Q2 2023 Vera Bradley Inc Earnings Call
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Good day and welcome to the Vera Bradley's second quarter fiscal 2023 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Mark Delight Chief administrative officer. Please go ahead Sir.
Good morning, and welcome everyone, we'd like to thank you for joining us for today's call. Some of the statements made during our prepared remarks 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 and the company's most recent Form 10-K filed with the SEC 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 provide any information discussed on today's call I will now turn the call over to Vera Bradley's CEO , Rob Wallstrom Rob.
Thank you Mark good morning, and thank you for joining us on today's call John Enwright. Our CFO also joins me today.
While total company second quarter revenues of $130 4 million were modestly below our expectations.
And we continued to experience gross margin pressures due to logistics costs, we drove product innovation at both Vera Bradley and PURA Vida.
She added meaningful cost reduction actions and completed $6 million of share repurchases, while maintaining a solid debt free balance sheet.
We are continuing to see bifurcation in the spending of our customer base at Vera Bradley direct full price channel comparable revenues were nearly flat to last year and up double digits to fiscal 2020.
Additionally, our Vera Bradley indirect channel continued to experience a healthy year over year rebound. However.
However, inflationary pressures, especially higher gas prices continued to negatively impact the traffic and spending in our Vera Bradley factory stores.
However, as gas prices are easy and we have seen a recent improvement in our factory traffic and revenues.
We are taking decisive actions to strengthen our core brands and the overall enterprise.
We have begun implementation of targeted cost reductions of $25 million, which are expected to be fully realized in fiscal 2020 for these cost reductions will help offset inflationary expense pressures and the recessionary spending behavior from lower income households expense savings are being derived across various areas of the company.
Including retail store efficiencies marketing expenses information technology contracts professional services logistics and operational costs and corporate payroll.
In addition, we are continuing to evaluate and execute strategic price increases for both brands to offset rising raw material and freight cost.
At our Vera Bradley brand, we remain confident in our core strategy by continuing to innovate and build on our lifestyle merchandising focus we are continuing to optimize the travel category, which is nearly back to pre pandemic levels maximizing back to campus opportunities with strategic assortment enhancements and continuing with powerful product collaboration.
Like Disney and Harry Potter.
And we are excited about expanding our home assortment this fall and adding cloud slip odds and meals to our Vera Bradley footwear franchise next month.
PURA Vida is e-commerce revenues continued to be affected by the shift in social and digital media effectiveness and escalating digital media cost.
You're a vida we are evolving our business model from one that is largely dependent on e-commerce and digital marketing to one that is a true omnichannel business with a more diversified marketing base.
This will take time, but we are taking the actions to make this transformation happen and return the brand to a long term growth. Our number one priority is to build a more diverse innovative effective and performance based marketing program to drive E. Commerce sales and we are bolstering our internal marketing and data analytics talent.
Most importantly, we are in the process of implementing a comprehensive customer data platform for PURA Vida to build a single coherent complete view of each customer so that we can better target and personalized marketing and become less reliant on third party marketing.
In the meantime, we are continuing to work with our micro influencers expanding our tictoc presence launching impactful ads on connected TV, optimizing SMS and aggressively exploring other methods to effectively reach our customers day in and day out.
PURA Vida as future growth will be a balance of online growth and growth in physical distribution channels stores will play a key role in driving new customer acquisition as we continued to diversify our marketing platforms during.
During the quarter, we opened a new PURA Vida store in the Irvine Spectrum Center in Irvine, California and in August we opened a third location at Broadway at the Beach and Myrtle Beach, South Carolina like our original location opened last year in San Diego's Westfield UTC mall, both new locations are exceeding our expectations.
We will open a four store at the San Tan village in Metro Phoenix in September .
Stores can play a key role in driving new customer acquisition as we continue to diversify our marketing platforms and they demonstrate the power of a retail presence has in driving digital sales omnichannel loyalty and spending.
For example, we continue to experience a double digit differential in our San Diego ecommerce business relative to the rest of the country since that store opened we look forward to the impact of more stores in the future.
On the product front, we continue to build customer excitement and engagement through collaborations like Disney Harry Potter, Hello, Kitty and the World Surf Lake partnering with key Influencers offering themed collections centered around key events like shark week and the launch of our Denmark Fine collection, featuring 18, karat gold plating, Sterling silver and naturals.
