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

Hello, everyone. I'm Jay Sole, UBS' retailing, department stores and specialty softlines analyst, and welcome to UBS' Global Consumer and Retail Conference and our virtual fireside chat with Vera Bradley. Now before I go any further, I want to give the disclosure statement. As a research analyst, I'm required to provide certain disclosures related to the nature of my own relationship and that of UBS with any company on which I express a view at this event today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after the events. Now I am very pleased to introduce our special guests, Rob Wallstrom, who is the President and CEO of Vera Bradley; and John Enwright, who is the Chief Financial Officer. Rob, John, thank you so much for doing this today.

Our pleasure. Thank you for inviting us.

Great. Well, the plan for today is I'm going to turn it over to Rob for some opening remarks, and then we're going to go into Q&A. And what I wanted to get to is the company's digital-first strategy, product innovation pipeline, collaborations and category extensions, and then talk about some marketing initiatives, the distribution channel evolution and then kind of tie it all together with some talk about the company's long-term financial goals. So with that, Rob, I want to turn it over to you. I know you just reported earnings. What sort of key takeaways, some of the highlights from your report and some of the outlook for fiscal '23?

Yes, what I can do is just give you kind of a brief overview for everybody listening and just a little bit about the company, right? So our company has 2 strong lifestyle brands in Vera Bradley and Pura Vida. So Vera Bradley is a leader in the fashion accessory space and Pura Vida really in the jewelry space. And at the beginning of fiscal 2022, we really set out to further enhance our brands by driving revenue and earnings through really 4 key strategies, which I think you were speaking to, right? Executing our digital-first strategy, enhancing our product innovation pipeline, engaging our communities through marketing and continuing to evolve our distribution channels. And during the year, we made headways on both brands. We generated strong cash flow, delivered a consolidated year-over-year revenue increase of over 15%, and essentially, returned to prepandemic revenue levels. Our Vera Bradley brand had a solid year of revenue growth, with year-over-year sales increasing over 18% as customers responded to our new product innovations and collaborations, really supported by our data-driven and targeted marketing. And our customer base grew year-over-year, and our demographics are getting younger and more diverse. On the Pura Vida side, sales grew over 6% for the year. We saw double-digit growth in our wholesale revenue, our first successful retail store opening last year. However, the significant shift in social and digital media effectiveness due to the Apple IDFA update affecting direct-to-consumer companies resulted in e-commerce sales falling short of our expectations. But also in addition to what's happened with the Apple IDFA update, we also faced a series of other unprecedented macro issues, which everybody is familiar with, right? Including dramatic supply chain delays, freight cost increases, delayed renewal of GSP tariff relief and substantial digital advertising costs, all of which materially affected our profitability. On a non-GAAP basis, our consolidated net income totaled $19.5 million or $0.57 compared to $21 million or $0.63 last year. To put it in perspective, the incremental freight cost and GSP tariff impact negatively affected our earnings by $0.25 for the full year. If we didn't have that impact, we would have been within our guidance range at the beginning of the year. But we continue to diligently manage our expenses, ended the fiscal year with a solid balance sheet. Ample cash, over $88 million. No debt. And so even as we faced these macro challenges last year, we generated $34 million of free cash flow, slightly above our 10-year average; returned nearly $8 million to shareholders through stock repurchases. And we are really committed to being a purpose-driven multi-lifestyle brand, stable growth company, generating strong cash flow. Our solid cash position, debt-free balance sheet and ability to generate free cash flow has positioned us to continue to invest in our 2 lifestyle brands, seek out accretive acquisitions or other cash-generating purpose-driven brands over time and also to return capital to shareholders through continued share repurchases or future dividends. So although fiscal '22 had its challenges and fiscal '23 will still be filled with, as we know, inflationary challenges, we have a solid long-term vision for the company and a clear path forward. So now I'm happy to open it up to questions.

Okay. Well, great. Well, Rob, I'd like to start off, especially in a forum like this where it's a good time to sort of take a step back and really understand your vision for the company and expand on kind of what you talked about, I want to just talk about your 2 brands, Vera Bradley and Pura Vida. These are very iconic brands. And I'd love to understand a little bit more about them. They're both very authentic. What is the source of the authenticity? Tell us about why these brands really resonate with consumers.

