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

Hello, and good morning to all of you. Thank you for being with us on the Vera Bradley earnings call. A number of the remarks we make in our prepared comments and in answering your questions might be forward-looking statements, offered under and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Those forward-looking statements carry both known and unknown risks and uncertainties, and those could lead to actual results differing materially from what we anticipate. 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 the statements made during the call will remain operative at a later time. We undertake no obligation to update any information discussed on the call. And now I'll pass things to Vera Bradley's CEO, Rob Wallstrom. Rob?

Thanks, Mark. Morning, everybody, and I appreciate you being with us on the call today. Joining me is our CFO, John Enwright. Once again, our quarterly results substantially beat both the earnings performance we posted a year ago and what we had projected. We lifted our gross margin rate, largely driven by cotton mask sales and disciplined promotional spending, while managing costs carefully to deliver significant expense leverage. Our multi-brand approach is demonstrating real strength. The way customers shop is shifting, and we've adjusted accordingly. Our digital capabilities matter more and more, particularly in this fast-moving landscape. In a bit of good fortune, we bought digitally-native Pura Vida last year and started tackling essential work on Vera Bradley technology, infrastructure and e-commerce site upgrades needed to set the company up for future success; those improvements launched several months back. Our consolidated e-commerce business performed very well in the third quarter, with growth coming from both Vera Bradley and Pura Vida. Even with our stores reopened during the third quarter, our Vera Bradley digital business rose nearly 50% versus the prior year, and Pura Vida's e-commerce sales increased over 17% for the quarter in spite of supply chain disruptions. E-commerce sales made up more than 1/3 of total sales for the quarter. By remaining laser-focused on the customer and by controlling what we can control, we've shown we can generate strong results and put ourselves in position to come out a stronger and more resilient company despite ongoing headwinds. We achieved these results thanks to the innovation, teamwork and determination of our whole organization. Even while working remotely, our teams have shown flexibility and decision-making, developed new products and marketing initiatives and brought greater efficiency to the organization. And our emphasis on cash management has pushed us to think of creative ways to drive sales, expand margins and reduce expenses. Let me hand the call over to John to review the financial results. John?

