Q4 2021 Vera Bradley Inc Earnings Call
Ladies and gentlemen, you're currently on hold for today's conference call. At this time, we are assembling today's audience and plan to be on delays. Shortly thank you for your patience and please continue to hold.
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Yes.
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Good morning, ladies and gentlemen, thank you for standing by welcome to the female Bradley fourth quarter and fiscal year end conference call. At this time all participants are in a listen only mode. Following the presentation. We will conduct the question and answer session and instructions will be.
Provided at that time for you to queue up for questions.
Today's conference is being recorded I would now like to trying to call over to Mark DNI thinking about Bradleys Chief administrative officer. Please go ahead Sir.
Good morning, and welcome everyone, we'd like to thank you for joining us for Vera Bradley's earnings call. Some of the statements made during your 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.
The 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 on the company's most recent form 10-K filed with the SEC for a discussion of known risks and uncertainties.
Mr 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 it over to Vera Bradley CEO, Rob Wallstrom Rob.
Thank you Mark good morning, everyone and thank you for joining us on today's call John Enwright. Our CFO also joins me today.
I am proud of how the organization navigated through the last year, our extraordinary culture on our loyal customers allowed our two lifestyle brands to not only persevere through the crisis.
But the changes we made to respond rapidly changing consumer needs. During the pandemic made us stronger as we look to the future our brands, we're able to bring brightness to our customers during the very challenging year. Despite an extremely challenging overall retail environment in the very difficult handbag and accessory market in particular, we delivered some best in class of operating.
Results on a non-GAAP basis, our fiscal year operating income was nearly 90% of last year's results, which was a strong performance in light of the unprecedented pandemic related headwinds. This performance was due to the strength of our two lifestyle brands and strong execution.
Despite the significant sales disruption, we had several financial successes during the year.
Our ecommerce sales comprised nearly half of our total company revenues for the fiscal year and our Vera Bradley brand E. Commerce sales grew by nearly 50%.
We expanded our annual consolidated gross margin rate, primarily through product innovation, the cotton asymptotic collaborations and more full price selling.
We diligently managed our expenses and we ended the fiscal year with a solid balance sheet with ample cash and no debt. We are in a strong position to drive growth by continuing to invest in our two brands and to take advantage of additional acquisition opportunities overtime.
Let me make a couple of comments on our fourth quarter performance, our Vera Bradley segment fourth quarter revenue trends were similar to the third quarter, excluding our mass business, which declined over six percentage points in the quarter to just over five percentage of total sales and the fact that our stores were closed on Thanksgiving day, this year, which negatively impacted our <unk>.
<unk> performance by an estimated 3 million <unk>.
Additionally, our Vera Bradley ecommerce business grew over 30% for the quarter.
Our PURA Vida segment non-GAAP operating income grew over last year's fourth quarter. While revenues were just below last year's fourth quarter. We made the strategic decision to reduce discounting during the black Friday period, which we estimate negatively impacted sales by about $6 million, but substantially improved gross margin performance and profit.
Ability and established a much healthier foundation for the future and outside of the five day period PURA Vida E. Commerce sales grew well over 40 per cent for the quarter.
In fiscal 2021, we concluded the final year of vision 2020 of our aggressive three year plan to restore the business two of healthy Foundation and we completed the first full year of consolidated operations of PURA Vida.
Spice of pandemic challenges, we strengthened our infrastructure and better position both of the PURA Vida Vera Bradley brands for the future let.
Let me highlight some of our major achievements for the year.
For PURA Vida PURA Vida E Commerce revenues increased nearly 15% for the fiscal year, despite the pandemic and significant supply chain disruptions during the lockdown without these disruptions were confident we would have exceeded our 20% plus revenue growth target.
Average order values and conversion rates continued to grow year over year.
The 2021 was focused on building a strong foundation of growth for PURA Vida.
Was the Vera Bradley's global sourcing expertise, we significantly strengthened PURA vida supply chain, diversifying raw material sourcing and adding three additional production facilities in countries outside of El Salvador.
We reexamine promotional activity and eliminated deep discounting, particularly around Black Friday, which led to gross margin rate improvement, we laid the groundwork for growth initiatives beyond jewelry to further expand PURA vida lifestyle brand reach.
In the product area PURA.
The continued to show the strength of the lifestyle brand by successfully expanding into new product categories, nearly 50% of our E. Commerce business is now comprised of jewelry categories other than the traditional string bracelets, such as metals semi precious stones charms and the great verbal collection underscoring the brand's lifestyle appeal, which.
We'll continue to be a key driver of growth.
Alrighty bracelets continue to be an important element of the PURA vida lifestyle in a big draw for our cause minded customers to date PURA Vida has donated over $3 million to more than 200 charities.
On the distribution side of it.
We expanded on the distribution per hour by launching fulfillment capabilities in Canada and entering into a third party agreement for the wholesale distribution of our products in Europe to complement our existing e-commerce business and fulfillment operations. There we added PURA Vida shop in shops, the six full line Vera Bradley stores and expanded our presence in wholesale partners with larger <unk>.
The store presentations.
In the marketing area.
Our social media engagement is exceptional remaining one of the most highly engaged brands in the accessory space on social media with over 2 million Instagram followers. We are consistently listed as one of the most if not the most engaged jewelry brands on Instagram ticked.
Tictoc is taken off with well over 200000 followers and a team of brand ambassadors and close two of 150000 micro influencers.
Alright, the active part of the brand and the key part of our marketing strategy, we entered into an exciting agreement with Charlie Demilio, the rainy clean of Tic, Toc, which I will update you on in a few minutes.
Earned media was strong with healthy returns on spend and we doubled our ask the metallurgy and fiscal 2020 to well over 1 million active subscribers, which drove meaningful revenue.
Now for Vera Bradley in the product area, we accelerated our robust average innovation pipeline to develop new offerings and build on our platform of sustainable fabrics, we quickly reacted as the consumer demand for personal protective equipment, producing and selling millions of cotton face mask generating meaningful revenue and gross margin dollars. We continue.
The another year of collaborations with several of iconic brands, including Crocs Disney in July the Peanuts introduced our signature mass of 1982 backpacks with target and entered into a collaboration with Warner brothers consumer products for the creation of the are extremely successful Harry Potter plus Vera Bradley collection.
On the distribution probably continued the strength and rationalize our store base, we opened six new factory stores and closed 13 underperforming full line stores any of the fiscal year was 75 full line and 69 factory locations.
We expanded and strengthened our partnerships with key online retailers such as Amazon.
In the marketing area.
Our loyal customer retention improved year over year, which was a testament to our customers' loyalty and our enhanced digital and data analytics programs.
Our customer service model and voice of customer program continued to drive industry, leading customer satisfaction scores. Despite endemic related disruptions.
We successfully launched our new Vera Bradley Dot com site, which allowed us to improve our customers online buying experience and offer enhanced content the guide purchasing.
We added a number of key site capabilities to support customers, who shifted to online purchasing during the pandemic.
Our well timed investments in customer data science and business analytics positioned us well as we navigated through the pandemic, allowing us to collect and analyze data and respond to customer changes and adjust marketing spend in an agile way.
Our targeted digital media efforts drove increased brand awareness and improved earned media with total media impressions up more than 170% to almost 10 billion per the year, we reinforced our commitment to be on ESG driven organization. We continued to strengthen our community support and charitable efforts for the umbrella of VB cares, particularly through the organization.
<unk> that can profoundly improve the lives of women and children <unk>.
Including one for millions of the Vera Bradley Foundation Center for breast cancer research over 630000 to the Corona virus response fund for nurses and donations to new Hope girls, Washington, the backpack and other causes.
The other aspect of our VB cares focus it's caring for our associates and we were able to pay over 800000 of bonuses to those serving on the front line during the pandemic. Our associate engagement scores also continued to be best in class underscoring the engagement and commitment from our talented teams.
We launched our companywide diversity and inclusion initiative project quotes to continue do enhanced diversity equality and inclusion focusing on three key areas. The associate experience the customer experience and the community experience.
And the tech in the information technology area, We completed project Nobis, our information technology platform conversion migrating our E Commerce site to a best in class cloud based solution and replacing our existing ERP P O S.
Intelligence and order management systems with a cloud based Microsoft D. 365, this conversion not only lessen the complexity of our it system systems, but also provided us with a more efficient technology platform, enabling our entire enterprise to make quick database informed decisions further enhance our customers' Vera.
<unk> and achieve our long term growth objectives.
Today, we are also announcing changes to the leadership structure of our company and the Vera Bradley brand to position us for an exciting future as we conclude vision 2020, we are embarking on the next important phase of our company's growth by enhancing our multi brand portfolio further expanding our ESG initiatives and driving additional value for all of us.
Stakeholders in order to strengthen our position and strategic vision as a purpose driven multi brand high growth company, we are realigning the organizational and leadership structure.
Vera Bradley and PURA Vida are the two lifestyle brands currently under the Vera Bradley Inc. Umbrella, we intend to nurture and grow both of these brands and also look for other lifestyle brands that can strengthen our capabilities and diversify our revenue streams. While I will continue of C. O. Vera Bradley Inc. Each brand will have their own leadership team that will focus on building customer engage.
And expanding revenue, while protecting the cultivating the distinct ethos and the entrepreneurial spirit of each brand.
With the retail industry, continuing its rapid transformation into a customer centric data driven technology enabled and digitally driven industry Vera Bradley will double down on these focus areas.
Serving as Vera Bradley as Chief customer officer for the past two and a half years Daren Hull and his team have already radically strength in the way, we engage with our customers with that of excited to announce the Darren has been appointed as the Vera Bradley brand President of it is.
The new role Darrin is being supported by a new streamlined leadership structure focused on three critical areas, while we bring the market, how we sell to market and how we raise customer engagement and your interest in the brand.
On the corporate level, we will offer consolidated back office support and efficient and lean corporate platform to enhance the growth of each brand and we will continue our technology and customer insights evolution to build an integrated ecosystem of capabilities for the enterprise that will allow our brands to respond more quickly to our customer wants the needs. These changes will better prepare.
To adapt to the ever changing retail landscape allow us to better react to customer needs strengthen our positioning.
Tell us towards the more profitable growth.
Looking ahead, our enterprises vision is to be a purpose driven multi brand high growth company and we are just beginning the journey.
As I noted, we will focus on enhancing our purpose driven efforts, while seeking out appropriate acquisitions of other comfortable affordable purpose driven brands similar to our successful PURA Vida acquisition overtime.
Our strong cash position debt free balance sheet and the ability to generate free cash flow will allow us to pursue these acquisitions. We will also expand our reach by adding adjacent product categories and geographies.
For fiscal 2022, our company's four key growth drivers are one driving our digital first strategy by evolving the digital distribution of our products and further refining and utilizing digital experiences to serve our customers. This will be supported by continuously refining our technology developing business processes and technology platforms.
To improve the agility database decision, making customer centricity and speed the market.
The two enhancing our product innovation pipeline collaborations and category extensions to attract new customers and increase share of wallet with existing customers number three expanding our community through marketing and by creating an impactful positive brand movement that not only changes lives that deepens our brand loyalty number.
For evolving our distribution channels by focusing on on future growth opportunities and addressing the drastically changing retail environment and the consumer marketplace.
We are of long term vision for the.
We are of long term vision for the future of our company and a clear path to achieve our goals. We are excited about the possibilities for Vera Bradley, Inc. And I am so proud of all of that the teams have accomplished over the past year.
I am confident that we have an exciting future ahead as we are poised to take advantage of additional acquisition opportunities and to evolve into an even more modern and relevant multi brand retailer.
Now, let me turn the call over to John to review the financial results John Thanks.
Thanks, Rob and good morning, Let me go over a few highlights for the fourth quarter and the full year.
As a reminder, financial results have been consolidated to include the PURA Vida acquisition. After the July 2019 acquisition date.
The numbers I will discuss today are all non-GAAP for complete detail of items excluded from the non-GAAP numbers I will discuss and the complete reconciliation of GAAP to non-GAAP numbers. Please reference today's press release.
Consolidated net revenues totaled $142 4 million as per the current year fourth quarter compared to $156 9 million for the prior year fourth quarter.
Excluding the charges Vera Bradley incorporated non-GAAP consolidated fourth quarter net income was $10 5 million or <unk> 31 per diluted share compared to $14 3 million of 42 per diluted share last year.
Current year fourth quarter ever Bradley direct segment revenues totaled 93 million, a 10, 2% decrease from the $103 6 million of the prior year fourth quarter.
Comparable sales decreased 10, 6% for the quarter, reflecting a 27, 4% decrease in comparable store sales of 31% increase in ecommerce sales.
Store traffic continues continues to be negatively impacted by the pandemic.
Closed 13 full line stores and opened six factory outlet stores in the last 12 months.
Vera Bradley indirect segment revenues totaled $15 2 million a $14 seven per cent decrease from $17 8 million in the prior year fourth quarter, reflecting a reduction in orders primarily related to the pandemic and in the number of specialty and department store counts.
PURA Vida segment revenues totaled $34 1 million of three 9% decrease from $35 $5 million on the prior year fourth quarter.
Growth in E Commerce sales were more than offset by the decline of sales to wholesale counts, which were negatively affected by the pandemic.
As Rob noted, we made the strategic decision to reduce discounting during the Black Friday, Black Friday period, which we estimate negatively impacted sales by about $6 million that improved gross margin performance.
Fourth quarter consolidated gross margin totaled $77 9 million or of 54, 7% of net revenues compared to $87 2 million or 55, 6% of net revenues in the prior year fourth quarter on a non-GAAP basis the.
The Companys current year fourth quarter gross margin was lower than the prior year, primarily due to surcharges associated with outbound shipping and incremental shipping costs associated with higher E Commerce sales.
On the non-GAAP basis consolidated SG&A fourth quarter expense totaled $63 3 million of 44 five per cent of the net revenues compared to $67 2 million or $42 eight per cent of net revenues for the prior year fourth quarter.
Currently of SG&A expenses were lower than the prior year due to both temporary and permanent expense reductions related to the pandemic.
On the non-GAAP basis currently of the fourth quarter consolidated operating income totaled $14 6 million or 10, 3% of net revenues compared to $20 1 million of 12, 8% of net revenues in the prior year.
Looking at the fiscal year consolidated net revenues totaled $468 3 million for fiscal 'twenty, one, which will which included $112 5 million of net revenues from PURA Vida compared to $495 2 million for fiscal 'twenty, which included $65 9 million of net revenues from PURA Vida.
Which represented a partial year from the date of acquisition.
Excluding PURA Vida Bureau of Bradley net revenue totaled $355 8 million compared to $429 3 million in the prior year.
As you know revenues were adversely impacted by the pandemic.
Excluding charges appear Bradley incorporated non-GAAP consolidated net income for the current fiscal year totaled $21 4 million or <unk> 63 per diluted share, which included 23 attributable to PURA Vida.
For the prior year, excluding charges Vera Bradley incorporated non-GAAP consolidated net income totaled $28 2 million or <unk> 82 per diluted share, which included 16 attributable to PURA Vida for the partial year.
Fewer Bradley direct segment revenues for the current fiscal year totaled $289 3 million of 16, 8% decrease from 347 5 million in the prior year.
The decline primarily resulted from our stores that were closed as a result of depend on the per approximately half of the first and second quarters, partially offset by a 49% increase of e-commerce sales during the fiscal year.
Vera Bradley indirect segment revenues for the fiscal year totaled $66 5 million and $18 seven per cent decrease from $81 8 million in the prior year, reflecting a reduction of orders primarily the primarily related to the pandemic and in the number of specialty and department store accounts.
Jeremy the segment revenue totaled $112 5 million compared to $65 9 million in the prior year, which represented the partial year from the date of acquisition.
On the non-GAAP basis gross margin for the fiscal for the current fiscal year totaled 266, eight day or 57% of net revenues compared to last year's non-GAAP gross margin of 200.
$280 1 million of $56 six per cent of net revenues.
We expanded our year over year consolidated gross margin primarily through sales of cotton masks, Inc.
On the collaborations despite incremental shipping costs.
On the non-GAAP basis, SG&A expenses totaled 233 million of 49, 7% of on net revenues in the current year compared to $242 4 million or 49% of net revenues in the prior year.
The expense control of the strong while absorbing incremental PURA Vida SG&A for nearly an additional six months in fiscal 2021.
On the non-GAAP basis consolidated operating income was $34 million or seven 3% of net revenues in the current year compared to $38 8 million or seven 8% of net revenue from the prior year as our outside of pretty remarkable performance in light of the pandemic headwinds we faced the entire year.
Now, let's talk about our outlook for the fiscal year.
The continued uncertainty surrounding the the continuing effects of COVID-19 on the retail environment and the future financial performance extremely difficult to predict however.
We are providing our best estimates for fiscal 2022 based on our current expectations, we expect flow traffic and revenues to improve in the second half of the year as vaccines become more widely available.
As we anticipate a bounce back in our important back to school on travel businesses.
All of the numbers I will discuss the non-GAAP the prior year numbers referenced exclude the charges, we have outlined today and the guidance number excludes similar charges.
For fiscal 'twenty, two our expectation of ours are as follows consolidated net revenues of $550 million to $575 million net.
Net revenue totaled $468 three loans in fiscal 'twenty one.
Year over year, PURA Vida revenues are expected to grow between 20 and 30%.
Vera Bradley revenues are expected to grow between 15 to 20 per cent.
Free cash flow of between $50 million to $55 million compared to $15 million in the prior year.
Consolidated gross margin of 56% to 57% compared to 57% in fiscal 'twenty one.
The potential rate decline.
Relates to the abatement in mass penetration in fiscal 'twenty, two coupled with incremental costs for inbound and outbound freight expense.
Consolidated SG&A expense of $270 million to $276 million compared to 233 million in fiscal 'twenty on the.
The expected SG&A increases primarily related to deal with all of these stores being opened for the full year non.
Non comparable of compensation and cares act savings in fiscal 'twenty, one and general terrible increases associated with higher sales expectations.
Consolidated operating income of $44 million to $48 million compared to $34 million in fiscal 'twenty one.
Consolidated diluted earnings per share of 80 to 90.
The Lilly dilutive earnings per share are based on diluted weighted shares outstanding of $34 6 million and an effective tax rate of 23 of 24%.
Diluted earnings per share totaled 63 last year.
Net capital spending of approximately $8 million to $10 million compared to $5 7 million in the prior year, reflecting the investments associated with new factory locations and technology and logistics enhancements.
Now, let me turn to the balance sheet net capital spending for fiscal year totaled $5 7 million compared to $13 3 million in the prior year.
Cash cash equivalents and investments.
On totaled $65 5 million.
Care to $73 8 million last year, we repaid the 30 million balance of our $75 million a b M. A day ABL excuse me facility in the fourth quarter of leaving no borrowings at fiscal year end.
Total fiscal year end inventory was $141 4 million compared to $123 6 million at last fiscal year end.
Year end inventory was higher than prior year, primarily due to the acceleration of certain Vera Bradley receipts into the fourth quarter to mitigate industry wide important shipping delays and the pull forward of PURA Vida receipts into the fourth quarter related to the trial again the product launch we expect year over year inventory will be down by approximately 5% by the end.
Of the fiscal 'twenty two of Rob.
Thanks, John.
Fiscal 2022 promises to be another challenging but exciting year as we enter the next stage of our company's growth journey.
Most of our lifestyle brands have enormous growth opportunities ahead, well beyond the core product categories.
Driven by a focus on digital first innovation and community engagement.
The PURA Vida, let me start with our high growth potential of PURA Vida business, we expect PURA vida to grow by over 20% in revenue and operating profit in fiscal 2022.
In order to drive this growth we are continuing to strengthen the infrastructure of PURA Vida our per.
Project Novus ERP integrations is scheduled for this fall procure vida and at that point of our entire vre enterprise will be on the unified technology platform. This will allow for enhanced capabilities in sourcing customer service CRM and data analytics. Among other areas. In addition, we are strengthening key merchandising inventory planning Inc.
Customer analytic functions of the PURA Vida.
On the supply chain front, we have a three year plan to further our supply supplier of diversification for both string of non stream products PURA Vida continues to innovate at a rapid pace, we continually expand our offerings of traditional signature corpore slips in style packs and we have continued to add our popular non stream collections, which were at.
The higher price points than our traditional bracelets. This category expansion and product diversification is working as I noted earlier nearly 50% of our E. Commerce business is now comprised of non string jewelry categories underscoring our brands broad lifestyle appeal.
Our PURA Vida spring launch is off to a strong start in feature several of our new jewelry items like metal semi precious stones shelves and beads. In addition to the traditional bracelets rings earrings necklaces are gaining in popularity.
PURA Vida signature charity bracelets continue to be an integral and growing part of the PURA Vida lifestyle. Our customers are passionate about supporting cause minded programs through their purchases of <unk>.
<unk> charity additions include racial justice awareness of some project cat in support of worldwide World Wildlife funds effort the double the number of Tigers Memorial.
We have several exciting launches coming up the spring in April we will launch of our PURA Vida apparel of collection of shirts, and hoodies a perfect extension of the PURA Vida lifestyle.
While we will start with the limited collection, we believe the there is significant revenue opportunity.
All of the products are fair trade certified in key styles of costs related to high end similar to our charity price the program.
In May we will continue on a backpack collection.
The recall PURA Vida and Vera Bradley collaborated on the special backpack last year and it sold out in just a few hours.
So we know there was a lot of interest and demand for our backpack with the PURA Vida twist.
Later in the year, we will announce some exciting product collaborations and licensing partnerships more to come on that front.
So our core product growth, coupled with the apparel backpacks and our licensing collaborations are expected to drive meaningful top line growth this year.
PURA Vida has demonstrated expertise in engaging customers building loyalty and introducing new Davao teeth into the Vera Bradley I mean, the into the PURA Vida lifestyle.
This year, we expect continued growth on all digital platforms, including E Mail, SMS and social media.
We are also focused on driving even more efficiency and paid media and website performance in fiscal 2022.
As I noted tictoc is taken off with well over 200000, PURA Vida followers Tictoc clubs. The feature Influencers on bailing boxes, showing sneak peaks of new items, promoting giveaways, and giving tutorials tictoc generates interest and followers with creative engaging content to drive sales by linking to the PURA Vida online store and the.
Occasionally offering special promotions.
And speaking of Tech talk just last week, we launched our much anticipated influence your style pack with Charlie familiar Charlie now has been outstanding.
And astounding $150 million plus followers across all social platforms or <unk>.
Target demographics fits perfectly with the PURA Vida brand and with the hashtag choice, you're happy that fits right in with our lifestyle and aesthetic. This partnership is delivering strong PR and customer engagement since our Charlie announcement, we have nearly doubled our tick tock followers and had over 27 million views of us.
Show US your happy Challenge and a five day since launch we have garnered nearly 600 million media impressions.
We expect outsized E Commerce e-commerce growth of PURA Vida this year, particularly as we have strengthened the supply chain infrastructure.
On the retail front, we are excited about opening our first PURA Vida lab store in San Diego's Westfield UTC mall in June this will allow us to showcase the existing products as well as new product innovations and to get direct customer feedback. The location will also create Instagram mobile moments and allow us to host influencer events.
We will evaluate the jaws performance for possible future expansion.
We will continue to look for additional shop in shop opportunities to showcase a full array of PURA Vida products and Vera Bradley stores and will be rolling out our Vera Bradley PURA Vida charity brace the program and all Bureau of Bradley full line stores. This spring.
As the world returns to more normalcy, we expect a steady return of wholesale growth as we have already begun to experience this quarter.
Additionally, we are planning on continued expanded presence in key wholesale partners with larger in store floor displays and presentations. This year and beyond we will continue to grow internationally in Canada, and Europe, particularly as the pandemic related lockdowns ease and look for other international distribution partners.
We already have many PURA vida fans around the world in this global expansion is not only allowing us to serve those customers, but to extend our reach to others on.
Although we are early in on international expansion. We believe there are more opportunities ahead.
Now, let's shift the Vera Bradley.
We have planned of robust calendar of exciting product launches the marketing initiatives for the year as the vaccine rollout expands in couple of the restrictions begin to ease we expect to see outsized growth occur in our two core pillars of campus and travel, particularly on the back half of the year.
On the product front, we have ramped up our innovation pipeline to continually develop new fabric offerings in the build on a platform of sustainable fabrics. This pipeline is important to not only increase share of wallet with our existing customers, but also to attract new customers to the brand.
Our newest commitment starts at our core we have reinvented the iconic fabric that made us us since 1982, and we are thrilled to be introducing our new recycled cotton product later this spring the softness comfort and vibrancy of our customers Love has been evolves, we will be introduced the new style.
On the new solids Gerrard kind of collection, we are consciously re imagining our designs our materials and how our products are made with the goal of updating 100% of our fabrics to more sustainable alternatives by 2025, so stay tuned.
We are continuing to expand our collection of performance tool of our recycled reactive collection in our full line stores, which will continue to gain traction of our highly rated by our customers and we are further expanding our ultra light collection that was just introduced last year and it's been popular with our factory stores.
We also continue to introduce differentiated styles and silhouettes, providing our customers beautiful solutions in all facets of her life. Our long term focus continues to be on building on our dominance in our three core franchise the areas of youth.
The campus every day and travel.
We especially look forward to the recovery of our campus and travel segments of the business and we believe we are poised to take market share of women pandemic related consumer Pos lift later this year.
Our collaborations and strategic alliances remain an important element of our strategy. These partnerships excite and engage existing and new customers increased brand awareness generate media attention and provide opportunities for Vera Bradley to strategically test and ultimately enter new product categories.
We are continually approached by outside partners about potential collaborations which speaks to the power and why the appeal of our brand Tomorrow. We are launching our latest Disney collection on a much broader scale than ever before and we look forward to another year of high profile of product collaborations with brands like Harry Potter of Crocs and venous we are working with several of <unk>.
Other iconic internationally known brands on exciting future collaborations and character of licensing programs that will be rolled out over the next 18 months on.
On the best front in the fourth quarter net sales dropped to about 5% of our total sales as we move into fiscal 'twenty two.
We expect the mass business to become smaller as Covid precautions begin to ease, but we also anticipate the store traffic will naturally improve during this time.
As I noted earlier of one of our key goals this year of strengthening our customer community through marketing and an impactful positive brand movement of not only changes lives, but deepens our brand loyalty. We certainly saw the value of our brand provided in connecting our customers and brightening of their lives during the pandemic, we will continue to capitalize.
And build upon the investments we've made in data science business analytics and customer data over the next two years, we utilize more user generated content drive more engagement in social media expand our Influencer program strength of our customer journey centered at the basins.
<unk> continued to enhance our social storytelling.
We're in the process of revamping of our long standing brand Ambassador program pattern unit after PURA Vida as highly successful one.
We are expanding our social media program by continuing to analyze the data to focus on the most engaging content creation of improving the connection with their followers as an extension of this we will also expand social selling we are amplifying our VB cares mission working with fewer partners to make bigger impact and often times combined with product collaborations are.
<unk> of supporting women and children continues.
In February of the honor of Black history month, we celebrated with the introduction of our unity towed and we were honored to donate $20000 to women, who create a nonprofit organization dedicated to providing scholarships and mentorship ski on create is identifying as women of color in the fields of fashion to advertise the music in Tech just this week, we announced the third and.
The collaboration with New Hope girls, the nonprofit organization that provides jobs for vulnerable women and refuge and education for girls in the Dominican Republic. The limited edition Mini collection features of the hobo bags and travel pouch with design and zone by the new hope.
Artisans.
Like last year. The collection launched on March eight in celebration of International Women's day, and generated enormous media attention and we couldnt be happier to continue to support new hope girls and bring awareness to the organization. We will continue with our private collection in June in honor of Pride month, and as always this back to school season, we will once again support the lessons.
Of the backpack and the.
Their commitment to end childhood hunger across America and of course activities supporting the Vera Bradley Foundation for breast cancer go on all year long.
Over the last 18 months, we have prioritized digital as the primary revenue growth driver for Vera Bradley, making major strategic shifts the investments to pivot us to a digital first company, we're enabling her to shop in the seamless manner and allow her to shop, where and how she wants to shop, we will continue to expand the capabilities introduced the project Novus further enabling revenue.
Growth through the expansion of the digital channel and enhancing the customer experience the customer analytics, we expect to drive the third year of substantial ecommerce growth and later this year, we are preparing to launch of Canadian website, Although our digital business is becoming a larger portion of our revenues stores continue to be an important part of our omnichannel strategy.
Digital sales are typically higher in markets, where we have of retail presence and the average omnichannel customer spends over three times more than the single channel customer.
So our store and wholesale teams continue to work to drive results through innovation and creativity.
We continue to focus on enhancing and reinventing the customer experience on our full line stores, while the pandemic mandated capacity limits of challenged store traffic. We have further integrated digital and customer data enhancements into our physical store footprint to strengthen relationships by offering of appointment selling faced heightened social selling buy online pickup in store and curbside pick.
A couple of possible.
Appointment of selling was very successful generating a high single digit percentage of of full line revenues in the fourth quarter.
Customers have permanently changed the way they shop and many of these features and programs will continue post pandemic, we connected closely with our loyal customers and customer retention at the end of fourth quarter was improve further over the last year.
We are improving the profitability of our full line portfolio by rationalizing our existing fleet through select closures. We will continue to focus on our highest potential stores enhancing the customer experience and further localizing. Our assortments, we expect to close up to 10 additional full line stores during fiscal 2022, which would bring our total full line closings to 49 since the.
The beginning of fiscal 2018.
Of this year, we will continue to maximize our factory performance by adding five new locations of expanding three additional high performing stores.
<unk> enhancements also come into play in the factory stores with the expansion of mobile Pos the ability to customize the shopping experience in line <unk> and the use of virtual catalog.
On the wholesale side of the business, we will continue to expand our digital marketplaces like Amazon meeting customers, where they are in the shopping.
Operator.
We'll now open the call to questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please second of all your question.
On the kind of from Keybanc.
Using a speaker phone. Please make sure you're on mute function is turned off to allow you have taken the truth, Joe equipment and again Thats star one to ask a question.
We take our first question from Mark <unk> of Baird.
Eric Please go ahead.
Great. Thank you good morning, Thanks for taking my questions.
Think of lot of exciting initiatives underway here on just.
The first question with regards to the.
Revenue outlook can you just talk a little bit more about how youre thinking about the shape of the year on.
In terms of the year on year of growth versus fiscal 2020 or COVID-19, I guess I'm just trying to think through the core of demand recovery versus the impact of lapping some of the best sales or just any other considerations there.
And on that point, specifically annual outlet sale should we what should we be assuming for contribution there in the early part of the year.
Sure Mark I'll kick it off on that and you can add if you need any details in regards to the annual outlet sale.
For this year, we have canceled that sales so it won't be in the number of the 550 to 575.
In regards to the shape of kind of the sales as we compare it to fiscal 'twenty of your COVID-19.
We said, we anticipate the back half being stronger this year than the front half of <unk>.
First quarters can be a little bit more challenge given.
Store traffic that you've likely seen in other retailers in the health of reports. So we think the first quarters can be a little bit more challenge, but we think as we move into the summer and moving into the fall of peer well actually seek some kind of benefit in regards to kind of people coming back out of Germany.
And just a couple of things that we've seen so far in the quarter.
Which has been encouraging to at least see some of this more positive behavior is vaccines are beginning to rollout, we're seeing a little bit of improvement, particularly with the older customer coming back to the first ones to get the vaccine.
Which was an interesting data point. So we are seeing some positivity, it's not overly material yet, but it's the beginning which is a good sign on.
On the other thing that we've seen particularly with the PURA Vida wholesale business.
As nice kind of growth early with the wholesale business and their partners really expecting a return.
Two of higher level of performance is the answer the summer period, and so we're seeing increased revenue. There. So there are some encouraging signs, but overall, we do expect obviously for the first half of the year to be more challenged kind of on more of a some level of continuation of the end of last year, but the second half of the year to really see a pickup of kind of starting with back to school.
Moving on from there.
Thank you and then with regards to the earnings outlook.
Unpacked the out of bed.
I think the midpoint of the guide implies operating profit that's on.
Above fiscal 2020 level. Despite the fact, you've got back out PURA Vida it would seem to imply on.
On the expectations for Vera Bradley.
Waiting earnings are still on.
On the low pre pandemic levels, but maybe just help us understand some of the puts and takes there.
Bigger picture of how you were thinking about the the normalized level of operating margin at Vera Bradley, but all of the shifts in channel mix and the planned marketing investments.
Yes, so so that's accurate educate each kind of unpack it ultimately the the Vera Bradley brands can be a little bit more challenged in fiscal 'twenty and we're getting a benefit for the annualized <unk> of PURA Vida some of the challenges in the fair value when you compare it to 'twenty there will be some sales won't be back to the full level of 'twenty it will be very close.
But it won't be necessarily back to the full level, depending on kind of where we sit.
On a margin that will be somewhat challenged given all of the costs associated with the inbound and outbound shipping and with the port delays will be bringing things in a little bit differently. So that may cost us a little bit Morris of margin will be challenge from an SG&A perspective, there'll be some savings associated with kind of a 2000 twenty's results for some of the permanent savings.
But as you can imagine compared to 21. The fact that we have all of the stores opened and you don't have the same.
The benefits of you saw in 'twenty one in regards to some compensation reductions of the organization took you'll see some kind of challenges against 21, there. So I'm not sure if that answered your question, but.
It's definitely fair value of both probably take till we will not be back to 'twenty levels of mix this year.
I think what we're targeting is the following year to get Vera Bradley back to the 2020 level, but we believe it will take us an extra year to get there.
Got it that's helpful and I appreciate you willing youre willingness to provide a detailed earnings outlooks I know, it's tough right now.
Then maybe just finally, Robert again bigger picture with respect of the new management structure. It would seem to open up some capacity for you to dedicate some of the M&A, maybe just talk about your approach there what the landscape looks like.
For brands that fit your profile just any sense of the potential size range you would considered from an acquisition standpoint.
Yeah in terms of giving a lot of detail on M&A activity, we usually don't do that but I can give you a little bit because I think you're right part of the reason why we did do the structure. We do believe that there will be opportunity in the future.
We think that we've been very happy with the PURA Vida acquisition.
We believe that there is real growth on that brand, we think that being able to walk of digitally native companies. There kind of a net mid part of their growth cycle and helping them scale get larger.
The work through that transition and maximize the potential is the real opportunity.
And so we're out there looking for are the ones in.
Obviously this has been a time, where there's a lot of brands that are starting which is encouraging but we want to make sure that we're diligent in the process, we want to make sure that we really are.
Looking for the right opportunity at the right time and kind of the right valuation. So we're going to make sure. We're very prudent in that approach, but we will be.
Looking and see what opportunities present themselves.
Great. Thank you Dan the best of luck.
Thank you.
Thank you next question comes from Oliver Chen of Cowen. Please go ahead.
Hi, Thank you.
Good morning, so as we think about the inventory.
In the day elevated at the end of this quarter, but they were the rationale why on how are you plenty of inventory relative to sales of the year Progressive and also.
The the potential that the bounce back on back to school as well as travel on how might you assess that as well as non hunting.
On the inventory given the dynamic nature of what we're seeing.
That's all kind of the inventory the part of it yeah I think at the end of the areas a little bit elevated than what we had guided towards what we had talked of towards.
At the end of the third quarter and you know the rationale is we pulled some stuff forward in regards to.
Just port delays to make sure we had it for launches.
The part of it also when we cut back on the <unk>.
<unk> four of the PURA Vida, we still had some inventory associated with that so as we think about next year you know as we've kind of indicated in our guidance. We believe we have an opportunity to shrink inventory year over year call. It in the 5% range. So call it out between five and $10 million. So we'll be working through inventory in both brands to make sure we are well positioned.
Should the hit the sales targets that we have we want to make sure as we enter into new categories for the pure body PURA Vida brand that we have the right assortment of the right value from the inventory perspective to make sure of the sales.
But we will be mindful of taking out reducing inventory year over year.
And then I think I'm not quite.
Can you clarify the question a little bit around back to school mixture of answer of correctly, if they don't all over but as we look at back to school. We're obviously hopeful that we'll see school openings as we get back in the fall.
