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

Hello, and welcome, everybody. We appreciate your presence on today's call. Certain remarks we make in our prepared comments and when answering your questions might be forward-looking statements, issued under and as defined by the Safe Harbor Provisions contained in the Private Securities Litigation Reform Act of 1995, in its amended form. Both known and unknown risks and uncertainties apply to such forward-looking statements, and these could lead actual results to differ materially from what we anticipate. For a review of known risks and uncertainties, please see today's press release along with the company's latest Form 10-K as filed with the SEC. Investors should not presume that anything stated on the call will still be valid at a future point; no obligation is undertaken by us to revise any information covered on today's call. At this point I'll hand the call over to Vera Bradley CEO, Jackie Ardrey. Jackie?

Hello, everyone, and thanks for being with us today as we discuss Vera Bradley's results for the fourth quarter and the full year. The fourth quarter stayed difficult while we kept working through the early phases of Project Restoration, our wide-ranging strategic effort to reshape both our business model and how the brand is positioned. Even though we saw improvement from one quarter to the next, especially in our Vera Bradley direct channel, which came in overall as we had expected, we recognized that this transformation is taking longer than we first thought. Business moving away from stores—above all our outlet locations—toward e-commerce was a shift we had not anticipated, and it is producing near-term pressure on profitability that we are addressing head-on with focused strategies. We stay confident about where we are headed strategically, yet we keep fine-tuning things according to selling data and what customers tell us. The bulk of these adjustments relate to how we approach product and pricing. We'll broaden our heritage offerings, cut back on assortment and higher price points, and restore regular deliveries of licensed product along with certain styles our customers keep requesting. I'm also glad to report that our indirect channel has a robust pipeline of new business development that should start paying off later in the year. Before we go further into the results, I want to mention something important. To focus our resources on making Vera Bradley stronger in the marketplace, in line with our long-term transformation, we signed a purchase agreement yesterday to divest the Pura Vida business. Selling Pura Vida marks a meaningful move in our strategic evolution. We anticipate completing this sale before the first quarter ends. Now I'll give you more specifics on how we performed this quarter and on our strategic initiatives, then hand things to Michael, who will walk through our financial results in more depth. Fourth quarter revenues came in at $100 million. Results in our direct channel were uneven. E-commerce revenue was about even with a year ago—a notable step up sequentially from Q3—while our branded outlet stores saw traffic and conversion both fall. Through the quarter, we noticed a sharp split in how customers behaved, which gives us useful guidance for strategic and tactical changes going forward. Although our outlet business struggled because of macroeconomic headwinds and our heavy concentration of shoppers with household incomes below $75,000, we are seeing encouraging gains in higher income segments. In particular, we posted growth of roughly 10% among customers between 18 and 34 years old whose household incomes exceed $100,000. This divergence underscores both the obstacles we face now and the opportunities ahead as we carry out our transformation strategy. We're also pleased that new customer acquisition is speeding up, and that pattern has carried into this year. Our preliminary cohort analysis shows that new customers are making larger initial purchases than they have historically and are spending more when they buy again; we stay dedicated to broadening our customer base for the long-term health of the Vera Bradley brand. For the fourth quarter, our gross margin came in at 45.7%. That's under what we had expected, and it's lower than the 52.3% we posted a year ago. What's behind that gap is a mix shift between our store channel and our online channel, and it happened as a result of a deliberate strategic choice on our part to rework our promotional approach and our pricing approach so we could shore up our value position and respond to what's happening in the market. As we go forward, we're putting in place a more refined testing framework covering both how often we promote and how we structure price, so we can strike a better balance between drawing customers in and safeguarding margin across every channel. We rolled out additional price points in the branded channel and the outlet channel alike, and that worked — customer engagement went up. That strategy paid off especially well in three areas: gifting products priced under $50, cosmetic cases, and the Wicked collection line. Optimizing inventory is still a cornerstone of the strategic transformation we're undertaking. To build on what we've discussed previously, we've made sweeping changes to how we handle inventory throughout sourcing, procurement, and management. By concentrating on three main initiatives, our merchandising and planning teams have put rigorous inventory controls in place across all channels: tightening up our assortments, managing key items strategically, and enforcing buying practices that are more disciplined. On top of that, our improved material sourcing capabilities mean we can now pivot quickly when consumer preferences evolve. We're already seeing tangible results from these efforts — year-end inventory sits 7% under the prior year's level. As we look toward fiscal 2026, we're aiming to cut overall inventory by another 10%. This kind of discipline will give us more operational agility to react to customer trends, and it will speed up our product innovation cycle so we can bring more newness to market. Going forward, we're steadily reducing how much our business leans on clearance and liquidation, which is a natural outgrowth of our stronger inventory management practices. Across a multi-year horizon, we expect a number of structural shifts in the business, and some are already underway. We might see some softer sales velocity, but improved gross margins will partially make up for that as clearance and liquidation take up a structurally smaller share of our business model. Both our direct channel and our indirect channel will feel this shift, and the indirect one has historically depended more heavily on steep discounting. That said, one standout from Q4 was how we performed on Target Marketplace — the results there were exceptional, and they're shaping our new channel initiative to be where she shops. This success in the digital marketplace shows how much it matters to reach customers in the shopping environments they prefer. We're charting a clearer course ahead for our business, one built to diversify our distribution and deepen our partnerships. I'm looking forward to sharing our progress with you on upcoming calls. Turning briefly to our indirect channel, the main headwinds in Q4 came from fewer specialty accounts and a deliberate pullback in liquidation sales. Our Urban Outfitters collaboration stood out as a top performer in Q4, and as we've deepened that strategic partnership, there are more exciting things still to come. The Urban Outfitters customer base lines up nicely with our target demographic, which is younger and more diverse, so it creates value on both sides — for Vera Bradley and for Urban Outfitters. I'd also like to call attention to the data-driven refinements we've made to our products, which draw on sales analytics and customer insights. During Q4, we rolled out adjusted styles, and those have delivered encouraging outcomes, beating the rest of our assortment. Those focused changes—longer, wider straps plus zippered closures—speak straight to particular requests from customers that we heard via our feedback channels. That strong first reaction confirms our agile adaptation strategy, and we're speeding up execution across Q1 and Q2; this early market validation doesn't just affirm our customer-centric approach, it also shows we can quickly turn feedback into concrete product improvements that produce results. Partnerships and collaborations remain an essential piece of how we pursue strategy. Our Wicked collection did extremely well, bringing in substantial revenue while also drawing new high-value customers inside our target demographic range. That outcome strengthens our conviction that licensed properties continue to be a key customer acquisition tool for Vera Bradley, and we have multiple exciting properties lined up for both our outlet and brand channels this year. As I said, I'm excited about our partnership and collaboration pipeline, which will start taking shape later this year and next year. We're in advanced negotiations with a number of major retailers and expect to close these strategic partnerships soon. Although we can't share specific names today, these opportunities hold significant potential for brand heat and expansion, new customer acquisition, and revenue growth.

