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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ___________________________ 

FORM 10-Q

___________________________ 

 

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended May 1, 2021

OR

 

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                      to                     

Commission File Number: 001-34918

 

___________________________ 

VERA BRADLEY, INC.

(Exact name of registrant as specified in its charter)

 ___________________________ 

 

Indiana						27-2935063
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
12420 Stonebridge Road, Roanoke, Indiana						46783
(Address of principal executive offices)						(Zip Code)

(877) 708-8372

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

 ___________________________ 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, without par value			VRA			NASDAQ Global Select Market

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.

 

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

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. ¨

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 33,991,017 shares of its common stock outstanding as of June 2, 2021.

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TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
Item 1.			Financial Statements (unaudited)
			Condensed Consolidated Balance Sheets as of May 1, 2021, and January 30, 2021			4
			Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended May 1, 2021, and May 2, 2020			5
			Condensed Consolidated Statements of Comprehensive Income for the Thirteen Weeks Ended May 1, 2021, and May 2, 2020			6
			Condensed Consolidated Statements of Shareholders' Equity for the Thirteen Weeks Ended May 1, 2021, and May 2, 2020			7
			Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 1, 2021, and May 2, 2020			8
			Notes to the Condensed Consolidated Financial Statements			10
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			33
Item 4.			Controls and Procedures			33
PART II. OTHER INFORMATION
Item 1.			Legal Proceedings			34
Item 1A.			Risk Factors			34
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 6.			Exhibits			36

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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 include references 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. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

•public health pandemics, including the continued outbreak of the novel coronavirus (COVID-19) and actions to contain the spread of the virus by governmental or other actors;

•possible inability to successfully implement our long-term strategic plans;

•possible declines in our comparable sales;

•possible inability to maintain and enhance our brands;

•possible failure of our multi-channel distribution model;

•possible adverse changes in general economic conditions and their impact on consumer confidence and consumer spending, including as may be related to the continued outbreak of COVID-19;

•possible inability to predict and respond in a timely manner to changes in consumer demand;

•possible inability to successfully open new stores and/or operate current stores as planned;

•possible loss of key management or design associates or inability to attract and retain the talent required for our business;

•possible data security or privacy breaches or disruptions in our computer systems or website;

•possible disruptions in our supply chain;

•possible new or increased tariffs on our products that could lead to increased product costs and lower profit margins; and

•possible inability to successfully implement integration strategies related to the Pura Vida business and possible inability to derive expected benefits from or to successfully integrate any future business acquisition.

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 the above described risks and uncertainties and other 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 January 30, 2021, as well as in Item 1A herein.

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.

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PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Vera Bradley, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

						May 1, 2021						January 30, 2021
Assets
Current assets:
Cash and cash equivalents						$	51,371					$	64,175
Short-term investments						1,293						1,295
Accounts receivable, net						21,945						27,543
Inventories						150,335						141,416
Income taxes receivable						8,782						7,372
Prepaid expenses and other current assets						18,478						17,882
Total current assets						252,204						259,683
Operating right-of-use assets						86,181						88,730
Property, plant, and equipment, net						62,391						63,952
Intangible assets, net						46,527						47,296
Goodwill						44,254						44,254
Deferred income taxes						3,161						3,530
Other assets						6,525						6,342
Total assets						$	501,243					$	513,787
Liabilities, Redeemable Noncontrolling Interest, and Shareholders’ Equity
Current liabilities:
Accounts payable						$	23,160					$	27,093
Accrued employment costs						11,122						13,648
Short-term operating lease liabilities						21,210						22,321
Other accrued liabilities						14,736						14,043
Income taxes payable						—						321
Total current liabilities						70,228						77,426
Long-term operating lease liabilities						88,228						91,536
Other long-term liabilities						83						109
Total liabilities						158,539						169,071
Commitments and contingencies
Redeemable noncontrolling interest						30,307						29,809
Shareholders’ equity:
Preferred stock; 5,000 shares authorized, no shares issued or outstanding						—						—
Common stock, without par value; 200,000 shares authorized, 42,378 and 41,808 shares issued and 33,985 and 33,414 shares outstanding, respectively						—						—
Additional paid-in-capital						105,076						105,433
Retained earnings						314,381						316,526
Accumulated other comprehensive income						—						8
Treasury stock						(107,060)						(107,060)
Total shareholders’ equity of Vera Bradley, Inc.						312,397						314,907
Total liabilities, redeemable noncontrolling interest, and shareholders’ equity						$	501,243					$	513,787

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Net revenues						$	109,094					$	69,284
Cost of sales						49,930						35,096
Gross profit						59,164						34,188
Selling, general, and administrative expenses						60,896						59,782
Other (loss) income, net						(227)						20
Operating loss						(1,959)						(25,574)
Interest expense, net						90						72
Loss before income taxes						(2,049)						(25,646)
Income tax benefit						(531)						(10,109)
Net loss						(1,518)						(15,537)
Less: Net income (loss) attributable to redeemable noncontrolling interest						627						(200)
Net loss attributable to Vera Bradley, Inc.						$	(2,145)					$	(15,337)
Basic weighted-average shares outstanding						33,590						33,330
Diluted weighted-average shares outstanding						33,590						33,330
Basic net loss per share available to Vera Bradley, Inc. common shareholders						$	(0.06)					$	(0.66)
Diluted net loss per share available to Vera Bradley, Inc. common shareholders						$	(0.06)					$	(0.66)
Reconciliation of net loss available to Vera Bradley, Inc. common shareholders
Net loss attributable to Vera Bradley, Inc.						$	(2,145)					$	(15,337)
Excess portion of redeemable noncontrolling interest redemption value adjustment						—						(6,800)
Net loss available to Vera Bradley, Inc. common shareholders						$	(2,145)					$	(22,137)

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

 

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Net loss						$	(1,518)					$	(15,537)
Unrealized loss on available-for-sale debt investments						(2)						(185)
Cumulative translation adjustment						(6)						10
Comprehensive loss, net of tax						(1,526)						(15,712)
Less: Comprehensive income (loss) attributable to redeemable noncontrolling interest						627						(200)
Comprehensive loss attributable to Vera Bradley, Inc.						$	(2,153)					$	(15,512)

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

(unaudited)

						Number of Shares
						Common Stock						Treasury Stock						Additional Paid-in Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Treasury Stock						Total Shareholders’ Equity of Vera Bradley, Inc.
Balance at January 30, 2021						33,414,490						8,393,207						$	105,433					$	316,526					$	8					$	(107,060)					$	314,907
Net loss attributable to Vera Bradley, Inc.						—						—						—						(2,145)						—						—						(2,145)
Translation adjustments						—						—						—						—						(6)						—						(6)
Unrealized loss on available-for-sale debt investments						—						—						—						—						(2)						—						(2)
Restricted shares vested, net of repurchase for taxes						570,562						—						(2,171)						—						—						—						(2,171)
Stock-based compensation						—						—						1,814						—						—						—						1,814
Balance at May 1, 2021						33,985,052						8,393,207						$	105,076					$	314,381					$	—					$	(107,060)					$	312,397

Balance at February 1, 2020						33,503,249						8,011,372						$	100,357					$	307,414					$	158					$	(104,159)					$	303,770
Net loss attributable to Vera Bradley, Inc.						—						—						—						(15,337)						—						—						(15,337)
Translation adjustments						—						—						—						—						10						—						10
Unrealized loss on available-for-sale debt investments						—						—						—						—						(185)						—						(185)
Restricted shares vested, net of repurchase for taxes						277,687						—						(537)						—						—						—						(537)
Stock-based compensation						—						—						59						—						—						—						59
Treasury stock purchased						(381,835)						381,835						—						—						—						(2,901)						(2,901)
Redeemable noncontrolling interest redemption value adjustment						—						—						—						(9,305)						—						—						(9,305)
Balance at May 2, 2020						33,399,101						8,393,207						$	99,879					$	282,772					$	(17)					$	(107,060)					$	275,574

The accompanying notes are an integral part of these financial statements.