Thanks, Rob, and good morning. I'd like to walk through some third quarter highlights. Just to remind everyone, our financial results have been consolidated so that they now include the Pure Vida acquisition from July 2019. This marks the first quarter since that acquisition where the year-over-year quarters can be compared. All the figures I'll be discussing today are non-GAAP. If you'd like a full reconciliation from GAAP to non-GAAP numbers, please see the schedules that accompany today's press release. The current year non-GAAP third quarter income statement figures leave out intangible asset amortization. For the prior year third quarter, the non-GAAP income statement figures leave out the Pura Vida acquisition-related charges along with technology re-platforming expenses. Consolidated net revenues came to $124.8 million in the current year third quarter, versus $127.5 million in the prior year third quarter. Excluding charges, Vera Bradley, Inc.'s non-GAAP consolidated net income was $10.2 million, or $0.30 per diluted share, for the third quarter, versus $6.9 million, or $0.20 per diluted share, last year. Revenues for the Vera Bradley Direct segment came to $78.2 million, versus $78.4 million in the prior year third quarter. E-commerce sales growth of 48.8% offset the 19.1% decline in comparable store sales for the quarter. Store traffic is still being hurt by the pandemic. Over the last 12 months, the company shut 10 full-line stores and launched 6 factory outlet stores. Revenues for the Vera Bradley Indirect segment came to $22.3 million, versus $24.1 million in the prior year third quarter, which reflects fewer orders, mainly tied to the pandemic, and a lower number of specialty and department store accounts. Revenues for the Pura Vida segment came to $24.3 million, versus $25 million in the prior year third quarter. A 17.2% rise in e-commerce sales nearly offset sales to wholesale accounts, which took a hit from the pandemic. Consolidated gross profit for the third quarter came to $73.8 million, or 59.1% of net revenues, versus $74.1 million, or 58.1% of net revenues, in the prior year on a non-GAAP basis. The company grew its gross margin in the quarter, mainly thanks to sales of cotton masks and controlled promotional activity. On a non-GAAP basis, consolidated third quarter SG&A expense came to $59.4 million, or 47.6% of net revenues, versus $64 million, or 50.2% of net revenues. Current year SG&A expenses came in below the prior year because of both temporary and permanent expense reductions tied to the pandemic; on a non-GAAP basis, current year third quarter consolidated operating income came to $14.4 million, or 11.6%, versus $10.1 million, or 7.9% of net revenues, last year. The ongoing uncertainties related to COVID-19 make fourth quarter financial performance very hard to predict. Because of that, we are not offering forward-looking guidance. For the fourth quarter, we believe our inventories are well positioned and marketing initiatives will drive traffic and sales. That said, third quarter performance should not be used to predict our future performance; we are up against certain headwinds in the fourth quarter, including the continued impact of COVID-19 on store traffic and capacity limitations in stores. For Q4, mask revenue could come in softer, plus shipping costs represent a pretty big obstacle across the retail industry given how much consumers are shifting their spending toward online channels. Carriers are tacking on an extra fee per parcel through the busy period, and we've made the choice to eat that expense rather than hand it to shoppers. Moving on to the balance sheet: net capital spending came to $900,000 for Q3 and $5.2 million across 9 months. For the full year, we anticipate capital expenditures landing somewhere between $6 million to $7 million, mostly tied to tech and logistics upgrades plus additional factory stores. As of October 31, 2020, cash, cash equivalents and investments reached $77.3 million, up from $48.8 million at the close of last year's third quarter; at quarter's end we had $30 million drawn on our $75 million credit facility. Inventory at quarter-end stood at $141.6 million versus $134 million at the close of Q3 a year ago. The current year's inventory ran above the prior year, largely because receipts got pulled forward into Q3 out of Q4. At fiscal year-end, we're expecting inventory to be roughly flat versus last year. Rob?