Why don't we start with Vera Bradley, right? Since it's a 40-year-old brand and really the founding of the company. From day 1 when Barb and Pat founded the company, they really believed in relationship and connections. Everything about the brand started with an emotional connection. And what we've seen over the years is that customers really are connected emotionally to the brand, even more than the product, right? It's just the emotional connection to being part of the tribe. And I think what that's really about is this idea of positivity, brightness, happiness, helping people. We've always been very much a purpose-driven organization even before that was popular. We set up the Vera Bradley Foundation for breast cancer, and we funded a -- the breast cancer research at IU Cancer Center. And it's almost then $40 million of revenue that we've raised for that program. And it's not just about raising money, but it's about doing research, helping women who are facing breast cancer. And that's been part of our history. And part of that whole ethos of the company is what's tied the company together, and I think it makes it very special. Pura Vida, when we acquired Pura Vida a couple of years ago, one of the things that we liked about the company and additional -- in addition to kind of their digital-first strategy was the fact that they had a similar customer engagement. The customers were driven to be connected to the brand because of its artisanal background, its desire to impact, give back, be purpose-driven -- they've raised millions of dollars for a variety of charities. So you can begin to see a theme, right? An emotional connection from our customers based upon a purpose-driven positioning. And we think it makes both brands really unique, gives us the power to really be lifestyle brands because they're committed to the brand even before maybe they're even committed to the product, right? So that gives us a lot more license to expand out from our core.

Got it. Okay. I understand. So that's helpful. Maybe tell us about what kind or maybe what type -- obviously, we're kind of talking about an emotional connection -- what type of consumer do these brands resonate with most?

Great question. So first of all, with Vera Bradley, very, very broad demographic, right? That's one of the reasons we talk about the psychographic. But the demographic, it really starts out of the teenage years with our Campus Backpack business, right? That's one of our 3 most iconic items. And so we have a very strong position on campuses starting in middle schools or high schools through college. That's one group. Then the next group that we've always been really strong in is kind of more in the 30- to 45-year-old range, right? And I think it's a lot with mothers and looking at everyday bags like our tote, which is really the iconic item in that category. And then we also go off even in the next generation. So we're a very multigenerational company. But the other thing I would add to Vera Bradley is the importance of our travel franchise, right? Our third iconic problem -- third iconic product is our duffle bag, right? So it's the #1 dollar selling duffle bag for women in the United States and the importance of travel, particularly domestic travel, right? Families getting together, people having connections is really who connects the Vera Bradley customer. If you think about the Pura Vida customer, they really have 2 primary categories. One, they also have a very strong foothold in the teenage younger audience, so kind of starting that 13- to 20-year-old range. They have a very, very strong customer base there. And then second of all is really kind of in the 25- to 40-year-old. As we say, a lot of women who like yoga, like outdoors are connected with the brand. So there's really kind of 2 diverse groups for the Pura Vida brand. But again, both of them are multigenerational, which we think is part of the power of both of the brands.

Okay. Got it. So maybe, Rob, not -- maybe tell us how do you see yourself positioned in the marketplace. Who do you consider to be your primary competitors?

Again, going through both brands, right, Pura Vida is interesting because I think we talked about being kind of a white space brand, right? There's not a true perfect competitor for Vera Bradley, but we kind of compete on what I'll call 2 sides primarily, right? So one would be against the handbag competitors. If we talk about where else does our customer buy, Coach case [indiscernible]. So that's a [indiscernible] but it's a little bit different purpose. And then on the flip side, we also compete with the people like the Kiplings, Fjallravens and Herschels, which are more casual in nature. But our crossover in those brands is very small. Our competition is more about end use but not really brand ethos and customer. In Pura Vida, if you think about the Pura Vida, same thing, very much a white space brand, right? There's not another major competitor who's really into a string bracelet-based business. There's a lot of little competitors, $10 million, but they're not big. But I would say there, we also compete with people like Alex and Ani, a little bit maybe with the Kendra Scotts, so the other jewelry brands that are out there. But again, I think both companies are positioned in the white space and really own a unique market as opposed to fighting it out with a direct competitor.

Got it. All right. So maybe let's shift gears now. Let's talk about product. At a high level, Rob, what's the product strategy?

