VERA BRADLEY, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-Q
___________________________
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended
May 4, 2019
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period From
to
Commission File Number: 001-34918
___________________________
VERA BRADLEY, INC.
(Exact name of registrant as specified in its charter)
___________________________
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Indiana
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27-2935063
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12420 Stonebridge Road,
Roanoke, Indiana
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46783
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(Address of principal executive offices)
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(Zip Code)
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(877) 708-8372
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
___________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Emerging growth company
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¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
The registrant had 34,214,013 shares of its common stock outstanding as of
June 5, 2019
.
TABLE OF CONTENTS
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1A.
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Item 2.
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Item 6.
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2
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” and “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenues, costs, expenditures, cash flows, growth rates, and financial results, our plans and objectives for future operations, growth, initiatives, or strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
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•
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possible inability to successfully implement our long-term strategic plan, including our Vision 20/20 initiatives;
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•
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possible declines in our comparable sales;
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•
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possible inability to maintain and enhance our brand;
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•
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possible failure of our multi-channel distribution model;
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•
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possible adverse changes in general economic conditions and their impact on consumer confidence and consumer spending;
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•
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possible inability to predict and respond in a timely manner to changes in consumer demand;
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•
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possible inability to successfully open new stores and/or operate current stores as planned;
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•
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possible loss of key management or design associates or inability to attract and retain the talent required for our business;
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•
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possible data security or privacy breaches or disruptions in our computer systems or website; and
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•
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possible new or increased tariffs on our products that could lead to increased product costs and lower profit margins.
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We derive many of our forward-looking statements from our operating plans and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.
For a discussion of risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
.
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
3
PART I. FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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Vera Bradley, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
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May 4,
2019 |
February 2,
2019 |
|||||||
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Assets
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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99,800
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$
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113,493
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Short-term investments
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13,853
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19,381
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Accounts receivable, net
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16,660
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15,604
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Inventories
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90,093
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91,581
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Income taxes receivable
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2,844
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809
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Prepaid expenses and other current assets
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8,004
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11,600
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Total current assets
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231,254
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252,468
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Operating right-of-use assets
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118,243
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—
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Property, plant, and equipment, net
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76,607
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77,951
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Long-term investments
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30,596
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23,735
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Deferred income taxes
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6,690
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6,724
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Other assets
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1,034
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1,270
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Total assets
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$
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464,424
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$
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362,148
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Liabilities and Shareholders’ Equity
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Current liabilities:
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Accounts payable
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$
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15,084
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$
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14,595
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Accrued employment costs
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6,421
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13,316
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Short-term operating lease liabilities
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21,445
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—
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Other accrued liabilities
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12,370
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13,482
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Income taxes payable
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425
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2,163
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Total current liabilities
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55,745
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43,556
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Long-term operating lease liabilities
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118,816
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—
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Other long-term liabilities
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89
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23,889
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Total liabilities
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174,650
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67,445
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Commitments and contingencies
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Shareholders’ equity:
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Preferred stock; 5,000 shares authorized, no shares issued or outstanding
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—
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—
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||||
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Common stock, without par value; 200,000 shares authorized, 41,466 and 41,283 shares issued and 34,247 and 34,347 shares outstanding, respectively
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—
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—
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||||
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Additional paid-in-capital
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96,019
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95,572
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Retained earnings
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289,393
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291,994
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||||
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Accumulated other comprehensive income (loss)
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109
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(24
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)
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||||
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Treasury stock
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(95,747
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)
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(92,839
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)
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||||
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Total shareholders’ equity
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289,774
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294,703
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||||
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Total liabilities and shareholders’ equity
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$
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464,424
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$
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362,148
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4
Vera Bradley, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
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Thirteen Weeks Ended
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|||||||
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May 4,
2019 |
May 5,
2018 |
||||||
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Net revenues
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$
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91,003
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$
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86,591
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Cost of sales
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40,535
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37,975
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Gross profit
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50,468
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48,616
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Selling, general, and administrative expenses
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54,297
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50,705
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Other income
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184
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177
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Operating loss
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(3,645
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)
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(1,912
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)
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Interest income, net
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(447
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)
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(243
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)
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Loss before income taxes
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(3,198
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)
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(1,669
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)
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Income tax benefit
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(793
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)
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(299
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)
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Net loss
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$
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(2,405
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)
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$
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(1,370
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)
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Basic weighted-average shares outstanding
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34,228
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35,532
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||||
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Diluted weighted-average shares outstanding
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34,228
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35,532
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||||
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Basic net loss per share
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$
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(0.07
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)
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$
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(0.04
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)
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Diluted net loss per share
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$
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(0.07
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)
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$
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(0.04
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)
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The accompanying notes are an integral part of these financial statements.
5
Vera Bradley, Inc.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
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Thirteen Weeks Ended
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|||||||
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May 4,
2019 |
May 5,
2018 |
||||||
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Net loss
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$
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(2,405
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)
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$
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(1,370
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)
|
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Unrealized gain (loss) on available-for-sale debt investments
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132
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(45
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)
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Cumulative translation adjustment
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1
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(4
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)
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||||
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Comprehensive loss, net of tax
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$
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(2,272
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)
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$
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(1,419
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)
|
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The accompanying notes are an integral part of these financial statements.
6
Vera Bradley, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(in thousands, except share data)
(unaudited)
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Number of Shares
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Accumulated
Other
Comprehensive (Loss) Income
|
|
||||||||||||||||||||||
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Common
Stock
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Treasury
Stock
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Additional
Paid-in
Capital
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Retained Earnings
|
Treasury
Stock
|
Total
Equity
|
||||||||||||||||||||
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Balance at February 2, 2019
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34,347,420
|
|
6,935,623
|
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$
|
95,572
|
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$
|
291,994
|
|
$
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(24
|
)
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$
|
(92,839
|
)
|
$
|
294,703
|
|
|||||||
|
Net loss
|
—
|
|
—
|
|
(2,405
|
)
|
—
|
|
—
|
|
(2,405
|
)
|
||||||||||||||
|
Translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
||||||||||||
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Unrealized gain on available for sale investments
|
132
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|
132
|
|
||||||||||||||||||||||
|
Restricted shares vested, net of repurchase for taxes
|
183,346
|
|
—
|
|
(791
|
)
|
—
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|
—
|
|
—
|
|
(791
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)
|
||||||||||||
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Stock-based compensation
|
—
|
|
—
|
|
1,238
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|
—
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—
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—
|
|
1,238
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|
||||||||||||
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Treasury stock purchased
|
(284,088
|
)
|
284,088
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—
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—
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—
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(2,908
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)
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(2,908
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)
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||||||||||||
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Cumulative adjustment for ASC 842 adoption
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—
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—
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—
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(196
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)
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—
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—
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(196
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)
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||||||||||||
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Balance at May 4, 2019
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34,246,678
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|
7,219,711
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$
|
96,019
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$
|
289,393
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$
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109
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$
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(95,747
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)
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$
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289,774
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|||||||
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Balance at February 3, 2018
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35,459,025
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5,642,485
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$
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91,192
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$
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270,783
|
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$
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(114
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)
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$
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(76,578
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)
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$
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285,283
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|||||||
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Net loss
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—
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—
|
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—
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|
(1,370
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)
|
—
|
|
—
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|
(1,370
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)
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||||||||||||
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Translation adjustments
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—
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—
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—
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—
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(4
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)
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—
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(4
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)
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||||||||||||
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Unrealized loss on available for sale investments
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—
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—
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—
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—
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(45
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)
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—
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(45
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)
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||||||||||||
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Restricted shares vested, net of repurchase for taxes
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177,192
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—
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(522
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)
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—
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—
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—
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(522
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)
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||||||||||||
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Stock-based compensation
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—
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—
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|
899
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—
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—
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—
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899
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||||||||||||
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Treasury stock purchased
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—
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—
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—
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—
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—
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—
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—
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||||||||||||
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Cumulative adjustment for ASC 606 adoption
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—
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—
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—
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454
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—
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—
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|
454
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||||||||||||
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Balance at May 5, 2018
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35,636,217
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5,642,485
|
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$
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91,569
|
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$
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269,867
|
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$
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(163
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)
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$
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(76,578
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)
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$
|
284,695
|
|
|||||||
The accompanying notes are an integral part of these financial statements.
