Q1 2021 Vera Bradley Inc Earnings Call
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Good morning, ladies and gentlemen, thank you for standing by welcome to the beer Bradley first quarter Conference calls.
This time, all participants are in listen only mode.
During the presentation, we will conduct a question answer session.
Instructions will be both places at that time for you to Q4 questions.
As a reminder, today's conference is being Cortez.
I would now like to turn the call over to Mark to lie. Please go ahead.
Good morning, you're welcome everyone would like to thank you for joining us for Vera Bradley's conference call. Some of the statements made during our prepared remarks and in response to your questions may constitute forward looking statements made pursuant to an within the meaning of the safe Harbor provisions of the private secure Securities Litigation Reform Act of 1995.
And as amended.
Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect please refer to todays press release in 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 the statements made during the call.
Paul will remain operative at a later time, we undertake no obligation to update any information discussed on the call I'll now turn the call over to Vera Bradley CEO, Rob Wallstrom, 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.
Let's start with what is on everyone's mind to cover 19 pandemic data only this has been one of the most disruptive and challenging areas and the company's history, but our strong culture in intubation or they just through this period.
We have worked to minimize the pandemics impact on our associates shareholders and other stakeholders, the well be in safety of our associates and customers remain our top priorities. In every decision we make it will take time for consumer confidence customer traffic in shopping activity to return to prepared to pick levels, but I am confident.
The actions we have taken will allow it to manage through this challenge and position us to emerge a stronger company and thrive over the long term.
With adversity comes opportunity. This crisis will have lapped in effect on consumers and transform the way they shop, our 2019 acquisition of pure of either has resulted in E commerce being a larger share of our total company revenues and the digital skills of both companies will be even more critical in this new environment. We are.
Moving ahead with the innovation that will enhance the consumer experience and propel us forward innovation and product marketing and technology.
Many of our customers were anxious to shop, even as our stores were closed our Vera Bradley impure would be the ecommerce businesses combined which represents about a third of our total company revenues on a normalized basis with strong in the first quarter and continues to exceed last year's performance into the second quarter at both pure Bradley MPV to customers.
Responding to new product launches and our marketing initiatives and at Vera Bradley sales of cotton that are also driving revenue.
We are grateful to our customers for their continued loyalty and especially thankful for our many distribution Center E Commerce customer service and other associates, who worked tirelessly work to keep our ecommerce business operating smoothly. During this time.
Beginning in mid March we began taking several actions to navigate the covered 19 crisis protect our financial position maximize liquidity and position us for a strong reopening in future. Some of the actions. We took included temporarily closing all our Vera Bradley store locations on March 19th.
Temporarily for low in approximately 80% of our workforce mid quarter temporarily reducing based compensation for remaining associates with reductions on a graduated scale ranging from 15% to 30% and 75% for me.
Temporarily suspending cash compensation for the board of directors temporarily suspended our share buyback program.
Drawing 60 million from our previously announced is 75 million revolving credit agreement.
Temporarily eliminating our for a one k. and associate charitable donation matches.
Tightly managing inventory levels through the cancellation of orders delayed proceeds or seeking price concessions where possible.
Simply working with landlords on addressing rent abatement payment terms accelerating store closures and delaying or canceling certain planned new store openings.
Reducing non payroll operated expenses, including but not limited to marketing and travel.
And extending vendor payment terms.
We will discuss some of these actions in more detail later in the call.
Now I want to update you envision 2020, and how covered 19 is impacting the strategy.
Over two years ago, we embarked on vision 2020, our aggressive three year plan to restore the Vera Bradley.
Brand and business to a healthy foundation and to return our company to solid growth.
Through fiscal 2020, we've made tremendous progress on strengthening our foundation growing our Vera Bradley brand business and accelerating our total company revenue and earnings growth with the acquisition of pure viewed it.
Our fiscal 2021 goal was to drive more robust growth, but the covered 19 crisis a significantly affected that goal. However, despite the cobot 19th situation. We remain focused on our core vision 2020 strategies of enhancing our brands and long term growth through heightened customer engagement.
10, you'd product innovation, while navigating through the crisis.
Now, let me turn the call over to John to review the financial results, John Thanks, Rob and good morning.
As a reminder, financial results have been consolidated to include pure meta beginning July 17th 2019, the first full day following the acquisition.
Prior period numbers have not been restated.
The current non-GAAP first quarter income statement numbers I will discuss exclude the previously disclosed impairment charges.
Intangible asset amortization.
Expenses related to the re platforming of our I T systems.
Adjustments of the pure view to earn out liability and cobot 19 related charges.
All of which have been outlined in today's release.
Non-GAAP EPS also excludes a FC for 80 measurement adjustment described in today's release.
The prior year first quarter non-GAAP income statement numbers exclude pretty pure EBITA transaction charges.
Consolidated net revenues totaled 69.3 million for the current year first quarter, a decrease of 23.9% over the prior year.
Excluding pure Buda Vera Bradley net revenues totaled 48.1 million, a 47.2% decrease from 91 million in the prior year first quarter.
For the first quarter, excluding charges Vera Bradley incorporated non-GAAP consolidated net loss totaled 10.2 million or 31 cents per diluted share.
For the prior year first quarter, excluding charges the company posted a non-GAAP net loss of 1.8 million or five cents per diluted share.
Vera Bradley direct segment revenues totaled $36.8 million, a 48.2% decrease from 71.1 million in the prior year first quarter. The decline primarily resulted from the company stores that were temporarily closed as a result of Cobiz 19 for approximately half of the first quarter.
First quarter ecommerce sales included in the direct sub segment revenues increased 20.5% over the last year.
Fewer Bradley indirect segment revenues totaled 11.2 million, a 43.5% decrease from 19.9 million in the prior year first quarter.
The decline was primarily due to a reduction in orders from both specialty and department stores as well other key accounts largely related to cobot 19, as well as a reduction in the number of specialty and department store accounts.
Your view that segment revenues totaled 21.2 million in the first quarter.
On a non-GAAP basis, excluding charges for the cancellation of certain purchase orders, resulting from coded 19 gross profit totaled 35.5 million or 51.2% of net revenues compared to 50.5 million or 55.5% of net revenues in the prior year first quarter.
On a non-GAAP basis, excluding the previously outlined impairment charges intangible asset amortization.
Information technology Replatforming charges, an adjustment to the pure view that earn out liability and certain department store exit costs consolidated SGN expenses totaled 51.6 million or 74.5% of net revenues for the quarter.
On a non-GAAP basis, excluding pure lead a transaction costs prior year first quarter consolidated SGN, a expenses totaled 53.5 million or 58.7% of net revenues.
On a non-GAAP basis, excluding charges. The current year consolidated operating loss totaled 16.1 million or 23.2% of net revenues.
Non-GAAP basis, excluding charges the prior year first quarter operating loss totaled 2.8 million or 3.1% of net revenues.
The uncertainties surrounding coping 19 make fiscal 2021 financial performance extremely difficult to predict as a result, we're not providing forward looking guidance.
Now, let me turn to the balance sheet net capital spending for the first quarter totaled 2.2 million.
