Q3 2020 Earnings Call
Okay.
Good morning, ladies and gentlemen, thank you for standing by welcome to the Vera Bradley third quarter earnings Conference call.
This time, all participants are in listen only mode.
Following the presentation, we will conduct a question and answer session instructions will be provided at that time for you to keep up for questions.
As a reminder, today's conference call is being recorded I.
I would now like turn the call over to Mark do you like thereby these chief administrative officer. Please go ahead.
Good morning, and welcome everyone would like to thank you for joining us for Vera Bradley's quarterly earnings call someone statements made on today's call. Our prepared remarks in response to your questions may constitute forward looking statements made pursuant to end within the meaning of the safe Harbor provisions and the private Security Securities Litigation Reform Act 1995 doesn't.
Good.
Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results could differ materially from those that we expect.
Please refer to today's press release and the company's most recent Form 10-K filed with the FCC for a discussion of known risks and uncertainties investors should not assume that these statements made during the call me operated at a later card.
Undertakes no obligation to update any information discussed on the call I'll now turn the call over the Vera Bradley CEO , Rob Wall Street, Rob.
Thank you Mark good morning, everyone and thank you for joining us on today's call John in right. Our CFO also joining me today.
Both the brand feel badly in pure veto had a strong third quarter performance there, but at least comparable sales full price sell when a customer count once again rosen disorder and pure be this sales what the high end of our expectations. As a result, our consolidated non-GAAP diluted EPS of 20 cents was at the top or guidance.
Range, nearly 70% higher than last year's third quarter EPS of 12 cents.
The addition of pure beauty business to the Vera Bradley portfolio has strengthened our position as a unique lifestyle company, we're sharing resources and expertise as we go to brands together.
Pure of either it's a great strategic fit for girls Bradley with their expertise in social media and other digital marketing strategies and pure beat it has already begun to leverage Vera Bradley's infrastructure partnerships and back office support to bolster its growth.
As previously discussed in fiscal 2019, the first stage ambition 2020 watts to restore our brand and company how.
We continue to build upon that progress in fiscal 2020.
During the first nine months. It this year, we once again improved the quality of our sales and our Vera Bradley full line stores in on Vera Bradley Dot com by increasing comparable full price sell in and these two channels by approximately 7%.
This is on top of the nearly 20% increase in the first nine months of last year.
As we complete your two of our three year journey, we remain steadfastly focused on growing our customer base sales and profitability.
And as a reminder, our three key areas of focus for fiscal 2020 are number one growth.
Our plan is to return to positive comparable sales growth this year and through the first nine months Vera Bradley's comparable sales were up 3.8% in line with their expectations, even in this space or the challenging North American handbag market or improvement, it's being driven by exciting innovative product and supported by data driven marketing.
And the reason that must focus on customer engagement and consumer experience.
Customer count is up double digits year over year, and the acquisition a pure be the is adding to our growth as well.
Number two operational exports.
Midyear, we began the to your process to re platform in our ERP or enterprise resource planning and other key information systems become more streamlined nimble and efficient and our technology and business processes.
We have also successfully focused on mitigating the impact of increase tariffs.
And number three ownership.
Reinforcing our unique culture as an ownership based model for every associate can drive significant value creation through both individual and team efforts.
Let me shift to Thanksgiving and Black Friday weekend overall with the shortened timeframe between Thanksgiving and Christmas most retailers began to promotional activity earlier this year spreading the spending over more days. We also began our promotional activity earlier Vera Bradley and our customer responded to that modestly increased level of targeted promotion.
Sure be the exceeded their expectations over the same period.
We have two very important weeks of selling to go before Christmas and it both Vera Bradley in pure of either our inventories promotional calendar service levels. The website have is well positioned for the important days ahead.
Now I will turn the call over to John to review the financial results and outlook John .
Thanks, Rob and good morning.
The results have been consolidated to include pure Buda, beginning July 17th 2000 banking the first full day following the acquisition.
Prior period numbers have not been we stated.
The current year non cap third quarter and year to date income statement numbers exclude a pure via acquisition related charges, including inventory step up standardization.
Daniel intangible asset amortization.
It's actually in costs and accretion of the earn out liability because well that information technology, we plan on the charges, which were outlined in today's release.
Third quarter consolidated net revenues totaled 127.5 million at the higher end of our hundred 22, and 229 nine guidance range.
Excluding pure view that builds out of net revenues totaled 102.5 million a 4.9% increase over 97.79 in the prior year third quarter.
Excluding charges consolidated third quarter Vera Bradley incorporate net income totaled 6.9 million or 20 cents per diluted share.
This included 70 cents attributable to pure Vito.
As Rob noted our third quarter results were at the high end of our guidance up 16 to 20 cents.