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Looking to the balance of the year and even into next year. We are planning for the macro environment to remain challenging and despite the strength and PURA Vida store business and the opportunity for new store openings, we expect it to take time to return PURA Vida as ecommerce business to growth is rebuilding and transforming the marketing program is underway.
We are taking critical actions that will further strength in both core brands and our company as a whole not only to successfully manage through this period, but to position us for the future. Our teams are focused in our cash position and balance sheet remains strong.
We have successfully managed through challenging business cycles before and I am confident that we will manage through this period as well we will look forward to returning both brands to steady growth.
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 second quarter.
The numbers I will discuss today are all non-GAAP and exclude the charges outlined in todays release totaling $32 2 million on an after tax basis.
The major components of this total are a write down of PURA Vida goodwill and intangible asset impairment charges of $18 2 million.
7 million of severance charges and consulting fees, primarily associated with cost saving initiatives.
And $5 6 million of inventory related charges for the write down of masks and other inventory as well as fees related to the cancellation of certain orders for the spring 2023 goods.
For complete detail items excluded from.
From the non-GAAP numbers as well as a reconciliation of GAAP to non-GAAP numbers. Please reference today's press release.
Consolidated net revenues totaled $130 4 million compared to $147 million in the prior year second quarter.
Consolidated net income totaled $2 4 million or eight cents per diluted share compared to $9 5 million or 28 cents per diluted share last year.
Vera Bradley direct segment revenues totaled $87 million, he 10.4% decrease from $97 1 million last year.
Comparable sales declined 13, 8% in the second quarter.
Fewer Bradley indirect segment revenues totaled $17 3 million, a two 9% increase over $16 8 million in the prior year second quarter.
PURA Vida segment revenues totaled 26 million, a 21, 3% decrease from $33 1 million last year.
Second quarter gross margin totaled $67 8 million or 52% compared to 80.
$4 million or 54 six.
6% last year.
The current year rate was negatively impacted by higher inbound and outbound freight expense deleverage of overhead cost and channel mix changes, partially offset by price increases.
Consolidated SG&A expense totaled $64 million or 49, 1% for the current quarter compared to 68 million or 46, 2% last year as expected Vera Bradley's SG&A current year expenses were lower than prior year, primarily due to a reduction in variable related expenses due to lower sales.
And other cost reduction initiatives.
The company's second quarter consolidated operating income totaled $3 9 million or 3% of net revenues compared to $13 4 million or nine 1% of net revenues in the prior year.
Now, let's turn to the balance sheet.
Total quarter end inventory was $179 6 million compared to $148 million at the end of the second quarter last year we.
We have $24 million of additional inventory in transit this year as we continue to navigate delays in the supply chain and ensure we have adequate inventory coverage going into the fall and holiday selling periods.
Cash cash equivalents and investments at quarter end totaled $38 3 million compared to $76 5 million at the end of last year's second quarter.
A key reason for the lower cash position is due to the inventory build of $31 6 million over last year.
We remain in a solid cash position with a debt free balance sheet. We will continue to take a conservative approach to cash, particularly in this volatile and challenging environment.
During the quarter, we repurchased approximately $6 million of our common stock representing 1 million shares at an average price of $6.11.
We have $29 3 million remaining under our 50 million dollar repurchase authorization.
Now, let's shift to our fiscal 2023 outlook.
We expect the challenging macro economic environment to continue for the balance of the year and anticipate it will take additional time to return PURA Vida e-commerce business to growth high gas prices and other inflationary pressures will continue to impact our peer Bradley factory channel.
And there will be a continued pressure on gross margin.
As a result, we have adjusted our outlook for the balance of the fiscal year.
All forward looking guidance numbers that I will discuss our non-GAAP .
For fiscal 'twenty, three we expect consolidated net revenues of $480 million to $490 million compared to $540 5 million in fiscal 2022.
We expect our consolidate gross margin will range from 53.7 to 54, 1% compared to 53, 3% last year.
We expect year over year increase is primarily related to incremental inbound and outbound freight expense and expected deleverage on overhead costs more than offset by price increases.
Consolidated SG&A expense should range from $246 million to $250 million compared to $258 8 million in fiscal 2022.
The reduction in SG&A expense is being driven by cost reduction initiatives and a reduction in compensation expense marketing and other variable related expenses due to the expected sales decline from last year.
We expect consolidated diluted EPS of 20 to 28 cents compared to 57 cents last year.
