Vera Bradley Announces Third Quarter Results
Overview of Third Quarter and Year-to-Date Results
Net revenues from continuing operations totaled $125.2 million for the current year third quarter, compared to $128.9 million in the prior year third quarter ended Nov. 2, 2013. Income from continuing operations totaled $8.7 million, or $0.21 per diluted share, for the current year third quarter compared to $15.7 million, or $0.39 per diluted share, in the prior year third quarter.
For the nine months ended Nov. 1, 2014, net revenues from continuing operations totaled $356.4 million, compared to $374.5 million in the prior year nine months ended Nov. 2, 2013. Income from continuing operations totaled $23.5 million, or $0.58 per diluted share, for the current year nine month period compared to $40.2 million, or $0.99 per diluted share, in the comparable prior year period.
Robert Wallstrom, CEO, noted, “We exceeded our earnings per share guidance for the quarter. Our third quarter revenues and gross margin rate were in the mid-range of our guidance; SG&A was favorable to our expectations due to expense control and the timing of certain expenses that will be incurred in the fourth quarter.”
Wallstrom continued, “We remain confident that our five-year strategic plan and the steps we are taking to evolve our merchandising, distribution and marketing are the right ones for the future of our business. We are in the early stages of our transformation, and we have made substantial progress over the last three quarters in modernizing and elevating our product assortments, expanding our reach through new store openings, evolving to a ‘made-for-outlet’ model in our factory outlet stores, enhancing our online presence and growing our department store relationships. We continue to face short-term challenges, such as weak store traffic, but believe we are heading in the right direction and that these efforts will pay off in the years ahead.”
“Importantly, we have carefully managed our inventories and ended the quarter with a very solid cash position,” Wallstrom added.
Discontinued Operations
In June 2014, the company entered into a five-year agreement with Mitsubishi Corporation Fashion Company and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the company exited its direct business in Japan during the third quarter of fiscal 2015 and is accounting for it as a discontinued operation. Income statement numbers referenced in this release reflect the company’s continuing operations.
Third Quarter Results
Current year third quarter net revenues from continuing operations of $125.2 million were in the mid-range of the company’s guidance of $123 million to $128 million. Prior year third quarter revenues from continuing operations totaled $128.9 million.
Current year third quarter Direct segment revenues totaled $77.9 million, a 15.1 percent increase over $67.7 million in the prior year third quarter. In the company’s stores, third quarter year-over-year net revenues grew 10.4 percent, reflecting the opening of 11 full-line and 12 factory outlet stores during the past 12 months. Comparable sales (including e-commerce) increased 0.9 percent for the quarter (reflecting a 13.5 percent decline in comparable store sales and a 22.2 percent increase in e-commerce sales). As expected, third quarter comparable store sales were negatively impacted by year-over-year declines in store traffic.
Indirect segment revenues decreased 22.8 percent to $47.3 million from $61.2 million in the prior year third quarter, primarily due to lower orders from the company’s specialty retail accounts as well as a reduction in the number of specialty retail accounts.
Gross profit from continuing operations for the quarter totaled $65.8 million, or 52.5 percent of net revenues, compared to $71.2 million, or 55.2 percent of net revenues, in the prior year third quarter. The year-over-year decline in gross margin rate was primarily related to deleveraging overhead costs and modestly increased year-over-year online promotional activity. The third quarter gross margin rate was consistent with guidance of 52.0 percent to 53.0 percent.
SG&A expense from continuing operations totaled $53.3 million, or 42.5 percent of net revenues, in the current year third quarter, compared to $47.6 million, or 36.9 percent of net revenues, in the prior year third quarter. As expected, SG&A dollars increased over the prior year primarily due to strategic investments including new store expenses, key management additions, marketing and e-commerce initiatives. The SG&A expense rate was below the 43.0 percent to 44.5 percent guidance primarily due to cost containment efforts and the timing of approximately $300,000 of expenses which were delayed to the fourth quarter.
Operating income from continuing operations totaled $13.6 million, or 10.9 percent of net revenues, in the current year third quarter, compared to $24.7 million, or 19.2 percent of net revenues, in the prior year third quarter.