Last year, we posted net income of 4.2 million or 12 cents per diluted share for the quarter.
Currently our third quarter beer Bradley direct segment revenues totaled 78.4 million, a 6.7% increase favor 73.5 day in the prior year after quarter.
Comparable sales increased 4.7% for the quarter at the high end of our expectations.
We closed 11 full line stores opened six factory outlet stores last 12 months.
Yeah, I'd, rather indirect segment revenues totaled 24.19, basically flat with 24 picture like in the prior year after quarter.
Adoption with it and then a number of department store doors was offset by the timing of certain revenues that were playing for the second <unk> third quarter for a second core excuse me, but realizing that there quarter.
Sure be that segment revenues totaled 25, nearly at the high end of our expectations.
Excluding inventory step up English station gross profit totaled 74.1 million or 58.1% of net revenues compared to 57.2 main or 58.5% in the prior year after quarter.
Pure be that benefited the current year third quarter non-GAAP gross margin by 110 basis points.
non-GAAP gross margin percentage was slightly better than our guidance range of 57.5% to 57.9%.
As expected improvement in fear Bradley's full price selling and sourcing operation tickets and well more than offset by the impact of incremental tariffs and increased shipping cost, causing a yield at your decline.
Excluding intangible asset amortization accretion of the earn out liability.
Information technology, we platform Chargers consolidated <unk> expenses totaled 64 million.
50.2% net revenues for the quarter compared to 51.9 billion or 53.1% of net revenues in the prior year third quarter.
These non-GAAP expenses within the guidance range of 62.5 to 60, forming.
In addition to the 2.5, no intangible asset amortization excluded about purely to added 11.4 million of S. generic expenses.
In addition to purely the expenses total <unk> expenses were higher than the prior primarily due to new factory store openings.
Excluding charges currently a consolidated operating income totaled 10.1 way or 7.9% up net revenues compared to 5.39 or 5.5% net revenues from the prior year third quarter.
Consolidated net revenues totaled.
38.3 million for the current year nine months ended November 2nd 2019.
Excluding pure of either fear grabbing net revenues totaled 307.9, 0.3, 0.4% increase over 297.9 laid into probably you're at nine month period.
Excluding charges build that incorporate is consolidated net income for the nine months totaled 13.8 million, it's 40 cents per diluted share.
This performance included eight cents from pure Anita.
The prior year nine months, we posted net income of 12.1 million or 34 cents per diluted share.
Bill probably direct segment revenues for the currently indictments totaled 243.986% increase from 230 loans in the prior year.
Comparable sales increased 3.8% for the period.
Hi, selling their full line stores and until probably dotcom increased by approximately 7% for the nine months.
Bill Botti indirect segment revenues for nine months decreased by 20% to 64 million from 67.99 in the prior year, reflecting a reduction of orders and then a number of department store doors.
Sure beat affected revenues totaled 30.4 million.
Excluding the inventory step up amortization gross margin from nine months totaled 192.9 million or 57% on net revenues compared to 171.5 million worth 57.6% I've got revenues in the prior year.
The inclusion of pure view that benefited the current year non-GAAP gross margin by approximately 50 basis points.
As expected improving popular badly school price selling its sourcing operational efficiencies were more than offset by the impact of Chinese tourists increased shipping costs.
Excluding the purity to acquisition related charges and incremental information technology platform charges.
<unk> expense totaled 175.39 or 51.8% of net revenues.
Current year nine months compared to 56.3 million or 52.5% of net revenues in the prior year.
Good day to the 2.9 million of excluded intangible asset amortization purely to added 13.8 million could estimate expenses.
Excluding charges the company's consolidated operating income was 18.7 million were 5.5% of net revenues in the current year compared to 15.4 million or 5.2% of net revenues in the prior year nine month period.
Now, let me turn to the balance sheet.
Capital spending for the quarter in nine months totaled 3.3 million, an 11.4 million respectively.
During the third quarter, we repurchased approximately 3.9 million common stock.
At the end of the third quarter with approximately 38.1 million remaining under a 15 million dollar share repurchase authorization.
Cash cash equivalents and investments are the quarter into the 48 million compared to 131.69 at the end of last year's third quarter.
The reduction from the prior year this primarily related to the pure Buda acquisition, we continue to have no outstanding debt.
In terms of 130 34 million.
Which included 23.1 million of inventory related to purity to [noise].
Inventory was 96.3 million at the end of third quarter last year.
The consolidated inventory level was modestly higher than our guidance range of 120 to 130 million, primarily due to the acceleration of quarter enlist used in order to minimize the impact of tariffs.
No they take a couple minutes with your outlook for the fourth quarter fiscal year.
All forward looking guy this numbers, but I will discuss our non-GAAP include expected purely due to performance.