Net capital spending should total approximately $8 million to $10 million compared to $5 5 million in the prior year.
Operator, we will now open the call for questions.
Yeah.
Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again to ask a question press star one on your telephone keypad.
And we'll take our first question from Oliver Chen with Cowen and company. Please go ahead.
Hi, Rob and John Good morning could you speak to the inventory in terms of the status with having coverage yet take hold.
8000.
What why was this the right time.
So the write downs going forward.
You also had some cancellations.
So would love to understand the composition of inventory because it sounds like some things are working but clearly some are not thank you.
Yeah. So good question to further write downs it was more specific to certain categories. So as we looked at our mask inventory. We have built the mask inventory based on the pandemic and we would expect it to continue to work through that inventory.
With some of the changes from the C. D C as well as just consumer behavior, we're not feeling really seeing that sell through so that was the vast majority of the write down in both brands was associated with mask inventory. If you look at the remaining remainder of it really was associated with tech accessories and think of that as kind of older HIFU.
IPhone accessories to ultimately we wish we're also not seeing the sell through as people have moved on to newer models. So really that was the basis of the write down and why we took the write down.
At this time.
In inventory the growth as you know year over year is really being driven by two things, it's really being driven by the in transit inventories Sigma it's about 100% higher than it was at this point last year in the second quarter, just ensure we have the appropriate product in place for holiday season, as well as incremental freight expenses as burden the Ah <unk>.
Inventory you know year over year, we've seen that increase from where we were the first half year, obviously the back half of the year. The free expenses was exacerbated.
Rebated last year, and we're seeing some benefit and we are we should see a little bit of benefit to that given how our freight is being less challenge this year versus last year.
Okay on the comps being down 13.8.
What happens in terms of where volatility is they just need to get a portion of the trial.
What's implied in your models for what you're seeing.
Did you close more stores.
The two are already in your plans.
So this year ultimately we were close about we're going to close about this the number of stores that we have anticipated you know as we continue to look for next year, we're still working through what that means next year in regards to the comps the comps are being driven really from the off price business. The outlet business. You know, we're seeing a better performance in our full price business whether that is.
And full line stores or that's on fear of Bradley Dot com.
We're taking the expected trend that we saw in the first half of the business in those channels and assuming that they there they're similar in the back half of it here.
Okay.
The PURA Vida side the issues around digital marketing has been.
Apparently the meat industry.
Large for a while what's happening now.
Digital marketing and the path ahead for that business what are the key hurdles and things that you need to do to improve it more structurally and have it be more annually growing over time.
Yeah, I think from the PURA Vida marketing Oliver I think a few things one you're right that they're definitely in this direct to consumer market everybody's feeling the impact for us at PURA Vida, we've been bringing in both outside teams as well as supplementing talent too.
Move our reliance on what I'll call the better platform for lack of a better term in terms of Instagram Facebook and <unk>.
And those platforms and starting to push more into first party marketing and building up our CDP platform and also looking at other alternatives. So in other words, they're launching a connected TV program here in this quarter coming up so we're looking at new ways of doing that but long term, we believe that part.
Of the fixed to the marketing challenge is also going to be this diversification into omnichannel, if you've seen what other direct to consumer.
Companies that what we've seen in San Diego has been encouraging to see such a significant relative improvement in the San Diego market. If we can continue to see that which the early signs and it's you know, it's only been weeks and months and the other stores, we're seeing similar behavior in the other locations that we think that stores in of themselves.
He will play a very important part and stabilize the PURA Vida business as we go forward.
Okay, a lot of the merchandise margins and price increases.
You updated us on your thoughts there.
It feels like the environment has gotten worse.
You've been able to get some price increases, but what are you thinking about whats embedded for merchandise margins and also in places like the Cogs relative to price increases going forward.
Okay.
So from a merchandise margin perspective, we're actually seeing you know the price increases are being accepted and we're seeing you know improvement year over year really the challenge that we're seeing is associated with the logistics costs.
We're actually seeing from logistics costs, some benefit and potentially back half year, and we're thinking we'll see that benefit into next year, just given some of the inflationary pressures on the macro economy. So we would expect to see some benefit from those inflationary costs I E freight into the back half and into next year in regards to <unk>.
Product cost you know, we're still working through some of the challenges associated with that.
But we we don't anticipate a significant increase in some of our.
Raw material costs into next year, given some of the macro events that are happening over there.
And how the economy generally speaking from a worldwide perspective as is not.