And with a lack of back to school purchasing last year, we think theres going to be some pent up demand from the inventory standpoint, we feel like we're in pretty good shape.
We're hopeful that as back to school bounces back to there is an opportunity to drive even more full price selling which is the in the past that on for last couple of years. So.
We feel like we're set up.
Pretty well for the back half of the year.
Thanks, and Rob with the.
Mounting adult brands Carabiner line Vera Bradley, what's the outlook as you think about merchandise margins universes.
This year on what's incorporated in your guidance and also on the merch margin profile versus 2020.
I can take some of that so in regards to kind of on merchandise margin as we think about the guidance, we don't anticipate to be significantly different from the discounting perspective. So you can look at kind of merchandize margins for kind of like categories to be fairly consistent.
On masks being a smaller part of the business next year. This.
Upcoming year versus what it was last year, we're going to see some challenges mass was a very high margin category for us and with that being a small part of the business on a go forward basis, you'll see some pressure if you look at the aggregate merchandise margins, but generally speaking in total we expect not to be significantly more promotional the lessor.
We have made a lot of progress last year in terms of reducing promotional activity of PURA vida in the.
We are looking at the kind of penetration of retirement, the full price selling and we're seeing nice growth on our full price business last year. So we're really looking at the kind of hold on to those gains as we go into the next year on non increasing the discounting activity.
On the organizational changes some quite innovative and congrats to Darren what of your thoughts on why now is the right time for that and also on what will be on some of the parameters in terms of making these changes and the framework, you're thinking about on timing and managing both opportunity and risk.
Yes, I think of few things I think one Darin did a very nice job since he's come in of really helping to put more focus on our digital business of our ecommerce business of analytics, our marketing analytics.
And really played an instrumental role over the last couple of years and we just believe that as we move forward, that's becoming more and more important in the surrounded by a really talented team and.
Beatrice Mary Beth and the team that can really support.
The growth initiatives going forward, and we think that by having darrin really focused and purely on Vera Bradley says singular brand that can bring even additional focus to the.
Bradley brand.
I think that there is a lot of opportunity of PURA Vida is to continue to expand so I want to make sure that we have enough support from the corporate team to really support the PURA Vida expansion.
It kind of all I do believe that there's opportunity to continue to enhance our brand portfolio.
So making sure that we're spending sufficient time on that is also another piece of it.
Look at the corporate platform, what we really wanted to do with that over time is just really build the inefficient.
Support structure, so that as we as brands are kind of pop and of that we had the expertise that can really help them grow from the logistics standpoint from the 19 standpoint from the human resource standpoint, the legal finance standpoint.
We found a lot of that has been helpful. The PURA Vida, we think we can provide a lot of help for on.
The next brand the country on the portfolio.
Robert on that point.
What would you highlight of synergies as an acquirer you might bring to the table on what's your impression of valuations in the marketplace as well as you think about M&A.
And then when you think about M&A do you have of general framework for lifestyle brands or categories, which may be more.
More conducive to your profile.
Yeah, I think a couple of things I think one in terms of what we're looking for I think one of your key words lifestyle. We really in this kind of casual comfortable affordable space space lifestyle brands is really kind of our key target areas with the digital first perspective, we think that all of that is real.
The important I think valuations in the marketplace, there's a lot of.
There's a lot of breadth of choice.
Valuations right now so, but we think that one of the things thats unique about the opportunity with Vera Bradley as an acquirer and I'll talk about some of the synergy we brain, but there's also some of the cultural synergy, let's say at the place where in speaking with the.
Paul on growth from PURA Vida is the plugged in their brand.
It's a good corporate and company culture, that's really supporting their growth supporting their unique ethos and.
And how they approach the business and having that freedom to keep their company culture alive and strong.
I think it's really important for these direct to consumer brands and have been of real commitment is kind of the purpose driven initiatives that they put in place.
That makes us more appealing and some from the partner standpoint and of.
In addition to that I think that there's a lot of the theres a lot of things that we've offered PURA Vida can offer other companies, whether it's just working through scaling as.
As these companies go from early growth the higher growth space become more complicated and obviously, we can provide a lot of expertise working through the legal and financial challenges nature of challenges of doing that.
As well as we've been through we are of a lot of partnerships that we can introduce people too.
Whether it's through our licensing agreements, whether it was sort of categories.
A lot of general talents and expertise that really allows the smaller brands with smaller teams to plug into a larger company.
Take advantage of.
The network and so we think all of that.
Whereas some of the advantages we bring to the.
Company that we acquire.
Yes.
Yes.
Sorry go head to head on.
Yeah.
My final question was about the cotton refresh what sounds like a big opportunity on how.
Is that incorporated in the guidance on timing.
And then how might you manage the rollout of the bad you have also have a really good.
The partnerships with different brands.
We anniversary of that.
What should we know in terms of the Vera Bradley revenue guidance.
Well a couple of friends the the cotton relaunch.
Happening in second quarter, So that's where we expect that to happen and we'll have a lot more details coming out on that but we're really excited by that for a few reasons right. One we saw really good customer response to of reactive launched the sustainability initiatives consumers are really reacting to.
In the new consumers. So we think that that Hasbro residents. In addition to the sustainability aspect of it it's really the first time, we're launching a solid cotton.
We've had a real uptick on our solid business. So we think that's another opportunity.
Plus a third leg of it is we have some new more updated styling thats going to be part of it and then we're working on an exciting marketing launch to really caused the buzz of there'll be more details coming around that but all of that happens in second quarter.
In regards to partnerships, you're right that we've had a nice kind of robust pipeline of partnerships and those will kind of continue into this year and we have more on tab cel.
Some more will be rolling out this year as we anniversary. So we feel good about anniversarying out of these partnerships of actually expanding them.
We think theres a lot of opportunity and we think this whole co lab concept of great brands coming together.
Really it's bringing in new customers and so we plan on continuing down the path.
Thank you very much the best regards.
Thanks, Oliver and the color.
Thank you as a reminder, ladies and gentlemen.
The one to ask the question next question comes from Eric Beta of S.
<unk> research. Please go ahead.
Good morning.
Eric Eric.
Hi.
One of my questions have been answered but broke.
On here could you talk a little bit less true kind of major rollouts.
