every aspect of how our customers live. Hands-free items such as our slings and cross-bodies are our primary focus, since they've grown increasingly essential to our customers, especially throughout the pandemic. We remain focused over the long term on strengthening our leadership in our core areas: youth campus, travel, and every day. Our cotton masks are a strong illustration of novelty and innovation, and they generated substantial revenue and gross margin dollars for us in the quarter. In April, we ramped up mask production and distribution, and since then we have continued to grow the line with fresh styles, sizes, patterns, and solids; we are thrilled to provide customers in the communities we serve with the personal protective equipment they require while adding color and fun at the same time. Our masks can also be found at Target, Staples, and QVC. With COVID-19's impact fading, we expect mask sales to decline over the second half of the year, while the core business should continue recovering. We keep introducing limited-time capsule collections tied to seasonal occasions or novelty themes, generating excitement and urgency that brings customers in to shop. Last year customers responded enthusiastically to our fun, playful Cat's Meow collection, so this month we introduced our Best in Show print, which naturally features dogs; this one is sure to become a Vera Bradley fan favorite. For Pride Month in June, we launched a Pride tote. And on August 18, to commemorate the 100th anniversary of the 19th Amendment to the Constitution—the amendment that secured women's right to vote—we introduced a limited edition Persistence patchwork tote. We're also carrying on with collaborations and strategic alliances designed to energize and draw in both current and new customers, extend how far our brand reaches, boost awareness of the brand, bring in media coverage, and create chances for Vera Bradley to strategically try out and eventually move into new product categories. These partnerships really show how strong our brand is and how broadly it appeals. During July, we rolled out our second Gillette Venus tie-up, sold via Target and Sainsbury in the U.K., and August saw the debut of our latest Disney assortment on VeraBradley.com along with our second yearly Crocs partnership. Naturally, the launch we were most thrilled about was our long-awaited Vera Bradley plus Harry Potter line, which arrived in July. Collaborating with Warner Bros consumer products, this spellbinding capsule range channels the imagination and adventurous spirit of the wizarding world. Ranging from backpacks and lunch bags to robes, lanyards, accessories and beyond, the collection has something for everyone, whether they're prepping for back to school or just looking for a touch of magic. Every design in this line features a Hogwarts-exclusive print that showcases beloved symbols from the Harry Potter franchise, finished with Vera Bradley's distinctive vibrant aesthetic. Certain items are additionally available in solid corduroy versions coordinated to each Hogwarts house. The reaction we got from the numerous Vera Bradley and Harry Potter enthusiasts was tremendous, and numerous products were snapped up fast. Traffic to our site hit an all-time high on launch day, with lots of those visitors being first-time Vera Bradley customers. This debut performed exceptionally well, and we're placing reorders on several of the top-selling products right in time for the holidays. Now let me move on to marketing, starting with VB Cares. While we concentrated on strengthening our standing as an ESG organization, we also kept building up our community assistance and charitable efforts beneath the VB Cares banner, especially via groups capable of meaningfully bettering the lives of women and children. The Coronavirus Response Fund for Nurses is one of those groups. A percentage of every cotton mask the company sold through the end of July went toward backing the nurses toiling tirelessly and bravely on the COVID-19 crisis frontlines. Thanks to our cotton mask sales, we managed to give more than $630,000 to the American Nurses Fund. Our associates are absolutely delighted that they can back the healthcare workers battling daily to treat people hit by the pandemic, and we feel tremendous gratitude toward our loyal customers for making this possible. Blessings in a Backpack holds a very special place in our hearts. This incredible organization brings together communities, individuals and resources so that food is provided on weekends to under-resourced elementary school children throughout America who might otherwise go hungry.