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Vera Bradley, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Cash flows from operating activities
Net loss						$	(1,518)					$	(15,537)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant, and equipment						2,286						4,353
Amortization of operating right-of-use assets						4,930						5,563
Impairment charges						—						3,806
Amortization of intangible assets						769						2,440
Provision for doubtful accounts						(66)						497
Stock-based compensation						1,814						59
Deferred income taxes						369						737
Loss on investments						—						20
Adjustment of earn-out liability						—						229
Other non-cash gain, net						(45)						(23)
Changes in assets and liabilities:
Accounts receivable						5,664						2,241
Inventories						(8,919)						(9,249)
Prepaid expenses and other assets						(779)						(4,593)
Accounts payable						(4,234)						3,780
Income taxes						(1,731)						(11,893)
Operating lease liabilities, net						(6,800)						(384)
Accrued and other liabilities						(1,780)						(6,792)
Net cash used in operating activities						(10,040)						(24,746)
Cash flows from investing activities
Purchases of property, plant, and equipment						(503)						(2,238)
Purchases of investments						—						(851)
Proceeds from maturities and sales of investments						—						21,788
Cash received for business acquisition						—						993
Proceeds from disposal of property, plant, and equipment						45						—
Net cash (used in) provided by investing activities						(458)						19,692
Cash flows from financing activities
Tax withholdings for equity compensation						(2,171)						(537)
Repurchase of common stock						—						(3,077)
Distributions to redeemable noncontrolling interest						(129)						(296)
Borrowings under asset-based revolving credit agreement						—						60,000
Payment of contingent consideration for business acquisition						—						(18,677)
Net cash (used in) provided by financing activities						(2,300)						37,413
Effect of exchange rate changes on cash and cash equivalents						(6)						10
Net (decrease) increase in cash and cash equivalents						(12,804)						32,369
Cash and cash equivalents, beginning of period						64,175						49,917
Cash and cash equivalents, end of period						$	51,371					$	82,286

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Vera Bradley, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(continued)

(unaudited)

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Supplemental disclosure of cash flow information
Cash paid for income taxes, net						$	858					$	1,045
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 1, 2021 and May 2, 2020						$	—					$	—
Expenditures incurred but not yet paid as of January 30, 2021 and February 1, 2020						$	—					$	176
Purchases of property, plant, and equipment
Expenditures incurred but not yet paid as of May 1, 2021 and May 2, 2020						$	565					$	316
Expenditures incurred but not yet paid as of January 30, 2021 and February 1, 2020						$	343					$	559

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.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1.Description of the Company and Basis of Presentation

The term “Company” refers to Vera Bradley, Inc. and its wholly and majority owned subsidiaries, except where the context requires otherwise or where otherwise indicated.

Vera Bradley, Inc. operates two unique lifestyle brands – Vera Bradley and Pura Vida. We believe Vera Bradley and Pura Vida are complementary businesses, both with devoted, emotionally-connected, and multi-generational female customer bases; alignment as causal, comfortable, affordable, and fun brands; positioning as “gifting” and socially-connected brands; strong, entrepreneurial cultures; a keen focus on community, charity, and social consciousness; multi-channel distribution strategies; and talented leadership teams aligned and committed to the long-term success of their brands.

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.

In July 2019, Vera Bradley, Inc. acquired a 75% interest in Creative Genius, Inc., which also operates under the name Pura Vida Bracelets (“Pura Vida”). Pura Vida, based in La Jolla, California, is a rapidly growing, digitally native lifestyle brand that we believe deeply resonates with its loyal consumer following. The Pura Vida brand has a differentiated and expanding offering of bracelets, jewelry, and other lifestyle accessories.

The Company has three reportable segments: Vera Bradley Direct (“VB Direct”), Vera Bradley Indirect (“VB Indirect”), and Pura Vida.

•The VB Direct business consists of sales of Vera Bradley products through Vera Bradley full-line and factory outlet stores in the United States; verabradley.com; the Vera Bradley online outlet site; and typically the Vera Bradley annual outlet sale in Fort Wayne, Indiana. As of May 1, 2021, the Company operated 73 full-line stores and 70 factory outlet stores. In light of the COVID-19 pandemic, the Company cancelled its calendar year 2021 and 2020 annual outlet sales.

•The VB Indirect business consists of sales of Vera Bradley products to approximately 2,000 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 related to the Vera Bradley brand.

•The Pura Vida segment represents revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca, and through the distribution of Pura Vida-branded products to wholesale retailers, substantially all of which are located in the United States.

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 January 30, 2021, 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 1, 2021, are not necessarily indicative of the results to be expected for the full fiscal year. Further, the Company cannot predict the future impacts that the COVID-19 pandemic could have on its future liquidity, operating results, and financial condition, but it could have a significant adverse affect on these metrics.

The Company believes that during the first quarter of the current-year, consumer confidence, traffic and spending grew as COVID-19 vaccines became more widely available; with the distribution of government stimulus funds; and as customers began to return to work, social events, and travel.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

During the first quarter of the prior-year, the COVID-19 pandemic resulted in global travel restrictions, quarantines, and certain factory closures or reduced operations, as well as mall closures and reduced mall operating hours. Although the Vera Bradley and Pura Vida e-commerce operations remained open during this time, the aforementioned items had a material adverse impact on overall consumer demand, traffic, and sales during the period. The Company took various actions to navigate the pandemic which included, but was not limited to, temporarily closing all Vera Bradley store locations on March 19, 2020; temporarily furloughing 80% of our workforce mid-quarter; temporarily reducing base compensation for certain associates; preserving cash by drawing on our Credit Agreement, which was repaid during the fourth quarter of the prior-year; and managing inventory, rent, and other expenses.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned subsidiary, Pura Vida. 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 1, 2021 and May 2, 2020 refer to the thirteen-week periods ended on those dates.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update remove certain exceptions to the general principals in Topic 740, as well as simplify GAAP for certain areas and improve consistency within the topic. This guidance is effective for interim and annual periods beginning on or after December 15, 2020 (fiscal 2022). Early adoption is permitted, with all amendments required to be adopted in the same period. The adoption of this standard in the first quarter of fiscal 2022 did not have a material impact on the Company's consolidated financial statements.

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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 1, 2021 and May 2, 2020 (in thousands):

						Thirteen Weeks Ended
						May 1, 2021
						VB Direct Segment						VB Indirect Segment						Pura Vida Segment						Total
Product categories
Bags						$	26,438					$	8,050					$	—					$	34,488
Travel						15,179						2,567						—						17,746
Accessories						11,861						2,227						25,511						39,599
Home						6,538						737						—						7,275
Apparel/Footwear(6)						5,361						671						628						6,660
Other						1,355			(1)			1,012			(2)			959			(3)			3,326
Total net revenues						$	66,732		(4)			$	15,264		(5)			$	27,098		(4)			$	109,094
(1) Primarily includes net revenues from freight, stationery, and gift card breakage.
(2) Primarily includes net revenues from licensing agreements and freight.
(3) Related to freight.
(4) Net revenues were related to product sales recognized at a point in time.
(5) $14.5 million of net revenues related to product sales recognized at a point in time and $0.8 million of net revenues related to sales-based royalties recognized over time.
(6) Includes mask sales.