Thank you, John. Let's move on now to an update regarding our 2 brands. In our view, the way people live and work has been transformed in a radical and lasting manner. Our purpose-driven, casual, comfortable and fun positioning fits both Vera Bradley and Pura Vida especially well, and it aligns perfectly with this shift among consumers; we stay committed to moving both brands ahead via innovation in product and marketing, backed by cutting-edge technology. Thanks to our new cloud-based technology platform, we can react to the fast-changing environment and capture customer data and feedback sooner and more immediately to fuel that innovation. First, an update on Vera Bradley. Let's begin with product. Our talented design, creative and product development teams are driving fabric and product innovation, and I take great pride in that. A strong pipeline for fabric innovation is in place so we can keep refreshing our cotton collection, create new fabric offerings and expand on our sustainable fabrics platform. That pipeline matters to our current customers and helps bring new customers into the brand. Performance Twill and our recycled Re-Active collection, both part of our full-line offerings, keep building momentum and earn high marks from customers. Meanwhile, our ultralight fabrication, introduced recently, has become a popular addition at our factory stores. Look out for additional fabric innovation across the coming 12 to 24 months. We also keep rolling out distinctive styles and silhouettes, giving customers lovely solutions across every facet of life. A major area of emphasis is hands-free items such as our slings, backpacks and crossbodies, since they matter more and more to our customers, especially amid the pandemic. Over the long term, we remain focused on extending our dominance in our 3 core franchise areas of youth campus every day in travel. Throughout this period, our Travel segment has performed relatively well. Since we concentrate on soft travel items such as our duffle and weekender collection for car trips or weekend getaways, we are proving more resilient than the hard luggage market overall; innovation in travel continues; for instance, we are introducing our Re-Active Lay Flat travel backpack, bringing our award-winning Lay Flat functionality into our core backpack category. Our cotton mask stands out as a terrific illustration of innovation, as it once again generated significant revenue and gross margin dollars for us in the quarter; we keep enhancing our offerings with fresh features, styles, sizes, patterns and solids, and we are pleased to supply our customers and the communities we serve with greatly needed personal protective equipment while adding a touch of Vera Bradley signature color and fun along the way. As we moved through the third quarter, mask sales weakened, yet they still made up roughly 10% of Vera Bradley's total sales. Although we anticipate mask sales will keep declining during Q4 and afterward, the core business is starting to bounce back, and that recovery has made up for the drop in mask volume during Q3. Trend-right colors and patterns remain significant for our shoppers. Paisley is still our top-selling print. Yet shoppers also feel attracted to our emotionally driven novelty prints along with the smaller capsule collections that sell out fast. Such offerings consistently bring excitement into our assortments and create urgency that pushes customers to buy. The Best in Show dog print, introduced during Q3, became a customer favorite and actually outsold Cat's Meow, last year's hugely popular design. This holiday period centers on gifting and cozy, mixing festive with whimsical motifs such as Merry Mischief alongside coordinating classics and neutral textures, including Teddy Fleece and Cozy Plaid. We're providing a wider selection of customer favorites such as blankets, slippers and cold weather accessories, plus we've extended Cozy into additional apparel, among them loungewear, robes, puffer jackets and fleece; those products have been selling out fast. Through collaborations and strategic partnerships, we keep connecting with current and new customers, broadening our reach, boosting brand awareness, earning media coverage and creating chances to strategically test and eventually move into new product categories. Well-known brands regularly come to us with collaboration and partnership possibilities, which reflects the strength and broad appeal of the Vera Bradley brand. During August, we brought out our latest Disney collection on verabradley.com along with our second annual Crocs collaboration. In October, we rolled out our signature mask in 1982 backpacks inside Target stores and on target.com. Earlier this month, we managed to restock and build upon our hugely popular Vera Bradley + Harry Potter collaboration, first introduced in July, which sold out fast; and expect additional exciting collaborations during 2021. Let me turn to marketing and customer engagement. Our skilled digital and marketing teams have entirely reshaped how we communicate and connect with customers and reach the communities we serve. With our attention on strengthening our standing as an ESG organization, we keep building up community support and charitable work beneath the VB Cares umbrella, especially via organizations capable of profoundly bettering the lives of women and children. Despite not being able to host any large fundraising events this year, thanks to the generosity of our associates, customers and other supporters, we raised $1.4 million to fund life-saving research at the Vera Bradley Foundation Center for Breast Cancer Research at the Indiana University School of Medicine, which lifts the cumulative amount raised to date for breast cancer research to $36 million. Beyond that, we're carrying on our year-long backing of other impactful organizations, such as New Hope Girls and Blessings in a Backpack. A further element of ESG and our VB Cares' emphasis involves caring for our associates. Our associates mean the world to us, and we feel particularly thankful toward the people who've been working on the front lines, ensuring customers get safe and outstanding experiences each and every day, particularly through the pandemic; once more, we were delighted to hand out a quarterly bonus of as much as $500, determined by hours worked, to every distribution center, store and customer service associate in recognition of their ongoing efforts and loyalty to Vera Bradley throughout this remarkable period. Across the past 2 quarters, bonuses totaling more than $800,000 have gone out to our front-line associates, and they truly earned them. During the third quarter, we got our new verabradley.com site off the ground successfully, which let us enhance the online purchasing experience for our customers and provide richer content to help guide buying decisions. We introduced several important site features and have seen a triple-digit gain in revenue credited to our search engine optimization. Our digital and marketing teams have managed to speed up digital and customer growth. Our timely spending on customer data science, business analytics and AI put us in a strong position as we made our way through the pandemic, letting us gather and examine data and react to shifts in customer behavior while adjusting marketing spend nimbly. Through our data-centric programmic buying, we substantially boosted paid media efficiency and the revenue tied to paid media over the quarter; we keep seeing solid results from our digital media optimization.