We can we expect capital expenditures to total between $8 million to $10 million for the fiscal year, primarily related to new factory stores and technology and logistic.
Enhancements.
During the first quarter, we repurchased approximately 2.9 million of common stock.
At quarter end, we had approximately 32.9 million remaining under our 50 million share repurchase authorization.
As a reminder, the board of directors has temporarily temporarily suspended repurchases under the plan.
Cash cash equivalents in investments as of May 2nd 2020 totaled 85.1 million compared to 144.2 million at the end of last year's first quarter.
The reduction from prior year reflects the 95.2 million purely to purchase price and earn out payment netted against the 60 million drawn on our 75 million revolving credit facility during the quarter.
Quarter and inventory was 130 point 132.9 million, which included 15.9 million of inventory related to pure Vito.
Inventory was 90.1 million at the end of the fiscal at at the end of first quarter last year.
We have cancelled approximately 30% of our fall and winter inventory orders as a result of Coca 19 situation.
The good news is that much of our inventory is not seasonal and does not have a shelf life of a fashion apparel.
We will be rational imprudent, as we clear inventory as we always try to be Rob.
Thanks, John.
As I noted earlier, we remain focused on enhancing both the Vera Bradley and peer reviewed a brands through innovation that will enhance consumer engagement and propel us forward innovation and product marketing and technology.
Let me start with Vera Bradley.
Our products must remain up then it can true to our brand, but innovation is becoming more and more critical to our product assortment, we have developed and ongoing pipeline of fabric innovation to ensure market relevance by offering cotton updates in cotton alternatives, both to retain existing customers and attract new customers to the brand we will.
Continue to grow our newest offerings of performance will and reactive and we'll launch more fabric innovation over the next 12 to 24 months.
We will also continue to bring new styles and differentiated silhouettes to the market to meet all facets of our customers lifestyles.
One focus his hands free as it is becoming increasingly important to our customers are long term focus continues to be on building dominance in our key franchise areas of youth campus travel and every day.
As a result to the current environment, we have ramped up our manufacturing and distribution to mass and other personal protective equipment.
We'll talk more about these initiatives and just a minute.
We are continuing with our collaborations and strategic alliances that excite and engage existing and new customers expand our brand reach increased brand awareness generate media buzz and provide opportunities for Vera Bradley to strategically test and ultimately enter new product categories. These partnerships are truly.
The a testament to the strength and white appeal of our brand we launched our newest Disney collection on Vera Bradley Dotcom and March our continuing with our Gillette Venus collaboration distribution through target and look forward to the second year of our collaboration with Crocs, which will launch in August.
We are working with several other iconic internationally known brands unexciting future product collaborations most notably we are thrilled about our collaboration with Warner brothers consumer products to create at Vera Bradley plus Harry Potter back to campus and dorm line that will launch in July.
This collaboration will not only appeal to our Vera Bradley fans were also Wizard world the boat fees, but will also attract new customers to the Vera Bradley brand.
Under the umbrella of DB cares, we will continue to strengthen our community support and charitable initiatives identifying areas, where we can make a real impact, particularly for women and children. We want to create positive change in opt and invite our customers to participate with calls to action.
We are doing all that we can to help them. This unprecedented time, which includes utilizing our facilities in global supply chain to get critical in demand supplies to those in the nationwide. Our approach is three pronged number one through our taking care together initiative, we have tapped into our global supply chain to procure industry.
The most in demand personal protective equipment, including millions of medical mass to support the nurses doctors and first responders bravely taking care of all of US we've been able to get medical grade surgical masks in the hands of those who are having a difficult time, maintaining appropriate supply of ERP like smaller regional medical center as Dr.
As offices retirement facilities and companies that provide critical support.
Number two.
We have ramped up distribution of our Vera Bradley healthcare professional collection, which includes medical scrubs other wearables and bags and these items are available and Vera Bradley Dot com.
Number three.
We converted our Vera Bradley Fort Wayne sewing facilities and utilized our glowing so our global supply chain to manufacture and so hundreds of thousands of cotton face masks for the general public. These masks along with filters are available on Vera Bradley dotcom and in our stores with the Cdcs recommendation that everyone now.
Used costs faced coverings to help slow the spread of covered 19, we're seeing a huge customer response for these items. We are supporting the nurses working tirelessly and bravely on the front line that covered 19 crisis by contributing a percentage of each cotton mass sold to the Corona virus response fun for nurses.
We are proud of our associates commitment to and the execution of all of these efforts and know that by working together, we are making a difference.
Vera Bradley has always been a brand about connecting people and the team has really helped demonstrate that during these difficult times and our social media. We have seen increased strength in both new followers and customer engagement across social channels. We have also seeing customers react very favorably to the amount of user generated content that has been shared by both customers.
And our associates.
Earned media has been strong during the first quarter with 1.4 billion impressions.
We had very good media coverage of our new and sustainable reactive fabrication.
As well as the work, we're doing in bringing cuss customer face masks to the market.
Our second annual collaboration with New Hope girls for International Women's day, and our new partnership with autism speaks not only generated financial support but increased awareness awareness through enormous media attention for two very worthy causes our many capsule collection with Olympian Shawn Johnston East launched in May.
Which included a charitable tie in with plus into the backpack.
While we have scaled back our media spend we've been able to do much more with less our prior investments and data driven marketing and Dan data science to build a programmatic marketing platform helped our teams reach.
React to the uncertainty in real time, we Cook quickly adjusted brand speed away from categories, such as travel and beach and into areas, such as hands free washable and healthcare products.
This allowed us to drive significant double digit improvements and paid media efficiency and revenue attributable to paid media, while lowering our overall marketing spend.
Or enhance voice of the customer program.
He is making a difference.
Vera Bradley mourn the variant customer engagement award for providing excellent customer service, along with achieving outstanding success in customer engagement metrics, including customer satisfaction and our net promoter score.
Let me turn to stores and give you an update on our reopening timetable.
As you know many states or be starting their economies and we have begun to open Vera Bradley stores in locations where regulations allow.
Following guidance from local governments in health authorities and after assessing consumer sentiment store readiness and our associates willingness and ability to return to work, we're taking a prudent and measured approach to reopening our stores, ensuring that we have taken necessary precautions to protect the health and safety of our associates customers and commute.
It is.
On March 5th we began reopening our Vera Bradley full line in factory stores and a phased approach with 18 out of our 83 full line stores in 40 out of 64 factory stores opened as of the end of May.
We anticipate the majority of our store base will be opened by the end of June.
As the stores reopened the company is implementing several procedures and precautions to keep customers and associates safe and secure.
While we are making no assumptions of future performance based upon a limited number of days sales data. The 20 stores. The 27 stores that have been open for two weeks or more since may fiveth have generated revenues in the aggregate of approximately 75% of the prior year sales.
While operating that reduced staffing and hours this is better than we expected.
While traffic is typically down conversion and units per transaction are up we're excited to welcome back.
Customers into our stores and we believe there is some degree of pent up demand is more retailers open and consumers feel more comfortable shopping we believe Vera Bradley's store traffic and sales will improve.