						Thirteen Weeks Ended
						May 2, 2020
						VB Direct Segment						VB Indirect Segment						Pura Vida Segment						Total
Product categories
Bags						$	16,491					$	4,600					$	—					$	21,091
Travel						9,441						2,397						—						11,838
Accessories						7,247						1,322						20,539						29,108
Home						2,349						231						—						2,580
Apparel/Footwear(6)						822						1,900						—						2,722
Other						487			(1)			779			(2)			679			(3)			1,945
Total net revenues						$	36,837		(4)			$	11,229		(5)			$	21,218		(4)			$	69,284
(1) Primarily includes net revenues from stationery, freight, and gift card breakage.
(2) Primarily includes net revenues from licensing agreements, freight, and merchandising.
(3) Related to freight.
(4) Net revenues were related to product sales recognized at a point in time.
(5) $10.6 million of net revenues related to product sales recognized at a point in time and $0.6 million of net revenues related to sales-based royalties recognized over time.
(6) Includes mask sales.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Contract Balances

Contract liabilities as of May 1, 2021 and January 30, 2021, were $3.4 million and $4.1 million, respectively. The balance as of May 1, 2021 and January 30, 2021 consisted of unearned revenue related to the monthly bracelet and jewelry clubs of the Pura Vida segment, unredeemed gift cards, Pura Vida loyalty club points, Pura Vida customer deposits and payments collected before shipment, 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. Substantially all contract liabilities are recognized within one year. The Company did not have contract assets as of May 1, 2021 and January 30, 2021.

The balance for accounts receivable from contracts with customers, net of allowances, as of May 1, 2021 and January 30, 2021, was $21.1 million and $26.0 million, respectively, which is recognized within accounts receivable, net, on the Company’s Condensed Consolidated Balance Sheets. The provision for doubtful accounts was $1.0 million and $1.1 million as of May 1, 2021 and January 30, 2021, respectively. The provision for doubtful accounts is based upon the likelihood of default expected during the life of the receivable.

    

Performance Obligations

The performance obligations for the VB Direct, VB Indirect, and Pura Vida segments include the promise to transfer distinct goods (or a bundle of distinct goods). The VB Indirect segment also includes the right to access intellectual property (“IP”) related to the Vera Bradley brand.

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 1, 2021.

3.Leases

In the prior-year, the Company temporarily closed its full-line and factory outlet stores beginning on March 19, 2020, due to the COVID-19 pandemic, for various lengths of time (from several weeks to several months). All of the Company's stores were open during the first quarter of the current-year. As a result of the temporary closures in the prior-year, certain rent payments were deferred. An immaterial amount of rent abatements were received during the thirteen weeks ended May 1, 2021.

Discount Rate

The weighted-average discount rate as of May 1, 2021, and May 2, 2020 was 4.8% and 4.9%, respectively. 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.

Leases Not Yet Commenced

As of May 1, 2021, the Company had two retail store leases which were executed, but did not have control of the underlying assets; therefore, the lease liability and right-of-use asset are not recorded on the Condensed Consolidated Balance Sheet. These leases contain undiscounted lease payments, which will be included in the determination of the lease liability, totaling approximately $3.6 million and have terms of approximately 10 years commencing in fiscal 2022.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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 1, 2021 and May 2, 2020 (in thousands):

									Thirteen Weeks Ended
															May 1, 2021						May 2, 2020
Operating lease cost															$	5,870					$	7,234
Variable lease cost															1,482						818
Short-term lease cost															193						69
Total lease cost															$	7,545					$	8,121

The weighted-average remaining lease term as of May 1, 2021 and May 2, 2020 was 5.4 years and 5.8 years, respectively.

Supplemental operating cash flow information was as follows (in thousands):

			Thirteen Weeks Ended
			May 1, 2021						May 2, 2020
Cash paid for amounts included in the measurement of operating lease liabilities (1)			$	11,055					$	2,794
Right-of-use assets increase as a result of new and modified operating lease liabilities, net			$	2,403					$	87
(1) 2.5 million of lease liabilities were recorded within accounts payable on the Company's Consolidated Balance Sheets as of January 30, 2021, and were paid in the first quarter of fiscal 2022.

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.

On July 16, 2019, as contemplated by the Interest Purchase Agreement, the Company and certain of its subsidiaries and the owners of the remaining twenty-five percent (25%) ownership interest in Pura Vida (the “Sellers”) which was not acquired by the Company (the “Remaining Pura Vida Interest”) entered into a Put/Call Agreement (the “Put/Call Agreement”). Pursuant to the Put/Call Agreement, and subject to the terms and conditions thereof, the Sellers have the right to sell all of the Remaining Pura Vida Interest to the Company, and the Company has the right to purchase all of the Remaining Pura Vida Interests from Sellers, in each case generally at any time following the fifth anniversary of the closing date of the transaction until the tenth anniversary thereof. The purchase price for any Remaining Pura Vida Interest put to, or called by, the Company will be determined based on the arithmetic average of a multiple of adjusted EBITDA of Pura Vida and a multiple of adjusted EBITDA of the Company, as defined in the Put/Call Agreement, over the twelve-month period ending on the last day of the month immediately preceding the month in which an exercise notice is delivered by a relevant party.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

As a result of this redemption feature, the Company recorded the noncontrolling interest as redeemable and classified it in temporary equity within its Condensed Consolidated Balance Sheets initially at its acquisition-date fair value. The noncontrolling interest is adjusted each reporting period for income (or loss) attributable to the noncontrolling interest. A measurement period adjustment, if any, is then made to adjust the noncontrolling interest to the higher of the redemption value or carrying value each reporting period. These adjustments are recognized through retained earnings and are not reflected in net income (loss) or net income (loss) attributable to Vera Bradley, Inc. When calculating earnings per share attributable to Vera Bradley, Inc., the Company adjusts the net income (loss) attributable to Vera Bradley, Inc. for the measurement period adjustment to the extent the redemption value exceeds the fair value of the noncontrolling interest on a cumulative basis.

The components of basic and diluted earnings per share were as follows (in thousands, except per share data):

 

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Numerator:
Net loss						$	(1,518)					$	(15,537)
Less: Net income (loss) attributable to redeemable noncontrolling interest						627						(200)
Net loss attributable to Vera Bradley, Inc.						(2,145)						(15,337)
Plus: Excess portion of redeemable noncontrolling interest redemption value adjustment						—						(6,800)
Net loss available to Vera Bradley, Inc. common shareholders						$	(2,145)					$	(22,137)
Denominator:
Weighted-average number of common shares (basic)						33,590						33,330
Dilutive effect of stock-based awards						—						—
Weighted-average number of common shares (diluted)						33,590						33,330
Net loss per share available to Vera Bradley, Inc. common shareholders:
Basic						$	(0.06)					$	(0.66)
Diluted						$	(0.06)					$	(0.66)

For the thirteen weeks ended May 1, 2021 and May 2, 2020, there were an immaterial number of additional shares issuable upon the vesting of restricted stock units that were excluded from the diluted share calculations because they were anti-dilutive.

