FinanceLooker

Excrept from filing document 2024-02-03

Portions of the registrant s definitive proxy statement for the 2024 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10 K Vera Bradley Inc intends to file such proxy statement with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after its fiscal year ended February 3 2024
This annual report contains forward looking statements that are subject to risks and uncertainties All statements other than statements of historical or current fact included in this report are forward looking statements Forward looking statements include references to our current expectations and projections relating to our financial condition results of operations plans objectives strategies future performance and business You can identify forward looking statements by the fact that they do not relate strictly to historical or current facts These statements may include words such as anticipate estimate expect project plan intend believe may might will should can have and likely and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events For example all statements we make relating to our estimated and projected earnings revenues costs expenditures cash flows growth rates and financial results our plans and objectives for future operations growth initiatives or strategies or the expected outcome or impact of pending or threatened litigation are forward looking statements All forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected including
possible adverse changes in general economic conditions and their impact on consumer confidence and consumer spending including political unrest social unrest acts of war and terrorism impacts related to pandemics or other public health matters
We derive many of our forward looking statements from our operating plans and forecasts which are based upon detailed assumptions While we believe that our assumptions are reasonable we caution that it is difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results
For a discussion of the above described risks and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward looking statements please refer to Risk Factors in Item 1A of this report
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you Furthermore the forward looking statements included in this report are made only as of the date hereof We undertake no obligation to publicly update or revise any forward looking statement as a result of new information future events or otherwise except as required by law
In this Form 10 K references to Vera Bradley Inc or the Company refer to Vera Bradley Inc and its subsidiaries including Vera Bradley Designs Inc and Creative Genius LLC References to Vera Bradley relate to the Vera Bradley stand alone brand and references to Pura Vida relate to the Pura Vida stand alone brand except where the context requires otherwise or where otherwise indicated The Company utilizes a 52 53 week fiscal year ending on the Saturday closest to January 31 The fiscal year ending February 3 2024 fiscal 2024
Vera Bradley Inc operates two unique lifestyle brands Vera Bradley and Pura Vida We believe Vera Bradley and Pura Vida are complementary businesses both with devoted emotionally connected and multi generational female customer bases alignment as casual comfortable affordable and fun brands positioning as gifting and socially connected brands strong entrepreneurial cultures a keen focus on community charity and social consciousness multi channel distribution strategies and talented leadership teams aligned and committed to the long term success of their brands
In July 2019 Vera Bradley Inc acquired a 75 interest in Creative Genius Inc which operates under the name Pura Vida Bracelets Pura Vida Pura Vida results are consolidated within the Company s financial statements beginning on July 17 2019 the first full day following the acquisition On January 30 2023 the Company acquired the remaining 25 interest in Pura Vida
The Company has three reportable segments Vera Bradley Direct VB Direct Vera Bradley Indirect VB Indirect and Pura Vida For financial information about our reportable segments refer to Note 17 of the Notes to Consolidated Financial Statements set forth in Part II Item 8 Financial Statements and Supplementary Data of this report
Vera Bradley is a leading designer of women s handbags luggage and travel items fashion and home accessories and unique gifts Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R Miller the brand is known for its innovative designs iconic patterns and brilliant colors that inspire and connect women The reportable segments within the Vera Bradley brand are VB Direct and VB Indirect
The VB Direct business consists of sales of Vera Bradley products through Vera Bradley full line and outlet stores in the United States e commerce sites verabradley com outlet verabradley com and international verabradley com and typically the Vera Bradley annual outlet sale in Fort Wayne Indiana As of February 3 2024 the Company operated
ecialty retail locations substantially all of which are located in the United States sales to department stores national accounts third party e commerce sites and third party inventory liquidators and royalties recognized through licensing agreements related to the Vera Bradley brand
Pura Vida based in La Jolla California is a digitally native lifestyle brand with a differentiated and expanding offering of bracelets jewelry apparel and other lifestyle accessories The Pura Vida segment represents revenues generated through the Pura Vida websites www puravidabracelets com www puravidabracelets eu and www puravidabracelets ca through the distribution of Pura Vida branded products to wholesale retailers and department stores substantially all of which are located in the United States and through its five retail stores
When they were traveling together in 1982 Fort Wayne Indiana friends Barbara Bradley Baekgaard and Patricia Miller realized there was a lack of stylish travel accessories in the market Within weeks the friends created Vera Bradley named after Ms Bradley Baekgaard s mother and began manufacturing and marketing their distinctive products The founders together with past and present members of the executive management team have been instrumental in our growth and success
Similar to the Vera Bradley brand Pura Vida was founded by two friends Griffin Thall and Paul Goodman Thall and Goodman from Southern California were traveling through Costa Rica in 2010 and crossed paths with two bracelet artisans Thall and Goodman asked the artisans to make 400 bracelets to take home with them
Upon returning to San Diego Thall and Goodman placed the bracelets in a bowl at a local boutique Within days the bracelets sold out and customers were asking for more Thall and Goodman quickly recognized the significance of these simple string bracelets They were more than just ordinary locally crafted bracelets they symbolized a movement valuing the simple things in life So Pura Vida which means pure life in Spanish and is a philosophy that encourages the appreciation of life s simple treasures was born
components for both of our brands This work culminated in our long term strategic plan Project Restoration which addresses each of these four pillars Through Project Restoration we are taking targeted and prudent actions to stabilize revenues while remaining focused on strong financial discipline We believe execution of Project Restoration will drive long term profitable growth and deliver value to our shareholders
At Vera Bradley we will launch the first manifestation of our Project Restoration in July 2024 which we believe will be a significant pivot from where we are today It includes among other things the reveal of our new and elevated full line branding and marketing product store design and website Our work on this initiative was informed by consumer research and current perceptions of the brand from both buyers and non buyers We believe we have the ability to attract new customers while keeping our current customers through product innovations and new marketing campaigns designed to inspire joy and connection Our new assortment has broad appeal and uses new higher quality and softer fabrics and styles designed to not only look great but feel great
We are focusing on restoring brand relevancy targeting casual and feminine 35 to 54 year old women who value both fashion and function Our focus on the 35 to 54 year old led us in search of data to understand where and how she shops We are using this data to target new customers and embark on new partnerships licensing deals and collaborations to extend our reach With this strategy we will also inspire and retain our loyal customers outside of this age group
We are strategically marketing our distinctive and unique positioning as a colorful feminine fashionable brand that connects with consumers on a deep emotional level We are refocusing our marketing and elevating our creative efforts through digital marketing public relations quality media placements and store initiatives to drive interest and gain new customers
We are continually looking for new ways to creatively engage our customers grow brand awareness and introduce new customers to our brands in a cost effective manner Vera Bradley continues to rank among the top of the industry for our Net Promoter and Customer Satisfaction Scores
We are refocusing on core categories and items we are best at such as travel and bags by innovating and expanding within our core products We are elevating our colorful feminine heritage keeping it distinctive but more trend right and modern through updated prints colors styles and designs which will appeal to both existing and new customers We ve improved the quality of most of our fabrics while keeping our commitment to increased use of preferred fibers and our retail price structure is unchanged Although the assortment will look new it is unmistakably Vera Bradley and our existing customers will still recognize their favorite styles and our distinctive colors patterns and quilting
We will innovate into strategic adjacent lifestyle item introductions that make sense for our customers We are also continuing to pursue collaborations and partnerships that align with our target customers and expand our customer reach
We are building a balanced footprint that more clearly differentiates full line and outlet assortments We expect to open two full line stores and one outlet store this year relocate stores where needed and update our full line stores with new branding and an improved shopping experience in conjunction with our first phase of Project Restoration We are also exploring opening new full line formats with a focus on lifestyle centers Maintaining brand right wholesale relationships is important and we are actively working with new specialty retailers where we know our customer is shopping We will also accelerate our digital first focus We are improving our online shopping experience and elevating full line creative and experiences while offering our outlet assortment online at outlet verabradley com for the first time ever
At Pura Vida we are shifting our focus to delivering profitability and balancing the ecommerce business with wholesale and retail stores We are diversifying our marketing spend and are making additional efforts to retain customers while continuing to work on each pillar of Project Restoration
We are sharpening our focus on the 18 24 year old 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 have refreshed 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 are recentering our brand ethos on living life to the fullest and sharpening our focus on Gen Z
Pura Vida remains one of the most highly engaged brands in the accessories space surpassing 2 2 million followers on Instagram and is consistently listed as one of the most engaged jewelry brands on Instagram Pura Vida was named to the 2024 Forbes Customer Experience All Stars List ranked by consumers to be in the top 6 of over 3 000 brands for its products services and treatment of customers
We are focusing on delivering unique fun playful product designs that are affordable and accessible We will continue to 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 Approximately a third of the total Pura Vida business is comprised of jewelry categories other than bracelets such as rings anklets and necklaces
We continue to have a strong focus on restoring e commerce growth and prudent growth of wholesale by pursuing larger more strategic partnerships and expanding larger existing accounts We expect to open two additional stores this year Our four full line Pura Vida 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 omni channel loyalty and spending
On average we typically introduce new collections monthly Each launch typically consists of one to three signature cotton quilted prints as well as other fabrications including Performance Twill Re Active microfiber and nylon some of which are also available in solid colors These collections of prints and solids are incorporated into the designs of a wide range of products including bags accessories and travel items These collections typically include classic styles updates to existing designs and new product introductions
To keep our assortment current and fresh and to focus our inventory investments on our best performers we discontinue prints and fabrications as necessary We sell our remaining inventory of retired products primarily through our websites including our online outlet site outlet stores our annual outlet sale and third party liquidators
We introduce new Pura Vida products seasonally approximately three times a year spring summer and fall We release curated product assortments multiple times per season that each embody a trend that we believe resonates with our customer base
Bags are a core part of our product offerings and are the primary component of every seasonal assortment The category consists of classic and new styles developed by our product development team Our bag product category includes items such as backpacks totes crossbodies lunch bags satchels clutches and baby bags Bags play a prominent role in our visual merchandising and we showcase the different fabrications patterns colors and features of each bag
Our travel product category includes rolling luggage cosmetics travel and packing accessories and travel bags which include our iconic duffel and weekend bags The first Vera Bradley product offering included duffel bags which have consistently been strong performers We believe their popularity as well as the appeal of our other travel items results from our vibrant designs functional styles and lightweight fabrications
Accessories include Vera Bradley branded fashion accessories such as ID holders lanyards wallets wristlets eyewear scarves various technology accessories and hair accessories as well as Pura Vida branded accessories such as bracelets rings and necklaces The majority of products sold by Pura Vida are included under the accessories category We believe our accessories are attractively priced and allow the consumer to include some color in her wardrobe Our product development teams consistently update the accessories assortment based on consumer demand and fashion trends
We have implemented a fully integrated and cross functional product development process that aligns design trend and market research merchandising planning sales marketing and sourcing We believe product development is a core capability that makes our products unique and that our designs and aesthetics set our products apart and drive customer loyalty Our design and product development teams combine an understanding of the desires of our target customers with knowledge of upcoming color material consumer and fashion trends to design new collections as well as new product categories
We typically begin the development stage of our products in the Vera Bradley portfolio twelve to eighteen months in advance of their release The development of each new pattern includes the design of a primary print and sometimes a secondary coordinating print All print development is managed by our internal print design team Once developed we generally copyright our patterns as appropriate We believe that great design is not only central to our products but also is a fundamental part of our brand development and growth strategies
Our design team works to ensure that new collections contain an assortment of products and styles that are in line with both trends and customer desires and regularly updates classic styles to enhance functionality Our team monitors fashion trends and customer needs by typically attending trend and industry shows subscribing to trend monitoring services and engaging in comparison shopping
Our product development team works closely with our marketing and merchandising teams to gather consumer insights through a variety of methodologies including seasonal market research in store testing scheduled interviews and online and in person surveys conducted by our internal team Our work is also informed in part by market data analysis provided through our membership in industry services and organizations The design and product development teams work to ensure that we offer products that are constructed to meet our design function construction and quality standards in a cost effective manner We believe that with our cross functional collaborative approach we are able to introduce and market our products in a way that clearly communicates the Vera Bradley brand
In addition to products developed in house we also pursue brand extensions through strategic partnerships licensing agreements and brand collaborations We currently have licenses in place for eyewear bedding stationery drinkware and outdoor furniture accessories and décor We also have licensing agreements with NFL Disney Consumer Products Peanuts Worldwide Sanrio Inc Hello Kitty Crocs Tupperware Tervis drinkware NCAA collegiate and certain U S Military forces We will continue to look for the right strategic partners and licensees that can augment the brand and provide established distribution networks for certain categories of business Additional arrangements will be launched in fiscal 2025
Pura Vida continues to develop new styles and re invent existing styles We have a cross functional team that aligns product development with merchandising to strategically manage the design process Our cross functional team attends trade shows and performs market research to develop what we believe will be on trend products that communicate and emulate the pura vida lifestyle We also pursue brand extensions through licensing agreements and we have partnered with Discovery Warner Brothers Consumer Products Disney Consumer Products Sanrio Inc Hello Kitty and other companies that are consistent with our brand
We believe that the growth of our brands and our business is influenced by our ability to introduce and sell our merchandise in a way that clearly conveys the Vera Bradley and Pura Vida brand personalities We use marketing as a critical tool in our efforts to promote our brands
We are continually focused on looking for new ways to creatively engage and retain our customers grow brand awareness and introduce new customers to our brands in a cost effective manner but that is becoming more challenging and expensive for both of our brands due in part to rising digital media costs
Vera Bradley s marketing platform will continue to be a blend of digital and more traditional channels such as direct mail email quality media placements PR and targeted TV ads Our marketing efforts are increasingly reflective of our ongoing commitment to diversity and inclusion The goal of our 360 brand marketing program is to drive brand awareness and desirability as well as connect with consumers where they are
We will continue to drive social media engagement by employing more user generated content growing our influencer and ambassador programs further enhancing social storytelling and social selling expanding Facebook Live and Reels and growing TikTok engagement
We communicate with our established customers consistently throughout the year with regular e mails social media and notifications as well as seasonal direct mail related to the Vera Bradley brand Our retention advertising is geared to keeping Vera Bradley top of mind with our customers rewarding our customers and providing them with news of our seasonal launches new product introductions and VB Cares initiatives
During fiscal 2024 under the umbrella of VB Cares we reinforced our position as a socially conscious organization and continued to strengthen our community support and charitable initiatives that are meaningful to our customers
and that make a significant impact on those in need particularly women and children Efforts included supporting the Vera Bradley Foundation for Breast Cancer Blessings in a Backpack New Hope Girls Free Mom Hugs One Atta Time American Heart Association Boys and Girls Club Big Brothers Big Sisters among others
We use online marketing and social networking sites as tools to increase brand awareness and drive traffic to verabradley com and to our Vera Bradley stores Vera Bradley can be found on Facebook Instagram TikTok Twitter Pinterest and YouTube
For Vera Bradley we have captured approximately 7 8 million active customer e mail addresses in our online customer file with many of these customers providing age occupation and location data This information provides us with deeper insight into the products and categories that are of the highest interest to our customers and allows us to better target our customers with appropriate messages As of February 3 2024 we had approximately 2 0 million Facebook fans approximately 70 000 Twitter X followers and approximately 45 000 TikTok followers Our Instagram has grown to nearly 600 000 followers and is our most highly engaged social medium In addition we often partner with brand right bloggers to promote our products
We had representation in key markets with mall partner participation Collaborations and holiday promotions were the primary focus for our retail store locations The outlet channel participated in center marketing throughout the year highlighting key seasonal moments such as Spring Break Back to School Labor Day and Holiday
Vera Bradley mailers are a vehicle for promoting the Vera Bradley brand and product portfolio Each mailer is sent to a targeted customer mailing list We believe our direct mail medium generates excitement and awareness about the Vera Bradley brand and allows us to reach both new and loyal customers in their homes We use direct mail for prospecting customer retention and reactivation
We connect with our established customers with regular emails affiliate marketing SMS marketing and social media marketing Our retention advertising focuses on informing Pura Vida customers of new product launches exclusive offers inventory restocks of best sellers promoting referral and loyalty rewards and the latest Pura Vida news
Pura Vida focuses on digital advertising through Facebook Instagram TikTok Google Snapchat and Pinterest to acquire new customers We are consistently testing new audiences channels creative ads and promotions to maximize our return on paid media spend
We have a grassroots program of brand ambassadors who drive customers to our website and generate buzz in local communities digitally through their social media channels in person through events and through word of mouth We acquire these brand ambassadors through advertising on Instagram and Tiktok as well as via outreach on our organic and retention channels
We work to tell the Pura Vida brand story through media and editorial placements seeding with celebrities and relevant publications and working with brand influencers across various key markets and demographic profiles Our work with influencers includes collaborations on product and marketing campaigns that drives brand awareness with their audiences and our target demographic We have also built a network of micro influencers and content creators who post for our brand in exchange for product and exposure on our social channels
To reach both existing and new customers and bring the Pura Vida brand to life we have hosted events at our retail stores in person brand activations on college campuses and relevant public events and built a brand presence at partner owned events such as the World Surf League To create excitement and engagement in the summer of fiscal 2024 we launched our Live Free and College Mobile tours Live Free made stops all over the U S including the Hamptons NY Jackson WY and Juneau AK In conjunction with back to campus our College Mobile Vera Bradley bus tour traveled to various college campuses across the country