7
Vera Bradley, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
|
Thirteen Weeks Ended
|
|||||||
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May 4,
2019 |
May 5,
2018 |
||||||
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Cash flows from operating activities
|
||||||||
|
Net loss
|
$
|
(2,405
|
)
|
$
|
(1,370
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)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
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Depreciation of property, plant, and equipment
|
4,170
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4,156
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|
||||
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Amortization of operating right-of-use assets
|
5,471
|
|
—
|
|
||||
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Provision for doubtful accounts
|
38
|
|
120
|
|
||||
|
Stock-based compensation
|
1,238
|
|
899
|
|
||||
|
Deferred income taxes
|
102
|
|
(210
|
)
|
||||
|
Other non-cash charges, net
|
11
|
|
35
|
|
||||
|
Changes in assets and liabilities:
|
||||||||
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Accounts receivable
|
(1,934
|
)
|
(1,417
|
)
|
||||
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Inventories
|
1,488
|
|
1,399
|
|
||||
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Prepaid expenses and other assets
|
3,427
|
|
532
|
|
||||
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Accounts payable
|
1,273
|
|
(123
|
)
|
||||
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Income taxes
|
(3,773
|
)
|
(90
|
)
|
||||
|
Operating lease liabilities
|
(8,926
|
)
|
—
|
|
||||
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Accrued and other liabilities
|
(5,395
|
)
|
(5,777
|
)
|
||||
|
Net cash used in operating activities
|
(5,215
|
)
|
(1,846
|
)
|
||||
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Cash flows from investing activities
|
||||||||
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Purchases of property, plant, and equipment
|
(3,421
|
)
|
(3,677
|
)
|
||||
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Purchases of investments
|
(9,615
|
)
|
(5,804
|
)
|
||||
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Proceeds from maturities and sales of investments
|
8,403
|
|
4,505
|
|
||||
|
Net cash used in investing activities
|
(4,633
|
)
|
(4,976
|
)
|
||||
|
Cash flows from financing activities
|
||||||||
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Tax withholdings for equity compensation
|
(791
|
)
|
(522
|
)
|
||||
|
Repurchase of common stock
|
(3,055
|
)
|
—
|
|
||||
|
Net cash used in financing activities
|
(3,846
|
)
|
(522
|
)
|
||||
|
Effect of exchange rate changes on cash and cash equivalents
|
1
|
|
(4
|
)
|
||||
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Net decrease in cash and cash equivalents
|
(13,693
|
)
|
(7,348
|
)
|
||||
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Cash and cash equivalents, beginning of period
|
113,493
|
|
68,751
|
|
||||
|
Cash and cash equivalents, end of period
|
$
|
99,800
|
|
$
|
61,403
|
|
||
|
Supplemental disclosure of cash flow information
|
||||||||
|
Cash paid (received) for income taxes, net
|
$
|
2,878
|
|
$
|
(10
|
)
|
||
|
Supplemental disclosure of non-cash activity
|
||||||||
|
Non-cash operating, investing, and financing activities
|
||||||||
|
Repurchase of common stock
|
||||||||
|
Expenditures incurred but not yet paid as of May 4, 2019 and May 5, 2018
|
$
|
50
|
|
$
|
—
|
|
||
|
Expenditures incurred but not yet paid as of February 2, 2019 and February 3, 2018
|
$
|
197
|
|
$
|
—
|
|
||
|
Purchases of property, plant, and equipment
|
||||||||
|
Expenditures incurred but not yet paid as of May 4, 2019 and May 5, 2018
|
$
|
470
|
|
$
|
1,610
|
|
||
|
Expenditures incurred but not yet paid as of February 2, 2019 and February 3, 2018
|
$
|
1,065
|
|
$
|
1,183
|
|
||
Refer to Note 3 herein for supplemental cash flow information regarding the Company’s leases.
The accompanying notes are an integral part of these financial statements.
8
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
|
1.
|
Description of the Company and Basis of Presentation
|
The terms “Company” and “Vera Bradley” refer to Vera Bradley, Inc. and its subsidiaries, except where the context requires otherwise or where otherwise indicated.
Vera Bradley is a leading designer of women’s handbags, luggage and travel items, fashion and home accessories, and unique gifts. Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand’s innovative designs, iconic patterns, and brilliant colors continue to inspire and connect women.
Vera Bradley offers a unique, multi-channel sales model, as well as a focus on service and a high level of customer engagement. The Company sells its products through
two
reportable segments: Direct and Indirect. The Direct business consists of sales of Vera Bradley products through the Company’s full-line and factory outlet stores in the United States; verabradley.com; the Company’s online outlet site; and the Company’s annual outlet sale in Fort Wayne, Indiana. As of
May 4, 2019
, the Company operated
97
full-line stores and
62
factory outlet stores. The Indirect business consists of sales of Vera Bradley products to approximately
2,200
specialty retail locations, substantially all of which are located in the United States, as well as department stores, national accounts, third-party e-commerce sites, third-party inventory liquidators, and royalties recognized through licensing agreements.
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as permitted by such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
, filed with the SEC.
The interim financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the results for the interim periods presented. All such adjustments are of a normal, recurring nature. The results of operations for the
thirteen weeks
ended
May 4, 2019
, are not necessarily indicative of the results to be expected for the full fiscal year.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has eliminated intercompany balances and transactions in consolidation.
Fiscal Periods
The Company’s fiscal year ends on the Saturday closest to January 31. References to the fiscal quarters ended
May 4, 2019
and
May 5, 2018
, refer to the thirteen-week periods ended on those dates.
Operating Leases
Accounting Standard Codification (“ASC”) Topic 842,
Leases
, was adopted on a modified retrospective basis on February 3, 2019. Accordingly, prior year financial information contained herein was not recast and is reported under the prior accounting standard. This comparability primarily impacts the Company's Condensed Consolidated Balance Sheets. Refer to Note 3 herein for additional information regarding the Company's leases.
The Company recognizes lease liabilities at the lease commencement date based upon the present value of the remaining lease payments. Operating right-of-use assets are based on the lease liability adjusted for prepaid rent, deferred rent, and tenant allowances received from certain of the Company’s landlords, primarily for its retail store locations.
Operating lease liabilities are amortized based upon the effective interest method. Operating right-of-use assets are amortized based upon the straight line lease expense less interest on the lease liability. Operating lease expense is recognized on a straight-line basis over the lease term. Variable rent expense is recognized in the period incurred.
9
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases
, which increases transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and disclosing key information about leasing arrangements. This guidance is effective for interim and annual periods beginning on or after December 15, 2018. In July 2018, the FASB issued ASU 2018-11 for targeted improvements, including the option of allowing entities to initially apply the new leases standard at the adoption date (February 3, 2019 for the Company) and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company adopted the standard using this adoption method on February 3, 2019 (the beginning of fiscal 2020) and recorded a
$0.2 million
beginning retained earnings adjustment. In addition, the Company evaluated the usage of applicable transition relief practical expedients at the adoption date as follows:
|
Practical Expedient Package
|
The Company elected the practical expedient package and did not re-assess whether a contract was or contained a lease; did not re-assess lease classification as an operating or financing lease for expired or existing leases; and did not re-assess whether a lease contained initial direct costs for expired or existing leases.
|
|
Hindsight
|
The Company did not elect the hindsight practical expedient, which allows for hindsight when assessing the lease term and impairment of right-of-use assets.
|
The Company has operating leases at all of its retail stores; therefore, the adoption of this standard resulted in a material increase of assets and liabilities on the Company’s Condensed Consolidated Balance Sheets. The opening balance of its operating lease liabilities was approximately
$149 million
and its operating right-of-use assets were approximately
$126 million
at transition on February 3, 2019. The adoption of this standard had no impact on the Company's Condensed Consolidated Statements of Operations and its Condensed Consolidated Statements of Cash Flows.
Refer to Note 3 herein for additional information regarding ASC Topic 842, including details of practical expedients related to policy elections.
In August 2018, the FASB issued ASU 2018-15,
Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
, which aligns the requirements for capitalizing or expensing implementation costs in hosting arrangements (regardless of whether they convey a license to the hosted software) with capitalizing or expensing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for interim and annual periods beginning on or after December 15, 2019 (fiscal 2021). Early adoption is permitted, and the amendments can be adopted either retrospectively or prospectively. The Company adopted this standard at the beginning of its fiscal 2020 (February 3, 2019) on a prospective basis. The adoption of this standard had an immaterial impact on the Company's Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-13,
Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements
. The amendments in this update remove, modify, and add certain disclosure requirements to ASC 820,
Fair Value Measurement
. This guidance is effective for interim and annual periods beginning on or after December 15, 2019 (fiscal 2021). Early adoption is permitted, and certain amendments are to be adopted prospectively for only the most recent annual or interim period presented in the initial year of adoption or retrospectively. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.
