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

Hello everyone, and thanks for being here this morning. We appreciate your participation on today's call. Certain remarks we make in our prepared comments and in answering your questions might qualify as forward-looking statements, made under and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Those forward-looking statements carry both known and unknown risks and uncertainties, which could lead actual results to differ materially from what we expect. For a discussion 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 shouldn't assume that statements made on this call will still hold true at a later point. We assume no obligation to update any information discussed on today's call. I'll now hand the call over to Vera Bradley's Executive Chairman, Ian Bickley. Ian.

We appreciate you being with us today. During the 2 months since I assumed the Executive Chairman position, things have been quite active. To breathe new life into and rethink Vera Bradley—a legendary company with significant recognition and profound ties to buyers spanning multiple generations—my team and I have immediately gotten to work. Since taking on this job, one realization has stood out: the customers who remain devoted to us adore Vera Bradley, and they genuinely wish for our success. Whenever we provide the goods and encounters they anticipate, they react positively. We understand plenty of effort lies before us, yet I want to state this plainly. By capitalizing on the established emotional bond our brand holds with shoppers, we are rolling out an all-encompassing plan to restore our standing in the market. Our holistic strategy covers deliberate product development and merchandising, focused promotional efforts, and the way we present ourselves in every retail avenue—all crafted to draw our faithful buyers back in while broadening our footprint into fresh customer groups. Over time, this rigorous emphasis on what our brand does best, paired with insights derived from consumer data and flawless implementation, will generate lasting expansion and bring back our edge over rivals. To carry out this plan successfully, we are at the same time overhauling our operational backbone to sharpen priorities, boost nimbleness, and enhance how we execute. We are simplifying how choices get made, removing layers of organizational bureaucracy that have slowed our ability to bring items to market quickly, and redirecting funds toward efforts with the greatest impact; this kind of operational rigor, alongside careful expense control, will guarantee we can put meaningful money into the brand, new ideas, and the kinds of experiences buyers look for, while also producing the financial results shareholders are owed. Such structural upgrades are not merely about doing things faster or cheaper; they concern creating the flexible, quick-reacting company required to seize on the famous and unique brand identity Vera Bradley holds in the market. During this call, I will touch briefly on how we performed in the second quarter, covering a number of product and marketing victories that bolster our belief that the business is heading in a positive direction. After that, I will guide you through the main strategic efforts shaped by what we have accomplished so far, working alongside the Strategy and Transformation Committee that was formed not long ago. Following that, I will invite Mark Dely to give a fuller breakdown of the financials from our second quarter, which will include news on the steps Vera Bradley is taking regarding existing trade regulations and what those mean for our operations. We will finish by leaving room to address whatever questions you may have. Prior to starting, I would like to pause and offer my own gratitude to the whole company for the remarkable dedication shown throughout this crucial period of change. Our staff members in every department are not merely carrying out this plan; they represent the principles our brand stands for and serve as the engine propelling our comeback. Their flexibility, ingenuity, and unwavering pursuit of greatness will serve as the bedrock of our enduring prosperity. As we move forward on this path together, I have every confidence that our shared knowledge and enthusiasm will produce the outcomes that our buyers, investors, and local communities anticipate from Vera Bradley. I also want to give a brief status report on the company-wide hunt for our incoming chief executive, something I brought up during the call