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Vera Bradley, Inc. (VRA)

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Vera Bradley, Inc. (VRA)

Q2 2019 Earnings Conference Call

September 05, 2018 09:30 A.M. ET

Executives

Mark Dely - CAO

Robert Wallstrom - President & CEO

John Enwright - EVP & CFO

Analysts

Mark Altschwager - Robert W. Baird

Oliver Chen - Cowen and Company

Dana Telsey - Telsey Advisory Group

Kevin Foll - Gratia Capital

Presentation

Operator

Good day and welcome to the Vera Bradley Second Quarter Fiscal 2019 Earnings Conference Call. Today's conference is being recorded. At this time I'd like to turn the conference over to Mr. Mark Dely, Chief Administrative Officer. Please go ahead, sir.

Mark Dely

Good morning and welcome everyone. We'd like to thank you for joining us for Vera Bradley's second quarter call. Some of the statements made on today's call during our prepared remarks and in response to your questions may constitute forward-looking statements made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended.

Such forward-looking statements are subject to both, known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect. Please refer to today's press release and the Company's Form 10-K for the fiscal year ended February 3, 2018 filed with the SEC for discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. The Company undertakes no obligations to update any information discussed on the call.

I will now turn over the call to Vera Bradley's CEO, Rob Wallstrom. Rob.

Robert Wallstrom

Thank you Mark. Good morning everyone and thank you for joining us on today's call. John Enwright our CFO also joins me today. We are very pleased that our second quarter results exceeded both expectations and last year's performance primarily driven by a higher than expected gross margin rate related to reduced clearance, improved full price selling, and freight and shipping efficiencies as well as better than expected SG&A expense management. And revenues were in line with our guidance.

At this time last year we initiated Vision 20/20, our plan to strengthen our brand and financial health by drastically reducing clearance revenues and realigning our expense structure in order to create a solid foundation for future growth. Recall that as we continue to implement Vision 20/20 we are routinely monitoring and reporting on four key elements. Progress on restoring full price selling, delivering our SG&A and cost to sales reductions, cash flow generation, and maintaining our customer base. We have made tremendous progress against our initiatives over the last year and especially during the last six months. So far this year, we have reduced clearance activity in our full-line stores and on verabradley.com by over 70% and increased full-price selling in these channels by over 20%. We are continuing to drive brand desirability through product innovation and targeted marketing while achieving meaningful expense reductions through diligent expense management and implementation of our Vision 20/20 initiatives.

We increased our year-over-year cash and investment balances by over $40 million to nearly $145 million. Our customer count is down slightly from last year which is to be expected due to reduced clearance levels combined with some persistent traffic issues in factory channel. The good news is that the customer count in our full-line stores and on Verabradley.com exceeded our expectations and a higher percentage of new customers are entering the brand through full price purchasing.

Now I will turn the call over to John to review the second quarter financial performance. John.

John Enwright

Thanks Rob and good morning. Let me go over a few highlights for the quarter. As I discuss the quarter keep in mind that prior year income statement numbers exclude previously disclosed strategic plain consulting fees, severance charges, and net lease termination charges. Current year second quarter net sales of 113.6 million were in line with our guidance range of 111 million to 116 million. Prior year second quarter net sales totaled 112.4 million. As previously disclosed direct segment revenues reflect the movement of approximately 6 million to the second quarter this year from the third quarter of last year related to the timing of promotional events. For the current year second quarter we posted net income of 9.3 million or $0.26 per diluted share compared to 4.6 million or $0.13 per diluted share before charges.

The promotional event shift I just mentioned equates to incremental income of approximately $0.07 per diluted share in the current year second quarter. The current year second quarter direct segment revenues totaled 91 million, 1.9% increase from 89.3 million in the prior year. Comparable sales including e-commerce increased 4.9% for the quarter which was more than offset by new store growth. As expected second quarter comparable sales particularly those of verabradley.com were negatively impacted by our reduced clearance activity. Excluding the promotional shift, we estimate comparable sales would have declined by approximately 10% in the quarter.

Indirect segment revenues totaled 22.6 million, a decrease of just 2% from 23.1 million in the prior year second quarter. Gross profit for the quarter totaled 65.7 million or 57.9% of sales compared to 63.3 million or 56.3% of sales in the prior year. The year-over-year 160 basis point improvement primarily related to reduced clearance activity and increased full price selling on verabradley.com and in the company's full-line stores, freight and shipping savings, channel mix changes, and a reduction in product cost. Gross margin was meaningfully better than guidance of approximately 56.2% primarily due to better than expected full-priced selling.

Read the rest of this transcript on seekingalpha.com