And as strong as it was this time last year.
We are still assessing whether or not you know whether it makes sense to continue to push prices and we'll continue to do that through the rent rate or of this year and look as we look into next year.
Think though from a price increase Oliver what we're doing is we took pretty broad price increases across both brands in the beginning of the year and kind of been working through that in the first half of the year I think as we look at going forward, it's going to be more micro adjustments on those price increases so not as much across the board, we think that a lot.
Cases, we've.
We've kind of the consumers accepted but we can already begin to see that there are some resistance in the <unk>.
Few items, so it's going to be a much more detailed adjustment in prices as we go through the next 12 months.
Okay very helpful on the balance sheet and cash balance.
We know about working capital.
Sure.
Source or use of cash.
Cash flow.
Q4 here.
Your cash balance you know went down.
$3 million or should we be worried about that.
Yeah, I would you know obviously everything is contingent on kind of performance in the back half of the year.
I would say as we think about how we're looking at cash and cash utilization in the first half of the year. We spent some money increasing from an inventory perspective as well as usage of cash associated with share repurchases, we will likely be more conservative on the back half of the year in both of those are.
Our uses of cash and you know as we've as we currently forecast we expect our cash balance to grow by the end of the year, but that's all contingent on our performance.
Okay.
Consumer with bifurcation trend has continued and you called it out early and then plenty of retail companies even taken guidance out.
What are you seeing now with the consumer.
Volatility concern yet.
Certainly have a lot of negatives and positives.
Zimmer thought spending power.
Yeah, I think a couple of things I think one what we're seeing from a spending behavior. The biggest story for US is the impact of gas prices on the factory channel will be perfect lightest even.
Even not so much just total discretionary spending but just the ability to go out to factory stores generate the traffic there that we're seeing the impact. So that's our biggest concern so gas prices didn't have themselves as the number one impact we're seeing so it's been good as gas prices started to moderate a little bit we saw traffic beginning to rebound in <unk>.
Factory stores relative to tread and we began to see that come through on the revenue line. So we're hoping that the gas price situation continues to moderate and that could be helpful. Overall, it's been interesting watching the consumer I know all of US are thinking about the back half of what's going to be happening with the consumer but as we think.
About what's been happening in July and August we haven't seen an overall further deterioration and I think a lot of it is that gas price piece, that's been rebounding and kind of moderating so.
We're hopeful that where we see the consumer today as we move through the year will be.
Similar to what we see in the back half.
It's not robust by any means but we're not seeing further deterioration which was good.
Okay, and Oh I.
I'd love It if you could just talk briefly about the key product initiatives.
There are I'm sure that we.
We should be focused on just a few.
Yeah.
Priorities, we've done a lot of innovative partnerships on the PURA Vida brand has definitely mission and purpose.
Well I think a couple of things I think one if you think about their product Assortments Theres a couple of different ways. We look at the product innovation. So from a licensing standpoint, that's been very successful across both brands.
That's been very impactful not only in driving some revenue and excitement, but really in customer acquisition. So those programs are really important to bringing new customers in it makes the marketing efficiency stronger. So we continue to see that we'll continue to look for those partnerships and keep them exciting as we move forward and just stay tuned for more.
More new exciting announcements there if you get into specifics in terms of product categories across the two brands at Vera Bradley. They continue to do a lot of innovation, we have things not only our core innovation that we've seen coming through but also a newness so like the Vera Bradley.
Footwear launch in fall, it's going to be you know an important launch for us we're going to watch that.
PURA Vida, there's two things we're looking at one the consumer is still is very very engaged in the core bracelet business, particularly as travels rebounded that we're seeing that that business kind of take a.
Pop back up which is encouraging to see and then at the same time they've launched into this Denmark Fine collection, which is just a higher price point, a higher quality and the initial response has been very positive there and really has helped us to kind of re engage deeper that 25 to 35 year old customer which has historically.
We've been part of the magic of PURA Vida kind of boat this young teenage customer as well as kind of this 25 to 35 year old customers. So those are the areas that I would say are the most important to be watching.
I would add to that Rob if you think about pure Vito in the stores the apparel business when the consumer gets the opportunity to touch and feel the quality of the apparel business. We're seeing you know them engage with that product much more broadly than they do when they're online. So as we open up more stores will be an opportunity for that category yes.
Okay.
Mark is the biggest one was $18 two mol PURA Vida.
