Q2 2021 Vera Bradley Inc Earnings Call
Please standby.
Good morning, ladies and gentlemen, thank you for standing by welcome to the Vera Bradley second quarter Conference call.
At this time, all participants are they listen only mode.
Situation, we will conduct a question answer session and instructions will be provided at that time for you to chew up for questions.
Reminder, today's conference call is being recorded.
And now I would like to turn the call over to Mark do you like Vera Bradley's Chief administrative officer. Please go ahead.
Good morning, and welcome everyone would like to thank you for joining us for Vera Bradley's earnings call Summit statements made during our prepared remarks and in response to your questions.
They constitute forward looking statements made pursuant to an within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act 1994.
Hi, guys amended 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 a couple. These most recent form 10-K filed with the FCC for a discussion of known risks and uncertainties investor.
It should not assume that the statements made during the call will remain operative at a later time, we undertake no obligation to update any information discussed on the call I'll now turn it over to Vera Bradley CEO, Rob Wall Street, Rob. Thank you Mark Good morning, everyone and thank you for joining us on today's call John Enright our CFO.
Also joining me today.
Hi, I'm extremely pleased with our second quarter results, which exceeded our expectations and last year's performance. Despite facing the headwinds coping 19, I credit the agility. So nasty collaboration ingenuity of our entire team for making these results are reality.
We proved up by focusing on innovation that enhances the customer experience and product marketing and technology.
Controlling what we can control we can drive stronger results produced strong cash flow and position ourselves to emerge a stronger company.
Total company year over year second quarter revenue grew by 10%.
Driven by the addition of pure Vito for a full quarter and Vera Bradley's ecommerce sales doubling.
Offset by a decrease in Vera Bradley store revenues due to cover 19 related store closings for a portion of the quarter.
Both Vera Bradley I'm sure veto customers responded to new product launches in marketing initiatives and sales of <unk> mass drove meaningful revenue growth.
We significantly expanded our consolidated gross margin rate in the quarter through sales of <unk> mass.
Collaborations careful inventory management and tightly controlled promotional activity, we carefully managed to our expenses achieved an expense leverage in the quarter.
Our balance sheet remains strong even after paying 30 million down on our ABL facility during the quarter, we ended with cash and investments up 77.1 billion.
On May 15, 2020, we began reopening our Vera Bradley stores in phased approach with 58 out of 82 full line stores and 64 of 65 factory stores opened by the end of June.
All factory stores at all but three full line stores were opened as up to second quarter end.
Although with reduced hours lower staffing levels and greatly enhanced customer capacity and safety protocols.
Well, we are making no assumptions on future growth performance based upon a limited number of days of sales data. The 133 existing stores. There. We're open for the entire fiscal month of July and the aggregate generated approximately 70% or the prior year sales.
Well traffic was typically down more than the sales level increased conversion and units per transaction allowed us to significantly outperformed the traffic tracked.
Our E Commerce business Vera Bradley impure Evita combined was very strong in the quarter, even the stores began to reopen.
We know that didn't have a lasting impact on the way consumers act in shop, and that our digital cockpit competencies or even more important and this new environment.
Our acquisition of digitally Native Jersey that which resulted in E commerce being a larger share of our total company revenues along with our continued investment in Vera Bradley's E. Commerce site infrastructure has positioned us well for the future.
We are so appreciative of all our associates that are especially painful to those team members that and then on the front lines in our distribution center, keeping our E commerce business driving and in our stores, ensuring that our customers are safe and having great experiences. We're delighted to provide we were delighted to provide it.
500 dollar bought as to our distribution center store and customer service associates working full time for the quarter and prorated for a full and part time associates working a portion of the quarter for their extraordinary hard work and dedication during this time.
All of this associate dedication is indicative of the great culture, we have built and nurture at both of our brands. Our recent associate engagement survey once again indicated that our associates are highly engaged and passionate about our company.
We're always striving to build upon our strengths and they keep part of this is enhancing our diversity and inclusion that initiatives.
And although we have a history of building an inclusive environment, we want to do even better and build a more diverse communities.
We have appointed a talented and long time, Vera Bradley associate as diversity and inclusion manager to lead our efforts starting with launching a project called and the formation of the diversity and inclusion convey 'cause members represent diverse communities across our organization.
This is only the beginning of our efforts, but we want to take serious and thoughtful actions to continue to enhance diversity equality and inclusion throughout our company and then the communities we serve.
We will focus on three key areas the associate experienced the customer experience with a community experience and we look forward to keeping you updated on our progress.
Now, let me turn the call over John to review the financial results John.
Thanks, Rob and good morning, Let me go over a few highlights for the quarter. As a reminder, financial results have been consolidated to include pure Buda beginning July 17th 2019, the first full day following the acquisition.
Prior period numbers have not been restated.
The numbers I will discuss today are all nine gap for complete reconciliation of GAAP to non-GAAP numbers. Please reference the schedules attached to today's press release.
The current year non-GAAP to second quarter income statement numbers exclude the intangible asset amortization and project Novus expenses.
Non-GAAP EPS for the current quarter also excludes the assay for 80 measurement adjustment described in today's release.
Non-GAAP income statement numbers for the prior year second quarter exclude the pure due to acquisition related charges and project notice expenses.
Consolidated net revenues totaled 131.8 bank for the current year second quarter, an increase of 10% over the prior year.