During the quarter, our return on ad spend saw a double-digit gain, driven by efforts such as washable handbag and totes, which customers have connected with while coping with the pandemic. Earned media stayed robust in the third quarter, generating more than 3.3 billion impressions. We received outstanding press coverage of our mass initiative backing communities and health care workers, breast cancer awareness month and our foundation efforts, plus our brand collaborations and partnerships. We introduced customer journey-centered activations that drew high response rates, among them a welcome journey aimed at new Harry Potter customers and at mass purchasers who are new to our brand. Vera Bradley has always been a brand built around connecting with people, and we keep seeing engagement rates on Facebook and Instagram that are best in the industry. Our second launch with Crocs, and our ongoing partnership with Disney alongside Warner Bros for Harry Potter, gave our customers plenty to talk about during the quarter. This has given our customers a community to connect with amid these difficult times, a way to discover some fun and bright moments; that engagement has lifted both followers and sales, with third quarter revenue attributable to social media rising triple digits year-over-year. Our store and wholesale teams keep driving results by way of innovation and creativity. Even though our digital business is growing into a bigger share of our revenues, both factory and full-line stores remain a key element of our omnichannel strategy. We stay focused on improving and reinventing the customer experience across both our full line and factory stores. While the pandemic and mandated capacity limits have made store traffic difficult, we are drawing on customer data to deepen relationships by providing appointment shopping, especially for our top customers, face time and social selling, buy online, pick up in-store and curbside pickup wherever possible. Appointment selling performed very well, producing close to 10% of our full-line revenues in the quarter. Our loyal customer retention at the close of third quarter is in fact better than at the same point last year. That speaks to our new digital and data analytics programs, our customers' love for the brand and our associates' commitment to our customers. We have generated more excitement in 6 Vera Bradley full-line stores by adding Pura Vida shop-in-shops following a successful test in Birmingham, Alabama. We will keep leveraging opportunities for both brands, and next year we'll be rolling out a Vera Bradley plus Pura Vida Charity Bracelet program at Vera Bradley. In the factory stores, we are piloting line-busting technology at several high-traffic locations, giving customers the chance to scan a QR code and get a text message when it is their turn to come back to the store. They can also scan a QR code to browse our electronic lookbook and choose what they would like to purchase while waiting in line. Overall, when we compare this year to last, our factory stores are still doing better than our full-line locations, since shoppers are more at ease buying in open-air centers rather than enclosed malls. Even with the disruptions caused by the pandemic, our scores for customer satisfaction keep leading the industry; we're working hard to deliver a smooth shopping experience regardless of the channel she picks. Those who shop with us across multiple channels are, on average, our most valuable customers, and they spend 3x what single channel shoppers do. This year we've launched 6 new factory stores, plus we expanded and renovated 1 factory store. Boosting productivity at our full-line stores remains a key focus. So far this year, we've permanently shut 7 full-line stores, and by year-end we anticipate closing 5 more. That takes our cumulative full-line closures to 38 since fiscal 2018 began, and next year we expect to shutter roughly 10 more locations. Turning to wholesale, Amazon stands as our largest and quickest-expanding account. With Amazon's continued growth, we've dedicated resources to this business to fine-tune our inventory assortments, ensure pricing integrity and boost volume. Let's now turn to Pura Vida. We're still enthusiastic about what our Pura Vida brand can achieve. In the third quarter, Pura Vida's e-commerce revenues rose over 17% versus the prior year, even though major supply chain disruptions hurt sales early in that quarter. Once inventory returned to normal, e-commerce growth picked up substantially in the latter part of the quarter. Drawing on Vera Bradley's global sourcing know-how, we moved quickly to shore up Pura Vida's supply chain, broadening where we source raw materials and bringing on 3 additional production facilities in countries outside of El Salvador. Naturally, total revenues also felt the impact of sales to the wholesale channel, which are starting to bounce back, particularly as stores reopen and begin reordering. In the third quarter, we managed to shift some wholesale inventory over to our e-commerce channel. At Pura Vida, innovation and product come before everything else. We keep rolling out new styles of the Pura Vida signature core bracelets and style packs, and we've kept building on our well-liked metal, mood and semiprecious collections, which carry a higher price point than our traditional string bracelets. This broadening of categories and diversifying of product is paying off. In fact, almost 50% of Pura Vida's e-commerce business in the third quarter came from jewelry categories beyond the traditional spring bracelets, highlighting the brand's lifestyle appeal. Pura Vida's fall launches went well. Our Celestial collection was a major hit, once again showing that styles beyond the beach connect with our customers. Earrings and necklaces stayed popular as we kept growing our above-the-keyboard offerings for those not only living but working from home. Personalization remains a popular and ongoing trend. Shoppers can make their signature core bracelets their own by picking the color combination or charm that means something special to them. Our engravable collection, introduced earlier this year, has really taken off, with customers enjoying the ability to customize bar necklaces, rings or coin bracelets. Our engravable blank selection has grown, now featuring options decorated with birth stones or zodiac signs. A spinner necklace has also joined the lineup, and engraving can be applied to either side of it. The signature charity bracelets from Pura Vida will remain a core piece of the Pura Vida lifestyle and keep growing as a category, since they mean so much to our devoted, value-focused shoppers. We keep building out the popular charity charm bracelets launched earlier this year, along with our charity style packs backing numerous wonderful causes that our customers hold dear. For Suicide Prevention Month in September, 2 styles were created, and we teamed up with Boarding for Breast Cancer to sell 4 styles for Breast Cancer Awareness Month in October. Broadening the charms and style packs within our charity range lets us not only raise our price points but also boost overall donations to these worthy causes. As of now, Pura Vida has given over $2.8 million to more than 200 charities. For the holiday season, we offer a wider assortment of gift sets and enjoyable advent calendars filled with 12 days of surprises, a very sparkly style curated with one of our best-known influencers, Aspyn Ovard, a larger engravable jewelry collection, and additional charms, among them Zodiac and Wildlife Charity styles. Pura Vida keeps extending its reach on the distribution side.