The youre grabbing stores for holiday.
And the lesser extent, but they are still there for February of Beach.
Well it kind of a lot more products. This year in the last name of much more larger in terms of skus the other pieces.
I think it works do you see that as kind of the.
The trend of becoming much more focused on kind of these kind of events of being a little bit deeper into the metro customers give you permission to buy more beyond Joseph index.
So let me try to answer because I get it right Eric I think one we definitely do believe that there is an opportunity beyond just the bag category, we saw that in the fourth quarter with the real great success of Cozy some of the apparel that we.
Launched we think the customer definitely.
See this is really kind of a pattern of house and likes to buy into the brand across multiple categories. So we do think long term. There is some real opportunity. There. We also do find that the customer is responding even stronger to things that of novelty in the event driven I think with everything that's happened in this last year of people or what.
Looking for opportunities to be happy we saw a huge uptick in Valentine's purchasing this year, which I think spoke a lot to customer psyche and we saw that at Europe, Bradley and PURA Vida, the kind of anything with the hearts of Valentines.
Type of novel day, with selling extremely well. So we do believe that thats been the important as we continue to go forward.
Okay.
Harry Potter.
That is of full section for a long time now almost since the.
July.
It's more than just the collaboration is that something that we've heard of <unk> for <unk>.
Multiple periods going forward on multiple seasons.
About halfway through collaborations.
Yes, I think that's of Great Hey, Great question, and you're right that we see the Harry partner partnership is more than just a.
Once or twice, we do have another launch that will be coming out with Harry Potter. So we do see that as a partnership on the.
We'll evaluate that and we're looking at other character of licensing opportunities as we go forward because of waste.
Mentioned earlier of the customers really responding to the novel they really respond into character license responding to novelty and our core Vera Bradley price, but you will see that some of these do go on for a little while our collaborations with crocs has been.
If you seasons now our collaboration would gain us it's been a couple of years now and we.
See Harry Potter more similar to that.
Alright, good luck with expenses line.
Thanks, Eric.
Thank you next question comes from Steve Marotta of CL King <unk> Associates. Please go ahead.
Rob and John Good morning, Robert Thank you mentioned earlier on the call and if you didn't could you just clarify on the southeast.
Outperforming a bit compared to other regions correct.
I'm, sorry, I didn't hear what you said southeast outperforming other regions slightly.
Is that accurate.
Yes, slightly yes, yes.
Alright is there.
Anything within that that might be a looking glass to what we'll be working.
The nine months from now on the balance of the country open to that extent or do you think it's just such a unique point in time that theres nothing really the green from it on the product basis.
I think from a product basis, we're definitely as you get more customers in the store, obviously youre learning more in terms of what the customer really wants but I wouldn't say that.
The South east.
Customer right in other words, it's really change in and of major way the the product that's selling I mean, theres, obviously regional differences, but the 10 regional differences over time.
Obviously, what's picking up down there or is the idea of beach and all of that Tonight.
Domestic travel begins to open up we do definitely expect to see the travel business.
One of the first day is hopefully the balance back if this vaccine rollout really accelerate as quickly as people are expecting it too that we could see a good domestic travel season. The sum of all of that could be very helpful. And then hopefully followed by a real strong bounce back on the back to school of business that would kind of be the ideal scenario.
Sure I understand I have a couple of other little questions, but I'll take them offline.
Right.
Thanks, Steve.
Thank you.
The next question comes from Dana Telsey of Telsey Advisory Group. Please go ahead.
Good morning, everyone.
With the PURA Vida briefly collaboration.
From everything Ive been hearing so congratulations on that.
Think about the supply chain and the incremental freight expenses going through this upcoming fiscal year, how do you see of playing out and what are you planning for and then lastly, how do you think about.
And the planning promotions going forward given the elimination of Black Friday of the elimination of the outlet sales how do you. How do you how do you think of characterize it going forward of house.
The plan to.
To promote maybe a more effective manner.
Yes, so so I can hit on the kind of of the supply chain and freight expense.
Hearing and I think we're seeing on you're probably hearing from a lot of other retailers as the first half of the year is going to be fairly challenged from an inbound freight expenses.
Courts are fairly congested throughout the world and we anticipate seeing.
On an uptick in costs just to get of container as well as on not taking just rates generally speaking in the first half of the year and then the debate a little bit of going into the second half of the year and is how we've thought about it when you put on a plan together moving.
We've also thought about kind of outbound shipping costs associated with getting the product to the consumer we anticipate that thats kind of increase year over year, calling the high single digit area. So that's how we built that into our guidance.
And in regards to kind of promotion Ality for the kind of how we've built that in.
From.
We don't anticipate as I said earlier that we expect the significant reduction or increase in promotional <unk>.
We are losing kind of for the second year of an event, where we had people come into Fort Wayne with ours to kind of of our ability to kind of.
Utilize that to walk through some product but.
We still believe there's an opportunity to look through product.
In our factory locations to Rob's point, just a few minutes ago, if domestic tourism opens up and as a significant if it increases significantly we're well positioned in certain domestic towards the domestic tourist hotspots, where we think we could see some nice sales of the ability to work through profit there.
Thank you.
Thanks Danielle.
Thank you. This concludes our Q&A session I would like to turn the call back over to Rob Wallstrom for any closing remarks. Thank you.
I cannot be prouder of how our team has responded to the challenges we have faced during the last year, we had truly emerged a stronger organization.
Have an extraordinary culture, two powerful brands with unique growth opportunities devoted customers a strong balance sheet ample liquidity and a robust strategic plan to propel us forward as a purpose driven multi brand of high growth company.
Notice earlier, both of our lifestyle brands have significant growth opportunities ahead, well beyond their core product categories, driven by a focus on digital first innovation and community engagement.
And we are excited about exploring potential acquisition opportunities that will strengthen our capabilities and further diversify our revenue streams. We have an exciting future ahead, and we look forward to creating value for all of our stakeholders in fiscal 'twenty two.
We expect to deliver double digit revenue and operating income growth over both fiscal 'twenty, one and fiscal 2020 performance.
Thank you for your time and interest in Vera Bradley, Inc. We hope you can join us for our fourth our first quarter call on June nine.
Thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
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