Prior year numbers exclude pure via.
The gross profit as generic EPS numbers exclude the charges related to the acquisition of purely to including inventory step up and legislation contained gold asset acquisition transaction costs and the accretion of the earn out liability.
The information technology systems, we talked on the charges.
For the fourth quarter, we expect net sales of 155 to 162 million, which includes estimated pure will be the revenues of 36 to 40 million.
Prior to your fourth quarter revenues totaled 100 peachy come to mind.
For the quarter, we expect your body's direct segment net sales to increase in the low to mid single digit range, including flat to low single digit increases in comparable sales.
These expectations reflect a shortened holiday selling period and modest reductions in retirement selling in the fourth quarter.
We expect.
The appeal by the indirect net sales were down in the low single digit range for the quarter.
We expect a fourth quarter gross margin will be between 57.5%, 57.8% compared to last year's fourth quarter late a 56.8%.
Good point increase reflects the benefit of cheerleader and moving their body manufacturing to lower plus countries, partially offset by bill does increase shipping costs and modest increase in promotional activity.
Fourth quarter extra expense is expected to range from 66 to 67.5 million compared to last year's fourth quarter estimate expense of 55.6 million, reflecting incremental expenses related to new factory store locations, partially offset by full line store closures, an approximate 13 to 13.5 million of estimated expense related to pure.
Due to operations.
We expect consolidated fourth quarter diluted EPS to be 49 to 53 cents, reflecting accretion of approximately 14 to 16 cents from shows either.
Diluted EPS was 25 cents in the prior year fourth quarter.
We expect inventory to be in 125 to 135 million range at the ended the fiscal year compared to 91.6 known last year.
Included in this made its approximately $20 million a pure Buda inventory.
In addition, the beer Bradley portion affects the acceleration over the seats in order to minimize the impact of terrorist tariffs.
For full year, we expect net sales of 492 to 500 million, which includes estimated pure Buda revenues of 66 to seven then.
Net revenues totaled 416.1 note last year.
Our full year, a full year revenue guidance assumes gear Bradley direct segment net sales will increase in the low to mid single digit range compared with prior year, including a low single digit increasing comparable sales, we expect that they would rather indirect net sales to be down in the mid single digit range for the full year.
We expect our consolidated gross margin for fiscal 2020 will be between 57.3, and 57.4% compared to 57.3% last year.
So very badly improving full price selling can sourcing operational efficiencies were more than offset by the impact of incremental tariffs and increased shipping costs.
However, the inclusion of purity, there should have a positive impact on annual consolidated gross margin.
We expect yesterday expenses total between 241, and 243 million for the year compared to trailing 12 million last year, reflecting incremental expenses related to new factories dilatation, partially offset by full line store closures.
Approximately 26.8 to 27.3 million I'll be as many expense relates to pure Rita.
We expect full year deluded EPS range from 90 to 94 cents, an increase of over 50% 59 cents last year approximately 20 to 24 cents of that increase is attributed to pure either.
I note on tariffs, we continue except the tariffs will negatively affect gross margin by approximately 80 basis points for the year equating to about eight cents crusher.
Capital expenditures were totally total approximately 13 million compared to 8.1 million last year, reflecting investments in new factory stores can technology and logistic enhancements.
We expect to generate 30 to 40 million of consolidated operating cash flow in fiscal 2020. This estimate is lower than our prior has been primarily due to projected year inventory levels Rob.
Thanks, John .
Let me take a few minutes to give you an update on both the boat brands Vera Bradley in pure Vito.
Let me start with your Bradley.
As planned we have returned to positive sales growth. This year, our strong 4.73rd quarter club shows we are successfully engaging our current customers reengaging lapsed customers and bringing new customers to Vera Bradley with our compelling and innovative products supported by our targeted marketing initiatives and customer experience efforts.
On the product front, we continue to go dominant snarky franchise areas of travel campus Gibson Beach as well as our top 10 items.
We had a good back to school selling season in August and September with fails to backpacks and lunch bags higher than last year. We benefited from innovation. This season, including are clearly colorful collection larger school backpacks smaller fashion backpacks and swings.
Backpacks and slayings are important components of our hands free focus we're just continuing to gain momentum.
We have brought a lot of innovation and newness to the market. This fall.
Right. So the athleisure movement has made customer purchasing decisions increasingly driven by performance.
In August we introduced our first in a series of innovative performance fabrics called performed well.
Performance 12, as a beautiful solution that is lightweight durable and watery pellet.
Customers love it it is especially appealing to both younger and higher income customers. We will continue to innovate and add sustainability elements to our products are we acted collection made a fabric from recycled plastic bottles will be introduced in January .
