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

Hello, and good morning to all of you. We appreciate your presence on today's call. Certain comments we make in our prepared remarks and in answering your questions might qualify as forward-looking statements, made under and consistent with the safe harbor protections of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements carry both known and unknown risks and uncertainties, which 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 most recent Form 10-K filed with the SEC. Investors should not presume that anything said during the call will still hold true at a future point. We assume no duty to update any information covered on today's call. At this point, I'll hand the call over to Vera Bradley's incoming Executive Chairman, Ian Bickley. Ian?

Thank you, Mark. Hello, everyone, and good morning. Speaking with all of you is truly a pleasure. I asked to be part of today's call so I could share some perspective regarding the shifts underway at Vera Bradley, and to talk about the part I will play in the transition ahead; however, before that, representing the whole Board of Directors, I would like to recognize Jackie as well as Michael for everything they have done and their dedication in assisting to place Vera Bradley for the coming phase of its transformation journey, and to express gratitude to each of them for their commitment to making the leadership handover a smooth one. We likewise wish each of them success in whatever they pursue next. As the announcement today made clear, Jackie's departure from the company comes at the close of July. A search spanning the entire country has been started by the Board of Directors to identify the next CEO. Numerous encouraging candidates have come forward already, and our focus is on bringing aboard the strongest individual to propel Vera Bradley's ongoing transformation. While that search proceeds, the Board considers it essential to maintain consistent, steady leadership, and has requested that I take on the position of Executive Chairman until a new CEO is both in place and prepared to guide the company once more. In that capacity, I will collaborate with Jackie and the management team to guarantee a seamless transition. Once Jackie exits at the close of July, I will steer the company until our new CEO has come aboard. Alongside this change, the creation of a new Strategy and Transformation Committee has been announced by the Board. The committee's purpose is to partner with the management team and incoming leadership on sharpening the company's strategic direction and future growth initiatives, and on speeding up the company's operational transformation. Director Andrew Meslow, who previously served as CEO of Bath & Body Works, is joining me on this committee. That Andrew is prepared to take on this important role delights us. I come to this role not simply as a placeholder but as a person dedicated to pushing performance and making the changes the company needs. In the Board's view, we have to speed up our transformation and lift our results. Our attention will be on sharpening our strategy while achieving operational efficiencies and cost savings that raise profitability and performance. I carry with me more than 30 years of pertinent industry experience, encompassing fast scaling of businesses along with leading both brand and operational business transformation. I held the position of President of Coach's International Group and have been an Independent Director on the Crocs Board since 2015. Most recently, I served as Interim CEO at The Body Shop, where I contributed to stabilizing the business and steered it through a successful sales process. I am also happy that Martin “Marty” Layding is coming aboard as the Chief Financial Officer. Marty started out at Procter & Gamble, and he's built up a wealth of experience across a number of CFO positions. He also brings a solid history of pushing operational transformation and growing businesses quickly, in both the public and private sectors, with brands including Coach, Supreme, and, most recently, Noodle. I've worked alongside Marty before, and I'm eager to see the major contribution he can deliver toward boosting performance and speeding up the pace of change. Despite how things look right now, Vera Bradley remains an iconic brand, with strong awareness and deep emotional ties to consumers across every generation. Personally, I feel optimistic about the chance to bring back the brand's cultural relevance with a new generation of consumers, and with plenty of its longtime fans too, while simultaneously speeding up the simplification of the company's operating model to drive more agility and efficiency. I'm eager to lead and oversee the continuation and acceleration of this important work until a new CEO has been brought on board. I'll now hand the call over to Jackie and Michael to discuss Q1 results. Jackie?