10
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
|
2.
|
Revenue from Contracts with Customers
|
Disaggregation of Revenue
The following presents the Company's net revenues disaggregated by product category for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
(in thousands):
|
Thirteen Weeks Ended
|
||||||||||||
|
May 4, 2019
|
||||||||||||
|
Direct Segment
|
Indirect Segment
|
Total
|
||||||||||
|
Product categories
|
||||||||||||
|
Bags
|
$
|
27,667
|
|
$
|
9,991
|
|
$
|
37,658
|
|
|||
|
Travel
|
19,926
|
|
3,722
|
|
23,648
|
|
||||||
|
Accessories
|
16,060
|
|
4,202
|
|
20,262
|
|
||||||
|
Home
|
5,685
|
|
584
|
|
6,269
|
|
||||||
|
Other
|
1,798
|
|
(1)
|
1,368
|
|
(2)
|
3,166
|
|
||||
|
Total net revenues
|
$
|
71,136
|
|
(3)
|
$
|
19,867
|
|
(4)
|
$
|
91,003
|
|
|
|
(1) Primarily includes net revenues from apparel/footwear, stationery, and freight.
|
||||||||||||
|
(2) Primarily includes net revenues from licensing agreements, freight, apparel/footwear, and merchandising.
|
||||||||||||
|
(3) Net revenues were related to product sales recognized at a point in time.
|
||||||||||||
|
(4) $18.9 million of net revenues related to product sales recognized at a point in time and $1.0 million of net revenues related to sales-based royalties recognized over time.
|
||||||||||||
|
Thirteen Weeks Ended
|
||||||||||||
|
May 5, 2018
|
||||||||||||
|
Direct Segment
|
Indirect Segment
|
Total
|
||||||||||
|
Product categories
|
||||||||||||
|
Bags
|
$
|
25,600
|
|
$
|
10,228
|
|
$
|
35,828
|
|
|||
|
Travel
|
18,059
|
|
4,690
|
|
22,749
|
|
||||||
|
Accessories
|
15,679
|
|
4,168
|
|
19,847
|
|
||||||
|
Home
|
4,170
|
|
458
|
|
4,628
|
|
||||||
|
Other
|
2,024
|
|
(1)
|
1,515
|
|
(2)
|
3,539
|
|
||||
|
Total net revenues
|
$
|
65,532
|
|
(3)
|
$
|
21,059
|
|
(4)
|
$
|
86,591
|
|
|
|
(1) Primarily includes net revenues from apparel/footwear, stationery, freight, and gift card breakage.
|
||||||||||||
|
(2) Primarily includes net revenues from licensing agreements, freight, apparel/footwear, and merchandising.
|
||||||||||||
|
(3) Net revenues were related to product sales recognized at a point in time.
|
||||||||||||
|
(4) $20.1 million of net revenues related to product sales recognized at a point in time and $1.0 million of net revenues related to sales-based royalties recognized over time.
|
||||||||||||
Contract Balances
Contract liabilities as of
May 4, 2019
and February 2, 2019, consisted of
$1.4 million
and
$1.6 million
, respectively, of unearned revenue related to unredeemed gift cards and an immaterial amount of unearned revenue for pre-payments of royalties in certain of the Company’s licensing arrangements. These contract liabilities are recognized within other accrued liabilities on the Company’s Condensed Consolidated Balance Sheets. The Company did not have contract assets as of
May 4, 2019
and February 2, 2019.
The balance for accounts receivable from contracts with customers, net of allowances, as of
May 4, 2019
and February 2, 2019, was
$15.1 million
and
$14.1 million
, respectively, which is recognized within accounts receivable, net, on the
11
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Company’s Condensed Consolidated Balance Sheets. The provision for doubtful accounts was
$0.4 million
and
$0.3 million
as of
May 4, 2019
and February 2, 2019, respectively.
Performance Obligations
The performance obligations for the Direct and Indirect segments include the promise to transfer distinct goods (or a bundle of distinct goods). The Indirect segment also includes the right to access the Company’s intellectual property (“IP”).
Remaining Performance Obligations
The Company does not have remaining performance obligations in excess of one year or contracts that it does not have the right to invoice as of
May 4, 2019
.
|
3.
|
Leases
|
Nature of Leases
The Company has operating leases at all of its retail stores, as well as for its New York office, Asia sourcing office and showrooms. The Company also has operating leases for certain equipment and storage spaces. The Company does not have residual value guarantees, restrictions, or covenants imposed by leases.
Determination of Lease Terms
Retail store leases have remaining terms of up to 10 years as of May 4, 2019. These leases generally have early termination rights when certain sales thresholds are not met for a specified measurement period. The Company's other leases have remaining terms of up to seven years as of May 4, 2019. If the lease contains a renewal period at the Company's option, the renewal period is included in the lease term if determined the option is reasonably certain to be exercised at lease commencement. The Company's lease options generally do not include termination rights other than those mentioned. The Company did not have financing leases as of May 4, 2019.
Variable Rental Payments
All of the Company's retail store leases contain variable rental payments when the retail store's sales exceed a specified breakpoint. In addition, certain of the Company's leases contain real estate taxes, common area maintenance, and similar items that are billed as pass-through charges from its landlords. These rental payments are not included in the measurement of the lease liability, but are recognized as variable lease cost in the period incurred.
Certain of the Company's leases also contain lease components with increases based upon an index or rate. These lease components are included on the Company's balance sheet at the rate as of lease commencement. Future changes in the index or rate will generally be included as variable lease cost.
Significant Judgments and Assumptions
Determination of Whether a Contract Contains a Lease
The Company determines whether a contract is or contains a lease at the inception of the contract. The contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from use of the property, plant, and equipment and have the right to direct its use.
Discount Rate
The weighted-average discount rate as of May 4, 2019, was
4.9%
. The discount rate is not readily determinable in the lease; therefore, the Company estimated the incremental borrowing rate, at the commencement date of each lease, which is the rate of interest it would have to borrow on a collateralized basis over a similar term with similar payments.
12
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Leases Not Yet Commenced
As of May 4, 2019, the Company had certain retail store leases which were executed but it did not have control of the underlying assets; therefore, the lease liabilities and right-of-use assets are not recorded on its Condensed Consolidated Balance Sheets. These leases contain undiscounted lease payments, which will be included in the determination of the lease liability, totaling approximately
$11.5 million
and have approximate terms of
10 years
commencing in fiscal 2020 and fiscal 2021.
Practical Expedients (Policy Elections)
The Company has elected the following practical expedients as policy elections upon the adoption of ASC Topic 842.
|
Short-Term Leases
|
The Company elected to exclude leases with a term of 12 months or less from recognition on the balance sheet for all leases.
|
|
Not Separating Lease and Nonlease Components
|
The Company elected to combine lease and nonlease components and recognize as a single lease component for all leases.
|
Refer to Note 1 herein for information regarding transition practical expedients elected.
Amounts Recognized in the Condensed Consolidated Financial Statements
The following lease expense is recorded within cost of sales for the Asia sourcing office and certain equipment leases and within selling, general, and administrative expenses for all other leases, including retail store leases, in the Company's Condensed Consolidated Statement of Operations for the thirteen weeks ended May 4, 2019 (in thousands):
|
Thirteen Weeks Ended
|
|||
|
May 4, 2019
|
|||
|
Operating lease cost
|
$
|
7,357
|
|
|
Variable lease cost
|
2,237
|
|
|
|
Short-term lease cost
|
190
|
|
|
|
Total lease cost
|
$
|
9,784
|
|
The weighted-average remaining lease term as of May 4, 2019 was
5.8
years.
Supplemental operating cash flow information was as follows (in thousands):
|
Thirteen Weeks Ended
|
|||
|
May 4, 2019
|
|||
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
8,099
|
|
|
Right-of-use assets reduction as a result of new and modified operating lease liabilities, net
|
$
|
(2,194
|
)
|
13
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Maturity Analysis of Operating Lease Liabilities
Maturities of the Company's operating lease liabilities (undiscounted) reconciled to its lease liability as of May 4, 2019 were as follows (in thousands):
|
Operating Leases
|
|||
|
Fiscal 2020 (remaining nine months)
|
$
|
20,016
|
|
|
Fiscal 2021
|
30,663
|
|
|
|
Fiscal 2022
|
28,307
|
|
|
|
Fiscal 2023
|
24,415
|
|
|
|
Fiscal 2024
|
20,931
|
|
|
|
Thereafter
|
39,244
|
|
|
|
Total remaining obligations
|
163,576
|
|
|
|
Less: Interest
|
23,315
|
|
|
|
Present value of lease liabilities
|
$
|
140,261
|
|
Under the prior accounting standard (ASC Topic 840), the maturities of minimum lease payments as disclosed in the Company's Annual Report on Form 10-K as of the fiscal year ended February 2, 2019 were as follows:
|
Operating Leases
|
|||
|
Fiscal 2020
|
$
|
32,658
|
|
|
Fiscal 2021
|
32,017
|
|
|
|
Fiscal 2022
|
29,707
|
|
|
|
Fiscal 2023
|
25,933
|
|
|
|
Fiscal 2024
|
22,250
|
|
|
|
Thereafter
|
45,099
|
|
|
|
Total remaining minimum lease payments
|
$
|
187,664
|
|
|
4.
|
Earnings Per Share
|
Basic earnings per share is computed based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding, plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares represent outstanding restricted stock units. The components of basic and diluted earnings per share were as follows (in thousands, except per share data):
|
|
Thirteen Weeks Ended
|
|||||||
|
|
May 4,
2019 |
May 5,
2018 |
||||||
|
Numerator:
|
||||||||
|
Net loss
|
$
|
(2,405
|
)
|
$
|
(1,370
|
)
|
||
|
Denominator:
|
||||||||
|
Weighted-average number of common shares (basic)
|
34,228
|
|
35,532
|
|
||||
|
Dilutive effect of stock-based awards
|
—
|
|
—
|
|
||||
|
Weighted-average number of common shares (diluted)
|
34,228
|
|
35,532
|
|
||||
|
Net loss per share:
|
||||||||
|
Basic
|
$
|
(0.07
|
)
|
$
|
(0.04
|
)
|
||
|
Diluted
|
$
|
(0.07
|
)
|
$
|
(0.04
|
)
|
||
14
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
For the thirteen weeks ended
May 4, 2019
and
May 5, 2018
, all potential common shares were excluded from the diluted share calculation because they were anti-dilutive due to the net loss in the period.
|
5.
|
Fair Value of Financial Instruments
|
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
|
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities;
|
|
•
|
Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
|
|
•
|
Level 3 – Unobservable inputs based on the Company’s own assumptions.
|
The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.