We've enhanced our signature duffel franchise by adding more sizes in children traps. This fall we introduced our innovative lay flat collection personal pieces, including our double weekender and cosmetic bag that ended up on all three sites and opened flat for easy access to build a deep and ultra organized packing.
In September the accessories Council selected our lay flat double as a winter first design Excellence awards in the travel luggage category hard side, Doug It continues to be growing in popularity with our customers and we will continue to add more options to our collection.
Not at least albertson products continue to perform well our foreign and play forecast me out capsule collection debuted in September and was a big kit with our cat Levine customers with many pizza hut selling how quickly. These types of special limited time capsule collection centered around the seasonal periods or novelty added.
Segment, and a sense of urgency for our customers to shop. They also attract new customers to the brand.
We are certainly in the middle of the holiday selling season and have an amazing assortment of gifts to appeal to a wide range customers. Our holiday collection includes are very very polar bear novelty styles as well as a popular Buffalo Chuck pattern, our cozy collection of top selling throws as well as holiday road sleep Burns the birds are all.
Okay, great gift ideas, we have made it easy for holiday shoppers with our gifts under collections of gifts under 20 550 or $100.
Let's shift in product collaborations.
Offering limited edition collections in collaboration with unique partners increases our brand exposure introduces new customer storebrand improvised momentum to our growth. These partnerships are truly a testament to the strength in white appeal of our brand as you know weve entered into several very successful in high profile Prada.
Collaborations this year.
Clearly Angela Peanuts Starbucks in crocs.
In October we introduced the co branded Vera Bradley plus pop sockets collection to five Vera Bradley inspired design for pop socket patent somewhere.
In November we were proud to partner with sort implies or create an exclusive limited edition many collection consisting of a backpack unquoted they need the per college, which debuted on veterans day supporting military families is very important to our customers and this was a great opportunity for us to join in the collection with manufactured in the U.S. and support sorghum well.
Work with American manufacturers for our own partially owned by veterans.
We also designed it exclusive backpack inspired by the central character and whose original series Holly hobby.
All these signature backpack, a speech or through season, two of whose breakout hit and additional Vera Bradley backpacks I opened designs are spotlighted throughout the 10 episodes season.
We're working with several other iconic internationally known brands unexciting future product collaborations.
Most notably we are thrilled about our 2020 collaboration with Warner Brothers consumer products to create a Vera Bradley plus Harry Potter back to campus in denim line and the Vera Bradley plus Harry Potter Cosy capsule for holiday gifting, we know that many of our Vera Bradley fans are also western world devote cheese, who will love.
Yes.
Now, let's turn to marketing.
Our digital and marketing teams are focused on growing our customer base and enhancing customer engagement in mid year. We completed the in sourcing of our customer data science team added to our business analytics team in completed the rollout of our new customer data platform.
The insights gained from our robust customer data allow us to adjust our marketing next an approach on a real time basis. The investments, we're making are paying dividends, we are experiencing a double digit increase year over year and new customers for the brand and double digit increases in revenue directly related to these activities.
Brent collaborations and Influencer engagement continues to be important for the brand each of our product collaboration shows the strength and relevance of our brand and generated tremendous media buys are back to school and performance will influence or campaigns drove awareness through the nine month period year over year media impressions of increase.
More than 150% largely attributable to these collaboration and Influencers.
And the spirit of sharing experience between our two brands. We are learning from Jersey that social media successes, we are evolving our presence on key social media channels, especially on Instagram.
And that led to a double digit growth the new website visitors and revenue attributed to social media in the third quarter.
As we reinforce our position as a total stakeholder focused and socially conscious organization marketing and social media engagement are key to this endeavor.
We continue to strengthen our community support and charitable initiatives under the umbrella BB cares identifying areas, where we can make a meaningful impact and that are meaningful to our customers, particularly in the life of women and children, we want to create positive change it often invite our customers to participate with calls to action.
We just wrapped art wrapped up our second year back to school partnership with blood things in a backpack an organization that mobile licensed communities individuals in resources to provide food for the millions of elementary school children and Crossamerica good might otherwise go hungry.
We donated 50000 backpacks to children need and with the support of our customers we were able to donate nearly 140000 to the organization this year.
In addition to supporting a great caused in helping children and their families. Our collaborations with Watson's in a backpack also generated over 2 billion media impressions during the third quarter.
At Vera Bradley activities supporting the Vera Bradley Foundation for breast cancer go on all year we.
With the support and compassion of our customers are be the hope campaign raised 2.1 million this year, bringing our total donated to the foundation to 34.6 million since its inception.
Sounds nation far advanced breast cancer research at the Vera Bradley Foundation Center for breast cancer Research at Indiana University School of Medicine.
Moving onto distribution.