Yes. At Vera Bradley, first of all, it's building on our 3 core pillars, right? Owning really the campus categories, so the importance of the backpack and the things that surround it. So lunch, lanyards, all of the drinkables, all those things that go around the campus business. That's one big piece. The second big piece is what we call like travel, really duffel travel accessories. That's the second anchor point. And then third one is really around our tote and everyday purchase, right? Those are really the 3 big ones. But the one that's really emerging and becoming more and more important is the home category. We've always had -- if you say what's our fourth iconic product, it's our throw blanket. I mean it's one of our most popular items. It's a huge business. And our company was really founded on a concept of home. Barb and Pat, before they started Vera Bradley, used to hang wallpaper. And you can see that home style in everything we do. So home is an emerging category for us. So we think that, that's from a strategy standpoint, really important. And then just how we keep the product fresh, through innovating through fabrics, innovating through collabs, keeping it fresh and interesting. But those are the pillars. That's how we keep it fresh. On the Pura Vida side, historically, it was built off the string bracelet or friendship bracelet business is really the core of that brand and really where their history is. A couple of years ago, they started diversifying into fashion jewelry, so getting into more metals and all of that. And that is the fastest-growing category for them right now, and we think it provides a great opportunity for growth long term. And then the third one that we've started to get into is apparel, right, and a very focused apparel assortment. Think about it as hoodies, tees, very logo-driven and great opportunity to get the brand out in the marketplace and really fits with that beach vibe that Pura Vida is known for -- the combination of beach and mountain vibe fits very well into an apparel expansion.

Well, you touched on product innovation. Both brands have very unique product offerings. Rob, how do you keep the brand moving forward? How do you keep these brands differentiated?

In terms of differentiated from the marketplace or differentiated from each other? Just...

Well, I was really thinking about differentiated from the marketplace first. I mean that's -- that was what came to mind.

Yes. So I think, first of all, what's interesting is that Vera Bradley, I think, is a very, very distinct product category, right? There's nobody else who's really in the cotton quilted business, right? We really own that marketplace. It reminds me of Crocs and their position in the footwear market, right? There's nobody who really competes with them. We have a very similar play. For us, though, to stay relevant, we continue to innovate around products and other fabric. So we've brought in Performance Twill. We've made all of our costs sustainable. We've brought in ReActive, which is our recycled program, to make sure we're keeping it fresh and relevant. And I think that becomes super important as we go forward. When you have a great heritage brand, you want to make sure you're keeping it fresh as you're moving forward. So you don't only have a strong heritage brand, but you also have a very relevant brand, and we think we're doing that with Vera Bradley. On the Pura Vida side, I think it's really just staying very true to who the brand is, right? It's a casual lifestyle brand. We want to make sure we stay casual. We want everything about it to have that ethos of Pura Vida, just a really care-free, live-free type of lifestyle and just stay very focused on the jewelry business. Right now, we're probably more in the $25 jewelry business, but we think there's an ability to expand that up and continue to push that price point up.

Okay. I want to ask you about collaborations. It's been a big theme for the company and the product strategy. Talk a little bit about your views of collaborations and how you plan on driving the brands forward with collaborations in fiscal '23.

Yes. Collaborations have been very important. We've done a lot of great collaborations with big iconic brands like Disney, Harry Potter, Peanuts, Hello Kitty, some of these big brands out there. And as we do it, one of the real reasons we do it is to attract a new customer into the brand, right? All of those names that we talked about have loyal raving fans, right? I think they have huge fan bases. And so being able to introduce Vera Bradley or Pura Vida into a new customer base, we think, is really the driver. And what we'll do going forward is how do we continue to find those type of iconic partners. And what's great is somebody like a Disney has multi-franchises inside the Disney umbrella, right? It's not only Mickey Mouse or what we traditionally think of as Disney, but they have a lot of other franchises that we can partner with. So we'll have a lot of new exciting collaborations going forward.

Got it. Are there any big fashion trends or any themes -- cultural themes that are sort of impacting the business?

I think number one is sustainability. I think sustainability is incredibly important. And so that's why we've been pivoting our fabrics, particularly in Vera Bradley, to become sustainable and really making a commitment to a sustainable platform. I think that's one that we've really been embracing. But I think there's actually another one that the world is not talking about as much, but we're really seeing the response is the customer -- the society right now is looking for something to feel good about and to be happy, right? I mean there's so much of what's out in society now is not filled with happiness. And what we're really finding is this great resonance that people want to feel good. There's enough negativity and enough fighting and enough angst out in the world, but both of our brands really celebrate a positive attitude, an inclusive attitude, a just enjoy life attitude, which I think people are really needing today.

Well, that's a nice message. I guess that's a good segue into marketing. Both brands have very devoted, emotionally-connected consumers. What's your strategy to maintain that connection?