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 1, 2021 and January 30, 2021, approximated their fair values.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The following table details the fair value measurements of the Company's investments as of May 1, 2021 and January 30, 2021 (in thousands):

			Level 1												Level 2												Level 3
			May 1, 2021						January 30, 2021						May 1, 2021						January 30, 2021						May 1, 2021						January 30, 2021
Cash equivalents(1)			$	1,566					$	1,565					$	—					$	—					$	—					$	—
Short-term investments:
U.S. corporate debt securities			—						—						626						627						—						—
Non-U.S. corporate debt securities			—						—						667						668						—						—
(1) Cash equivalents represent a money market fund that has a maturity of three months or less at the date of purchase. Due to the 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 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 $3.8 million in impairment charges related to store assets including property, plant, and equipment and lease right-of-use assets during the thirteen weeks ended May 2, 2020. There were no impairment charges for the thirteen weeks ended May 1, 2021.

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, as well as assets related to the Pura Vida acquisition including goodwill and intangible assets. These assets are measured at fair value if determined to be impaired.

The discounted cash flow models used to estimate the applicable fair values involve numerous estimates and assumptions that are highly subjective. Changes to these estimates and assumptions could materially impact the fair value estimates. The estimates and assumptions critical to the overall fair value estimates include: (1) estimated future cash flow generated at the store level; (2) discount rates used to derive the present value factors used in determining the fair values; and (3) market rentals at the retail store. These and other estimates and assumptions are impacted by economic conditions and our expectations and may change in the future based on period-specific facts and circumstances. If economic conditions were to deteriorate, future impairment charges may be required which may be material.

6.Debt

On September 7, 2018, Vera Bradley Designs, Inc. (“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

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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 1.00 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.

As of May 1, 2021 and January 30, 2021, 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 1, 2021, was 25.9%, compared to 39.4% for the thirteen weeks ended May 2, 2020. The year-over-year effective tax rate decrease was primarily due to the net operating loss carryback recorded in the prior-year period that did not recur in the current-year as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that was enacted on March 27, 2020 in response to the COVID-19 pandemic.

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 3,000,000 shares of common stock for issuance or transfer under the 2020 Equity and Incentive Plan, which allows for grants of restricted stock units, as well as other equity awards. The Company maintains the 2010 Equity and Incentive Plan for awards granted prior to the effectiveness of the 2020 Equity and Incentive Plan.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Awards of Restricted Stock Units

During the thirteen weeks ended May 1, 2021, the Company granted 640,007 time-based and performance-based restricted stock units with an aggregate fair value of $6.6 million to certain employees and non-employee directors under the 2020 Equity and Incentive Plan compared to 1,412,024 time-based and performance-based restricted stock units with an aggregate fair value of $5.8 million in the same period of the prior-year under the 2010 Equity and Incentive Plan.

There were no restricted stock units granted under the 2020 Equity and Incentive Plan during the thirteen weeks ended May 2, 2020.

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 1, 2021 (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 January 30, 2021						1,049						$	5.73					896						$	8.34
Granted						357						10.24						282						10.24
Vested						(519)						5.74						(267)						10.61
Forfeited						(1)						7.28						—						—
Nonvested units outstanding at May 1, 2021						886						$	7.53					911						$	8.26

As of May 1, 2021, there was $10.1 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 2.0 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.

In August of 2019, Vesi Incorporated (“Vesi”) filed suit against the Company in the U.S. District Court for the Southern District of Ohio related to the Company’s licensing business and alleging breach of fiduciary duty, unfair competition, defamation, and tortious interference with prospective business relationships. The complaint seeks

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

damages in an amount not less than $10.0 million for punitive damages, attorney fees, prejudgment interest, and any other additional relief. The Company has denied any liability and intends to vigorously defend itself in the case. In November 2019, the Company filed a counterclaim against the principals of Vesi as personal guarantors for monies owed to the Company by Vesi. The cases are currently in discovery. At this time, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition or results of operations due to the fact that the Company is vigorously defending itself and management believes that the Company has a number of meritorious legal defenses.

In April of 2020, Chidimma Igboakaeze filed suit seeking class certification for all current and former hourly-paid employees who worked for the Company within the state of California during the four years preceding the filing until final judgement. The complaint alleged various violations of the California Labor Code related to wages, overtime, meal and rest breaks, non-compliant wage statements and records and other similar allegations related to employment. The Plaintiff also filed a Private Attorney General Act claim with the state of California regarding the same allegations. This case was settled in the first quarter of fiscal 2022 for an immaterial amount.

    

10.Common Stock

On November 29, 2018, the Company's board of directors approved a share repurchase plan (the “2018 Share Repurchase Program”) authorizing up to $50.0 million of repurchases of shares of the Company's common stock. On December 3, 2020, the 2018 Share Repurchase Program was extended through December 11, 2021. On March 20, 2020, the Company temporarily suspended the share repurchase program to conserve cash as a result of the COVID-19 pandemic. The board of directors authorized the resumption of the share repurchase program beginning on March 11, 2021.

The Company purchased no shares during the thirteen weeks ended May 1, 2021. There was $32.9 million remaining available to repurchase shares of the Company's common stock under the 2018 Share Repurchase Program as of May 1, 2021.

As of May 1, 2021, the Company held as treasury shares 8,393,207 shares of its common stock at an average price of $12.76 per share, excluding commissions, for an aggregate carrying amount of $107.1 million. The Company’s treasury shares may be issued under the 2010 Equity and Incentive Plan (with respect to outstanding awards under that plan), under the 2020 Equity and Incentive Plan, or for other corporate purposes.

11.Cloud Computing Arrangements

The Company capitalizes implementation costs associated with its Cloud Computing Arrangements (“CCA”) consistent with costs capitalized for internal-use software. The CCA costs are amortized over the term of the related hosting agreement, taking into consideration renewal options, if any. The renewal period is included in the amortization period if determined that the option is reasonably certain to be exercised. The amortization expense is recorded within selling, general, and administrative expenses in the Company's Condensed Consolidated Statements of Operations, which is within the same line item as the related hosting fees. The balance of the unamortized CCA implementation costs totaled $8.4 million and $8.1 million as of May 1, 2021 and January 30, 2021, respectively. Of this total, $2.5 million and $2.4 million was recorded within prepaid expenses and other current assets and $5.9 million and $5.7 million was recorded within other assets on the Company's Condensed Consolidated Balance Sheets as of May 1, 2021 and January 30, 2021, respectively. The CCA implementation costs are recorded within operating activities in the Company's Condensed Consolidated Statements of Cash Flows.

12.Acquisition of Pura Vida

On July 16, 2019, the Company completed its acquisition of a seventy-five percent (75%) ownership interest in Creative Genius, Inc. or “Pura Vida” (the “Transaction”) in exchange for total cash consideration of approximately $75.0 million. The Company received a working capital reimbursement of $1.0 million during the first quarter of fiscal 2021.

In accordance with the Interest Purchase Agreement, the Company also agreed to a contingent payment of up to $22.5 million payable during the first quarter of calendar year 2020 based on calendar year 2019 adjusted EBITDA of Pura

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Vida, as defined in the Interest Purchase Agreement. This contingent payment was made during the first quarter of fiscal 2021 totaling $18.7 million.

