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

Hello, everybody, and thanks for being here this morning as we kick off Vera Bradley's earnings call. A number of the things we say in our prepared comments and in answering your questions might qualify as forward-looking statements, offered under and consistent with the safe harbor protections of the Private Securities Litigation Reform Act of 1995, as amended. Those forward-looking statements carry both known and unknown risks and uncertainties, and because of them actual results could end up differing materially from what we anticipate. For a look at the known risks and uncertainties, please see today's press release along with the company's latest Form 10-K filed with the SEC. Investors shouldn't presume that anything said on this call will still hold true at some future point. We're under no obligation to revise any information we discuss on the call. At this point I'll hand things over to Rob Wallstrom, Vera Bradley's CEO. Rob?

Thanks, Mark. Hello, everyone, and I appreciate you being with us on this call today. Our CFO, John Enwright, is here alongside me as well. I feel a great deal of pride in the way our company made it through the past twelve months. Thanks to an exceptional culture and customers who stayed loyal, our 2 lifestyle brands were able not just to endure the crisis, but the adjustments we implemented to address consumers' fast-shifting needs throughout the pandemic left us in a stronger place as we look ahead. During an incredibly tough year, our brands managed to deliver some brightness to the people we serve. Although the retail sector as a whole has been incredibly challenging, and the handbag and accessory category specifically has been a really tough market, our operating results came in among the strongest in our peer group. On a non-GAAP basis, our operating income for the fiscal year was nearly 90% of the prior year's figure — a strong showing considering the unprecedented obstacles the pandemic introduced. That performance came from momentum across our 2 lifestyle brands along with disciplined execution. While sales experienced significant turbulence, we achieved several financial victories during the year. For the fiscal year, e-commerce represented approximately half of total company revenues, and e-commerce sales for our Vera Bradley brand increased by nearly 50%. We lifted our annual consolidated gross margin rate, driven mainly by product innovation, cotton masks, product collaborations, and a greater share of full-price selling; we kept a tight grip on expenses, and we closed out the fiscal year with a healthy balance sheet — plenty of cash and zero debt; and we sit in a strong spot to fuel growth by continuing to put investment behind our 2 brands while also pursuing additional acquisition opportunities as time goes on. Let me offer a few remarks about how we did in the fourth quarter. For Vera Bradley, the way revenue moved in Q4 was a lot like what we saw in Q3 — that's if you set aside our mass business, which dropped more than 6 percentage points during the quarter and ended up at slightly above 5% of total sales, plus the fact that we kept our stores closed on Thanksgiving Day this year, a decision that cost us roughly $3 million in sales. Beyond that, Vera Bradley's e-commerce business grew by more than 30% in the quarter. Over at Pura Vida, non-GAAP operating income was higher than it was in last year's fourth quarter, despite the fact that revenues landed a bit under where they were in last year's fourth quarter. During the Black Friday stretch, we made a deliberate decision to pull back on promotional pricing. Our estimate is that this move reduced revenue by about $6 million, yet it delivered a meaningful lift to gross margin results and overall profitability, while also establishing a much stronger groundwork for the future. Additionally, once that 5-day window passed, Pura Vida's e-commerce revenue grew by more than 40% across the quarter. Looking at fiscal 2021, we completed the last year of Vision 20/20 — our ambitious 3-year initiative aimed at restoring the business to a healthy foundation — and we also closed out the first full year of consolidated operations for Pura Vida. In spite of the pandemic's challenges, we bolstered our infrastructure and put both the Pura Vida and Vera Bradley brands in a better position for the future. Let me call out a few of our major achievements for the year. Turning to Pura Vida. Even with the pandemic and major supply chain interruptions during the lockdown, Pura Vida's e-commerce revenues rose almost 15% for the fiscal year. Absent those interruptions, we are certain we would have surpassed our target of more than 20% revenue growth. Average order values and conversion rates keep climbing year-over-year. Fiscal 2021 was all about creating a solid growth foundation for Pura Vida. Leveraging Vera Bradley's global sourcing know-how, we considerably reinforced Pura Vida's supply chain, broadening raw material sourcing and bringing on 3 more production facilities in nations beyond El Salvador. We took another look at promotional activity and did away with deep discounting, especially surrounding Black Friday, which produced gross margin rate improvement; we set the stage for growth initiatives past jewelry to further extend Pure Vida's lifestyle brand reach. On the product side, Pura Vida kept demonstrating the lifestyle brand's strength by successfully moving into new product categories. On our e-commerce side, items outside the classic string bracelet line — metal pieces, semiprecious stones, charms, and the engravable collection, to name a few — have reached roughly half of that business now. That shows how the brand fits into a lifestyle, and it's going to keep fueling expansion. Cause-related bracelets are still central to what Pura Vida represents and draw in a large share of shoppers who care about giving back. To date, more than $3 million has been donated by Pure Vida across upwards of 200 charitable organizations. Turning to how we reach customers: we expanded our distribution reach by launching fulfillment operations in Canada and entering a third-party wholesale arrangement covering Europe, which complements the e-commerce and fulfillment work we already do in that region. We launched Pura Vida shop-in-shops inside six full-line Vera Bradley locations, and we expanded how we show up with wholesale partners by using bigger in-store displays. Now on to marketing. Engagement across our social channels remains superb — we're still among the accessory category's most engaged brands on social, with an Instagram audience north of 2 million. Instagram jewelry brands are frequently ranked, and we typically land as one of the most engaged, if not the top one. Over on TikTok, we've surged past 200,000 followers, and roughly 150,000 micro influencers plus a dedicated group of brand ambassadors play an active role in the brand and sit at the heart of our marketing approach. We finalized an exciting deal with Charli D'Amelio, TikTok's reigning queen, and I'll give you an update on that shortly. Our Earned Media performed well, delivering solid returns on spend, and our SMS list grew twofold between fiscal 2020 and now, surpassing 1 million active subscribers, which brought in significant revenue. Turning to Vera Bradley: on the product front, we accelerated our strong fabric innovation pipeline to create new items and expand our sustainable fabrics platform; we moved fast in response to consumer demand for personal protective equipment, manufacturing and selling millions of cotton face masks, which produced substantial revenue and gross margin dollars. We kept up our partnerships with a number of legendary labels for yet another year — Crocs, Disney and Gillette Venus among them. We rolled out our signature mass in 1982 backpacks together with Target, and we also teamed up with Warner Bros. consumer products to build the hugely popular Harry Potter plus Vera Bradley line. When it comes to distribution, we're still bolstering and streamlining the stores we operate. Six new factory stores were opened, while 13 full-line stores that weren't performing well were shut down, so we finished the fiscal year with 75 full-line and 69 factory locations. We grew and deepened our relationships with major online sellers, Amazon included; and in the marketing space. Retention among our loyal shoppers rose compared with the prior year, reflecting both their dedication and the stronger digital and data analytics efforts we've put in place. Even with disruptions tied to the pandemic, our customer service approach and voice of customer initiative kept producing customer satisfaction scores that lead the industry; our new verabradley.com site launched successfully, letting us upgrade the online shopping experience for our customers and deliver richer content that helps guide their purchases. We rolled out quite a few important site features to help shoppers who moved to buying online while the pandemic was going on.