Apartment charge what was underlying.
That valuation.
Most of the valuation perspective.
8 million installed parallel could you just provide a little more details about what that related to you at the point $6 million a small impairment.
Sure Serge if you think about the PURA.
PURA Vida impairment and you know the majority of that is associated with a a goodwill impairment our trade name impairment and really on an annual basis. We do a test after we made that purchase and we look at future cashflows given kind of the current performance of the brand and you know the near term expected performance of the brand based on just the expected cash flows we have to.
Write down are you.
You know that goodwill in that trade name.
In regards to the store impairments are we looked at really it's the same thing we look at future cash flows of the those individual stores.
Compared to their current asset value for those at those stores and based on the expected.
Based on the expected cashless, we needed to write off some of those assets.
Should we be concerned about incremental write offs.
This is a review process.
Has to be done from an accounting.
Having regulation perspective.
True statement and Rob as you step back what do you think are the key.
Risk factors that you're monitoring.
So I'll just ask the first question right. So yes, we have to regularly review the goodwill.
Balance so we'll do that on a quarterly basis as a review we do an actual test on an annual basis, which is done in the second quarter. So we'll continue to review it you know based on what we've put forward and our expectations for the business. We would say if we perform to that space limitations and we shouldn't see another write down.
And then I think your second part of the question Oliver What I'll do is talk about the risks and opportunities because I think both are really important so from a risk standpoint taken it by brand.
At Vera Bradley I'd say the number one risk factor at this point as gas you know with gas you know rebounds, all somewhere back 567 $8 a.
A gallon as we go into the back half of the year that that will suppress the factory channel. So I would say gas is by far the largest risk.
At PURA Vida I think it's just a matter of the recovery this digital marketing and how what was the big asset for the business was its ability to manage digital marketing and not having the same impact we've got to get the marketing platform.
Reset so getting that reset is the biggest risk in the PURA Vida business.
But I think it's important to talk about opportunity because if you back up and you think about what's going at the company I think that there's three big macro impacts that it's impacted us. So one is the logistics cost the logistics costs that are flowing through our P&L right now or what we would probably consider peak from what we're seeing.
Were beginning to see logistics costs, particularly the international inbound shipping begin to moderate and so that hopefully will be a tailwind as we move forward and can help us. So that's that's encouraging I actually think that that's.
A positive on the logistics as we move through the end of the year, particularly.
As we are able next year to redo contracts as we're able to get the capitalized costs working through the balance sheet, but that will be a profit improvement that you'll definitely see as we move into next year, which is encouraging to see so one of the macros as logistics and duty that will get better. So that's good news.
The second real Big one has been this gas price impact and factory so as gas prices moderate, which we think you know we're hoping to see that that will be a lift.
And then the third one is just really been this performance marketing with PURA Vida and as we have more stores that will help us as we get all of the work that we're investing now in terms of the data platform and rebuilding the performance marketing organization I think that that's another big lift, but I think that the three favorable affected our business.
In terms of gas logistics and this digital media shifts are just big macro ones that we were works both overall than the industry. So we're working through them, but I think we're working through them and it will get better as we move into that is true.
Okay and last question, so one of them with digital marketing and performance.
Was that strictly Vera Bradley brands on door.
Are there any highlights there.
Secondly regarding women's suites installation proactively.
Which parts of the inventory did you do that with the.
The competition, Thanks, a lot.
John do you want to take some of the inventories.
Talk about your question on inventory I didn't actually hear this specific question Oliver we can't.
Jonathan in terms of the inventory cancellations, which once did you which parts of it where it needed to be canceled.
So we looked at our so we looked at few charters that meets in all categories quite honestly, so we looked at where we expected.
Sales to come in on a forward basis into kind of next year, and where we were we expected sitting in inventory and we looked at opportunities where we felt that there was a we could offset some of the liability based on new sales expectations, and obviously with the inventory kind of growing year over year. So it wasn't specific to a particular cat.
Corey It was specific to.
No.
Opportunistic ability to cancel some orders really yeah. I think you always hit I would add to that Oliver. If you just think about what's been happening in our factory channel, whether it's gas prices gone up business has slowed.
So getting that inventory back in line is probably one of the primary drivers of that cancellation. So don't think about it as oh, well a category is not working or items not working that's not really it is just an overall demand and it gave us the opportunity to.
Just kind of moderate that inventory risk as we went into next year. So yeah, I think its more channel specific versus categories.