Our goal is to gross sales in each of our direct customer channels in fiscal 2020 and through the first nine months of this year we're on track.
And our full line stores, we continue to focus on our highest potential stores by enhancing the customer experience further localizing, our assortments and making our windows the in store presentations pop with excitement.
We continue to rationalize and strengthen our full line store base, we closed eight underperforming full line stores in the first nine months to the year expected close a couple of more in January .
This will bring our total full line closings to 25 since the beginning into fiscal 2018.
And we could potentially close up to an additional 15 stores problem in this fiscal year at the ended the quarter. We had 91 full line stores.
This year, we have focused on strengthening our factory performance by refining our pricing model and added six new locations. In addition, we successfully relocated and expanded three ever talk factory stores in high domestic tourist destinations Severeville, Tennessee.
Yes in Florida, and Branson, Missouri, and post expansion, we are experiencing double digit sales growth in each of these locations at the end of quarter, We had 63 factory stores.
Our goal is to create an engaging customer experience that our full line in factory stores on Vera Bradley Dotcom and our fulfillment operations and then our customer service Department, our voice of the customer initiative and our full line customer service model continued to drive industry, leading customer satisfaction scores quarter after quarter.
And especially channel we remain focused on growing our top accounts.
Well, we are beginning to see stabilization and on Reengaging lapsed customer.
As you recall, we are reducing our department store distribution to focus on the most productive locations Vera Bradley as currently represented and about 2200 specialty stores and 440 Department stores.
Now, let's talk about pure Vito.
If you're a b they had a terrific third quarter with sales up more than 50% over last year.
We experienced very healthy growth across both direct and indirect channels.
Like Vera Bradley pure view that focused on continuing to grow and expand as they lifestyle brand retaining existing fans and adding new customers along the way by constantly evolving their designs and product offerings and enhancing customer engagement through marketing and social media.
On the product from pure be that continues to experiment with and introduce new designs and their signature core bracelet jewelry as well as introducing new trends outside of their core Beachy died.
This year's launches of their mood ring and new bracelet.
Enamel Daisy collection, semiprecious own charms and jewelry and stones oops had been wildly popular expansion into other jewelry categories remain strong.
For best breast cancer research to the boys and girls clubs to save the Dolphins charity bracelets continued to be a big drop with pure of either reaching 2 million in lifetime charitable contributions during the quarter.
And leaning into the personalization trend pure beat it Gradable collection will debut in January .
For the holidays, they have created jewelry exclusives and giftable box sets and they introduced a holiday gift guide for the first time this year.
Turning to marketing and consumer engagement.
Jeremy the is one of the most highly engaged brands and accessory space.
They surpassed the 1.9 million Mark the followers on Instagram this quarter and the number is growing monthly they are consistently lifted as one of the most if not the most engaged to rebrand on Instagram.
Your viewed as creativity and effectiveness in social media engagement at nearly unsurpassed their army of 80000 micro Influencers is a key part of their strategy and during the quarter pure be that successfully partnered with several of their key influencers for special style pack launches that were extremely popular.
Pure Buda also did co branded social media giveaways with such iconic brands. It's a for a movement for the support collection give away at both brands posted.
Giveaway imagery on their respective feeds operating a bundle up to four collection goodies, along with a set of pure Buda bracelets to three lenders.
For movement, they offered a watch any Paris sunglasses and pure visa operated clutch a pure via the items to one lender.
These types of collaborations are ongoing and create excitement increase your view this brand awareness and bringing new customers to the brand.
As a final note like Vera Bradley pure via the consistently ranked at the top of the industry for their net promoter and customer satisfaction scores.
Just to wrap up we're certainly pleased with our EPS growth of nearly 70% in third quarter with our strong brands, our talented and innovative teams are solid balance sheet and our clear strategic direction, we are well positioned for the future.
Over the last two years, we've made significant progress and restoring our company that health and have returned to growth. We're looking forward to completing our vision 2020 journey in fiscal 2021, and continuing our momentum into the years ahead.
Operator, we will now open the call for questions.
Thank you.
The question.
Sorry.
Keith.
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Turned off.
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Once again.
The question.
Your first question.
[laughter].
Thank you good morning, and congratulations on a solid quarter.
With with respect to the comp growth can you break down he's traffic and ticket you are getting its more broadly as we think about the low single digit comp growth. This year, how much of that as result of some of the pricing actions, you've taken offset tariffs and how do you expect the complexity of the comp to change as we head into to.
2020.
Well, thank you Mark.
From the comps standpoint, what we're seeing is.
The improvement in traffic overall traffic is up slightly we're seeing conversion up slightly we're saying a de <unk> ats up slightly what we're seeing a little bit of negative pressure again slight is in eight you are so that from an HR standpoint, we're seeing customer continues to go towards us.