The carrying amounts reflected on the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, other current assets, and accounts payable as of
May 4, 2019
and
February 2, 2019
, approximated their fair values.
The following table details the fair value measurements of the Company's investments as of
May 4, 2019
and
February 2, 2019
(in thousands):
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||||||||||
|
May 4, 2019
|
February 2, 2019
|
May 4, 2019
|
February 2, 2019
|
May 4, 2019
|
February 2, 2019
|
||||||||||||||||||
|
Cash equivalents
(1)
|
$
|
2,836
|
|
$
|
2,169
|
|
$
|
4,996
|
|
$
|
6,493
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Short-term investments:
|
|||||||||||||||||||||||
|
U.S. corporate debt securities
|
—
|
|
—
|
|
4,650
|
|
5,769
|
|
—
|
|
—
|
|
|||||||||||
|
Municipal securities
|
—
|
|
—
|
|
4,165
|
|
4,190
|
|
—
|
|
—
|
|
|||||||||||
|
Non-U.S. corporate debt securities
|
—
|
|
—
|
|
3,550
|
|
5,808
|
|
—
|
|
—
|
|
|||||||||||
|
U.S. treasury securities
|
—
|
|
3,116
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Commercial paper
|
—
|
|
—
|
|
1,488
|
|
498
|
|
—
|
|
—
|
|
|||||||||||
|
Long-term investments:
|
|||||||||||||||||||||||
|
U.S. corporate debt securities
|
—
|
|
—
|
|
10,622
|
|
9,499
|
|
—
|
|
—
|
|
|||||||||||
|
U.S. asset-backed securities
|
—
|
|
—
|
|
9,790
|
|
7,169
|
|
—
|
|
—
|
|
|||||||||||
|
Non-U.S. corporate debt securities
|
—
|
|
—
|
|
5,478
|
|
4,675
|
|
—
|
|
—
|
|
|||||||||||
|
Non-U.S. asset-backed securities
|
—
|
|
—
|
|
2,942
|
|
1,127
|
|
—
|
|
—
|
|
|||||||||||
|
Municipal securities
|
—
|
|
—
|
|
1,265
|
|
1,265
|
|
—
|
|
—
|
|
|||||||||||
|
Other foreign securities
|
—
|
|
—
|
|
499
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
(1) Cash equivalents include commercial paper and a money market fund that have a maturity of three months or less at the date of purchase. Due to their short maturity, the Company believes the carrying value approximates fair value.
|
|||||||||||||||||||||||
The Company assesses potential impairments to its long-lived assets, which includes property, plant, and equipment and lease right-of-use assets, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Store-level assets and right-of-use assets are grouped at the individual store-level for the purpose of the impairment assessment. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. The fair value of the store assets is determined using the discounted future cash flow
15
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
method of anticipated cash flows through the store’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The Company recorded
no
impairment for the thirteen weeks ended May 4, 2019 and May 5, 2018.
Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant, and equipment, including leasehold improvements, and operating lease assets. These assets are measured at fair value if determined to be impaired.
|
6.
|
Debt
|
On September 7, 2018, VBD, a wholly-owned subsidiary of the Company, entered into an asset-based revolving Credit Agreement (the “Credit Agreement”) among VBD, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. The Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of
$75.0 million
or the amount of borrowing availability determined in accordance with a borrowing base of certain assets. Any proceeds of the credit facilities will be used to finance general corporate purposes of VBD and its subsidiaries, including but not limited to Vera Bradley International, LLC and Vera Bradley Sales, LLC (collectively, the “Named Subsidiaries”). The Credit Agreement also contains an option for VBD to arrange with lenders to increase the aggregate principal amount by up to
$25.0 million
.
Amounts outstanding under the Credit Agreement bear interest at a per annum rate equal to either (i) for CBFR borrowings (including swingline loans), the CB Floating Rate, where the CB Floating Rate is the prime rate which shall never be less than the adjusted one month LIBOR rate on such day, plus the Applicable Rate, where the Applicable Rate is a percentage spread ranging from
-1.00%
to
-1.50%
or (ii) for each eurodollar borrowing, the Adjusted LIBO Rate, where the Adjusted LIBO Rate is the LIBO rate for such interest period multiplied by the statutory reserve rate, for the interest period in effect for such borrowing, plus the Applicable Rate, where the Applicable Rate is a percentage ranging from
1.00%
to
1.30%
. The applicable CB Floating Rate, Adjusted LIBO Rate, or LIBO Rate shall be determined by the administrative agent. The Credit Agreement also requires VBD to pay a commitment fee for the unused portion of the revolving facility of up to
0.20%
per annum.
VBD’s obligations under the Credit Agreement are guaranteed by the Company and the Named Subsidiaries. The obligations of VBD under the Credit Agreement are secured by substantially all of the respective assets of VBD, the Company, and the Named Subsidiaries and are further secured by the equity interests in VBD and the Named Subsidiaries.
The Credit Agreement contains various affirmative and negative covenants, including restrictions on the Company's ability to incur debt or liens; engage in mergers or consolidations; make certain investments, acquisitions, loans, and advances; sell assets; enter into certain swap agreements; pay dividends or make distributions or make other restricted payments; engage in certain transactions with affiliates; and amend, modify, or waive any of its rights related to subordinated indebtedness and certain charter and other organizational, governing, and material agreements. The Company may avoid certain of such restrictions by meeting payment conditions defined in the Credit Agreement.
The Credit Agreement also requires the Loan Parties to maintain a minimum fixed charge coverage ratio of
1.0
0 to
1.00
during periods when borrowing availability is less than the greater of (A)
$7.5 million
, and (B)
10%
of the lesser of (i) the aggregate revolving commitment, and (ii) the borrowing base. The fixed charge coverage ratio, availability, aggregate revolving commitment, and the borrowing base are further defined in the Credit Agreement.
The Credit Agreement contains customary events of default, including, among other things: (i) the failure to pay any principal, interest, or other fees under the Credit Agreement; (ii) the making of any materially incorrect representation or warranty; (iii) the failure to observe or perform any covenant, condition, or agreement in the Credit Agreement or related agreements; (iv) a cross default with respect to other material indebtedness; (v) bankruptcy and insolvency events; (vi) unsatisfied material final judgments; (vii) Employee Retirement Income Security Act of 1974 (“ERISA”) events that could reasonably be expected to have a material adverse effect; and (viii) a change in control (as defined in the Credit Agreement).
Any commitments made under the Credit Agreement mature on September 7, 2023.
16
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
As of
May 4, 2019
and
February 2, 2019
, the Company had no borrowings outstanding and availability of
$75.0 million
under the Credit Agreement.
|
7.
|
Income Taxes
|
The provision for income taxes for interim periods is based on an estimate of the annual effective tax rate adjusted to reflect the impact of discrete items. Management judgment is required in projecting ordinary income to estimate the Company’s annual effective tax rate.
The effective tax rate for the
thirteen weeks
ended
May 4, 2019
, was
24.8%
, compared to
17.9%
for the
thirteen weeks
ended
May 5, 2018
. The year-over-year effective tax rate
increase
was primarily due to the relative impact of discrete items in the current-year period compared to the prior-year period, primarily as a result of tax shortfalls from stock-based compensation.
|
8.
|
Stock-Based Compensation
|
The Company recognizes stock-based compensation expense, for its awards of restricted stock units, in an amount equal to the fair market value of the underlying stock on the grant date of the respective award.
The Company reserved
6,076,001
shares of common stock for issuance or transfer under the 2010 Equity and Incentive Plan, which allows for grants of restricted stock units, as well as other equity awards.
Awards of Restricted Stock Units
During the
thirteen weeks
ended
May 4, 2019
, the Company granted
407,264
time-based and performance-based restricted stock units with an aggregate fair value of
$5.3 million
to certain employees and non-employee directors under the 2010 Equity and Incentive Plan compared to a total of
409,145
time-based and performance-based restricted stock units with an aggregate fair value of
$4.3 million
granted in the same period of the prior year. The Company determined the fair value of the awards based on the closing price of the Company’s common stock on the grant date.
The majority of the time-based restricted stock units vest and settle in shares of the Company’s common stock, on a
one
-for-one basis, in equal installments on each of the first three anniversaries of the grant date. Restricted stock units issued to non-employee directors vest after a
one
-year period from the grant date. The Company recognizes the expense relating to these units, net of estimated forfeitures, on a straight-line basis over the vesting period.
Performance-based restricted stock units vest upon the completion of a
three
-year period of time (cliff vesting), subject to the employee’s continuing employment throughout and the Company’s achievement of annual earnings per share targets, or other Company performance targets, during the three-year performance period. The Company recognizes the expense relating to these units, net of estimated forfeitures, based on the probable outcome of achievement of the financial targets, on a straight-line basis over
three years
.