Once these partnerships are finalized, we look forward to sharing more details about these exciting developments in the coming months. Strengthening the fundamentals of our business continues to be a top priority, and operational improvements remain central to that effort. As we've noted on previous calls, we're making good headway in honing our operational capabilities across the organization. We've taken a more deliberate approach to our cost structure through focused improvements in store operations, distribution center efficiency, marketing effectiveness, and overall cost management. Michael will walk you through it, but we met our internal SG&A goal, and we anticipate further benefits this year. There's more good news I want to pass along: the efficiency program we told you about earlier for fiscal 2026 remains on schedule, and we're looking at saving no less than $20 million over the course of this year. The key thing here — with so much uncertainty around the macro picture and how consumers are feeling — is that we'll continue running the Vera Bradley business carefully. You'll see our capital spending come down substantially in fiscal 2026, and between improved working capital and other operational gains, we anticipate finishing the year with more cash on hand than we had at the end of last year. As we head into this new fiscal year, our financial footing is solid: zero debt, $30 million in cash, and $75 million of liquidity. That gives us room to carry out our business transformation while keeping a strong financial base. Looking forward to fiscal 2026, we see a period of stabilization that will demand patience along with ongoing optimization efforts. Vera Bradley is working toward long-term health, and the actions we're taking now are essential to moving forward successfully. During this year, our emphasis will be on shoring up our customer file and starting to expand from a stronger foundation, with diversifying and optimizing marketing spend acting as vital contributors to achieving our goals. Building brand heat and relevancy stands as a major priority for fiscal 2026. We understand that during the time our business performed at its best, having placements in thousands of doors nationwide helped create brand awareness. These days, we've shifted our strategy toward using social platforms, forming key partnerships, and growing our presence in specific wholesale doors. Getting our products in front of shoppers at large-scale retailers — with designs that feel current and on-trend — will play a vital role in bringing our brand back to life. I'd like to stress that the early signals we're tracking confirm we're headed in the right direction. Yes, the results that show up later are coming along more gradually than we'd prefer, but we believe the changes we're putting in place are the correct ones for lasting strength. Every positive sign we've highlighted during this call supports where we're taking the business, and we stay dedicated to guiding Vera Bradley back to sustainable, profitable expansion and delivering worth to our stockholders. I'd like to express appreciation to all our teams throughout the company for the ongoing adaptability and responsiveness they've shown as we keep moving ahead on the Vera Bradley transformation path. Now, I'll hand things over to Michael, who will walk us through the financial review of what we delivered in the fourth quarter, along with what we're expecting for fiscal 2026. Michael.