The smart timing of our spending on customer data science and business analytics gave us a strong footing while we worked our way through the pandemic, which let us gather and examine information, react to shifts in customer behavior, and change our marketing budget with agility. Thanks to our focused digital media work, brand awareness rose and earned media improved, with total media impressions climbing over 170% to nearly 10 billion across the year. We deepened our dedication to operating as an ESG-driven organization. Our community support and charitable work under the VB Cares umbrella kept growing stronger, especially via groups that can dramatically better the lives of women and children, among them $1.4 million for the Vera Bradley Foundation Center for Breast Cancer Research, more than $630,000 for the Coronavirus Response Fund for Nurses, plus gifts to New Hope Girls, Blessings in a Backpack and other causes. Caring for our associates is another piece of the VB Cares focus, and we managed to pay more than $800,000 in bonuses to team members who worked on the front line throughout the pandemic. Our associate engagement scores likewise remain best-in-class, which highlights how engaged and committed our talented teams are. We introduced Project Quilt, a diversity and inclusion effort spanning the whole company, to keep advancing diversity, equality and inclusion, with attention on 3 key areas: the associate experience, the customer experience and the community experience. On the information technology side, we finished Project Novus, our information technology platform conversion, moving our e-commerce site onto a best-in-class cloud-based solution and swapping out our existing ERP POS business intelligence and order management systems for a cloud-based Microsoft D365; that conversion didn't just reduce how complex our IT systems were, it also gave us a technology platform that works more efficiently, letting our whole enterprise make fast, databased, well-informed choices, improve our customer experience even more and reach our long-term growth objectives. Today, we're also revealing shifts to the leadership structure of our company and the Vera Bradley brand so we're set up for an exciting future. As Vision 20/20 wraps up, we're starting the next major stage of our company's growth by strengthening our multi-brand portfolio, widening our ESG initiatives and generating extra value for all of our stakeholders. To bolster our position and strategic vision as a purpose-driven, multibrand, high-growth company, we're realigning how our organization and leadership are structured. The 2 lifestyle brands presently beneath the Vera Bradley Inc. umbrella are Vera Bradley and Pura Vida. We plan to nurture and grow both of these brands, and we'll also seek out other lifestyle brands that might reinforce our capabilities and diversify where our revenue comes from. Even though I'm staying on as CEO of Vera Bradley Inc., every brand is going to get its own leadership group, one that concentrates on deepening customer involvement and growing sales, all while safeguarding and nurturing what makes each brand unique — its culture and its startup-like energy. The retail sector keeps shifting fast toward being centered on customers, powered by data, supported by technology, and driven digitally, so Vera Bradley is going to push harder in those specific areas. For 2.5 years now, Daren Hull has been Vera Bradley's Chief Customer Officer, and together with his team, he has already transformed, quite dramatically, the manner in which we connect with shoppers. Because of that, it's my pleasure to share that Daren has taken on the role of President for the Vera Bradley brand. In this new position, Daren gets backing from a freshly simplified leadership framework that centers on 3 essential areas: what exactly do we deliver to the market? In what ways do we sell into the market? And how do we boost customer involvement and enthusiasm for the brand? At the company-wide level, we're going to provide shared back-office functions along with a streamlined, efficient corporate foundation to fuel each brand's expansion, and we'll keep advancing our technology and our understanding of customers so we can construct a unified set of connected capabilities across the enterprise, enabling our brands to react faster when customers have wants and needs. These shifts will put us in a better spot to handle the constantly evolving retail environment, let us respond more effectively to what customers require, reinforce where we stand and drive us toward growth that's more profitable. Going forward, what our enterprise aims to be is a purpose-led, multi-brand, high-growth organization, and this journey has only just started. As I mentioned, we'll concentrate on strengthening our purpose-led initiatives while hunting for suitable purchases of other comfortable, reasonably priced, mission-driven brands, much like how well our Pura Vida acquisition worked out, as time goes on. Our robust cash reserves, a balance sheet with no debt and our capacity to produce free cash flow will let us go after those acquisitions. We'll grow our footprint too, by introducing neighboring product lines and entering new geographic markets. When it comes to fiscal 2022, our company has 4 main growth drivers: first, pushing forward with our digital-first approach. This means advancing how our products are distributed digitally and continuing to sharpen and apply digital experiences to serve our shoppers. Underpinning this is ongoing improvement of our technology, plus creating business processes and tech platforms that boost flexibility, decisions grounded in data, a focus on customers and how quickly we reach the market. Second, strengthening our pipeline for product innovation, our collaborations and extensions into new categories, so we draw in new shoppers and get more spend from those we already have. Third, growing our community via marketing and by building a positive brand movement with real impact — one that doesn't just transform lives but also makes our brand loyalty stronger. Fourth, developing our distribution channels, by zeroing in on upcoming growth possibilities and tackling the hugely shifting retail landscape and consumer marketplace; we hold a long-range vision for where our company is headed and an obvious route to reach our targets. The potential we see for Vera Bradley Inc. genuinely excites us, and I couldn't be more proud of everything the teams have achieved throughout this year. I also feel certain that an exciting future lies ahead, since we are positioned to seize further acquisition opportunities and to grow into a multi-brand retailer that is even more modern and relevant. At this point, I'll hand things over to John so he can walk through the financial results. John?