We are in active conversations with our landlords to address our rent obligations for the period. The malls were closed most landlords have been open to deferrals, but are not quick to accept abatement for the close period.
We hope to come to a solution that is fair to both sides for for the both at period end question in future periods.
During the negotiation period, we have not paid rent for the period that the malls were closed.
We expect to permanently closed at least 12 full line stores during the year, which were bringing our total full line closings to 38 since the beginning of fiscal 2018.
We have closed five so far this year.
We will add five or six new factory stores. This year when opened in May.
One is scheduled to open this month and three are scheduled to open in July.
We also just opened our expanded Myrtle Beach, South Carolina factory store.
As you know we are implementing project novus, our new technology platform that will be flexible streamlined and efficient.
Microsoft Dynamics 365 will be our new ERP order management and Pos system in Shopify products will be our new E Commerce platform.
The project should be complete by the end of this fiscal year and will not only less than the complexity of our it systems.
But also will reduce ongoing expenses.
Relday platform for the entire enterprise and enabled the company to achieve our future objectives, both in the short and long term.
We believe it is more important than ever to make quick database informed decisions and to further enhance our customer experience.
Now, let's talk about the innovation and excitement going on a pure beta.
Now more than ever we are confident and the potential other pure via the business.
More and more customers everyday went to be part of the easy and fun pure of either lifestyle.
Even in the midst of the pandemic pure via this total revenues increased 8% over last year led by a 35% increase in ecommerce sales.
Average order values and conversion rates continue to grow year over year.
Total revenue growth would have been even higher but our distribution facility in Mexico was closed for several days and our El Salvador manufacturing facility was closed for several weeks due to the pandemic.
Our distribution facility in Mexico has reopened.
And our El Salvador manufacturing facility has just begun to reopen.
In product, we continually introduced new styles of the peer reviewed a signature core bracelets and style packs and our recent expansions into metal mood and semiprecious stones charms and jewelry have continued in popularity.
And our at higher price points than our traditional string bracelets.
Our spring launches were very successful with several key product introductions like our open heart bracelet selling out in less than a week.
Harry accessories launched in May and are off to a strong start.
Personalization is a continuing popular trend.
Customers can personalize their signature core bracelets by choosing the color combination special to them.
Our patches pens in stickers are easy add ons to sales and allow customers further to further customize their loss.
In January we launched our engraver more collection and we are selling hundreds of and gravel bracelets necklaces and rings daily we will expand this program over the next several quarters.
Pure via this signature charity bracelets continued to be an important element of the pure reviewed a lifestyle and a big draw for our cause mining customers.
This year, we have introduced term bracelet that tie back to specific charities like saved the Dalton save this loss save the butterflies and saved the elephant to name a few.
Several of these charity term bracelets have been so popular that they are currently sold out the will be replenished soon.
Beyond the lookout for more charity terms to be add this year. Another popular addition to the charity offering is our special charity style packs like the clean water for all tax benefits charity water.
And the breast cancer awareness pack that supports boarding for breast cancer.
We even have a breast cancer awareness ring.
The addition of terms instyle packs to our charity component it not only enabling us to increase our price points, but increase our total donations to these great causes.
We will continue to innovate and expand in the signature area of the business.
Pure veeva is expanding on the distribution front.
Early in the second quarter, we launched candidate Shopify fulfillment capabilities.
We have also signed an agreement with hectic Europe known for its experienced warehouse and logistics team and established transportation network for the wholesale distribution of our products in Europe to complement our existing E Commerce business and third party fulfillment there.
We already have many PURA vida fans around the world and this global expansion will allow us to not only serve those customers by expand our reach to others.
Due to cover 19, we have made the decision to postpone the opening of pure viewed as first labs store that was scheduled to open in San Diego. This fall. We are excited about this potential experience show location that will allow us to showcase existing products good customer feedback on new product innovations and provide the backdrop for Instagram bubble moments.
An influence or events. The success of this location will help us determine the path for future PURA Vida store expansion.
Pure visa is also expert engaging customers.
And as always looking for new ways to enhance engagement as well as bringing new customers into the pure of either lifestyle. Our popular monthly bracelet in jewelry clubs provider members, great value monthly surprises and exclusive products and a continual connection to PURA Vida.
We have launched a new loyalty program called the short club customer gets get points for following us on Instagram and Facebook and of course for buying product accumulated points earned can be redeemed for discounts in free merchandise.
We continually interact with our customers through social media and EBIT ask our customers what should we make next.
Our customers mean everything to us and Thats why we always want to hear what they have to say whether its feedback about the branch upon idea for our next product or a new cars. They think we should support and back some of our best selling styles had been designed thanks to fan feedback.
On the marketing front pure via social media engagement is strong and army of brand ambassadors in close to 150000 micro Influencers are an active part of the brand and a key part of our marketing strategy. We will continue to build upon these very impactful programs, particularly focusing on those with the greatest number of followers.
These passionate advocates help us spread the pure Evita movement, showing their love for the brand, while scoring ports along the way.
Pure Veeva is one of the most highly engaged brands the accessory space surpassed into 2 million market followers on Instagram and that number is growing monthly PURA Vida is consistently lifted as the most as one of the most if not the most engaged jewelry brands on Instagram.
And we are excited that we have signed an agreement with dancer and tick Tock Star Charlie's Emilio.
To launch a pure Buda bracelet Influencer style pack. This holiday season with over 55 million followers. She has the most followed personality on tick tock and was called the raining clean of tick tock by the New York Times.
Charlie target demographic fits perfectly with the pure Iveta brand.
Before I close I want to take a mention I, what I wanted to mention that as a corporation, we're strengthening our stance as as sustainable purpose, driven company that delivers meaningful social impact and value for all stakeholders, our associates, our customers our shareholders and our communities.
Although our company has been purpose driven throughout our history, we are enhancing that focus and increasing the visibility to our activities in this area in the first quarter, we published our comprehensive corporate responsibility and sustainability report, which was mailed with our proxy materials and is available on our website. This report outlines our ears.
Gee accomplishments and initiatives in detail.
I'm so proud of how our organization has responded to this unprecedented crisis, even while working remotely our teams have been collaborative and demonstrated focused and thoughtful decision, making innovation tenacity and flexibility are extraordinary culture has allowed us to not only persevere through the crisis, but has made us stronger we look.
Forward to fully reopening business and returning to our new normal.
Operator, we will now open up the colds question.
Thank you.
Question on today's call. Please press star one on your telephone keypad.
Our wanting to ask a question.
We will pause for one moment to allow everyone to signal.
Again that star one to ask a question.
And we can now take.
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From Eric better from SCC Research. Please go ahead your line is.
Good morning.
Good morning, Eric.
Two questions. One is what was it responds to reactive and I know you've had some of that opened before you click slows down and are you seeing the younger customer that was the goal for that.
Yes, the overall response to reactivate spending extremely positive and across multiple areas first of all we are seeing a younger customer really react to that and I believe thats for two reasons. One is the sustainability aspect of it that they're reacting very strongly to in the second is really the active influence.
And kind of a lifestyle of it in addition to that we've had a lot of media coverage on it obviously the environment and sustainability is so important.