Thank you, Jackie. Good morning to all of you, and I appreciate you being here. In just a few minutes I'll begin taking questions, but before that, I'd like to walk through this quarter's results and also give a short overview of what we expect for fiscal 2026. To keep things clear, every figure I mention today is Non-GAAP and leaves out the charges described in today's press release. That release contains full information on the items removed from the Non-GAAP figures, plus a reconciliation between GAAP and Non-GAAP. On top of that, the comparable period a year ago spanned 53 weeks, whereas a typical year has 52 weeks. That additional week within last year's fourth quarter and full year added roughly $6 million in net revenues and lifted earnings, raising diluted earnings per share by about $0.01. Whenever it makes sense, I'll point out how we performed on a 52-week basis during this call. Consolidated revenues for the fourth quarter of fiscal 2025 came to $100 million, down from $133.3 million in last year's fourth quarter. Our net loss for the quarter reached $8.3 million, or $0.30 per diluted share, versus net income of $3.5 million, or $0.11 per diluted share, a year ago. Turning to our segments, Vera Bradley direct segment revenues in this year's fourth quarter were $76.5 million, which is 17.8% lower than the $93 million recorded in the same quarter last year. Measured on a 52-week basis, though, fourth quarter direct revenue fell about 15%. Comparable sales dropped 17.5% as well, hurt most in the outlet channel, which kept facing challenges similar to those in earlier quarters. Year-over-year total revenues were further affected by eight store openings and six closures since last year's fourth quarter. Vera Bradley indirect segment revenues for the fourth quarter were $9.9 million, a 39% decline from $16.1 million in the prior year's fourth quarter. That drop stemmed mainly from fewer specialty and key account orders, lower liquidation sales, and third-party shipping delays late in the quarter, which pushed some shipments into the first quarter of fiscal 2026. Pura Vida segment revenues for the fourth quarter came to $13.6 million, down 44% from $24.2 million in last year's fourth quarter, largely because of weaker e-commerce and wholesale revenues, partly offset by retail store growth from two new stores. After digital marketing costs started climbing late in last year's third quarter, the Pura Vida team has concentrated on marketing efficiency and diversifying its digital marketing. Non-GAAP gross margin for the fourth quarter was $45.7 million, or 45.7% of net revenues, versus $69.6 million, or 52.3% of net revenues, a year earlier. The decline in margin rate compared with last year came from sales channel mix, which also drove higher outbound freight cost, together with excess inventory reserve adjustments within the Pura Vida segment. On a non-GAAP basis, SG&A came to $57.9 million, which works out to 57.9% of net revenues, versus $65.7 million, or 49.3% of net revenues, in the fourth quarter a year ago. That $7.8 million reduction in expenses largely reflected initiatives to cut costs as well as lower variable expenses. During earlier updates we've talked about how much we emphasize strong operating discipline, and we're happy with how the organization is progressing in establishing that discipline. We keep taking a close look at parts of our organization for chances to improve processes and costs, and our teams are showing more and more diligence and attention when it comes to managing costs. For the fourth quarter, our Non-GAAP consolidated operating loss came to $12 million, against operating income of $4.1 million a year earlier; moving now to the balance sheet, cash and cash equivalents at year-end added up to $30.4 million. At the close of the quarter, we still had no borrowings against our $75 million ABL facility. Inventory for the total year fell 7%, to $110 million, down from $118.3 million at the end of the prior fiscal year. As Jackie mentioned earlier, we've been sharply focused on reshaping the way we handle acquiring and managing inventory, and we keep taking strategic steps in our merchandising and sourcing processes so that both product flow and quality get better. Those efforts have already made a meaningful difference in our capacity to get through this fiscal year, and they'll keep driving improvements along with lower inventory levels going forward. In the fourth quarter we bought back roughly $600,000 of common stock, or about 113,000 shares, which brought the fiscal year's total repurchases to approximately $21.8 million. Our board of directors approved, in December 2024, an extra $30 million repurchase authorization, which began in December fiscal 2025 and runs for three years. Right now the company has no plans to make purchases under the 2024 share repurchase agreement, though it expects to use it down the road, depending on the company's cash position. Last, I'd like to walk through our guidance for fiscal 2026. Keep in mind that all forward-looking guidance is on a Non-GAAP basis. This guidance also leaves out results for Pura Vida in light of the sale announcement we made this morning, and Pura Vida will be excluded for all periods except where I say otherwise. As Jackie said in her comments, we keep making progress on our transformation journey. Given economic trends and consumer uncertainty, though, we expect business headwinds to persist in the coming year. Much like what other retailers have pointed out in their business updates, our customer keeps facing a broad range of economic concerns, and that has produced shifts across our channels that we're actively tackling with targeted strategies. For the full year of fiscal 2026, we expect consolidated net revenues of roughly $280 million. This generally captures ongoing consumer challenges, particularly during the first half of this year. Consequently, we expect sequential improvement as the year goes on. For the year, we expect consolidated gross margin of approximately 52.5%, versus 50.3% in fiscal 2025. When it comes to gross margin, that shift comes from better margins on our products plus reduced supply chain expenses stemming from the structural cost cuts we keep making. We anticipate consolidated SG&A expense of roughly $155 million, versus $178.2 million in fiscal 2025. The decrease in SG&A expense compared with a year earlier stems from ongoing structural cost reductions throughout numerous areas of our operations, as well as lower variable costs. We stay strongly committed to disciplined business practices, and it's gratifying to witness the financial and operational gains that organizational simplification and focus have delivered. Taken together, we expect this to produce a consolidated operating loss of about $6 million, against an operating loss of $16.9 million in fiscal 2025. On a consolidated diluted basis, earnings per share should come in at roughly a $0.15 loss. For fiscal 2025, Non-GAAP diluted earnings per share came to $0.64 across the total company, which does include Pura Vida. Turning to capital spend, we're looking at approximately $4 million this year, down from $10 million last year. That mirrors a far sharper focus on our business, especially when it comes to investments in technology and infrastructure. On the inventory management side, we keep honing our attention on disciplined buying and open-to-buy management, as we noted earlier, and this sharper attention will help generate our improvements over last year and let us achieve additional inventory reductions of roughly 10% in fiscal 2026, marking our third consecutive year of structural inventory reductions. Consequently, we anticipate an end-of-year cash balance of about $40 million; that wraps up our formal remarks. Christine, would you please open the line for questions?