Thanks, Rob, and good morning. I'll walk through several key points covering Q4 along with the entire year. Just to remind everyone, our financial results have been consolidated so that Pura Vida's acquisition is included, effective from the July 2019 deal date. All figures I'm about to share are non-GAAP. If you want full details on what's been excluded from those non-GAAP figures and a complete reconciliation between GAAP and non-GAAP, you can find that in the press release issued today. Consolidated net revenues came to $142.4 million in this year's fourth quarter, versus $156.9 million during the same period a year earlier. Excluding certain charges, Vera Bradley Inc. non-GAAP consolidated fourth quarter net income reached $10.5 million, equaling $0.31 per diluted share, compared with $14.3 million, or $0.42 per diluted share, a year ago. Within this year's fourth quarter, revenues for the Vera Bradley direct segment reached $93 million, down 10.2% from $103.6 million in last year's fourth quarter. Comparable sales for the quarter fell 10.6%, which reflected comparable store sales dropping 27.4% while e-commerce sales rose 31%. Store traffic remains under pressure because of the pandemic. Over the past 12 months, we shut 13 full line stores and launched 6 factory outlet stores. Vera Bradley Indirect segment revenues reached $15.2 million, down 14.7% from $17.8 million in last year's fourth quarter, driven by fewer orders, mainly tied to the pandemic, along with a reduced count of specialty and department store accounts. Pure Vida segment revenues reached $34.1 million, down 3.9% from $35.5 million in the comparable quarter a year ago. Gains in e-commerce sales were outweighed by lower sales to wholesale accounts, which the pandemic hit hard. As Rob mentioned, we made a strategic choice to pull back on discounting over the Black Friday period, which we estimate cost roughly $6 million in sales while lifting gross margin performance. Consolidated gross margin for the fourth quarter reached $77.9 million, or 54.7% of net revenues, versus $87.2 million, or 55.6% of net revenues, in last year's fourth quarter on a non-GAAP basis. The company's fourth quarter gross margin this year came in below last year, largely because of outbound shipping surcharges plus extra shipping costs tied to stronger e-commerce sales. On a non-GAAP basis, consolidated SG&A expense for the fourth quarter reached $63.3 million, or 44.5% of net revenues, versus $67.2 million, or 42.8% of net revenues, in last year's fourth quarter. This year's SG&A expenses came in below last year thanks to both temporary and permanent pandemic-related expense cuts; on a non-GAAP basis, consolidated operating income for this year's fourth quarter reached $14.6 million, or 10.3% of net revenues, versus $20.1 million, or 12.8% of net revenues, a year earlier. Turning to the fiscal year: consolidated net revenues came to $468.3 million in fiscal '21. That figure included $112.5 million in net revenues from Pura Vida. For fiscal '20, the total was $495.2 million, which included $65.9 million in net revenues from Pura Vida — that represented only part of a year, starting from the acquisition date. If you set Pura Vida aside, Vera Bradley net revenues were $355.8 million, versus $429.3 million the year before. As everyone knows, the pandemic hurt revenues. Excluding charges of Vera Bradley Inc., non-GAAP consolidated net income for this fiscal year came to $21.4 million, or $0.63 per diluted share, with $0.23 of that attributable to Pura Vida; in the prior year, excluding charges, Vera Bradley Inc. non-GAAP consolidated net income was $28.2 million, or $0.82 per diluted share, including $0.16 attributable to Pura Vida for the partial year. Revenues in the Vera Bradley Direct segment for this fiscal year reached $289.3 million, down 16.8% from $347.5 million a year earlier. The main driver of that decline was our stores being shut because of the pandemic for roughly half of the first quarter and half of the second quarter, partly offset by a 49% rise in e-commerce sales over the fiscal year. Vera Bradley Indirect segment revenues for the fiscal year were $66.5 million, an 18.7% drop from $81.8 million