That were a lot of people are picking that up because we're able to have a true impact there and we really believe that that will be the first of many actions over the next few years as we continue to make our products more sustainable.
And then.
Yes, the rollout of stores.
I've done a significant number of outlet so lesser number of full price stores is that by design or is that just kind of happenstance on whats opening up and how you can handle it.
It really is by designed for a couple reasons.
One is that our outlet stores are more outside right. There outdoor malls were finding the consumer seems to be responding and feeling more comfortable in the outdoor environments. So we believe that very important.
On the as well as the volume levels, and our outlet stores or higher and therefore, even with the low revenue as we begin to open up there is still a very positive for us. So we thought we would focus our energy where the consumers responding more on where we have the best economic environment, and but we're working hard to get our.
Full line stores opening were.
We're targeting to have all of our stores open hopefully by the beginning of July.
Depending upon government regulations, how the health situation continues to evolve, but assuming all both those things go as expected we would expect to have our stores opened by the beginning of July.
And last question is the Harry Potter collection going to be in the outlets or the full priced stores or combination of both how's that kind of slow out.
So it's going to be in our full line doors as well as on our web site on fair value Dot com.
Alright, extending our partner stores tool.
Our and our indirect channel to that also.
Okay. Thank you.
And we can now take our next question.
From Oliver Chen from Cowen. Please go ahead.
Hi, good morning, Thank you.
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Is impressive of that 75%.
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What are your thoughts how that may trends with the other opening vintages and.
Were you how are you prepared.
As you thought about labor and inventory.
Okay.
Rob on the regional differences.
Could you repeat the first part of your question I'm thinking about yes ill or your that you're a little bit hard to here, we were didn't quite get it.
The productivity.
The 5%.
Number.
Well as impressive so just would love your thoughts.
How you planned inventory and labor.
Trend.
With other other new store openings and regional differences.
So let me try to answer it at all of our please ask if I missed part of that because it's still broke up a little bit but.
Overall as Weve opened our stores, what we're finding is that.
Our southern and mid Western stores are the ones that have been the strongest you really see in certain communities really on aggressive push back to kind of get back to stay than normal and those are the areas will have responded the quickest.
We've seen in our Texas location that it started a little bit slower, but it's beginning to pick up momentum.
The amount of openings that we have in the northeast right now right really we're not really opened in the northeast. So we'll watch that the areas that have been hard hit harder by the health crisis, we'll see how they return.
We anticipate it might start off a little bit slower, but we've been very.
I would say positively.
As we felt very good about hubs theres about than we thought that there would open up much lower than they did and.
And so now the road next stage for US is not only giving the rest of stores opened but just seen that curve and how does that put that continue to build we catch a week month after month.
From an inventory of standpoint, what we did as we did go ahead and reduce our inventory purchases. When we entered into the crisis a lot of that reduction happens in the back half of the year.
Just the ways.
Pipeline works, that's where a lot of the reductions happened is kind of in the back half of the year as well as the very beginning of next year.
But we feel overall very good in terms of the inventory positions that will be.
Due to the nature of our product, which is less seasonal and we were able to take even some of the product that was produced for this year and they get back next year or reposition that later in the air which really allowed us to get our inventory back in line with us.
Brewers block look a lot of steam quality, we would've had a really hard line, making that so we feel really good about that and then obviously, we're just making sure that with each location as it opens up that were just managing that inventory by geography, right very different by area and how the consumers update so.
Luckily with all the tools, we've been putting in place with technology. The data analytics, we're in a much better place to execute against that that we might have been just a year ago and the only thing I'd add to that is in regards to labor I think your question also asked about labor. We assume we when you open up in kind of a minimum staff positions as our stores have performed we've kind of ramp staffing.
Up to.
To support the levels of the customer demand so.
And the other canine too.
We've also been really happy and seeing the store volume response, because keep in mind that we're operating at a reduced hours and which is capacity.
So getting these numbers with the reduced hours and reduced capacity definitely been encouraging.
Yes, Thats currently is on the real footprint what are your thoughts now a four year overall store base.
The nature of lease renewals.
We really rethink.
Physical data.
Post crisis, and what might be necessary.
Yes, we looked at as we looked at the physical.
Real estate as two different things are happening right. One we have to make sure that were very very hyper diligent on store location and make sure that we're looking at each market and what is the right number and.
I would agree that the number of locations, we need to borrow will be less than we might as needed five years ago. So we're making sure that were being very focused in that the second thing that's happening, though with what's happened in real estate and real estate costs.
As I think that what we had seen have been over the last few years as that occupancy rates had been claim and declining in making the brick and mortar environment highly highly challenging.
What's been happening with this prices I think it's been forcing landlords to reevaluate that cost structure and some of those opportunities for reduce rents all of us I didnt make economics of brick and mortar on better than what we have been seen in the last couple of years. So we're kind of navigating the balance at the too.
Because at the end of the day, having the right economics, we know that customers still want a physical presence as well as the digital presence. We believe strength is in the combination of the too.
But we need to make sure that the economics in the brick and mortar world work and where we can get that rights. We think we can provide an exceptional experience for our customer and it really helps us engaged and find new customers for the brown.
Thank you in our last question is you'd add channel with product innovation and you have launches ahead overall, what is what will that due to your average unit retail and gross margin mix. If there are.
Locations as you roll up on the decisions we're making.
And then also do you expect merchandise margin to be down.
Versus prior year, given the environment and what you're seeing.
A couple of different phases. So as you talk about all the new product come in we don't expect a huge difference in.
A war on some of the fabrics like performance, we'll obviously have a higher retail than our cotton product has had.
But at the same time, we're also trying to remix the styles.
So what we're finding that hands free movement cross bodies belt bags are growing as a penetration to the total which puts some downward pressure on price.
The same time some of the fabric innovation might be putting some upward pressure on price, but we think that the equilibrium is pretty close from a margin standpoint, I would say the same plan overall will be introducer product it might be a slightly less than the margin, but time it gets better as we build up.
Scale in terms of what we expect for the rest of year, we do still expect some margin pressure as we go through the year.
But so far I would say we've been encouraged that we haven't seen a kind of a massive runs at the bottom chart you say in the retail environment now the stores are opening up obviously, we've seen more pressure in the seasonal apparel category, but an accessory category, we havent seen a significant downward pressure on pricing, which is good to see.
Thanks, Rob Thanks, John Best regards.
Thanks, all of our dollar.
There are no further questions at this time I would now like to turn call back to Rob for any.
Pilgrim remarks.
Well. Thank you very much for join US on today's call Vera Bradley Inc. as an authentic iconic lifestyle company with two powerful brands and passionate emotionally connected customers. We are focused on continual innovation and product customer engagement and technology, we have a solid balance sheet and ample.
Liquidity, our socially conscious and DSG focused and our leadership team his entrepreneurial and agile we will weather the storm and come out on the other side a stronger company. Thank you for your interest and support and we hope you can join us for a second quarter call on September 2nd.
Thank you that concludes today's conference. Thank you for your participation ladies and gentlemen.
May now disconnect.