The following table sets forth a summary of restricted stock unit activity for the
thirteen weeks
ended
May 4, 2019
(units in thousands):
|
|
Time-based
Restricted Stock Units
|
Performance-based
Restricted Stock Units
|
||||||||||||
|
|
Number of
Units
|
Weighted-
Average
Grant
Date Fair
Value
(per unit)
|
Number of
Units
|
Weighted-
Average
Grant
Date Fair
Value
(per unit)
|
||||||||||
|
Nonvested units outstanding at February 2, 2019
|
473
|
|
$
|
11.75
|
|
442
|
|
$
|
11.38
|
|
||||
|
Granted
|
236
|
|
13.10
|
|
171
|
|
13.10
|
|
||||||
|
Vested
|
(198
|
)
|
11.45
|
|
(48
|
)
|
19.76
|
|
||||||
|
Forfeited
|
(2
|
)
|
14.87
|
|
(1
|
)
|
9.91
|
|
||||||
|
Nonvested units outstanding at May 4, 2019
|
509
|
|
$
|
12.49
|
|
564
|
|
$
|
11.19
|
|
||||
17
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
As of
May 4, 2019
, there was
$8.2 million
of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of
1.8
years, subject to meeting performance conditions.
|
9.
|
Commitments and Contingencies
|
The Company is subject to various claims and contingencies arising in the normal course of business, including those relating to product liability, legal claims, employee benefits, environmental issues, and other matters. Management believes that at this time it is not probable that any of these claims will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows. However, the outcomes of legal proceedings and claims brought against the Company are subject to uncertainty, and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.
10. Common Stock
On December 8, 2015, the Company's board of directors approved a share repurchase program (the “2015 Share Repurchase Program”) authorizing up to
$50.0 million
of repurchases of shares of the Company's common stock. The initial term of the 2015 Share Repurchase Program expired on December 31, 2017. On November 30, 2017, the Company’s board of directors authorized the Company to extend the 2015 Share Repurchase Program during an open window period until December 31, 2018. The 2015 Share Repurchase program was completed on November 27, 2018. On November 29, 2018, the Company's board of directors approved a new share repurchase plan (the “2018 Share Repurchase Program”) authorizing up to
$50.0 million
of repurchases of shares of the Company's common stock. The 2018 Share Repurchase Program is scheduled to expire on December 14, 2020.
The Company purchased
284,088
shares at an average price of
$10.24
per share, excluding commissions, for an aggregate amount of
$2.9 million
during the
thirteen weeks
ended
May 4, 2019
, under the 2018 Share Repurchase Program. As of
May 4, 2019
, there was
$44.3 million
remaining available to repurchase shares of the Company's common stock under the 2018 Share Repurchase Program.
As of
May 4, 2019
, the Company held as treasury shares
7,219,711
shares of its common stock at an average price of
$13.26
per share, excluding commissions, for an aggregate carrying amount of
$95.7 million
. The Company’s treasury shares may be issued under the 2010 Equity and Incentive Plan or for other corporate purposes.
|
11.
|
Investments
|
Cash Equivalents
Investments classified as cash equivalents relate to highly-liquid investments with a maturity of three months or less at the date of purchase. As of
May 4, 2019
and
February 2, 2019
, these investments in the Company's portfolio consisted of commercial paper and a money market fund.
Short-Term Investments
As of
May 4, 2019
and
February 2, 2019
, short-term investments consisted of U.S. and non-U.S. corporate debt securities, municipal securities, and commercial paper with a maturity within one year of the balance sheet date. The balance as of
February 2, 2019
, also included U.S. treasury securities. These debt securities are classified as available-for-sale; therefore, unrealized gains and losses are recorded within other comprehensive income. Interest income earned is recorded within interest income, net, in the Company's Condensed Consolidated Statements of Operations.
18
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
The Company held
$13.9 million
and
$19.4 million
in short-term investments as of
May 4, 2019
and
February 2, 2019
, respectively. The following table summarizes the Company's short-term investments (in thousands):
|
May 4, 2019
|
February 2, 2019
|
||||||
|
U.S. corporate debt securities
|
$
|
4,650
|
|
$
|
5,769
|
|
|
|
Municipal securities
|
4,165
|
|
4,190
|
|
|||
|
Non-U.S. corporate debt securities
|
3,550
|
|
5,808
|
|
|||
|
Commercial paper
|
1,488
|
|
498
|
|
|||
|
U.S. treasury securities
|
—
|
|
3,116
|
|
|||
|
Total short-term investments
|
$
|
13,853
|
|
$
|
19,381
|
|
|
Long-Term Investments
As of
May 4, 2019
and
February 2, 2019
, long-term investments consisted of U.S. and non-U.S. corporate debt securities, U.S. and non-U.S. asset-backed securities, and municipal securities with a maturity greater than one year from the balance sheet date. The balance as of
May 4, 2019
also included other foreign securities. These debt securities are classified as available-for-sale; therefore, unrealized gains and losses are recorded within other comprehensive income. Interest income earned is recorded within interest income, net, in the Company's Condensed Consolidated Statements of Operations.
The Company held
$30.6 million
and
$23.7 million
in long-term investments as of
May 4, 2019
and
February 2, 2019
, respectively. The following table summarizes the Company's long-term investments (in thousands):
|
May 4, 2019
|
February 2, 2019
|
||||||
|
U.S. corporate debt securities
|
$
|
10,622
|
|
$
|
9,499
|
|
|
|
U.S. asset-backed securities
|
9,790
|
|
7,169
|
|
|||
|
Non-U.S. corporate debt securities
|
5,478
|
|
4,675
|
|
|||
|
Non-U.S. asset-backed securities
|
2,942
|
|
1,127
|
|
|||
|
Municipal securities
|
1,265
|
|
1,265
|
|
|||
|
Other foreign securities
|
499
|
|
—
|
|
|||
|
Total long-term investments
|
$
|
30,596
|
|
$
|
23,735
|
|
|
There were
no
material gross unrealized gains or losses on available-for-sale debt securities as of
May 4, 2019
and
February 2, 2019
.
|
12.
|
Segment Reporting
|
The Company has
two
operating segments, which are also its reportable segments: Direct and Indirect. These operating segments are components of the Company for which separate financial information is available and for which operating results are evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing the performance of the segments.
The Direct segment includes the Company’s full-line and factory outlet stores; the Company’s website, verabradley.com; the Company’s online outlet site; and the annual outlet sale. Revenues generated from this segment are driven through the sale of Company-branded products from Vera Bradley to end consumers.
The Indirect segment represents revenues generated through the distribution of Company-branded products to specialty retailers representing approximately
2,200
locations, substantially all of which are located in the United States; key accounts, which include department stores, national accounts, third-party e-commerce sites, and third-party inventory liquidators; and royalties recognized through licensing agreements.
Corporate costs represent the Company’s administrative expenses, which include, but are not limited to: human resources, legal, finance, information technology, design, product development, merchandising, corporate-level
19
Vera Bradley, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
marketing and advertising, and various other corporate-level-activity-related expenses. All intercompany-related activities are eliminated in consolidation and are excluded from the segment reporting.
Company management evaluates segment operating results based on several indicators. The primary or key performance indicators for each segment are net revenues and operating income. Net revenues and operating income information for the Company’s reportable segments during the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
, respectively, consisted of the following (in thousands):
|
|
Thirteen Weeks Ended
|
|||||||
|
|
May 4,
2019 |
May 5,
2018 |
||||||
|
Segment net revenues:
|
||||||||
|
Direct
|
$
|
71,136
|
|
$
|
65,532
|
|
||
|
Indirect
|
19,867
|
|
21,059
|
|
||||
|
Total
|
$
|
91,003
|
|
$
|
86,591
|
|
||
|
Segment operating income:
|
||||||||
|
Direct
|
$
|
8,360
|
|
$
|
7,290
|
|
||
|
Indirect
|
7,707
|
|
8,284
|
|
||||
|
Total
|
$
|
16,067
|
|
$
|
15,574
|
|
||
|
Reconciliation:
|
||||||||
|
Segment operating income
|
$
|
16,067
|
|
$
|
15,574
|
|
||
|
Less:
|
||||||||
|
Unallocated corporate expenses
|
(19,712
|
)
|
(17,486
|
)
|
||||
|
Operating loss
|
$
|
(3,645
|
)
|
$
|
(1,912
|
)
|
||
20
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion summarizes the significant factors affecting the condensed consolidated operating results, financial condition, liquidity, and cash flows of the Company as of and for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
, and our unaudited condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report. The results of operations for the
thirteen weeks
ended
May 4, 2019
, are not necessarily indicative of the results to be expected for the full fiscal year.