Good way to think about it yet.
I think your second question Oliver was what about Vera Bradley in digital marketing. So I think there's two different aspects.
First of all one of the great assets at Vera Bradley as we have a very strong first party marketing you know, we we control our customers we communicate with them directly we're not as dependent upon third party marketing for our known customer base, we use a third party marketing more for acquisition.
And then what the team's been able to do here over the last couple of years of building out our you know highly detailed analytical performance marketing base.
They are they've been able to mitigate some of the costs by rebalancing and refocusing and they have a few more tools in the toolbox shall we say.
And so what we're doing is taking a lot of those learnings that we've already implemented at Vera Bradley and beginning into leverage back against PURA Vida to learn from but the biggest difference and Vera Bradley, it's not that they have and experience. Some of the same challenges they've been a little bit more effective in finding workarounds, but two it's not as impact.
Full to the total business as it is at PURA Vida.
Okay. Thanks for answering all my questions Best regards.
Thank you Oliver.
Yeah.
Alright next we'll take questions from Joe Gomes with Noble capital. Please go ahead.
Good morning.
Good morning, Joe.
Can you talk about you know the the positive impact of opening you know PURA Vida stores, we got the one additional one in Phoenix to open I think in September you mentioned can.
Can you kind of give us a game plan of what you see on a go forward basis of our new store openings and PURA Vida.
Yeah, Joe I can jump into that one so first of all we do have the new store in Santander. Its opening we are now anniversary in our U T C store in San Diego. So, we're obviously going to start watching that from a comp stat.
Performance standpoint.
And once we kind of evaluate I would say this fall how all the new stores are performing at a really inform our go forward real estate strategy, but I do believe that there's significant opportunity for stores and the PURA Vida brand going forward.
Okay.
And then.
Yeah.
You talked about you know the.
The 25 million in cost reduction initiatives, which you know it was kind of at the high end of what you'd talked about previously.
Im wondering you know how did you get to the high end and two how much of that did impact the second quarter, because I think in the first quarter.
Al You mentioned you expect to see.
Some of that flow through in the second quarter.
Yeah. So we.
We saw a little bit in the second quarter flow through because we werent finalized with all the plans really into call. It in the middle part of the second quarter, but we you know we obviously on a quarterly basis, you know given performance, we'd look at opportunities to make to make statements regardless if it was associated with.
The $25 million and we will see some of that benefit which is built into our guidance in the back half of the year. How we ended up at the high end rarely just looked at kind of opportune opportunity and really the teams all worked together based on where we see current performance and where we expect the business to be next year.
Areas that we felt we could slimmed down and so it really was a collective effort amongst both brands and the corporate team to come up with that value.
Okay.
No.
Just one of the things that you know you had talked about in the past.
You know kind of Dan and then a big part of the growth strategy.
Given the transition going forward here do.
We still see M&A.
Part of the growth plan and the growth strategy I guess.
Or is that going to kind of take a backseat to getting and working on the two existing brands.
Yeah.
It's a great question, Joe I think that.
What the board and the team's focus is number one is getting the two core brands strong you know Vera Bradley overall, we think it's in a pretty good place, but we need to see the macro environment improve there.
The PURA Vida, we need to get the performance marketing and really working and get that brand really turned around.
And the board is very focused on getting those two things accomplished first before.
You know highly focused and shall we say on M&A activity. I think you know we're always open to any version of you know shareholder return, but I don't think that the M&A activity is good.
Gonna be a primary focus over the next 12 months and as we get through the transition I think that the board and the the new CEO , what kind of a line on what role does M&A play as we move forward.
Okay, great. Thanks for taking the questions I'll get back in queue, let someone else ask a question.
Thanks, Joe.
Yeah.
Yeah.
Alright, and our next question will come from Eric <unk> with <unk> Research. Please go ahead.
Good morning.
Good morning.
I wanted to follow up on that.
Million savings.
That is gonna be incremental next year, what should we be thinking about in terms of the flow of and I know you mentioned, there's going be some in the back half.
And how much of that is.
Thinking about that.
Yeah. So if you think about kind of have you. Your question is how much we're going to achieve this year versus the full run rate next year and I think there's an opportunity this year probably to achieve call. It 40% of the total there might be more opportunity, but we're looking at kind of the timing associated with them.
Yeah.
Okay.
So if I look at some of the pricing coupons through almost two years of the Harry Potter. Please.