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Good morning, ladies and gentlemen, thank you for spending by.
To the beer abruptly first quarter conference call.
This time, all participants are in listen only mode.
The presentation, we will conduct a question about first question.
Instructions would be but I just at that time for you to Q4 question.
As a reminder, today's conference is being more Cortez.
I would now like to turn the call over to Mark Delight. Please go ahead.
Good morning, and welcome everyone would like to thank you for joining us for Vera Bradley's conference call. Some of the statements made during our prepared remarks and in response to your questions may constitute forward looking statements made pursuant to an within the meaning of the safe Harbor provisions of the private secure Securities Litigation Reform Act of 1995.
As amended.
Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect please refer to todays press release in 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 the statements made during the call.
I will remain operative at a later time, we undertake no obligation to update any information discussed on the call I'll now turn the call over to Vera Bradley CEO, Rob Wallstrom, Rob. Thank you Mark Good morning, everyone and thank you for joining us on today's call John invite our CFO also joining me today.
Let's start with what is on everyone's mind the covered 19 pandemic. Additionally, this has been one of the most disruptive in challenging periods and the company's history, but our strong culture and innovation or the unions through this period.
We have worked to minimize the bad debt mix impact on our associates shareholders and other stakeholders. The wellbeing safety of our associates and customers remain our top priorities in every decision we make it will take time for consumer confidence customer traffic in shopping activity to return to pretend like levels, but I am confident.
The actions, we have taken will allow us to manage through this challenge and position us to emerge a stronger company and thrive over the long term.
With adversity comes opportunity this prices will have lapped in effect on consumers and transform the way they shop. Our 2019 acquisition of pure veto has resulted in E commerce being a larger share of our total company revenues and the digital skills of both companies will be even more critical in this new environment. We are.
Moving ahead with the innovation that will enhance the consumer experience and propel us forward innovation and product marketing and technology.
Many of our customers were anxious to shop, even as our stores were closed our Vera Bradley and pure would be the ecommerce businesses combined which represents about a third of our total company revenues on a normalized basis was strong in the first quarter and continues to exceed last year's performance into the second quarter at both Vera Bradley NPV to customers.
And responding to new product launches and our marketing initiatives and at Vera Bradley sales of cotton mass are also driving revenue.
We are grateful to our customers for their continued loyalty and especially thankful for our many distribution Center E Commerce customer service and other associates, who work tirelessly work to keep our ecommerce business operating smoothly. During this time.
Beginning in mid March we began taking several actions to navigate the covet 19 crisis protect our financial position maximize liquidity and position us for a strong reopening in future. Some of the actions. We took included temporarily closing all our Vera Bradley store locations on March 19th.
Temporarily furloughing approximately 80% of our workforce mid quarter temporarily reducing based compensation for remaining associates with reductions on a graduated scale ranging from 15% to 30% and 75% for me.
Temporarily suspending cash compensation for the board of directors temporarily suspended our share buyback program.
Brian 60 million from our previously unused 75 million revolving credit agreement.
Temporarily eliminating our borrow one k. and associate charitable donation matches.
Tightly managing inventory levels through the cancellation of orders delayed proceeds or seeking price concessions where possible.
Simply working with landlords on addressing rent abatement payment terms accelerating store closures and delaying or canceling certain planned new store openings.
Reducing non payroll operated expenses, including but not limited to marketing and travel.
And extending vendor payment terms.
We will discuss some of these actions in more detail later in the call.
Now I want to update you on vision 2020 in how cobot 19 is impacting the strategy.
Over two years ago, we embarked on vision 2020, our aggressive three year plan to restore the Vera Bradley.
Brand and business to a healthy foundation and to return our company to solid growth.
Through fiscal 2020, we made tremendous progress on strengthening our foundation growing our Vera Bradley brand business and accelerated in our total company revenue and earnings growth with the acquisition of pure data.
Our fiscal 2021 goal was to drive more robust growth, but the covenant 19 prices significantly affected that goal. However, despite the cobot 19th situation. We remain focused on our core vision 2020 strategies of enhancing our brands and long term growth through heightened customer engagement.
You'd product innovation, while navigating through the crisis.
Now, let me turn the call over to John to review the financial results, John Thanks, Rob and good morning.
As a reminder, financial results have been consolidated to include pure meta beginning July 17th 2019, the first of all day following the acquisition.
Prior period numbers have not been restated.
The current non-GAAP first quarter income statement numbers I will discuss exclude the previously disclose impairment charges.
Intangible asset amortization.
Expenses related to the re platforming of our it systems.
Adjustments of the pure view to earn out liability and cobot 19 related charges.
All of which have been outlined in today's release.
Non-GAAP EPS also excludes a FC for 80 measurement adjustment described in today's release.
The prior year first quarter non-GAAP income statement numbers exclude previously pure BITA transaction charges.
Consolidated net revenues totaled 69.3 million for the current year first quarter, a decrease of 23.9% over the prior year.
Excluding pure view to Vera Bradley net revenues totaled 48.1 million, a 47.2% decrease from 91 million in the prior year first quarter.
For the first quarter, excluding charges Vera Bradley incorporated non-GAAP consolidated net loss totaled 10.2 million or 31 cents per diluted share.
For the prior year first quarter, excluding charges the company posted a non-GAAP net loss of 1.8 million or five cents per diluted share.
Vera Bradley direct segment revenues totaled $36.8 million, a 48.2% decrease from 71.1 million in the prior year first quarter.
The decline primarily resulted from the company stores that were temporarily closed as a result of cobot 19 for approximately half of the first quarter.
First quarter ecommerce sales included in the direct segment revenues increased 20.5% over the last year.
Fewer Bradley indirect segment revenues totaled 11.2 million, a 43.5% decrease from 19.9 million in the prior year first quarter.
The decline was primarily due to a reduction in orders from both specialty and department stores as well as other key accounts largely related to cobot 19, as well as a reduction in the number of specialty and department store accounts.
Your view that segment revenues totaled 21.2 million in the first quarter.
On a non-GAAP basis, excluding charges for the cancellation of certain purchase orders, resulting from coated 19 gross profit totaled 35.5 million or 51.2% of net revenues compared to 50.5 million or 55.5% of net revenues in the prior year first quarter.
On a non-GAAP basis, excluding the previously outlined impairment charges intangible asset amortization information technology, replatforming charges and adjustment to the purely to earn out liability and certain department store exit costs consolidated SGN expenses totaled 51.6 million or 74.
5% of net revenues for the quarter.
Non-GAAP basis, excluding pure lead a transaction costs prior year first quarter consolidated SGN, a expenses totaled 53.5 million or 58.7% of net revenues.
On a non-GAAP basis, excluding charges the current near consolidated operating loss totaled 16.1 million or 23.2% of net revenues.
Non-GAAP basis, excluding charges the prior year first quarter operating loss totaled 2.8 million or 3.1% of net revenues.
The uncertainties surrounding cover 19 make fiscal 2021 financial performance extremely difficult to predict as a result, we are now providing forward looking guidance.
Now, let me turn to the balance sheet.