the prior year, reflecting fewer orders tied mainly to the pandemic as well as a lower count of specialty and department store accounts. Pura Vida segment revenues were $112.5 million, against $65.9 million a year earlier, which covered only part of a year from the acquisition date; on a non-GAAP basis, gross margin for the fiscal — for this fiscal year was $266.8 million, or 57% of net revenues, versus last year's non-GAAP gross margin of $280.1 million, or 56.6% of net revenues. We grew our year-over-year consolidated gross margin mainly thanks to sales of cotton mask and product collaborations, even with incremental shipping costs. On a non-GAAP basis, SG&A expense was $233 million, or 49.7% of net revenues, this year, compared with $242.4 million, or 49% of net revenues, a year ago. Expense control was strong while absorbing incremental Pura Vida SG&A for nearly an additional 6 months in fiscal 2021. On a non-GAAP basis, consolidated operating income was $34 million, or 7.3% of net revenues, this year, compared with $38.8 million, or 7.8% of net revenues, the prior year. As Rob said, a pretty remarkable performance in light of the pandemic headwinds we faced the entire year; now let's talk about our outlook for the fiscal year. The continued uncertainty surrounding the continuing effect of COVID-19 on the retail environment make future financial performance extremely difficult to predict. However, we are providing our best estimates for fiscal 2022 based on our current expectations. Looking ahead to the back half of the year, we anticipate better foot traffic and sales as vaccination rates rise and as we expect a recovery in our key back-to-school and travel categories. Every figure I'm about to share is non-GAAP. The comparisons to last year that I'll cite leave out the charges we detailed earlier today, and the outlook figure also omits comparable charges. Here's what we're projecting for fiscal '22: total net revenues between $550 million and $575 million. In fiscal '21, net revenues came to $468.3 million. Pura Vida revenues should increase 20% to 30% year over year, while Vera Bradley revenues should increase 15% to 20%. Free cash flow between $50 million and $55 million, versus $15 million a year ago. Total gross margin between 56% and 57%, versus 57% in fiscal '21. That possible rate decrease stems from reduced mass penetration in fiscal '22 combined with added expenses for inbound and outbound freight. Total SG&A expense between $270 million and $276 million, versus $233 million in fiscal '21. The anticipated SG&A rise is mainly tied to Vera Bradley stores operating for the entire year, noncomparable compensation along with CARES Act savings in fiscal '21, and overall variable increases tied to stronger sales expectations. Total operating income between $44 million and $49 million, versus $34 million in fiscal '21. Total diluted earnings per share between $0.80 and $0.90. That diluted earnings per share figure assumes diluted weighted shares outstanding of 34.6 million and an effective tax rate between 23% and 24%. Diluted earnings per share came to $0.63 a year ago. Net capital spending of roughly $8 million to $10 million, versus $5.7 million a year ago, reflecting investments tied to new factory locations plus technology and logistics improvements. Let me now move to the balance sheet. Net capital spending for the fiscal year came to $5.7 million, versus $13.3 million a year ago. Cash, cash equivalents and investments at year-end came to $65.5 million, versus $73.8 million a year ago; we paid off the $30 million remaining balance on our $75 million ABA — ABL, pardon me, facility during the fourth quarter, so we had no borrowings at fiscal year-end. Total inventory at fiscal year-end was $141.4 million, versus $123.6 million at the close of last fiscal year. The higher year-end inventory was mainly driven by moving up certain Vera Bradley receipts into the fourth quarter to offset port and shipping delays across the industry, plus the pull forward of Pura Vida receipts into the fourth quarter tied to the Charli D'Amelio product launch. We anticipate inventory will decline roughly 5% year over year by the close of fiscal '22. Rob?