Morning.

Ah, morning there, Eric, though your voice is coming through pretty faintly for us.

Oh, wow. Can you hear me now?

Yes, that's clearer. Thanks — this is far better.

Eric, thanks for that question. Let me unpack a few of these screen shoots a bit. On the digital marketplaces side, you brought up Target. Is the main aim, first, to bring on more of them, and second, what differences are you noticing when it comes to purchasing behavior and the customer base for those items? Jackie, over to you.

Eric, that's a wonderful question. What we're clearly seeing with Target Marketplace is that the shopper doesn't appear all that different, and the products we're moving are quite close to the ones we already sell. As I said before, I think it comes down to being present wherever the customer prefers to shop and connecting with her right where she is, and that's proven to be a genuinely excellent step forward. Target Marketplace has performed tremendously well and far exceeded what we had anticipated. Once again, it has truly assisted us in shifting toward an indirect approach that we believe will pay off later this year.

When it comes to, okay. When it comes to partnerships and those sorts of things, I recall that a year ago, what with Project Restoration and everything else happening, planning that was somewhat harder. As was evident with Wicked, that was an extremely powerful partnership. How ought we to view things this year regarding how such partnerships will flow, both inside stores and, as you brought up, involving Urban Outfitters as a collaboration outstore?

Yes. With Wicked, when we consider it among ourselves, Wicked falls more into what we refer to as IP, or intellectual property. Somewhat more within our grasp when it comes to simply approaching those properties, negotiating, and getting them launched on our floor. We did scale back somewhat around the time of New Day regarding the IP collections, yet clearly we are witnessing that IP can deliver a highly sought-after customer to us. Furthermore, our current customer adores our IP group. Without question, a stronger IP assortment will arrive across this year and the following year. The partnerships and collaborations, such as Urban, for instance, or Urban Outfitters, those have truly only emerged since New Day. Once more, we have experienced a couple of quarters with challenging results. Everything we kicked off alongside New Day is, in fact, quietly beginning to yield results when it comes to brands and other businesses eager to work with us. We now have quite an excellent pipeline extending even into next year that will genuinely assist us in attracting new customers to the brand.