Executive Summary
Below is a summary of our strategic progress and financial results for the
first
quarter of fiscal
2020
:
Strategic Progress
|
•
|
We achieved comparable sales growth of 5.2%, indicating that our customers are responding to both our innovative product and targeted consumer engagement efforts.
|
|
•
|
During the first quarter, we strengthened our store base by opening five new factory outlet stores and closing two underperforming full-line stores. We also began relocation and expansion plans for three of our top volume factory outlet stores.
|
|
•
|
We created an improved experience for our mobile customers by launching a new mobile-friendly product detail page, which better showcases our product and increases load times by approximately 40%.
|
|
•
|
We launched partnerships and collaborations in the quarter, including:
|
|
◦
|
launching a limited-edition mini-collection with New Hope Girls in March;
|
|
◦
|
partnering with Disney Theme Park Merchandise to create a limited-edition novelty patterns and sixteen-piece collection that launched at the end of March;
|
|
◦
|
collaborating with Gillette Venus creating a collection with a popular Vera Bradley design on a selection of Gillette Venus's core and special-edition shaving products;
|
|
◦
|
collaborating with Starbucks Asia Pacific on a drinkware and accessories collection; and
|
|
◦
|
partnering with country music star Cassadee Pope as she headlined the “CMT Next Women of Country Tour.”
|
|
•
|
We are continuing to mitigate the impact of Chinese tariffs through sourcing and pricing efforts, as well as reducing our reliance on China production.
|
Financial Summary
(all comparisons are to the
first
quarter of fiscal
2019
)
|
•
|
Net revenues
increased
5.1%
to
$91.0 million
.
|
|
•
|
Direct segment sales
increased
8.6%
to
$71.1 million
.
|
|
•
|
Indirect segment sales
decreased
5.7%
to
$19.9 million
.
|
|
•
|
Gross profit was
$50.5 million
, or
55.5%
of net revenue.
|
|
•
|
Operating loss was
$(3.6) million
and net loss was
$(2.4) million
, or
$(0.07)
per diluted share.
|
|
•
|
Capital expenditures for the thirteen weeks totaled $
3.4 million
.
|
|
•
|
Cash and cash equivalents and investments were
$144.2 million
at
May 4, 2019
.
|
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures.
Net Revenues
Net revenues reflect sales of our merchandise and revenue from distribution and shipping and handling fees, less returns and discounts. Revenues for the Direct segment reflect sales through our full-line and factory outlet stores; verabradley.com; our online outlet site; and our annual outlet sale in Fort Wayne, Indiana. Revenues for the Indirect segment reflect sales to specialty
21
retail partners; department stores; national accounts; third-party e-commerce sites; third-party inventory liquidators; and royalties recognized through licensing agreements.
Comparable Sales
Comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our e-commerce operations. Comparable store sales are calculated based solely upon our stores that have been open for at least 12 full fiscal months. Remodeled stores are included in both comparable sales and comparable store sales unless the store was closed for more than one week of the current or comparable prior period, in which case the non-comparable temporary closure periods are not included, or the remodel resulted in a significant change in square footage. Fiscal 2019 comparable sales do not adjust for the shift in weeks during the period associated with the 53rd week in fiscal 2018. Some of our competitors and other retailers calculate comparable or “same store” sales differently than we do. As a result, data in this report regarding our comparable sales and comparable store sales may not be comparable to similar data made available by other companies. Non-comparable sales include sales from stores not included in comparable sales or comparable store sales.
Measuring the change in year-over-year comparable sales allows us to evaluate how our store base and e-commerce operations are performing. Various factors affect our comparable sales, including:
|
•
|
Overall economic trends;
|
|
•
|
Consumer preferences and fashion trends;
|
|
•
|
Competition;
|
|
•
|
The timing of our releases of new patterns and collections;
|
|
•
|
Changes in our product mix;
|
|
•
|
Pricing and level of promotions;
|
|
•
|
Amount of store, mall, and e-commerce traffic;
|
|
•
|
The level of customer service that we provide in stores and to our on-line customers;
|
|
•
|
Our ability to source and distribute products efficiently;
|
|
•
|
The number of stores we open and close in any period; and
|
|
•
|
The timing and success of promotional and marketing efforts.
|
Gross Profit
Gross profit is equal to our net revenues less our cost of sales. Cost of sales includes the direct cost of purchased merchandise, distribution center costs, operations overhead, duty, and all inbound freight costs incurred. The components of our reported cost of sales may not be comparable to those of other retail and wholesale companies.
Gross profit can be impacted by changes in volume; fluctuations in sales price; operational efficiencies, such as leveraging of fixed costs; promotional activities, including free shipping; commodity prices, such as for cotton; tariffs; and labor costs.
Selling, General, and Administrative Expenses (“SG&A”)
SG&A expenses include selling; advertising, marketing, and product development; and administrative expenses. Selling expenses include Direct business expenses, such as store expenses, employee compensation, and store occupancy and supply costs, as well as Indirect business expenses consisting primarily of employee compensation and other expenses associated with sales to Indirect retailers. Advertising, marketing, and product development expenses include employee compensation, media costs, creative production expenses, marketing agency fees, new product design costs, public relations expenses, and market research expenses. A portion of our advertising expenses may be reimbursed by Indirect retailers, and such amount is classified as other income. Administrative expenses include employee compensation for corporate functions, corporate headquarters occupancy costs, consulting and software expenses, and charitable donations.
Other Income
Other income includes proceeds from the sales of tickets to our annual outlet sale and sales tax credits received for timely filings. In addition, we support many of our Indirect retailers’ marketing efforts by distributing certain catalogs and promotional mailers to current and prospective customers. Our Indirect retailers reimburse us for a portion of the cost to produce these materials. Reimbursement received is recorded as other income. The related cost to design, produce, and distribute the catalogs and mailers is recorded as SG&A expense.
22
Operating Loss
Operating loss is equal to gross profit less SG&A expenses plus other income. Operating loss excludes interest income, interest expense, and income taxes.
Net Loss
Net loss is equal to operating loss plus net interest income less income taxes.
Results of Operations
The following tables summarize key components of our condensed consolidated results of operations for the periods indicated, both in dollars and as a percentage of our net revenues ($ in thousands):
|
|
Thirteen Weeks Ended
|
|||||||
|
|
May 4,
2019 |
May 5,
2018 |
||||||
|
Statement of Operations Data:
|
||||||||
|
Net revenues
|
$
|
91,003
|
|
$
|
86,591
|
|
||
|
Cost of sales
|
40,535
|
|
37,975
|
|
||||
|
Gross profit
|
50,468
|
|
48,616
|
|
||||
|
Selling, general, and administrative expenses
|
54,297
|
|
50,705
|
|
||||
|
Other income
|
184
|
|
177
|
|
||||
|
Operating loss
|
(3,645
|
)
|
(1,912
|
)
|
||||
|
Interest income, net
|
(447
|
)
|
(243
|
)
|
||||
|
Loss before income taxes
|
(3,198
|
)
|
(1,669
|
)
|
||||
|
Income tax benefit
|
(793
|
)
|
(299
|
)
|
||||
|
Net loss
|
$
|
(2,405
|
)
|
$
|
(1,370
|
)
|
||
|
Percentage of Net Revenues:
|
||||||||
|
Net revenues
|
100.0
|
%
|
100.0
|
%
|
||||
|
Cost of sales
|
44.5
|
%
|
43.9
|
%
|
||||
|
Gross profit
|
55.5
|
%
|
56.1
|
%
|
||||
|
Selling, general, and administrative expenses
|
59.7
|
%
|
58.6
|
%
|
||||
|
Other income
|
0.2
|
%
|
0.2
|
%
|
||||
|
Operating loss
|
(4.0
|
)%
|
(2.2
|
)%
|
||||
|
Interest income, net
|
(0.5
|
)%
|
(0.3
|
)%
|
||||
|
Loss before income taxes
|
(3.5
|
)%
|
(1.9
|
)%
|
||||
|
Income tax benefit
|
(0.9
|
)%
|
(0.3
|
)%
|
||||
|
Net loss
|
(2.6
|
)%
|
(1.6
|
)%
|
||||
23
The following tables present net revenues and operating income by operating segment, both in dollars and as a percentage of associated net revenues, and store data for the periods indicated ($ in thousands, except as otherwise indicated):
|
|
Thirteen Weeks Ended
|
|||||||
|
|
May 4,
2019 |
May 5,
2018 |
||||||
|
Net Revenues by Segment:
|
||||||||
|
Direct
|
$
|
71,136
|
|
$
|
65,532
|
|
||
|
Indirect
|
19,867
|
|
21,059
|
|
||||
|
Total
|
$
|
91,003
|
|
$
|
86,591
|
|
||
|
Percentage of Net Revenues by Segment:
|
||||||||
|
Direct
|
78.2
|
%
|
75.7
|
%
|
||||
|
Indirect
|
21.8
|
%
|
24.3
|
%
|
||||
|
Total
|
100.0
|
%
|
100.0
|
%
|
||||
|
|
Thirteen Weeks Ended
|
|||||||
|
|
May 4,
2019 |
May 5,
2018 |
||||||
|
Operating Income (Loss) by Segment:
|
||||||||
|
Direct
|
$
|
8,360
|
|
$
|
7,290
|
|
||
|
Indirect
|
7,707
|
|
8,284
|
|
||||
|
Less: Corporate unallocated
|
(19,712
|
)
|
(17,486
|
)
|
||||
|
Total
|
$
|
(3,645
|
)
|
$
|
(1,912
|
)
|
||
|
Operating Income as a Percentage of Net Revenues by Segment:
|
||||||||
|
Direct
|
11.8
|
%
|
11.1
|
%
|
||||
|
Indirect
|
38.8
|
%
|
39.3
|
%
|
||||
|
Store Data
(1)
:
|
||||||||
|
Total stores opened during period
|
5
|
|
4
|
|
||||
|
Total stores closed during period
|
(2
|
)
|
(4
|
)
|
||||
|
Total stores open at end of period
|
159
|
|
160
|
|
||||
|
Comparable sales (including e-commerce) increase (decrease)
(2)
|
5.2
|
%
|
(8.5
|
)%
|
||||
|
Total gross square footage at end of period (all stores)
|
394,478
|
|
383,570
|
|
||||
|
Average net revenues per gross square foot
(3)
|
$
|
129
|
|
$
|
120
|
|
||
|
(1)
|
Includes our full-line and factory outlet stores.