Because Vera Bradley and Pura Vida products are frequently given as gifts we have historically realized and expect to continue to realize higher sales and operating income in the fourth quarter of our fiscal year which includes the holiday months of November and December In addition our products are popular during back to school periods of August and September Fluctuations in sales and operating income in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events affecting retail sales
We distribute our Vera Bradley products through our VB Direct including e commerce and retail stores and VB Indirect segments and Pura Vida products primarily through e commerce wholesale retailers and retail stores This multi channel distribution model is designed to enable operational flexibility and maximizes the methods by which we can access potential customers
We have developed a retail presence through our full line stores all located in the United States which provides us with a format to showcase our brand and the full array of Vera Bradley products As of February 3 2024 we operated 43 full line stores averaging approximately
Our outlet stores are a vehicle for selling styles made specifically for our outlet channel as well as retired merchandise at discounted prices while maintaining brand integrity Typically approximately 95 of the merchandise found in our outlet stores consists of exclusive styles Outlet stores are an integral part of our distribution strategy as this format provides an additional channel of distribution for our products and enables us to better target value oriented customers Our outlet stores average approximately 3 500 square feet per store As of February 3 2024 we operated 81 outlet stores all located in the United States
Our store location decisions for both full line and outlet stores are made based upon our comprehensive retail strategy that includes actual and planned penetration in both Indirect and Direct segments as well as existing e commerce demand While we forecast that we will close additional full line stores we believe that long term expansion of our store base is necessary to increase brand awareness and reinforce our brand image by contributing to our omni channel retail strategy In addition to analyzing store economics we pay particular attention to the location within the shopping center the size and shape of the space and co tenancies Along with seeking co tenants that we believe share our target customer we seek a balanced mix of moderate and high end retailers to encourage high levels of traffic
The focus of our store operations is providing consumers with a comfortable and memorable shopping experience We strive to make the experience interactive through special store events Our customer service philosophy emphasizes friendly service merchandise knowledge and passion for the brand Consequently an essential requirement for the success of our stores is our ability to attract train and retain talented highly motivated district managers store managers and sales associates
We sell our products through the verabradley com outlet verabradley com and international verabradley com websites The objective of these websites is to provide both a mechanism for marketing directly to consumers and a storefront where consumers can find the entire full line Vera Bradley collection During fiscal 2021 we re platformed our websites to become more streamlined nimble and efficient in our technology platform and business processes Between 2018 and late calendar 2023 we also operated a flash online outlet site to reduce clearance sales from verabradley com In November 2023 we transformed the online outlet from a flash sale model to an everyday extension of our outlet stores This brought new customers to the brand and helped offset weakness in the outlet store channel We had approximately 58 million visits to verabradley com and our online outlet site during fiscal 2024
For calendar years 2021 and 2022 our annual outlet sale was cancelled as a result of the COVID 19 pandemic In June 2023 the annual outlet sale resumed Our annual outlet sale is typically held in the Allen County War Memorial Coliseum Exposition Center in Fort Wayne Indiana The annual outlet sale is an important tradition for Vera Bradley has many loyal followers and is an opportunity for us to sell our retired merchandise at discounted prices in a brand right fashion
As of February 3 2024 we sold our products in approximately 1 600 specialty retail locations as well as department stores national accounts third party e commerce sites and third party inventory liquidators as well as through licensing agreements We currently sell our products in approximately 300 department store locations as well as Amazon com and other marketplaces
The top 25 of our specialty retailers account for approximately 80 of total specialty retailer revenue No single Indirect retailer represented more than 6 of consolidated net revenues in fiscal 2024 with the top ten Indirect retailers representing in the aggregate approximately 65 of total Indirect segment net revenues The majority of our Indirect retailers have been customers for over five years
We believe that having a combination of an in house field sales force and a third party agency covering certain geographies results in a more consistent brand presentation and messaging enhanced support for our Indirect customers and a more predictable scalable and cost efficient business model As of February 3 2024 our in house sales team consisted of approximate
In addition to acquiring new and growing existing accounts our sales consultants serve as a support center for our Indirect customers by assisting and educating them in areas such as merchandising and visual presentation marketing the brand product selection and inventory management Our visual merchandising program provides our sales consultants with a framework to guide our Indirect customers regarding optimal product placement and display that is intended to reinforce the message that our brand is distinctive
Pura Vida products are available on our websites www puravidabracelets com www puravidabracelets eu and www puravidabracelets ca Pura Vida s website immerses visitors in the brand its products and its social mission Pura Vida is a digitally native brand and the e commerce storefront continues to be the primary source of revenues for the Pura Vida business The e commerce site also includes a monthly bracelet and jewelry subscription club The subscription club is a mechanism to continue to build brand loyalty and stimulate higher retention
The Pura Vida wholesale channel is comprised primarily of specialty stores including Tilly s The Paper Store Ron Jon Surf Shops and Hallmark stores among others Pura Vida also sells in select department stores and has a presence on Amazon com through a third party wholesaler We have a combination of in house and external sales personnel who work with our wholesale retailers regarding order fulfillment and compilation
of the locations opened in fiscal 2023 and one location opened in fiscal 2022 Our full line locations are allowing us to showcase the Pura Vida lifestyle with a full array of existing products and new product innovations
During fiscal 2024 we continued to be impacted by higher tariffs from previously duty free countries where we source products as a result of the Generalized System of Preferences GSP duty free status expiring at the end of calendar year 2020 We cannot guarantee if or when the GSP duty free status will be reinstated or if it will be retro actively applied by Congress
Our manufacturing and sourcing strategy is part of the larger cross functional product development process The overall objective for our sourcing team is to build and sustain collaborative partnerships throughout our supply chain with a focus on identifying appropriate countries and partners to manufacture our products while maintaining and focusing on flexibility Our sourcing team leverages its expertise in negotiation relationship management flexibility and change management to maintain a strong diverse global supply chain Our sourcing team also focuses on achieving the right balance of production sites and countries
We strive to maintain the appropriate balance of inventory to enable us to provide a high level of service to our customers including prompt and accurate delivery of our products at a reasonable cost We believe that we have an active and nimble sales and operations planning process that helps us balance the supply and demand issues that we encounter in our business optimize our inventory levels and anticipate inventory needs We have also integrated our Vera Bradley planning forecasting and segmentation processes under one function called Merchandise Planning and Allocation
Approximately half of Vera Bradley product sales are cotton based Our other fabrics include fleece polyester and microfiber We source our raw materials from various suppliers in Asia with the majority of non cotton based products coming from China and South Korea
ia including the oversight of sourcing and procurement Our cotton based products are sourced from areas outside of China Our global sourcing team identifies evaluates and selects suppliers to fulfill the sourcing strategy Conducting market analysis and supplier assessment to identify potential partners are integral to maintaining a competitive edge and driving profitability The global sourcing team
collaborates with carefully selected and screened suppliers to negotiate contracts and agreements balance cost lead time quality and reliability across our supplier network and maximize operational efficiency Developing a long term and mutually beneficial relations with suppliers and to foster collaboration and innovation is an important part of our sourcing matrix The global sourcing team ensures a diversified supplier base to minimize single source dependency and is also monitoring geopolitical factors and market trends to anticipate and mitigate supply chain risks
We actively mitigate raw materials price increases through purchasing at advantageous times and periods All of our suppliers must comply with our quality standards and we use only a limited number of pre approved suppliers who have demonstrated a commitment to delivering the highest quality products We are continually updating our factory audit process and building a better compliance program to ensure our vendor code of conduct is met
ther governments global brands factory owners unions and workers to improve working conditions in the garment industry and make the sector more competitive These audits encompass both the Vera Bradley and Pura Vida brands as they relate to our purchases in Cambodia and Bangladesh
The majority of our Vera Bradley finished goods not sourced through licenses or strategic partners are manufactured by a variety of global manufacturers located primarily in Cambodia Vietnam Indonesia China and the Philippines With the oversight of our office in Hong Kong and our independent contractors we believe financial benefits have been realized without sacrificing the level of quality inherent in our products or service to our customers
Pura Vida products are sourced primarily from El Salvador as well as China India Guatemala Cambodia and Indonesia We have continued an active supply chain diversification process to ensure a focus on maintaining flexibility and to help mitigate the risk of concentrated production similar to the Vera Bradley supply chain
When determining the size of orders placed with our manufacturers we take into account forward looking demand lead times for specific products current inventory levels and minimum order quantity requirements Overseas production has resulted in substantial cost savings and a reduction of capital investment
Vera Bradley owns a 428 500 square foot distribution center in Roanoke Indiana This facility allows Vera Bradley employees to receive information directly from the order collection center and quickly identify the products and quantities necessary to fulfill a particular order The facility s technology enables us to accurately process and pack orders as well as track shipments and inventory We believe that our systems for the processing and shipment of orders from our distribution center have enabled us to improve our overall customer service through enhanced order accuracy and reduced turnaround time however we continue to make technology and automation enhancements to our distribution center processes to promote optimal output
Vera Bradley products are shipped primarily via third party common carriers to our stores our Indirect retailers and directly to our customers who purchase through our website We believe we are positioned well to support the order fulfillment requirements of our business including business generated through our website
We believe that high levels of automation and technology are essential to maintain our competitive position We maintain computer hardware applications and networks to enhance and accelerate the design process to support the sale and distribution of our products to our customers and to improve the integration and efficiency of our operations Our information systems are designed to provide among other things enterprise class business management comprehensive order processing for all commerce channels production accounting and management information and analytics for the product development retail sales marketing distribution finance and human resources functions of our business
At Vera Bradley our ERP POS Business Intelligence and Order Management systems are on cloud based platforms streamlining and simplifying our work and providing for additional capabilities such as mobile POS and multi company operations on the same platform
We completed our ERP migration during fiscal 2022 for Pura Vida so that our entire enterprise is on a unified technology platform We continue to assess our on premise and cloud based technology solutions in an effort to ensure we have the optimal solutions for our business In fiscal 2024 we completed the implementation of a new suite of inventory planning tools to optimize full line assortments localized assortments pricing and promotion planning and inventory positions
For both Vera Bradley and Pura Vida we face strong competition in each of the product lines and markets in which we compete We believe that all of our products are in similar competitive positions with respect to the number of competitors they face and the level of competition within each product line Due to the number of different products we offer it is not practicable for us to quantify the number of competitors we face Our products compete with other branded products within their product categories and with private label products sold by retailers Moreover the general availability of contract manufacturing allows new entrants to relatively easily access the markets in which we compete which may increase the number of competitors and adversely affect our competitive position and our business We compete against other independent retailers department stores catalog retailers gift retailers and Internet businesses that engage in the retail sale of similar products
The market for handbags and accessories in particular is highly competitive Our competitors include not only established companies that are expanding their production and marketing of handbags and accessories but also frequent new entrants to the market We directly compete with wholesalers and direct sellers of branded handbags and accessories
In varying degrees depending on the product category involved we compete on the basis of design aesthetic appeal quality construction function price point distribution and brand positioning We believe that our primary competitive advantages are consumer recognition of our brands customer loyalty and engagement product development expertise and our widespread presence through our multi channel distribution model Some of our competitors have achieved significant recognition for their brand names or have substantially greater financial distribution marketing and other resources than we do Further we may face new competitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets
We also own the material trademark rights used in connection with the production marketing and distribution of all of our products both in the United States and in the other countries in which our products are principally sold Our trademarks include Vera Bradley and Pura Vida We aggressively police our trademarks and copyrights and pursue infringers and counterfeiters both domestically and internationally Our trademarks will remain in existence for as long as we continue to use and renew them in advance of their expiration dates We have no material patents
Equal employment opportunities are available to all persons at Vera Bradley Inc without regard to race sex sexual orientation gender gender identity gender expression marital status age color religion creed national origin ancestry mental or physical disability medical condition genetic information military or veteran status or any other category protected under applicable federal state or local law We put this standard into practice through our hiring training and an annual affirmative action program
As of February 3 2024 we had approximately 2 135 employees Of the total approximately 1 495 were engaged in Vera Bradley retail selling positions approximately 280 were engaged in Vera Bradley distribution sourcing and quality functions approximately 35 were engaged in Vera Bradley product design approximately 90 were involved in the Pura Vida business including the Pura Vida retail stores and approximately 235 were engaged in corporate support and administrative functions None of our employees are represented by a union We believe that our relations with our employees are good and we have never encountered a significant work stoppage other than as related to temporary stoppages necessitated by the COVID 19 pandemic
Our Company wide diversity and inclusion initiative Project Quilt continues to enhance diversity equality and inclusion focusing on three key areas the Associate Experience the Customer Experience and the Community Experience
Vera Bradley believes it is critical to engage its different stakeholders in order to understand their views values and ideas and to design a more responsible environment for all involved This stakeholder group includes associates The Company engages its associates through surveys town halls and focus groups Collectively the Company s success is based upon the unique value of each person s contributions Our long term success depends on talented and engaged associates
Every year we conduct an associate engagement survey in order to better understand our associates insights into our Company s strengths and opportunities In calendar year 2023 we once again had strong participation with over 70 of our associates sharing their candid feedback Our calendar year 2023 overall engagement score was once again above average ranking in the upper quartile compared to peer companies The feedback gave us insight into improvement opportunities and is instrumental in decisions we make to shape strengthen and improve our Company As a result of the survey feedback over the last several years we have made meaningful improvements to benefits career development compensation mental health and
The Company offers competitive pay packages that include market competitive base and hourly compensation healthcare a 401 k savings plan that includes a Company contribution match paid time off including for volunteerism paid family leave matching gifts program and an Employee Assistance Program
Our associates are our biggest asset and when they win we all win We recognize everyone in the Company has the ability to lead by example and influence others in a positive way that ultimately provides meaningful value and will make us stronger Our long term initiative Leaders by Design encourages our associates to grow as leaders through new associate orientation and onboarding formal training programs mentorship programs job shadowing and career pathing programs and development including THE LEADERSHIP CHALLENGE a globally recognized research based leadership development program designed to enhance leadership effectiveness
Associate safety and well being is of paramount importance to our Company We have a comprehensive employee safety program WorkWISE Wellness that focuses on overall employee health and safety The WorkWISE Wellness program emphasizes our high standard of safety throughout all operations of the organization The program and its materials including a comprehensive Safety Manual addresses a variety of topics including reporting injuries OSHA compliance and emergency procedures related to workplace violence active shooters severe weather and blood borne pathogens among others Policies are routinely communicated and training is provided to associates as appropriate
Many of our imported products are subject to existing or potential duties or tariffs that may limit the quantity of products that we may import into the United States and other countries or impact the cost of such products Customs duties have not comprised a material portion of the total cost of a majority of our products In addition we are subject to foreign governmental regulation and trade restrictions including U S retaliation against prohibited foreign practices with respect to our product sourcing and international sales operations
We are subject to federal state local and foreign laws and regulations governing environmental matters including the handling transportation and disposal of our products and our non hazardous and hazardous substances and wastes as well as emissions and discharges into the environment including discharges to air surface water and groundwater Failure to comply with such laws and regulations could result in costs for corrective action penalties or the imposition of other liabilities Compliance with environmental laws and regulations has not had a material effect upon our capital expenditures earnings or competitive position If we violate any laws or regulations however it could have a material adverse effect on our business or financial performance
has served as our Chief Executive Officer and Director since November 2022 Prior to joining Vera Bradley Inc Ms Ardrey held the post of President at home furnishings and seasonal décor catalog and online retailer Grandin Road part of the Qurate Retail Group between 2018 and October 2022 Previously Ms Ardrey was CEO of Trading Company Holdings and Senior Vice President of Merchandising and Supply Chain for omnichannel gourmet food and gifting brand Harry and David Prior to that she spent 14 years at multi channel high end children s retailer Hanna Andersson in various roles of increasing responsibility including Senior Vice President of Merchandising Design and Wholesale Ms Ardrey began her retail career with the May Company
rior to joining Vera Bradley Mr Schwindle served as CFO for accessory and jewelry retailer Claire s between 2020 and April 2023 From 2018 to 2020 Mr Schwindle was CFO at Fleet Farm a big box retailer Prior to that he held CFO roles at specialty retailers Payless ShoeSource Harry David and Musician s Friend as well as other key financial positions at Home Depot and Limited Brands Mr Schwindle began his career at Deloitte Touche LLP
joined the Company in August 2016 as our Vice President Chief Legal Officer and Corporate Secretary and was promoted to also serve as the Chief Administrative Officer in September 2017 Between January 2013 and August 2016 Mr Dely served as Senior Vice President Chief Legal Officer General Counsel and Secretary of Fred s Inc a publicly traded retailer and pharmacy with locations throughout the Southeast From July 2007 to December 2012 Mr Dely was Vice President and Divisional General Counsel of the Franchise Services Group for The ServiceMaster Company where he managed the legal function for the Company s global franchise businesses Mr Dely s additional experience includes being the first in house counsel for NYSE listed seed and agricultural biotech company Delta Pine Land Company Mr Dely began his legal career at New York law firm Fried Frank LLP