At the start of this year, we rolled out Shopify fulfillment in Canada and kicked off wholesale distribution across Europe for our goods, which supplements the e-commerce operation and third-party fulfillment we already had going there. Pura Vida already has plenty of admirers globally, and going international like this lets us not just take care of those shoppers but also reach new ones. We're still in the early stages of expanding abroad, though we see additional opportunities lying ahead. The debut Pura Vida brick-and-mortar shop that had been set to launch during this year got pushed back because of the pandemic. We're looking to bring this thrilling retail idea to life in San Diego in the coming year. When it comes to reading shoppers, fostering loyalty, and drawing fresh enthusiasts into the Pura Vida way of life, Pura Vida genuinely excels. Our clubs for monthly bracelets and jewelry, plus the shore club initiative, are inventive methods for linking buyers with what we make and how we live, while nurturing their allegiance. Earned media performed well this quarter, delivering solid returns relative to what we spent, and Pura Vida saw its SMS list grow to 1.2 million active subscribers, twice what it was last year, which brought in substantial revenue. Turning to marketing, Pura Vida enjoys robust engagement on social platforms. Among accessory brands on social media, Pura Vida continues to be one of the most engaged, boasting more than 2 million Instagram followers. Time and again, Pura Vida appears among the most engaged jewelry brands on Instagram — arguably the very most engaged. Much of what drives Pura Vida's marketing approach and its broader success comes from its loyal crew of brand ambassadors along with nearly 150,000 active micro influencers. These enthusiastic supporters assist us in spreading the Pura Vida movement, demonstrating their commitment to the brand and earning rewards in the process. Through their compelling, exciting content, these ambassadors and influencers generate buzz around what we sell and pass that enthusiasm along to their own followers and fans. Just like the holiday partnership we did with Aspyn Ovard, we've got several additional thrilling influencer product debuts planned for the coming months. Over on TikTok, things have really taken off, with 115,000 people following Pura Vida. Clips on TikTok show influencers opening boxes, offering sneak peeks at new merchandise, promoting giveaways, and providing tutorials. With inventive, captivating content, TikTok builds follower interest and boosts sales by connecting to the Pura Vida online shop and sometimes providing special promo codes. On the subject of TikTok, because of production holdups, we've shifted the highly awaited release of the Pura Vida bracelet influencer style pack featuring TikTok's reigning queen, Charli D'Amelio, to spring 2021. We need to ensure there's sufficient product on hand to pull it off, and once we do, we're confident the launch will be hugely successful. In a span of just over 3 months, Charli's TikTok audience swelled by 20 million fans, reaching a remarkable 100 million, and her Instagram following exceeds 34 million. Her core audience aligns ideally with the Pura Vida brand, and we couldn't be more excited about this forthcoming collaboration. The success we've seen with Pura Vida shows there's a real chance to find other small brands with strong growth potential, similar to Pura Vida, that have a distinct product and marketing niche and could join the Vera Bradley portfolio. At this moment, I have greater confidence than ever that we belong in this space, with our mission-driven, relaxed, comfy, and enjoyable lifestyle brands across both Vera Bradley and Pura Vida. Each brand holds its own distinct avenues for growth, especially since we're targeting shoppers who reside outside the biggest urban hubs, and that group keeps expanding as people move away from large cities into smaller towns. We're set up nicely for what's ahead. Operator, let's go ahead and take questions from the line now.

