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Vera Bradley (VRA) Tops Q4 EPS by 1c, Offers Guidance

March 14, 2018 8:04 AM EDT

Vera Bradley (NASDAQ: VRA) reported Q4 EPS of $0.33, $0.01 better than the analyst estimate of $0.32. Revenue for the quarter came in at $132 million versus the consensus estimate of $130.03 million.

GUIDANCE:

Vera Bradley sees Q1 2019 EPS of ($0.08)-($0.10), versus the consensus of ($0.13). Vera Bradley sees Q1 2019 revenue of $84-89 million, versus the consensus of $88.65 million.

Vera Bradley sees FY2019 EPS of $0.35-$0.45, versus the consensus of $0.47. Vera Bradley sees FY2019 revenue of $405-425 million, versus the consensus of $415.2 million.

Looking Ahead with Vision 20/20

Wallstrom continued, “Vision 20/20 is an aggressive plan to turn around our business over the next three years. Vision 20/20 is designed to restore brand and Company health by moving to a less clearance-driven business model combined with a meaningful reduction in our SG&A expenses. While a primary goal for Fiscal 2019 is to get healthy, driving brand desirability through product and marketing innovation remains top-of-mind, and we will work to lay the foundation for future growth of the business.

“On the Product and Pricing front, we will focus on three key areas:

First, in February 2018, we began significantly reducing the amount of clearance product available on verabradley.com and in our full-line stores. This will help to reset our customers’ pricing expectations and restore our full-price business. As part of this strategy, we will implement a limited number of flash sale events throughout the year.
Second, we are focusing on our best categories and narrowing our current product offerings by eliminating unproductive or incongruent categories and SKUs from our assortment. For example, we are discontinuing our fragrance and jewelry collections this year. As we reduce clearance and narrow our offerings, inventory levels will continue to come down.
Lastly, we are focused on building tighter assortment guardrails around introducing new categories, patterns, and pricing, assuring the right fit for our brand and that our products not only provide thoughtful solutions but also reflect our signature attributes of comfortable, casual, and affordable. We have thoroughly analyzed our patterns – determining the DNA and isolating the characteristics of our most successful prints. We are confident we can apply the findings from this comprehensive analysis to drive more pattern success going forward. You should see these changes by fall of this year.

“The majority of the product and pricing initiatives are being implemented this year, and we believe these changes will negatively impact year-over-year revenues by $30 million to $50 million, which is reflected in our revenue guidance of $405 to $425 million.”

Wallstrom continued, “As we reduce revenues, we also expect to reduce annual SG&A spending by up to $30 million from our Fiscal 2017 baseline spending of $236 million (before severance, Vision 20/20, and other disclosed charges). This expense reduction process began in the fall of Fiscal 2018, and we expect that $20 million to $25 million of the annualized SG&A reductions will be implemented by the end of Fiscal 2019, which is reflected in our SG&A guidance of $210 to $215 million.

“Reductions are coming through right-sizing our corporate infrastructure to better align with the size of our business, lowering our marketing spend by focusing on efficiencies while keeping our most loyal customers engaged, and taking a more aggressive stance on reducing store operating costs and closing underperforming full-line stores. We are forecasting to close up to 45 additional full-line stores by the end of Fiscal 2021, primarily as leases expire. The remaining SG&A reductions will be made following Fiscal 2019 and are primarily related to store closings in the out years.

“We have reduced cost of sales over the prior three years by shifting to lower-cost manufacturing, improved raw materials sourcing, and enhancing distribution efficiencies. We believe there are incremental sourcing and supply chain opportunities in Fiscal 2019 and beyond. These savings can help offset the natural overhead deleverage that will occur as we reduce inventory levels and as our channel mix changes. These factors are considered in our flat to slightly up year-over-year gross margin guidance for Fiscal 2019.”

“By continuing our focus on product and executing Vision 20/20, we expect that our business and brand will become healthier, operating performance will improve, and cash flows will remain strong over the next three years,” Wallstrom concluded.

For earnings history and earnings-related data on Vera Bradley (VRA) click here.



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