Excluding procure beat up Vera Bradley net revenues totaled 99 million, a 13.5% decrease from 114.4 million in the prior year second quarter.
Tighten masks represented over 10% of consolidated revenues for the quarter.
Excluding charges Vera Bradley incorporated non-GAAP consolidated net income was 10.9 million or 32 cents per diluted share for the second quarter compared to 8.7 million or 25 cents per diluted share of last year.
Vera Bradley direct segment revenues totaled 81.2 million, a 13.9% decrease from 94.4 million in the prior year second quarter.
The decline primarily resulted from stores that were temporarily closed as a result of cobot 19 for approximately half of the second quarter.
Partially offset by a 99.1% increase in E commerce revenues for the quarter.
We closed 12 full line stores that opened size of factory stores in the last 12 months.
There are probably indirect segment revenues totaled 17.7 million, an 11.4% decreased from 20 million in the prior year second quarter, reflecting a reduction in orders primarily related to cobot 19, and in a number of specialty and department store accounts.
Pure EDA segment revenues totaled $32.8 million compared to 5.4 million in the prior year, which represented revenues for the partial period or post acquisition.
Second quarter consolidated gross margin totaled 79.6 million or 60.4% of net revenues compared to 68.4 million or 57.1% in the prior year on a non-GAAP basis.
Pure Buda benefited the current year second quarter non-GAAP percentage by approximately 40 basis points.
We significantly expanded our gross margin rate in the quarters through sales of kind of masks product collaborations careful inventory management and tightly controlled promotional activity.
Cotton masks added nearly 300 basis points to gross margin for the quarter.
On a non-GAAP basis consolidated <unk> expense totaled 58.6 million or 44.5% of net revenues for the current year second quarter compared to 57.8 million or 48.2% of net revenues last year.
On a non-GAAP basis pure Buda contributed 13.5 million of SGN expenses in the current year and 2.4 million in the prior year.
Excluding these additional pureed expenses Vera Bradley etching expenses were lower than the prior year, primarily due to temporary and permanent expense reductions related to cope with 19.
On a non-GAAP basis current year second quarter consolidated operating income totaled 21.1 million or 16% compared to 11.3 million or 9.5% of net revenues last year.
The uncertainties continuing related to cover 19 make fiscal 2021 financial performance extremely difficult to predict.
Result, we're not providing forward looking guidance.
Second quarter performance should not be considered a predictor of future performance, particularly as the sales amassed may not be a strong for the balance of the year.
Now, let me turn to the balance sheet.
Net capital spending for the second quarter in six months totaled 2 million and 4.3 million respectively capital expenditures are expected to total approximately eight to 10 million for the year, primarily related to new factory stores in technology and logistics enhancements.
Cash cash equivalents and investments as of August Onest 2020 totaled 77.1 billion compared to 70.5 million at the end of last year's second quarter.
As Rob noted, we repaid 30 million a borrowings under our ABL credit facility in the second quarter, leaving a balance outstanding of 30 million under 75 million facility.
Quarter, and inventory was 136.2 million compared to 130.7 billion that ended the second quarter last year.
The company has canceled certain quarters of fall product due to cobot, 19, and expects future inventory to be relatively flat for the balance of the year.
The good news is much of our inventories not seasonal and does not have the shelf life fashion apparel.
We will be rational and prudent as we clear inventory as we always try to be.
Rob.
Thanks, John.
First let me update you on our recent technology system transformation.
Early August after more than a year of hard work dedication project Novus, our new technology platform went live.
We migrated or E commerce sites to the best in class Cloud based Shopify plus platform club based Microsoft decreased 65 replaced or existing ERP Pos business intelligence in order management systems.
Streamlining and simplifying our work in providing for additional capabilities such as mobile Pos.
This conversion not only less than the complexity of our chief systems, but has provided us with a more efficient technology platform that will enable the entire enterprise to achieve our future objectives to thrive in this environment and in the future we must be able to make quick database informed decisions and to further enhance.
Our customer experience, we are excited about the capabilities and possibilities of our new systems, and we will continue to invest in technology and build our capabilities as we move forward.
Through these systems, we will be able to harness customer data.
And feedback earlier and more instantaneously to drive innovation across product marketing and stores.
We've also added new warehouse automation systems to our distribution center, which should enhance productivity increase our capacity and enhance the consumer experience.
Now, let's shift to an update on our two brands we remain focused on propel in both the Vera Bradley and purely to brands forward through innovation and product marketing and technology.
The way that customers live and work has dramatically it permanently changed due to cobot 19, and we are especially well position with our casual uncomfortable brands that dovetail into this shift.
Let me start with Vera Bradley.
Our products will remain authentic and true to our brand heritage innovation is becoming more and more important to our existing customers and in continuing to attract new customers.
We have a robust fabric innovation process in place to update our cotton collection and to develop fabric alternatives. Our newest full line offerings of performance will and reactive.
Cycle collection are gaining traction at our highly rated by our customers. We just introduced a new ultralife fabrication in our factory stores in the early results are strong.
Stay tuned for more fabric innovation over the next 12 to 24 months.
We will also continue to bring new patterns in styles and differentiated silhouettes to the market to meet all to assets.
Of our customers lifestyle.
Our keen focus is our hands free products like our slings and cross bodies as they are becoming increasingly important to our customers, particularly during the pandemic. Our long term focus continues to be on building upon our dominance in our key franchise areas of youth campus travel that every day.