|
|
(2)
|
Comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our e-commerce operations. Increase or decrease is reported as a percentage of the comparable sales for the same period in the prior fiscal year. Remodeled stores are included in comparable sales unless the store was closed for a more than one week of the current or comparable prior period, in which case the non-comparable temporary closure periods are not included, or the remodel resulted in a significant change in square footage. Fiscal 2019 comparable sales do not adjust for the shift in weeks during the period associated with the 53rd week in fiscal 2018.
|
|
(3)
|
Dollars not in thousands. Average net revenues per gross square foot are calculated by dividing total net revenues for our stores that have been open at least 12 full fiscal months as of the end of the period by total gross square footage for those stores. Remodeled stores are included in average net revenues per gross square foot unless the store was closed for a portion of the period.
|
Leases
We adopted Accounting Standards Codification (“ASC”) Topic 842,
Leases,
beginning in the first quarter of fiscal 2020 using the modified retrospective adoption method. The adoption of this standard impacted fiscal 2020 beginning retained earnings by
$0.2 million
. As a result of the adoption of ASC Topic 842 using the modified retrospective method, the financial statements from the prior-year period are not reported under ASC Topic 842 which affects the comparability of the Condensed Consolidated Financial Statements. The primary impact from the adoption of the standard is the addition of right-of-use assets and lease liabilities on the Company's Condensed Consolidated Balance Sheet. The adoption of this standard had no impact on the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows.
24
Refer to Notes 1 and 3 to the Notes to the Condensed Consolidated Financial Statements herein for additional information.
Thirteen Weeks Ended
May 4, 2019
, Compared to
Thirteen Weeks Ended
May 5, 2018
Net Revenues
For the
thirteen weeks
ended
May 4, 2019
, net revenues
increased
$4.4 million
, or
5.1%
, to
$91.0 million
, from
$86.6 million
in the comparable prior-year period.
Direct
. For the
thirteen weeks
ended
May 4, 2019
, net revenues in the Direct segment
increased
$5.6 million
, or
8.6%
, to
$71.1 million
, from
$65.5 million
in the comparable prior-year period. Our non-comparable stores contributed
$3.3 million
of revenue, which included
five
additional factory outlet stores opened in the current fiscal year, along with a comparable sales
increase
of
$3.0 million
, or
5.2%
. The
increase
in comparable sales includes a
9.2%
increase
in e-commerce sales and a
4.0%
increase
in comparable store sales indicating that our customers are responding to both our innovative product and our targeted consumer engagement efforts.
Indirect
. For the
thirteen weeks
ended
May 4, 2019
, net revenues in the Indirect segment
decreased
$1.2 million
, or
5.7%
, to
$19.9 million
, from
$21.1 million
in the comparable prior-year period reflecting a reduction in orders and the number of specialty accounts.
Gross Profit
For the
thirteen weeks
ended
May 4, 2019
, gross profit
increased
$1.9 million
, or
3.8%
, to
$50.5 million
, from
$48.6 million
in the comparable prior-year period. As a percentage of net revenues, gross profit
decreased
to
55.5%
for the
thirteen weeks
ended
May 4, 2019
, from
56.1%
in the comparable prior-year period. The
decrease
as a percentage of net revenues was primarily due to the impact of Chinese tariffs, partially offset by improvement in full-price selling and sourcing and operational efficiencies.
Selling, General, and Administrative Expenses
For the
thirteen weeks
ended
May 4, 2019
, SG&A expenses
increased
$3.6 million
, or
7.1%
, to
$54.3 million
, from
$50.7 million
in the comparable prior-year period. As a percentage of net revenues, SG&A expenses
increased
to
59.7%
for the
thirteen weeks
ended
May 4, 2019
, from
58.6%
in the comparable prior-year period. The
increase
in SG&A expenses for the
thirteen weeks
ended
May 4, 2019
was primarily due to an increase in certain advertising and marketing expenses of approximately
$1.4 million
mostly as a result of timing of expenses, an increase of
$1.2 million
in expenses related to new factory outlet stores, and
$0.8 million
for certain consulting charges. SG&A expenses as a percentage of net revenues
increased
primarily due to the aforementioned items, partially offset by SG&A expense leverage associated with increased sales.
Other Income
For the
thirteen weeks
ended
May 4, 2019
, other income was
$0.2 million
, flat with the comparable prior-year period.
Operating Loss
For the
thirteen weeks
ended
May 4, 2019
, operating loss
increased
$1.7 million
to
$(3.6) million
in the current-year period, from
$(1.9) million
in the comparable prior-year period. As a percentage of net revenues, operating loss was
(4.0)%
and
(2.2)%
for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
, respectively. Operating loss
increased
due to the factors described above.
Direct
. For the
thirteen weeks
ended
May 4, 2019
, operating income in the Direct segment
increased
$1.1 million
, or
14.7%
, to
$8.4 million
from
$7.3 million
in the comparable prior-year period. As a percentage of Direct segment net revenues, operating income in the Direct segment was
11.8%
and
11.1%
for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
, respectively. The
increase
in operating income as a percentage of Direct segment net revenues was primarily due to SG&A expense leverage associated with increased sales, partially offset by an increase in certain advertising expenses, new store expenses, and a decrease in gross margin as a percentage of net revenues as described above.
Indirect
. For the
thirteen weeks
ended
May 4, 2019
, operating income in the Indirect segment
decreased
$0.6 million
, or
7.0%
, to
$7.7 million
from
$8.3 million
in the comparable prior-year period. As a percentage of Indirect segment net revenues, operating income in the Indirect segment was
38.8%
and
39.3%
for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
, respectively. The
decrease
in operating income as a percentage of Indirect segment net revenues was primarily due to SG&A expense deleverage associated with lower sales and a decrease in gross margin as a percentage of net revenues as described above.
25
Corporate Unallocated
. For the
thirteen weeks
ended
May 4, 2019
, unallocated expenses
increased
$2.2 million
, or
12.7%
, to
$19.7 million
from
$17.5 million
in the comparable prior-year period. The
increase
in unallocated expenses was primarily due to an increase in certain consulting charges and certain employee-related expenses.
Income Tax Benefit
The effective tax rate for the
thirteen weeks
ended
May 4, 2019
, was
24.8%
, compared to
17.9%
for the
thirteen weeks
ended
May 5, 2018
. The year-over year effective tax rate
increase
was primarily due to the relative impact of discrete items in the current-year period compared to the prior-year period, primarily as a result of tax shortfalls from stock-based compensation.
Net Loss
For the
thirteen weeks
ended
May 4, 2019
, net loss
increased
$1.0 million
to
$(2.4) million
from
$(1.4) million
in the comparable prior-year period due to the factors described above.
Liquidity and Capital Resources
General
Our primary sources of liquidity are cash on hand and cash equivalents, investments, and cash flow from operations. We also have access to additional liquidity, if needed, through borrowings under our
$75.0 million
asset-based revolving credit agreement (the “Credit Agreement”) which began on September 7, 2018. There were
no
borrowings under the Credit Agreement during the
thirteen weeks
ended
May 4, 2019
, and there was
no
debt outstanding as of
May 4, 2019
. Historically, our primary cash needs have been for merchandise inventories; payroll; store rent; capital expenditures associated with operational equipment, buildings, information technology, and opening new stores; and share repurchases. The most significant components of our working capital are cash and cash equivalents, short-term investments, merchandise inventories, accounts receivable, accounts payable, and other current liabilities.
We believe that cash on hand and cash equivalents, investments, cash flows from operating activities, and the availability of borrowings under our Credit Agreement or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures, as well as share repurchases and other strategic uses of cash, if any, and debt payments, if any, for the foreseeable future.
Investments
Cash Equivalents.
Investments classified as cash equivalents relate to highly-liquid investments with a maturity of three months or less from the date of purchase. As of
May 4, 2019
and
February 2, 2019
, these investments in our portfolio consisted of commercial paper and a money market fund.
Short-Term Investments.
As of
May 4, 2019
and
February 2, 2019
, short-term investments consisted of U.S. and non-U.S. corporate debt securities, municipal securities, and commercial paper with a maturity within one year of the balance sheet date. The balance as of
February 2, 2019
, also included U.S. treasury securities.
Long-Term Investments.
As of
May 4, 2019
and
February 2, 2019
, long-term investments consisted of U.S. and non-U.S. corporate debt securities, U.S. and non-U.S. asset-backed securities, and municipal securities with a maturity greater than one year from the balance sheet date. The balance as of
May 4, 2019
also included other foreign securities.
Refer to Note 11 “Investments”
within Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for additional detail regarding investments.