Capital spending for the first quarter totaled $2.2 million, leading we expect capital expenditures to total between $8 million to $10 million for the fiscal year, primarily related to new factory stores and technology and logistic enhancements.
During the first quarter, we repurchased approximately 2.9 million of common stock.
At quarter end, we had approximately 32.9 million remaining under our 50 million share repurchase authorization.
As a reminder, the board of directors has temporarily temporarily suspended repurchases under the plan.
Cash cash equivalent in investments as of May 2nd 2020 totaled 85.1 million compared to 144.2 million at the end of last year's first quarter.
The reduction from prior year reflects the 95.2 million purely to purchase price and earn out payment netted against the 60 million drawn on our 75 million revolving credit facility during the quarter.
Quarter and inventory was 130 point $132.9 million, which included 15.9 million of inventory related to peer reviewed.
Inventory was 90.1 million at the end of the fiscal at the end of first quarter last year.
We have cancelled approximately 30% of our fall and winter inventory orders as a result of coven 19 situation.
The good news is that much of our inventory is not seasonal and does not have a shelf life of a fashion apparel.
We will be rational imprudent, as we clear inventory as we always try to be.
Up.
Thanks, John.
As I noted earlier, we remain focused on enhancing both the Vera Bradley and peer reviewed a brands through innovation that will enhance consumer engagement and propel us forward innovation and product marketing and technology.
Let me start with Vera Bradley.
Our products must remain authentic and true to our brand, but innovation is becoming more and more critical to our product assortment, we have developed and ongoing pipeline of fabric innovation to ensure market relevance by offering cotton updates in cotton alternatives, both to retain existing customers and attract new customers to the brand.
We will continue to grow our newest offerings of performance will and reactive and we'll launch more fabric innovation over the next 12 to 24 months.
We will also continue to bring new styles and differentiated silhouettes to the market to meet all facets of our customers lifestyles.
One focus his hands free as it is becoming increasingly important to our customers are long term focus continues to be on building dominance in our key franchise areas of youth campus travel and everyday.
As a result to the current environment, we have ramped up our manufacturing and distribution to masks and other personal protective equipment.
We will talk more about these initiatives and just a minute.
We are continuing with our collaborations and strategic alliances that excite and engage existing and new customers expand our brand reach increased brand awareness generate media buzz and provide opportunities for Vera Bradley to strategically test and ultimately enter new product categories. These partnerships are truly.
We are testament to the strength and white appeal of our brand we launched our newest Disney collection on Vera Bradley Dot Com and March our continuing with our Gillette Venus collaboration distribution through target and look forward to the second year of our collaboration with Crocs, which will launch in August.
We are working with several other iconic internationally known brands unexciting future product collaborations.
Notably we are thrilled about our collaboration with Warner brothers consumer products to create at Vera Bradley plus Harry Potter back to campus in Durham line that will launch in July.
This collaboration will not only appeal to our Vera Bradley fans were also Wizard world the boat fees, but will also attract new customers to the Vera Bradley brand.
Under the umbrella of DB cares, we will continue to strengthen our community support and charitable initiatives identifying areas, where we can make a real impact, particularly for women and children. We want to create positive change in opt and invite our customers to participate with calls to action.
We are doing all that we can to help in this unprecedented time, which includes utilizing our facilities in global supply chain to get critical in demand supplies to those in need nationwide. Our approach is three pronged number one through our taking care together initiative, we have tapped into our global supply chain to procure and distribute.
The most in demand personal protective equipment, including millions of medical mass to support the nurses doctors in first responders bravely taking care of all of US we've been able to get medical grade surgical masks in the hands of those who are having a difficult time, maintaining appropriate supply of ERP like smaller regional medical center as Dr.
As offices retirement facilities and companies that provide critical support.
Number two.
We have ramped up distribution of our Vera Bradley healthcare professional collection, which includes medical scrubs other wearables and bags and these items are available on Vera Bradley Dot com.
Number three.
We converted our Vera Bradley Fort Wayne sewing facilities and utilized our growing so our global supply chain to manufacture and so hundreds of thousands of cotton face masks for the general public. These masks along with filters are available on Vera Bradley dotcom and in our stores with the Cdcs recommendation that everyone now.
Used clock face coverings to help slow the spread of covet 19, we're seeing a huge customer response for these items, we're supporting the nurses working tirelessly and bravely on the front lines and cobot 19 crisis by contributing a percentage of each cotton mass sold to the Corona virus response fun for nurses.
We are proud of our associates commitment to and the execution of all of these efforts and know that by working together, we are making a difference.
Vera Bradley has always been a brand about connecting people and the team has really helped demonstrate that during these difficult times and our social media. We have seen increased strength in both new followers and customer engagement across social channels. We have also seeing customers react very favourably to the amount of user generated content that has been shared by both customer.
And our associates.
Earned media has been strong during the first quarter with 1.4 billion impressions.
We had very good media coverage of our new and sustainable reactive fabrication.
As well as the work, we're doing in bringing cuts customer face masks to the market.
Our second annual collaboration with New Hope girls for International Women's day, and our new partnership with autism speaks not only generated financial support but increased awareness awareness through enormous media attention for two very worthy causes our many capsule collection with Olympian Shawn Johnston East launched in May.
Which included a charitable tie in with blessings in the backpack.
While we have scaled back our media spend we have been able to do much more with less our prior investments and data driven marketing and Dan data science to build a programmatic marketing platform helped our teams reach.
React to the uncertainty in real time, we Cook quickly adjusted brands speed away from categories, such as travel and beach and into areas such as hands free washable in health care products.
This allowed us to drive significant double digit improvements and paid media efficiency and revenue attributable to paid media, while lowering our overall marketing spend.
Our enhanced voice of the customer program.
He is making a difference.
Vera Bradley one the variant customer engagement award for providing excellent customer service, along with achieving outstanding success in customer engagement metrics, including customer satisfaction and our net promoter score.
Let me turn to stores and give you an update on our reopening timetable.
As you know many states or be starting their economies and we have begun to open Vera Bradley stores in locations where regulations allow.
Following guidance from local governments and health authorities and after assessing consumer sentiment store readiness and our associates willingness and ability to return to work we are taking a prudent and measured approach to reopening our stores, ensuring that we have taken necessary precautions to protect the health and safety of our associates customers and commute.
It is.
On March 5th we began reopening our Vera Bradley full line in factory stores in a phased approach with 18 out of our 83 full line stores in 40 out of 64 factory stores opened as of the into May.
We anticipate the majority of our store base will be opened by the end of June.
As the stores reopen the company is implementing several procedures and precautions to keep customers and associates safe and secure.
While we are making no assumptions of future performance based upon a limited number of days sales data. The 20 stores. The 27 stores that have been open for two weeks or more since may fiveth have generated revenues in the aggregate of approximately 75% of the prior year sales.
While operating that reduced staffing and hours this is better than we expected.
While traffic is typically down conversion and units per transaction are up we're excited to welcome back.
Customers into our stores and we believe there is some degree of pent up demand is more retailers open and consumers feel more comfortable shopping we believe Vera Bradley its store traffic and sales will improve.