we held in June. This matters a great deal to us, and we're still sitting down with quite a few strong prospects. We'll share news about how things are moving along. Turning to our numbers: during the second quarter, we brought in $70.9 million in revenue, which works out to a drop of about 25% compared with last year and lands more or less where we had expected internally. Importantly, comparable store sales improved from the first quarter to the second, both throughout our store base and on VB.com, and that improvement showed up in every month of the quarter. It's encouraging to see that momentum carry forward and to see our brand channels out in front. During June, I mentioned that we'd formed a Strategy and Transformation Committee, which is helping to guide the company's strategic direction, identify chances for future expansion, and accelerate Vera Bradley's transformation. That cross-functional group has identified five main strategic initiatives that are currently in motion. The first strategic initiative is sharpening our brand focus. We require a distinct brand strategy and messaging that remains uniform across all consumer touchpoints and resonates with our existing loyal customers while attracting new audiences; this starts with product. With direction from what shoppers tell us and with fresh merchandising leadership that came on board in May, we've begun taking early but significant steps to reshape how we design products and which ones we carry. Innovation is being brought back to the heart of who we are and to the things that turned Vera Bradley into a winner. Our reputation rested on fantastic bags built for specific moments — going back to school, time off on weekends, trips to the beach, the holidays, presents, and much else. Beginning in late June, we introduced a back-to-school line that delivered some real standout victories, including bringing back robust backpack and lunch bag lines we had not pushed a year earlier; on top of that, we added a completely new extra-large backpack, which became one of our best performers in each and every channel. Within our fall and holiday assortments, we're reintroducing iconic styles like the Vera Tote, plus fresh new designs packed with great details. Beyond that, we're bringing back beloved heritage-inspired prints pulled from our archives, for example Rachel Dixie and Shambray featuring our border iconography, both of which proved popular across every silhouette during back-to-school; we're likewise broadening our range and deepening how much we invest in cotton, a fabric our customers adore. Our assortments will strike a better balance among fabrications, silhouettes, and prints, and we'll keep offering exciting IP offerings meant to surprise and delight shoppers. For back-to-school, the Disney and Peanuts collections we rolled out ended up being some of the best-performing launches in our history. Then came our Gilmore Girls capsule, which landed right before Labor Day weekend and was met with an incredible response — it sold out within just five minutes. We're beyond excited to bring back the Hero Heritage version of the original 100 bag, a true Vera Bradley icon priced under $100, perfectly timed for the holiday season. Featuring heritage-inspired designs, seasonal patchwork, and pinnacle animations, the 100 bag launches October 2nd through our own brand channels, and we're supporting it with a major social media campaign starring the legendary Radio City Rockettes, who are also celebrating their 100th anniversary. On the marketing side, there's some important work we've wrapped up, and it ties directly into our initiative around sharpening the brand's focus. The Back to School Brand Campaign, called Don't Forget to Have Fun, launched on July 12th. It was designed social first and leaned on a handpicked set of influencers, including Kate Steinberg, and it performed well, helped by tones that were nostalgic and joyful, with the goal of driving brand consideration across a broad range of consumers. Despite a substantial reduction in top-of-funnel marketing spend during this period, we saw meaningful improvement in recruitment and engagement on Instagram and TikTok, as well as new customer acquisition on VB.com. As a point of reference, across the six weeks since this campaign began, our Instagram follower growth exceeded what we added over the whole previous 12-month period, and on TikTok we brought in over twice as many followers as during the prior 12-month period. New customers on VB.com also rose 23%.