13.Redeemable Noncontrolling Interest

Redeemable noncontrolling interest represents the remaining twenty-five percent (25%) interest in Pura Vida not acquired by the Company. Refer to Notes 1 and 4 herein for additional information.

Changes in redeemable noncontrolling interest for the thirteen weeks ended May 1, 2021, were as follows (in thousands):    

Balance at January 30, 2021						$	29,809
Net income attributable to redeemable noncontrolling interest						627
Distributions to redeemable noncontrolling interest						(129)
Balance at May 1, 2021						$	30,307

Changes in redeemable noncontrolling interest for the thirteen weeks ended May 2, 2020, were as follows (in thousands):

Balance at February 1, 2020						$	30,049
Net loss attributable to redeemable noncontrolling interest						(200)
Distributions to redeemable noncontrolling interest						(296)
Adjustment to redemption value						9,305
Balance at May 2, 2020						$	38,858

    

14.Intangible Assets and Goodwill

The following tables detail the carrying value of the Company's intangible assets other than goodwill related to the acquisition of a majority interest in Pura Vida.

			May 1, 2021
in thousands			Gross Basis						Accumulated Amortization(1)						Carrying Amount
Definite-lived intangible assets
Customer Relationships			$	24,208					$	(14,855)					$	9,353
Non-competition Agreements			788						(282)						506
Total definite-lived intangible assets			24,996						(15,137)						9,859
Indefinite-lived intangible asset
Pura Vida Brand			36,668						—						36,668
Total intangible assets, excluding goodwill			$	61,664					$	(15,137)					$	46,527
(1) Amortization expense is recorded within the Pura Vida segment.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

			January 30, 2021
in thousands			Gross Basis						Accumulated Amortization(1)						Carrying Amount
Definite-lived intangible assets
Customer Relationships			$	24,208					$	(14,125)					$	10,083
Non-competition Agreements			788						(243)						545
Total definite-lived intangible assets			24,996						(14,368)						10,628
Indefinite-lived intangible asset
Pura Vida Brand			36,668						—						36,668
Total intangible assets, excluding goodwill			$	61,664					$	(14,368)					$	47,296
(1) Amortization expense is recorded within the Pura Vida segment.

The amortization expense for intangible assets is as follows (in thousands):

						Amortization Expense
Fiscal 2022 (remaining nine months)						$	2,304
Fiscal 2023						3,073
Fiscal 2024						3,073
Fiscal 2025						1,409
Total						$	9,859

The total amount of the goodwill as of May 1, 2021 and January 30, 2021, of $44.3 million was recorded within the Pura Vida segment upon acquisition. Goodwill is deductible for tax purposes, limited to the Company's 75% majority ownership interest. There were no changes to goodwill for the thirteen weeks ended May 1, 2021 and May 2, 2020.

Future impacts of COVID-19, including but not limited to the duration and magnitude of the pandemic, may have an impact on the triggering event assessment or future fair value estimate of goodwill, brand intangible asset, and definite-lived intangible assets, which could lead to material impairment charges. Refer to Note 5 herein for additional information regarding the fair value measurement.

15.Segment Reporting

The Company has three operating segments, which are also its reportable segments: Vera Bradley Direct (“VB Direct”), Vera Bradley Indirect (“VB Indirect”), and Pura Vida. 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 VB Direct segment includes Vera Bradley full-line and factory outlet stores; the Vera Bradley website, verabradley.com; the Vera Bradley online outlet site; and typically the Vera Bradley annual outlet sale. Revenues generated from this segment are driven through the sale of Vera Bradley-branded products from Vera Bradley to end consumers.

The VB Indirect segment represents revenues generated through the distribution of Vera Bradley-branded products to specialty retailers representing approximately 2,000 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 related to the Vera Bradley brand.

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Vera Bradley, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The Pura Vida segment represents revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca, and through the distribution of Pura Vida-branded products to wholesale retailers, substantially all of which are located in the United States.

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 marketing and advertising, and various other corporate-level-activity-related expenses not directly attributable to a reportable segment. 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 1, 2021 and May 2, 2020, respectively, consisted of the following (in thousands):

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Segment net revenues:
VB Direct						$	66,732					$	36,837
VB Indirect						15,264						11,229
Pura Vida						27,098						21,218
Total						$	109,094					$	69,284
Segment operating income (loss):
VB Direct						$	10,860					$	(10,965)
VB Indirect						4,461						2,756
Pura Vida						2,508						(801)
Total						$	17,829					$	(9,010)
Reconciliation:
Segment operating income (loss)						$	17,829					$	(9,010)
Less:
Unallocated corporate expenses						(19,788)						(16,564)
Operating loss						$	(1,959)					$	(25,574)

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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 1, 2021 and May 2, 2020. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, 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 1, 2021, are not necessarily indicative of the results to be expected for the full fiscal year.

The COVID-19 Pandemic

During the first quarter of the current-year, we believe consumer confidence, traffic and spending grew as COVID-19 vaccines became more widely available; with the distribution of government stimulus funds; and as customers began to return to work, social events, and travel.

During the first quarter of the prior-year, the COVID-19 pandemic resulted in global travel restrictions, quarantines, and certain factory closures or reduced operations, as well as mall closures and reduced mall operating hours. Although the Vera Bradley and Pura Vida e-commerce operations remained open during this time, the aforementioned items had a material adverse impact on overall consumer demand, traffic, and sales during the period. We took various actions to navigate the pandemic which included, but was not limited to, temporarily closing all Vera Bradley store locations on March 19, 2020; temporarily furloughing 80% of our workforce mid-quarter; temporarily reducing base compensation for certain associates; preserving cash by drawing on our Credit Agreement, which was repaid during the fourth quarter of the prior-year; and managing inventory, rent, and other expenses.

We cannot predict the future impacts that the COVID-19 pandemic could have on our future liquidity, operating results, and financial condition, but it could have a significant adverse affect on these metrics.

Executive Summary

Below is a summary of our strategic progress and financial results for the first quarter of fiscal 2022:

Strategic Progress

At Vera Bradley, we:

•Increased our focus on innovation and sustainability by preparing for the official May launch of our new Recycled Cotton collection, consciously crafted from 50% recycled and 50% conventional cotton;

•Drove brand awareness with quality media placements, with year-over-year media impressions up over 200%, and launched our new brand ambassador program; and

•Continued our high-profile product collaborations with new launches of Harry Potter, Crocs, and Disney.

At Pura Vida, we:

•Continued our Project Novus ERP integration which is scheduled for completion this fall for Pura Vida;

•Launched our apparel collection of shirts and hoodies; and

•Successfully introduced our Vera Bradley + Pura Vida charity bracelet program in all Vera Bradley full-line stores.

Financial Summary (all comparisons are to the first quarter of fiscal 2021)

•Net revenues increased 57.5% to $109.1 million.

•Vera Bradley Direct (“VB Direct”) segment sales increased 81.2% to $66.7 million.

•Vera Bradley Indirect segment (“VB Indirect”) sales increased 35.9% to $15.3 million.

•Pura Vida segment sales increased 27.7% to $27.1 million.

•Gross profit was $59.2 million, or 54.2% of net revenue.

•Operating loss was $(2.0) million and net loss attributable to Vera Bradley, Inc. was $(2.1) million.