A great example of newness and innovation is our cotton mass, which drove meaningful revenue and gross margin dollars for us during the quarter in April we ramped up our manufacturing and distribution and bass and since then we have continued to add different styles sizes patterns in solids.
We are happy to offer our customers and then communities, we serve necessary personal protective equipment.
Divided little color and fund in the process.
We'll also see our mass and target staples and on QVC.
As the impact to cope with 19 lessons, we expected sales the mass to slow in the back half the year, but we're also anticipating to see a further recovery in the core business.
We continue to offer special limited time capsule collections centered around seasonal periods or novelty, which at excitement in a sense of urgency for our customers to shop.
Last year customers were wild about our fund in playful Cats me out collection. So this month, we launch our best in show Pratt, which of course features dogs.
This is sure to be at Vera Bradley fan favorites.
In recognition of Pride month in June we introduced our pride tote and to commemorate the hundredth anniversary of the 19th and then that the constitution guaranteeing women the right to vote. We debuted our persistence patchwork limited edition Tote and August 18th.
We're continuing with our collaborations and strategic alliances that excite and engage existing and new customers expand our brand reach increased brand awareness generate media attention and provide opportunities for Vera Bradley just strategically test and ultimately entered new product categories.
These partnerships or a true testament to the strength and why it appeal of our brands in July we introduced our second Gillette Venus collaboration distributed to target and Sansbury in the UK and in August we launch both our newest Disney collection on Vera Bradley Dotcom, and our second annual collaboration with crops.
Of course, we we're most excited about our long awaited Vera Bradley plus Harry Potter collaboration that launched in July.
Partnership with Warner Brothers consumer products, the captivating capsule collection embodies the imagination and spirit of adventure of the Wizard World for backpacks and lunch bags to robes line years accessories and more this collection has something for everyone.
Whether they're gearing up for back to school or simply looking for a bit of magic.
All styles in the collection are available in an exclusive home the Hogwarts pattern, which includes iconic symbols from the Harry Potter series with Vera Bradley's signature colorful touch select pieces are also available in solid quarterly pattern styles with each Hogwarts house.
We had an overwhelming response from the many Vera Bradley and Harry Potter fans and many items sold out quickly.
The day the launch we had record visitors to our web site, many of whom were new to Vera Bradley. This launch was a huge success and we are reordering some of the most popular items just in time for holiday.
Let me switch to marketing beginning with VB cares as we focused on reinforcing our position as an E.S.G. organization, we continued to strengthen our community support and charitable initiatives under the umbrella as we'd be cares, particularly through organization that can you need meaningfully improve the life.
The lives of women and children.
One such organization as the Corona virus response fund for nurses. The company contributed a percentage of each cotton mask sold through the end of July to support the nurses, who will work entire tirelessly and bravely on the front lines of the covered 19 crisis.
Through the sale of our cotton mass, we were able to donate over 630000 to the American nurses fun.
Our associates are so thrilled to be able to support the healthcare workers fighting everyday to treat those affected by the pandemic and we're very appreciative of our loyal customers for making this happen.
Plus incident backpack is very near and Dear to our Hearts. This amazing organization Mobilizes communities individuals and resources to provide food on the weekends for under Resourced Elementary School children across America to fight who might otherwise go hungry.
Unfortunately, with Covance 19 gathering limitations in the uncertainties surrounding the school year.
Not hosting our traditional backpack giveaways. This year. However, we have been able to provide financial support to blessing plus through a may limited edition product collaborations with Olympian gold medalist Shawn Johnson East and our sale of specialty change. This fall we are able to help this great caused all year long.
Our digital and marketing teams are focused on accelerating our digital and customer growth.
Our investments in customer data science and business analytics positioned us well as we entered the pandemic to respond and an agile way as customers underwent unprecedented change.
Essentially operating as a digitally only business until our stores reopened new customer acquisition on Vera Bradley Dotcom rose triple digits in the quarter, while return on the AD spend and year over year E Commerce revenues doubled.
We have built a strategic marketing platform enabled by our investments in data driven marketing data science, which has allowed our teams to react to the uncertainty in real time.
We have adjusted.
Brand spend away from categories, such as traveling beach and into areas such as hands free washable masks and other healthcare products.
Using our data centric program at buying we've doubled our paid media efficiency in revenue attributable to paid media during the quarter.
We will continue to mine, our customer data and optimize our marketing spend for the back half for the year.
Vera Bradley has always been a brand about connecting people and the team is really help demonstrate that during these challenging times, we have seen increased strength in both new followers and customer engagement across social channels, our enhanced social media strategy includes increased influence their participation several co branded.
Stakes in more diverse user generated content in fact in the second quarter more than 40% of Instagram content was user generated these efforts drove our largest quarter of Instagram followers growth. Our most highly engaged social media post revolves around the Harry Potter Cobot 19 relief efforts mass and our sustained.
Ability focused products.
Earned media was strong during the second quarter with almost 3 billion impressions, we had exceptional media coverage of our mask effort supporting communities and nurses and then our brand collaborations like Harry Potter Venus and our Shawn Johnson East collection.
It bears reached refit analysis earned media Influencer and social media engagement trends for July Vera Bradley was one of only nine out of over 150 brands that had positive growth in social media engagement month over month at 236% and year over year at 29%.
In July we tested our first foray into connected TV advertising the AD focused on backpacks and coordinating mass to help keep our brand top of mind shoppers prepared to go back to school back to work or back to traveling the AD red digitally and 15 states on a variety of streaming services.
Drove traffic in sales in those markets based on the success of this test we are planning to release another AD for the holiday period.
Let me give you a brief update on stores.
And although our digital business is becoming a larger portion of our revenues stores continue to be an important part of our omnichannel strategy.
As I noted earlier, the 133 stores there we're open for the entire fiscal month. The July in the aggregate generated approximately 70% of the prior year sales.
In the aggregate our factory stores outperformed our full line stores compared to last year.
As customers on average have felt more comfortable shopping and outdoor centers Bennett and enclosed malls.
As more retailers open.
And consumers feel more comfortable shopping we believe Vera Bradley store traffic and sales will improve of course, we're continuing to watch covered 19 cases by geography, and we'll react accordingly.
We continue to focus on enhancing the customer experience in both our full line in factory stores on Vera Bradley Dotcom and our fulfillment operations and then our customer service Department. Our goal is to be available where she is operating exceptional service whether in store on E commerce by appointment or curbside pickup.
Our robust voice of the customer initiative and our customer service execution once again drove industry, leading customer satisfaction scores in the quarter. Despite all of the coven 19 related disruption.
This quarter nice experts in customer service announce Vera Bradley as a winner of its 2020 Excellence awards for best customer experience, noting Vera Bradley achieved a deep understanding of customers personalities and journeys to improved customer experience through advanced real time analytics.
We have opened five new factory stores this year and expanded our highly productive Myrtle Beach, South Carolina factory store, we still expect to permanent close up to 12 full line stores during the year, which are bringing our total full line store closings to 38 since the beginning in fiscal 2018.
We have closed six so far this year.
We continued to be in conversations and negotiations with our landlords and it made progress on rent relief on several of our properties.
Now, let's talk about pure Vito.
We remain very confident and excited about division of the founder script for then Paul for the future growth of the digitally native pure via business.
Every day more customers want to be part of the pure of either lifestyle.
For the quarter pure viewed as total revenues increased nearly 6% over last year, despite a significant supply chain and wholesale disruption.
Revenue was driven by a 22% increase in ecommerce sales average orders and conversion rates continued to grow over last year.
Due to cover 19, our primary manufacturing facility in El Salvador was closed for over seven weeks in the quarter. It did not fully reopen until late June.
We are actively working to further strengthen the diversified our raw material sourcing and production capabilities and expect to have the alternate sources operational for fourth quarter deliveries.
In product, we continually introduced new styles of the pure Iveta signature core bracelets and style packs and our expansion into metal mood and semiprecious stones charms and jewelry has continued in popularity.
And our at a higher price point than our traditional string bracelets.
Despite covered 19, our second quarter product and reductions were successful with several special launches like our pride in mother's day bracelet selling out correctly.
We introduced hair accessories in second quarter and they are off to a good start our expanded selection of kitsch and beyond the beach styles like our DC bead brief jewelry kitten earrings and alphabet. The bracelets are very popular.
We're continuing to expand above the keyboard items like necklaces and hearing for our customers working from home and a never ending any false.
Personalization is a continuing popular trend.
Customers can personalize the signature core bracelets by choosing the color combination special to them or they can customize their looks with fund patches and pence aren't gravel collection launched earlier. This year has really taken off with customers love into customization of our necklaces rains and claim bracelets, we're excited about that.
Further expansion of this program.
If your view this signature charity bracelets are truly an integral part of the pure Vito lifestyle and continue to be a growing category as they are so important to our many loyal caused minded customers. We are continually adding to our popular charity term bracelets that we introduced earlier this year into our charity style packs that supports such as.
Amazing causes as autism awareness charity water in say the dolphins the expansion of charms and style packs to our charity assortment is not only enabling us to increase our price points, but to increase total donations to these great causes.
We will continue to innovate and expand in this key area of the business to date pure visa has donated over 2.6 million to dozens of cherries.
In the second quarter pure via the teamed up with Vera Bradley to create a limited edition based vast that combines pure vetoes beach side by sides with Vera Bradley's iconic style. We have sold tens of thousands of these bass and they are so popular that they're currently sold out we are currently take it preorders for the next delivery and anticipate.
Hey, selling out again.
Sure be the is continuing to expand on the distribution brought earlier this year, we launched our Canada shopify fulfillment capabilities and entered into an agreement with hectic Europe for the wholesale distribution of our products in Europe to complement our existing E Commerce business and third party fulfillment there we all.
Already have many purvi the fans around the world and this global expansion will allow us to not only serve those customers, but extend our reach to others. There is more international expansion to come.
Pure Veeva is an expert at engaging customers and as always looking for new ways to build loyalty as well as bringing new customers ended the pure via lifestyle, our popular monthly bracelets and jewelry clubs and shore club loyalty program are all creative ways to connect our customers with our products and our lifestyles.
On the marketing fraud pure via social media engagement is strong we love feedback interaction from customers and we are always anxious to hear what they have to say about our products, we should create or charities, we should support.
Sure via remains one of the most highly engaged brands in the accessory space and social media with over 2 million Instagram followers pure Veeva is consistently lifted as one of the most if not the most engaged jewelry brands on Instagram.
Tick Tock has also take it off with nearly 100000 followers.
An army of brand ambassadors in close to 150000, Micrel Influencers are an active part of the brand and a key part of our marketing strategy.
Passionate advocates to help us spread the pure of either movement showcasing their devotion to the brand both flooring perks along the way.
When selecting brand ambassadors, we not only looked at the number of followers, but also look for talented photographers and the brightest static pure V that has personal relationships with many of the ambassadors and we help them create amazing and memorable experiences given them authentic reasons to post about their experiences with their Brad we also.
To collaborate with several of our top influencers to spray products that sell themselves with organic buzz and built in promotion.
We are diligently working to add more diversity to our influencers in marketing efforts, we have several exciting influencer product launches lined up for fall.
We're very excited about our partnership with answer and tick Tock Star Charlie Damelio to launch a pure of either bracelet Influencers style pack this holiday season.
Now with over 81 million followers. She is the most followed personality on Tech talk and was the raining Queen of picked up by the New York Times, Charlie target demographic fits perfectly with the pure veto brand.
In closing I think to our FERC for words, I could use to sum up the last quarter and it would be agility innovation digital and cash.
And so proud of how our entire organization has responded to the unprecedented crisis and maintained it offensive mindset as propelling us forward.
Even while working remotely our teams have demonstrated flexibility and decision, making created new products and marketing initiatives and added efficiency to the organization.
Investments in our digital infrastructure have paid off and our focus on cash management has driven us to think of creative ways to drive sales expand margin margins and reduce expenses are multi brand strategy is proving to be even more powerful.
Now more than ever I am confident we are in the REIT space with our casual and comfortable product offerings at both Vera Bradley and pure veto.
Our focus on customers with beyond the major city centers is even more advantageous and the Kobin world as we're seeing a migration from the major cities to the smaller towns and from addressed to your lifestyle to a more casual lifestyle.
Operator, we will now open the call the questions.
Thank you.
Ladies and gentlemen, if you would like to ask a question at this time. Please press Star then one on your Touchtone phone.
You are using a speaker phone today.
Sorry.
Press your mute.
Yeah.
Once again.
And then one.
A question today.
Our first question.
Okay.
Good morning, Thanks for taking my question and congrats on strong quarter, and it's really tough backdrop.
So just first I wanted to clarify a couple of things on the mask sales I think you said, 10% of total sales in the quarter, maybe just just confirmed that that's correct.
What was the mix between direct and indirect there and then just finally of the mass I know you said you expect that some moderate in the back half, but just given that it's been so significant of it impacts any further help.
You could provide what the monthly run rates than looking like.
Yes.
Yes, so mark to 10% wasn't number we.
Commented too and it was a total revenue so is above 10% the mix between segment. It was a little bit more at call. It 60 40.
Direct indirect close to those those values. So that if you're looking kind of split that out in regards to future quarter. We anticipate we don't anticipate again, the unpredictability of Covidien really kind of.
The time to go forward, we expect to have mat sales in the back to quarters, but we don't necessarily institute to be about 10% of sales. So it's hard for me to give you any forward guidance associate that because we think it's going to be unpredictable, but.
The current run rate in August as if something similar to what we have seen in kind of the July timeframe is not as significantly different right now, but we anticipate that to moderate as we go out go throughout the year.
That's really helpful. Thank you on and then switching gears store productivity I think you said.
80, percents was that the number for July I curious if that shifted at all in August that you kind of moved into the need at the back to school season.
Just from a channel perspective.
Digital trended with stores reopened.
Yes.
Opens mark one from a store performance is relatively the same and that 70% number. It's been interesting we have seen a softness and back to school business, but.
It's kind of being offset by some of the other businesses and the innovation thats driving customers, but I would say the run rates than similar.
In terms of digital I would say that might be one of our larger surprises that we saw because when we were kind of digital only in E. Commerce was up at triple digits, we thought that that would moderate quickly as stores started to reopen and we didn't see that the digital businesses remained.
Very strong.
So thats something that we're really watching as we go out through the rest of the year.
And now that whole, let's take what's really driving digital is two things and it innovation through.
New new marketing right all of the analytics, we put in place all the programming fine has really been instrumental in a getting customers into the brand as well as keeping customers engaged in the brands. So we've seen strong.
New customer growth across the digital channels.
So we'll watch that through the year and see how that moderates, but I think are feeling at this point is that digital is going to be an elevated part of our business ongoing we think that some of this consumer behavior as a permanent shift.
Well, we'll see how that goes going for.
Okay. Okay, that's all really helpful.
Maybe just bigger picture the.
Operating margin quarter, 16% really quite an incredible results.
You just help us understand how much of this is driven by some of that the temporary factors.
The mask sales, which we are going to moderate versus maybe <unk> or in addition to corporate cost savings versus more structural changes to the cost structure within the various segments I guess just in general.
With the learnings through this more challenging period, any bigger picture thoughts and how you're thinking about the margin profile the business on a go forward basis.
Yeah. So let me just actually correct something I said earlier in regards to mass filter probably closer to 70 30 versus 60 40 in the quarter. So it's a little bit higher from a direct perspective than I commented to.
She before in regards to operating margin I think.
Without having some of the SJ savings was associated with the 80 plus percent individuals who are furloughed with our store closure. So we got some benefit there with having kind of the operating expenses being a little bit more reduce I'd call that temporary and definitely in the quarter, but I do believe we've been able to look at some discretionary spending cut back discretionary spending.
And that will be savings as we look forward into the remainder of this year as well as we plan and think about next year and you can think of that as a teeny travel obviously travels we think's going to different for.