Moving forward, given the traction we're seeing, we'll keep pushing further into our social-first approach to media along with those nostalgic and joyful tones that are plainly connecting with shoppers. There's one other piece of our sharpening brand focus effort I want to bring up today, and that's our indirect business, which includes how we handle wholesale. That indirect piece has long been a key contributor to how the Vera Bradley business is positioned, how it grows, and how profitable it is, since it lets us reach shoppers in the venues they pick for their shopping. As a matter of fact, Vera Bradley started out in wholesale, and plenty of small specialty store partners across the country helped create national-level recognition for the Vera Bradley brand. Even though the retail landscape as a whole has shifted enormously through the years, we feel sure this will remain a vital channel for connecting with our shoppers, and we're taking a new look at how we approach wholesale, aiming to fine-tune our method so product better matches shoppers in the venues they pick for shopping and so it lines up with what we're doing on brand positioning. As part of that, we'll keep up our partnership with big retailers such as Dillard's and Von Maur and rebuild ties with a number of our key specialty accounts, while also developing new partnerships with major retailers like Anthropologie, which are connecting with a new generation of shoppers that we think will be drawn to Vera Bradley. On top of that, we've already locked in some key new retail partnerships and collaborations for our next fiscal year, which we aren't ready to reveal yet, but they'll let us reach new shoppers in exciting ways. Licensing the Vera Bradley brand for particular non-core categories that can broaden reach and awareness is another thing we'll keep going after, from both a strategic and a commercial standpoint, and we already have a number of initiatives in the pipeline. Strategic Initiative Number Two, building a cohesive omnichannel strategy. Put simply, we're working toward greater cohesion among the different platforms and channels where shoppers connect with our brand. This is a thorough go-to-market assessment built on an omnichannel approach to the Vera Bradley customer experience, aimed at eliminating the friction points that exist right now. One clear example: we had been running separate promotions through our online outlet channel and our outlet stores, which created both shopper confusion and operational inefficiencies in the business. These days our digital and store channels run identical promotions. That has brought not only better brand consistency but also better margin rates, since we've effectively brought discount levels down overall. There's more ahead here, as we're only in the early phases of this work, but we're capitalizing on the obvious choices and the low-hanging fruit wherever we can. Strategic Initiative Number Three, Outlet 2.0, refreshing our outlet strategy. Our outlet channel plays a key role in our omnichannel strategy; it's a place where lots of shoppers engage with us and where impressions get shaped. Right now, it's mainly utilized for heavy markdowns and clearing inventory. Yet at the same time, most of our Vera Bradley outlet locations sit in upscale and luxury outlet centers, where shoppers increasingly seek out great brand experiences alongside good value. Through Outlet 2.0, we see a chance to transform how our outlet stores operate by concentrating on upgrading the customer experience via better product selections, such as certain full-price items, visual merchandising and displays, plus optimizing labor. Outlet 2.0 will foster stronger brand connection by creating a more enjoyable and delightful experience, while sharpening the emphasis on the Vera Bradley value proposition in spots where there's heavy foot traffic and lots of eyes on the brand. Outlet 2.0 could significantly boost both our store productivity and profitability, all while speeding up our brand transformation. We're adopting a test-and-learn strategy for Outlet 2.0, which includes a pilot at a few sites that we intend to launch over the holiday period. We're also tweaking our staffing approaches at certain stores to match better with busy shopping times, which should lead to greater labor efficiency and higher conversion rates. Once the holiday season wraps up, we'll assess the outcomes for a possible broader implementation in 2026, and we're eager to share updates on how Outlet 2.0 is going during upcoming calls. Strategic Initiative Number Four, enhancing our operating model. We're thoroughly reviewing our operating procedures to figure out ways to make our business run more smoothly; we're examining every part of our operating model, from product development and design to store allocation, store labor, promotional tactics, and beyond. This is a complete review of our operating model and go-to-market approach. Crucially, we're shifting our perspective on the business and establishing a priority on basics and essential retail KPIs across all channels, along with how to spotlight the most impactful initiatives for the company and enhance how we execute. Our strategic aim is to steer choices toward the winning parts of the business rather than taking an egalitarian tack. Finally, our fifth strategic initiative, rethinking how we operate. We're taking another look at our organizational structure and culture to enhance our working methods so they're more innovative, cooperative, and streamlined. Although we know we need to keep aligning costs with the business's present operating scale, we now have to restructure the organization and its setup, boosting our talent and leadership so they fit better with the business's main growth sectors. Our transformation on both the organizational and operational fronts must be guided by strategy as we remove the following tiers of expense; to wrap up, though it remains quite early, present patterns in our business provide a degree of assurance that the sharper focus and execution we have achieved, together with the adjustments we have made to our product pipeline, the tone and scope of our marketing, and the continuing efforts throughout our distribution channels, are steering Vera Bradley along the proper path. We anticipate sharing news of our advancement with you. At this point, I will hand the call to Marty for the financial discussion. Marty.

