Vera Bradley Q2 2027 Earnings Call Transcript

Vera Bradley (NASDAQ: VRA ) held its second-quarter earnings conference call on Tuesday. Below is the complete transcript from the call. This content is powered APIs. 1% increase in total revenue for the second quarter of fiscal 2027, marking its second consecutive quarter of growth.

Gross margin expanded by 40 basis points year-over-year, driven by successful product assortment, intensified marketing strategy, and disciplined inventory management. The company ended the quarter with $434 million in cash, double the previous year's cash position, and no debt. 2% increase in comparable sales, while the indirect segment saw a 39% revenue contraction due to strategic timing shifts. 0, are progressing well.

Management reaffirmed guidance for a year-over-year non-GAAP operating loss improvement of at least 50% and expects continued gross margin improvement. The Back to School season saw strong performance, with a focus on product assortment and marketing collaborations, such as Hello Kitty and Disney partnerships. Full Transcript OPERATOR Greetings, welcome to Vera Bradley's second quarter fiscal 2027 earnings conference call. At this time, all participants are in listen-only mode.

A question-and-answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded at this time. I'll turn the conference over to Dan Russ, General Counsel.

Thank you, Dan. You may begin. Dan Russ, General Counsel Good morning and welcome, everyone. We would like to thank you for joining us for today's call.

Some of the statements made during our prepared remarks and in response to your questions may constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect. Please refer to today's press release and the company's most recent Form 10-K filed with the SEC for a discussion of known risks and uncertainties.

Investors should not assume that the statements made during the call will remain operative at a later time. We undertake no obligation to update any information discussed on today's call. I will now turn the call over to Vera Bradley's Chairman and Executive Officer, Ian Bickley. Ian Bickley, Chairman and Executive Officer Good morning, everyone, and thank you for joining us for Vera Bradley's second quarter fiscal 2027 earnings call.

This was another strong quarter for us. We continue to build operational excellence across the business while making significant progress on our Project Sunshine Transformation journey. 1% versus the prior year, an important continuation of the trajectory we discussed last quarter. While the pace of growth was more modest than the nearly 8% we delivered last quarter, the underlying health of the business continued to strengthen across our direct channels, our margin structure, and our balance sheet.

That combination of continued top-line progress alongside real improvement in the fundamentals of the business is exactly what we set out to build when we launched this transformation. And I want to walk you through why we remain confident in the path forward. Like the first quarter, our second quarter performance was not solely a top-line story. Gross margin expanded more than 40 basis points year over year, improvement that excludes refunds recognized in the quarter, which Marty will cover in more detail.

That margin expansion was driven by several factors: continued success in our product assortment work and intensified marketing strategy anchored on cohesive, social-first brand storytelling, and enhanced planning and inventory management and disciplined pricing and promotion governance. Together, these enabled us to further work down non-go-forward Project Restoration inventory while still improving our overall gross margin rate. We continue to manage our balance sheet and liquidity with discipline.

Inventory ended the quarter down 28% compared to the second quarter last year, and we generated $23 million of operating cash flow in the period, compared to $28 million from the last year. We ended the second quarter strong. Yes, apologies everyone, we had some technical difficulties. Let me continue.

We continue to manage our balance sheet liquidity with discipline. Inventory ended the quarter down 28% compared to the second quarter last year and we generated $23 million of operating cash flow in the period, up $23 million from last year. We ended the second quarter in a strong financial position with $434 million of cash, double our prior year cash position and no debt. Based on our year to date performance, we continue to expect our year-over-year non-GAAP operating loss improvement to be at least 50%, consistent with the guidance we shared last quarter.

There's still significant work ahead of us, but I remain encouraged by what our second quarter results show. The opportunity for us to grow market share and rebuild towards durable, profitable, cash-generated growth remains substantial and this quarter's progress gives us real conviction as we continue executing against our five transformation pillars. Before I walk through the details of the quarter, I want to thank our entire Vera Bradley team.