•Capital expenditures for the thirteen weeks totaled $0.5 million.

•Cash and cash equivalents and investments were $52.7 million at May 1, 2021.

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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 VB Direct segment reflect sales through Vera Bradley full-line and factory outlet stores; verabradley.com; our Vera Bradley online outlet site; and typically our Vera Bradley annual outlet sale in Fort Wayne, Indiana. Revenues for the VB Indirect segment reflect sales of Vera Bradley-branded products to specialty retail partners; department stores; national accounts; third-party e-commerce sites; third-party inventory liquidators; and royalties recognized through licensing agreements related to the Vera Bradley brand. Revenues for the Pura Vida segment reflect revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca and through the distribution of Pura Vida-branded products to wholesale retailers.

Comparable Sales

Typically, comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our Vera Bradley e-commerce operations. Pura Vida e-commerce operations are included within the Company's comparable sales beginning with the fiscal 2021 third quarter. Pura Vida e-commerce operations include sales from the subscription club. Comparable store sales are calculated based solely upon 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. 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.

As a result of the temporary closure of all Vera Bradley stores due to COVID-19 during portions of the first and second quarters of the prior-year, the Company's first quarter comparable store sales and comparable sales calculations are not meaningful and therefore are not provided.

Typically, measuring the change in year-over-year comparable sales allows us and our investors 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.

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Selling, General, and Administrative Expenses (“SG&A”)

SG&A expenses include selling; advertising, marketing, and product development; and administrative expenses. Selling expenses include:

•VB Direct business expenses, such as store expenses, employee compensation, and store occupancy and supply costs;

•VB Indirect business expenses consisting primarily of employee compensation and other expenses associated with sales to Indirect retailers; and

•Pura Vida business expenses primarily related to employee compensation.

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 (Loss) Income, Net

Other (loss) income, net primarily includes certain legal settlements and sales tax credits received for timely filings.

Operating Loss

Operating loss is equal to gross profit less SG&A expenses plus other (loss) income, net. Operating loss excludes interest income, interest expense, and income taxes.

Net Loss

Net loss is equal to operating loss plus interest income less interest expense and income taxes.

Net Income (Loss) Attributable to Redeemable Noncontrolling Interest

Net income (loss) attributable to redeemable noncontrolling interest represents the operating results of Pura Vida that are not attributable to Vera Bradley, Inc.

Net Loss Attributable to Vera Bradley, Inc.

Net loss attributable to Vera Bradley, Inc. is equal to net loss less net income (loss) attributable to redeemable noncontrolling interest.

Pura Vida Acquisition

On July 16, 2019, the Company completed its acquisition of a seventy-five percent (75%) ownership interest in Creative Genius, Inc. or “Pura Vida” (the “Transaction”) in exchange for total cash consideration of approximately $75.0 million. The Company received a working capital reimbursement of $1.0 million during the first quarter of fiscal 2021.

In accordance with the Interest Purchase Agreement, the Company also agreed to a contingent payment of up to $22.5 million payable during the first quarter of calendar year 2020 based on calendar year 2019 adjusted EBITDA of Pura Vida, as defined in the Interest Purchase Agreement. This contingent payment was made during the first quarter of fiscal 2021 totaling $18.7 million. The Company’s existing available cash, cash equivalents, and investments funded the purchase price due at the closing of the Transaction and subsequent to the closing.

Impairment Charges

Property, plant, and equipment and lease right-of-use assets (the "asset group" for store-related assets) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable. The reviews are conducted at the lowest identifiable level of cash flows. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, as further defined in Note 5 to the Notes to the Condensed Consolidated Financial Statements herein. Impairment charges of $3.8 million were recognized during the thirteen weeks ended May 2, 2020 for property, plant, and equipment assets and lease right-of-use assets related to underperforming stores and are included in SG&A expenses in the Condensed Consolidated Statements of Operations and in impairment charges in the Condensed Consolidated Statements of Cash Flows. The impairment charges are included in the VB Direct segment. There were no impairment charges recorded during the thirteen weeks ended May 1, 2021. We are unable to predict the extent of the impact that the COVID-19 pandemic

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will have on our operations, the economy, or other factors; therefore, it is possible additional impairments could be identified in future periods, and such amounts could be material.

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 1, 2021						May 2, 2020
Statement of Operations Data:
Net revenues						$	109,094					$	69,284
Cost of sales						49,930						35,096
Gross profit						59,164						34,188
Selling, general, and administrative expenses						60,896						59,782
Other (loss) income, net						(227)						20
Operating loss						(1,959)						(25,574)
Interest expense, net						90						72
Loss before income taxes						(2,049)						(25,646)
Income tax benefit						(531)						(10,109)
Net loss						(1,518)						(15,537)
Less: Net income (loss) attributable to redeemable noncontrolling interest						627						(200)
Net loss attributable to Vera Bradley, Inc.						$	(2,145)					$	(15,337)
Percentage of Net Revenues:
Net revenues						100.0		%				100.0		%
Cost of sales						45.8		%				50.7		%
Gross profit						54.2		%				49.3		%
Selling, general, and administrative expenses						55.8		%				86.3		%
Other (loss) income, net						(0.2)		%				—		%
Operating loss						(1.8)		%				(36.9)		%
Interest expense, net						0.1		%				0.1		%
Loss before income taxes						(1.9)		%				(37.0)		%
Income tax benefit						(0.5)		%				(14.6)		%
Net loss						(1.4)		%				(22.4)		%
Less: Net income (loss) attributable to redeemable noncontrolling interest						0.6		%				(0.3)		%
Net loss attributable to Vera Bradley, Inc.						(2.0)		%				(22.1)		%

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):

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						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Net Revenues by Segment:
VB Direct						$	66,732					$	36,837
VB Indirect						15,264						11,229
Pura Vida						27,098						21,218
Total						$	109,094					$	69,284
Percentage of Net Revenues by Segment:
VB Direct						61.2		%				53.2		%
VB Indirect						14.0		%				16.2		%
Pura Vida						24.8		%				30.6		%
Total						100.0		%				100.0		%

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Operating Income (Loss) by Segment:
VB Direct						$	10,860					$	(10,965)
VB Indirect						4,461						2,756
Pura Vida						2,508						(801)
Less: Corporate unallocated						(19,788)						(16,564)
Total						$	(1,959)					$	(25,574)
Operating Income (Loss) as a Percentage of Net Revenues by Segment:
VB Direct						16.3		%				(29.8)		%
VB Indirect						29.2		%				24.5		%
Pura Vida						9.3		%				(3.8)		%
Vera Bradley Store Data (1)(2):
Total stores opened during period						1						—
Total stores closed during period						(2)						(5)
Total stores open at end of period						143						146
Total gross square footage at end of period (all stores)						379,712						376,205
Average net revenues per gross square foot (3)						$	116					NM

 

(1)Includes Vera Bradley full-line and factory outlet stores.

(2)As a result of the temporary closure of Vera Bradley stores due to COVID-19 during a portion of the prior-year first quarter, the Company's comparable store sales and comparable sales calculations were not meaningful and therefore were not provided.

(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. As a result of the temporary closure of Vera Bradley stores due to COVID-19 during a portion of the prior-year first quarter, the Company's prior-year average net revenues per square foot were not meaningful and therefore were not provided.