The margins came in really strong, though Direct was somewhat softer than our model had assumed. What are you observing when it comes to comp store sales and traffic patterns? And, or, I'm sure there's quite a bit of volatility; and how has inventory moved in that channel versus what you expected?

Thank you, Oliver. Looking at traffic, during the third quarter we clearly saw an improvement over the second quarter across both the factory and full-line channels. Factory outperformed the full-line channel. So as we opened our stores, right, at Earnest in the back half of the third quarter, we saw stronger traffic reaching our stores. When it comes to inventory, though, I believe we are well positioned on that front for both brands. Outside of the start of this third quarter, Pura Vida returned to an in-stock position late in the quarter and in the end, I think, pushed their sales growth faster, but the early portion of the quarter was somewhat difficult from an inventory standpoint. As for stores at the Vera Bradley brand, our inventory was well positioned throughout the entire quarter.

All right. When we consider same-store sales and how we model them, what dynamics stood out this past quarter when it came to converting shoppers versus how much they spent, and what's your outlook from here? Should traffic keep improving? Ideally we get some clearer picture around reopenings.

Yeah, so looking at conversion, it was certainly higher across every channel — be it e-commerce, be it the effect from full-line locations thanks to folks who got out, got out to shop, and genuinely got out to purchase. So conversion came in higher. We also observed ADS, so to speak. The actual check rose. Shoppers picked up somewhat more, yet at the same time AUR actually declined somewhat, given that our masks made up part of that transaction. And with a price point of $8, that's going to pull AUR lower. As we think about Q4, I believe it's truly — it will be — certain difficulties in the stores will be tied to capacity, since every retailer is sort of grappling with capacity limits in particular states or particular cities concerning what they're doing concerning COVID-19. Yet the expectation as we head into the following year would be that vaccine distribution sort of lets the stores and malls open so traffic returns to the level we anticipated when we began this year. But as you might guess, with factory stores and traffic, shoppers still feel somewhat more at ease visiting sorts of outdoor malls rather than indoor malls.

The information about Pura Vida and its plan is useful. You mentioned supply chain and wholesale as being contributors. Could you provide more detail on when there might be improved clarity regarding the timing and enhancement of those aspects of Pura Vida?

Sure. Regarding supply chain, we have resolved a number of the issues we faced. Rob said during his prepared comments that we are collaborating with more vendors so that, on the supply chain side, we will not depend entirely on the wholesale < >. On the wholesale side, we — as locations launch and as we head toward spring, that is the point when we expect to observe a wholesale adjustment for the period.