Cash Flow Analysis
A summary of operating, investing, and financing activities is shown in the following table (in thousands):
|
|
Thirteen Weeks Ended
|
|||||||
|
|
May 4,
2019 |
May 5,
2018 |
||||||
|
Net cash used in operating activities
|
$
|
(5,215
|
)
|
$
|
(1,846
|
)
|
||
|
Net cash used in investing activities
|
(4,633
|
)
|
(4,976
|
)
|
||||
|
Net cash used in financing activities
|
(3,846
|
)
|
(522
|
)
|
||||
26
Net Cash Used in Operating Activities
Net cash used in operating activities consists primarily of net income adjusted for non-cash items, including depreciation, amortization, impairment charges, deferred taxes, and stock-based compensation; the effect of changes in assets and liabilities; and tenant-improvement allowances received from landlords under our store leases.
Net cash used in operating activities for the
thirteen weeks
ended
May 4, 2019
, was
$5.2 million
compared to
$1.8 million
for the
thirteen weeks
ended
May 5, 2018
. The
increase
in cash used in operating activities was primarily a result of
$2.9 million
in income tax payments principally as a result of timing.
Net Cash Used in Investing Activities
Investing activities consist primarily of short-term and long-term investments and capital expenditures related to new store openings, buildings, operational equipment, and information technology investments.
Net cash used in investing activities was
$4.6 million
and
$5.0 million
for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
, respectively. The
decrease
in cash used in investing activities was primarily a result of lower cash payments for property, plant, and equipment in the current-year period principally due to timing.
Capital expenditures for fiscal
2020
are expected to be approximately
$13.0 million
.
Net Cash Used in Financing Activities
Net cash used in financing activities was
$3.8 million
and
$0.5 million
for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
, respectively. The
increase
in cash used in financing activities was primarily due to cash purchases of our common stock under the 2018 Share Repurchase Plan.
Credit Agreement
On September 7, 2018, VBD, a wholly-owned subsidiary of the Company, entered into an asset based revolving Credit Agreement (the “Credit Agreement”) among VBD, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. The Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of $75.0 million or the amount of borrowing availability determined in accordance with a borrowing base of certain assets. Any proceeds of the credit facilities will be used to finance general corporate purposes of VBD and its subsidiaries, including but not limited to Vera Bradley International, LLC and Vera Bradley Sales, LLC (collectively, the “Named Subsidiaries”). The Credit Agreement also contains an option for VBD to arrange with lenders to increase the aggregate principal amount by up to $25.0 million.
Amounts outstanding under the Credit Agreement bear interest at a per annum rate equal to either (i) for CBFR borrowings (including swingline loans), the CB Floating Rate, where the CB Floating Rate is the prime rate which shall never be less than the adjusted one month LIBOR rate on such day, plus the Applicable Rate, where the Applicable Rate is a percentage spread ranging from -1.00% to -1.50% or (ii) for each eurodollar borrowing, the Adjusted LIBO Rate, where the Adjusted LIBO Rate is the LIBO rate for such interest period multiplied by the statutory reserve rate, for the interest period in effect for such borrowing, plus the Applicable Rate, where the Applicable Rate is a percentage ranging from 1.00% to 1.30%. The applicable CB Floating Rate, Adjusted LIBO Rate, or LIBO Rate shall be determined by the administrative agent. The Credit Agreement also requires VBD to pay a commitment fee for the unused portion of the revolving facility of up to 0.20% per annum.
VBD’s obligations under the Credit Agreement are guaranteed by the Company and the Named Subsidiaries. The obligations of VBD under the Credit Agreement are secured by substantially all of the respective assets of VBD, the Company, and the Named Subsidiaries and are further secured by the equity interests in VBD and the Named Subsidiaries.
The Credit Agreement contains various affirmative and negative covenants, including restrictions on the Company's ability to incur debt or liens; engage in mergers or consolidations; make certain investments, acquisitions, loans, and advances; sell assets; enter into certain swap agreements; pay dividends or make distributions or make other restricted payments; engage in certain transactions with affiliates; and amend, modify, or waive any of its rights related to subordinated indebtedness and certain charter and other organizational, governing, and material agreements. The Company may avoid certain of such restrictions by meeting payment conditions defined in the Credit Agreement. The Company was in compliance with these covenants as of
May 4, 2019
.
The Credit Agreement also requires the Loan Parties to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 during periods when borrowing availability is less than the greater of (A) $7.5 million, and (B) 10% of the lesser of (i) the aggregate
27
revolving commitment, and (ii) the borrowing base. The fixed charge coverage ratio, availability, aggregate revolving commitment, and the borrowing base are further defined in the Credit Agreement.
The Credit Agreement contains customary events of default, including, among other things: (i) the failure to pay any principal, interest, or other fees under the Credit Agreement; (ii) the making of any materially incorrect representation or warranty; (iii) the failure to observe or perform any covenant, condition, or agreement in the Credit Agreement or related agreements; (iv) a cross default with respect to other material indebtedness; (v) bankruptcy and insolvency events; (vi) unsatisfied material final judgments; (vii) Employee Retirement Income Security Act of 1974 (“ERISA”) events that could reasonably be expected to have a material adverse effect; and (viii) a change in control (as defined in the Credit Agreement).
Any commitments made under the Credit Agreement mature on September 7, 2023.
Off-Balance-Sheet Arrangements
We do not have any off-balance-sheet financing or unconsolidated special-purpose entities.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. A summary of the Company’s significant accounting policies is included in Note 2 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
. In addition to these policies, refer to Note 1 “Description of the Company and Basis of Presentation” and Note 3 “Leases” within Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of the Company's lease accounting policy under the recently adopted Accounting Standards Codification Topic 842.
Certain accounting policies and estimates of the Company are considered critical, as these policies and estimates are the most important to the depiction of the Company’s consolidated financial statements and require significant, difficult, or complex judgments, often about the effect of matters that are inherently uncertain. Such policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
. With the exception of leases, there were no significant changes to any of the critical accounting policies and estimates described in the Annual Report as of
May 4, 2019
.
Recently Issued Accounting Pronouncements
Refer to Note 1 “Description of the Company and Basis of Presentation”
within Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements.
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of
May 4, 2019
, there was no material change in the market risks described in “Quantitative and Qualitative Disclosures About Market Risks” in the Company’s Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
.
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Disclosure Committee and management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of
May 4, 2019
.
Other than the implementation of controls related to the adoption of ASC Topic 842,
Leases
, and the related financial statement reporting, there has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.
29
PART II. OTHER INFORMATION
|
ITEM 1A.
|
RISK FACTORS
|
There has been no material change to our risk factors as previously set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
On December 8, 2015, the Company's board of directors approved a share repurchase program (the “2015 Share Repurchase Program”) authorizing up to
$50.0 million
of repurchases of shares of the Company's common stock. The initial term of the 2015 Share Repurchase Program expired on December 31, 2017. On November 30, 2017, the Company’s board of directors authorized the Company to extend the 2015 Share Repurchase Program during an open window period until December 31, 2018. The 2015 Share Repurchase program was completed on November 27, 2018. On November 29, 2018, the Company's board of directors approved a new share repurchase plan (the “2018 Share Repurchase Program”) authorizing up to
$50.0 million
of repurchases of shares of the Company's common stock. The 2018 Share Repurchase Program is scheduled to expire on December 14, 2020.
The Company purchased
284,088
shares at an average price of
$10.24
per share, excluding commissions, for an aggregate amount of
$2.9 million
during the
thirteen weeks
ended
May 4, 2019
, under the 2018 Share Repurchase Program.
Details regarding the activity under the program during the thirteen weeks ended
May 4, 2019
are as follows:
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Program
|
|||||||||
|
February 3, 2019 - March 2, 2019
|
170,343
|
|
$
|
9.30
|
|
170,343
|
|
$
|
45,577,663
|
|
|||
|
March 3, 2019 - April 6, 2019
|
72,745
|
|
11.43
|
|
72,745
|
|
44,746,155
|
|
|||||
|
April 7, 2019 - May 4, 2019
|
41,000
|
|
12.04
|
|
41,000
|
|
44,252,640
|
|
|||||
|
284,088
|
|
$
|
10.24
|
|
284,088
|
|
|||||||
30
ITEM 6. EXHIBITS
a. Exhibits
|
Exhibit
No.
|
Description
|
||
|
101
|
The following materials from Vera Bradley, Inc.’s Quarterly Report on Form 10-Q for the quarter ended May 4, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations for the Thirteen Weeks ended May 4, 2019 and May 5, 2018; (ii) Condensed Consolidated Statements of Comprehensive Income for the Thirteen Weeks ended May 4, 2019 and May 5, 2018; (iii) Condensed Consolidated Balance Sheets as of May 4, 2019 and February 2, 2019; (iv) Condensed Consolidated Statements of Shareholders' Equity for the Thirteen Weeks ended May 4, 2019 and May 5, 2018; (v) Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks ended May 4, 2019 and May 5, 2018, and (vi) Notes to Condensed Consolidated Financial Statements. **
|
||
|
*
|
Furnished, not filed.
|
||
|
**
|
Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files included as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these Sections.
|
||
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Vera Bradley, Inc.
(Registrant)
|
||
|
Date: June 12, 2019
|
/s/ John Enwright
|
|
|
John Enwright
|
||
|
Chief Financial Officer
|
||
32
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits