Fort Wayne-based Vera Bradley Inc. (Nasdaq: VRA) is reporting fiscal fourth quarter net income of $17.3 million, compared to $19.4 million during the same quarter the previous year. The company announced this week it will close its New Haven Facility in May, affecting 250 workers.

March 11, 2015

News Release

Fort Wayne, Ind. — Vera Bradley, Inc. (Nasdaq:VRA) (“Vera Bradley” or the “Company”) today announced its financial results for the fourth quarter and fiscal year ended January 31, 2015 (“fiscal 2015”).

Summary of Financial Performance

Net revenues from continuing operations totaled $152.6 million for the current year fourth quarter ended January 31, 2015, compared to $156.4 million in the prior year fourth quarter ended February 1, 2014.

For the current year fourth quarter, the Company recorded net income from continuing operations of $17.3 million, or $0.43 per diluted share. Those results included a net after-tax benefit of $0.2 million comprised of:

–$1.9 million of charges related to the planned closing of its Indiana manufacturing facility, primarily related to raw materials inventory write downs;

–a $0.9 million benefit for gift card “breakage” (gift cards that consumers have failed to redeem); and

–a $1.2 million income tax benefit related to the Company exiting its direct business in Japan.

In the prior year fourth quarter ended February 1, 2014, income from continuing operations totaled $19.9 million, or $0.49 per diluted share. These results included an after-tax inventory write-down of $3.0 million, or $0.07 per share.

Net revenues from continuing operations totaled $509.0 million for fiscal 2015, compared to $530.9 million for the fiscal year ended February 1, 2014 (“fiscal 2014”). Net income from continuing operations totaled $40.8 million, or $1.00 per diluted share, for fiscal 2015. Those results included the aforementioned net after-tax benefit of $0.2 million. Net income from continuing operations totaled $60.1 million, or $1.48 per diluted share, for fiscal 2014, which included the aforementioned inventory write-down.

Comments on Fiscal 2015 Accomplishments

Robert Wallstrom, Chief Executive Officer, noted, “Even though our fourth quarter revenues were challenging and fell below our expectations, we were able to deliver earnings per share within our guidance.”

“Fiscal 2015 was certainly a year of transition for Vera Bradley,” Wallstrom commented. “We made substantial progress against our long-term strategic plan.

Specifically:

–We enhanced the organization with the addition of several key executives;

–We strengthened the balance sheet through inventory management and ended the year with a very solid cash position;

–We innovated and began to modernize and elevate our product assortment; better focused our assortments by reducing the number of pattern launches and eliminating underperforming SKUs; made a bigger impact in the big volume drivers and classifications by 'majoring in the majors' of bags, backpacks, travel, and accessories; began exploring brand extensions; and worked to make our supply chain more efficient;

–Related to distribution, we opened 13 full-line stores and 14 factory outlet stores, started work on our new prototype full-line store design, began the transition of our outlet stores to factory outlet stores, implemented our LOCATE system, made key enhancements to verabradley.com, expanded our department store relationships, worked to stabilize the specialty gift channel, and transitioned to a wholesale business model in Japan.

–We began to develop our marketing initiatives with the launch of our first national ad campaign focused on leather and faux leather and our 'Brightest Gifts Ever!' digital and print holiday campaign.”

Looking Ahead

Wallstrom noted, “While we have made progress on our key initiatives, the overall business trends remain difficult. By this time, we had expected to regain momentum in the business, but that has not happened. Our core customers are continuing to buy our products. However, our primary issue is that we have not attracted enough new customers to the brand, and therefore, both traffic and sales remain extremely challenging.

“We remain committed to our long-term strategic plan. In fact, based on the challenges we are facing in traffic and sales trends, we are more convinced than ever that our strategies to innovate and modernize our products, distribution, and marketing are the right ones for the future.”

Wallstrom continued, “In fiscal 2016, we are focusing on attracting new customers to the brand. Specifically:

–We will continue to increase the relevance of our product by investing more in products and categories that are working such as leather, solid microfiber, and our smaller coordinating prints, and driving innovation and newness through new fabrications and styles.

–We will continue to prudently grow our distribution, including adding select new full-line and factory outlet stores and expanding our department store partnerships.

–We will move much more aggressively on our marketing efforts. We will allocate more dollars and resources to create and successfully implement a comprehensive, multi-faceted marketing campaign to drive brand and product awareness and target new customers.”

“As always, we expect to carefully manage our expenses but intend to redeploy any savings realized into areas such as marketing and e-commerce that will strengthen and grow the business for the long-term,” Wallstrom added. Management expects that the closure of its domestic manufacturing facility will reduce operating costs by approximately $12.0 million annually beginning in the fourth quarter of fiscal 2016.

Wallstrom concluded, “We continue to believe that we can reach $1 billion in sales and a high-teen operating margin in the future but that it will take longer to achieve these goals than the five years we originally projected.”

Discontinued Operations

In June 2014, the Company entered into a five-year agreement with Mitsubishi Corporation Fashion Company and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the Company exited its direct business in Japan during the third quarter of fiscal 2015 and is accounting for it as a discontinued operation. Income statement numbers referenced in this release reflect the Company's continuing operations.

Fourth Quarter Details

Current year fourth quarter net revenues of $152.6 million fell below the Company's guidance of $158 million to $163 million. Prior year fourth quarter revenues totaled $156.4 million.

Current year fourth quarter Direct segment revenues totaled $107.7 million, a 0.1% increase from $107.6 million in the prior year fourth quarter. In the Company's stores, fourth quarter year-over-year net revenues grew 6.6%, reflecting the opening of 13 full-line and 14 factory outlet stores during the past 12 months. Comparable sales (including e-commerce) decreased 14.4% for the quarter (reflecting a 20.7% decline in comparable store sales and a 7.3% decrease in e-commerce sales). As expected, fourth quarter comparable store sales were negatively impacted by year-over-year declines in store traffic.

Indirect segment revenues decreased 8.0% to $44.9 million from $48.9 million in the prior year fourth quarter, primarily due to lower re-orders from the Company's specialty retail accounts as well as a reduction in the number of specialty retail accounts.

Gross profit for the quarter totaled $80.0 million, or 52.4% of net revenues, compared to $82.6 million, or 52.8% of net revenues, in the prior year fourth quarter. The current year gross margin rate was negatively impacted by approximately 160 basis points related to charges associated with the planned closing of its domestic manufacturing facility, partially offset by the benefit for gif

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