joined the Company in January 2023 as Chief Marketing Officer of the Vera Bradley brand From October 2019 through October 2022 Ms Hiatt was Chief Marketing Officer for Salt and Straw where she was an instrumental part of transforming the unique ice cream company from a regional brand to an emerging national brand through innovative marketing digital and e commerce initiatives and strategic partnerships Prior to Salt and Straw from January 2015 to May 2019 Ms Hiatt was Chief Marketing Officer of Banfield Pet Hospitals a division of Mars Inc Previously Ms Hiatt held marketing related and other retail posts with REI Starbucks and Amazon
Our Annual Reports on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K and all amendments to these reports filed or furnished pursuant to Section 13 a or 15 d of the Securities Exchange Act of 1934 are available free of charge on our website www verabradley com as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission SEC No information contained on our website is intended to be included as part of or incorporated by reference into this Annual Report on Form 10 K
You should carefully consider all of the information in this report including the following factors which could materially affect our business financial condition and results of operations in future periods The risks described below are not the only risks that we face Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business financial condition and results of operations in future periods
The success of our long term strategic plan and growth strategies including Project Restoration alone or collectively will depend on various factors including the appeal of our product designs retail presentation to consumers effectiveness of our marketing initiatives expense saving initiatives competitive conditions and economic conditions Project Restoration represents our business strategy to revitalize our consumer brand product and channel components for both Vera Bradley and Pura Vida brands in order to serve our customers grow our revenues and increase our profitability There is no assurance that we will be able to successfully implement our strategic plan and growth strategies If we are unsuccessful in implementing some or all of our strategies or initiatives our future operating results could be adversely impacted
Our performance is subject to general economic conditions and their impact on levels of consumer confidence and consumer spending Consumer confidence and consumer spending may be influenced by levels of inflation fluctuating interest rates and credit availability including possible exposure to bank failures changing fuel and other energy costs fluctuating commodity prices levels of unemployment and consumer debt levels changes in net worth based on market conditions general uncertainty regarding the overall future economic environment political turmoil pandemics or other public health matters and weather and weather related phenomena Consumer purchases of discretionary items including our merchandise generally decline during periods when disposable income is adversely affected or there is economic uncertainty and these occurrences could adversely impact our results of operations In the event of a downturn in the U S economy or if there is a decline in consumer spending levels or other unfavorable conditions including inflationary pressure we could experience lower than expected net revenues which could force us to delay or slow the implementation of our growth strategies and adversely impact our results of operations
Our success depends on our ability to gauge the fashion tastes of our customers and to provide merchandise that satisfies consumer demand in a timely manner Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change We cannot assure that we will be able to develop appealing patterns styles and collections or meet changing consumer demands in the future If we misjudge the market for our products we may be faced with significant excess inventories for some products and missed opportunities for other products In addition changes to our product assortment and to our available fabrications as well as the availability and breadth of pattern assortment may not gain consumer acceptance Merchandise misjudgments could adversely impact our net revenues and results of operations
We may not be able to regain the levels of comparable sales that we have experienced in the past and comparable sales may also further deteriorate If our future comparable sales fail to meet market expectations then the price of our common stock could decline Also the aggregate results of operations of our stores have fluctuated in the past and will fluctuate in the future Numerous factors influence comparable sales including fashion trends competition national and regional economic conditions pricing inflation the timing of the release of new merchandise and promotional events changes in our merchandise mix marketing programs changes in consumer shopping trends site selection strategies public health matters and weather conditions These factors may cause our comparable sales results to be lower in the future than in recent periods or lower than expectations either of which could result in a decline in the price of our common stock
We currently sell our Vera Bradley branded products into two segments Direct to consumers through Vera Bradley full line and outlet stores in the United States verabradley com and international verabradley com outlet verabradley com and typically the Vera Bradley annual outlet sale in Fort Wayne Indiana and through our Vera Bradley Indirect wholesale business which consists of sales to specialty retail locations department stores national accounts third party e commerce sites third party inventory liquidators as well as royalties recognized through licensing agreements related to the Vera Bradley brand We currently sell our Pura Vida branded products direct to consumers through our e commerce websites puravidabracelets com puravidabracelets eu and puravidabracelets ca through wholesale retailers and through our five retail stores These channels are sometimes in direct competition and sales through these channels may not be incremental to total sales If our omni channel distribution model is unsuccessful our business financial condition and results of operations could be materially adversely affected
Our long term future growth prospects include our ability to successfully open new stores and operate new and current Vera Bradley and Pura Vida stores In recent years however Vera Bradley comparable store sales have declined Consequently the rate at which we have opened new stores has slowed We have closed a total o
The success of new store openings may also be affected by our ability to initiate marketing efforts in advance of opening our first store in a particular region Additionally we will incur pre opening costs and we may encounter initial losses while new stores commence operations which could strain our resources and adversely impact our results of operations
We believe that the brand images that we have developed have contributed significantly to the success of our business We also believe that enhancing the Vera Bradley and Pura Vida brands through our marketing strategies is critical to maintaining and expanding our customer base Enhancing our brands and implementing our marketing strategies may require us to make substantial investments in areas such as product design store operations store design community relations and marketing These investments might not succeed If we are unable to successfully execute our brand strategies our results of operations could be adversely impacted
rperforming outlet stores since the beginning of fiscal 2015 and forecast that we will close additional full line stores We could in the future decide to close additional stores beyond those currently forecasted that are producing losses or that are not as profitable as we expect If we decide to close any stores before the expiration of their lease terms we may incur payments to landlords to terminate or buy out the remaining term of the lease We also may incur costs related to the employees at such stores whether or not we terminate the leases early Upon any such closure the closing costs including fixed assets and inventory write downs could adversely affect our results of operations and our cash on hand
Substantially all of our Vera Bradley Direct stores are located in regional mall shopping centers and many of our Vera Bradley Indirect customers are also located in regional mall shopping centers Factors beyond our control impact mall traffic including general economic conditions consumer spending levels and pandemics or other public health matters Consumer spending and mall traffic have been depressed in recent years As a result mall operators have faced increasing operational and financial difficulties The increasing inability of mall anchor tenants and other area attractions to generate consumer traffic around our stores the increasing inability of mall operators to attract anchor tenants and maintain viable operations and the increasing departures of existing anchor and other mall tenants due to declines in the sales volume and in the popularity of certain malls as shopping destinations have reduced and may continue to reduce our sales volume and consequently adversely affect our financial condition results of operations and cash flows
We lease all of our store locations We typically occupy our stores under operating leases with terms of ten years We have been able to negotiate favorable rental rates in recent years due in part to the state of the economy and high vacancy rates within some shopping centers but there is no assurance that we will be able to continue to negotiate such favorable terms Some of our leases have early cancellation clauses which permit the lease to be terminated by us or the landlord if certain sales levels are not met in specific periods or if the shopping center does not meet specified occupancy standards In addition to requiring future minimum lease payments some of our store leases provide for the payment of common area maintenance charges real property insurance and real estate taxes Many of our lease agreements have escalating rent provisions over the initial term and any extensions If we expand our store base our lease expense and our cash outlays for rent under lease agreements will increase Our substantial operating lease obligations could have significant negative consequences including
Any of these consequences could place us at a disadvantage with respect to our competitors We depend on cash flow from operating activities to pay our lease expenses and to fulfill our other cash needs If our business does not generate sufficient cash flow from operating activities to fund these expenses and needs we may not be able to service our lease expenses grow our business respond to competitive challenges or fund our other liquidity and capital needs which would harm our business
Additional sites that we lease may be subject to long term non cancelable leases if we are unable to negotiate our current standard lease terms If an existing or future store is not profitable and we decide to close it we may nonetheless be committed to perform our obligations under the applicable lease including paying the base rent for the balance of the lease term Moreover even if a lease has an early cancellation clause we may not satisfy the contractual requirements for early cancellation under the lease Our inability to enter new leases or renew existing leases on acceptable terms or be released from our obligations under leases for stores that we close would in any such case affect us adversely
In our Vera Bradley Indirect business and Pura Vida wholesale business we compete with numerous manufacturers importers and distributors of handbags accessories and other products for the limited space available for the display of such products to the consumer In our Vera Bradley Direct business and Pura Vida e commerce and retail store business we compete against other gift and specialty retailers department stores catalog retailers and Internet businesses that engage in the retail sale of similar products Moreover the general availability of contract manufacturing allows new entrants easy access to the markets in which we compete which may increase the number of competitors and adversely affect our competitive position and our business
In addition in light of a continued difficult consumer environment pricing is a significant driver of consumer choice in our industry and we regularly engage in price competition particularly through our promotional programs which impacts our margins To the extent that we decrease our promotional activity or are otherwise unable to effectively compete on pricing our ability to maintain sales levels may be adversely impacted
We do not enter into long term agreements with any of our wholesale retailers Instead we enter into a number of purchase order commitments with our customers for each of our lines every season A decision by a significant number of wholesale retailers whether motivated by competitive conditions operational or financial difficulties reduced access to capital or otherwise to decrease or eliminate the amount of merchandise purchased from us or to change their manner of doing business with us could adversely impact our results of operations Although we recommend retail sale prices for our products to our wholesale retailers we typically do not provide dealer allowances or other economic incentives to support those prices Possible promotional pricing or discounting by wholesale retailers in response to softening retail demand could have a negative effect on our brand image and prestige which might be difficult to counteract
We sell our wholesale merchandise primarily to specialty retail and department stores across the United States and extend trade credit based on an evaluation of each wholesale retailer s financial condition usually without requiring collateral Perceived or actual financial difficulties of a customer could cause us to curtail or eliminate business with that customer or could decrease demand for our products by that customer Pending the resolution of a relationship with a financially troubled wholesale retailer we might assume credit risk that we would otherwise avoid relating to our receivables from that customer Inability to collect on accounts receivable from our wholesale retailers would adversely impact our results of operations and financial position
Our various contract manufacturers produce all of our products We generally do not enter into long term formal written agreements with our manufacturers and instead transact business with each of them on an order by order basis In the event of a disruption in our contract manufacturers production systems we may be unable to locate alternative manufacturers of comparable quality at an acceptable price or in a timely manner or at all Identifying a suitable manufacturer is an involved process that requires us to become satisfied with the prospective manufacturer s quality control responsiveness and service financial stability labor practices and environmental compliance Any delay interruption or increased cost in the manufactured products that might occur for any reason such as the lack of long term contracts or regulatory requirements and the loss of certifications power interruptions fires hurricanes war pandemics or other public health matters or threats of terrorism could affect our ability to meet customer demand for our products adversely affect our net revenues increase our cost of sales and hurt our results of operations In addition manufacturing disruption could injure our reputation and customer relationships thereby harming our business
We generally do not enter into long term formal written agreements with our suppliers and typically transact business with each of them on an order by order basis In the event of a significant disruption in the supply of fabrics or raw materials from our current sources we may not be able to locate alternative suppliers of materials of comparable quality at an acceptable price or in a timely manner or at all In such a case we could have difficulty meeting consumer demand and net revenues could be adversely impacted
Distribution operations for Vera Bradley branded products are currently concentrated in a single company owned distribution center in Roanoke Indiana Pura Vida branded products are primarily distributed from one third party distribution center in Tijuana Mexico
Any significant disruption in the operation of these facilities due to natural disaster or severe weather or events such as fire accidents power outages system failures or other unforeseen causes could devalue or damage a significant portion of our inventory and could adversely affect our product distribution and sales until such time as we could secure alternative facilities In addition to the aforementioned events pandemics or other public health matters could cause disruptions in our distribution operations if we were to temporarily suspend operations or if we are unable to obtain the staffing levels required to effectively operate the facilities If we encounter difficulties with our distribution facilities or other problems or disasters arise we cannot ensure that critical systems and operations will be restored in a timely manner or at all and this would have a material adverse effect on our business
In addition if our distribution facilities are unable to sufficiently meet the capacity needs for the future growth of our business and products we could be required to further expand our current facilities which could affect us adversely in ways that we cannot predict
Fluctuations in the price availability and quality of fabrics or other raw materials used to manufacture our products as well as the price for labor marketing and transportation could have adverse impacts on our cost of sales and our ability to meet our customers demands In particular increases in the price of cotton our primary raw material could have an adverse impact on our cost of sales In addition because synthetic components of our products are petroleum based the cost of oil affects the cost of our products Upward movements in the price of oil in the global oil markets would also likely result in rising fuel and freight prices which could increase our shipping costs In the future we may not be able to pass all or a portion of such higher costs on to our customers
For Vera Bradley we outsource the production of a significant majority of our products to companies in Asia We source our Pura Vida components primarily from Asia and outsource the production of products primarily to El Salvador We are subject to the risks inherent in global sourcing and manufacturing including but not limited to
The UFLPA went into effect on June 21 2022 The act establishes a rebuttable presumption that the importation into the United States of any goods manufactured in whole or partially in Xinjiang Uyghur Autonomous Region of China or produced by certain entities is prohibited entry The Commissioner of U S Customs and Border Protection employs a risk based approach that prioritizes the highest risk goods based on current data and intelligence available to them at the time of entry
Significant disruption of manufacturing for any of the above reasons could interrupt product supply and if not remedied in a timely manner could have an adverse impact on our results of operations Additionally we do not have complete oversight over our contract manufacturers Violations of labor or other laws by those manufacturers or the divergence of a contract manufacturer s labor or other practices from those generally accepted as ethical in the United States or in other markets in
Our ability to source our products at favorable prices or at all could be harmed with adverse effects on our results of operations if new trade restrictions are imposed or if existing trade restrictions become more burdensome
A significant majority of our Vera Bradley and Pura Vida products are currently manufactured for us in Asia and Central America respectively The United States and the countries in which our products are produced have imposed and may impose additional quotas duties tariffs or other restrictions or regulations or may adversely adjust prevailing quotas duties or tariffs Countries impose modify and remove tariffs and other trade restrictions in response to a diverse array of factors including global and national economic and political conditions which make it impossible for us to predict future developments regarding tariffs and other trade restrictions Trade restrictions which include embargoes safeguards and customs restrictions could increase the cost or reduce the supply of products available to us or could require us to modify our supply chain organization or other current business practices any of which could harm our results of operations
We currently rely on independent transportation service providers for substantially all of our product shipments Our utilization of these delivery services or those of any other shipping companies that we may elect to use is subject to risks including increases in fuel prices which would increase our shipping costs employee strikes labor shortages and inclement weather which may impact a shipping company s ability to provide delivery services sufficient to meet our shipping needs
If for any reason we were to change shipping companies we could face logistical difficulties that might adversely affect deliveries and we would incur costs and expend resources in the course of making the change Moreover we might not be able to obtain terms as favorable as those received from the service providers that we currently use which in turn would increase our costs We also would face shipping and distribution risks and uncertainties associated with any expansion of our distribution facilities and related systems
Our operating results depend on the orderly operation of our receiving and distribution functions which also depends on our vendors adherence to our shipping and receiving schedules We may not anticipate all of the changing demands that our operating activities may impose on our receiving and distribution functions
There may also be events that are beyond our control that could cause delays in these functions including but not limited to changing macroeconomic trends pandemics or other public health matters and general disruptions or delays in shipping and receiving
addition we rely on the flow of our goods through worldwide ports on a consistent basis Disruption at the ports such as labor work stoppages could create significant risks to our business particularly if the occurrence is during a peak import time If we experience significant delays in our receipt of product we may experience an increase in freight costs unanticipated inventory shortages and missed sales opportunities which could adversely affect our financial condition results of operations and cash flows
We have taken material impairment charges related to goodwill and other indefinite lived intangible assets associated with the Pura Vida acquisition in the past and may be required to take additional impairment charges in the future
We used the purchase method of accounting to account for the acquisition of a majority interest in Pura Vida which was consummated on July 16 2019 A portion of the purchase price for this business is allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the date of acquisition Goodwill is measured indirectly as the excess of the sum of i the consideration transferred including contingent consideration if any and ii the fair value of any noncontrolling interest in the acquiree over the net assets acquired and liabilities assumed The purchase price allocation resulted in a goodwill value of 44 3 million and a value of 61 7 million related to other intangible assets
During fiscal 2024 we recorded an impairment to the Pura Vida brand indefinite lived intangible asset of 5 4 million The carrying value of all Pura Vida intangible assets including the Pura Vida brand intangible asset was 7 6 million as of February 3 2024
implied fair value and therefore would require adjustment Such adjustment would result in a charge to operating income in that period Once adjusted there can be no assurance that there will not be further adjustments for impairment in future periods
