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spk00: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vera 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 a question and answer session. Instructions will be provided at that time for you to queue up for a question. As a reminder, today's conference call is being recorded. I would now like to turn the call over to Mark Dillai, Vera Bradley's chief administrative officer. Please go ahead.
spk06: 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 and in response to your questions may constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect. Please refer to today's press release in 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 update any information discussed on today's call. I will now turn the call over to Burr Bradley's CEO, Jackie Ardrey. Jackie?
spk01: Thank you, Mark. Good morning, and thank you for joining us on today's call. We focused on driving revenues in the fourth quarter through targeted strategic promotions on seasonal, giftable, and key items. As a result, total company fourth quarter revenues outperformed our guidance, although gross margins remained under pressure. Diligent expense control enabled us to deliver fourth quarter non-gapped diluted earnings per share of 16 cents, which was nearly flat with last year. In the fourth quarter, sales trends at both Vera Bradley and Pura Vida improved over prior quarters, with Vera Bradley total sales down just 1% and Pura Vida sales down less than 5% on a year-over-year basis. For the fourth consecutive quarter, the Vera Bradley indirect channel experienced year-over-year revenue growth. Targeted customer retention efforts led to increased Vera Bradley e-commerce revenues while full line and factory store revenues continued to be negatively affected by traffic levels, although trends improved throughout the quarter. At Pura Vida, e-commerce trends improved over previous quarters due to strategic promotions. However, overall challenges continued to persist in our social and digital media effectiveness, coupled with rising digital media costs. And we experienced a year-over-year sales decline in our wholesale channel. On the plus side, Pura Vida full-line retail stores continued to perform ahead of our expectations, and they drove improved e-commerce traffic and revenues in their markets. We also took the opportunity in the fourth quarter to reset and appropriately position the Pura Vida business for the future by recording goodwill and trade name impairments and necessary inventory write-offs. We ended the fiscal year with consolidated revenues of $500 million, which exceeded our guidance. During the year, we began to see stabilization in our supply chain, diligently controlled our expenses, and carefully managed our cash. During the fourth quarter, we meaningfully reduced our year-end inventory levels from the third quarter. Although fiscal 2023 had its challenges, we took actions and laid the groundwork to position the company for the future. In mid-2022, we collaboratively identified $25 million in annualized cost reduction initiatives and efficiency processes. The expense savings were derived across various areas of the company, including payroll reductions, retail store efficiencies, marketing expense, information technology contracts and projects, professional services, and logistics and operational costs. Many of these savings were realized in fiscal 2023. In January 2023, we further streamlined our corporate structure by eliminating the positions of Vera Bradley brand president, chief creative officer, and chief revenue officer, and by adding the position of chief marketing officer, all designed to drive an annual cost savings of approximately $2 million. add more focus on marketing and merchandising, and position the company to deliver steady top and bottom line growth. These decisions were made in order to right-size our leadership team and cross-structure for the size of our business, to address the continuing challenging macro environment, and to best position us to achieve our long-term strategic plans. Subsequent to the end of fiscal 2023, In January 2023, we acquired the remaining 25% interest in Pura Vida from founders Gryffindor and Paul Goodman for $10 million. We continued to make investments in customer data science, business analytics, and pricing optimization, allowing us to collect and analyze data and make fact-based decisions to more efficiently run our business. As the Vera Bradley brand, We expanded our robust product innovation pipeline, including launching our featherweight collection, and continued another year of product collaborations with iconic brands like Disney, Harry Potter, and Crocs, and also expanded our cozy, sleep, and outerwear collections. We continue to strengthen and rationalize our store base. We opened five new factory stores and closed 19 underperforming full-line stores and one factory store ending the fiscal year with 51 full line and 79 factory locations. We also continued to expand options for customers to shop, like enhancing our presence in third-party marketplaces, including Amazon, and adding boutiques in select high-traffic airports. At the Pura Vida brand, we entered into several high-profile product collaborations with brands such as Hello Kitty, Disney, and Harry Potter, and expanded our product offerings by launching our Demi Fine collection and expanding our assortment of engravable jewelry, all designed to bring new customers to our brand. We focused on building a more diverse, innovative, effective, and performance-based marketing program to drive Pura Vida e-commerce sales. We began the process of implementing a comprehensive customer data platform to build a single, coherent, complete view of each Pura Vida customer, so that we can better target and personalize marketing and become less reliant on third party marketing. This project is scheduled for completion this spring. We continue to engage our micro-influencers, significantly expanded our TikTok presence, launched impactful ads on connected TV, optimized SMS, and aggressively explored other methods to effectively reach our customers. We also opened three new Pura Vida full-line stores during the year, bringing our full-line store count to four, which collectively exceeded our expectations. These four stores are playing a role in driving new customer acquisition as we continue to diversify our marketing platforms, and they demonstrate the power a retail presence can have in driving digital sales, omnichannel loyalty, and spending. Now, let me turn the call over to John to review the financial results. John?
