(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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," "Selected Financial Data" 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. The COVID-19 Pandemic The COVID-19 pandemic 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 during fiscal 2021. Although e-commerce operations remained open for both of our brands, the aforementioned items had a material adverse impact on overall consumer demand, traffic, and sales. We cannot currently predict the extent that COVID-19 will impact our future liquidity, operating results, and financial condition, but it could have a significant adverse effect on these metrics. Beginning in mid-March 2020, we began taking several actions to navigate the COVID-19 pandemic, protect our financial position, maximize our liquidity, and to position the Company for a strong reopening and future. These actions included: Temporarily closing all Vera Bradley store locations on March 19; Temporarily furloughing approximately 80% of our workforce mid first quarter; Temporarily reducing base compensation for remaining salaried associates, with reductions on a graduated scale ranging from 15% to 30%, and 75% for our Chief Executive Officer; Temporarily suspending cash compensation to our Board of Directors; Temporarily suspending our share repurchase program; Drawing $60.0 million of our $75.0 million Credit Agreement; Temporarily eliminating the Company 401(k) and associate charitable contribution matches; Tightly managing inventory levels through the cancellation of purchase orders, delay of receipts, or seeking price concessions where possible; Actively working with landlords on addressing rent abatement, payment terms, accelerating store closures, and delaying or cancelling certain planned new store openings; Reducing non-payroll operating expenses, including but not limited to, marketing and travel; and Extending vendor payment terms. Update on COVID-19 Actions as of January 30, 2021 On May 5, 2020, we began to open our Vera Bradley retail stores in a phased approach. All factory and full line stores were opened as of the end of the fiscal year, although with reduced hours, lower staffing levels, reduced foot traffic, and greatly enhanced safety protocols. The sales of cotton face masks, coupled with a full year of Pura Vida operations, helped to offset sales declines otherwise associated with Vera Bradley. Net revenues from masks represented approximately 10% of consolidated net revenues for fiscal 2021. We have brought back substantially all of our associates from furlough; reinstated the base compensation reductions; reinstated the cash compensation to our Board of Directors; paid back $60.0 million of borrowings under our Credit Agreement, leaving us with no debt as of the end of the fiscal year; and reinstated the 401(k) match in January 2021. We continued to manage operating expenses and inventory levels, and work with landlords on rent abatement and payment terms, which helped in the achievement of expense leverage. In addition, the Company is leveraging elements of the Coronavirus Aid Relief and Economic Security (CARES) Act. The CARES Act tax provisions include retention credits, the deferral of the employer portion of certain payroll taxes, and tax benefits related to a net operating loss carryback.
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Strategic Progress Highlights
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Fiscal Year Ended (1) January 30, February 1, February 2, ($ in thousands) 2021 2020 2019 Statement of Income Data: Net revenues $ 468,272 $ 495,212 $ 416,097 Cost of sales 202,754 223,411 177,510 Gross profit 265,518 271,801 238,587 Selling, general, and administrative expenses (2) 252,588 253,425 211,984 Other income 135 1,098 498 Operating income 13,065 19,474 27,101 Interest expense (income), net 1,203 (1,085) (1,125) Income before income taxes 11,862 20,559 28,226 Income tax expense (3) 1,173 5,315 7,469 Net income 10,689 15,244 20,757 Less: Net income (loss) attributable to redeemable noncontrolling interest 2,008 (803) - Net income attributable to Vera Bradley, Inc. $ 8,681 $ 16,047 $ 20,757 Percentage of Net Revenues: Net revenues 100.0 % 100.0 % 100.0 % Cost of sales 43.3 % 45.1 % 42.7 % Gross profit 56.7 % 54.9 % 57.3 % Selling, general, and administrative expenses 53.9 % 51.2 % 50.9 % Other income - % 0.2 % 0.1 % Operating income 2.8 % 3.9 % 6.5 % Interest expense (income), net 0.3 % (0.2) % (0.3) % Income before income taxes 2.5 % 4.2 % 6.8 % Income tax expense 0.3 % 1.1 % 1.8 % Net income 2.3 % 3.1 % 5.0 % Less: Net income (loss) attributable to redeemable noncontrolling interest 0.4 % (0.2) % - % Net income attributable to Vera Bradley, Inc. 1.9 % 3.2 % 5.0 %
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Mar 30, 2021
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