I think, first of all, we keep talking over and over again about being a purpose-driven organization. We think that, that is critical. We think that keeps people connected to us. We do so many things, and we involve our customers in that process. So whether it is the Vera Bradley Foundation and what we do for breast cancer over the years, our -- we just launched, on International Women's Day, our collaboration with New Hope Girls out of the Dominican Republic, really transforming life down there. We think that, that emotional connection of doing good and making a difference really builds a super loyal tribe. And for us, that's going to be a key to what we do going forward.

And sort of what are some of the mechanisms -- I mean, obviously, social media, TikTok is -- everybody is talking about that. Even it seems like Facebook is sort of taking a back seat. Is that the same for your brand? I mean do you have the same views of social media and how to leverage that to be able to continue to engage your audience?

Yes. I think that the tactics of how to do that are a few different things, right? It's trying to bring customers together, and you can do that through the virtual world and continuing to see we're moving, right? And TikTok, obviously, is a growing channel. Both brands have been growing their followings tremendously on TikTok. But it's also kind of a focused customer segment, right? TikTok has a tendency to skew a little bit younger, which works for both of our brands. But I think it's continuing to build customer engagement opportunities, right, whether it's physical. To give you an idea, historically, even though we have not done it for a couple of years, the Vera Bradley outlet sale that we would do year after year, we would have 50,000 people come to Fort Wayne from all 50 states, right? Those type of activities to get people that come together, whether it's locally in their stores, whether it's nationally, we'll continue to do. And we do think, particularly at Pura Vida, a lot of influencer type of events, big things that we've done in terms of events at Coachella, things that they're doing currently with women's surf league, how to continue to be part of our customers' lives and give them an experience and not just a product.

Do your brands lend themselves more to like that experiential physical type of marketing, that grassroots kind of one-on-one engagement? Is that something that is top of mind for you?

It really is because as I keep talking about with both brands, there's this idea of community. Our brands are about people coming together. And my experience before I came to Vera Bradley, right, I was with Saks Fifth Avenue for 18 years in the luxury market, right? But the luxury market is different, right? The luxury market is more about acquiring the thing. Both of these brands is about coming together in the tribe and experiencing it. So I do think that our brands really line up nicely with what the consumer is expecting today.

It is kind of a unique thing. I mean there's so many digitally native brands out there that sort of view fashion as sort of a technology kind of math problem, and your brand seems to come at it from a different point of view, which is I think something gets lost in the technology mathematical side of sort of engaging customers with algorithms or whatnot where you miss that human element. And Rob, to your point, I think it's very interesting that people want to feel happy. Obviously, there's lots to feel nervous about in the world today. And when your brands are, I think, discovered in places where people are ready to have a good time and they're ready to feel good, especially Pura Vida. So it's interesting. Like maybe tell me a little bit more about how you leverage that because at the same time, your company does want to use data. I mean data is a huge theme. Everybody is doing it. How do you use data to sort of amplify that opportunity to really engage people, want to -- and make them feel good and put that smile on their face and give them that experience that really creates that emotional connection, that keeps them coming back?

Yes. I think what you said was really important, right? That the technology piece allows us to add to that emotional connection, right? So we've spent a lot of time over the last couple of years, particularly first at Vera Bradley, of really building out our data platform, our analytics. And it really has been producing nice results for us and helped Vera Bradley get back into a growth position. So I do think that the data analytics becomes critically important even in an emotional brand. I think the trick is, is it art or science? The answer is yes, right? It is both. So how do we take the technology, make sure that we're talking to people on an individual level. But how do we keep the emotion in it, the experiences in the brand? And that's how we'll do it. Pura Vida has been a little bit different, right, because Pura Vida originally, through their marketing platform, was industry leader in social media advertising, right? Leveraging that Facebook platform across Instagram and everywhere, and they grew a tremendous business. And then when all those algorithms started to change, the privacy started to change, they had to replatform. And so now what we're doing is really working with them to bring that same data analytics platform that Vera Bradley built, leverage it against the Pura Vida team so that we can make sure we're keeping in contact with our customers on an individual level while we still build these experiential events. I think getting our stores rolled out in Pura Vida will help us build more experiences, too, across the country because our store in San Diego, we've been doing that, and it makes a big difference. And it's great because what that store has allowed us to do is bring influencers, customers together to do events, to build community. So to us, the store is not just a place to go buy something, but ideally, it's a place to go experience the brand.