Thank you, John. Looking ahead to fiscal 2022, we see a year filled with both hurdles and excitement, since we're moving into the next phase of our company's expansion path. Each of our lifestyle brands holds vast potential to grow, reaching far past their main product lines, powered by prioritizing digital, creativity, and connecting with the community; starting with Pura Vida, our business with the greatest growth prospects; for fiscal 2022, we anticipate Pura Vida's revenue and operating profit will each rise by more than 20%. To fuel that expansion, we keep reinforcing Pura Vida's underlying structure. The Project Novus ERP integration for Pura Vida is set to happen this fall. Once that's done, the whole VRA enterprise will operate on one shared technology system; this opens the door to better abilities in sourcing, customer service, CRM, and data analytics, along with other fields; beyond that, we're bolstering essential merchandising, inventory planning, and customer analytics roles at Pura Vida. When it comes to supply chain, we have a plan spanning 3 years to broaden our supplier base for both stream and nonstream items. Innovation moves quickly at Pura Vida. We keep growing what we offer in classic signature core bracelets and style packs, and we've kept introducing our well-liked non-stream lines, which carried higher price tags than our standard bracelets. This broadening of categories and diversifying of products is paying off. As I mentioned before, close to 50% of our e-commerce business now comes from non-string jewelry categories, which highlights our brand's wide lifestyle appeal. Our Pura Vida spring launch has begun strongly and includes a number of enjoyable new jewelry pieces such as metal, semiprecious stone, shells, and beads, plus traditional bracelets, and rings, earrings, and necklaces are becoming more favored. The signature charity bracelets from Pura Vida remain a vital and expanding element of the Pura Vida lifestyle. Our shoppers feel strongly about backing cause-driven initiatives when they buy. New charity options recently added feature racial justice awareness and Project Cat, which supports World Wildlife Fund's work to double the count of Tigers in the wild; we have a number of thrilling launches arriving this spring, In April, our Pura Vida apparel line of shirts and hoodies will debut, a flawless extension of the Pura Vida lifestyle. Though we'll begin with a small collection, we think the revenue potential is substantial. Every item carries fair trade certification and major styles have cause-related connections much like our charity bracelet initiative. In May, our backpack collection will carry on. You might remember, Pura Vida and Vera Bradley teamed up on a special backpack last year, and it was gone in only a few hours. So we're confident there's plenty of interest and demand for a backpack with that Pura Vida flair. Later in the year, we'll reveal some thrilling product collaborations and licensing partnerships. Expect more details on that soon. Thus, the growth of our main product line, together with backpacks in apparel and our collaborative licensing efforts, should fuel significant revenue expansion during this year. Pura Vida has shown skill in connecting with buyers, fostering devotion, and bringing fresh enthusiasts into the Vera — sorry, into the Pura Vida way of life. During this year, we anticipate ongoing expansion across every digital channel, such as e-mail, SMS, and social media. We're also concentrating on achieving greater effectiveness in paid media and site functionality throughout fiscal 2022. As I mentioned, TikTok has exploded, gaining far more than 200,000 Pura Vida followers. Videos on TikTok showcase influencers, unboxing items, revealing previews of upcoming products, advertising giveaways, and providing instructional content. TikTok builds follower curiosity through imaginative, captivating material to boost purchases by directing users to the Pura Vida web shop and now and then presenting exclusive deals; and talking of TikTok, only last week, we introduced our long-awaited influencer style pack alongside Charli D'Amelio. Charli currently possesses an incredible — a staggering 150 million-plus followers spanning every social platform. Her intended audience aligns ideally with the Pura Vida label and with a hashtag, show us you're happy that matches perfectly with our way of life and look; this alliance is producing robust publicity and consumer interaction. Ever since our Charli reveal, we've almost doubled our TikTok following and accumulated more than 27 million views on our show us your happy challenge; and within 5 days after release, we've collected close to 600 million media impressions; we foresee exceptional e-commerce expansion at Pura Vida this year, especially since we've reinforced the supply chain infrastructure; regarding physical retail, we're thrilled to open our inaugural Pura Vida lab store at San Diego's Westfield UTC Mall during June; this will let us display current merchandise along with fresh product breakthroughs and obtain immediate consumer input. The site will additionally generate Instagram-worthy photo opportunities and enable us to arrange influencer gatherings; we'll assess how the store performs for potential upcoming growth. We'll keep seeking extra shop-in-shop chances to display a complete selection of Pura Vida goods and Vera Bradley locations, and we'll be introducing our Vera Bradley plus Pura Vida charity bracelet initiative across all Vera Bradley full-line stores this spring. As the globe goes back toward greater normality, we anticipate a consistent resurgence of wholesale expansion since we've already started to see it this quarter. Moreover, we intend to maintain an enlarged footprint among major wholesale partners featuring bigger in-store floor displays and presentations this year and afterward. We'll keep expanding globally within Canada and Europe, especially as pandemic-linked lockdowns loosen, and search for additional international distribution allies; we already possess numerous Pura Vida admirers globally, and this worldwide growth is enabling us not just to serve those buyers, but to broaden our outreach to additional ones. Even though we're at an early stage in our global growth, we think further possibilities lie ahead. Now let's move on to Vera Bradley. For this year, we've put together a strong schedule full of exciting product debuts and marketing efforts. With vaccination efforts broadening and pandemic-related limitations starting to loosen, we anticipate disproportionate growth in our 2 main areas — campus and travel — especially during the latter half of the year. When it comes to products, we've accelerated our innovation pipeline so we can keep creating fresh fabric options and continue building on our sustainable fabrics platform; that pipeline matters both for growing share of wallet among the customers we already have and for bringing new customers into the brand. Our latest pledge begins right at the heart of what we do. We've reimagined the legendary fabric that has defined us going back to 1982, and we're excited to roll out our new recycled cotton offering later this spring. The softness, comfort and vibrancy that our customers adore have been taken to the next level. We'll be adding new styling and new solids to our iconic collection. We're deliberately rethinking our designs, our materials and the way our products get made, aiming to convert 100% of our fabrics over to more sustainable options by 2025. So keep watching.