spk05: Thanks, Jackie. Excuse me. And good morning. Let me go over a few highlights for the fiscal year. The numbers I will discuss today are all non-GAAP and exclude the charges outlined in today's release. For a complete detail of items excluded 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 $500 million. for fiscal 2023 compared to $540.5 million for fiscal 2022. Consolidated net income totaled $7.6 million or $0.24 per diluted share compared to $19.7 million or $0.57 per diluted share last year. Vera Bradley direct segment revenues totaled $328.2 million this year a 7.5% decrease from $354.9 million in the prior year. Comparable sales declined 9.5%. Vera Bradley indirect segment revenues totaled $73.3 million, up 11.1% over $66 million last year, reflecting an increase in certain key account orders. Pure Vita segment revenues totaled $98.4 million, a 17.7% decrease from $119.6 million in the prior year. Pura Vida's e-commerce revenues were negatively impacted by the shift in social and digital media effectiveness and rising digital media costs, as well as a decline in sales to wholesale accounts. This year's gross profit totaled $257.2 million, or 51.4% of net revenues, compared to $287.9 million or 53.3% of net revenues last year. The current year gross margin rate was negatively affected by higher inbound and outbound freight expense and increased promotional activity, partially offset by price increases. SG&A expenses totaled $245.3 million or 49.1% of net revenues compared to $258.8 million or 47.9% of net revenues in the prior year. Current year expenses were lower than prior year, primarily due to cost reduction initiatives and a reduction in variable-related expenses due to lower sales volume. For the fiscal year, consolidated operating profit was $12.3 million, or 2.5% of net revenues, compared to $30.1 million, or 5.6% of net revenues last year. Now, let's turn to the balance sheet. Year-end cash and cash equivalents totaled $46.6 million compared to $88.4 million at prior year fiscal year-end. We had no borrowings on our $75 million credit facility at fiscal year-end. Total fiscal year inventory was $142.3 million compared to $144.9 million at last fiscal year-end. Total current year inventory was lower than the prior year, primarily due to inventory adjustments associated with excess and discounted inventory, partially offset by incremental logistic costs burdening overall inventory. Inventories were $36 million lower than the end of the fiscal third quarter. During fiscal 2023, we repurchased 18.1 million of common stock, representing approximately 2.8 million shares at an average price of $6.40. We will continue to take a conservative approach to cash, particularly in this volatile environment. Now, let's shift our focus to 2024 outlook. We are providing estimates for the full year based on current macroeconomic trends and expectations. We anticipate the macroeconomic environment to continue to be unpredictable and that this year will be a rebuilding year for both of our brands. However, we expect to take advantage of gross margin improvement opportunities and manage our expense structure diligently. We are not providing detailed guidance for the first fiscal quarter of 2024, but we expect revenues and diluted loss per share to be roughly in line with the prior year. The first quarter is a rebuilding quarter as we work to stabilize the business. We hope to see momentum build as the year progresses. All forward-looking guidance numbers are non-GAAP. For fiscal 2024, we expect total revenues of $490 to $510 million, revenues totaled $500 million in fiscal 2023. Both Vera Bradley and Pura Vida revenues are expected to be approximately flat on a year-over-year basis. Gross margin of 52.6% to 53.6% compared to 51.4% in last year. The expected year-over-year increase is primarily related to reduced inbound freight expense, partially offset by deleveraged overhead costs related to inventory purchases. SG&A expense of $241 to $251 million compared to $245.3 million last year. Year-over-year changes in SG&A expense primarily are driven by restoring short-term and long-term incentive compensation to normal levels offset by company-wide cost reduction initiatives. Consolidated operating income was $17.3 to $21.7 million compared to $12.3 million last year. Free cash flow of between $25 and $30 million compared to a cash usage of $21.7 million in fiscal 2023. Diluted EPS of $0.40 to $0.50, based on diluted weighted shares outstanding of $31 million and effective tax rate of approximately 28%. Diluted EPS totaled $0.24 last year. Net capital spending of approximately $5 million compared to $8.2 million in the prior year, reflecting investments associated with new Vera Bradley factory stores and technology and logistics enhancements. Let me turn the call back over to Jackie to share more about our go-forward strategies. Jackie?