So I mean, Rob, you just touched on the Apple IDFA thing. Can you just maybe expand on that a little bit and talk about how the company is tackling some of the marketing issues of Pura Vida and sort of what the plan is going forward?

Yes. There's 2 things, right? I want to make sure that we don't lean too far away that -- we still think that Pura Vida's leadership in the social media world is going to be important, right? Social media will continue to have an impact on culture, and they're beginning to build a leadership position on TikTok. So they will continue to do that. But they can't be a one type of marketing going forward, right? It has to be a mix between digital, what you'll call traditional, direct mail, e-mail, all of the basic things that retail has been built upon. So we're working on building a new data platform for them, bringing in the best practices from Vera Bradley, bringing in some more talent that has a broader marketing background and really diversifying that platform. That will take us a little bit of time, right? That's not something that gets done in a week or 2. But we're working very hard to make that progress. And we think that once that gets replatformed, we can kind of return Pura Vida to a better level of growth.

What about content? And this is maybe a personal thought, but my sense is that content is so important. And whether it's through TikTok or if it's through an app or some type of way you have -- engaging consumer directly through their digital device, what -- live streaming, live shopping. There's a lot of different things that -- user-generated content, micro influencers who come up with their own content to promote your brand. What are some of the opportunities that you have to sort of capitalize on those themes out there and sort of engage consumers? Because, obviously, you have more touch points, more conversation, more engagement with them more -- then they're more likely to think of you when they're looking out to go buy a bag or to go buy something -- just a gift for themselves or for a friend. What can you do?

I think a couple of things. I think, first of all, it's some of the pieces we can leverage today, right? We have a very strong ambassador and influencer programs in both brands, right? That is one way that you get a lot of content out there in social media if I have in a huge army of people who are creating that content. So that's kind of step one. But I think as we're looking forward, we are challenging ourselves, how do you continue to enhance that control of your content. Personally, I think that's one that's going to be interesting in retail, right? There's a lot of focus now of how retailers need almost to start moving towards media production, content production, looking at how do we leverage out podcast. And we've been experimenting that with an innovation brand that we have, how we use podcasts, how you use streaming different ways, connected TV, to make sure that you're connected with your customers. So we're in early stages there, but those are definitely other things that we're looking at.

Okay. A theme has come up at this conference, and Macy's was here yesterday talking about this and some of the other department stores are talking about this. They're talking about -- Macy's talked about their media network. They're using their website as a source of revenue generating that they -- revenue generation because they can sell ads. Do you see that as an opportunity for your brand? I mean do you see this an opportunity to get yourself a leg up on a big department store -- maybe just amplify some visibility with -- that way? How do you feel about those type of opportunities that are emerging?

Well, I think I'm hearing a couple of things from your question. So first of all, in terms of being able to turn into [indiscernible] [ media ] selling advertising selling platform on our 2 brands short term, I don't know that we're there yet in terms of the scale to do that, right? I think there's definitely an advantage to some of the larger scale because it's about the number of eyeballs that come across, but it's definitely something that we are thinking about. And we definitely think that this idea of becoming more of a media company, I think all of us in retail will be thinking about that. If you talk about the big shifts in retail, I think, over the last few decades, I do think we're on the cusp of retailers becoming media companies in the future. I think that's going to be an important part of what all of us do.

Okay. I understand. I want to talk about distribution because I know distribution -- the strategy is evolving. Maybe first, Rob, if you can talk about Vera Bradley and how that's changing for us, and what's your vision there?

Yes. I think from a Vera Bradley standpoint, what we've been doing is really focusing on the digital aspect, right, because digital was an opportunity for us. And we're happy about the progress we've been making on the digital front. It's been a combination of digital growth, continuing with our factory growth and then also getting indirect sales growth through kind of third party. Amazon has actually been a good partner for us, right? So that's a good example of a third-party digital partner. But at the same time, we believe that our history and our connection to the specialty channel, the mom-and-pop, the local entrepreneur, is part of the magic of the brand. So we think that, that will continue to be really important. The area that we have been pulling back in some areas is in the department store platform just because our category doesn't fit this cleanly, right? The Vera Bradley duffel backpack business, there's not an easy place on the floor to plug that business in, in the department store world. And so that, we haven't been as successful there as we want to be. So that's an area where I see us not evolving and not expanding, but just kind of contracting a little bit while we focus on the other parts of the business. If you want, I can jump into Pura Vida, too, and talk to you a little bit about Pura Vida. And Pura Vida has obviously been digitally led, but wholesale, our indirect business, wholesale business there is about 30% of the business, is still very important, being in surf shops and yoga stores and all these small places where customers can find the brand is really important. But the biggest channel for us that's growing and emerging and I think will provide the real growth as we move forward is bringing stores in. The first store we opened has been a very, very strong success beyond what we expected. So we have 3 more stores that we're going to be opening this year. And as we replicate that success in those 3 stores, we think there's a real opportunity to build out stores for the brand. And again, bringing that physical experience to the brand, what we found in San Diego is that our e-commerce business in San Diego through those ZIP codes was outperforming the rest of the country by over 20% when we opened the store. So it shows that how we're bringing that physical experience to a digital world, and you still win in the digital world. So very, very excited about the store expansion for Pura Vida.