We're in active conversations with our landlords to address our rent obligations for the period. The malls were closed both landlords have been open to deferrals, but are not quick to accept abatement for the closed period.
We hope to come to a solution that is fair to both sides for both the period in question in future periods.
During the negotiation period, we have not paid rent for the period at the malls were closed.
We expect to permanently closed at least 12 full line stores during the year, which were bringing our total full length closings to 38 since the beginning of fiscal 2018.
We have closed five so far this year.
We will add five or six new factory stores. This year when opened in May.
One is scheduled to open this month and three are scheduled to open in July.
We also just opened our expanded Myrtle Beach, South Carolina factory store.
As you know we are implementing project novus, our new technology platform that will be flexible streamlined and efficient.
Microsoft Dynamics 365 will be our new ERP order management and Pos system in Shopify, plus will be our new E Commerce platform.
The project should be complete by the end of this fiscal year and will not only less than the complexity of our it systems.
But also will reduce ongoing expenses.
Relday platform for the entire enterprise and enabled the company to achieve our future objectives, both in the short and long term.
We believe it is more important than ever to make quick data based informed decisions and to further enhance our customer experience.
Now, let's talk about the innovation and excitement going on a pure beta.
Now more than ever we are confident in the potential as a pure via business.
More and more customers everyday went to be part of the easy and fun pure of either lifestyle.
Even in the midst of the pandemic pure viewed as total revenues increased 8% over last year led by a 35% increase in ecommerce sales.
Average order values and conversion rates continued to grow year over year.
Total revenue growth would have been even higher but our distribution facility in Mexico was closed for several days and our El Salvador manufacturing facility was closed for several weeks due to the pandemic.
Our distribution facility in Mexico has reopened.
And our El Salvador manufacturing facility has just begun to reopen.
In product, we continually introduced new styles of the peer reviewed a signature core bracelets and style packs and our recent expansions into metal mood and semiprecious stones charms and jewelry have continued in popularity.
And our at higher price points than our traditional stream bracelets.
Our spring launches were very successful with several key product introductions like our open heart bracelet selling out in less than a week.
Harry accessories launched in May and are off to a strong start.
Personalization is a continuing popular trend.
Customers can personalize their signature core bracelets by choosing the color combination special to them.
Our Pat just pens and stickers are easy add ons to sales and allow customers further to further customize their books.
In January we launched our engraver more collection, then we are selling hundreds of in gravel bracelets necklaces and rings daily we will expand this program over the next several quarters.
Your view this signature charity bracelets continued to be an important element of the pure via lifestyle and a big draw for our caused mining customers.
This year, we have introduced term bracelets that tied back to specific charities like saved the Dalton save this loss save the butterflies and saved the elephants to name a few.
Several of these charity term bracelets have been so popular that they are currently sold out there will be replenished soon.
Beyond the lookout for more charity terms to be add this year. Another popular addition to the charity offering as our special charity style packs like the clean water for all that good benefits charity water.
And the breast cancer awareness back that supports reporting for breast cancer.
We even have a breast cancer awareness ring.
The addition of terms instyle packs to our charity component it not only in able enough to increase our price points, but increase our total donations to these great causes.
We will continue to innovate and expand into signature area of the business.
PURA Vida is expanding on the distribution front.
Early in the second quarter, we launched candidate Shopifys fulfillment capabilities.
We have also signed an agreement with hectic Europe known for its experienced warehouse and logistics team and established transportation network for the wholesale distribution of our products in Europe to complement our existing E Commerce business and third party fulfillment there.
We already have many PURA vida fans around the world and this global expansion will allow us to not only serve those customers by expand our reach to others.
Due to cover 19, we have made the decision to postpone the opening a pure viewed as first lab store that was scheduled to open in San Diego. This fall. We are excited about this potential experiential location that will allow us to showcase existing products customer feedback on new product innovations and provide the backdrop for Instagram rubble moments.
An influence or events the success of dislocation will help us determined the path for future PURA Vida store expansion.
Pure of it is also expert engaging customers.
And as always looking for new ways to enhance engagement as well as bringing new customers into the pure iveta lifestyle, our popular monthly bracelet in jewelry clubs provider members, great value monthly surprises and exclusive products and a continual connection to PURA Vida.
We have launched a new loyalty program called the short club customer gets get points per following us on Instagram and Facebook and of course for buying product accumulated points earned can be redeem for discounts and free merchandise.
We continually interact with our customers through social media and EBIT ask our customers what should we make next.
Our customers I mean, everything to us and Thats why we always want to hear what they have to say whether its feedback about the branca. Upon an idea for our next product or a new cause I think we should support and back some of our best selling styles have been designed thanks to fan feedback.
On the marketing front pure Aveda, social media engagement is strong and army of brand ambassadors and close to 150000 micro Influencers are an active part of the brand and a key part of our marketing strategy. We will continue to build upon these very impactful programs, particularly focusing on those with the greatest number of followers.
These passionate advocates help us spread the pure Evita movement, showing their love for the brand, while scoring ports along the way.
Pure Veeva is one of the most highly engaged brands the accessory space surpassed into 2 million market followers on Instagram and that number is growing monthly pure iveta is consistently lifted as the most as one of the most if not the most engaged jewelry brands on Instagram.
And we are excited that we have signed an agreement with dancer and tick Tock Star Charlie Demilio.
To launch a pure Evita bracelet Influencers style pack. This holiday season with over 55 million followers. She has the most followed personality and tick tock and whats called the raining clean of tick tock by the New York Times.
Charlie target demographic fits perfectly with the pure Iveta brand.
Before I close I want to take a mention I, what I wanted to mentioned that as a corporation. We are strengthening our stance as sustainable purpose driven company that delivers meaningful social impact and value for all stakeholders, our associates, our customers our shareholders and our communities.
Although our company has been purpose driven throughout our history, we are enhancing that focus and increasing the visibility to our activities in this area in the first quarter, we published our comprehensive corporate responsibility and sustainability report, which was mailed with our proxy materials and is available on our website. This report outlines our ears.
Gee accomplishments and initiatives in detail.
I'm so proud of how our organization has responded to this unprecedented crisis, even while working remotely our teams have been collaborative and demonstrated focused and thoughtful decision, making innovation tenacity and flexibility are extraordinary culture has allowed us to not only persevere through the crisis, but has made us stronger we look.
Forward to fully reopening business and returning to our new normal.
Operator, we will now open up the colds question.
Thank you.
Question on today's call. Please press star one on your telephone keypad.
Our wanting to ask a question.
We will pause or one moment hello, everyone to signal.
Again that star one to ask a question.
And we can now take.
[music].
From Eric better from SCC Research. Please go ahead your line is.
Good morning.
Good morning, Eric.
Two questions. One is what was the responds to reactive and I know that you had some of that opened before you closed down and are you seeing the younger customer that was the goal for that.
Yes, the overall response to reactivate spending extremely positive that across a couple areas first of all we are seeing a younger customer really react to that and I believe thats for two reasons. One is the sustainability aspect of it that they're reacting very strongly to in the second is really the active influence.