Not only corporate individual potentially some of the indirect individuals as well you utilize technology in order to kind of a meet with individuals we think theres going be some savings. There. We also are we looking at kind of all expense structures, all contracts and we think theres going to be some permanent savings associated with that and as we've introduced kind of project notice we should see some savings overtime associated with that.
In regards to masks, we do obviously, we got some significant benefits from a gross margin perspective the.
Obviously moved down to the operating margin perspective, and as we continue to sell mass we should see some benefit to the operating margin on a go forward basis.
And with one data enough.
That's helpful. Thanks for all the detail best of luck this fall.
Thanks, Mark Thanks, Mark.
Our next question comes.
With Cowen and company.
Hi, This is Kimberly hall on for Oliver. Thank you for taking our question. How are you thinking about back to school. This year given the current I'm sorry.
Our next year round for reopening busier quality resurfaced.
Sorry about towards the back to school crowd, so there's not enough.
Yes.
Kimberly Thanks for the question you go back to school has definitely been off to a slow start as we've seen around the industry and so we've definitely seen some suppression in the backpack and lunch bag business ones into its interesting as schools are moved around for example, the stores in Texas move into October openings, We think London, it's going to have.
And as that schools because to be a very elongated season. So it used to be very targeted in the August period, and now we really think thats kind of went out potentially for all of fall.
No we expected to be an important part of the holiday season, one thing Thats always been one of our advantage as particularly at Vera Bradley If you think about that brand.
The ability to for our product to kind of be evergreen and a lot of situations right. It's not that we have to rush. If we have lower demand, we can change future on older and kind of rebalancing the portfolio. So we're not.
Concern with the inventory levels.
Pure veto from back to school, it's also very important business for them.
It drives a lot it drives a lot of business around.
They have a whole program were people will buy bracelets as fund raisers, then by Pacsun do that for sports teams in schools and so they've seen some softness there.
We believe right now that the back to school period, that's going to be thoughtful then it kind of get through it we started to get through it on our second quarter performance and we think it will be similar for third quarter.
Just.
Yes.
Hi, sorry, sorry.
I think.
One last one for me.
On the map.
Looks like it's been pretty resilient in this environment versus the indirect segment.
Can you speak Japan dramatic drop is environment and also.
Hey, John the in the millennial base transfer over to Vera Bradley's product over the last year.
Well a couple of things one of the pure of either business. We definitely are seen continued strong customer engagement, especially through all their social channels, which is one that we really monitor closely in terms of consumer health.
So we're very excited about how the customers still engaging with the brand we have a lot and initiatives going forward. So there's good momentum there in terms of their customer migrating back against Vera Bradley that has not been part of our strategy and we havent seen a big push back in the consumer still is really seen both brands as separate Brian.
And they both have very loyal following we have some crossover.
But the plan has always been to led both businesses kind of grow their individual customer communities.
Okay. Thank you.
Welcome.
Our next question.
Yes.
Yes.
Good morning congratulations.
Eric I start.
Can you talk a little bit about.
And performance will are you seeing those.
A new fabrics expand.
Pace.
Is it driving traffic in both stores and online.
Thanks for question, Eric Yeah, as both both of the new fabric innovations have been receiving really strong customer response, we've seen very good feedback from customers in terms of the product really understanding what the products for how it's developed.
You know reactive was our first really jump into the sustainability movement in a large way that is something that you're going to see has continued to go after that helped bring new customers in the brand. It's also helped bring a younger more sustainable focused customer into the brands that's been very encouraging.
Permanence twill.
Was it off to a really strong start good feedback, but that one it's been a little bit more focused on a slightly dressier lifestyle for us. So you know as we kind of been through covered and there's a little less go into office and those things that has not been growing at the same late that we've seen in reactive.
But we're very confident in both we think that performance 12 from everything we've heard from our customers as another acetic acid under lifestyle piece to our business and we think that we'll continue to grow in the future.
When you looked at.
The cotton potential cotton fabric upgrade what are you trying to accomplish that obviously, there's always been the core of severe rather the experience. So what are you trying to do there that you.
Those are the ones that were looking to do.
In terms of cotton, there's a few different things happening with cotton right. If you say short term.
We use cotton is really the foundation for a lot of our collaborations right. It really is our heritage. It sells an incredibly important part is the most dominant piece of our business. So that's where all of our innovation around collaborations I'm really focuses unknown.
But second of all as we move into next year.
We're really focusing on cost into as we as we look at new innovation. So some innovation will bring into market will be at our cotton franchise, so kind of watch for more information on that.
And then lastly, with an interesting during this period with coal that theres been a different focus obviously from a consumer rights. The idea of hygiene becomes really important and what we've really seen as our customer responded very well to the washable you know part of our.
Cotton collection right. The fact that you can watch it therefore improves the hygiene very comfortable very wearable.
And that's really resonated well with our customer.
My last question I'm sure no.
Respectively.
Well out of the tests to review the store Stemberger next year is that still in the plans and how do you see that is essentially driving business going forward.
Yes, we still have plans to open a store for pure veto, we are actually out there looking at real estate, but we wanted to make sure and this new Tobin World that we were able to find the right location. Obviously more locations have opened up and there were a few months ago that obviously economics that chain.
So we want to make sure that we make the right deal, but we are excited to bring a pure aveda store to reality over the next year. So stay tuned to we'll have more announcements about that as we move into next year.
Great. Good luck for next career at Odyssey.
Thanks, Eric.
Ladies and gentlemen star and then.
Yes.
Ask a question.
Today.
Our next question.
Yeah.
Right.
Good morning, everyone.
You think about this shift to digital for the business model.
Planning shipping expenses, how do you see that how do you see that impacting the overall operating margin structure and when you think about the success that you've had with math. How are you planning masks going forward for the balance of the year and are there other categories that we should be watch looking for in this post covance.
Environment that you see adding to the sales base. Thank you.
Thanks Dennis.
So let me handle both questions. So first of all from a digital ship in perspective, you're right that as we look out over the rest of the year or the conversations around surcharges and so forth. We believe there will continue to be pressure.
And shipping costs were looking at different ways of being creative about that how we.
Now we charged for shipping how we motivate less packages. We just did something recently here. When we finished our online outlets sale, where we had free shipping prior we try to 35 dollar.
Threshold that worked very well that helped us consolidate packages, we had a lot of feedback from customers that they just waited and made one purchase as opposed to 610.
So we're going to continue to manage that the other thing that we're working very hard on is driving efficiency through the distribution center. We just put in our automation into the distribution center. So it's a robot robotic process. We believe that that will also drive long term efficiency that can help the used to offset some of the shipping costs.
And then we obviously continue as we manage the logistics network continue to look for ways of being more and more efficient and how we build efficiency between the Vera Bradley impure Vito.
Distribution platforms. So long term, we think that from an operating margin standpoint, this pent up pushes and takes but.
We still are focused on long term.
EBITDA targets, but we don't think this will have a huge detriment to the only thing I would add to that Rob is a you'd there will be a just a difference and kind of where the it is on the from accounting perspective, let you may see some gross margin pressure with freighters create expense above than we may get a little bit more bashing they leverage depending on how we're able to manage where the sales moved.
And then from the mass standpoint with mass for continuing we still as important part of the business. It's been interesting to watch other consumers responded I think whether it's really done is also said not only as an opportunity.
Today that we can expand upon and we've done other things in terms of other type of BP type stuff, whether it's had bands and and those not all kinds of things to continue to.
Used masses innovation, but it's also been an opportunity to expand distribution in terms of a relationships with people like target and and staples So with.
It's important to that I think the big less than there, though which I think it's important both for investors and something we've been talking about US management team is that the Vera Bradley brand and I believe the pure of either brand both have a lot of flexibility because they truly are lifestyle brands. So theres the ability to find items and find categories and really lean into.
And I think that gives us a lot more flexibility the water brands have.
When I think Thats part of the magic of why we really wanted to focus on these casual comfortable lifestyle brands.
Beyond mass some other things that we're continuing to see the consumer respond to where things around home things around comfort as we move into fourth quarter, you know the importance of things like far throw blanket, that's always been so important or.
Some of the expansion of our fleets program into ropes and month, where those type of things. We think we'll continue to resonate well with customer in this environment. So we think those or other areas to watch.
Thank you.
Thanks Dana.
We'll take our next question.
Okay.
Good morning, Rob and John.
Right.
But can you talk a little bit about the expectation generate cash in the third quarter.
And the ability to pay down so last tranche.
Little bit of debt and if not in the third quarter when would you anticipate having not off the books.
Yeah, given that we're not giving guidance I think it's hard to project, but given the fact that we paid down getting laid out I think it's a good indication that we don't anticipate needing to borrow any additional funds funding ABL facility and based on kind of different models that were looking at we think theres probably ability to pay it down by the end of the there.
Very helpful. Thank you.
Thanks.
Okay.
Sure.
Capital partners.
Hey, Rob and John Congratulations on a really impressive quarter.
Yes, I just want to thank you guys.
I wanted to thank you for that.
Really bold steps you took a march 19th to reduce the operating costs.
Actions were decisive and so.
Particularly the substantial salary cuts yourself. So can you hear board of directors.
Our qualities of a great company management team, we're really appreciate it.
I just have a few quick questions prior.
Nick purely Ddas EBITDA margin was hi.
He used to 20 range and it sounds like we're not far from there.
Currently does occur is this a realistic target for peer reviewed going forward or is there additional margin expansion expected.
Yes, Eric are you I believe you know from a pure viewed a perspective, even in the second quarter, we generate called 20%, 20.5% margin EBITDA margin for for peer reviewed and we anticipate on the long term to continue to be in high teens margin profile for a period.
That's great they know that customization, probably the margins down little bit but.
The growth I'm sure there's hope you love Richard.
Infrastructure.
On the same lines Vera Bradley Chief EBITDA of 65 million last year.
495 million sales, it's better than a 13% EBITDA margin.
And as you continue to expand ecommerce presence.
Investment your system digital infrastructure is a.
Higher EBITDA margin or something closer to that.
Realistic goal.
Yeah, I think over the over the long term obviously this year, we a little bit different given some of the challenge is the cove and in some of the challenges with if you know where we had in the first quarter, but over the long term of commented to expecting an operating margin in kind of at a low to mid teen range and that would be inclusive of pure vetoes and we use that as a proxy for what we think EBITDA margin would be.
Oh, great things and so it sounds like.
The collaboration.
Crocs Warner Brothers.
Phenomenal success is nice wondering if there are additional collaborations such as the recent focus and colleges in the military.