All right. And Rob, regarding merchandise for Q4 and then the coming year, which items would you rank as having the greatest effect on an outlook when it comes to the...

When it comes to, I suppose, whether it's — are you asking specifically about Pura Vida, or Vera Bradley, or the two of them?

Regarding the Vera Bradley brand.

Right. Right, when it comes to Vera Bradley, I'd say a great deal of innovation lies ahead. During the fourth quarter, what I believe matters greatly is all of our efforts involving fleece, home, and cozy items — clearly, that's crucial at this point in the calendar, along with all of our holiday designs. Yet what we're noticing right now is that hands-free products have grown extremely significant, and as we progress through Q4, we expect that trend to carry over into the coming year. Then, looking ahead to next year, we'll keep building on our collaborations in < >, which matters, and we'll also keep pushing our fabric innovation. Those represent two elements that are truly vital across our various categories. What's been fascinating is that when we examined our youth, travel, and everyday segments, we anticipated far more softening within the travel segment, yet it has mostly performed in a way that's closer to the remainder of our business. So that's been uplifting to observe, since we lean more toward that gentle travel, car-based travel space, which has endured better than that rigid luggage, air-based travel. So that's been uplifting to observe. Back-to-school proved challenging last August, though we did notice some momentum arriving in September. And clearly, we hold hope that as we move through the upcoming year and reach back-to-school season, it will come back completely, ideally, by the time next autumn arrives.

Let me ask a quick follow-up about Q4. I believe you said sales could be weaker in the fourth quarter than they were in the third. I realize conditions are hard to forecast right now, but I was hoping you might say a bit more about that; and is it mainly a cautious view tied to store capacity? Given that shoppers are turning their attention toward gifts, and maybe the bulk of the challenge came from back-to-school, I'd expect further sequential gains could still happen. So perhaps you could go into more detail on the pluses and minuses there and what your holiday outlook looks like?

Yes. This holiday season, you know, is certainly unlike any other, correct? From what we've observed across retail broadly, and from what our figures show, is that customers have shifted some of their purchases earlier. November began extremely strongly for us. We felt really good. Clearly, as Black Friday came, and you can see this in every market report, store traffic was suppressed on Black Friday. So we'll simply monitor and find out what happens during December. A few factors exist in Q4, one being that when COVID began easing its grip on capacity constraints, that created some strain at a number of our locations. I mean, a few of those capacity reductions have been quite significant. That has been a strain we've experienced in Q4 that we didn't experience to the same degree in Q3. Then the next issue becomes what happens with e-commerce as we get into the earlier shipping period, correct? Across all of retail, a great deal of business has shifted to e-com, and the way that affects that final week prior to Christmas, when people return to the stores, there's still some uncertainty surrounding that. So we'll monitor how that unfolds; and then another factor, from a profit perspective, correct, the shipping surcharge represents one more strain in Q4 that we haven't faced during the remainder of the year; so those are roughly the 3 main items, correct? Fewer capacity slots in stores; once the e-commerce shipping cutoff passes, what the customer does; and third, the surcharges. So those are what we're monitoring in Q4 that are distinctive. Yet it isn't that we believe there's some fundamental softness among consumers or in what we're observing. We believe shoppers keep responding to now fully in innovation, so we view this as simply getting through this COVID holiday and then heading into next year and, with luck, momentum will keep building next year.

All right, that's quite useful. Then turning to marketing, could you describe the way you're connecting with some of those newly acquired buyers from mask purchases during the past 2 quarters? Are they returning to buy in other categories? And what might that pattern look like regarding repeat purchasing as the last 2 months have gone on?

Yes. It has been quite encouraging. Whether it's new shoppers gained via our mask business or those gained via Harry Potter, we have highly tailored marketing journeys aimed at each of those groups to connect them with the brand in a deeper and broader way, and the response we've gotten from those shoppers when it comes to returning has been really strong. So we feel good that we'll truly manage to retain a large number of those shoppers we've added.

