Q3 2021 Vera Bradley Inc Earnings Call

Good morning, ladies and gentlemen, thank you for standing by welcome.

Welcome severe of Bradley third quarter conference call.

At this time all participants are in a listen only mode.

Following the presentation, we will conduct a question and answer session.

Instructions will be provided lots of time for you to queue up for questions.

As a reminder, today's conference call is being recorded.

I would now like to turn of nickel or Mark do you like Vera Bradley Chief administrative officer.

Good morning, and welcome everyone I'd like to thank you for joining us for Vera Bradley <unk> earnings call. Some of the statements made during our prepared remarks and in response to your questions may constitute forward looking statements made pursuant to and within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 as amended such.

Forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect please refer to today's press release of 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 will remain operative at a later time, we undertake no obligation to update any information discussed on the call I will now turn number to Vera Bradley CEO, Rob Wallstrom Robert.

Thank you Mark good morning, everyone and thank you for joining us on today's call. John then right. Our CFO also joining me today.

Our quarterly results once again significantly exceeded last year's earnings performance as well as our expectations. We expanded our gross margin range, primarily through sales of current maps and controlled promotional activity.

We diligently managed store expenses that she'd be meaningful expense leverage.

Multibrand strategy is proving to be powerful.

Customers are changing the way they shop, and we have responded or digital competencies are becoming increasingly important, especially and is quickly evolving environment.

Somewhat fortuitous late last year, we acquired digitally native Tervita I began working on sort of cold Vera Bradley technology infrastructure, an E commerce site improvements net.

This is jerry to position the company for future success.

Those of enhancements went live several months ago.

Our consolidated ecommerce business was very strong in the third quarter, reflecting growth from both girls Bradley of drumbeat of even as our stores were re opened during the third quarter, our Vera Bradley digital business grew nearly 50% year over year and pure of either <unk> ecommerce sales grew over 17% for the quarter. Despite disruptions in the supply.

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E Commerce sales comprised over a third of total sales for the quarter.

Stay laser focused on the customer and by controlling what we can control. We have proven we can drive strong results and position ourselves to emerge stronger and more resilient company despite facing ongoing headwinds.

Our results were achieved through the innovation team work and determination of our entire organization.

EBIT of all working remotely our teams of demonstrated flexibility of decision, making created new products and marketing initiatives and out of deficiency to the organization and.

And our focus on cash management has driven us to think of creative ways to drive sales expand margins and reduce expenses net.

We turn the call over to John to review the financial results John.

Thanks, Robert Good morning.

Let me go over a few highlights for the third quarter.

As a reminder, financial results have been consolidated consolidated to include the July 2019 of pure via acquisition.

This is the first quarter since the acquisition of a year over year quarters are comparable.

The numbers I will discuss the day are all non-GAAP current.

Current complete reconciliation of GAAP to non-GAAP numbers. Please reference the schedules attached to todays press release.

The current year non-GAAP of third quarter income statement numbers exclude intangible asset amortization.

The non-GAAP income statement numbers for the prior year third quarter exclude the pure of either acquisition related charges and technology you platforming expenses.

Consolidated net revenues totaled 124.8 million for the current year third quarter compared to 127.5 million in the prior year third quarter.

Excluding charges Vera Bradley incorporates non-GAAP consolidated net income was 10.2 million or 30 cents per diluted share for the third quarter compared to 6.9 million or 20 cents per diluted share last year.

Vera Bradley direct segment revenues totaled 78.2 million compared to 78.4 million in the prior year third quarter.

E Commerce sales growth of 48.8% offset the 19.1% decline in comparable store sales for the quarter.

Store traffic continues to be negatively impacted by the pandemic.

The company closed 10 full line stores and opened six factory outlet stores in the last 12 months.

Vera Bradley indirect segment revenues totaled $22.3 million compared to $24.1 million in the prior year third quarter, reflecting a reduction in orders primarily related to the pandemic and that in and in the number of specialty and department store accounts.

Pure beat a segment revenues total $24.3 million compared to $25 million in the prior year third quarter a.

17.2% growth in E commerce sales nearly offset the sales to wholesale accounts, which were negatively affected by the pandemic.

Third quarter consolidated gross profit totaled $73.8 million or 59.1% of net revenues compared to 74.1 billion or 58.1% of net revenues in the prior year on a non-GAAP basis.

The company expanded its gross margin in the quarter, primarily through sales of cotton masks and controlled of promotional activity.

On a non-GAAP basis consolidated third quarter EPS generic expense total 59.4 million of or 47.6% of net revenues compared to 64 million or 50.2% of net revenues.

Current year as Jean expenses were lower than the prior year due to both temporary and permanent expense reductions related to the pandemic.

On a non-GAAP basis current year third quarter consolidated operating income totaled $14.4 million or 11.6% compared to 10.1 million or 7.9% of net revenues last year.

The uncertainties continued related to covered 90 make fourth quarter financial performance extremely difficult to predict.

As a result, we are not providing forward looking guidance.

For the fourth quarter, we believe our inventories are well positioned and marketing initiatives will drive traffic and sales. However.

However, third quarter performance should not be considered a predictor of future performance.

They are facing certain headwinds in the fourth quarter, including the continued impact of Cold night, you know store traffic and capacity limitations of stores nationally.