Hands free movement smaller items, which is driving down the eight you are slightly.
As we look forward to next year, what we're planning on its similar type of performance in terms of.
Positive comps across both of our store channels as well as continuing to lead comps with our ecommerce business is the big driver.
Okay. Thank you for that and with respect to the new customers you're tracking to the brand what is the average spend look like relative to some of your more mature customers and I'm curious what categories, if any there over indexing too.
In terms of the detail in terms of the new customer what we are seeing as the new customer is definitely responding to what we're bringing in innovation, whether it's new fabrics, whether its novelty so they're definitely coming in with the newness that we're bringing overall into the branded audio.
Lastly, as their joining then we're going to watch their spend we kind of need then to anniversary a year to see how their spend.
Goes throughout the holiday season, but we're encouraged by the early signs.
Thank you and then maybe one last one for me just on the tariff front I guess, if if a deal is reached on tariffs in the coming months I'm wondering if you can frame up the various scenarios, we should be thinking about from an earnings perspective next year, just wondering how much in a lift would you see the margins and earnings all else equal.
To the extent, but there is a lift would you think about reinvesting some of that in customer acquisition versus letting it falls the bottom line, obviously, none of US know how that's going to play on the short run, but just curious how you're thinking about that in the near term.
Yeah, Hey, Mark this is John so from a tariff perspective right now we're playing for tends to be around but if terasquare to excuse me go away I think when we think about next year you won't you won't have an 80 basis point impact that probably will have call. It 40 to 50 basis point impact of improvement and I think we'll have to think about kind of how we reinvest that right. So I think we probably would be.
Some of the in customer acquisition.
Thanks for all the detail best of luck is holiday.
Hi, Mark Martin.
Our next question from Oliver Chen with Cowen and company. Please go ahead.
Congrats and thanks regarding next year, what are your thoughts for some of the key product drivers our initiatives that will lead to your from your constructive view of positive comps as we look at next year.
I would also love your updated thoughts on on customer acquisition and progress you've made towards towards new customers and how that will continue to evolve.
Thanks Oliver.
First of all as we look forward. What we're excited about is the platform of innovation that we have planned across a couple of categories. One of it is just really around fabric you've heard what their performance 12 hour customers responding to that we have the reactive collection. This planned in January which we think again, we'll have similar response from the consumer.
No we're continuing to drive that fabric innovation, which we believe will be key and we have more into development pipeline threed and the following year.
In addition to that we believed that the collaborations continue to be an important part of the story, which help partially through revenue, but also also through customer acquisition. We think that Harry Potter is gonna be are really important.
Operation for US next year as we think about product categories. It's really in the areas, where we have always had strength and we're just really doubling into so the backpack classification continues to be very strong for us. The travel classification continues to be strong. So those are the two primary areas of focus.
We think about driving our business next year. The other thing that becomes really important is our whole customer piece to the business in terms of everything that marketing has been doing in terms of data.
Yeah, and using data to improve our marketing effectiveness. So we can leverage our marketing spend to bring more customers and reengage, where customers who have lapsed that becomes really important and then as we think about next year from a channel break down.
Our investment not only in data in customer acquisition, but just in the digital experience overall in terms of e-commerce or our ERP work being completed we believe will really keep digital as the.
Fastest growing channel that behalf.
[noise], Okay, and what's important for us to now as you think about indirect and how that channel should grow or be flattish would love your thoughts on.
No the run rate and the latest strategies and attending Youre thinking about the health of that channel.
Yes, the indirect channel our real strategy. There is about just trying to bring that more to a sustainable level of performance, we don't see that as a high growth area with inside a bit. There's obviously mix changes in terms of what's doing well and maybe what is getting smaller. So if you think about what's happening.
That channel digital things like Amazon are growing they'd like department stores are shrinking, which I don't think would probably be a surprise based upon everything that were seen in the market and our specialty channel, it's encouraging to see that our top accounts are but that's customers are stabilized and beginning to show some growth.
The one negative pressure we have their continued its just kind of that channel in terms of mom and pop ownerships and the number of stores that that close.
So offsetting growth under our best customers with some store reduction.
Our approach that but we think overall, we're expecting that channel relatively flat as we look forward.
Okay and on the on the promotion find you gave a lot of details around the environment being.
Competitive and you, but you've also managed doing a good job with your own full price selling our promotions this year versus last year and what is the outlook for merchandise margins as you see it.
Well I think you know promotional year over year as we've gone through in terms of our core promotion.
Over the Black Friday period was very similar to last year.
So it's not so much that the prices went deeper it's more whether the consumable responding to it.