Perhaps K through 12 schools with a very large and fragmented clubs fluids market across the country are those are those areas.
Foresee Bradley and door.
It is already.
Targeting that came through 12 market, but is that.
Our the collaboration that could be capitalize upon those areas.
You're right I think there's two different ways to think about that so first of all in terms of collaboration particularly around some news licensing products like Disney Harry Potter I think that that's an opportunity both for Vera Bradley to continue to explore.
Continue to expand as well as pure Vito.
So I think that you're going to see that that'll be something that will be ongoing I think the second thing that you're really mentioning is the idea of being able to get into more the team spirit.
Space in terms of how we kind of.
Address that and that's kind of can beat your both brands right. It's an area where pure Vito has had a lot of success than the fund raising side, but it's definitely something that's on our radar we believe that.
Alps. So you know again as you look at these collaborations right we talked a lot about the character in terms of Disney and in terms of Harry Potter and the but big success, but.
It's broader for us to right. So collaborations as not just there. We've also had great success with Gillette and Venus and we've seen that expansion not only a target but around the world.
Rocks, but our second collaboration with them.
<unk> grew in your two over here, one and we have a lot more exciting collaborations coming up next year that we'll be talking about so we believe that's a really important part of the strategy because it brings new customers to the brand expands the customer reach it gets people to think about Vera Bradley at a new way and I think as we've seen with mass.
And our collaborations that our brands can go beyond just their traditional category and move into other areas. So we look forward to doing more of that.
Across both brands and the other thing maybe just to mention too, which I didn't talk about as we we have a tendency to speak about collaborations or our product all the time, but I think in this new world collaborations around marketing.
And how you use influencers, what pure viewed as doing when their partnership with Charlie.
I think just shows the power of collaborations that are marketing focus too. So we're looking for more collaborations on the marketing side as well as on the product side as we move forward.
That's great. Thanks, as the part of obviously part of magic or beat or the ambassadors Influencers is that.
In area, where you're brita.
Yes, Brad.
Consider is there opportunity as well.
Yes, we do believe there really has an opportunity to kind of build out that investor base. When we have some work underway right now, but we'll be talking about more in the future.
Okay, great look forward to that.
Justin.
Additional question. So the wonderful story about bargain Patricia company 38 years ago, you authenticity that story. It just seems like Theres a great message here.
Powering women to achieve their dreams, and but this really would resonate with your customer base to the extent that it can be showcased featured in some of the social media or even possibly talk shows or that that concept.
Are there other efforts to do that underway as well.
Are there is some around that.
Bob wrote a book a year ago patent Barb still do some speaking out there.
What we wanted to do is that only continue to highlight that story, but what we've actually found from our customer.
Is whether it's Ed Vera Bradley or whether it's been a pure via the idea that and being able to participate in some of these stories as even more important so being able to do things like become involved with us and supporting these different charities that we're working with and whether it's the ones. We work with that Vera Bradley between our foundation and do hope girls and buttons and backpack.
Or the charity braced for program that pure data what we're finding out with is younger customer is this not only about the stories that are told but it's more about the stories that they can help right and so for US we're spending a lot of focus on really looking at our customer into these stories. In addition to may be talking about our.
Heritage, We think that's where the most power lies.
Yes that make sense and it sounds like you can give you back to the community exactly the same way pure beat it does and that's it for sure cultural approach which is.
Also I know resonates with that demographic.
So it gets the last question.
As the.
What appears to be just great success with the pure via acquisition.
Do you consider this is a template for grows possibly future acquisitions.
Yes.
I think two things right one we don't speak a lot about kind of future.
Acquisitions, but on the same time, we've been very happy with the pure Veda acquisition, we think it's Tom rather well, we think it's a very special company, we think what gryphon in all of done there is really unique and special and I think both brands are really helping each other which I think there's a great modeled the integration has gone well we've been very please.
So far and I do think that we have a lot of optionality right. We still have you know a strong cash flow model between the two brands that allows us to have capital to potentially invest.
Another brands going forward, if we did that we would still what to find companies that feel like Vera Bradley impure Veda lifestyle, driven brands with strong yesterday focus so could be in the future, but we're not terminated specifically on that being a focus at the moment right now our number one focus has continued to strengthen the Vera Bradley impervious to.
Brands and continue to show growth.
Understood and you've got plenty of organic growth opportunities, so totally understood well.
Robin John Thanks for all your hard work on behalf.
Stakeholders and done before seeing touched.
Thanks, Rick Thanks, Rick.
No further questions.
I'd like to turn the conference.
Rob Wells.
Any closing remarks.
Well. Thank you very much for joining us on todays call Vera Bradley Inc. is an authentic iconic lifestyle company with two powerful brands and passionate emotionally connected customers. We are focused on continual innovation and improvements in product customer engagement and technology.
We have strong cash flow is solid balance sheet and ample liquidity, we're fully committed to continuing our long term commitment to all stakeholders with a strong DSG focus.
This quarter demonstrates that we can not only survive, but thrive in this environment, we have a talented and engage team that is agile tenacious and innovative we couldn't be prouder of how the team has worked together to address challenges and create new ways to do business and reach our customers. We are poised to emerge a stronger more agile.
Company.
Thank you for your interest in Vera Bradley Inc. and our two powerful brands. We hope you can join us on our third quarter call on December 9th.
Once again, ladies and gentlemen that concludes today's conference. We appreciate your participation today.
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