Okay. And maybe just to circle back to Vera Bradley for 1 second. Just your plan on new stores at Vera Bradley. I mean what's your plan for sort of the brick-and-mortar side of the business?

Yes. I think in our full-line side of the business, we're going to continue to work on the full-price stores and probably continue to rationalize that portfolio a little bit in the short term. And so we're focusing on our best stores, how do we invest in our best stores and really find an easy replicable model there. But in the meantime, our factory stores continue to be very profitable. So we've been opening about 6 stores a year. We see that growth continuing.

Okay. All right. So speaking of growth, you did give guidance when you reported earnings. And I think you said that you expect Vera Bradley revenues to grow in the low to mid-single-digit range, Pura Vida to be flat to up to low single digits. Sort of talk about what's driving your outlook.

Yes. I think as you think about this coming year, right? For Vera Bradley and the increase that we're showing, returning to kind of that mid-single-digit growth, a lot of that is also being driven by pricing, right? Price increases going through right now. So we think that's going to be an important part of the growth strategy in the short term. Pura Vida is really the focus on -- right now, we're kind of taking a lower growth year relative to the history to kind of really replatform the marketing. But we really see -- let's get the marketing replatform, we'll start opening the stores, and then we'll be able to be in a healthier position next year to grow a little bit faster than we are this year.

All right. So if we take a step back, I'd love to sort of get your high-level thoughts about growth. I mean, obviously, I'm not talking about specific targets or anything like that. But how do you think about category growth? What's the total addressable mark -- total addressable market, excuse me, that you look at? Maybe if we start there.

Yes. I think as you think about Vera Bradley, right? We have these 3 core franchises. We have pretty good penetration in those 3 core franchises. But what we do believe that there's opportunity for category expansion, and we're seeing it. So I mentioned earlier about starting to expand into home -- expand into the home category. We think from a home decorative accessories, soft home type of positioning, there's opportunity for growth for us there as well as kind of building out this cozy home business, right? Between the pajama, robe, kind of spa type business as a natural for us as well as you then take that down to the footwear part of the business and kind of that -- we've always had a strong flip flop business, footwear business, how do we kind of build that piece of it out and maybe expand a little bit in a super simple casual shoe that really category expansion for Vera Bradley becomes very important and gives us opportunity. On the Pura Vida side, there's really 3 core pieces of the business. We believe that this string bracelet, the core friendship bracelet, the core foundation, but it's not the highest growth category for us. The highest growth category is in the fashion jewelry business. So bringing in metal, bringing in a mix of metal, of string, that, that's really where the biggest growth for the brand is coming from, and we think there's huge opportunity there. If you think about some of the other brands that's been out there, whether it's the Pandoras or Alex and Ani, there's really a good sized market for fashion jewelry. And we think there's an opportunity to expand the price point and take the price point up there. So we think that jewelry is a huge opportunity at Pura Vida. And then we support it by a third one, which is the apparel expansion. When we think about apparel, the hoodies, the T-shirts, kind of that very casual, very graphic, very brand-driven, and we've seen nice success, particularly in our new store. About 10% of our stores business is in the apparel category. And we just think that will become powerful long term to build around that beach and mountain lifestyle. So that's how we think about the category expansion.

Got it. And Rob, how do you think about sort of operationally going after that? Is it licensing? Is it sort of hiring teams and merchants and designers and whatnot? How are you approaching it?