What we're accomplishing across each of our strategic initiatives reflects their hard work, focus and belief in this transformation and in bringing Vera Bradley's joyful optimism back to life while we build a more disciplined, higher performing organization and operating model underneath it. Our direct segment delivered revenue growth of 8% versus the prior year, our fifth consecutive quarter of sequential improvement in this channel and an acceleration from roughly 4% growth achieved in the first quarter. 2% for the quarter, our second consecutive quarter of positive comparable sales with growth in both our full-price and outlet businesses.

Our direct segment represents more than 90% of our business and is the channel we control most directly. It also continues to be the best indicator of how our customers are responding to the product, marketing and strategic distribution choices we are making in our indirect channel segment. Due to intentional shifts in timing related to our marketplace strategy and reduction in liquidation sales, revenue contracted 39% compared to the prior year. The underlying performance in the indirect channel remains strong with mid-single-digit overall selling growth to our strategic wholesale accounts, including leading specialty and key department store partners.

We continue to see this part of our wholesale business as the clearest evidence that our product and brand work is translating beyond our own direct channels. As the Back to School shopping season took hold in the back half of the quarter, our results accelerated and we entered the third quarter with good momentum in both our full-price and outlet channels. Back to School is a critical selling occasion for Vera Bradley and our strong preparation, planning and execution paid off with overall Back to School business up versus last year.

We continue to strategically manage our pricing and promotional cadence this quarter, staying disciplined on the number of promotional events and expanding gross margin. Even as we drove continued sell-through of non go-forward Project Restoration inventory, we made good progress and are now past the halfway point on working through our legacy inventory. Now let me provide an update on our continued progress against the five strategic transformation pillars of Project Sunshine with a particular focus on where we saw the most meaningful movement this quarter and where we focused as we head into the second half of the year. Pillar one: Sharpening our Brand Focus.

As we have discussed on prior calls, sharpening our brand focus is fundamentally about bringing our unique brand positioning back to life through compelling product, authentic storytelling and strategic distribution choices. Our Back to School and holiday collections marked the first quarter with 100% of the assortment reflecting our collective work, an important milestone. As we continue re-engaging lapsed customers and attracting new customers across channels, our focused product strategies continue to resonate. Cotton continued its return to historic levels of importance and our more intentional IP collaborations contributed meaningfully to the quarter.

Hello Kitty was a standout in brand, shined well against Back to School with a strong assortment and relevant marketing campaign—the best example of the right collaboration, the right product and the right occasion coming together in a compelling and brand-enhancing manner. The reintroduction of Winnie the Pooh in brand also continued to perform well in outlet. Our Star Wars Droid collaboration performed well through June and early July, following earlier quarter success with Disney Princesses. We also continued to see success with Stitch and Honeyduke's IP product.

The successful return of Vera Originals also continued to re-engage our longtime fans. We also saw continued validation of our shift towards introducing reimagined iconic styles and heritage prints. This gives us continued confidence that our product strategy—grounded in the same brand attributes that define Vera Bradley: feminine, creative, fearful, whimsical, joyful, fun, colorful, approachable, high quality and smart value—is the right one and that it is durable across seasons and occasions rather than dependent on any single collaboration or moment.

Under our new wholesale leadership, our key accounts continue to realize the benefit of improved assortment productivity and full-price sell-through, and we remain encouraged by the growing recognition of our brand momentum among leading retail partners, including existing and prospective wholesale accounts. Given our confidence in the future wholesale growth pipeline and our desire to rebuild this channel thoughtfully and with the right partners, we recently made a decision to reestablish our in-house sales team to accelerate growth, while discontinuing our previous arrangement with a third-party sales representative agency.

On the marketing side, we continued our storytelling momentum from the spring, extending our joyful optimism creative into our Back to School campaign, which shifted from a school-focused campaign to a lifestyle-driven, highlighting the versatility of our products across everyday moments. We featured enhanced Back to School backpack comparison guides and messaging to clearly differentiate product sizes and use cases, helping customers find the right solution for their needs. We also continued to build on the success of our collaborations this quarter.