Sales may not be of strong for the fourth quarter and trade has a fairly significant headwind for all retailers as a consumer over index is to ecommerce shippers are applying surcharges to each package during peak season, and we have elected to absorb that cost of not pass along to the consumer.

Now, let me turn to the balance sheet net capital spending for the third quarter of nine months total 900000, and 5.2 million respectively capital expenses are expected to total between six to 7 million for the year, primarily related to technology and logistic enhancements as well as new factory stores cash.

Cash cash equivalents of investments as of October 30, Onest 2020 totaled 77.3 million compared to 48.8 million at the end of last year's third quarter. We.

We have 30 million of borrowings outstanding on our 75 million credit facility at the end of the quarter.

Quarter end inventory of $141.6 million compared to 134 million at the end of the third quarter last year cash.

And your inventory was higher than the prior year, primarily due to the steep accelerated into the third quarter from the fourth quarter weeks.

We expect year over year inventory to be relatively flat at fiscal year end Rob.

Thanks, John.

Now, let's shift to an update on our two brands. We believed the way that customers love. It didn't work as radical radically and permanently changed both Vera Bradley I'm sure would be that are particularly well suited with our purpose driven casual comfortable and fun positioning that dovetails perfectly into this consumer shift.

We remain focused on propelling both brands forward through innovation in product and marketing supported by state of Art technology.

Our new cloud based technology platform is allowing us to respond to the rapidly changing environment and to harness customer data and feedback earlier and.

More instantaneously to drive this innovation.

First let me update you on Vera Bradley.

Let's start with product and very proud of the fabric and product innovation being driven by our talented design creative and product development teams, we have a robust fabric innovation pipeline in place to continually update our current collection to develop new fabric offerings and to build on our platform of sustainable fabrics debt.

Pipeline is important to our existing customers and helps us attract new customers to the brand.

Our full line off range of performance 12 of our recycled reactive collection of continued to gain traction and are highly rated by our customers.

And the recent introduction of our ultra light fabrication has been a popular addition to our factory stores.

Stay tuned for more fabric innovation over the next 12 to 24 months.

We also continued to introduce differentiated styles and silhouettes, providing our customers beautiful solutions in all facets of our life.

One key focus is our hands free products like our slings backpacks and cross bodies as they have become increasingly important to our customers, particularly during the bad debt.

Our long term focus continues to be on building on our dominance in our three core franchise areas of youth campus every day and travel.

Our travel segment has held up relatively well during this period of product focus on soft travel items like our DAPL and because of the collection for car trips or we can get of ways, it's proving to be more resilient than the hard luggage market in general we.

We continue to innovate and travel for example, we are launching a reactive lay flat travel back back which takes our award winning lay flat functionality into our core back that category.

A great example of innovation has been our current mass, which once again drove meaningful revenue and gross margin dollars for us during the quarter.

We have continued to improve our operations with new features styles sizes patterns and solids and we're happy to provide our customers and the communities we serve with much needed personal protective equipment and provide a bit of Vera Bradley signature colour and fun in the process.

Net sales softened as we progressed through the third quarter, but still comprised approximately 10% of Vera Bradley is total sales.

We expect to sales of bass will continue to soften in the fourth quarter and beyond we are beginning to experience recovery in the core business.

Which has offset the mass volume declined in third quarter.

Our trend right colors and patterns continue to be important to our customers.

Basically remains our number one price, but our customers are also drawn to our emotional novelty prints and smaller soon to sell out capsule collections.

He's always add excitement to our assortment in that sense of urgency for our customers to shop.

Our best in show Dog <unk> launch in the third quarter of was a fan favorite and even talked last year's wildly popular cat's meow pattern.

This holiday season comes with a focus on gifting and cozy and a combination of bested the whimsical patterns like married and as Jeff important moving classics and neutral textures like our Teddy fleets and cosy plot.

We are offering an expanded assortment of customer favorites like blankets slippers, and cold weather accessories, and we expanded cozy into more apparel like loungewear of robes Puffer jackets and fleece. These.

These items have sold out quickly.

Our collaboration and strategic partnerships continued to engage existing and new customers expand our reach increase brand awareness generate media attention and provide opportunities for us to strategically test and ultimately enter new product categories, where.

We are continually approach by well known brands with collaboration and partnership opportunities, which speaks to the strength and wide appeal of the Vera Bradley brand and.

In August we launched our newest Disney collection of Vera Bradley Dot Com and our second annual collaboration with Crocs and.

In October we introduced our signature of mass and nights and they did do backpacks and target stores or non target dot com.

And earlier this month, we were able to replenish and add to our extraordinarily popular Vera Bradley, What's Harry Potter collaboration.

That originally launched in July and sold out quickly.

And what from more exciting collaborations and 2021.

Let me switch to marketing and customer engagement.

Our talented digital and marketing teams of completely transformed the way, we communicate and engage with our customers and types of the communities we serve.

As we focus of the reinforcing our position as an E.S.G. organization, we continue to strengthen our community support and charitable efforts under the umbrella of B B cares, particularly through organizations that could profoundly improve the lives of women and children.

Even though we were unable to hold any large fund raising events. This year through the generosity of our associates customers and other supporters, we were able to raise $1.4 million at support Lifesaving research at the Vera Bradley Foundation Center for breast cancer research.

At the Indiana University School of Medicine, bringing the total of race to date in support of breast cancer Research 36 million.

Additionally, we are continuing our year long support of other impactful organizations like new hope girls and lessons in a backpack.

Another aspect of BSG and our VB carriers focus its caring for our associates were so thankful for all of our associates are especially grateful to those that have served on the frontlines, making sure our customers have saved an exceptional experiences day in and day out, especially during the pandemic real.

We will once again thrilled to award of quarterly bonus of up to $500 based on hours work day, each distribution center of store and customer service associates for their continued contributions and devotion to Vera Bradley during this extraordinary time.

Over the last two quarters, we have paid over 800000, and well deserved bonuses to our frontline associates.

In the third quarter, we successfully launched our new Vera Bradley Dot Com site, which allowed us to improve our customers online buying experience that offer enhanced content to guide purchasing we added a number of keysight capabilities and of experience of triple digit improvement in revenue attributed to our search engine optimization.

Digital and marketing teams have been successful in accelerating digital and customer growth.

Our well timed investments in customer data science business analytics and positioned us well as we have navigated through the bad debt <unk>, allowing us to collect and analyze data and respond to customer changes and adjust marketing spend in an agile way.

Using our data centric programming buying we have significantly increased our paid media efficiency and revenue attributable to paid media during the quarter.

We continued to see strong performance from our digital media optimization.

Our return on AD spend in the quarter improved double digits led by campaigns like washable, handbags, and toast, which have resonated with customers as they are managing through the pandemic.

From media remains strong during the third quarter with over 3.3 billion impressions.

We had exceptional media coverage of our mass effort supporting community that healthcare workers from.

Cancer awareness month that our foundation efforts at our brand collaborations and partnerships.

We rolled out of customer journey centered activations with high response rates, including a welcome journey for new Harry Potter customers and from mass purchasers new to our brand.

Vera Bradley has always been of brand about connecting with people and we continue to see best in the industry engagement of rates on Facebook and Instagram, Our second launch with Crocs continued partnership of Disney in collaboration with Warner Brothers from Harry Potter gave our customers plenty of just talked about in the quarter. This has helped our customers have a community.

Connect with these difficult times and a way to find some fun and bright moments. This engagement has increased both followers in sales with third quarter revenue attributable to social media up triple digits year over year.

Our store and wholesale teams continue to drive results through innovation and creativity, although our digital business of becoming a larger portion of our revenues both factory and full line stores continue to be an important part of our omni channel strategy.

We continue to focus on enhancing and reinvention of the customer experience of both our full line of factory stores, while the pandemic of mandated capacity limits of challenge store traffic, we are using customer data to strengthen relationships by offering appointment shopping, particularly for our top customers based type of social selling and buying online pick.

Up in store and curbside pickup where possible.

Moving to selling was very successful generating nearly 10% of our full line revenues in the quarter.

Our loyal customer retention at the end of third quarter is actually better than it was at the same time last year.

This is a testament to our new digital and data analytics programs.

Our customers love for the brand and our associates devotion to our customers.

We have created more excitement and six Vera Bradley full line stores by adding pure of either shop in shops. After a successful test in Birmingham, Alabama Mill.

We will continue to leverage opportunities for both brands and we'll be rolling out of Vera Bradley was pure via charity brace that program.

Vera Bradley next year.

In the factory stores, we are testing line busting technology in several high traffic locations offering customers the opportunity to scan of QR code and receive of text message, but is there a time to return to the store. They may also scan of QR codes of review, our electronic look book and decide what they would like to buy waiting in line.

In the aggregate our factory stores continue to outperform our full line stores compared to last year as customers feel more comfortable shopping in outdoor centers that enclosed malls.

Our customer satisfaction scores are consistently industry, leading despite pandemic related disruptions, we are striving to create a seamless shopping experience no matter, where she chooses to shop.

Our omni channel customers of our most valuable on average spending three times more than the single channel shoppers.

We have opened six new factory stores and expanded and renovated one factory store. This year, we continue to focus on improving the productivity of our full line stores. We have permanently permanently closed seven full line stores. So far this year and expect to close five more by year end. This will bring our total full length was instead of 38 since the beginning of.

Fiscal 2018, and we expect to close approximately 10 additional locations next year.

On the wholesale side of the business Amazon is our highest volume and fastest from an account as Amazon continues to grow we of but resources against this business to optimize our inventory assortments assure price integrity and drive volume.

Now, let's talk about pure of data.

We remain excited about the potential of our pure of EDA brand pure viewed as year over year third quarter E. Commerce revenues grew over 17% despite significant supply chains.

Supply chain disruptions that impacted sales early in the quarter.

As inventory normalized ecommerce growth substantially accelerated in the back half of the quarter.

Using Vera Bradley global sourcing expertise, we have quickly strength in pure of be the supply chain diversified raw material sourcing and adding three additional production facilities in countries outside of all Salvador.

Of course total revenues were also affected by sales of the wholesale channel, which are beginning to recover of specialty stores reopened and start to reorder.

During the third quarter, we were able to divert some wholesale inventory into our E Commerce channel.

At pure of EDA innovation in product is first and foremost we continually of introduced new styles of the pure visa signature core bracelets and style packs and we've continued to add to our popular metal mood and semiprecious collections, which are at a higher price point than our traditional string bracelets. This category expansion.

And product diversification is working in fact, nearly 50% of pure B that E commerce business in the third quarter was comprised of jewelry categories other than the traditional spring bracelets underscoring the brand's lifestyle appeal.

Pure V. This Paul launches were a success our celestial collection was a big winner once again proving that beyond the beach styles resonate with our customers hearings. The necklaces continued in popularity as we further expanded our above the keyboard offerings for those not only living but working from home.

[noise] personalization as a continuing popular Trent customers can personalize their signature core bracelets by choosing the color combination or charmed special of them.

Alright, Waivable collection launched earlier this year has taken off with customers love in the customization of bar Douglass range circling bracelets.

We have expanded the styles of engraving of wood planks, including those embellished with first stones or Zodiac science and we have added as entered Atlas, where both sides can be customized with engraving.

Pure Veda signature charity bracelets will always be an integral part of the pure of either lifestyle and continue to be a growing category as they are so special to our loyal caused by the customers.

We're continually adding to our popular charity charm bracelet that we introduced earlier this year and to our charity dial packs that support many amazing causes that are cherished by our customers.

We developed two styles for suicide prevention month in September and partnered with boarding for breast cancer selling force styles of breast cancer awareness month in October.

Expansion of the charm and style packs to our charity assortment is not only enabling us to increase our price points, but you increased total donations to these great causes to date Jersey that has done a day donated over $2.8 million to more than 200 charities.

For holiday, we have an expanded offering of gift sets and fun advent calendars packed with 12 days of surprises, it's Super Sparkly style pack from one of our most well known influencers aspect of our our bigger collection of engraving gold jewelry, and even more charges, including Zodiac and wildlife charity styles.

Pure of EDA is continuing to expand on the distribution price early.

Earlier this year, we launched our Canada, shopify fulfillment capabilities and began wholesale distribution of our products in Europe to complement our existing ecommerce business and third party fulfillment there.

We already have many pure of either fans around the world in this global expansion is not only allowing us to serve those customers, but extend our reach to others.

Although we are early in our international expansion. We believe there are more opportunities ahead.

Our first pure of either retail store that was scheduled to open. This year was delayed due to the pandemic. We expect to opened this exciting retail concept in San Diego next year.

Pure of it is truly expert in gauging customers building loyalty and introducing new devote tees ends of the pure of either lifestyle.

Our monthly bracelet injury clubs in short club program are all creative ways to connect our customers with our products and lifestyle and cultivate loyalty.

During the quarter earned media was strong with healthy returns on spend in Jersey to double that SMS less from last year to 1.2 million active subscribers, which drove meaningful revenue.

On the marketing front pure via social media engagement as strong pure beat of remains one of the most highly engaged brands the accessory space on social media with over 2 million Instagram followers Tervita is consistently listed as one of the most if not the most engaged jewelry brands on Instagram.

A lot of pure of view this marketing strategy and overall success is driven by of devoted group of brand ambassadors and close to 150000 active micro influencers.

These passionate advocates help us spread the pure of data movement, showing their devotion to the brand while scoring perks along the way these ambassadors and influencers create compelling and exciting content, great Buzz about our product and share of that excitement with their followers and fans like our holiday collaboration with Aspen of art, we have said.

Several more exciting influencer product launches lined up in the months ahead.

Tick Tock has taken off with 115000 pure of either followers tick tock clips feature influencers on bail in boxes, showing sneak peaks of new items promoting giveaways and given tutorials tick tock generates interest in fall of words with creative engaging content and drive sales by linking the purity of the online.

Same store and occasionally offering special promotional codes.

Speaking of Tech talk we have moved the much anticipated launch of the pure via bracelet Influencer style pack with of reigning Queen of tick Tock, Charlie the belly of just spring 2021 due to production delays, we want to make sure we have enough product to execute and then we're sure.

It will be an incredibly successful launch Charlie's tick tock followers have grown by 20 million fans and just over three months to an astounding $100 million and she has over 34 million Instagram followers are target demographic fits perfectly with the pure of either brand and we are thrilled with the upcoming partnership.

We believe the strength of the pure of either business underscores the opportunity for discovery and other small high growth potential brands like pure beta with unique product and marketing position that could become part of the Vera Bradley family of brands.

Now more than ever I am confident that we are in the REIT space with our purpose driven casual comfortable in fund lifestyle brands that both Vera Bradley in pure of either both brands have unique growth opportunities, particularly as our focus is on customers who lived beyond the major city centers.

And this customer base is growing as they migrate from big cities to smaller communities, we are positioned well for the future.

Operator, we will now open up the call to questions.

Thank you.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using of speakerphone. Please make sure. Your mute function is turned off to Blair your signal to reach our equipment.

Paul Star one to ask a question.

I will now take our first question comes from Oliver Chen of Cowen. Please.

Please go ahead.

Thanks, so much everybody appreciate it so the margins are really strong, but the direct was a little lighter than what we had modeled of what are you seeing in terms of the the comp store sales and traffic trends and door I'm sure. There's a fair bit of of volatility and how has inventory of trended in.

Channel relative to your expectations.

Thanks Oliver from.

From a traffic perspective in the third quarter, we saw improvement obviously from the second quarter and both the factory and full line channels.

True was better than the full line channel.

So we saw better traffic coming to our stores as we opened up our stores right in earnest in the back half of the.

Third quarter.

But from a of inventory perspective, I think we're well positioned from an inventory perspective for.

Both brands, we have outside of the beginning of the third quarter attribute of got back into inventory late in the quarter and ultimately I think accelerated their sales growth of the first part of the quarter was a little bit challenging from an inventory position perspective, but in regards to stores of the Vera Bradley brand, we will well position in inventory for the full quarter.

Okay, and as we think about the Compton and model the comp waters.

What are some dynamics that you saw in conversion of.

Versus check size in the quarter, but that we just had and any thoughts going forward.

Profit continue to get better hopefully those of.

Added visibility on a reopening.

Yeah. So from a conversion perspective conversion was definitely up in all channels.

Whether that is E commerce flow subash from other full line because of individuals who came out cannot to shopping really came out to buy so we said we saw conversion increase we also saw kind of EPS. We saw big actual check go up people are buying a little bit more but we actually also saw the you are go down a little bit based on the fact of our mass where a portion of their purchase an $8 price when that's going.

To bring a day you are down.

Look into the fourth quarter I think it's really a it's going to be some challenges and the same.

Stores is going to be associated with capacity as as all retailers kind of deal with the capacity constraints of certain states are sort of cities in regards to what they are doing in regards to code of 19, but you know the hope as we move into next year would be that the vaccine will allow kind of its stores and most opened up.

To get traffic back to where we thought it would be as we entered into this year, but as you can imagine factory stores from of traffic in respect of people still feel a little bit more comfortable going to kind of outside of malls residents on those.

And then tier of either all the details of strategy or helpful. I know you called out of.

Supply chain and wholesale as being factors could you elaborate on when those might have better visibility in terms of timing and improved mark on those features of pure of either.

Yeah, so from a supply chain perspective, what weve corrected some of the challenges of you had a you know Rob mentioned in his prepared remarks, there'll be a lot working with additional vendors to help kind of from a supply chain that were not wholly owned fully.

Moving on the El Salvador plant.

From a wholesale perspective, you know we as stores opened up as we look into this and we think that's where we'll see a correction from a wholesale perspective for a period of.

Okay, and Rob on products for fourth quarter until next year.

Which products would you prioritize as most impactful to two and outlook.

In terms of in terms of I guess for this.

Are you specifically regarding pure veeder Vera Bradley of both Vera Bradley brand.

Yeah, Yeah, I think with Vera Bradley I think there's a lot of innovation coming in so you know the fourth quarter I think what becomes really important is.

Everything that we do around fleece and home and Cozy, obviously is really important in this time of year kind of all of our holiday patterns.

But we're seeing now with hands free being really important as we move through the fourth quarter. We think that will continue into next year.

And then as we look to next year of continuing with our collaborations and novelty, which is really important and then continuing with our fabric innovation.

Those are two of benefit because of the important kind of across categories. That then that's been interest is of we've watched our youth travel in every day business now we are expecting to see a lot more suppression and travel business and its basically trended more similar to the rest of our business. So thats been encouraging to see of because we're more than that.

Soft travelcard travel category, which has held up better than kind of that hard luggage you know.

Air travel.

So thats been encouraging to see a back to school was difficult back in August, but we saw some strength coming in September and obviously, we're hopeful as we move through next year and get to back to school, but you know it will be in full return hopefully by the time you get to next fall.

Thank you very much best regards happy holidays.

Thanks, Oliver Thank Paul.

Yes.

Our next question comes from Mark Altschwager of Baird. Please go ahead.

Thanks, Good morning, everyone. Just following up on the fourth quarter for a moment you mentioned that I think sales might not be of strong and those of fourth quarter versus third quarter GAAP underway.

Understanding that the environment is tough to predict here, but it's something you could expand upon that a bit of cheese is that primarily conservatism related to store capacity I guess with a consumer spoke of shifting to get being made with less of a headwind related to back to school.

I would think that continued sequential improvement might be possible. So maybe just talk a little bit more about the puts and takes there how you're thinking about the holiday.

Yeah, I think due to the holiday season right. This holiday is definitely not like any other right I think what we've seen in retail in general than we've seen in our numbers is consumers move forward. Some of their spending you know we had a very very strong start to November we're feeling very good obviously black Friday as you can tell from all of the Mark.

Portrayal of suppression in store traffic both of Black Friday.

And so we would just watch and see how it plays out over December I think a couple of the engine fourth quarter that are out there is that you know its cobot started close.

Pulling back from capacity issues that caused a little bit of pressure in some of those stores I mean, some of those capacity of pullbacks event.

Pretty large and so that has been a crusher that we've seen in fourth quarter that we did not see as much in third quarter and then the second question just from GE come with the E Commerce as we move through the earlier shipping right in all of our all of retail so much of the business has moved on E com and how that impacts that last week before Christmas.

People get back out in the stores, there's just still a little bit of uncertainty out of there and so we'll watch how that works works through and then the other thing just from an earning standpoint right. The ship in surcharges and additional pressure in fourth quarter that we havent had the rest of the year. So those are kind of the three key points right.

The reduction of capacity in stores, but E commerce shipping deadline ship off what happens with the customer and the third the surcharges.

So those are the things we're watching in fourth quarter of a unique.

It's not that we think that there is an underlying weakness with the consumer or what we're seeing going on within the consumers continue to respond to novelty and innovation and so we see interest is kind of navigating through this cove at holiday.

And then moving into next year, and hopefully Dexter momentum will continue pick up.

Okay. That's really helpful. Thank you.

And then on the marketing front.

Kind of about how you're dealing with some of the new customers you've acquired with the mask sales over the last couple of quarters.

Coming back to purchase other categories.

What does that behavior looks like in terms of repeat business as the last couple of months of progressed.

[noise]. He I know, it's been very encouraging both the new customers that we bought into our mass business as well as customers, but we bought into Harry Potter, we have very specific noting journeys against both of those customers to really engaging with the brand.

More deeply and widely on than we've seen really good response from those customers in terms of coming back. So we're encouraged that we'll really be able to keep all of those customers. We've gained.

Got it got it thanks, and then I guess last one.

For me just bigger picture.

Rob you discussed this permanent shift in consumer behavior on net been on a multiyear journey in terms of evolving.

Evolving what the store base looks like but any changes to how you're thinking about that in the medium terms in terms of stores versus digital and for the outlet business specifically agents your approach evolving for online outlet relative to the store outlet business.

Yes, any any high level thoughts there of the great things.

Yeah.

You know in terms of overall rights of journey, we've kind of been on we've been we had talked about reducing ours full line store fleet as you see we're projecting they continue to do that next year.

We're watching the balls develop moving in a very closely to see what happens in enclosed malls going forward on the outlets from style, we still feel that there is opportunity in the outlet channel.

We were very happy with overall, how the outlet channel has been performing customers are coming back faster to the outlets from they're coming back to the enclosed malls. So we see that as an opportunity. We still are very cautious about moving the online outlet onto a digital platform just because of.

From making that off price product more highly accessible.

So we are still primarily CR facts of business as a foot from mark or strategy.

Great. Thanks, so much and best of luck.

Thanks Mark.

Once again, if you would like to ask a question. Please signal of by pressing star one on your telephone keypad.

Our next question comes from Steve Marotta of CL, King and Associates. Please go ahead.

Good morning, Rob and John.

Everything from a lot of fonts and you mentioned.

Yes, Inc.

I see in the store.

Any effect on the E commerce.

Activity in those areas in other words, you find that of people can't get into stores E. Commerce is going up or because of sort of restrictions and.

People not feeling very good about anything.

Sales are going down in those areas as well.

I think that overall, it's definitely not as quick as you know you you slow down the store opened it helps on the E commerce as the GAAP ecommerce helps offset some of that which I think we've seen in the industry and we've seen in our channels over this year.

But you know as you.

Area of start to Spike, we do see just consumer starting to pull back, particularly for the first few weeks of bids change right everybody I think begins to rebalance their life from you see a short term impact.

And then usually with time those things begin to mitigate any of the only thing I would add to that it took to Mark's question a minute ago. As you know from the facts of perspective when capacity goes down from a fast from prospective we don't have an outlet for that on an ecommerce debt perspective from those consumers to buy net.

Okay I understand.

Maybe you can provide a little bit of your outlook for fiscal 21, not obviously from a guidance standpoint, but just from what you see as the trajectory of the consumer of course of the year as of X gene opened.

GAAP again its guidelines are reduced.

Basically it's going to be good for your business in some respects you think.

There will be different styles that will be utilized how do you best prepare.

To capitalize on the reopening of the timing of the reopening.

Yeah, I think you know the first half of the year of right, it's definitely going to be continuing to navigate pretty dynamic environment.

I think we're all hopeful that as we get some more theres some normalcy starting to come back and I think both brands are well positioned if you think about what we expect to bounce back disproportionately would be things like.

Some of the travel so that whole travel piece of the business, whether it's from our travel categories of pure of beta with other beach lifestyle of people getting back to the beaches and getting out and doing all of that I think the second big one day, we expect to really pop back strongly of back to school.

And I think there's a lot of impacts from that as you know of Vera Bradley business in terms of the back to school business, obviously of the soft this year I think there's a lot of pent up demand. So we're hopeful there and second of all pure beta they do a lot of product around you of fund raisers in schools and teams of people kind of use of customize our pack.

To do fundraisers and obviously this year since a lot of that did not happen that business was softer we think that that's a real opportunity to bounce back next year.

So there could be a lot of positive momentum in the back half of next year as you know travel in school of kind of pop back in return.

That's very helpful. Thank you.

Our next question as a follow up question from Oliver Chen of Cowen. Please go ahead.

Hi, Thank you a few more of just on the shipping and what you're seeing with the shipping deadline.

Loans has that been a limit or to some of the revenue growth and door as you look at Leicester City.

Issues, although you're taking other.

The surcharge I mean has there been any consumer differences with cancellations and Blair timing.

Also just this is very hard to forecast, but as you look forward with mass.

How how are you thinking about planning inventories in that situation and that being a big part of the business currently thank you.

Yeah, I think that from the shipping deadlines of I think we've been managing through shipping deadlines capacity, well I'm sure you've seen some of the headlines out there that.

We were able to secure our capacity needs with the essence of managing through that so they don't have any disproportionate delays here.

No we've actually been.

Encouraged by how shipping and logistics piece has been working from just our on time performance. That's not really the issue. There is a surcharge issue, which there's expenses associated with that I think the bigger question is when the shipping cut offs happened and so much of the business has moved from E. Commerce is what does the consumer do.

From that kind of shipping cut off of approximately of 12 15 through 12 25, right that 10 day window.

Does she go back out to store like she has traditionally or not I think that's the big question Mark as we move through holiday.

And in regards to Max right all of the EPS went marks we'd do think master of management team to abate as a percentage of total sales where do we think they're going to be an important part of the business for the fourth quarter and we think into the first quarter of of how it plays out after that when we are unsure.

Yep.

Yep, Okay, and Rob on Amazon, which you called out of my prepared remarks and pricing integrity.

What are some of the key guardrails that you have there and <unk> what are the main benefit opportunities you know.

That offset some of the risk factors of of partnering and deepening the relationship with Amazon.

Yeah, I think one really building kind of this from TJ partnership with Amazon was really important really dedicated resources people, who really understood the channel.

Worked on making sure that we were pulling back.

On either.

Counterfeit product that was available digitally out of in the world and pulling that back to a lot of activities. We've been doing there, which helps with price stability, making sure that we're working with our other wholesale partners to make sure that they're maintaining price integrity and doing all of those things has really helped us manage the price integrity on Amazon.

And I think that's just in this new world really be on top of data management, making quick decisions day in and day out has made that partnership effect of the other thing that we've really used Amazon for is you know key category penetration right. There's so many people shopping on Amazon when people are looking for things like backpack store.

Mass or you know kind of category type of conversations we want to be part of that search part of that conversation and we can really pick up new customers that way.

Much of the reason why we really leaned into it and we've been very happy with that partnership to though.

Thank you and finally on the promotional environment of that you've been seeing it how have you been seeing it and how have your merchandise margins done relative to your expectations and what you're seeing in terms of being competitive relative to competitors as well.

So it sounds like are some merchandise margin there'd been meeting of the kind of our expectations. We haven't from of Vera Bradley perspective, we have of being significantly more promotional.

In the third quarter the control of Promotionality here as we look into the fourth quarter of adjusting for looking at kind of what others are doing and we're trying to ensure that we play in the public space, but as Weve introduced in kind of vision 2020, we want to continue to drive full price selling there. So it's kind of just revert back to kind of other times, so we're being thoughtful and kind of how we.

Our promotional throughout the season, but they want to make sure that we don't leave any opportunity on non covered.

And just finally, you've done a pioneer with using a lot of the data and AI from for personalization of algorithms internally.

What's the latest there in terms of of results that you've seen from.

From implementing that.

That technology in the organization.

Yeah, I think that what we've seen one as we've seen a real acceleration of our consumer growth in kind of that 25 to 40 year old category and a lot of that as binge of very specific targeted marketing.

We also think as we lean forward as were continuing to diversify our customer base really using a lot of very specific algorithms to really target consumers is really going to help us really talk to each one individually you can imagine that with our very diverse product portfolio from of color and style standpoint, there's a lot of region.

Now of day, there's a lot of specificity in terms of ages and as we've been doing that we've been seeing much higher returns on their ad spend.

And we think debt with time, we're going to continue get smarter and continue to get more and more targeted in our.

Not only our product development, but also in our marketing of what what is available.

Yes, as we brought any of the customers from you know masks revenue or kind of Harry Potter look unable to.

Kept every purchases as better than average based on kind of specific journey. So that's been helpful.

Thank you very much best regards.

Thanks Oliver.

Our next question comes from Dana Telsey of Telsey Advisory Group. Please go ahead.

Hi, Good morning, everyone just wanted to get a little bit more color on pure.

How you're thinking about the operating margins go forward in that business and also.

GAAP planning of 2021.

Just to follow up on the expenses when you think about your fixed cost structure right now.

How much of the Lepage do you see it impacting margins of the core business of copper from.

All of it.

Yeah from pure of either we're still very excited about what the growth opportunity is in front of us were pure of it a lot of initiatives on.

Ahead of US we think that from you know in operating margin. We believe that sure be they can continue to kind of be in that high teens, you know mid to high teens operating margin on so we still feel very good about that business from the expense standpoint, I'll, let John put some color on that one yeah. So from an expense perspective.

We have a lot of fixed costs that are you know we saw some savings associated with certain items in the second and third quarter that we likely won't see kind of in the fourth quarter and some of those sales you can think of as of personnel savings as we took some reductions in salaries or other.

Other.

[noise] furloughed positions that we took.

If you think about kind of cost savings that we think we can see kind of into next year. You can think of that as a discussion of discretionary savings and is likely in the low single digit as a percentage of total expense base that we think will be permanent savings on a go forward because of.

And then when you think about the partnership.

What's coming up we should be marking our calendars for.

We haven't put the other lunch day to out there, but what I can tell you is that we have a very robust pipeline next year that is both.

With character of at least says a lot of exciting news, that's kind of becoming so we'll continue to.

Build on our partnerships with it may continue to build on our partnerships with Harry Potter and.

And you also be seeing with pure beta been taking advantage of a lot of licensing opportunities next year. So those are some of things were doing on kind of the character of license inside and Additionally, we're continuing to do collaboration work like we've done this year and we have some exciting things in mind net.

Sure so stay tuned.

And just lastly, any more learnings on the project side.

Yeah, I think our our big learning there is just continuing to become more responsive than you know technology and data driven I mean everything that we did around that project was so that we can move more rapidly we can make changes more rapidly we've seen in our prepared remarks, you you heard the comments were making.

But the improvement in net COO and how we just really are able to move quicker right with with our new infrastructure platform, we're able to make changes.