The effective tax rate was 34.9 percent for the quarter compared to 36.3 percent in the prior year third quarter. The year-over-year decrease in the effective rate was due primarily to state tax matters including a reversal of reserves no longer deemed necessary.
YTD Results
Current year net revenues from continuing operations for the nine months totaled $356.4 million, compared to $374.5 million in the same period last year.
Direct segment revenues totaled $227.9 million for the nine months ended Nov. 1, 2014, a 6.7 percent increase over $213.5 million in the prior year comparable period. In the company’s stores, current year-over-year net revenues grew 6.5 percent, reflecting the opening of 11 full-line and 12 factory outlet stores during the past 12 months, which was partially offset by a comparable store sales decline. Comparable sales (including e-commerce) fell 4.0 percent for the nine months (reflecting a 14.0 percent decline in comparable store sales and a 10.8 percent increase in e-commerce sales).
For the nine months, Indirect segment revenues decreased 20.2 percent to $128.5 million from $160.9 million in the prior year, primarily due to lower orders from the company’s specialty retail accounts as well as a reduction in the number of specialty retail accounts.
Gross profit from continuing operations for the nine months totaled $189.0 million, or 53.0 percent of net revenues, compared to $209.6 million, or 56.0 percent of net revenues, in the comparable prior year period. The year-over-year decline in gross margin rate was primarily related to deleveraging overhead costs and increased year-over-year promotional activity.
SG&A expense from continuing operations totaled $154.0 million, or 43.2 percent of net revenues, in the current year nine months, compared to $148.7 million, or 39.7 percent of net revenues, in the prior year period.
Operating income from continuing operations totaled $38.1 million, or 10.7 percent of net revenues, in the current year nine-month period, compared to $64.5 million, or 17.2 percent of net revenues, in the prior year period.
The effective tax rate was 37.9 percent for the nine months compared to 37.2 percent in the prior year nine months.
Cash flow from operating activities for the nine months totaled $56.3 million, compared to $34.8 million for the same period last year. The improvement was driven primarily by a reduction in inventory levels.
Cash and cash equivalents as of Nov. 1, 2014 totaled $90.3 million compared to $13.7 million at the end of last year’s third quarter. The company had no debt outstanding at Nov. 1, 2014. Quarter-end inventory was $106.3 million, below guidance of $125 million to $135 million and compared to $150.5 million last year. Net capital spending for the nine months totaled $22.4 million.
During the third quarter, the company repurchased approximately $3.5 million of common stock under its $40 million share repurchase plan (equating to approximately 169,000 shares at an average price of $20.96).
Fourth Quarter and Fiscal Year 2015 Outlook
For the fourth quarter of fiscal 2015, on a continuing operations basis, the company expects:
- Net revenues to be in the range of $158 million to $163 million compared to prior year fourth quarter revenues of $156.4 million.
- The gross margin rate to range from 53.5 percent to 54.5 percent compared to 52.8 percent in the prior year fourth quarter.
- SG&A as a percent of sales to range from 35.5 percent to 36.5 percent compared to 33.6 percent in the prior year fourth quarter.
- Diluted earnings per share from continuing operations to be in the range of $0.43 to $0.47, based on diluted weighted-average shares outstanding of 40.4 million and an effective tax rate of 38.4 percent. Diluted earnings per share from continuing operations totaled $0.49 in the prior year fourth quarter.
The company expects inventory to be $100 million to $110 million at the end of the fiscal year, compared to $136.9 million at the end of last fiscal year.
For fiscal 2015, on a continuing operations basis, the company expects:
- Net revenues to be in the range of $514 million to $520 million compared to $530.9 million last year.
- The gross margin rate to range from 53.0 percent to 53.5 percent compared to 55.0 percent last year.
- SG&A as a percent of sales to range from 40.8 percent to 41.3 percent compared to 37.9 percent last year.
- Diluted earnings per share from continuing operations to be in the range of $1.00 to $1.05, based on diluted weighted-average shares outstanding of 40.6 million and an effective tax rate of 38.4 percent. Diluted earnings per share from continuing operations totaled $1.48 last year.
- Net capital spending of approximately $40.0 million.
Source: Vera Bradley