Because of COVID-19, limits on gatherings, and the uncertainty about how the school year will look, we won't be holding our usual backpack giveaway this year. Even so, we've managed to give financial support to Blessings, and through our May limited edition collaborations with Olympic gold medalist Shawn Johnson East and our sale of specialty chains this fall, we can support this wonderful cause throughout the year. Our digital and marketing teams are concentrating on speeding up our digital and customer growth. The investments we made in customer data science and business analytics put us in a strong position when the pandemic hit, letting us respond nimbly as customers went through unprecedented change. Basically running as a digital-only business until our stores reopened, new customer acquisition on VeraBradley.com climbed triple digits during the quarter, while return on ad spend and year-over-year ecommerce revenues both doubled. We've built a strategic marketing platform, powered by our investments in data driven marketing and data science, that has let our teams react to uncertainty in real time. We've shifted brand spend away from categories like travel and beach and toward areas such as hands-free, washable masks, and other healthcare products. Leveraging our data centric programmatic buying, we doubled our paid media efficiency and the revenue attributable to paid media during the quarter. We'll keep mining our customer data and optimizing our marketing spend for the back half of the year. Vera Bradley has always been a brand about connecting people, and the team has really helped show that during these challenging times. We've seen growing strength in both new followers and customer engagement across social channels. Our enhanced social media strategy includes more influencer participation, several co-branded sweepstakes, and more diverse user generated content. In fact, during the second quarter, over 40% of Instagram content was user generated. These efforts produced our largest quarter of Instagram follower growth. Our most highly engaged social media posts center on Harry Potter, COVID-19 relief efforts, masks, and our sustainability focused products. Earned media was strong in the second quarter, with almost 3 billion impressions. We had exceptional media coverage of our mask efforts supporting communities and nurses, and of our brand collaborations like Harry Potter, Venus, and our Shawn Johnson East collection. In Baird's recent analysis of earned media, influencer and social media engagement trends for July, Vera Bradley was one of only nine out of over 150 brands with positive growth in social media engagement month-over-month at 236% and year-over-year at 29%. In July, we tested our first foray into connected TV advertising. The ad focused on backpacks and coordinating masks to help keep our brand top of mind as shoppers prepare to go back to school, back to work, or back to traveling. The ad ran digitally in 15 states on a variety of streaming services and drove traffic and sales in those markets. Given how well this test performed, we intend to launch a second advertisement during the holiday season. Now, a quick status report on our stores. Even though digital now accounts for a bigger share of revenue, physical locations remain a key element of our omnichannel approach. As mentioned before, the 133 stores that stayed open through the whole July fiscal month together produced roughly 70% of the sales seen a year earlier. Taken as a group, our factory stores beat our full line stores versus last year, since customers generally have been more at ease buying in outdoor centers rather than enclosed malls. As additional retailers reopen and shoppers grow more confident, we expect Vera Bradley store traffic and sales to recover. Naturally, we keep monitoring COVID-19 case counts region by region and will respond as needed. We remain focused on improving the customer experience across both our full line and factory stores, on VeraBradley.com, throughout our fulfillment operations, and within our customer service department. Our aim is to meet her wherever she is, delivering outstanding service whether in-store, through ecommerce, by appointment, or via curbside pick-up. Our strong voice of the customer program and our customer service execution once again produced industry-leading customer satisfaction scores this quarter in spite of all the disruption tied to COVID-19. During this quarter NICE, specialists in customer service, named Vera Bradley a winner of its 2020 Excellence Awards for best customer experience, observing that Vera Bradley gained a deep grasp of customers' personalities and journeys to enhance customer experience using advanced real time analytics. We have launched five new factory stores this year and enlarged our highly productive Myrtle Beach, South Carolina factory store. We continue to anticipate permanently shutting up to 12 full line stores this year, which will raise our total full line store closures to 38 since the start of fiscal 2018. Six have been closed so far this year; we remain in discussions and negotiations with our landlords and have made headway on rent relief across several of our properties. Now let's turn to Pura Vida. We stay highly confident in and enthusiastic about the vision held by the founders, Griffin and Paul, for future growth of the digitally native Pura Vida business, as each day more customers wish to be part of the Pura Vida lifestyle. For the quarter, Pura Vida total revenues rose nearly 6% versus last year despite considerable supply chain and wholesale disruption. Revenue was fueled by a 22% gain in ecommerce sales. Average orders and conversion rates kept growing compared with last year. Because of COVID-19, our main manufacturing facility in El Salvador was shut for more than seven weeks during the quarter and did not completely reopen until late June; we are actively working to further strengthen and diversify our raw material sourcing and production capabilities and expect to have the alternate sources operational for fourth quarter deliveries. On the product side, we kept rolling out fresh designs of the Pura Vida signature core bracelets along with style packs, and our move into metal, mood, and semi-precious stone charms and jewelry has stayed popular and sits at a higher price point than our traditional string bracelets. Even with COVID-19, our second quarter product launches worked well, including several special releases such as our Pride and Mother's Day bracelets, which sold quickly. We launched hair accessories during the second quarter, and they are off to a good start. Our growing range of kitsch and beyond the beach styles — such as our daisy seed bead-based jewelry, kitten earrings, and alphabet bead bracelets — is very popular. We keep expanding above the key board items, like necklaces and earrings, for customers working from home and on never-ending Zoom calls. Personalization remains a popular trend. Customers can personalize their signature core bracelets by picking the color combination special to them, or they can customize their looks with fun patches and pins. Our engraveable collection, launched earlier this year, has really taken off, with customers loving the customization of our necklaces, rings, and coin bracelets. We are excited about further expansion of this program.

Pura Vida's signature charity bracelets are truly a fundamental part of the Pura Vida lifestyle, and they continue to expand as a category since they mean so much to our numerous loyal customers who care about causes. We continue to build on the popular charity charm bracelets that we introduced earlier this year, as well as our charity style packs, which back wonderful causes such as autism awareness, charity water, and save the dolphins. By growing charms and style packs throughout our charity assortment, we can both raise our price points and boost overall donations to these wonderful causes. We will continue innovating and expanding within this vital area of the business. As of today, Pura Vida has given over $2.6 million to dozens of charities. During Q2, Pura Vida teamed up with Vera Bradley for a limited edition face mask combining Pura Vida's coastal aesthetic with Vera Bradley's signature look. Tens of thousands of those masks have been sold, and demand has been strong enough that inventory is gone at present. Preorders are open right now for the upcoming shipment, and we anticipate another sellout. On distribution, Pura Vida continues to grow. We started Canada Shopify fulfillment earlier in the year, and we inked a deal with Hectic Europe covering wholesale distribution of our goods across Europe, which builds on the ecommerce operation and third party fulfillment we already have in that region. Pura Vida already has a large fan base across the globe, and this international push will allow us to serve those existing customers while also reaching new ones. Additional expansion into other countries is on the way. Pura Vida excels at connecting with customers and continually looks for fresh approaches to foster loyalty and draw new people into the Pura Vida lifestyle. Our well-loved monthly bracelet and jewelry clubs, along with the Shore Club loyalty program, are inventive ways to link customers with what we sell and the lifestyle we represent. When it comes to marketing, Pura Vida's social media engagement remains robust. We really value customer feedback and interaction, and we're always keen to learn what they think about items we ought to develop or causes we ought to back. Pura Vida continues to rank among the accessory sector's most deeply engaged brands on social media, boasting more than 2 million Instagram followers. Again and again, Pura Vida appears among the most engaged jewelry brands on Instagram — arguably the very most engaged. TikTok has likewise surged, reaching almost 100,000 followers. A sizable force of brand ambassadors plus roughly 150,000 micro influencers participate actively in the brand and form a central element of our marketing approach. These enthusiastic supporters are key in helping us grow the Pura Vida movement — they show real dedication to the brand and earn rewards in the process. In choosing brand ambassadors, follower counts aren't the only thing we consider; we also seek out skilled photographers and the right esthetic. Pura Vida keeps close personal ties with many of these ambassadors, and we help them create amazing, memorable experiences, which gives them authentic reasons to post about their work with our brand; we also partner with several of our top influencers to create products that essentially market themselves, powered by organic enthusiasm and built-in promotion. We're putting real effort into increasing diversity across our influencer and marketing programs. We've got several exciting influencer product launches lined up for the fall season. We are very excited about teaming up with Charli D'Amelio — the dancer and TikTok star — to bring out a Pura Vida bracelet influencer style pack over the holidays. With over 81 million followers at this point, she's the most-followed figure on TikTok, and the New York Times dubbed her the reigning queen of TikTok. Charli's core audience is a perfect match for the Pura Vida brand. To sum up, I think four words could sum up the past quarter: agility, innovation, digital, and cash. I could not be more proud of how the entire company has responded to this unprecedented crisis, maintaining an aggressive posture that keeps propelling us forward. Despite working remotely, our teams have demonstrated adaptability and sound judgment, launched new products and marketing efforts, and introduced greater operational efficiency. Returns have come from what we invested in digital infrastructure, and our focus on cash management has prompted us to find creative ways to drive sales, expand margins, and reduce costs. Our multi-brand approach is proving stronger than ever. Today more than at any point before, I am confident that we hold the right position with the casual, comfortable products we offer at both Vera Bradley and Pura Vida. Our concentration on customers living beyond the major city centers proves even more beneficial in a COVID world, since we're witnessing a migration away from major cities toward smaller towns and away from a dressier lifestyle toward a more casual one. Operator, we'll now open the call to questions.

Good morning. Thanks for taking my question, and congratulations on a strong quarter in this really tough backdrop. First, I wanted to clarify a couple of things about the mask sales. I think you said 10% of total sales in the quarter — maybe just confirm that that's correct. What was the mix between direct and indirect there, and then just finally on the masks, I know you said you expect that to moderate in the back half, but just given that it's been so significant of an impact, any further help you could provide on what the monthly run rate has been looking like in August?

Yes Mark, the 10% was the number we commented to, and it was of total revenue, so it was above 10%. The mix between segments, it was a little bit more, call it 60/40 direct to indirect, close to those values, so that if you're looking to kind of split that out. In regards to future quarters, we don't anticipate — again, the unpredictability of COVID and the economy going forward, we expect to have some mask sales in the back two quarters but we don't necessarily anticipate it to be about 10% of sales; it's hard for me to give you any forward guidance associated with that because we think it's going to be unpredictable, but the current run rate in August is something similar to what we have seen in the July time frame; it's not significantly different right now, but we anticipate that to moderate as we go throughout the year.

That's genuinely useful, thanks. Turning to store productivity, I believe you mentioned 70% was the figure for July. I'm wondering whether that has changed at all in August now that you're getting into the heart of the back-to-school period, and from a channel standpoint, how has digital performed with stores having reopened?

Sure, a few points on that, Mark. First, on store performance, it's roughly unchanged, around that same 70% figure. What's been notable is that we've observed some softness in the back-to-school business, though other parts of the business and the innovation bringing customers in have been offsetting that, but I'd characterize the run rate as comparable. On digital, I'd say that was possibly among our bigger surprises, since when we were essentially digital only and ecommerce was growing at triple digits, our expectation was that this would slow down quickly once stores began reopening, and that didn't happen. The digital business has stayed very strong, so that's something we're monitoring closely as we move through the remainder of the year and whether it holds up. What I believe is really powering digital comes down to two factors. The first is innovation via new marketing. Every analytics capability we've implemented, all the programmatic buying, has been truly pivotal in, A, bringing customers to the brand and also keeping customers connected to the brand, so we've witnessed robust new customer growth throughout the digital channels. We'll keep an eye on that over the year to see how it moderates, but our sense right now is that digital will remain an elevated portion of our business going forward, and we believe a chunk of this consumer behavior represents a permanent shift, so we'll see how that develops ahead.

Alright, that is genuinely useful. So perhaps at a broader level — the operating margin for the quarter came in at 16%, which is truly a remarkable outcome. Could you help us break down how much of that came from temporary items, such as mask sales that will taper off, as opposed to, or perhaps on top of, corporate cost reductions, and as opposed to deeper structural shifts in the cost base across the different segments? Broadly speaking, given what you've learned through this tougher stretch, any higher-level views on how you're approaching the margin profile going forward?

Yes, so allow me to fix one thing I mentioned before about mask sales. In the quarter they're likely nearer 70/30 rather than 60/40, so from a direct standpoint it's somewhat higher than what I said previously; on operating margin, I think what's contributing — part of the SG&A savings came from the 80-plus percent of people furloughed because of our store closures, so we benefited there as operating expenses were reduced somewhat more, so I'd definitely label that as temporary for the quarter; however, I do think we've managed to examine certain discretionary spending and trim it, and that will produce savings as we move through the rest of this year and also when we budget and consider next year, and you can regard that as T&E — travel. Travel, of course, we believe will look different not just for corporate staff but possibly for some of our indirect staff too, as we lean on technology to connect with people, so we expect some savings to come from there. We're also taking a hard look at every expense structure and every contract, and we believe some lasting savings will come out of that, and with Project Novus now introduced, we ought to see savings accumulate over time from it. On masks, clearly we received a substantial benefit at the gross margin level that obviously carried through to the operating margin level, and as we keep selling masks, we should see operating margin benefit going forward. I don't know whether you'd like to add anything, Rob?

That’s useful. I appreciate the thorough explanation. Wishing you the best of luck this autumn.

Thank you, Mark.

Thanks, Mark.

Hello, Kimberly Hong here, filling in for Oliver. We appreciate you taking our questions. With all the uncertainty this year about schools reopening, how are you approaching back to school? And if demand falls short, how would you redirect the inventory aimed at the back to school customer?

Yes, Kimberly, thank you for asking. As we've observed across the industry, back to school has clearly gotten off to a sluggish beginning, and so we have certainly seen some softness in the backpack and lunch bag business. Something interesting is that schools are shifting their schedules — for instance, many schools in Texas are moving to October openings — and we believe one outcome is that back to school will become a greatly stretched-out season. It formerly was concentrated tightly in the August window, and now we genuinely expect it could extend through potentially all of fall, and we anticipate it being a meaningful component of the holiday season. One of the advantages we've always had, especially at Vera Bradley when you consider that brand, is our product's capacity to remain evergreen across many situations, correct? It's not as though we must hurry. Should demand come in lower, we're able to adjust future on-order and rebalance the portfolio, so inventory levels don't worry us. At Pura Vida, back to school is likewise a highly significant business for them. It generates considerable business around — they run an entire program in which people purchase bracelets as fundraisers and buy packs, doing so for sports teams and schools, so they have experienced some weakness there, but at present we believe the back to school period will be soft. We will work through it; we began working through it during our second quarter performance, and we expect the third quarter will look similar.

Hi — apologies, I was muted there. Thanks. I’ve got just one more question. If you look at the math, Pura Vida appears to have held up quite well in this climate, compared with the indirect and direct segments, which declined year-over-year. Could you talk about demand at Pura Vida through this period, and also whether you’ve observed the Pura Vida customer base — the Gen V and millennial base — moving over to Vera Bradley’s products during the last year?

Well, a few things. First, regarding the Pura Vida business, we are certainly seeing ongoing strong customer engagement, particularly across all their social channels, which is something we watch very closely as an indicator of consumer health, so we’re quite excited that the customer continues to engage with the brand. We have many initiatives ahead, so there’s solid momentum there; as for their customer migrating back to Vera Bradley, that hasn’t been part of our strategy and we haven’t seen much of a push back. The consumer still truly views both brands as separate brands, and each has a very loyal following. There is some crossover, but the plan has always been to let both businesses grow their own individual customer communities.

Okay, thank you.

You’re welcome.

Morning, and congratulations. Could you speak a bit about ReActive and performance twill? Are those new fabrics bringing in more customers, and are they pulling people into both stores and online?

Thanks for asking, Eric. Yes, customer response to both of the new fabric innovations has been really strong. Feedback from customers on the product has been very good — they really grasp what it's for and how it was developed. ReActive marked our first big leap into the sustainability movement. You're going to see us keep pursuing that, and it has helped draw new customers to the brand. It has also helped attract a younger customer who cares more about sustainability, which has been very encouraging. Performance twill is off to a really strong start with good feedback, but it has been a bit more centered on a slightly dressier lifestyle for us, so with COVID and somewhat less going into the office and so on, it hasn't grown at the same rate we've seen with ReActive, but we're very confident in both; from everything our customers have told us, we believe performance twill adds another esthetic and another lifestyle piece to our business, and we think it will keep growing in the future.

So when you consider the cotton opportunity — the upgrade to cotton fabric — what's the goal there? I mean, cotton has obviously always sat at the heart of what Vera Bradley is, so what are you aiming to do there that you haven't done with the others, or that you're planning to do?

On the cotton side, a few different things are going on. In the short term, we lean on cotton as essentially the base for many of our collaborations. It's genuinely our heritage, it remains an extremely important part; it's the biggest portion of our business, so that's where all our collaboration innovation is concentrated. But secondly, going into next year, we're putting a real focus on cotton as well when it comes to new innovation, so a portion of the innovation we're launching will sit within our cotton franchise, so stay tuned for more details on that. And finally, what's been fascinating during this COVID period is that our consumer has shifted focus, obviously. The notion of hygiene has become truly significant, and what we've clearly observed is our customer reacting really positively to the washable aspect of our cotton collection, right — the fact that it can be washed, which therefore boosts the hygiene, very comfortable, very wearable. That is genuinely striking a chord with our customers.

One final thing from me about Pura Vida: I understand the launch of the test Pura Vida store was moved from September to next year. Does that remain the plan, and how do you expect it might fuel the business down the road?

Yes, opening a Pura Vida store is still something we intend to do. We had actually been out searching for real estate, though we wanted to be certain that in this new COVID environment we could secure the right spot. Clearly, more sites have become available compared with a few months ago, and clearly the economics are different now, so we want to be sure we strike the right deal; even so, we are eager to make a Pura Vida store a reality within the next year, so keep watching, and we will share further announcements on that as we head into next year.