Thirteen Weeks Ended May 1, 2021, Compared to Thirteen Weeks Ended May 2, 2020

Net Revenues

For the thirteen weeks ended May 1, 2021, net revenues increased $39.8 million, or 57.5%, to $109.1 million, from $69.3 million in the comparable prior-year period.

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VB Direct. For the thirteen weeks ended May 1, 2021, net revenues in the VB Direct segment increased $29.9 million, or 81.2%, to $66.7 million, from $36.8 million in the comparable prior-year period. The increase primarily resulted from: i) higher store sales in the current-year since in the prior-year the Company’s stores temporarily closed, as a result of COVID-19, beginning on March 19, 2020 and ii) a 33.8% increase in e-commerce sales over the comparable prior-year period. Store and e-commerce sales benefited from increased sales of cotton masks compared to the prior-year period, since a majority of mask sales in the prior-year began in the second quarter. We also opened seven Vera Bradley factory outlet stores over the past 12 months.

VB Indirect. For the thirteen weeks ended May 1, 2021, net revenues in the VB Indirect segment increased $4.1 million, or 35.9%, to $15.3 million, from $11.2 million in the comparable prior-year period. The increase was primarily due to an increase in orders from specialty and certain key accounts, largely related to the impacts of COVID-19 in the prior-year period which included the delay of certain product launches.

Pura Vida. For the thirteen weeks ended May 1, 2021, net revenues in the Pura Vida segment increased $5.9 million, or 27.7%, to $27.1 million, from $21.2 million in the comparable prior-year period. Pura Vida wholesale and e-commerce sales increased over the prior-year period. Wholesale sales were impacted by the COVID-19 pandemic in the prior-year period.

Gross Profit

For the thirteen weeks ended May 1, 2021, gross profit increased $25.0 million, or 73.1%, to $59.2 million, from $34.2 million in the comparable prior-year period. As a percentage of net revenues, gross profit increased to 54.2% for the thirteen weeks ended May 1, 2021, from 49.3% in the comparable prior-year period. The prior-year period included charges for the cancellation of certain purchase orders due to COVID-19 which totaled $1.3 million and negatively impacted gross margin as a percentage of net revenues by 1.9%. The remaining increase as a percentage of net revenues was primarily due to channel mix changes and more full price selling, partially as a result of the impacts of COVID-19 in the prior-year period, which were partially offset by an increase in shipping and duty costs.

Selling, General, and Administrative Expenses

For the thirteen weeks ended May 1, 2021, SG&A expenses increased $1.1 million, or 1.9%, to $60.9 million, from $59.8 million in the comparable prior-year period. As a percentage of net revenues, SG&A expenses decreased to 55.8% for the thirteen weeks ended May 1, 2021, from 86.3% in the comparable prior-year period. SG&A expenses related to Vera Bradley and corporate unallocated were $48.1 million compared to $47.2 million in the comparable prior-year period. SG&A expenses related to Pura Vida were $12.8 million compared to $12.6 million in the prior-year. The increase in consolidated SG&A expenses for the thirteen weeks ended May 1, 2021 was primarily due to:

•Vera Bradley initiatives to reduce expenses in light of COVID-19 including the temporary furlough of certain associates; temporarily reducing the base compensation for all other salaried associates; certain expense reductions associated with the CARES Act retention credit; and reducing other non-payroll expenses including marketing that occurred in the prior-year period but did not recur in the current-year period and

•An increase in incentive compensation expense due to Company performance estimates compared to the prior-year period.

The aforementioned increases in SG&A expenses were partially offset by:

•$3.8 million of Vera Bradley store impairment charges in the prior-year period that did not recur in the current-year period;

•A reduction in depreciation expense primarily as a result of legacy software depreciation from the prior-year;

•A $1.7 million reduction of intangible asset amortization associated with the Pura Vida acquisition; and

•A reduction in lease expense primarily due to ten full-line store closures during the last 12 months, the effect of lease right-of-use asset impairments recorded in the prior-year, and rent abatements received for certain retail stores during the quarter, partially offset by an increase in contingent rent expense due to increased store sales.

SG&A expenses as a percentage of net revenues decreased primarily due to the aforementioned items, as well as SG&A expense leverage associated with increased sales.

Other (Loss) Income, Net

For the thirteen weeks ended May 1, 2021, net other loss increased $0.2 million to $0.2 million compared to net other income of $20.0 thousand in the comparable prior-year period. The increase in net other loss was primarily due to a legal settlement expense in the current-year period.

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Operating Loss

For the thirteen weeks ended May 1, 2021, operating loss decreased $23.6 million to $(2.0) million in the current-year period, from $(25.6) million in the comparable prior-year period. As a percentage of net revenues, operating loss was (1.8)% and (36.9)% for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively. Operating loss decreased due to the factors described above.

VB Direct. For the thirteen weeks ended May 1, 2021, operating income in the VB Direct segment increased $21.9 million, to $10.9 million from an operating loss of $(11.0) million in the comparable prior-year period. As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 16.3% and operating loss of (29.8)% for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively. The increase in operating income as a percentage of VB Direct segment net revenues was primarily due to an increase in gross margin as a percentage of net revenues as described above, SG&A expense leverage associated with increased sales, and a decrease in SG&A expense primarily as a result of store impairment charges in the prior-year period and reductions in depreciation and lease expense in the current-year, partially offset by COVID-19-related expense savings from the prior-year period that did not recur.

VB Indirect. For the thirteen weeks ended May 1, 2021, operating income in the VB Indirect segment increased $1.7 million, or 61.9%, to $4.5 million from $2.8 million in the comparable prior-year period. As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 29.2% and 24.5% for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively. The increase in operating income as a percentage of VB Indirect segment net revenues was primarily due to SG&A expense leverage associated with increased sales and a decrease in the bad debt provision compared to the prior-year period.

Pura Vida. For the thirteen weeks ended May 1, 2021, operating income in the Pura Vida segment increased $3.3 million to $2.5 million from an operating loss of $(0.8) million in the comparable prior-year period. As a percentage of Pura Vida segment net revenues, operating income in the Pura Vida segment was 9.3% and the operating loss was (3.8)% for the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively. The increase in operating income as a percentage of Pura Vida net revenues was primarily due to SG&A leverage associated with increased sales and a decrease in the intangible asset amortization expense compared to the prior-year period.

Corporate Unallocated. For the thirteen weeks ended May 1, 2021, unallocated expenses increased $3.2 million, or 19.5%, to $19.8 million from $16.6 million in the comparable prior-year period. The increase in unallocated expenses was primarily due to prior-year period initiatives to reduce expenses in light of COVID-19 that did not recur in the current-year including the temporary furlough of certain associates; temporarily reducing the base compensation for all other salaried associates; and reducing other non-payroll expenses including marketing, as well as an increase in incentive compensation expense due to Company performance estimates. These increases in SG&A expense were partially offset by a decrease in depreciation expense, as described above.

Income Tax Benefit

The effective tax rate for the thirteen weeks ended May 1, 2021, was 25.9%, compared to 39.4% for the thirteen weeks ended May 2, 2020. The year-over year effective tax rate decrease was primarily due to the net operating loss carryback recorded in the prior-year period that did not recur in the current-year as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that was enacted on March 27, 2020 in response to the COVID-19 pandemic.

Net Loss

For the thirteen weeks ended May 1, 2021, net loss decreased $14.0 million to $(1.5) million from $(15.5) million in the comparable prior-year period due to the factors described above.