We remain dependent on information technology systems and networks including the Internet for a significant portion of our sales primarily through our e commerce operations and credit card transaction authorization and processing We are also responsible for storing data relating to our customers and employees and rely on third parties for the operation of our e commerce websites and for the various social media tools and websites we use as part of our marketing strategy As part of our normal course of business we often collect retain and transmit certain sensitive and confidential customer information including the transmission of credit card information over public networks There is a significant concern by consumers and employees over the security of personal information transmitted over the Internet consumer identity theft and user privacy Despite the security measures we currently have in place our facilities and systems and those of our third party service providers may be vulnerable to security breaches acts of vandalism computer viruses misplaced or lost data programming and or human errors ransomware or other similar events Any electronic or physical security breach involving the misappropriation loss or other unauthorized disclosure of confidential or personally identifiable information including penetration of our network security whether by us or by a third party could disrupt our business severely damage our reputation and our relationships with our customers expose us to risks of litigation and liability and adversely affect our business and results of operations We do not control third party service providers and cannot guarantee that electronic or physical computer break ins and security breaches will not occur in the future Any perceived or actual unauthorized disclosure of personally identifiable information regarding our customers or website visitors could harm our reputation and credibility reduce our e commerce net sales impair our ability to attract website visitors and reduce our ability to attract and retain customers We may also incur significant costs in complying with the various applicable state federal and foreign laws regarding unauthorized disclosure of personal information
We are dependent on our computer systems to record and process transactions and manage and operate our business including in designing marketing manufacturing importing tracking and distributing our products processing payments and accounting for and reporting results We also utilize an automated replenishment system to facilitate the processing of basic replenishment orders the movement of goods through distribution channels and the collection of information for planning and forecasting In addition we have e commerce websites in the U S Europe and Canada Given the complexity of our business and the significant number of transactions that we engage in it is imperative that we maintain constant operation of our computer hardware and software systems Despite our preventive efforts including back up systems our systems are vulnerable from time to time to damage or interruption from among other things security breaches computer viruses or power outages Any material disruptions in our information technology systems could have a material adverse effect on our business financial condition and results of operations
We operate e commerce stores at www verabradley com outlet verabradley com and international verabradley com www puravidabracelets com www puravidabracelets eu and www puravidabracelets ca Expanding our e commerce business is one of the key objectives of our business strategy Our e commerce operations are subject to numerous risks including unanticipated operating problems reliance on third party computer hardware and software providers system failures and the need to invest in additional computer systems Specific risks include i diversion of sales from our stores ii rapid technological change iii liability for e commerce content and iv risks related to the failure of the computer systems that operate the websites and their related support systems including from computer viruses telecommunication failures and electronic break ins and similar disruptions Internet operations involve risks which may be beyond our control that could have a direct material adverse effect on our operating results including i price competition involving the items we intend to sell ii the level of merchandise returns we experience iii governmental regulation iv e commerce security breaches involving unauthorized access to our systems and or customer information v credit card fraud and vi competition and general economic conditions specific to the Internet e commerce and the accessories industry If we are unable to effectively address these risks and any other risks that we face in connection with our Internet operations our business financial condition results of operations and or cash flows could be materially adversely affected
We are subject to income taxes in many U S and certain foreign jurisdictions We record tax expense based on our estimates of future payments which includes reserves for uncertain tax positions in multiple tax jurisdictions At any one time many tax years are subject to audit by various taxing jurisdictions Further possible changes in federal state local and non U S tax laws bearing upon our revenues income property or other aspects of our operations or business would if enacted affect our results of operations in ways and to a degree that we cannot currently predict
Quarterly we assess whether events or changes in circumstances have occurred that indicate the carrying value of long lived asset groups may not be recoverable If we determine that the carrying value of long lived asset groups are not recoverable we will be required to record impairment charges relating to those assets For example our assessments during fiscal years 2023 and 2022 indicated that operating losses or insufficient operating income existed at certain retail stores with a projection that the operating losses or insufficient operating income for those locations would continue As such we recorded non cash charges of 0 8 million and 0 1 million during fiscal years 2023 and 2022 respectively within selling general and administrative expenses in the consolidated statements of operations to write down the carrying values of these stores long lived asset groups to their estimated fair values We also recorded 0 6 million of a non cash impairment charge relating to a corporate right of use asset in fiscal 2023 We recorded no long lived asset impairments in fiscal 2024
Our quarterly evaluation of store assets includes consideration of current and historical performance and projections of future profitability The profitability projections rely upon estimates made by us including store level sales gross margins and direct expenses and by their nature include judgments about how current strategic initiatives will impact future performance If we are not able to achieve projected key financial metrics for any reason including if any of the strategic initiatives we implement do not result in significant improvements in our current financial performance trend this would indicate that the value of our long lived assets was not recoverable and we would incur additional impairment of assets in the future
There are claims made against us from time to time that can result in litigation or regulatory proceedings which could distract management from our business activities and result in significant liability or damage to the images associated with our brands
We increasingly face the risk of litigation and other claims against us Litigation and other claims may arise in the ordinary course of our business and include employee claims custom and duty claims commercial disputes intellectual property issues marketing and solicitation claims product oriented allegations and slip and fall claims These cases often raise complex factual and legal issues which are subject to risks and uncertainties and which could divert significant financial and management resources Litigation and other claims against us could result in unexpected expenses and liability as well as materially adversely affect our operations and our reputation
We believe that our registered copyrights registered and common law trademarks and other proprietary rights have significant value and are critical to our ability to create and sustain demand for our products The actions taken by us to establish and protect our proprietary rights may not be adequate to prevent imitation of our products or infringement of our rights by others The legal regimes of some foreign countries particularly China may not protect proprietary rights to the same extent as the laws of the United States and it may be more difficult for us to successfully challenge the use of our proprietary rights by others in these countries The inability to protect our copyrights trademarks and other proprietary rights could adversely impact our results of operations Any litigation regarding our proprietary rights could be time consuming and costly and could consume significant amounts of management s time that would otherwise be spent operating and growing our business
We are also subject to the risk that claims will be brought against us for infringement of the intellectual property rights of third parties seeking to block the sale of our products claimed to violate their intellectual property rights or to receive payment of monetary amounts related thereto Although we have not been inhibited from selling our products in connection with intellectual property disputes intellectual property related obstacles may arise as we expand our product lines and extend our
brands as well as the geographic scope of our sales and marketing In particular we may be subject to copyright infringement claims for which we may not be entitled to indemnification from our suppliers In addition in recent years companies in the retail industry including us have been subject to patent infringement claims from non practicing entities or patent trolls Any infringement or other intellectual property claim made against us whether or not it has merit could be time consuming and result in costly litigation As a result any such claim or the combination of multiple claims could have a material adverse effect on our operating results If we are required to stop using any of our registered or nonregistered trademarks our brands could be negatively affected our sales could decline and consequently our business and results of operations could be adversely affected
There has been increasing stakeholder and regulatory focus on ESG matters affecting public companies Expectations regarding ESG disclosures setting and executing ESG related goals and achieving measurable progress in a timely manner could expose us to market operational and execution costs or risks We expect that stakeholder expectations as well as laws rules and regulations in these areas will continue to evolve quickly which may result in the need for increased resources for ESG monitoring and reporting and adjustments to our operations may be necessary as a result We could face scrutiny with respect to the accuracy adequacy or completeness of our ESG related disclosures Additionally disclosures about our ESG related initiatives or goals and progress towards those goals may be based on standards for measuring progress that are still developing internal controls and processes that continue to evolve and assumptions or third party information that we believe to be reasonable but are subject to change in the future We could also be subject to scrutiny with respect to the scope or nature of our ESG related initiatives or goals or for any revisions to those goals If our ESG related data processes and reporting are incomplete or inaccurate or if we fail to achieve progress with respect to these initiatives or goals on a timely basis or at all our reputation and the value of our brands could be adversely affected Any harm to our reputation resulting from a failure or perceived failure to meet ESG related goals metrics or disclosures could adversely affect our business financial performance and growth
In addition the stock markets including The NASDAQ Global Select Market have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many retail companies In the past stockholders have instituted securities class action litigation following periods of market volatility If we were involved in
Over the last few years proxy contests and other forms of shareholder activism have been directed against numerous public companies in retail businesses We could become engaged in a consent solicitation or proxy contest or experience other shareholder activism in the future Activist shareholders may advocate for certain governance and strategic changes at our company In the event of shareholder activism particularly with respect to matters which our Board of Directors Board in exercising their fiduciary duties disagree with or have determined not to pursue our business could be adversely affected because responding to actions by activist shareholders can be costly and time consuming disrupting our operations and diverting the attention of management and perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel business partners and customers
In addition if faced with a consent solicitation or proxy contest we may not be able to respond successfully to the contest or dispute which would be disruptive to our business If individuals are elected to our Board with a differing agenda our ability to effectively and timely implement our strategic plans and create additional value for our shareholders may be adversely affected
A limited number of shareholders control a significant percentage of the voting power of our common stock and therefore investors may have diminished ability to determine the outcome of shareholder votes
Robert Hall Barbara Bradley Baekgaard Joan Hall Mr Hall s wife and Ms Bradley Baekgaard s daughter Patricia R Miller and P Michael Miller directly or indirectly beneficially own and have the ability to exercise voting control over in the aggregat
ding shares of common stock as of February 3 2024 As a result these shareholders are able to exercise significant influence over all matters requiring shareholder approval including the election of directors any amendments to our second amended and restated articles of incorporation and significant corporate transactions This concentrated ownership of outstanding common stock may diminish an investor s ability to influence corporate matters and the interests of these shareholders may not coincide with our interests or interests of investors As a result we may take actions that investors do not believe to be in our interests or their interests and that could depress our stock price In addition this significant concentration of stock ownership may adversely affect the trading price of our common stock should investors perceive disadvantages in owning shares of common stock in a company that has such concentrated ownership
From time to time we provide guidance regarding our future performance that represents our management s estimates as of the date of release This guidance which consists of forward looking statements is prepared by our management and is qualified by and subject to the assumptions and the other information contained or referred to in such release Our guidance is not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants and neither our independent registered public accounting firm nor any other independent expert or outside party compiles or examines our guidance and no such person expresses any opinion or any other form of assurance with respect thereto
Guidance is based upon a number of assumptions and estimates that while presented with numerical specificity are inherently subject to significant business economic and competitive uncertainties and contingencies many of which are beyond our control and are based upon specific assumptions with respect to future business decisions some of which will change We generally state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but such statements are not intended to represent that actual results could not fall outside of the suggested ranges The principal reason that we release this data is to provide a basis for our management to discuss our business outlook with analysts and investors We do not accept any responsibility for any projections or reports published by any such persons
Guidance is necessarily speculative in nature and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results Accordingly our guidance is only an estimate of what management believes is realizable as of the date of release Actual results will vary from the guidance and the variations may be material Investors should also recognize that the reliability of any forecasted financial data diminishes the further into the future that the data are forecast
In light of the foregoing if investors analysts and others fail to review our guidance within the proper context or place undue reliance on our guidance deviations from such guidance may result in incongruous fluctuation in our stock price
Anti takeover provisions in our organizational documents and Indiana law may discourage or prevent a change in control even if a sale of the Company would be beneficial to our shareholders which could cause our stock price to decline and prevent attempts by shareholders to replace or remove our current management
Our second amended and restated articles of incorporation and amended and restated bylaws contain provisions that may delay or prevent a change in control discourage bids at a premium over the market price of our common stock harm the market price of our common stock and diminish the voting and other rights of the holders of our common stock These provisions include
As permitted by our second amended and restated articles of incorporation and amended and restated bylaws our Board also has the ability should it so determine to adopt a shareholder rights agreement sometimes called a poison pill providing for the issuance of a new series of preferred stock to holders of common stock In the event of a takeover attempt this preferred stock would give rights to holders of common stock other than the potential acquirer to buy additional shares of our common stock at a discount leading to the dilution of the potential acquirer s stake The adoption of a poison pill or the Board s ability to do so can have negative effects such as those described above
As an Indiana corporation we are governed by the Indiana Business Corporation Law as amended from time to time the IBCL Under specified circumstances certain provisions of the IBCL related to control share acquisitions business combinations and constituent interests may delay prevent or make more difficult unsolicited acquisitions or changes of control of us These provisions also may have the effect of preventing changes in our management It is possible that these provisions could make it more difficult to accomplish transactions that shareholders might deem to be in their best interest
The outbreak of pandemics or events related thereto may cause significant disruptions in our revenue streams operations global supply chain and other facets of our business which may continue to adversely impact our results of operations financial condition and share price
A pandemic COVID 19 in the past resulted in travel restrictions both domestically and internationally community and self quarantines certain factory closures or reduced operations as well as mall closures and reduced mall operating hours This could happen in the future as well Due to the past pandemic we experienced significantly reduced traffic demand and sales This could recur in the future Future pandemic related mandates from governments and public health officials may necessitate additional closures to some or all of our retail stores the stores of our Indirect segment partners and Pura Vida wholesale retailers or otherwise detrimentally impact aspects of our operations as COVID 19 did in the past Pandemics may reduce consumers willingness and ability to travel to major cities and vacation destinations in which some of our stores are located
In recent fiscal years the COVID 19 pandemic led to temporary factory closures and production and logistics constraints due to workforce availability as well as global supply chain challenges such as vessel and container shortages and port congestion As a result of the aforementioned restrictions or other related factors we have experienced and may experience in the future delayed shipments and increased shipping costs for some of our merchandise We may also be adversely impacted should a pandemic compromise operations at our corporate headquarters and distribution center located in Roanoke Indiana
The extent of a pandemic s impact on our results of operations financial condition and share price will likely depend on the nature and seventy of the pandemic future developments including as may be related to the spread of new virus variants mitigation activities undertaken by governments and the general public the overall economic impacts of quarantines and business closures and current and potentially long term changes in consumer behavior
Our performance depends largely on the efforts and abilities of our senior management and product development teams These executives and design associates have substantial experience in our business and have made significant contributions to our growth and success Although we have entered into an employment agreement with our Chief Executive Officer we may not be able to retain her services or those of other key individuals in the future The unexpected loss of services of key employees could have adverse impacts on our business and results of operations We may also need to attract and retain additional qualified employees and develop train and manage an increasing number of management level sales and other employees Competition for qualified employees is intense We may not be able to attract and retain employees as needed in the future
We must attract motivate and retain a sufficient number of qualified retail and distribution center employees Historically competition for talent in these positions has been intense and turnover is generally high If we are unable to attract and retain such employees with the necessary skills and experience we may not achieve our objectives and our financial condition results of operations and cash flows could be adversely impacted
Any quarterly fluctuations that we report in the future may not match the expectations of market analysts and investors This could cause the trading price of our common stock to fluctuate significantly
Currently none of our employees are represented by a union Nevertheless our employees have the right at any time under the National Labor Relations Act to organize or affiliate with a union If some or all of our workforce were to become unionized our business could be exposed to increased risk of work stoppages and slowdowns In addition if the terms of a collective bargaining agreement were to be significantly more favorable to union workers than our current pay and benefits arrangements our costs would increase and our results of operations would suffer
We have in the past needed to and may in the future need to recall products that we determine may present safety issues If products we sell have safety problems of which we are not aware or if we or the Consumer Product Safety Commission recall a product sold in our stores we may suffer negative publicity and potentially product liability lawsuits which could have a material adverse impact on our reputation financial condition and results of operations or cash flows
We have an enterprise risk assessment process which specifically addresses risks associated with cybersecurity Additionally we have a cyber security incident response plan that outlines the structure roles responsibilities and operating procedures to utilize during potentially significant events that could negatively impact the Company Our cybersecurity incident response plan provides a documented framework for handling high severity security incidents and includes facilitated coordination across multiple functions of the Company Our incident response plan also includes identifying and responding to material risks from cybersecurity threats associated with our use of third party service providers We invest in threat intelligence and are active participants in industry and government forums to strive to improve our overall capabilities with respect to cybersecurity We routinely perform reviews of threat intelligence and vulnerability management capabilities while performing simulations and drills at both technical and management levels Our formal cybersecurity program is modeled after industry best practice global standards and best practices We incorporate external expertise in all aspects of our program utilizing best practice guidance from third party cybersecurity advisors to provide objective assessments of our capabilities We maintain a cyber liability insurance program although the coverage may not be sufficient in some circumstances We also have policies and practices in place to address data privacy regulations Our cybersecurity program is reviewed and assessed by external information security specialists or by our internal audit group at least annually Further we conduct annual cybersecurity awareness training for employees and targeted training for high risk functions of the Company We also conduct phishing exercises and correlated education with our employees