Thanks, Ian, and thanks to everyone for being on this call. I want to take a moment as well to express appreciation to Ian and to each member of our Board of Directors for the backing and direction they've provided since coming aboard in 2022. I'm thankful too for the Board's encouragement throughout this transition as I relinquish my leadership role. First, I'll walk through our first quarter, then I'll hand things to Michael so he can go over the financials in more depth. Our Q1 results landed near plan, with the impact of our wide-ranging strategic effort to rework both our business model and how the brand is positioned continuing to gain traction. The changes we're making are beginning to connect, and the makeup of our customer base is starting to shift in a meaningful way. What makes me especially proud is the way the organization is seizing new opportunities, above all in wholesale, even as we respond to demand and input from customers. We're on a path to restore and modernize the Vera Bradley brand via 4 pillars — product, brand, customer and channel — yet we know we must strike a better balance between new and heritage product, so we're working to raise our penetration of classic Vera Bradley product. We've reintroduced heritage styles, created new heritage reimagined collections, boosted deliveries of licensed product and brought fan favorites back into the assortment; on top of that, we've responded to customer feedback regarding zippers, pockets and strap length changes. Our focus stays on being where she shops; we've built momentum quickly behind this strategy and are successfully broadening our wholesale accounts through new relationships. We shipped our first order to Costco in Q1, went live on Urban Outfitters Marketplace last week, kept delivering strong revenue growth on Target marketplace and hold a healthy pipeline of new partnerships for the remainder of the year, including exclusive products for Anthropologie; these targeted partnerships rest on data insights drawn from both our existing customer and look-alike prospective customers, and they've shaped our efforts and outreach. A notable standout in Q1 was our performance on Target marketplace. Those exceptional results have opened further discussions about how best to maximize the partnership. Our success with Target shows how important it is to be where she shops. First quarter revenues came to $51.7 million, with mixed Direct channel performance. Declines in traffic and conversion weighed on the business, particularly in the outlet and brand stores. E-commerce revenues were stronger, especially in the value channels of our online, outlet and Target marketplace. Our annual outlet sale took place mostly in Q1, when we welcomed tens of thousands of shoppers to Fort Wayne, Indiana and hit our sales plan. The Indirect segment was a bright spot in Q1, beating plan by double digits as some of our key initiatives began to pay off. Channel mix and customer behavior still weighed on gross margins in the quarter, mainly because of material channel mix shifts; in most channels, customers keep showing pricing sensitivity, evidenced by significantly higher clearance penetration despite similar inventory levels and promotional positioning. With that in mind, we're gauging how sensitive shoppers are to pricing by making promotional tweaks, and we're moving ahead with a plan to shut 10 full-line stores that aren't turning a profit during this year. Now onto fresh merchandise. In our brand channels, we introduced a brand-new baby bag line along with a luggage offering, and in the outlet channel we kept bringing back updated versions of styles past shoppers loved, among them a hugely popular refresh of the Glenna Satchel bag, which has a devoted following. Through Q1, spending patterns kept splitting along income lines, something we attribute to broader economic strain; even so, we're noticing some positive movement within our customer base. When the quarter wrapped up, shoppers who joined us recently made up 45% of our active 12-month file, compared with 30% a year earlier. This newer group differs from our established shoppers in terms of age and income, and their taste in products skews somewhat differently too — insights we're using to shape what we carry going forward. To keep building on the momentum we've got in attracting shoppers aged 18 to 34, our fresh social-first marketing push kicks off in July and continues all the way through the holiday period; it brings back a sense of nostalgia and enjoyment, spotlighting the emotional bond people have felt with the Vera Bradley brand for so long, and it also includes several exciting new product launches meant to please both new and returning shoppers. Ahead of us, beloved items such as the Vera tote franchise are headed back to the outlet channel, and classic lanyard designs will show up before long in brand and outlet channels alike, alongside some thrilling new IP collections and must-have pieces for back-to-school. Most importantly, we'll keep delivering our heritage patterns and styling in fresh, reinvented, enjoyable ways that speak to both current and new shoppers. I'll now hand things over to Michael, who will walk you through our financial results in greater depth.