spk01: Thanks, John. At Build for Vera Bradley and Pura Vida Brands, we are embarking on project restoration and will focus on four key pillars, consumer, brand, product, and channel, to drive long-term top and bottom line growth. First, at Vera Bradley. Regarding the consumer, we will focus on restoring brand relevancy, targeting the casual and feminine 35 to 54-year-old woman who not only values fashion and style, but also function. With this strategy, we will also inspire and retain our loyal customers outside of this age group. As we think about our brand, we will strategically market our distinctive and unique positioning as a colorful, feminine, fashionable brand that connects the customers on a deep emotional level. We will refocus on core product categories and items we are best at by innovating and expanding within our core products. We will elevate our colorful, feminine heritage keeping it distinctive but more trend relevant through updated print and design. We will innovate into strategic, adjacent, lifestyle item introductions that make sense for our customers. And we will continue to pursue collaborations and partnerships that align with our target customers. From a channel perspective, we will accelerate our digital first focus and online presence through a mix of brand storytelling and product messaging. we will build a balanced footprint that more clearly differentiates Full Line from factory stores through differentiated pattern and color, product functionality, sustainably sourced fabrics, and pricing. And we will target new or strengthen existing relationships with strategically aligned wholesale partners. At Pura Vida, on the consumer front, we will sharpen our focus on the carefree 18 to 24-year-old collegiate girl who both those younger and older aspire to be. Our target customer is free-spirited, a trendsetter, and focused on living her best life. Pura Vida jewelry is a way of expressing herself and fits her personality. We will refresh our brand image with a focus on showing what living free looks and feels like, showing real places, real moments, and real faces that are authentic, diverse, and inclusive. We will recenter our brand ethos on living life to the fullest, as well as Pura Vida's hallmark of supporting charities and social responsibility. We will focus on delivering unique, fun, playful product designs that are affordable and accessible. We will continue to deepen our expertise and innovate in our hero core category of string bracelets, as well as other jewelry items, and we will opportunistically explore additional close-in adjacent categories that make sense for our business and our customers. As we look at channel distribution, we will have a strong focus on restoring e-commerce growth, utilizing our new comprehensive customer data platform to strategically target and personalize marketing. We will drive strategic growth of wholesale by pursuing larger, more strategic partnerships and expansion of our larger existing accounts. In addition, we will refine our store model to further drive top and bottom line growth, pausing new store growth this year to determine how big our store base should be and what infrastructure is needed to support that base. To support growth and development of our two brands on a corporate basis, we will continue to make strategic investments in the right talent to help drive the transformation and diligently manage our supply chain, gross margin, SG&A expenses, and cash flow. This year, by focusing on stabilizing sales, gross margin expansion, and expense control, we believe we can increase year-over-year operating income by at least 40% and EPS by at least 65%. We are in the process of more fully developing our strategic plans and will share with you more details along with long-term financial targets later this year. Operator, we will now open up the call to questions.
spk00: Thank you so much. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. And again, press star 1 to ask a question. We'll pause for a moment to assemble that queue. While we wait, we'll go with our first question, Eric Beter from SCC Research. Please go ahead.
spk04: Good morning.
spk00: Eric.
spk04: Good morning. Hi. I guess in terms of the reduction in expenses, you know, how far along are you on the 25 million and how much of that should we incrementally see in this year?
spk05: So the majority of the initial $25 million we actually saw we pulled through in fiscal 23. You know, as Jackie kind of alluded to near the end of her prepared remarks, we are looking at kind of additional opportunities. So that's why we gave the expense range of the 241 to 251 to offset some of the incremental costs that were built into our budget associated with normalizing incentive compensation. But we think there's additional opportunities that we're going after. We just haven't identified them fully and executed them. That's why we gave that range.
spk04: Okay. When you look at – I know you talked about going to hold off on your Aveda store openings. What should we be thinking about in terms of store openings and closures for the Vera Bradley chain this year?
spk05: Yeah, so we have three identified factory stores that we're going to open. And in regards to closures for full line, we're working towards minimizing this number, but right now we're probably close to about 10 that we're going to plan to close. It could be a little bit more, a little bit less than that, but we're working with landlords to see if we can work through some rent negotiations and to continue to move those stores out from a closure perspective as we look at fixing some of the product or improving some of the product that we sell through our full-price brand. So we're actively having conversations with some of our major landlords to reduce that number, but you can probably think of it from a model perspective, Eric, of about 10. Okay.
spk04: And in terms of, I guess, the Vera Bradley product, you mentioned adjacencies. You mentioned trying to kind of get it to be more focused. You know, what should we be thinking as we go to the stores in terms of what the product mix and the category should be doing?