Our Vice President of Enterprise Technology Solutions is responsible for the strategic leadership and direction of the Company s information technology organization and possesses 25 years of tenure and experience with the Company in matters of privacy assurance cyber digital and data security As part of its risk oversight role our Audit Committee of the Board of Directors oversees cyber risk information security and technology risk including management s actions to identify assess mitigate and remediate material cybersecurity issues and risks The Audit Committee receives regular reporting from our Vice President of Enterprise Technology Solutions on our technology and cyber risk profile enterprise cybersecurity program and key enterprise cybersecurity activities
The following table sets forth the location use and size of our distribution corporate facilities and showrooms as of February 3 2024 The leases on the leased properties expire at various times through 2033 subject to renewal options
We consider these properties to be in good condition generally and believe that our facilities are adequate for our operations and provide sufficient capacity to meet our anticipated requirements The Vera Bradley properties in the above table are used by
both the Vera Bradley Direct segment and Vera Bradley Indirect segment excluding the two standalone showrooms which are used exclusively by the Vera Bradley Indirect segment The Pura Vida headquarters is used by the Pura Vida segment
Our Vera Bradley full line stores are located primarily in high traffic regional malls lifestyle centers and mixed use shopping centers across the United States The following table shows the number of Vera Bradley full line and outlet stores we operated in each state as of February 3 2024
We may be involved from time to time as a plaintiff or a defendant in various routine legal proceedings incidental to the ordinary course of our business In the ordinary course we are involved in the policing of our intellectual property rights As part of our policing program from time to time we file lawsuits in the United States and abroad alleging acts of trademark counterfeiting trademark infringement trademark dilution and ancillary and pendent state and foreign law claims These actions often result in seizure of counterfeit merchandise and negotiated settlements with defendants Defendants sometimes raise as affirmative defenses or as counterclaims the purported invalidity or unenforceability of our proprietary rights
In August of 2019 Vesi Incorporated Vesi filed suit against the Company in the U S District Court for the Southern District of Ohio related to the Company s licensing business and alleging breach of fiduciary duty unfair competition defamation and tortious interference with prospective business relationships The complaint seeks damages in an amount not less than 10 0 million for punitive damages attorney fees prejudgment interest and any other additional relief The Company has denied any liability and intends to vigorously defend itself in the case In November 2019 the Company filed a counterclaim against the principals of Vesi as personal guarantors for monies owed to the Company by Vesi The Company filed a motion for summary judgement asking the Court to dismiss all claims with prejudice and grant judgment on its counterclaim On January 4 2023 the Court granted the Company s motion for summary judgment dismissing Vesi s claims and also granted judgment on the Company s counterclaims against the principals of Vesi for an immaterial amount Vesi appealed this decision On November 9 2023 the United States Court of Appeals for the Sixth Circuit issued an opinion
The Company is subject to other legal proceedings from time to time in the ordinary course of business but does not believe any of these such claims would have a material adverse impact on the Company at this time
The number of shareholders of record is based upon the actual number of shareholders registered at such date and does not include holders of shares in street name or persons partnerships associations corporations or other entities identified in security position listings maintained by depositories
The following table details activity under the 2021 Share Repurchase Program during the fourteen weeks ended February 3 2024 Refer to Note 13 of the Notes to the Consolidated Financial Statements as set forth in Part II Item 8 of this Annual Report on Form 10 K for additional information regarding our share repurchase programs
Our common stock began trading on October 21 2010 following our initial public offering Since that time we have not declared any cash dividends The payment of dividends is evaluated on a periodic basis
pares the cumulative shareholder return on our common stock between February 2 2019 and February 3 2024 to the cumulative return of i the S P 500 Index and ii the S P 500 Apparel Accessories and Luxury Goods Index over the same period This graph assumes an initial investment of 100 on February 2 2019 in our common stock the S P 500 Index and the S P 500 Apparel Accessories and Luxury Goods Index and assumes the reinvestment of dividends if any
The comparisons shown in the graph below are based on historical data We caution that the stock price performance presented in the graph below is not necessarily indicative of nor is it intended to forecast the potential future performance of our common stock Information used in the graph was obtained from The NASDAQ Stock Market website As such although we believe the information to be accurate we cannot assure you of its accuracy
You should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this report particularly under the headings Risk Factors and Business This discussion and analysis is based on the beliefs of our management as well as assumptions made by and information currently available to our management The statements in this discussion and analysis concerning expectations regarding our future performance liquidity and capital resources as well as other non historical statements in this discussion and analysis are forward looking statements See Forward Looking Statements These forward looking statements are subject to numerous risks and uncertainties including those described under Risk Factors Our actual results could differ materially from those suggested or implied by any forward looking statements
We launched our long term strategic plan Project Restoration and completed the first year of our turnaround We thoughtfully outlined our plans in each of the four pillars Consumer Brand Product and Channel and began implementation of key initiatives
As a Company we continued to carefully manage both gross margin and expenses and have instilled a culture of discipline around gross margin and expense control We continued to strengthen and streamline our organizational structure and right size our leadership team and cost structure for the size of our business to address the continuing challenging macroeconomic environment and to best position us to achieve our long term strategic plans We also 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
In the fourth quarter we transformed our online outlet from a flash sale model to an everyday extension of our outlet stores outlet verabradley com This brought new customers to the brand and helped offset weakness in the outlet store channel
We continued to strengthen and rationalize our store base We have taken needed steps via product marketing and expense discipline to improve the profitability of our full line stores and closed fewer locations than originally expected In fiscal 2024 we closed eight underperforming full line stores and one outlet store and opened three outlet stores ending the fiscal year with 43 full line and 81 outlet locations
On the marketing front our comprehensive customer data platform implemented in fiscal 2024 is allowing us to be more analytical and to more strategically target customers and potential customers with a keen focus on both customer acquisition and retention
In fiscal 2024 we continued collaborations with Disney Harry Potter Hello Kitty and the World Surf League partnered with key influencers and offered themed collections centered around key events such as Shark Week
Net revenues reflect sales of our merchandise and revenue from distribution and shipping and handling fees less returns and discounts Revenues for the VB Direct segment reflect sales through Vera Bradley full line and outlet stores and the Vera Bradley websites verabradley com international verabradley com and outlet verabradley com There were no sales from our Vera Bradley annual outlet sale in Fort Wayne Indiana for fiscal years 2022 and 2023 as it was cancelled due to the COVID 19 pandemic Revenues for the VB Indirect segment reflect sales of Vera Bradley branded products to specialty retail partners department stores national accounts third party e commerce sites and third party inventory liquidators as well as royalties recognized through licensing agreements related to the Vera Bradley brand Revenues for the Pura Vida segment reflect revenues generated through the Pura Vida websites www puravidabracelets com www puravidabracelets eu and
Typically comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our Vera Bradley e commerce operations Comparable store sales are calculated based solely upon stores that have been open for at least 12 full fiscal months Remodeled stores are included in both comparable sales and comparable store sales unless the store was closed for more than one week of the current or comparable prior period in which case the non comparable temporary closure periods are not included or the remodel resulted in a significant change in square footage Some of our competitors and other retailers calculate comparable or same store sales differently than we do As a result data in this report regarding our comparable sales and comparable store sales may not be comparable to similar data made available by other companies Non comparable sales include sales from stores not included in comparable sales or comparable store sales
As a result of the temporary closure of all Vera Bradley stores due to COVID 19 during portions of the first and second quarters of fiscal 2021 the Company s fiscal 2022 comparable store sales and comparable sales calculations are not meaningful and therefore are not provided
Typically measuring the change in year over year comparable sales allows us and our investors to evaluate how our store base and e commerce operations are performing Various factors affect our comparable sales including
Gross profit is equal to our net revenues less our cost of sales Cost of sales includes the direct cost of purchased merchandise distribution center costs operations overhead duty all inbound freight costs incurred and inventory adjustments including adjustments described in Note 16 to the Notes to the Consolidated Financial Statements herein The components of our reported cost of sales may not be comparable to those of other retail and wholesale companies
Gross profit can be impacted by changes in volume fluctuations in sales price operational efficiencies such as leveraging of fixed costs promotional activities including free shipping commodity prices such as for cotton tariffs and labor costs
Advertising marketing and product development expenses include employee compensation media costs creative production expenses marketing agency fees new product design costs public relations expenses and market research expenses A portion of our advertising expenses may be reimbursed by Indirect retailers and such amount is classified as other income Administrative expenses include employee compensation for corporate functions corporate headquarters occupancy costs consulting and software expenses and charitable donations as well as severance charges and consulting fees associated with cost savings initiatives disclosed in Note 16 to the Notes to the Consolidated Financial Statements herein
The Company performs its indefinite lived asset impairment test annually or more frequently if facts and circumstances indicate possible impairment Prior to fiscal 2024 the Company performed an annual impairment test for its goodwil
We have experienced significantly lower sales from our Pura Vida e commerce channel due to a decline in social and digital media effectiveness as well as lower wholesale sales These lower sales volumes had a negative impact on the fair value determination of intangible assets in fiscal years 2024 and 2023
The Company performed its annual impairment test in the second quarter of fiscal 2024 and recorded no impairment charges based on its quantitative analysis at that time Due to subsequent triggering events the Company performed a second quantitative analysis of the carrying value of the Pura Vida brand in the fourth quarter of fiscal 2024 and recorded an impairment charge of 5 4 million further described in Note 15 to the Notes to the Consolidated Financial Statements herein
For the annual impairment analysis performed during fiscal 2023 the Company performed a quantitative analysis as well as subsequent analyses due to triggering events further described in Note 15 to the Notes to the Consolidated Financial Statements herein Impairment charges of 44 3 million and 25 0 million were recorded during fiscal 2023 for goodwill and the Pura Vida brand respectively
Property plant and equipment and lease right of use assets the asset group for store related assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable The reviews are conducted at the lowest identifiable level of cash flows If the estimated undiscounted future cash flows related to the asset group are less than the carrying value we recognize a loss equal to the difference between the carrying value and the fair value as further defined in Note 2 to the Notes to the Consolidated Financial Statements herein Impairment charges
ere recognized in the fiscal years ended January 28 2023 and January 29 2022 respectively for property plant and equipment assets and lease right of use assets related to underperforming stores and a corporate right of use asset and are included in SG A expenses in the Consolidated Statements of Operations and in impairment charges in the Consolidated Statements of Cash Flows Impairment char
corded within corporate unallocated during fiscal 2023 The remaining impairment charges were included in the VB Direct segment No such impairment charges were recorded in fiscal 2024 We are unable to predict the extent of the impact that the inflationary
environment or other macroeconomic factors will have on our operations the economy or other factors therefore it is possible additional impairments could be identified in future periods and such amounts could be material
During fiscal 2024 the Company continued the implementation of targeted cost reductions which are expected to be fully realized in fiscal 2025 Expense savings are being derived across various areas of the Company including retail store efficiencies marketing expenses inf
ormation technology contracts professional services logistics and operational costs and corporate payroll Refer to Note 16 to the Notes to the Consolidated Financial Statements herein for additional information regarding charges for cost savings initiatives and remaining liabilities as well as other charges not comparable with the prior year
We have been specifically impacted by higher tariffs from previously duty free countries where we source products as a result of the expiration of the Generalized System of Preferences GSP duty free status at the end of calendar year 2020 In addition the macroeconomic environment has been further challenged by inflationary pressures including high gas prices interest rates and other related factors that have impacted consumer discretionary spending We have also seen a trend of steeply increasing digital media costs
To mitigate some of these inflationary and supply chain pressures we implemented strategic price increases across both of our brands in late fiscal 2022 through fiscal 2024 We will continue to monitor our pricing as it relates to the current macroeconomic trends In addition in fiscal 2023 and 2024 we implemented targeted cost reductions across various areas of the Company including retail store efficiencies marketing expenses information technology contracts professional services logistics and operational costs and corporate payroll We will continue to review our expense structure in future years for additional cost reduction opportunities
We continue to actively monitor the changing macroeconomic circumstances and take mitigating actions where appropriate Ongoing macroeconomic pressures could have a material adverse effect on our liquidity operating results and financial condition
The extra week in fiscal 2024 contributed approximately 6 0 million in net revenues and added an estimated 0 01 to diluted net income per share in fiscal 2024 By segment the extra week contributed net revenues of approximately 2 8 million to Direct 2 1 million to Indirect and 1 1 million to Pura Vida in fiscal 2024
Comparable sales are calculated based upon stores that have been open for at least 12 full fiscal months and net revenues from e commerce operations Decrease is reported as a percentage of the comparable sales for the same period in the prior fiscal year Remodeled stores are included in comparable sales unless the store was closed for a portion of the current or comparable prior period in which case the non comparable temporary closure periods are not included or the remodel resulted in a significant change in square footage As a result of Vera Bradley retail stores being temporarily closed for approximately half of the first and second quarters of fiscal 2021 comparable sales were not meaningful and were
Dollars not in thousands Average net revenues per gross square foot are calculated by dividing total net revenues for our stores that have been open at least 12 full fiscal months as of the end of the period by total gross square footage for those stores Remodeled stores are included in average net revenues per gross square foot unless the store was closed for a portion of the period
sales as well as a 2 6 decrease in e commerce sales This comparable sales decrease was partially offset by sales from our stores with non comparable periods including three outlet stores that opened in the current fiscal year and the return of the Annual Outlet Sale
The decrease in comparable sales and comparable store sales was impacted by reduced traffic conversion and units sold primarily in the outlet channel These decreases were partially offset by price increases on certain merchandise in the current year Fiscal 2024 net revenues also include approximately 2 8 million attributed to the extra week in fiscal 2024
an increase in certain key account orders partially offset by a decline in sales to certain specialty partners Fiscal 2024 net revenues also include approximately 2 1 million attributed to the extra week in fiscal 2024
The decrease was primarily due to a decline of 10 4 million in e commerce sales due to a continued decline in social and digital media effectiveness as well as a decline of 3 5 million in wholesale sales These decreases were partially offset by an increase in retail store sal
r fiscal 2023 Fiscal 2024 gross profit as a percentage of net revenues was favorably impacted by lower year over year inventory reserve charges lower year over year inbound and outbound freight expense lower supply chain costs and the sell through of previously reserved inventory partially offset by an increase in promotional activity
consolidated SG A expenses for fiscal 2024 was primarily due to a decrease in employee related expenses of 6 4 million due to a reduction in headcount partially offset by an increase in incentive compensation a decrease in severance charges of 6 3 million which includes severance related to our CFO transition in the current year more than offset by the retirement severance related to our former CEO in the prior year a 4 2 million decrease in professional expenses a portion of which were associated with cost savings initiatives and other professional fees that did not recur in the current year 1 4 million related to store and lease right of use asset impairment charges in the prior year that did not recur in the current year and 5 2 million in other net expense reductions which included spending reductions related to information technology contracts visual merchandising and other expenses
lived Pura Vida brand intangible asset which is reflected within the Pura Vida segment A 69 3 million impairment charge of goodwill and intangible assets related to Pura Vida goodwill and the indefinite lived Pura Vida brand intangible asset was recorded in fiscal 2023 within the Pura Vida segment For additional information refer to
l 2023 The increase in net other income was primarily due to a legal settlement in the current year that did not occur in the prior year ticket sales from the Vera Bradley annual outlet sale and sublease income
The increase in operating income as a percentage of VB Direct segment net revenues was primarily due to an increase in gross margin as a percentage of net revenues as described above a decrease in employee related expenses due to closed stores and cost savings initiatives store impairment charges in the prior year that did not recur in the current year and a reduction in spending associated with merchandising professional fees and other variable expenses
The increase in operating income as a percentage of VB Indirect segment net revenues was due to an increase in gross margin as a percentage of net revenues as described above as well as decreased SG A expenses
and 2023 respectively The decrease in operating loss was primarily due to goodwill and indefinite lived Pura Vida brand impairment charges in fiscal 2023 of 44 3 million and 25 0 million respectively compared to Pura Vida brand impairment charges of 5 4 million in fiscal 2024 a decrease in marketing and advertising expenses a decrease in employee related expenses due to headcount reductions and cost savings initiatives and an increase in gross margin as a percentage of net revenues as described above
The decrease in corporate unallocated expenses was primarily due to a decrease in severance charges of 6 8 million which includes severance related to our CFO transition in the current year more than offset by the retirement severance related to our former CEO in the prior year a decrease of 4 3 million a portion of which were associated with cost savings initiatives and other professional fees that did not recur in the current year a reduction in employee related expenses of 2 9 million primarily related to lower headcount partially offset by an increase in incentive compensation 0 6 million for a lease right of use asset charge in the prior year that did not recur in the current year and 2 4 million in other net corporate expense reductions including a reduction in information technology contracts corporate advertising expense and other corporate expenses
The effective tax rate increase was primarily due to the relative impact of permanent and discrete items in the current year period compared to the prior year period primarily as a result of stock based compensation noncontrolling interest in the prior year period and non deductible executive compensation
For fiscal 2023 net loss attributable to redeemable noncontrolling interest was 19 6 million This represents the allocation of the Pura Vida net loss income to the noncontrolling interest On January 30 2023 we purchased the remaining 25 interest in Pura Vida resulting in 100 ownership As a result there was no noncontrolling interest for the current year period