We partnered with Anthropologie, Target and Little Words Project, all of which drove outsized reach and new audiences to our social platforms. We remain focused on driving engagement through social and digital channels while continuing to manage marketing spend prudently, and we expect to continue rebuilding our upper- and middle-funnel marketing investment over time behind the storytelling foundation and as our results support it. Taken together, the progress we're making in sharpening our brand focus across product, marketing and channels validates that we're on the right path, and we remain committed to this strategic direction as a cornerstone of our transformation.

In fact, as a result of these collective efforts, we have recently seen a return to positive growth in Google search activity for the term Vera Bradley this year, the first time in more than a decade. Pillar 2: Resetting our go-to-market approach. Turning to our second pillar, resetting our go-to-market approach, the stronger operational discipline we have built continued to support our results this quarter, with our gross margin performance and product sell-through remaining the clearest evidence that our reimagined planning, buying and pricing processes are taking hold.

We continue to see this as the collective tissue that turns our creative product and marketing engine into consistent commercial results. The consumer research and segmentation work we described last quarter, including our in-home ethnographic studies and work with Gen Z customers on co-creating assortments, continued to inform our product and marketing decisions this quarter, including the Back to School and Fall seasons. We're building on this foundation as we plan for the balance of the year with a more deliberate and targeted approach to the introduction of new styles and prints. Pillar 3: Rewriting our digital ecosystem.

Turning to our third pillar, under our new head of Digital Commerce, we continue to invest in the connectivity between our own digital platforms and our marketplace partnerships and emerging channels like social commerce. We increasingly see digital and social as a driver not only of our own digital and social commerce business, but of a broader halo and discovery effect that supports our wholesale accounts and drives traffic into our stores.

We are continuing to invest against that view, including additional talent and expertise, incremental media investment and technology to support our customer data platform migration, personalization expansion, cart enhancements and additional testing platforms. This work remains an important contributor to our ability to meet customers where they are and to support both our direct and wholesale businesses. 0. 0 last year.

0 test stores registered improved sales conversion and gross margin metrics versus our control group of stores. 0 and the strength of our current outlet footprint, we intend to be more intentional about capitalizing on the trends we are seeing. 0 into a new strategy we are calling One Vera. One Vera is about acknowledging that every channel needs to work together as one brand, creating a seamless, more relevant and elevated Vera Bradley experience and meeting customers wherever they want to shop.

Simply put, it is about creating a singular expression of the brand across channels and recognizing that customers want to find the brand icons wherever they shop. Finally, our fifth pillar, reimagining how we work, has been largely achieved. Whilst we will continue to add select critical capabilities, we have fundamentally redesigned our organization to be future ready. We have put in place a best-in-class team with the experience and track record to move quickly and win in the marketplace.

Our primary focus now is building a culture of performance, agility and accountability with strong cross-functional collaboration and data-driven decision making to drive the business forward, translating our creative and product work into commercial results. In summary, we are encouraged by our second quarter results and the continued progress we are making across all five pillars of our transformation framework, and I want to again thank our team for how they've come together to deliver a second consecutive quarter of growth.

The sequential improvement we have achieved over multiple quarters validates that our strategic direction is gaining traction and represents the right path forward to revitalize the Vera Bradley brand, expand market share and return the business to long-term sustainable growth, profitability and cash flow generation. As we move into the third quarter, we expect the underlying trends we've described today—strengthening direct business, disciplined promotional management and continued gross margin improvement to remain intact. While there's significant work ahead, we're encouraged by our momentum and the alignment and commitment across the team.

As we move through the back half of the year, we'll continue operating with discipline and agility, staying intentional about building the foundation for long-term value creation for all Vera Bradley stakeholders. With that, I will turn the call over to Marty for a detailed financial review, and then we'll be happy to take your questions. Martin Layding — Chief Operating & Financial Officer Thanks, Ian. Good morning, everyone, and thank you for joining us.

For the sake of clarity, all of the numbers I am discussing today are non-GAAP and exclude the charges outlined in today's press release. A complete detail of items excluded from the non-GAAP numbers, as well as the reconciliation of GAAP to non-GAAP, can be found in that release. We are pleased with our second quarter results, which reflect continued improvement in both our top- and bottom-line performance for the second quarter of fiscal 2027. 9 million in the prior year.