That said, it's time come back.
Have you taken away from that are there.
Collaborations in terms of how long they should be and how do you keep them fresh going forward.
I think a couple of things that we've learned from our collaborations is.
First of all they are a great way to bring customers into the brand.
We've had success in bringing new customers in and converting them into the brand, which has been very encouraging across both.
Vera Bradley and PURA Vida, So we think that it definitely plays an important role.
We have seen that it is important to keep that licensing pipeline fresh and continue to look for the right opportunities.
And find new ways of doing things so.
You know whenever we introduce a new licensing the first one quite often it's the largest launch and then the other ones are more follow ups I think the follow up plays a role, but I think we have to continue to be crushed continue to look for new opportunities and you've seen us do that in both brands right like last Christmas when we did the peanuts.
Co lab at Vera Bradley that was fresh and new and highly impactful and you're seeing the same type of thing that PURA Vida. So I think we have to keep that pipeline.
Fresh as we move forward.
Thank you know just add onto that I think it's the execution of products. So it PURA Vida, we were in the second release up really Harry Potter and we're seeing.
Good success in the second at least and probably a little bit better success than we saw in the press release and I just think that speaks to kind of how the product evolves over time to have product and marketing execution, because what was encouraging is that for Harry Potter. They did put some video out and so I think it's a combination of both the product and marketing.
Okay.
Sorbet.
You've got about 65 or cell phone right 77, or so outlets.
What should we be thinking longer term are those about where you want it.
These gentlemen.
I know, it's gone up when they slow price mentioned, Mr. Colin what should we be thinking about that.
Yeah, I I would continue to think that will close some full priced stores ultimately we're still working through that for next year and what the number will be but well you know I think we will see that number come down and we still think there's still some opportunity in the factory channel for Vera Bradley for it for next year and into.
Years after that but you know I don't know if we'll be opening six a year because that's typically what we've opened up in the past few years, but we still think there's opportunity to increase that.
But you know the.
The organization that team is looking at other opportunities from a full price perspective for Vera Bradley, we're not going to continue to close all the doors that we're just looking at opportunities how we can how and where we can speak to our consumer a little bit better.
Okay and last quarter you guys did.
Some online.
Guess flash sales for the outlets.
What was the response to that and is that something that's going to continue to expand going forward.
Because I know you've tried to keep the outlet sales outside of the online.
In the website.
So we have on a monthly basis, we have them.
We have a call it a flash sale or what we call online outlet.
Shop every month and it's been up for two years three years that we've been doing it. It had more I think your question maybe it had more factory product outlet product and had had previously and as we kind of work through an inventory I would expect it to continue to have a higher percentage of factory product and it has had historically you know as we worked through our inventory.
Tori values this year.
Yeah, No I think everything John said is definitely what the focus I think the other thing to keep in mind is that as John said, we've had the online outlet now for a few years and what it really does help us liquidate so what you've seen is that because battery inventories building, we're putting more factory in there.
You know if we were in a different situation, where a more prolong we would adjust it so it's a very efficient liquidation channel for us.
And we'll continue to do that but we don't we at this point, we have not executed that as a primary growth channel. We've just used as a primary liquidation channel.
Okay, Alright, guys. Good luck in the back half.
Thanks, Eric.
Yeah.
Alright, and we have no additional questions at this time I'll turn the call back to Rob Wallstrom for closing remarks.
Before I close I wanted to give you a brief update on the CEO search as you know I recently announced my planned retirement, but by plans are to remain in the CEO role until my successor is named which is expected by the beginning of 2023. The board has formed a search committee international searches underway as the board searches for the next CEO .
They are in the desirable position of having two iconic brands with a loyal and dedicated customer basis, a solid balance sheet and a talented leadership team the.
The board takes very seriously its responsibility to find the right CEO and will continue.
Our focus on building consistent sustainable growth over the long term.
We are preparing for the macro environment to remain challenging through the remainder of this year and into next year. We know it will take time, but we are taking decisive actions that will further strength in both core brands and our enterprise as a whole.
Our challenges have been largely driven by the macro environment, but we have a solid foundation with our two unique brands strong customer loyalty and amazing cultures I am confident that the company will return to growth as the economic headwinds and cost pressures begin to resend.
Thank you for joining us today, and we look forward to speaking with you on December 7th on our third quarter earnings call.
And this concludes today's call. We thank you again for your participation you may now disconnect.
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