We keep growing the performance tool assortment within our recycled reactive line in full-line stores, and that will keep picking up momentum since customers rate it very highly. Beyond that, we're widening the ultralight range, which only debuted last year and has proven a hit at our factory stores. Additionally, we keep rolling out differentiated styles across silhouettes, giving shoppers lovely options for every part of her life. Over the long haul, our emphasis remains on extending the lead we hold in our 3, 4 franchise areas: youth campus, every day, and travel. We're particularly eager to see campus and travel bounce back, and we feel ready to capture share once the consumer slowdown tied to the pandemic ends later this year. Collaborations and strategic alliances stay a vital piece of our approach. Such partnerships energize and draw in both current and new customers, lift brand awareness, draw press coverage, and create chances for Vera Bradley to test strategically and eventually move into new product categories. Outside partners keep coming to us about possible collaborations, which shows the strength and broad appeal of our brand. Tomorrow brings the launch of our newest Disney collection, far wider in scope than anything before, and we anticipate yet another year of prominent product collaborations alongside names such as Harry Potter, Crocs and Venus. We're engaged with a number of other iconic, globally recognized brands on thrilling upcoming collaborations and character licensing efforts set to roll out across the next 18 months. Turning to mass, during the fourth quarter, mass sales fell to roughly 5% of our total sales. Entering fiscal '22, we foresee the mass business shrinking as COVID precautions start to loosen, though we likewise expect store traffic to recover on its own over that period. Like I said earlier, one of the big things we want to accomplish in the coming year is making our customer community stronger. We'll do that through marketing and a really positive brand movement that changes people's lives and makes them more loyal to us. During the pandemic, we saw very clearly how much value our brand created by connecting customers with each other and brightening their lives. Over the next two years, we're going to keep building on and expanding what we've put into data science, business analytics, and customer data. We'll depend more on content created by users, get more engagement going on social media, expand what we're doing with influencers, put more strength behind activations built around the customer journey, and keep lifting up our social storytelling. Right now we're overhauling our decades-old brand ambassador program, modeling it on the tremendously effective one at Pura Vida. Our social media push is growing as we keep studying the data to concentrate on the most engaging content creation and sharpen the bond with our followers. Building on that, we'll grow social selling too. We're intensifying our VB Cares mission, partnering with fewer organizations to achieve larger impacts, frequently paired with product collaborations. Our work to back women and children goes on; in February, as a tribute to black history month, we marked the occasion by launching our Unity Tote, and it was an honor to give $20,000 to women who started a nonprofit organization focused on offering scholarships and mentorship to young creators who identify as women of color in fashion, advertising and music and tech. Only this week, we shared news of our third annual partnership with New Hope Girls, a nonprofit that supplies jobs for vulnerable women along with refuge and education for girls in the Dominican Republic. That limited edition mini collection includes a hobo bag and travel pouch, and the New Hope artisans both designed and sewed it. Just like we did a year ago, that product line launched on March 8 in recognition of International Women's Day, pulled in a ton of press attention, and there's nothing that brings us more joy than continuing to back New Hope Girls while shining a light on what that organization does. Come June, our pride collection is coming back for pride month. And every back-to-school season, same as always, we'll once more throw our weight behind The Lessons in a Backpack and the work it does to wipe out childhood hunger throughout America, and of course, the push to support the Vera Bradley Foundation for Breast Cancer keeps going all year long. Across the last 18 months, we have made digital the top priority as the primary revenue growth driver for Vera Bradley, undertaking major strategic shifts and investments to pivot us into a digital-first company. We're letting her shop in a seamless way and allowing her to shop where and how she wants to shop. We will keep expanding the capabilities introduced by Project Novus, further enabling revenue growth through the expansion of the digital channel and enhancing the customer experience through customer analytics. We expect to drive the third year of substantial e-commerce growth; and later this year, we are preparing to launch our Canadian website. While digital is accounting for a bigger share of what we bring in, our physical locations remain central to how we serve customers across channels. In areas where we operate retail stores, online purchases tend to be stronger, and someone who shops both in-store and online spends on average more than three times what a single-channel shopper does; because of that, our store and wholesale groups keep pushing for results by finding new approaches and thinking creatively. We're still concentrated on improving and reimagining what customers experience when they visit our full-line stores. Even though the pandemic and capacity restrictions ordered by authorities made things difficult for store traffic, we've gone further in weaving digital and customer data improvements into our bricks-and-mortar locations to deepen connections. That includes appointment selling, face time and social selling, buy online, pick up in store, and curbside pickup where available. Appointment selling performed really well, accounting for a high single-digit percentage of our full-line revenues during Q4. The way people shop has shifted for good, so plenty of these features and programs will stick around after the pandemic. As we wrapped up the fourth quarter, we had built solid bonds with our loyal shoppers, and retention rose to an even higher level compared with the year before. Through chosen store shutdowns, we're boosting the profitability of our full-line assortment. Our attention will stay on the outlets with the greatest upside, elevating what customers experience and tailoring our product mixes more closely to each area; during fiscal 2022, we anticipate shutting as many as 10 more full-line outlets, lifting the cumulative count of full-line shutdowns to 49 from the start of fiscal 2018. In the coming year, we'll keep pushing factory results higher by opening 5 additional sites and growing established top-performing stores. Upgrades in technology likewise factor into the factory locations, including broader mobile POS deployment, the option to personalize the shopping journey within line queues, and virtual catalog usage. Turning to wholesale, we'll keep growing our digital marketplaces such as Amazon, serving shoppers wherever they happen to be. Operator, at this point we'd like to take questions from the call.

There seem to be quite a few thrilling projects in motion right now. To start, on the revenue forecast: could you elaborate a bit on how you envision the shape of the year, in terms of growth compared with the prior year versus fiscal 2020 or calendar 2019? I suppose I'm simply attempting to reason through the underlying demand rebound against the effect of lapping some of the mass sales, or whatever other factors apply. And on that specific point, the annual outlook sale — what ought we to presume about its contribution during the early portion of the year?

Absolutely, Mark. I'll begin, and Rob, feel free to chime in if any specifics are needed; concerning this year's annual outlet sale, that event has been called off. Therefore it will not appear within that figure of $550 million to $575 million; as for the pattern of sales when set against fiscal '20 or calendar '19 — as we've mentioned, we expect the latter half of this year to outperform the first half, meaning the initial quarter will be somewhat more difficult because of the store traffic you've probably observed across all those retailers in all the reports. Thus we believe the first quarter will be somewhat more difficult, yet we believe that as we progress into summer and then into the fall stretch, we will in fact witness some sort of upside when it comes to people returning to shop.

Also, a few developments during this quarter have been heartening, since we're finally noticing some of this better conduct: vaccination programs are getting underway; there's a slight uptick, especially among older shoppers returning. That made for a fascinating statistic — they were among the first to receive the shot. So some encouraging signals are showing up. It isn't very significant at this point, yet it marks a start, and that's a promising indicator. Another thing we've noticed, especially regarding Pura Vida's wholesale operation, is pleasant early expansion in that wholesale channel, and their collaborator genuinely anticipates bouncing back to stronger results once the summer season arrives, so revenue is climbing there; thus, a few hopeful indicators exist. Still, on the whole, we clearly anticipate a tougher first half of the year, sort of a — rather more of a — certain degree of carryover from the close of last year, while the latter half of the year should truly bring an acceleration beginning around back-to-school and continuing onward from that point.

Turning to the profit guidance, could you break that down a little? The middle of the range, as I read it, points to operating profit above what we saw in fiscal 2020. Yet once I strip out Pura Vida, the implication seems to be that Vera Bradley's operating earnings are still under where they stood before the pandemic. Perhaps walk us through the pluses and minuses at play. And stepping back, what do you view as a normal operating margin for Vera Bradley, given everything shifting in channel mix plus the marketing spending you have planned?

Yes. That is right. When you break it apart, in the end the Vera Bradley brand will face somewhat more difficulty in fiscal '20, while annualization of Pura Vida gives us a lift. Among the difficulties at Vera Bradley relative to '20, sales will be somewhat lower — not returning to the complete '20 amount. It will come quite close, yet it may not fully get back to that level depending on where exactly we land, and margin will face some pressure because of all the expenses tied to inbound and outbound shipping; also, with delays at the ports, we'll bring goods in somewhat differently, which could add a bit to our costs, so margin will feel pressure. On SG&A, there will be some savings tied to 2020 results from certain permanent savings; however, as you would expect, versus '21, since every one of our stores is open, we lack the same advantages we enjoyed in '21 from certain compensation reductions the organization accepted. You'll notice some pressure versus '21 there; so I don't know whether that addressed your question, but some — it certainly is — Vera Bradley likely will need until — will not return to '20 levels during this year.

Yeah. My sense is that our aim is for Vera Bradley to reach where it stood in 2020 during the next year, though in our view it will require no less than one additional year for us to arrive at that point.

Understood, that helps a lot. I also appreciate you being willing to walk us through a detailed earnings outlook — I realize conditions are difficult at the moment. Then, last thing, Rob, stepping back once more to the new management structure. It looks like it frees up some bandwidth for you to focus on M&A. Could you share your thinking on that front, and what the landscape looks like for brands matching your profile? Any indication of the potential size range you'd look at when acquiring something?

Sure — when it comes to laying out extensive specifics about M&A activity, that's generally not something we do, though I can offer a bit, since I think your point is valid. One factor behind implementing that structure is our belief that opportunities will emerge down the road. We've felt very good about buying Pura Vida. We see genuine growth potential in that brand. Being able to evaluate digitally native businesses that sit around the middle stage of their growth curve, assisting them in scaling up, navigating that shift, and realizing their full potential strikes us as a genuine opportunity, so we're searching for additional ones too. And clearly, this period has brought a surge of new brands launching, which is a positive sign; still, we need to remain thorough throughout the process. We need to ensure we're chasing the proper opportunity at the proper moment, with something like the proper valuation. So we'll stay quite disciplined in how we go about it. That said, we will be searching, and we'll watch for whatever opportunities come forward.

When we look at inventory, it appears somewhat high as this quarter wrapped up, though there was a reason behind that. Why — what's your approach to planning inventory against sales as the year moves forward? And beyond that, the possible rebound in back-to-school along with travel. How would you evaluate that, and how do you plan inventory given how much things are shifting right now?

Yes. I'll take the inventory piece. Yes. My view is that when the year ended, it sat a bit higher than the guidance we'd given and what we'd discussed at the close of the third quarter, and the reason behind that was we moved certain goods up earlier because of port delays, to guarantee we'd have them for launches, which played a role; on top of that, once we dialed back promotional activity for the Pura Vida, we still held some inventory tied to that. So looking ahead to next year, as reflected in our guidance, we see a chance to bring inventory down compared with last year, roughly in the 5% range, which works out to somewhere between $5 million and $10 million. So we'll be managing through inventory across both brands to ensure we're positioned well to reach the sales targets we've set; we need to be sure that as we move into new categories for the Pura Vida brand, we've got the right assortment and the right value from an inventory standpoint so those sales land, yet we'll stay careful about taking out — lowering inventory compared with last year.

Also, I believe — Oliver, if I don't get this right, could you narrow down what you're asking regarding back-to-school so I respond accurately? When we consider the back-to-school period, clearly our hope is that schools will reopen once fall arrives; since there was hardly any back-to-school buying during the previous year, our expectation is that a certain accumulated demand will surface. Regarding inventory, we believe our position is quite solid. Our hope is that with back-to-school recovering, an opportunity emerges to generate still greater full-price sales, something we've experienced across the last 2 years. Thus, we believe we're positioned quite favorably for the year's second half.

Rob, both Pura Vida and Vera Bradley have been discounting. How do you see merchandise margins shaping up compared with this year? What have you baked into your guidance, and how does the merch margin profile stack up against 2020?

I can address part of that. On the merchandise margin question — when we look at our guidance, we're not expecting a meaningful shift on the discounting side. So for those categories, merchandise margin should stay pretty much in line, though masks will make up less of the business in the coming year than they did in the prior one, and that creates some headwinds. Masks carried a very high margin for us. As that category shrinks going forward, you'll feel some pressure when you look at total merchandise margin. That said, overall, we don't expect to be much more promotional than we were last year.

Over the past year, we achieved significant strides when it came to cutting back on promotional efforts at Pura Vida. And when we examine how retirement is penetrating into sales at full price, we noticed encouraging expansion in our full-price segment during that period. So our aim is essentially to preserve those improvements as we move into the coming year, while avoiding any rise in discounting.

These organizational shifts seem pretty creative, and congratulations to Daren. Why do you feel the timing is right for this? Also, what parameters will guide these adjustments, and what framework are you considering regarding timing while handling both the upside and the risk?

Yeah. A couple of points come to mind. First, since joining, Daren has done a great job of helping us sharpen our attention on the digital side, our e-commerce operation, our analytics, our marketing analytics, and he truly was instrumental across the past 2 years. We simply feel that going forward, this area keeps growing in importance and is backed by a highly capable group. And Beatrice, Murdoch and the team can genuinely drive the growth initiatives ahead. We believe that having Daren concentrate solely on Vera Bradley — a single brand — allows even more attention to be directed at Vera Bradley. I think Pura Vida holds substantial room to keep growing. So I want to ensure we get adequate backing from the corporate team to genuinely fuel Pura Vida's expansion. Secondly, I do think there's a chance to keep strengthening our brand portfolio. So making sure we dedicate enough time to that. There's one more element. Regarding the corporate platform, what we truly aim to do with it eventually is simply create an effective support framework. That way, as brands sort of join it, we possess the know-how that can genuinely assist their growth from a logistics perspective, from an IT perspective, from a human resource perspective, from a legal finance perspective. We've discovered much of that has benefited Pura Vida, and we believe we can offer considerable assistance to the next brand that emerges from the portfolio.