Thank you, Jackie. Hello, everyone, and good morning — we appreciate you being here. I'd like to offer some quick remarks regarding how we performed this quarter. Just to remind you, the divestiture of Pura Vida closed in the first quarter. Because of that, Pura Vida's operations appear as discontinued operations within the consolidated financial statements. Amounts from earlier periods were likewise restated retroactively so they align with how the current period is presented. To be clear, every figure I mention today is non-GAAP, and each one leaves out the charges described in the press release issued today. Full specifics on what gets excluded from non-GAAP figures, plus a reconciliation between GAAP and non-GAAP, appear in that release. Consolidated revenues for the first quarter of 2026 came to $51.7 million, versus $67.9 million during last year's first quarter. On a non-GAAP basis, net loss from continuing operations in Q1 reached $10 million, or $0.36 per diluted share, against a net loss from continuing operations of $6.6 million a year ago, or $0.22 per diluted share. Turning to how each segment performed: Vera Bradley Direct segment revenues in this year's first quarter were $43.1 million, down 23.6% from $56.4 million in the comparable quarter last year. Comparable sales fell 25% as well, pulled down by declines in both traffic and conversion across our full-line and outlet stores, which Jackie noted, amid an overall shift of the channel away from our stores toward our online sites. Year-over-year total revenues also felt the effect of 10 store openings and 7 closures that occurred after last year's first quarter. Vera Bradley Indirect segment revenues for Q1 were $8.6 million, a 25.6% drop from the $11.5 million recorded in the prior year's first quarter. That decline stemmed mainly from fewer orders among specialty and key accounts. Non-GAAP gross margin in the first quarter was $24.6 million, or 47.5% of net revenues, versus $34.8 million, or 51.3% of net revenues, the year before. The margin rate contraction compared with last year came mostly from the channel shift away from stores toward online sites — something both Jackie and I touched on earlier — which additionally played a significant part in pushing outbound freight costs higher. Non-GAAP SG&A expense came to $38.3 million, or 74.2% of net revenues, compared with $44.7 million, or 65.7% of net revenues, in last year's first quarter. That $6.4 million reduction in expenses resulted largely from cost reduction initiatives together with lower variable expenses. As we've said in earlier updates, our attention is on maintaining strong operating discipline, and we've been happy with how far the organization has come in establishing that discipline so far. We keep looking closely across every part of our organization for process and cost efficiencies. Non-GAAP operating loss from continuing operations in the first quarter was $13.6 million, or 26.3% of net revenues, compared with a loss of $9.4 million, or 13.8% of net revenues, a year ago; now let's move to the balance sheet. At the close of the quarter, our cash and cash equivalents came to $11.3 million. There were zero amounts drawn on the $75 million ABL facility when the quarter ended. In Q1, inventory declined roughly 3% versus the prior year, landing at $99.2 million, down from $101.8 million at the close of last year's first quarter. The driver was ongoing shifts in the way we handle merchandising. Redefining our approach to acquiring and managing inventory has been a major focus, and we keep making strategic moves in merchandising and sourcing, which should enhance both product flow and inventory quality. Those efforts have already made a real difference in our capacity to handle the distinctive obstacles of this fiscal year and will keep producing gains. Turning now to guidance. As stated in both press releases issued this morning, the company has disclosed multiple leadership transitions at the executive and Board levels. Because of those transitions, along with considerable uncertainty about the consumer landscape, the company is pulling its prior year guidance and is not offering any forward guidance at present. To wrap up, everyone on the Vera Bradley team has put in serious work on huge business changes, as Jackie and I have talked about on many calls. I truly value that effort and know it will be essential to the next stage of the business transformation and to stronger results ahead. Jackie?

To wrap up, I want to express gratitude to everyone on the Vera Bradley team for the effort and commitment they've shown. The changes we've carried out since I joined are something I take pride in. Though the process has stretched out beyond what I'd anticipated, my view is that the business is positioned to achieve better results ahead. That brings today's call to an end.

Everyone, that brings today's teleconference to a close. At this point you're free to drop off your lines. We appreciate you joining us, and enjoy the rest of your day.