Our primary sources of liquidity are cash and cash equivalents and cash flow from operations We also have access to additional liquidity if needed through borrowings under our 75 0 million asset based revolving credit agreement the Credit Agreement There was no debt outstanding under the Credit Agreement as of February 3 2024 Historically our primary cash needs have been for merchandise inventories payroll store rent capital expenditures associated with operational equipment buildings information technology and opening new stores and share repurchases The most significant components of our working capital are cash and cash equivalents merchandise inventories accounts receivable accounts payable and other current liabilities
We believe that cash and cash equivalents cash flows from operating activities and the availability of borrowings under our Credit Agreement or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures and other strategic uses of cash if any for the foreseeable future
The increase in cash provided by operating activities was primarily related to an increase in net income of 87 2 million and a non cash change in deferred income taxes of 19 4 million partially offset by a change in non cash impairments of 65 2 million An additional source of operating cash included changes in net working capital of 19 2 million Net working capital changes include an increase in sources of cash from inventories accounts receivable and accounts payable partially offset by increases in use of cash from prepaid expenses and other assets and income taxes
10 0 million partially offset by a decline in property plant and equipment spending primarily as a result of a lower amount of new store construction in the current year and Vera Bradley store relocations in the prior year that did not recur
Capital expenditures for fiscal 2025 are expected to be approximately 12 million to 14 million related to planned investments associated with new and remodeled stores and technology and logistics enhancements
On September 7 2018 Vera Bradley Designs Inc VBD a wholly owned subsidiary of the Company entered into an asset based revolving Credit Agreement the Credit Agreement among VBD JPMorgan Chase Bank N A as administrative agent and the lenders from time to time party thereto On August 3 2023 certain subsidiaries of the Company JP Morgan Chase Bank N A as the administrative agent and lenders from time to time party thereto entered into a Third Amendment the Third Amendment to the Credit Agreement The Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of 75 0 million or the amount of borrowing availability determined in accordance with a borrowing base of certain assets Borrowings under the credit facilities are available to finance general corporate purposes of VBD and its subsidiaries including but not limited to Vera Bradley International LLC Vera Bradley Sales LLC and Creative Genius LLC collectively the Named Subsidiaries The Credit Agreement also contains an option for VBD to arrange with lenders to increase the aggregate principal amount by up to 50 0 million
For further information regarding the Credit Agreement please see Note 6 of the Notes to Consolidated Financial Statements set forth in Part II Item 8 Financial Statements and Supplementary Data of this report
We may be subject to additional material cash requirements that are contingent upon certain events that have not yet occurred We expect to fund these cash requirements using cash on hand cash provided by our operations and to the extent necessary borrowings under our Credit Agreement
The preparation of financial statements in accordance with accounting principles generally accepted in the United States GAAP requires management to make estimates and assumptions that affect the reported amounts of our assets liabilities revenues and expenses as well as the disclosures relating to contingent assets and liabilities at the date of the consolidated financial statements We evaluate our accounting policies estimates and judgments on an on going basis We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances Actual results may differ from these estimates under different assumptions and conditions
We evaluate the development and selection of our critical accounting policies and estimates and believe that the following policies and estimates involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position and are therefore discussed as critical The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements With respect to critical accounting policies even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations Our historical results for the periods presented in the consolidated financial statements however have not been materially impacted by such variances More information on all of our significant accounting policies can be found in Note 2 Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements
Inventories are stated at the lower of cost or net realizable value Cost is determined using the first in first out FIFO method Appropriate consideration is given to obsolescence excess quantities and other factors including the popularity of a pattern or product in evaluating net realizable value We record valuation adjustments to our inventories which are reflected in cost of sales if the cost of specific inventory items on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory This adjustment calculation requires us to make assumptions and estimates which are based on factors such as merchandise seasonality historical trends and estimated sales and inventory levels including sell through of remaining units In addition as part of inventory adjustments we provide for inventory shrinkage based on historical trends from our physical inventory counts We perform physical inventory counts throughout the year and adjust the shrinkage provision accordingly
16 5 million for these matters as of the fiscal years ended February 3 2024 and January 28 2023 respectively The decrease in the balance was primarily related to the destruction of reserved product and the sell through of reserved inventory in fiscal 2024 The fiscal 2023 balance included adjustments for excess Pura Vida inventory and excess mask inventory the exit of certain technology products and valuation adjustments to write discounted inventory down to its net realizable value
We believe we have the ability to sell some of our retired finished goods through a number of channels including our Vera Bradley and Pura Vida websites the Vera Bradley online outlet site Vera Bradley outlet stores the Vera Bradley Annual Outlet Sale and through third party liquidators as needed
Property plant and equipment and operating right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable In evaluating an asset group for recoverability we estimate the future cash flows expected to result from the use of the asset group at the store level the lowest identifiable level of cash flow if applicable If the sum of the estimated undiscounted future cash flows related to the asset group is less than the carrying value we recognize a loss equal to the difference between the carrying value and the fair value usually determined by an estimated discounted cash flow analysis of the asset Factors used in the valuation of long lived assets include but are not limited to our plans for future operations brand initiatives recent operating results and projected future cash flows With respect to our stores we analyze store economics location within the shopping center the size and shape of the space and desirable co tenancies in our selection process
Impairment charges are classified in SG A expenses and were 1 4 million and 0 1 million for the periods ended January 28 2023 and January 29 2022 respectively No impairment charges were recorded in fiscal 2024
The discounted cash flow models used to estimate the applicable fair values involve numerous estimates and assumptions that are highly subjective Changes to these estimates and assumptions could materially impact the fair value estimates The estimates and assumptions critical to the overall fair value estimates include 1 estimated future cash flow generated at the store level 2 discount rates used to derive the present value factors used in determining the fair values and 3 market rentals at the retail store These and other estimates and assumptions are impacted by economic conditions and our expectations and may change in the future based on period specific facts and circumstances If economic conditions were to deteriorate future impairment charges may be required
The Pura Vida customer relationship a definite lived intangible asset is amortized over its estimated useful life and is also subject to impairment testing similar to the Company s other long lived assets
Our annual intangible asset impairment test may be completed through a qualitative assessment to determine if the fair value of the Pura Vida brand is more likely than not greater than the carrying amount If we elect to bypass the qualitative assessment or if a qualitative assessment indicates it is more likely than not that the estimated carrying value exceeds the fair value we test for impairment using a quantitative process Our quantitative process includes comparing the carrying value to the fair value of the Pura Vida brand with any excess recognized as an impairment loss Fair value is estimated using a relief from royalty method The estimates and assumptions used in the determination of the fair value of the Pura Vida brand include the projected revenue growth long term growth rate the royalty rate and discount rate
6 2 million The Company performed a quantitative analysis of the Pura Vida brand for the annual impairment test in the second quarter of fiscal 2024 at which time no impairment was recorded Subsequent to the annual impairment test due to triggering events the Company performed an additional quantitative analysis and recorded an impairment charge of 5 4 million in the fourth quarter of fiscal 2024 further described in Note 15 herein
For the annual impairment analysis performed during fiscal 2023 the Company performed a quantitative analysis as well as subsequent analyses due to triggering events further described in Note 15 of the Notes to the Consolidated Financial Statements herein Impairment charges of 44 3 million and 25 0 million were recorded during fiscal 2023 for goodwill and the Pura Vida brand respectively
The estimated fair value of the Pura Vida brand is subject to change as a result of many factors including changing economic conditions Should actual and estimated cash flows change from the estimates we used in our fiscal 2024 impairment analysis we may record additional impairment charges in future years
We are subject to interest rate risk in connection with borrowings under our asset based revolving credit agreement the Credit Agreement The Credit Agreement allows for a revolving credit commitment of 75 0 million bearing interest at a variable rate based on a per annum rate equal to either i for CBFR borrowings including swingline loans the CB Floating Rate where the CB Floating Rate is the greater of the prime rate or 2 5 plus the Applicable Rate where the Applicable Rate is a percentage spread ranging from 1 25 to 1 50 ii for each Term Benchmark Borrowing the Adjusted Term SOFR Rate where the Adjusted Term SOFR Rate is the Term SOFR rate for such interest period plus 0 10 for the interest period in effect for such borrowing plus the Applicable Rate where the Applicable Rate is a percentage ranging from 1 25 to 1 50 or iii for RFR Loans the Adjusted Daily Simple SOFR Rate where the Adjusted Daily Simple SOFR Rate is equal to the Daily Simple SOFR plus 0 10 plus the Applicable Rate where the Applicable Rate is a percentage ranging from 1 25 to 1 50 The applicable CB Floating Rate Adjusted Term SOFR Rate Term SOFR Rate Daily Simple SOFR and Adjusted Daily Simple SOFR shall be determined by the administrative agent Assuming borrowings available under the Credit Agreement are fully extended at 75 0 million each quarter point increase or decrease in the interest rate would change our annual interest expense by approximately 0 2 million
We source a majority of our finished goods from various suppliers primarily in Cambodia Vietnam Indonesia El Salvador China and the Philippines Substantially all purchases and sales involving foreign persons are denominated in U S dollars and therefore we do not hedge using any derivative instruments Historically we have not been impacted materially by changes in exchange rates
We have audited the accompanying consolidated balance sheets of Vera Bradley Inc and subsidiaries the Company as of February 3 2024 and 2023 the related consolidated statements of operations comprehensive income loss shareholders equity and cash flows for each of the three years in the period ended February 3 2024 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of February 3 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended February 3 2024 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of February 3 2024 based on criteria established in
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 29 2024 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or was required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates
The Company s quantitative analysis of the indefinite lived Pura Vida brand asset Pura Vida brand for impairment involves the comparison of the fair value of the Pura Vida brand asset to its carrying value The Company used the relief from royalty method to estimate the fair value of the Pura Vida brand which required management to make significant estimates and assumptions related to the projected revenue growth royalty rate and discount rate The carrying value of the Pura Vida brand was 6 2 million as of February 3 2024 The carrying value of the Pura Vida brand exceeded the fair value during fiscal 2024 and therefore impairment of 5 4 million was recognized during the year ended February 3 2024
We identified the impairment analysis of the Pura Vida brand as a critical audit matter because of the significant judgments made by management to estimate the fair value of this indefinite lived asset This required a high degree of auditor judgment and an increased extent of effort including the need to involve our fair value specialists when performing audit procedures to evaluate the reasonableness of management s estimates and assumptions particularly related to the projected revenue growth royalty rate and discount rate
1 We tested the effectiveness of controls over management s brand impairment analysis including those over the determination of the fair value such as controls related to management s forecasts of projected revenue growth selection of royalty rate and selection of discount rates
3 We evaluated the reasonableness of management s projected revenue growth by comparing the forecasts to 1 historical results 2 internal communications to management and the Board of Directors and 3 forecasted information included in industry reports
issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of February 3 2024 based on criteria established in
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements as of and for the year ended February 3 2024 of the Company and our report dated March 29 2024 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Vera Bradley Inc operates two unique lifestyle brands Vera Bradley and Pura Vida We believe Vera Bradley and Pura Vida are complementary businesses both with devoted emotionally connected and multi generational female customer bases alignment as casual comfortable affordable and fun brands positioning as gifting and socially connected brands strong entrepreneurial cultures a keen focus on community charity and social consciousness multi channel distribution strategies and talented leadership teams aligned and committed to the long term success of their brands
Vera Bradley is a leading designer of women s handbags luggage and travel items fashion and home accessories and unique gifts Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R Miller the brand s innovative designs iconic patterns and brilliant colors continue to inspire and connect women
In July 2019 Vera Bradley Inc acquired a 75 interest in Creative Genius Inc which also operates under the name Pura Vida Bracelets Pura Vida On January 30 2023 the Company purchased the remaining 25 interest in Pura Vida Pura Vida based in La Jolla California is a digitally native lifestyle brand that has a differentiated and expanding offering of bracelets jewelry and other lifestyle accessories
The VB Direct business consists of sales of Vera Bradley products through Vera Bradley full line and outlet stores in the United States verabradley com outlet verabradley com and typically the Vera Bradley annual outlet sale in Fort Wayne Indiana As of February 3 2024 the Company operated 43 full line stores and 81 outlet stores In light of the COVID 19 pandemic the Company cancelled its calendar year 2022 and 2021 annual outlet sales The sale resumed in calendar year 2023
The VB Indirect business consists of sales of Vera Bradley products to approximately 1 600 specialty retail locations substantially all of which are located in the United States as well as department stores national accounts third party e commerce sites third party inventory liquidators and royalties recognized through licensing agreements related to the Vera Bradley brand
The Pura Vida segment represents revenues generated through the Pura Vida websites www puravidabracelets com www puravidabracelets ca and www puravidabracelets eu the distribution of Pura Vida branded products to wholesale retailers substantially all of which are located in the United States and through its five retail stores
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries including Pura Vida The Company has eliminated intercompany balances and transactions in consolidation
The Company utilizes a 52 53 week fiscal year ended on the Saturday closest to January 31 As such fiscal year 2024 ending on February 3 2024 reflected a 53 week period Fiscal years 2023 and 2022 ending on January 28 2023 and January 29 2022 respectively each reflected a 52 week period
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America GAAP requires management to make estimates and assumptions that affect the reported amounts of the Company s assets liabilities revenues and expenses as well as the disclosures relating to contingent assets and liabilities at the date of the consolidated financial statements Significant areas requiring the use of management estimates include the valuation of inventories valuation of long lived assets including operating right of use assets valuation of goodwill and indefinite lived intangible assets accounts receivable valuation allowances and sales return allowances Actual results
Inventories are stated at the lower of cost or net realizable value Cost is determined using the first in first out FIFO method Appropriate consideration is given to obsolescence excess quantities and other factors including the popularity of a pattern or product in evaluating net realizable value Substantially all inventory relates to finished goods
The Company recognizes depreciation and amortization expense within cost of sales for expenditures related to distribution center sourcing and other related functions and selling general and administrative expenses for all other expenditures Leas
When a decision is made to abandon property plant and equipment prior to the end of the previously estimated useful life depreciation or amortization estimates are revised to reflect the use of the asset over the shortened estimated useful life At the time of disposal the cost of assets sold or retired and the related accumulated depreciation or amortization are removed from the accounts and any resulting loss is included in the Consolidated Statements of Operations
Property plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset groups may not be recoverable The reviews are conducted at the lowest identifiable level of cash flows which is at the retail store level for store related assets If the estimated undiscounted future cash flows related to the property plant and equipment and operating right of use assets are less than the carrying value the Company recognizes a loss equal to the difference between the carrying value and the fair value as further defined below in Fair Value of Financial Instruments
The Company capitalizes certain costs incurred in connection with acquiring modifying and installing internal use software Capitalized costs are included in property plant and equipment and are amortized over three to five years Software costs that do not meet capitalization criteria are expensed as incurred
Vera Bradley and Pura Vida product sales to customers including amounts billed to customers for shipping fees as well as royalties from licensing arrangements related to the Vera Bradley brand are included in net revenues Costs related to shipping of product are classified in cost of sales in the Consolidated Statements of Operations The Company has elected to treat shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the product rather than as an additional promised service Net revenues exclude sales taxes collected from customers and remitted to governmental authorities from the transaction price
Revenue from the sale of the Company s products is recognized when control of the promised goods or services is transferred to customers in the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services Revenue is recognized using the five step model These steps are i identify the contract with the customer ii identify the performance obligations iii determine the transaction price iv allocate the transaction price to each performance obligation and v recognize revenue as the performance obligations are satisfied
The Company collects payment at the point of sale for Vera Bradley and Pura Vida full line and outlet store transactions upon shipment for Vera Bradley e commerce transactions and upon purchase for Pura Vida e commerce transactions The Company generally collects payment in arrears in accordance with established payment terms for each customer within the VB Indirect segment and for Pura Vida wholesale retailers
Historical experience provides the Company the ability to reasonably estimate the amount of product sales that customers will return Product returns are often resalable through multiple channels Additionally the Company reserves for customer allowances for certain VB Indirect retailers based upon various contract terms and other potential product credits granted to VB Indirect retailers
The Company establishes an allowance for doubtful accounts based on historical experience and customer specific identification and believes that collections of receivables net of the allowance for doubtful accounts are reasonably assured The allowance for doubtful accounts was approxima
Cost of sales includes material and labor costs freight inventory shrinkage operating lease costs duty and other operating expenses including depreciation of the Vera Bradley distribution center and equipment Costs and related expenses to purchase and distribute the products are recorded as cost of sales when the related revenues are recognized
The Company recognizes lease liabilities at the lease commencement date based upon the present value of the remaining lease payments Operating right of use assets are based on the lease liability adjusted for prepaid rent deferred rent and tenant allowances received from certain of the Company s landlords primarily for its retail store locations
Operating lease liabilities are amortized based upon the effective interest method Operating right of use assets are amortized based upon the straight line lease expense less interest on the lease liability Operating lease expense is recognized on a straight line basis over the lease term Variable rent expense is recognized in the period incurred
Operating right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable The reviews are conducted at the lowest identifiable level of cash flows which is at the retail store level for store related assets If the estimated undiscounted future cash flows related to the operating right of use assets are less than the carrying value the Company recognizes a loss equal to the difference between the carrying value and the fair value as further defined below in Fair Value of Financial Instruments
The Company charges costs associated with the opening of new stores to selling general and administrative expenses as incurred Selling general and administrative expenses also include store operating costs store employee compensation and store occupancy and supply costs