And kind of a lifestyle of it and addition to that we've had a lot of media coverage on it obviously the environment and sustainability is so important.
That were a lot of people picking that up because we're able to have a true impact there and we really believe that that will be the first of many actions over the next few years as we continue to make our products more sustainable.
And then.
Yes, the rollout of stores.
Done a significant number of outlet so lesser number of full price stores is that by design or is that just kind of happenstance on whats opening up and how you can handle it.
It really is by design for a couple reasons.
One is that our outlet stores or more outside right. There outdoor malls more finding the consumer seems to be responding and feeling more comfortable in the outdoor environments. So we believe that's very important.
On the as well as the volume levels than our outlet stores or higher and therefore, even with the low revenue as we begin to open up they're still very positive for us. So we thought we would focus our energy where the consumers responding more on where we have the best economic environment, and but we're working hard to get our.
Full line stores opening were.
We're targeting to have all of our stores open hopefully by the beginning of July.
Depending upon government regulations, how the health situation continues to evolve, but assuming all both those things go as expected we would expect to have our stores opened by the beginning of July.
And last question is the Harry Potter collection going to be in the outlets or the full priced stores or combination of both how's that going to slow out.
So it's going to be in our full line doors as well as on our website on fair value Dot com.
Alright, extending our partner stores tool.
And our indirect channel to that will also help.
Okay. Thank you.
And we can now take our next question.
From Oliver Chen from Cowen. Please go ahead.
Hi, good morning, Thank you.
[music].
It is impressive of that 75%.
What are your thoughts how that may trends with the other opening vintages and.
Were you how are you prepared.
As you thought about labor and inventory.
Okay.
On the regional differences.
Could you repeat the first part of your question. Thank you all yes ill or your that you're a little bit hard to here, we were didn't quite get it.
The productivity.
The 5%.
Number.
Well as impressive.
I would love your thoughts.
How you planned inventory and labor.
Trend.
With other other new store openings and regional differences.
So let me try to answer it at all of our please ask if I missed part of it because it's still broke up a little bit but.
Overall as Weve opened our stores, what we're finding is that.
Our southern and mid Western stores are the ones that have been the strongest you really see in certain communities really on aggressive push back to kind of get back to us day than normal and those are the area total responded to quick hit.
We've seen in our Texas location that it started a little bit slower, but it's beginning to pick up momentum.
The amount to openings that we have in the northeast right now right really did not really opened in the northeast. So we'll watch that the areas that had been hard hit harder by the health crisis, we'll see how they return.
We anticipate it might start off a little bit slower but.
We've been very.
Good day positively.
As we felt very good about hub stores of open we touch a little bit opened up much lower than they did.
And so now the role next stage for US is not only getting the rest of stores opened but just seen that curve and how did that that that continue to build we catch a week month after month.
From an inventory standpoint, what we did as we did go ahead and reduce our inventory purchases. When we entered into the crisis a lot of that reduction happens in the back half of the year on just the ways.
Pipeline works, that's where a lot of the reduction happened is kind of in the back half of the year as well as the very beginning of next year.
But we feel overall very good in terms of inventory positions that will be on due to the nature of our product, which is less seasonal and we were able to take even some of the product that was produced for this year and bring it back next year or reposition that later in the air.
Which really allowed us to get our inventory back in line Quickstart, possibly was blocked look a lot of seasonality. We will have really hard line, making that so we feel really good about that and then obviously, we're just making sure that with each location as it opens up that were just managing that inventory by geography right.
Very different by area and how to consumers update so, but luckily with all the tools, we've been putting in place will technology lead the data analytics, we're in a much better place to execute against that that we might have been just a year ago and the only thing I'd add to that is in regards to labor I think your question also asked about labor we assume we when you open up in kind of a mid.
Some staff positions as our stores have performed we've kind of ramp staffing up too.
Two.
Support the levels of the customer demand so.
And the Okay and I do.
We've also been really happy and seeing the store volume response, because keep in mind that we're operating on reduced hours and reduce capacity. So getting these numbers with the reduced hours and reduced capacity it definitely been encouraging.
Yes that currently is on real estate footprint.
What are your thoughts now a four year overall store base.
The nature of lease renewals as we really rethink.
Physical state.
Even post crisis, and what might be necessary.
Yes, we looked at as we looked at the physical.
Real estate at two different things are happening right. One we have to make sure that were very very hyper diligent on store location and make sure that we're looking at each market and what is the right number and.
I would agree that the number of locations, we need to borrow will be less than we might need in five years ago. So we're making sure that were being very focused in that the second thing that's happening, though with what's happened in real estate and real estate costs.
As I think of what we had seen have been over the last few years as that occupancy rates have been climate in climbing in making the brick and mortar environment highly highly challenging.
What's been happening with this prices I think thats been forcing landlords to reevaluate that cost structure and some of those opportunities for reduce rents all of us I did make economic sense brick and mortar on better than what we've been seeing the last couple of years. So we're kind of navigating the balance of the too.
Because at the end of the day, having the right economics, we know that customers still want a physical presence as well as the digital presence. We believe strength is in the combination of the too.
But we need to make sure that the economics in the brick and mortar world work and where we can get that rights. We think we can provide an exceptional experience for our customer that it really helps us engage and find new customers for the brown.
Thank you in our last question as you add channel with product innovation and you have launch of the head overall, what is what will that due to your average unit retail and gross margin mix. If there are.
Locations as you roll up on the decisions we're making.
And then also do you expect merchandise margin to be down.
Versus prior year, given the environment and what you're seeing.
A couple of different phases. So as you talk about all the new product come in we don't expect a huge difference in.
A few are some of the fabric like performance, we'll obviously have a higher retail than our cotton product has had.
But at the same time, we're also trying to remix the styles. So what we're finding that hands free movement cross bodies belt bags are growing as a penetration to the total which puts some downward pressure on price.
At the same time some of the fabric innovation might be put in some upward pressure on price, but we think that the equilibrium is pretty close from a margin standpoint, I would say the same plan overall.
We introduced a product that might be a slightly less than the margin both time it gets better as we build up.
Scale in terms of what we expect for the rest of year, we do still expect some margin pressure as we go through the year.
But so far I would say we've been encouraged that we haven't seen a kind of a massive runs at the bottom chart you say in the retail environment now the stores are opening up obviously, we've seen more pressure in the seasonal apparel category, but in the accessories category, we havent seen a significant downward pressure on pricing, which is good to see.
Thanks, Rob Thanks, John Best regards.
Thanks, all of our dollar.
There are no further questions at this time I would now like to turn call back to Rob for any.
Building remarks.
Well. Thank you very much for join us on todays call Vera Bradley Inc. has an authentic iconic lifestyle company with two powerful brands and passionate emotionally connected customers. We are focused on continual innovation and product customer engagement in technology, we have a solid balance sheet and ample.
Liquidity, our socially conscious and DSG focused and our leadership team his entrepreneurial and agile we will weather the storm and come out on the other side a stronger company. Thank you for your interest and support and we hope you can join us for a second quarter call on September 2nd.
Thank you that concludes today's conference. Thank you for your participation ladies and gentlemen.
May now disconnect.