And so what we're seeing or is being very discerning in terms of pricing and very driven towards other promotional period. So we're trying to manage that out but we're very committed to our core strategy of reducing retirement and we're not moving off of that at all we're still plenty to take $2 million out of this quarter. So we feel that we definitely.
We're on track, but we are seeing.
More discernment from the customer in this quarter in terms of she's more price sensitive it feels like that she was in the price and the pretty this quarter.
And Rob what do you think about the best strategy going forward to optimize that and how do you anticipate your thoughts around promotions this year versus last year.
End of next year.
We think really the key is becoming more and more driven towards individual customer promotions.
And really how do we kind of leverage and really promote appropriately to each customer differently or that building up of the data practice that we have the analytics data scientists the database in house and really been able to target promotions is gonna be critical dependent navigating through this.
Okay and the the traffic was.
Really helpful by that was slightly positive do you expect traffic can be volatile will not be a a risk factor it's been an industry.
Sure and in many cases thanks.
Yeah, we definitely has been it's been an interest in holiday season, because they would be can didn't calendar and how the customer shopping it's been a little bit erratic kind of up and down. So we really have to kind of get through the whole season and see how oil balances out. So we are watching that but overall, we've been encouraged with everything that we've been doing from a product.
In marketing standpoint that we've seen our traffic become more stable.
Well if you look over the last few years traffic was definitely a significant negative drain for us we're seeing it become more stable, we're not seeing it turned into a robust growth.
But we're seeing it become more stable and so we're hoping to see that as we go forward.
Okay and our last question is about your digital roadmap.
What are your thoughts on what your customers may one in terms of.
The buy online pick up in store, and and mobile functionality and where you're headed with but priorities.
I would answer a few way so first of all and from our ERP standpoint.
There's a lot of things that were priority in that but as we did the ERP and kind of replatforming of ecommerce have really making a seamless unified commerce experience work that is critically important it's one of the drivers underneath that and what we are seeing from the customers where we currently do buy online pickup in store, we think that that's now.
Area that continue to grow we think that's a digital experience to with about how do we use the data and the individual experience to make the digital experience individualized inhabited we really show the customer what's most important.
Jennifer as opposed to just given her generic messages. So it's really focusing on each consumer and given a very customized experienced long term and that's obviously a long term road map and we'll start with you know some wins and build them as we go forward through next year and following years.
Thank you best regrets happy holidays.
Thank you Oliver you too.
Okay.
Question.
And your question.
From the question Q.
Yeah.
Your next question.
<unk>. Please go ahead.
Good morning.
Good morning.
I'm, a little bit up here I know you've been running.
As of the product.
Bradley stores, what did the future for that and.
Well, maybe you Standalone score.
[noise] Yeah Eric.
Over sponsors first of all we have done a few test with pure via the and the Vera Bradley store you know we did our backpack collaboration we did the best Cancer Foundation bracelet.
We think there is an opportunity to do a little bit of cross promotion. We we are working on continuing to expand the pure of either closed or Bradley charity bracelet program. We think that's a perfect partnership for both brands.
Brands have there's great history of giving back and we're seeing our customers get very excited by that new building to be engaged so I would expect to see that continue to grow as we go into next year I'm in terms of pure beta in Standalone stores, we are definitely working with the pure of either team to understand really going forward the best.
On a channel mix. So we are evaluating all of those things will have more to talk about next year.
All.
Great and then you looked at the terrorists situation what is your.
When we bought up in the last conference call.
Let's see what was the percentage you believe you're going to have from China. This year, how should we thinking about that going forward.
Eric This is John So we we said we'd be roughly call. It mid twenties by the end of this year and we expect to get down to call. It mid teen So 15, 16%.
And it's not only good rather the entire company because I know pure veto lowers should lower that even more.
So that's specific it's just specific to the beer volume. So if you're taking look at all purchase associated with the total company, which I don't have that kind of me, but if I would love to pull a percentage.
Okay.
I still have the impact last question you get back on the accruals from the buyout for.
For Veeva.
Are those going to continue and when do you expect to make the cash payment on the pure be a vial.
So I think you're talking about the earn out liability the accretion to that yes, we expect to see some accretion upsell in the fourth quarter. So the total payout would be about 22, and a half million dollars and the timing that Pat will probably be first quarter of next year.
Okay. Good luck guys in the good holiday season.
Your next.
Our next question.
Okay.
Good morning, Robin John You mentioned on Black Friday weekend motion.
During the week can you quantify a little bit maybe in a Monday through cyber Monday versus last year.
Quantify a little bit performance on a companywide basis during that period of time.
Yeah in terms of Black Friday promotion and what we saw is a couple of different things one large retail industry I think we've seen black Friday start to become almost a month than they've been pretty tight as you think about the best buys and everybody else out there, but specifically within our world more close competitors, what we saw as everyone.