In connection with a business combination the Company records the identifiable assets acquired liabilities assumed contingent consideration liabilities if any and any noncontrolling interest in the acquiree at their acquisition date fair values Goodwill is measured indirectly as the excess of the sum of 1 the consideration transferred including contingent consideration if any and 2 the fair value of any noncontrolling interest in the acquiree over the net assets acquired and liabilities assumed
These fair value assessments require management judgment and include the use of significant estimates and assumptions including future cash flows discount and other market rates and asset lives among other items
The Pura Vida customer relationship a definite lived intangible asset is amortized over its estimated useful life and is also subject to impairment testing similar to the Company s other long lived assets
We test the Pura Vida brand for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired Our annual impairment test may be completed through a qualitative assessment to determine if the fair value of the Pura Vida brand is more likely than not greater than the carrying amount If we elect to bypass the qualitative assessment or if a qualitative assessment indicates it is more likely than not that the estimated carrying value exceeds the fair value we test for impairment using a quantitative process Our quantitative process includes comparing the carrying value to the fair value of the Pura Vida brand with any excess recognized as an impairment loss Fair value is estimated using a relief from royalty method The estimates and assumptions used in the determination of the fair value of the Pura Vida brand include the projected revenue growth long term growth rate the royalty rate and discount rate
6 2 million For the annual impairment analysis performed in the second quarter of fiscal 2024 the Company performed a quantitative analysis and no impairment was recorded Subsequent to the annual impairment test the Company performed an additional quantitative analysis of the carrying value of the Pura Vida brand due to triggering events and recorded an impairment charge of 5 4 million during the fourth quarter of fiscal 2024 further described in Note 15 herein
For the annual impairment analysis performed during fiscal 2023 the Company performed a quantitative analysis as well as subsequent analyses due to triggering events further described in Note 15 herein Impairment charges of 44 3 million and 25 0 million were recorded during fiscal 2023 for goodwill and the Pura Vida brand respectively
The estimated fair value of the Pura Vida brand is subject to change as a result of many factors including changing economic conditions Should actual and estimated cash flows change from the estimates we used in our fiscal 2024 impairment analysis we may record additional impairment charges in future years
On July 16 2019 as contemplated by the Interest Purchase Agreement the Company and certain of its subsidiaries and the owners of the remaining twenty five percent 25 ownership interest in Pura Vida the Sellers which was not acquired by the Company the Remaining Pura Vida Interest entered into a Put Call Agreement the Put Call Agreement Pursuant to the Put Call Agreement and subject to the terms and conditions thereof the Sellers had the right to sell all of the Remaining Pura Vida Interest to the Company and the Company had the right to purchase all of the Remaining Pura Vida Interests from Sellers in each case generally at any time following the fifth anniversary of the closing date of the transaction until the tenth anniversary thereof The purchase price for any Remaining Pura Vida Interest put to or called
by the Company was determined based on the arithmetic average of a multiple of adjusted EBITDA of Pura Vida and a multiple of adjusted EBITDA of the Company as defined in the Put Call Agreement over the twelve month period ending on the last day of the month immediately preceding the month in which an exercise notice was delivered by a relevant party In the event of a change in control of the Company the parties had the right to exercise a portion of their put and call rights prior to the fifth anniversary of the closing date as defined in the Put Call Agreement
As a result of this redemption feature the Company recorded the noncontrolling interest as redeemable and classified it in temporary equity within its Consolidated Balance Sheets initially at its acquisition date fair value The noncontrolling interest was adjusted each reporting period for income or loss attributable to the noncontrolling interest A measurement period adjustment if any was then made to adjust the noncontrolling interest to the higher of the redemption value or carrying value each reporting period These adjustments were recognized through retained earnings and were not reflected in net income or net income attributable to Vera Bradley Inc When calculating earnings per share attributable to Vera Bradley Inc the Company adjusted net income attributable to Vera Bradley Inc for the measurement period adjustment to the extent the redemption value exceeds the fair value of the noncontrolling interest on a cumulative basis The fair value of the noncontrolling interest was estimated using a combination of the income approach a discounted cash flow analysis and the market approach utilizing the guideline company method The reporting unit s discounted cash flow analysis required significant management judgment with respect to revenue total direct costs selling general and administrative expenses capital expenditures and the selection and use of an appropriate discount rate The projected revenue and expense assumptions and capital expenditures were based on our annual and long term business plans Discount rates reflected market based estimates of the risks associated with the projected cash flows directly resulting from the use of those assets in operations
On January 23 2023 the Company and certain of its subsidiaries entered into an Interest Purchase Agreement the Interest Purchase Agreement with Creative Genius Holdings Inc a California corporation Creative Genius Investments Inc a California corporation Griffin Thall and Paul Goodman collectively Sellers to purchase the remaining 25 of the outstanding membership interests the Remaining Pura Vida Interests of Pura Vida The closing date of the Transaction was January 30 2023
Pursuant to the Interest Purchase Agreement and subject to the terms and conditions thereof on the closing date the Company indirectly acquired the Remaining Pura Vida Interests the Transaction in exchange for cash consideration consisting of approximately 10 million payable at closing subject to certain adjustments The Transaction was not subject to financing conditions The Company s existing available cash and cash equivalents funded the purchase price Following completion of the Transaction the Company owned one hundred percent 100 of the ownership interests in Pura Vida The Interest Purchase Agreement also included certain non competition and customer supplier and employee non solicitation and non interference covenants from the Sellers in favor of the Company during the four year period beginning on the closing date of the Transaction
The Interest Purchase Agreement provides that as of the closing of the Transaction all rights and obligations of the Company and the Sellers under any agreements among the parties including the Put Call Agreement were terminated
As a result of the Transaction the Company recorded a decrease to redeemable noncontrolling interest of 10 7 million The difference between the fair value of the consideration paid and the balance of the redeemable noncontrolling interest resulted in 0 7 million recognized in additional paid in capital APIC during fiscal 2024 In addition there was an APIC adjustment of 0 6 million related to deferred income taxes for the purchase of the redeemable noncontrolling interest The total APIC adjustment for this matter during fiscal 2024 was 1 3 million
Under these provisions for its awards of restricted stock and restricted stock units the Company recognizes stock based compensation expense in an amount equal to the fair market value of the underlying stock on the grant date of the respective award The Company recognizes this expense net of estimated forfeitures on a straight line basis over the requisite service period
The Company expenses advertising costs at the time the promotion first appears in media in stores or on its websites and includes those costs in selling general and administrative expenses in the Consolidated Statements of Operations
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Assets and liabilities measured at fair value are classified using the following hierarchy which is based upon the transparency of inputs to the valuation as of the measurement date
The carrying amounts reflected on the Consolidated Balance Sheets for cash and cash equivalents accounts receivable and accounts payable as of February 3 2024 and January 28 2023 approximated their fair values
1 Cash equivalents primarily represent money market funds that have a maturity of three months or less at the date of purchase Due to its short maturity the Company believes the carrying value approximates fair value
The Company assesses potential impairments to its long lived assets which includes property plant and equipment and lease right of use assets on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable Store level assets and right of use assets are grouped at the individual store level for the purpose of the impairment assessment Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the asset group If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group The fair value of the store assets is determined using the discounted future cash flow
method of anticipated cash flows through the store s lease end date using fair value measurement inputs classified as Level 3 The fair value of right of use assets is estimated using market comparative information for similar properties Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable The Company recorded
impairment charges primarily related to store assets including property plant and equipment and lease right of use assets during the fiscal years ended January 28 2023 and January 29 2022 respectively No impairment charges were recorded in fiscal 2024 for long lived assets
Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property plant and equipment including leasehold improvements and operating lease assets as well as assets related to the Pura Vida acquisition including goodwill and intangible assets These assets are measured at fair value if determined to be impaired Refer to Note 15 herein regarding the Pura Vida Brand impairment test and fiscal 2024 impairments charges and the 2023 Pura Vida Brand and goodwill impairment test and fiscal 2023 impairment charges
The discounted cash flow models used to estimate the applicable fair values involve numerous estimates and assumptions that are highly subjective Changes to these estimates and assumptions could materially impact the fair value estimates The estimates and assumptions critical to the overall fair value estimates include 1 estimated future cash flow generated at the
store level 2 discount rates used to derive the present value factors used in determining the fair values and 3 market rentals at the retail store These and other estimates and assumptions are impacted by economic conditions and our expectations and may change in the future based on period specific facts and circumstances If economic conditions were to deteriorate future impairment charges may be required which may be material
The Company accrues income taxes payable or refundable and recognizes deferred tax assets and liabilities based on differences between the book and tax bases of assets and liabilities The Company measures deferred tax assets and liabilities using enacted rates in effect for the years in which the differences are expected to reverse and recognizes the effect of a change in enacted rates in the period of enactment
When measuring deferred tax assets the Company considers both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets will be realized This evidence includes recent operating results projected future taxable income the reversal of existing taxable differences tax planning strategies among other factors When necessary a valuation allowance is recorded to reduce the deferred tax assets to their anticipated realizable value
The Company establishes liabilities for uncertain positions taken or expected to be taken in income tax returns using a more likely than not recognition threshold The Company includes in income tax expense any interest and penalties related to uncertain tax positions
The Company capitalizes implementation costs associated with its Cloud Computing Arrangements CCA consistent with costs capitalized for internal use software The CCA costs are amortized over the term of the related hosting agreement taking into consideration renewal options if any The renewal period is included in the amortization period if determined that the option is reasonably certain to be exercised The amortization expense is recorded within selling general and administrative expenses in the Company s Consolidated Statements of Operations which is within the same line item as the related hosting fees The balance of the unamortized CCA implementation costs totaled 3 8 million and 6 4 million as of February 3 2024 and January 28 2023 respectively Of this total 2 8 million and 3 0 million was recorded within prepaid expenses and other current assets and 1 0 million and 3 4 million was recorded within other assets on the Company s Consolidated Balance Sheets as of February 3 2024 and January 28 2023 respectively The CCA implementation costs are recorded within operating activities in the Company s Consolidated Statements of Cash Flows
In October 2023 the Financial Accounting Standards Board FASB issued ASU 2023 06 Disclosure Improvements The amendments in this update modify the disclosure or presentation requirements of a variety of topics in the codification Certain of the amendments represent clarifications to or technical corrections of the current requirements The amendments in this ASU are effective for public business entities for interim periods beginning after June 30 2027 The Company is currently evaluating the impacts of the provisions of ASU 2023 06
In November 2023 the FASB issued ASU 2023 07 Improvements to Reportable Segment Disclosures This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker CODM and included within each reported measure of a segment s profit or loss This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment s profit or loss in assessing segment performance and deciding how to allocate resources The ASU is effective for annual periods beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024 Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements Early adoption is also permitted This ASU will likely result in additional required disclosures when adopted The Company is currently evaluating this guidance to determine the impact on its disclosures however adoption will not impact our consolidated financial statements
In December 2023 the FASB issued ASU 2023 09 Improvements to Income Tax Disclosures This ASU establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements Under the new guidance entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation They must also further disaggregate income taxes paid The new standard is effective for fiscal years
beginning after December 15 2024 with retrospective application permitted The Company is currently evaluating this guidance to determine the impact on its disclosures however adoption will not impact our consolidated financial statements
The following presents the Company s net revenues disaggregated by product category for the fifty three weeks ended February 3 2024 and fifty two weeks ended January 28 2023 and January 29 2022 in thousands
respectively The balance consisted of unredeemed gift cards unearned revenue related to the monthly bracelet and jewelry clubs of the Pura Vida segment Pura Vida loyalty club points and Pura Vida customer deposits and payments collected before shipment These contract liabilities are recognized within other accrued liabilities on the Company s Consolidated Balance Sheets Substantially all contract liabilities are recognized within one year The Company did
The performance obligations for the VB Direct VB Indirect and Pura Vida segments include the promise to transfer distinct goods or a bundle of distinct goods The VB Indirect segment also includes the right to access intellectual property IP related to the Vera Bradley brand
In the Vera Bradley and Pura Vida retail stores recognized within the VB Direct segment and the Pura Vida segments control is transferred and net revenue is recognized at the point of sale Product shipments for the Company s e commerce channels recognized within the VB Direct and Pura Vida segments and shipments to its wholesale retailers recognized within the VB Indirect segment and Pura Vida segment are generally shipped Free on Board FOB shipping point
typically from its distribution center in Roanoke Indiana for Vera Bradley products and primarily from its third party fulfillment center in Tijuana Mexico for Pura Vida products Net revenue is recognized upon shipment consistent with when control is transferred to the customer Upon shipment the customer has the right to direct the use of and obtain substantially all of the benefits from the product
The Company grants rights to access its Vera Bradley IP and accounts for any resulting sales based royalty revenue over time as the subsequent sales occur The Company has contractually guaranteed minimum royalties in certain of its sales based royalty arrangements which are recognized straight line over the remaining license period once determined that the minimum sales level will not be achieved Licensing royalties are recognized within VB Indirect segment net revenues
The transaction price is the amount of consideration the Company expects to be entitled to in a sales transaction The transaction price is net of discounts estimated variable consideration if any and any customer allowances offered or estimated including those offered to certain Indirect retailers based on various contract terms The transaction price also is net of allowances for product returns which the Company is able to reasonably estimate based upon historical experience The transaction price is allocated to each performance obligation in the contract based upon the standalone selling price
Sales commissions are paid to certain employees based upon specific sales achieved during a time period As the Company s contracts related to these sales commissions do not exceed one year these incentive payments are expensed as incurred
The Company does not adjust for the time value of money as the majority of its contracts have an original expected duration of one year or less contracts that are greater than one year are related to net revenues that are constrained until the subsequent sales occur The net revenues associated with these contracts are immaterial and the Company does not adjust for the time value of money
The Company has operating leases at all of its Vera Bradley and Pura Vida retail stores including storage spaces as well as for its New York office the California Pura Vida office Asia sourcing office and showrooms The Company does not have residual value guarantees restrictions or covenants imposed by leases
Retail store leases have remaining terms of up to 10 years as of February 3 2024 These leases generally have early termination rights when certain sales thresholds are not met for a specified measurement period The Company s other leases generally have remaining terms of up to approximately three years as of February 3 2024 If the lease contains a renewal period at the Company s option the renewal period is included in the lease term if determined the option is reasonably certain to be exercised at lease commencement The Company s lease options generally do not include termination rights other than those mentioned The Company did not have financing leases as of February 3 2024
The Company s retail store leases contain variable rental payments based on each location s monthly gross sales the majority of which have specified sales breakpoints In addition the majority of the Company s leases contain real estate taxes common area maintenance and similar items that are billed as pass through charges from its landlords These rental payments are not included in the measurement of the lease liability but are recognized as variable lease cost in the period incurred
Certain of the Company s leases also contain lease components with increases based upon an index or rate These lease components are included on the Company s balance sheet at the rate as of lease commencement Future changes in the index or rate will generally be included as variable lease cost
The Company determines whether a contract is or contains a lease at the inception of the contract The contract is or contains a lease if the contract conveys the right to control the use of identified property plant or equipment for a period of time in exchange for consideration The Company generally must also have the right to obtain substantially all of the economic benefits from use of the property plant and equipment and have the right to direct its use
respectively The discount rate is not readily determinable in the lease therefore the Company estimated the incremental borrowing rate at the commencement or remeasurement date of each lease which is the rate of interest it would have to borrow on a collateralized basis over a similar term with similar payments
As of February 3 2024 the Company had one lease which was executed but for which it did not have control of the underlying asset therefore the lease liability and right of use asset are not recorded on the Condensed Consolidated Balance Sheet This lease contain undiscounted lease payments which will be included in the determination of the lease liability totaling approximately 0 8 million and has a term of approximately 5 years commencing in fiscal year 2025
The following lease expense is recorded within cost of sales for the Asia sourcing office and certain equipment leases and within selling general and administrative expenses for all other leases including retail store leases in the Company s Consolidated Statements of Operations for the fiscal years ended February 3 2024 January 28 2023 and January 29 2022 in thousands
On September 7 2018 Vera Bradley Designs Inc VBD a wholly owned subsidiary of the Company entered into an asset based revolving Credit Agreement the Credit Agreement among VBD JPMorgan Chase Bank N A as administrative agent and the lenders from time to time party thereto On
August 3 2023 certain subsidiaries of the Company JP Morgan Chase Bank N A as the administrative agent and lenders from time to time party thereto entered into a Third Amendment the Third Amendment to the Credit Agreement dated September 7 2018
The Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of 75 0 million or the amount of borrowing availability determined in accordance with a borrowing base of certain assets Any proceeds of the credit facilities will be used to finance general corporate purposes of VBD and its subsidiaries including but not limited to Vera Bradley International LLC Vera Bradley Sales LLC and Creative Genius LLC collectively the Named Subsidiaries The Credit Agreement also contains an option for VBD to arrange with lenders to increase the aggregate principal amount by up to 50 0 million
Amounts outstanding under the Credit Agreement bear interest at a per annum rate equal to i for CBFR borrowings including swingline loans the CB Floating Rate where the CB Floating Rate is the greater of the prime rate or 2 5 plus the Applicable Rate where the Applicable Rate is a percentage spread ranging from 1 25 to 1 50 ii for each Term Benchmark Borrowing the Adjusted Term SOFR Rate where the Adjusted Term SOFR Rate is the Term SOFR rate for such interest period plus 0 10 for the interest period in effect for such borrowing plus the Applicable Rate where the Applicable Rate is a percentage ranging from 1 25 to 1 50 or iii for RFR Loans the Adjusted Daily Simple SOFR Rate where the adjusted Daily Simple SOFR Rate is equal to the Daily Simple SOFR plus 0 10 plus the Applicable Rate where the Applicable Rate is a percentage ranging from 1 25 to 1 50 The applicable CB Floating Rate Adjusted Term SOFR Rate Term SOFR Rate Daily Simple SOFR and Adjusted Daily Simple SOFR shall be determined by the administrative agent The Credit Agreement also requires VBD to pay a commitment fee for the unused portion of the revolving facility of up to 0 30 per annum