spk01: So, Eric, I think in the short term, you won't see too much change as we move kind of leverage our product development timeline. We're making adjustments based on sales data, customer data as quickly as we can, but in the short term you probably won't see too much. I think it's a little early right now. We want to make sure that we have the right data to drive the decisions around what those product adjacencies should be. What we have now You know, it may look a little bit different in the future, but we just want to make sure we have all the data to make those decisions. So it's a little early to speculate on how things might be different, but I think you can count on seeing a more focused outlook from our product projection. So we really want to help people shops when they come into our stores and make clear what's important for the Vera Bradley brand.
spk04: Okay. What are you thinking about in terms of collaborations for both Vera Vita and Vera Bradley? the Harry Potter collaboration of Vera Bradley is no longer there and you've had continued Disney collaborations with other pieces. What's going to be kind of the criteria going forward in terms of who you're going to partner with and how they can provide, I guess, increased relevance to your customer? Thank you.
spk01: Yeah, that's a great question, Eric. And I think right now we're looking... for our future partnerships to really resonate with a customer that we want. So using, again, using data to define how our customers interacted with the past collaborations, what the long-term value of those customers ended up to be. We're doing all that work right now to have input into what's our future IP lineups. Okay.
spk04: Congrats, and good luck for the rest of the year. Thanks, Art.
spk00: Thank you. Thank you. And our next question comes from Joe Gomez from Noble Capital.
spk07: Good morning, and thanks for taking the questions. Good morning. So I wanted to kind of follow along here on the question about Vera Bradley and the store opening slash closings. You guys have said in the past that the full-line stores are the ones that attract the higher household income customers as opposed to the factory stores. That's, you know, if you cut 10, that's 20% this year alone on the full-line stores. I mean, are you seeing those higher household income customers go to the factory stores or how are you attracting into the factory stores or what are you doing not to lose that higher household income customer?
spk01: Yeah, I think that's a great question and I think the short answer to that is that we're really relying on e-commerce to help fill that gap and to identify the customers that we want at the demographic that's appealing for our brand. And again, that's how we'll be able to more effectively target those customers.
spk07: Okay. Pardon me. You talk about the focus on core categories. you know, one of the things that you had introduced towards the end of last year was your footwear line. Wondering, one, is that something you would look at as a core category? And two, you know, how has the footwear line been doing? How did it do in the fourth quarter?
spk03: So footwear was a product that,
spk01: expansion that we were very excited about and continue to be excited about. Our spring footwear has started off very strong. So again, we want to look at all of these programs in relationship not only to sales, but to really identifying in a targeted way what is happening with the customer and how it's driving her value over time. So that's
spk02: death analysis that's happening right now.
spk07: Okay. And maybe switch over to Pura Vida for a second. You mentioned there one of the challenges in the quarter was your wholesale account. Maybe you could just give us a little more color detail of what was happening on the wholesale side over at Pura Vida and what we're looking to do to see that line, that segment turn back up for Pura Vida as opposed to going down?
spk01: Sure. I think in Q4, we definitely saw some hesitancy in our retail partners just due to the macroeconomic environment and people just holding their open-to-buy dollars tightly. And that definitely had an impact on Pura Vida. much more than it did on Vera Bradley, but we did see early in the quarter that that was the case at Vera Bradley as well. What we've seen since then is a little more positivity from our retail partners, so we've definitely seen that pipeline increase since the beginning of the year.
spk07: That's good news. And one last one. For me, great job on the inventory levels. Seeing what the projections are for fiscal 24, John, are you looking for additional leverage there on the inventory, being able to reduce that even more from where you are? Do you think that where we are today, year-end, is a good level?
spk05: No, I think we're going to continue to look for opportunities to reduce that level to improve our churn. So as we built out the cash flow associated, the free cash flow associated with next year's guidance, we expect inventory levels to drop from where it is today.
spk07: Great. Thanks for that. I'll get back in queue. Thank you.
spk00: Thank you. I'd like to turn the call over to Jackie for any closing remarks.
spk01: Thank you. We are committed to returning Vera Bradley and Pura Vida to profitable growth and generating strong cash flow as a company, which I believe will deliver value to our shareholders over the long term. Since joining the company in November, I am more convinced than ever that both brands have enormous potential, and I'm very excited about the future of Vera Bradley Inc. We have a portfolio of two iconic lifestyle brands, multi-generational customers with remarkable loyalty and devotion, impressive brand recognition, a solid balance sheet, and an extraordinary culture. We have some heavy lifting to do in fiscal 2024, but I'm confident that we will emerge a stronger company. I want to thank our associates for their commitment to driving change and all they do to make our company a great place to work. We are proud to once again be recognized by Forbes as one of the best midsize employers in America. Thank you for joining us today and we look forward to sharing our progress with you in the quarters ahead.
spk00: Thank you. And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.
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