Understood. Understood. Then I suppose the final one from me is more of a big-picture question. Rob, you talked about that lasting change in how consumers behave, and you've been on a journey spanning multiple years when it comes to reshaping the composition of the store fleet; but has anything shifted in how you think about that over the medium term, in terms of physical locations compared with digital? And when it comes to the outlet side of things in particular, is your strategy changing for online outlet versus the brick-and-mortar outlet operation, and any thoughts at a high level on that would be wonderful?

Yes. On the whole, correct, the path we've more or less been traveling, we have been — we had mentioned cutting back on our full-line store count. As you can see, we expect to keep doing so in the coming year. We're monitoring mall construction quite carefully to determine what unfolds with enclosed malls down the road; when it comes to outlets, however, we continue to believe there's a chance to grow in that channel. We're quite pleased overall with how that channel has been delivering. Shoppers are returning more quickly to the outlets, and they're returning to the enclosed malls. So we view that as a possibility. We remain quite wary about shifting the online outlet over to a digital platform, simply because doing so would make that off-price merchandise far more widely available; therefore we continue to view our factory business mainly as a brick-and-mortar approach.

Regarding those current COVID hotspots you brought up, obviously they're hurting store capacity — does that also influence e-commerce in those places? Put another way, when shoppers are unable to visit physical locations, does online buying rise, or do sales decline there too, given the restrictions and a general sense of unease?

On the whole, I'd say the shift isn't nearly that fast — you don't simply see stores slow down while everything jumps over to e-commerce. Online does help make up for part of it, something I believe the industry has witnessed, and our own channels have shown that throughout this year. Yet once regions begin to spike, we observe consumers starting to pull back, especially during the initial couple of weeks after things shift, correct? I think everyone starts rebalancing their life, and we notice a near-term effect; afterward, typically as time passes, those things start to ease.

Also, one more point on what Mark asked about a minute ago: from a factory standpoint, whenever capacity drops, there's no downstream channel on the e-commerce side through which those consumers can make a purchase.

All right, that makes sense. And Rob, could you share a bit of how you're seeing fiscal '21 play out — not in terms of formal guidance, obviously, but just your read on how the consumer behaves through the year as vaccinations reopen the economy and social distancing rules loosen up. In some ways, that clearly helps your business. Do you expect different styles to get traction? What's the best way to get ready for and take advantage of the reopening, and its timing?

Yes. For the first half of the year, we'll definitely still be working through a fairly dynamic environment. My guess is all of us are hoping that once summer arrives, some sense of normalcy begins to return. And both brands, I believe, sit in a strong position. Consider what we'd expect to rebound outsized — things such as summer travel. So that entire travel portion of the business, whether that's within our travel categories or at Pura Vida with other beach lifestyle offerings and consumers heading back to beaches and getting out to do all of that. The other major one we anticipate coming back really strong, I'd say, is back-to-school. And I think that carries plenty of ripple effects. There's — the Vera Bradley side when it comes to back-to-school, clearly, was weak this year. I believe there's substantial pent-up demand. So we have hope there. And then secondly, at Pura Vida, they create a great deal of product tied to fundraisers and schools and teams, and folks tend to use their customizer pack for fundraisers; and clearly, given that much of that didn't take place this year, that business came in softer; we believe that represents a genuine chance to rebound next year. So real positive momentum could build in the back half of next year as travel and school both come roaring back and return.

Just a few additional items regarding shipping and what you're observing around shipping deadlines. Has this acted as a constraint on some of the revenue growth? And/or when you consider elasticity concerns, even though you're applying the surcharge, I mean, have there been any consumer variations when it comes to cancellations and/or timing? And also just — this is extremely difficult to predict. But looking ahead with mask, how are you approaching inventory planning given that situation and that being a significant portion of the business right now?