VBD s obligations under the Credit Agreement are guaranteed by the Company and the Named Subsidiaries The obligations of VBD under the Credit Agreement are secured by substantially all of the respective assets of VBD the Company and the Named Subsidiaries and are further secured by the equity interests in VBD and the Named Subsidiaries
The Credit Agreement contains various affirmative and negative covenants including restrictions on the Company s ability to incur debt or liens engage in mergers or consolidations make certain investments acquisitions loans and advances sell assets enter into certain swap agreements pay dividends or make distributions or make other restricted payments engage in certain transactions with affiliates and amend modify or waive any of its rights related to subordinated indebtedness and certain charter and other organizational governing and material agreements The Company may avoid certain of such restrictions by meeting payment conditions defined in the Credit Agreement
The Credit Agreement also requires the loan parties as defined in the Credit Agreement to maintain a minimum fixed charge coverage ratio of 1 00 to 1 00 during periods when borrowing availability is less than the greater of A 9 4 million and B 12 5 of the lesser of i the aggregate revolving commitment and ii the borrowing base The fixed charge coverage ratio availability aggregate revolving commitment and the borrowing base are further defined in the Credit Agreement
The Credit Agreement contains customary events of default including among other things i the failure to pay any principal interest or other fees under the Credit Agreement ii the making of any materially incorrect representation or warranty iii the failure to observe or perform any covenant condition or agreement in the Credit Agreement or related agreements iv a cross default with respect to other material indebtedness v bankruptcy and insolvency events vi unsatisfied material final judgments vii Employee Retirement Income Security Act of 1974 ERISA events that could reasonably be expected to have a material adverse effect and viii a change in control as defined in the Credit Agreement
Deferred income taxes reflect the net tax effects of temporary differences between the book and tax bases of assets and liabilities Significant components of deferred tax assets and liabilities were as follows in thousands
The Company considered both positive and negative evidence to determine whether it was more likely than not that some or all of the deferred tax assets would not be realized in its valuation allowance assessment Based on this assessment
As of February 3 2024 the Company had an immaterial amount of total unrecognized tax benefits net of federal benefit that would if recognized favorably affect the effective tax rate in future periods Total unrecognized tax benefits are currently not expected to decrease by a significant amount in the next twelve months The Company recognized an immaterial amount of interest only no penalties related to unrecognized tax benefits in the fiscal years ended January 28 2023 and January 29 2022 Unrecognized tax benefits are included within other long term liabilities in the Company s Consolidated Balance Sheets
The Company files income tax returns in the U S federal jurisdiction and various U S state and foreign jurisdictions The Company is subject to U S federal income tax examinations for fiscal years 2021 and forward With a few exceptions the Company is subject to audit by various state and foreign taxing authorities for fisc
The majority of time based restricted stock units vest and settle in shares of the Company s common stock on a one for one basis in equal installments on each of the first three anniversaries of the grant date Restricted stock unit awards issued to non employee directors vest after a one year period from the grant date The Company recognizes the expense relating to these awards net of estimated forfeitures on a straight line basis over the vesting period
The majority of performance based restricted stock units vest upon the completion of a three year period of time cliff vesting subject to the employee s continuing employment throughout the three year performance period and the Company s achievement of annual earnings per share targets or other Company performance targets during the three year performance period The Company recognizes the expense relating to these units net of estimated forfeitures and based on the probable outcome of achievement of the financial targets on a straight line basis over the vesting period
of total unrecognized compensation cost net of estimated forfeitures related to nonvested restricted stock units That cost is expected to be recognized over a weighted average period of 1 8 years subject to meeting performance conditions The total fair value of restricted stock units for which restrictions lapsed vested during fiscal 2024 was 3 9 million
The Company is subject to various claims and contingencies arising in the normal course of business including those relating to product liability legal claims employee benefits environmental issues and other matters Management believes that at this time it is not probable that any of these claims will have a material adverse effect on the Company s financial condition results of operations or cash flows However the outcomes of legal proceedings and claims brought against the Company are subject to uncertainty and future developments could cause these actions or claims individually or in the aggregate to have a material adverse effect on the Company s financial condition results of operations or cash flows of a particular reporting period
In August of 2019 Vesi Incorporated Vesi filed suit against the Company in the U S District Court for the Southern District of Ohio related to the Company s licensing business and alleging breach of fiduciary duty unfair competition defamation and tortious interference with prospective business relationships The complaint seeks damages in an amount not less than 10 0 million for punitive damages attorney fees prejudgment interest and any other additional relief The Company has denied any liability and intends to vigorously defend itself in the case In November 2019 the Company filed a counterclaim against the principals of Vesi as personal guarantors for monies owed to the Company by Vesi The Company filed a motion for summary judgement asking the Court to dismiss all claims with prejudice and grant judgement on its counterclaim On January 4 2023 the Court granted the Company s motion for summary judgment dismissing Vesi s claims and also granted judgment on the Company s counterclaims against the principals of Vesi for an immaterial amount Vesi appealed this decision On November 9 2023 the United States Court of Appeals for the Sixth Circuit issued an opinion affirming the District Court s judgment in favor of the Company dismissing Vesi s claims and granting the Company s counterclaims
The Company is subject to other legal proceedings from time to time in the ordinary course of business but does not believe any of these such claims would have a material adverse impact on the Company at this time
The Company has a 401 k profit sharing plan and trust for all qualified employees and provides a 100 match for the first 3 of employee contributions and a 50 match for the next 2 of employee contributions for a maximum Company match of 4 of employee contributions limited to the annual legal allowable limit Additionally the Company has the option of making discretionary profit sharing payments to the plan as approved by the board of directors As of February 3 2024 January 28 2023 and January 29 2022
ionary profit sharing payments had been approved The Company recognizes 401 k Company contributions within cost of sales for employees related to distribution center sourcing and other related functions and selling general and administrative expenses for all other employees Total Company contributions to the plan were as follows in thousands
The Vera Bradley Foundation for Breast Cancer the Foundation was founded by one of the Company s directors who is also on the board of directors of the Foundation The liability associated with commitments to the Foundation was approximately
Basic net income loss per share is computed based on the weighted average number of shares of common stock outstanding during the period Diluted net income per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method Dilutive potential common shares include outstanding restricted stock and restricted stock units The components of basic and diluted net income loss per
As of February 3 2024 there were an immaterial number of additional shares issuable upon the vesting of restricted stock units that were excluded from the diluted share calculations because they were anti dilutive The diluted share calculations include performance based restricted stock units for completed performance periods
As of January 29 2022 there were an immaterial number of additional shares issuable upon the vesting of restricted stock units that were excluded from the diluted share calculations because they were anti dilutive The diluted share calculations include performance based restricted stock units for completed performance periods
On November 29 2018 the Company s board of directors approved a share repurchase plan the 2018 Share Repurchase Program authorizing up to 50 0 million of repurchases of shares of the Company s common stock On December 3 2020 the 2018 Share Repurchase Program was extended through December 11 2021
In December 2021 the Company s board of directors approved a new share repurchase plan the 2021 Share Repurchase Program which authorized Company management to utilize up to 50 0 million of available cash for repurchases of shares of the Company s common stock The 2021 Share Repurchase Program went into effect beginning December 13 2021 and expires in December 2024
During the fiscal year ended January 28 2023 the Company purchased and held 2 820 949 shares at an average price of 6 40 per share excluding commissions for an aggregate amount of 18 1 million under the 2021 Share Repurchase Program
During the fiscal year ended January 29 2022 the Company purchased and held 865 534 shares at an average price of 8 94 per share excluding commissions for an aggregate amount of 7 7 million under the 2018 and 2021 Share Repurchase Programs
Redeemable noncontrolling interest represents the remaining twenty five percent 25 interest in Pura Vida not acquired by the Company On January 30 2023 the Company purchased the remaining 25 interest in Pura Vida Refer to Note 2 herein for additional information
The Company continued to experience lower sales from its Pura Vida e commerce channel due to a continued decline in social and digital media effectiveness as well as continued lower sales from the wholesale channel These lower sales volumes had a negative impact on the fair value determination of the aforementioned assets The fair value of the Pura Vida brand was estimated using a relief from royalty method The estimates and assumptions used in the determination of the fair value of the Pura Vida brand included the projected revenue growth long term growth rate the royalty rate and discount rate
While we consider our assumptions in the determination of the fair value of these assets to be reasonable they are complex and highly subjective Adverse changes in key assumptions in future periods may result in further declines in the fair value estimates of the Pura Vida brand below its carrying value resulting in additional impairment charges which could be material Our key assumptions as described above in the valuation methodologies used in the determination of fair value may be impacted by macroeconomic conditions including inflationary pressures and the impact on consumer discretionary spending supply chain challenges as well as a sustained decline in stock price and potential changes in business strategy Refer to Note 2 herein for additional information regarding fair value measurement
The fair value of the Pura Vida reporting unit was determined using a combination of an income based approach discounted cash flows and a market based approach guideline transaction method The discounted cash flow method involved subjective estimates and assumptions such as projected revenue growth operating profit and the discount rate The guideline transaction method involved transaction multiples derived from the acquisition of controlling interests in stocks of companies that are engaged in the same or similar lines of business as the reporting unit
During the assessment for the fiscal 2023 annual test it was determined that the fair values of the Pura Vida reporting unit and the Pura Vida brand were less than their carrying values As a result the Company recorded an impairment charge of 9 9 million and 19 4 million for the Pura Vida brand and goodwill respectively during the second quarter of fiscal 2023 within the Pura Vida segment
We identified triggering events during the subsequent quarters of fiscal 2023 due to lower operating profit compared to previous forecasts as well as changes in the long range plan such as a pause on the opening of new Pura Vida retail stores We performed further testing on the Pura Vida reporting unit and Pura Vida brand as a result These analyses caused additional impairment charges to be recorded in the fourth quarter of fiscal 2023 of 15 1 million and 24 9 million for the Pura Vida brand and goodwill respectively which reflects a full goodwill impairment Collectively impairment charges for the Pura Vida brand and goodwill during fiscal 2023 totaled 69 3 million
During fiscal 2023 the Company began implementation of its targeted cost reductions which are expected to be fully realized in fiscal 2025 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
During the fifty three weeks ended February 3 2024 the Company recorded within selling general and administrative expenses 0 8 million of professional fees associated with strategic initiatives and other costs
During the fifty two weeks ended January 28 2023 the Company recorded within cost of sales 18 1 million of inventory adjustments which consisted of 8 9 million of excess Pura Vida inventory recognized in the fourth quarter as a result of a change in the Company s liquidation strategy during the quarter 6 4 million related to the exit of certain technology products and excess mask products recognized in the second and fourth quarters 1 2 million of valuation adjustments to write discounted inventory down to its net realizable value recognized in the fourth quarter and 1 6 million for purchase order cancellation fees related to spring 2023 product and certain raw materials
During the fifty two weeks ended January 28 2023 the Company recorded within selling general and administrative expenses 1 0 million for CEO sign on bonus and relocation expenses 0 4 million for former CEO salary retention payments and stock based compensation associated with retirement and 0 2 million of professional fees associated with strategic initiatives and other costs
Collectively 6 2 million was recorded within the Direct segment 1 7 million was recorded within the Indirect segment 10 2 million was recorded within the Pura Vida segment and 1 6 million was recorded within corporate unallocated expenses
The Company has three operating segments which are also its reportable segments VB Direct VB Indirect and Pura Vida These operating segments are components of the Company for which separate financial information is available and for which operating results are evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing the performance of the segments
The VB Direct segment includes Vera Bradley full line and outlet stores the Vera Bradley websites verabradley com outlet verabradley com and the Vera Bradley annual outlet sale Revenues generated through this segment are driven through the sale of Vera Bradley branded products from Vera Bradley to end consumers
ns substantially all of which are located in the United States as well as select department stores national accounts third party e commerce sites third party inventory liquidators and licensing agreements related to the Vera Bradley bran
The Pura Vida segment represents revenues generated through the Pura Vida websites www puravidabracelets com www puravidabracelets ca and www puravidabracelets eu Pura Vida retail stores and through the distribution of Pura Vida branded products to wholesale retailers substantially all of which are located in the United States
Corporate costs represent the Company s administrative expenses which include but are not limited to human resources legal finance information technology design product development merchandising corporate level marketing and advertising and various other corporate level activity related expenses not directly attributable to a reportable segment All intercompany related activities are eliminated in consolidation and are excluded from the segment reporting
Company management evaluates segment operating results based on several indicators The primary or key performance indicators for each segment are net revenues and operating income The table below represents key financial information for each of the Company s operating and reportable segments VB Direct VB Indirect and Pura Vida
The accounting policies of the segments are the same as those described in Note 2 The Company does not report depreciation or amortization expense total assets or capital expenditures by segment as such information is neither used by management nor accounted for at the segment level
Revenues from external customers for Vera Bradley brand products are attributable to sales of bags accessories travel apparel footwear and home items Other revenues from Vera Bradley external customers primarily include revenues associated with our freight stationery licensing merchandising and gift card breakage
Revenues from external customers for Pura Vida brand products are primarily attributable to sales of accessories and apparel Other revenues from Pura Vida external customers include revenues associated with freight
We maintain disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the Securities and Exchange Commission s rules and forms and that such information is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosures Because of inherent limitations disclosure controls and procedures no matter how well designed and operated can provide only reasonable and not absolute assurance that the objectives of disclosure controls and procedures are met
The Company s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f under the Exchange Act The Company s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles Management under the supervision and with the participation of the Company s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations COSO of the Treadway Commission 2013 framework in Internal Control Integrated Framework Based on the results of that evaluation management has concluded that such internal control over financial reporting was effective as of February 3 2024
The effectiveness of the Company s internal control over financial reporting as of February 3 2024 has been audited by Deloitte and Touche LLP an independent registered public accounting firm as stated in their report which appears in Item 8 of this Annual Report on Form 10 K
There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected or that is reasonably likely to materially affect our internal control over financial reporting
The information set forth in the Proxy Statement for the 2024 Annual Meeting of Shareholders under the headings The Board of Directors Family Relationships Delinquent Section 16 a Reports Conflict of Interest and Business Ethics Policy Code of Ethics for Senior Financial Officers and Standing Committees and Meetings of the Board is incorporated herein by reference The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10 K pursuant to Regulation 14A under the Securities Exchange Act of 1934 as amended In addition the information set forth under the heading Item 1 Business Executive Officers of the Company in this Form 10 K is incorporated herein by reference
The information set forth in the Proxy Statement for the 2024 Annual Meeting of Shareholders under the headings Executive Compensation Discussion and Analysis Compensation Committee Interlocks and Insider Participation Compensation Tables and Compensation Committee Report is incorporated herein by reference The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10 K pursuant to Regulation 14A under the Securities Exchange Act of 1934 as amended
The information set forth in the Proxy Statement for the 2024 Annual Meeting of Shareholders under the heading Share Ownership of Certain Beneficial Owners and Management is incorporated herein by reference The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10 K pursuant to Regulation 14A under the Securities Exchange Act of 1934 as amended
Assumes that target performance requirements will be achieved for performance shares with incomplete performance periods These securities represent awards to be issued under the 2020 Equity and Incentive Plan
The information set forth in the Proxy Statement for the 2024 Annual Meeting of Shareholders under the headings Policy on Related Party Transactions Related Party Transactions for Fiscal 2024 and Board Independence is incorporated herein by reference The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10 K pursuant to Regulation 14A under the Securities Exchange Act of 1934 as amended
The information required by this item is incorporated herein by reference to our 2024 Proxy Statement under the caption Principal Accounting Fees and Services The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10 K pursuant to Regulation 14A under the Securities Exchange Act of 1934 as amended
Financial statement schedules have been omitted because they are not required or are not applicable or because the information required in those schedules either is not material or is included in the consolidated financial statements or the accompanying notes
Interest Purchase Agreement dated January 23 2023 among Vera Bradley Holdings LLC Creative Genius Holdings Inc Creative Genius Inc Griffin Thall and Paul Goodman incorporated by reference to Exhibit 10 1 to the Current Report on Form 8 K filed January 24 2023
Pledge and Security Agreement dated as of September 7 2018 among Vera Bradley Designs Inc Vera Bradley Inc Vera Bradley International LLC Vera Bradley Sales LLC and JP Morgan Chase Bank N A Incorporated by reference to Exhibit 10 2 to the Quarterly Report on Form 10 Q for the quarter ended August 4 2018
Third Amendment to Credit Agreement dated as of August 3 2023 among Vera Bradley Designs Inc the other borrowers party thereto JPMorgan Chase Bank N A and the lenders party thereto Incorporated by reference to Exhibit 10 1 on Form 8 K filed August 8 2023
Supplement to Pledge and Security Agreement dated as of September 7 2018 by and among Vera Bradley Designs Inc Vera Bradley Inc Vera Bradley International LLC Vera Bradley Sales LLC Vera Bradley Holdings LLC and JP Morgan Chase Bank N A Incorporated by reference to Exhibit 10 3 on Form 8 K filed August 8 2023
Form of Restricted Stock Unit Performance Unit Terms and Conditions under the 2020 Equity and Incentive Plan Incorporated by reference to Exhibit 10 3 to the Quarterly Report on Form 10 Q for the quarter ended May 1 2021
Form of Restricted Stock Unit Performance Unit Terms and Conditions Under the 2020 Equity and Incentive Plan Revised Incorporated by reference to Exhibit 10 2 to the Quarterly Report on Form 10 Q for the quarter ended April 30 2022
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 as amended the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on March 29 2024
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Michael Schwindle and Jacqueline Ardrey and each of them as his or her true and lawful attorneys in fact and agents with full power of substitution and resubstitution for him or her and in his or her name place and stead in any and all capacities to sign any and all amendments to this Annual Report on Form 10 K and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorneys in fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof

Company Name	Vera Bradley, Inc. Vist SEC web-site
Category	LEATHER & LEATHER PRODUCTS
Trading Symbol	VRA