I'd really begin to move to the weekend. Prior so that we can prior to Thanksgiving is really when they started kind of the black Friday promotion, we did a more moderated version of our Black Friday promotion that we can before and then really kind of stepped it up as we moved into the bought quite a period. So if you take that entire periods.
The weekend prior through kind of cyber Monday, while we were seen as performance across channels very similar to what we're guiding with for the quarter kind of inline with that low growth rate, but definitely a lot of movements in terms of where the volume we're showing up by day.
Okay, that's very helpful.
Please remind me of the split up here between direct and indirect and its you could also comment on these integration where you are.
Savings and synergies standpoint from a cost from standpoint, I know that there's more benefit obviously going down the road funkier.
Sharing their their social media capabilities, you need, but I'm just trying to.
Income statement standpoint.
How would your and operational standpoint, how integrated and when you think.
Thank you.
Yeah. So some of the indirect to direct perspective, you think about from a pure view that they're roughly about 30% wholesale right now so that it's a 7% direct we don't anticipate that changing much you might fluctuate.
Depending per quarter, that's roughly about the rate, we expect and in regards to the synergies you know where we've made some progress in regards to some of the back office I think my finance HR some of the corporate functions with we've taken on some of that responsibility.
The most significant additional so taking on kind of call. It first half of next year, but as you stated that there is not significant cost savings built into this this plan, there's not going to be a significant piano impact from the savings I think it really is going to bring both bands together and you look at kind of what we can do for each other from a a helped drive sales helped that depends for each brand I think that's really where you'll see the.
Savings or Super synergies excuse me, yes, I think just to reiterate which I will say that the biggest the biggest benefit we see a sales growth across.
Sure vetoes, while those bringing it into Vera Bradley and what I will call cost avoidance for jovito.
You know as they continue to scale the importance of adding more infrastructure was becoming an important to them. So we can do that in the way that's very low cost by leveraging the what we already have your Vera Bradley and it can help them avoid costs as they continue to scale the business and so you you don't see it as a quick line in the.
PML.
But it's going to allow them to continue to drive that approximately 20% EBITDA that they're delivering.
We take that the the synergy between the two companies will help support them because you have to remember that they are a very very lean organization going are they have.
30, plus employees and their organization.
Not a lot of various takes a lot of expense out because the number one is really investment in marketing.
Very helpful. Thank you.
Good question.
Your next question.
<unk>.
Good morning, everyone.
New collaboration you've done on product in unison fabrics, how much of that driving the business lately and impacting.
What are you seeing with the exception to that product.
Indirect channel on how it's helping and what you're seeing in the direct channel and lastly on the indirect channel how do you see that customer base.
She's a continuing to be fine.
Thank you.
Thanks, Dan as.
I'm not co lead standpoint, I would say near one of the expansion into co lab.
We were very focused on being prudent in how we did it we focused on a direct channels a lot of what we would do in was more exclusive George direct channels and so we've seen more the benefits come through our full line in E Commerce business.
As we're moving into year two of the strategy and we have a better baseline understanding of how the consumers responding to various collaborations we believe there's an opportunity to bring some of our indirect partners into that and we're very excited by that I believe or indirect partners are very excited by that so you'll see that begin to expand as we move into your two of that.
It it's been really important to get a new customers into brand and also keep our current customers excited you know a lot of our customers are very passionate very loyal has a big clauses or the Vera Bradley and they're looking for stuff, that's new and unique and things like collaborations and fabric innovation and get them coming back and we really see.
I mean, very nice results in terms of lapsed customers returning to the brand as we can bring in these new.
This new innovation. So we think thats really critical to what we do going forward as you think about indirect kind of what we spoke to earlier, we definitely are continuing to see that next rebalance. We believe as we continue to go forward more that indirect business will become e-commerce digitally focus and lots of it will be on the department store channel.
That's one area as we think about the specialty channel again, we're very encouraged to see our best customers and our top accounts begin to see there were barely growing again, and we're seeing a renewed enthusiasm and excitement around the brand as we've been working together and really strong level of partnership and continuing to strengthen that partnership we've seen.
Nice results the top accounts the one headwind we continued to have the just the economic pressure that some of the mom and Pops are feeling and so that's the piece, but I think we'll navigating through is what's the best way to handle that offsets some of that arc home macroeconomic pressure plus about our brand interest more about.
Their distribution channel.
Thank you.
Thanks, Dave.
No further questions.
Well. Thank you very much for joining us on todays call and thank you for following our journey and the progress. We've made since we launched vision 2022 years ago, we remain confident about the future and our ability to deliver enterprise growth in revenue profit and.
Sure holder value.
Thank you for your time and happy holidays.
This concludes today's call. Thank you for your participation you may now disconnect.
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