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Vera Bradley, Inc. (VRA)

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Vera Bradley, Inc. (VRA)

Q1 2020 Earnings Conference Call

June 5, 2019 09:30 AM ET

Company Participants

Mark Dely - Chief Administrative Officer

Robert Wallstrom - President and Chief Executive Officer

John Enwright - Chief Financial Officer

Daren Hull - Chief Customer Officer

Conference Call Participants

Jonna Kim - Cowen & Co. LLC.

Steven Marotta - C.L. King & Associates, Inc.

Presentation

Operator

Good day, and welcome to the Vera Bradley First Quarter Fiscal 2020 Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mark Dely, Chief Administrative Officer. Please go ahead.

Mark Dely

Good morning, and welcome, everyone. We'd like to thank you for joining us for Vera Bradley's first 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 2, 2019, filed with the SEC for a 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 obligation to update any information discussed on the call.

I will now turn over 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; and Daren Hull, our Chief Customer Officer are also joining me today. Daren is joining us as we review our progress in marketing and will be available to answer questions at the conclusion of the call.

We are very pleased with our 5.2% first quarter comparable sales increase and that revenues were once again at the high end of our guidance, indicating that our customers are responding to both our innovative product and targeted customer engagement efforts.

The first stage of Vision 20/20 was to restore brand and Company health, and we continue to build upon the progress we made in fiscal 2019. We once again improved the quality of sales in our full-line stores and on verabradley.com by increasing first quarter comparable full-price selling in these two channels by approximately 20%. In addition, we are removing another $3 million to $4 million of clearance sales from the second quarter of this year.

Moving into year two of our three-year journey, we are focused on expanding our customer base and increasing sales and profitability. As a reminder, our key areas of focus for fiscal 2020 are: Number one, Growth. Our goal is to return to positive comparable sales growth this year, and we were off to a good start in the first quarter. This improvement is being driven by compelling, innovative product combined with targeted marketing and engaging customer experiences.

Number two, Operational Excellence. Later this year, we will begin a two-year process of re-platforming our enterprise resource planning and other key information systems to become more streamlined, nimble, and efficient in our technology and business processes.

And number three, Ownership. We will continue to reinforce our culture as an ownership-based model, where every associate can drive significant value creation to their individual and team efforts.

Now, I turn the call over to John to review the first quarter results and our outlook for the second quarter and full year. John?

John Enwright

Thanks, Rob, and good morning. Let me go over a few highlights for the quarter. First quarter net revenues increased 5.1% to $91 million from $86.6 million last year. For the first quarter, we posted a net loss of $2.4 million or $0.07 per diluted share, in line with our guidance range of a net loss of $0.06 to $0.08 per share.

The prior year first quarter net loss totaled $1.4 million or $0.04 per share. First quarter Direct segment revenues totaled $71.1 million, an 8.6% increase over $65.5 million last year. As Rob noted, comparable sales including e-commerce increased 5.2% for the quarter. This was our best performance in quite some time.

Indirect segment revenues decreased 5.7% to $19.9 million from $21.1 million in the prior year first quarter, reflecting a reduction in orders and the number of specialty accounts. Gross profit for the quarter totaled $50.5 million or 55.5% of net revenues compared to $48.6 million or 56.1% in the prior year first quarter.

As expected, improvement in full-price selling and sourcing and operational efficiencies were more than offset by the impact of Chinese tariffs, causing a year-over-year 60 basis point gross margin decline. First quarter gross margin was within our guidance range of 55.2% to 55.7%.

SG&A expense totaled $54.3 million or 59.7% of net revenues compared to $50.7 million or 58.6% of net revenues in the prior year first quarter. SG&A expenses were higher than the prior year, primarily due to expenses related to new factory store opening, consulting fees, the timing of certain marketing expenses planned for the second quarter, and variable expenses to drive revenues.

First quarter SG&A expenses were above the guidance range of $52.5 million to $53.5 million, primarily due to consulting fees, the timing of certain marketing expenses, and variable expenses to drive revenues. Our first quarter operating loss totaled $3.6 million or 4% of net revenues compared to an operating loss of $1.9 million or 2.2% of net revenues in the prior year first quarter.

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