The things that I just mentioned are things that we really built teams around, right? That's really -- most of that is internal. So that's where I would say our focus is at the moment. If we expand out into different categories, we would look at licensing, and we do have licensing businesses with Vera Bradley, in particular, particularly around things like cell phone cases and stuff that's just more specific and hard to be best of class in. But a lot of these categories we're talking about we believe that we can do home categories and stuff like that based upon our textile background.

Okay. And sort of maybe just to expand that. What's the trade off a little bit of saying like sunglasses, you want sunglasses or other accessories, smaller goods, whatnot. Is it sort of giving up control -- it's not only giving up control of the brand. Is it just sort of one step removed? Or is it -- how do you think about sort of the pros and cons of licensing versus [indiscernible] yourself?

Yes. I think, one, Vera Bradley, in particular, right -- and I think Pura Vida, too -- they're very unique lifestyle brands, right? They're very -- they have a very loyal customer following. They have a unique place in the marketplace. And what we found out in some of our licensing partners is that they are more just category, right? So they're product. And so we haven't had the level of success that we would like to see in some of our -- and I'll talk about a couple of good ones, but some of ours have not been as good because they don't really understand the consumer. They just throw a print on something, throw it out in the marketplace. I think the one area -- one of the ones that we've had a great relationship with at Vera Bradley has been with McGee, our eyewear partner, but they handle our eyewear license like we handle our business. They are in mom-and-pop, optometry stores, working with people, connecting, and the brand works. If you just try to stick it in a big box, it's not as successful. It's not where our customer is.

I understand. Okay. Interesting. What about geographic opportunities? I think that -- are there parts of the United States where the brand is -- brand awareness is -- might be lower and you can attack that or internationally? Obviously, you mentioned Dominican, I think. Can you talk about some of those opportunities?

Yes. I think that Vera Bradley, first of all, is really strong across the country with the exception of the West Coast, right? Really, kind of California, that side. And part of that, I think, is just style in terms of what do patterns look like in California. What do fabrics look like in California -- I happen to be a native -- L.A. native. So I kind of understand California a little bit. And I think just our design aesthetic is not as strong on the West Coast. And so it's not what I would [ see ] in our short term. I think long term, we'll think about can we do something kind of subcollection to get there, but that's many years out. That's not in the near term. And I think that we see right now, we're going to focus primarily domestically. We've done a little bit of expansion through our Canada website and a little bit of things. But we think that domestic positioning, for now, is the strongest for Vera Bradley. Pura Vida is a little bit different, right? The lifestyle is a little bit different. We have a strong California business. I mean at the end of the day, Pura Vida does well in communities that have water or mountains, right? I mean if you think about that -- so it's a pretty broad section across the country. So we feel it has great opportunities within the U.S. But we also are out in the international market, and we think that there's a real international opportunity, particularly because of the beach lifestyle. So if we think about places like long term about Australia and resort communities and stuff, we think there's opportunity for the brand long term.

Okay. So maybe just to put some numbers around it, if possible. Obviously, company did about $540 million in sales last year. Obviously a big number. Do you have a long-term goal in your mind, Rob, like a number that you want to get to or sort of a growth rate perhaps or just some way to sort of benchmark yourself and set a target for everybody to sort of work towards?

Yes. I think that there's a couple of ways of answering that question, right? In the near term, right, I think what's really special about our company is being kind of a stable growth situation for the next few years with a really strong cash flow, really solid franchises. In short term with everything that's going on in the world, we think that, that's a good place to be. I think that long term, we continue to invest in innovation, category expansion in both of our brands. And as those things begin to mature and take root, then we might be able to up that type of level of growth. But short term, we're really focused on let's have a stable revenue and earnings growth year after year and continue to invest in innovation. And then that will provide potentially a breakout opportunity in the future. But we really -- let's focus on stable growth, stable earnings and revenue growth for now.

Okay. Understood. All right. So maybe then let's talk about margins. Maybe just to start off, because investors are curious about this, the impact of supply chain, GSP issues last year. Maybe just talk about those -- how those popped up and affected the business last year and sort of what your projection for fiscal '23 is.

Yes, it's a great question. And I think sometimes as I listen to the market, I don't hear all of this, but one thing is last year between GSP and freight, it was about $0.25 in our earnings impact last year, right? So it was very significant, but not as significant as this year, right, because what happens is a lot of those costs -- we had old contracts in the beginning of the year at older rates. So you had more of it covered early in the year. Those higher rates kind of carry into this year. So if you think about the overall freight, tariff impact in our business pre-COVID, right? Pre-COVID to where we are today, there's about $0.70 of earnings pressure, right? So that's -- as you can tell, on a business like ours, that is a significant pressure, right? And we're not talking about wages or other things. So we are working through pricing. We started doing some price increases. We started some in third quarter. It's been encouraging so far to see that it has not slowed down the velocity in terms of the unit sales. So we're continuing to push pricing through. And so we'll watch how that works to make sure we offset those costs as we move through this year.