Net Income (Loss) Attributable to Redeemable Noncontrolling Interest

For the thirteen weeks ended May 1, 2021, net income attributable to redeemable noncontrolling interest was $0.6 million compared to net loss of $(0.2) million in the prior-year period. This represents the allocation of the Pura Vida net income (loss) to the noncontrolling interest. The net income (loss) was due to the factors described above in the Pura Vida operating segment.

Net Loss Attributable to Vera Bradley, Inc.

For the thirteen weeks ended May 1, 2021, net loss attributable to Vera Bradley, Inc. decreased $13.2 million to $(2.1) million from $(15.3) million in the comparable prior-year period due to the factors described above.

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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”). There was no debt outstanding as of May 1, 2021. 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, 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, and other strategic uses of cash, if any, for the foreseeable future.

Cash Flow Analysis

A summary of operating, investing, and financing activities is shown in the following table (in thousands):

						Thirteen Weeks Ended
						May 1, 2021						May 2, 2020
Net cash used in operating activities						$	(10,040)					$	(24,746)
Net cash (used in) provided by investing activities						(458)						19,692
Net cash (used in) provided by financing activities						(2,300)						37,413

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; and the effect of changes in assets and liabilities.

Net cash used in operating activities for the thirteen weeks ended May 1, 2021 was $10.0 million compared to $24.7 million for the thirteen weeks ended May 2, 2020. The decrease in cash used in operating activities was primarily related to the change in assets and liabilities and a decrease in the net loss adjusted for non-cash items. Changes in assets and liabilities resulting in a source of cash were primarily related to an increase in trade accounts receivable collections, mostly due to the impact of COVID-19 on the prior-year period. Changes in assets and liabilities resulting in a use of cash were primarily related to the timing of payments, including rent payments which were impacted by payment deferrals in the prior-year. There was also a change in the income tax receivable due to an increased loss in the prior-year period. In addition, accrued employment costs were lower in the prior-year due to COVID-19-related salary reductions and furloughs.

Net Cash (Used in) Provided by Investing Activities

Investing activities consist primarily of investments and capital expenditures related to new store openings, buildings, operational equipment, and information technology investments.

Net cash used in investing activities was $0.5 million for the thirteen weeks ended May 1, 2021 compared to cash provided by investing activities of $19.7 million for the thirteen weeks ended May 2, 2020. The increase in cash used in investing activities was primarily a result of proceeds from investment activity in the prior-year period that did not recur in the current-year period.

Capital expenditures for fiscal 2022 are expected to be approximately $8.0 million to $10.0 million.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $2.3 million for the thirteen weeks ended May 1, 2021 compared to cash provided by financing activities of $37.4 million for the thirteen weeks ended May 2, 2020. The increase in cash used in financing activities was primarily due to financing activities that occurred in the prior-year period but did not recur in the current-year period including borrowings of $60.0 million under our Credit Agreement, partially offset by $18.7 million for a contingent consideration payment associated with the July 2019 acquisition of Pura Vida and $3.1 million in common stock repurchases.

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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 1, 2021.

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 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.

As of May 1, 2021 and January 30, 2021, the Company had no borrowings outstanding and availability of $75.0 million under the Credit Agreement.

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 January 30, 2021.

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

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the fiscal year ended January 30, 2021. There were no significant changes to any of the critical accounting policies and estimates described in the Annual Report as of May 1, 2021.

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.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of May 1, 2021, 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 January 30, 2021.

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 1, 2021.

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.

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In August of 2019, Vesi Incorporated (“Vesi”) filed suit against the Company in the U.S. District Court for the Southern District of Ohio related to the Company’s licensing business and alleging breach of fiduciary duty, unfair competition, defamation, and tortious interference with prospective business relationships. The complaint seeks damages in an amount not less than $10.0 million for punitive damages, attorney fees, prejudgment interest, and any other additional relief. The Company has denied any liability and intends to vigorously defend itself in the case. In November 2019, the Company filed a counterclaim against the principals of Vesi as personal guarantors for monies owed to the Company by Vesi. The cases are currently in discovery. At this time, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition or results of operations due to the fact that the Company is vigorously defending itself and management believes that the Company has a number of meritorious legal defenses.

In April of 2020, Chidimma Igboakaeze filed suit seeking class certification for all current and former hourly-paid employees who worked for the Company within the state of California during the four years preceding the filing until final judgement. The complaint alleged various violations of the California Labor Code related to wages, overtime, meal and rest breaks, non-compliant wage statements and records and other similar allegations related to employment. The Plaintiff also filed a Private Attorney General Act claim with the state of California regarding the same allegations. This case was settled in the first quarter of fiscal 2022 for an immaterial amount.

The Company is subject to other legal proceedings from time to time in the ordinary course of business, but does not believe any of these such claims would have a material adverse impact on the Company at this time.

ITEM 1A.    RISK FACTORS

Except as follows, there have been no material changes to the risk factors previously set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

Losses or disruptions associated with our distribution systems could have a material adverse effect on our business and operations.

Our operating results depend on the orderly operation of our receiving and distribution functions, which also depends on our vendors' adherence to our shipping and receiving schedules. We may not anticipate all of the changing demands that our operating activities may impose on our receiving and distribution functions. There may also be events that are beyond our control that could cause delays in these functions, including but not limited to, public health pandemics such as COVID-19 and other catastrophic events, changing macroeconomic trends, and general disruptions or delays in shipping and receiving.

In addition, we rely on the flow of our goods through worldwide ports on a consistent basis. Disruption at the ports could create significant risks to our business, particularly if the occurrence is during a peak import time. For example, COVID-19 has resulted in a shortage of shipping containers, the lack of available shipping vessels, capacity constraints, and a general shipping backlog. If we experience significant delays in our receipt of product, we may experience an increase in freight costs, unanticipated inventory shortages, and missed sales opportunities which could adversely affect our financial condition, results of operations, and cash flows.

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On November 29, 2018, the Company's board of directors approved a share repurchase plan (the “2018 Share Repurchase Program”) authorizing up to $50.0 million of repurchases of shares of the Company's common stock. On December 3, 2020, the 2018 Share Repurchase Program was extended through December 11, 2021. On March 20, 2020, the Company temporarily suspended the share repurchase program to conserve cash as a result of the COVID-19 pandemic. The board of directors authorized the resumption of the share repurchase program beginning on March 11, 2021.

There was no activity under the program during the thirteen weeks ended May 1, 2021.

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
January 31, 2021 - February 27, 2021			—						$	—					—						$	32,939,607
February 28, 2021 - April 3, 2021			—						—						—						32,939,607
April 4, 2021 - May 1, 2021			—						—						—						32,939,607
			—						$	—					—

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ITEM 6.    EXHIBITS

a. Exhibits

 

Exhibit No.

Description

10.1

Fiscal 2022 Annual Incentive Compensation Plan (Executives)

10.2

Form of Performance-Based Award Agreement under the 2020 Equity and Incentive Plan

10.3

Form of Restricted Stock Unit/Performance Unit Terms and Conditions

10.4

Form of Outside Director Restricted Stock Unit Terms and Conditions

3.1

Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on June 8, 2021)

31.1

CEO Section 302 Certification

31.2

CFO Section 302 Certification

32.1

Section 906 Certifications*

101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*

Furnished, not filed.

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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 9, 2021						/s/ John Enwright
						John Enwright
						Chief Financial Officer

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