How we execute and what we learned that probably a matter of days versus what might of been months before and that will just over time, we will get smarter and better and better I think that's one of the Big then from this new role of technology and data.

It's it's not a destination so to speak it's kind of a journey right to keep getting better and better the more you know the more you Yvonne.

And you're really build up of competitive advantage and that's what we're working on.

Thank you.

Thanks Dennis.

Once again, if you would like to ask the question Keith signals by pressing Star One. Our next question comes from Eric Beder of assay.

Oh I see see research. Please go ahead.

Good morning.

Good morning, Eric.

Hey.

So in Q4.

In a lot more aggressive in terms of apparel non it's lots of store in the Vera Bradley stores, but with.

Outerwear.

Tom is robes.

And I think the response has been pretty positive is that kind of a one off holiday.

Thinking about that as a potential category or some level of expansion going forward.

[noise] day. So question Mark you had during the fourth quarter, we definitely have expanded some of our apparel offerings really focusing on kind of key item areas some of them very very.

I'm happy with the response from the consumer and we do think that's an area that you will see continued development no. One thing that we've always believed in both of these brands is that both brands are truly lifestyle brands, not just day product where actually our lifestyle. So we think that there is opportunity to have category expansion.

Both brands.

Okay and.

I'm thinking of that kind of go when you sort of.

The the store in store and of your Bradley store.

So what kind of.

Is this in terms of the physical store and what are they selling season there.

Beyond that yes.

Our other son entire parity the line.

Right yes.

Yeah, we're still working on all of the final design, we have identified other locations. So you know it is about an 800 square foot space.

So you know it's a that's kind of on the smaller store footprint, which we think is a great opportunity for pure of either within a jewelry store you don't need as much space. There Paul can get a much higher sales per square foot to make it more profitable long run in terms of assortment. It really is going to be focusing on.

Out of it it's fairly broad assortment and as you've seen there the metal jewelry business continues to be exceptionally strong so that will be a big part of the assortment supported by the strength bracelet business.

But also some of these other exciting initiatives. They have planned for next year that we'll talk we'll be talking more about on the next call.

Some of those new initiatives, we'll be launching in the store to Eric was your question also in regards to the store and the store for in the Vera Bradley stores or is it on specific to other purity of the new efficient.

I think what you describe what's your view of the relocation.

Yep.

Inside of your Bradley.

Yes.

I think what the shop in shops, and thereby other we're testing a few different day and so you know we tested in Birmingham, We gave a couple of hundred square feet to Tervita and that was kind of a focused assortment on kind of the best selling metal ends from bracelets to kind of get a test up.

We're rolling it out to additional stores and some of those presentations might be tighter one thing that's really great about pure of vetoes with the way the wall units worked in how much product you can get into very small square footage of unless they need a lot of space.

So we're going to test a few different size of some of them might be of hundred square feet. Some of them might just be you know 12 linear.

Feet of wall space, but it will be exciting to watch of that responds and then maturity bracelets program that will be in all of our stores will even be a tighter assortment.

But we think that's a real opportunity of whats been exciting is we've seen a good response from our consumers. None of them are full line stores, but also in our factory store buying full price product on whether it's been with pure of data whether it's been in some of our collaborations that we've tested by carry part of that we put in some of our factory stores. So we think those are real.

The opportunity to take advantage of some of this with all the traffic that's flowing through our factory stores.

Okay, and finally reactive.

Opened almost.

Let's see here next month it will be approximately.

One of <unk> and caught.

Caught up unfortunately in the whole flow of everything else of what kind of is that attracts the consumer you expected are you expecting too many of them as aggressive with all of the patterns. Other pieces I sort of been 2020, what do you expect to see reactive kind of the index I guess somewhat normalized year next year.

Yeah, we've been very happy with of the active performance right. There were really two key elements of reactive.

One was really our first of all were full forward, yeah, moving into [laughter] sustainability and the consumers really responded to that messaging on we've seen a younger customer really be attracted to that messaging are going to see us we've made a real commitment to moving our full line of.

<unk> men's to a sustainable fabric platform as we move forward. So more exciting announcements next year. We think that's critically important we've been very happy with the response. The second piece of reactive was just the more active lifestyle and obviously, we've seen the consumer this year continue to get more cash will get more active.

And I think we'll continue to be leaning into that and how do we use reactive to even have a stronger foothold in the active space.

Great. Thanks, Good luck of the holiday that's all it is.

Thank you Eric Thanks, Doug.

It appears we have no further questions at this time I would now like to turn the conference back to Rob Wallstrom for any additional or closing remarks.

Yes. Thank you so much for joining us on today's call I'm excited to have the opportunity to lead such a great team of talented agile and innovative associates, who are passionate about our brand at our customers.

Vera Bradley, Inc is not authentic iconic lifestyle company with two powerful brands and devoted customers. We're committed to continuous innovation in product and customer engagement, we have a strong balance sheet and ample liquidity and we are fully committed to advancing our EPS GE and stakeholder focus and to create long term shareholder value.

Once again, we have proven that by working together, we can thrive even when facing unrelenting headwinds.

We're poised to emerge a stronger company with an exciting future. Thank you for your time and interest in Vera Bradley Inc. We hope you can join us for our fiscal year end call on March 10th of 2021.

This concludes today's call.

Thank you for your participation you may now disconnect.

Yeah.

[noise].