Okay. So obviously, GSP has been -- just an issue that has affected a lot of companies. It seemed like it was going to go through Congress and it wouldn't and it wasn't. Now maybe it is. There's some bills they got to come together. But -- so who knows, right? But I think that you talked about having a double-digit EBIT margin, and I think -- correct me if I'm wrong, I think the margin last year -- with -- obviously, that includes the $0.20 or 25% impact was about 5.5. So is the plan from where last year finished on margin to get to double digit really assumption that GSP gets reinstated and some of these supply chain headwinds go away? Or maybe just detail for us a little bit about how you get the margins to where you want to get them.

Yes. I think I'll give you the simple answer, and I'll let John jump in if he's got any more details that he wants to give. But I think big picture, right, is this combination of freight, GSP and pricing. We've got to get that expense covered over, right? That if you just took that $0.70 of earnings pressure and you were able to make that up, all of a sudden, you expand back towards that double-digit EBITDA number, right? That's kind of the simple the simple math. But obviously, we've got to work through that in the next few years. But we do think that, that's the key, is getting the pricing relative to that inflationary pressure, dialed in correctly and then kind of returning to a higher level of profitability than we are today. Anything else you want to add to that, John?

No, no. I mean you kind of hit on it. I would just say, just from a mathematical perspective, GSP is roughly a point of impact. So if and when GSP gets approved roughly a point of impact, they'll improve. And if you think about the freight expense, we are about 4x from a container perspective than what we were pre-COVID. So ultimately, that has to abate a little bit for us to really get back to kind of double-digit EBITDA growth.

Okay. All right. So in the last couple of minutes here, I want to talk about capital allocation. Rob, maybe just high level, what is the capital allocation strategy?

Yes. I think a couple of things. I think first of all, we do have no debt. We ended the year with $88 million of cash, so we have a very strong balance sheet that allowed us to fund -- when we did the Pura Vida purchase, it was a cash purchase. So as we think about capital allocation, obviously, the most important one, right, is funding our own growth. So there's no question that, that's the first thing that we do. But then second of all, we do keep an open mind, and we are looking at acquisitions and opportunity, right? Valuations in the market have been pretty elevated over the last couple of years, maybe a little bit richer than what we wanted to play in. So we did not move so aggressively then, but we're keeping our discipline looking at things that has a potential. But we also think that with our free cash flow that we have the opportunity not only to continue to look there, but return some capital to shareholders. So we have our $50 million repurchase program that's out there right now. And we're also -- we consider all alternatives, right, whether it's share repurchase or potential dividends, but we do think that returning capital to shareholders will be part of our long-term capital structure.

Okay. And then maybe just to put a fine point on M&A status right now, I mean, is it something you're actively working on? Is it something sort of like opportunistic? How would you characterize it?

I think I would say that we're actively looking, but we're being very, very disciplined, right? We want to make sure that not only is it the right brand and right fit and right ethos to the brand and the right financials, but at the same time it's the right valuation. So what we're beginning to do is, as we said, we're starting getting valuations that were 10, 12x EBITDA, the disconnect between our valuation and that valuation didn't make a whole lot of sense. But we can look at some earlier-stage companies that really have growth potential in how we can come in, partner with them at a more reasonable valuation, give them part of the upside at the end of the deal like we did on the Pura Vida deal, and then hopefully have something that's good for our shareholders, good for the company we're acquiring, and we can help them scale quickly. And that's probably a little bit changed in our strategy. [ Before we owned ] -- Pura Vida, was very digital direct-to-consumer focused. Now I think we're looking at, okay, how do we take brands that are growing and have a bright future but help them scale as opposed to maybe pick somebody up who's already got to a larger scale. Because Pura Vida, by the time we closed that deal, was over $100 million. Our next acquisition target might very well be smaller than that.

Got it. Okay. Well, I think we got to time. So why don't we stop there? Rob, John, thank you so much for doing this today. I thought this was really interesting. Really appreciate your time.

Pleasure. Thank you for the opportunity.

Thank you.