Thanks, Ian. Morning, everyone — appreciate you being here. I want to share a handful of quick points regarding how we did this quarter. To keep things clear, every figure I'll mention is non-GAAP and leaves out the charges described in the press release that came out today. Full specifics on what's excluded from non-GAAP results, along with the GAAP-to-non-GAAP reconciliation, are available in that same release. During the second quarter of fiscal 2026, we brought in consolidated revenues of $70.9 million, down from the $94 million recorded in the same quarter a year earlier. For continuing operations in Q2, we posted a net loss of $0.5 million, which works out to a loss of $0.02 per diluted share. That compares with net income from continuing operations of $2.6 million, or $0.09 per diluted share, a year ago. Turning to how each segment did: at Vera Bradley, second-quarter direct segment revenue came in at $60.5 million, down 16.2% versus $72.2 million the previous year. Comparable sales fell 17.3% as well, with the decline stemming from lower conversion across our full line, outlet, and e-commerce channels. Overall revenues also took a hit from the 10 stores we opened and the 13 we closed during the last 12 months. For Q2, Vera Bradley's indirect segment brought in $10.3 million, down 52.5% from $21.8 million during the same quarter last year. This drop stemmed mainly from fewer orders among key accounts, plus reduced liquidation sales. Gross margin came to $35.4 million, representing 49.9% of net revenues, versus $46.8 million, or 49.8% of net revenues, a year earlier. That modest year-over-year improvement in margin rate came from lower liquidation sales, though it was partly offset by extra shipping costs caused by a shift from brick-and-mortar stores toward online sites. SG&A expense reached $36.3 million, or 51.2% of net revenues, compared with $43.6 million, or 46.4% of net revenues, the previous year. The drop of $7.3 million in expenses came mainly from restructuring work done during the past year. That led to lower compensation costs, largely because we had fewer people, along with a decrease in advertising spend. Our operating loss from continuing operations was -$0.6 million, which equals -0.8% of net revenues. A year earlier, we had posted operating income from continuing operations of $3.3 million, or 3.5% of net revenues. We continue to concentrate on operational discipline so we can sharpen execution and generate better sales, margins, and profitability. The early results of that push make us happy, and you can see it in the sequential gain in comps at three of our four direct channels, plus sequential improvement in gross margin. Our team keeps examining the way we do things and the steps we take, looking for chances to adopt fresh methods for carrying out our work. Moving on now to the balance sheet: at the close of the quarter, cash plus cash equivalents came to $15.2 million. Against our $75 million ABL facility, we had drawn $10 million in borrowings when the quarter ended. Inventory for the second quarter fell 13.2%, landing at $96.7 million, down from $111.4 million at the close of last year's second quarter. We recognize that inventory management stands out as a huge opportunity for this business, and we're putting serious effort into initiatives designed to raise our turns over the next 12 to 18 months. Among the first steps: bringing receipt plans into tighter alignment with what we anticipate for sales, plus reviewing our SKU assortments to spot ways of trimming total counts, which lets us go deeper on colors and patterns that perform best. Turning to tariffs, we put the full annualized effect at $11 million. Members of our sourcing teams are collaborating with suppliers to lessen those effects, and at the same time we're reviewing go-to-market strategies to figure out which levers need adjusting. As time goes on, we anticipate that combining these efforts will counterbalance the tariff dollar value, though ultimately market dynamics will dictate every action we take. Because of where we are in our transformation journey and the shifting consumer landscape, guidance is not something we're offering at present. Although conditions stay difficult, we're finding and putting into place ways to strengthen operational discipline, and those steps already are producing quarter-by-quarter sequential gains. We'll keep extending this momentum while speeding up work to generate even more improvement in our financial results. That wraps up what we had prepared to say. At this point we'd love to answer your questions. Operator?

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