Vera Bradley, Inc. (VRA)
F2Q13 Earnings Call
August 29, 2012 4:30 p.m. ET
Paul Blair - Investor Relations
Michael Ray - Chief Executive Officer and Director
Jeffrey Blade - Executive Vice President, Chief Financial and Administrative Officer
Roddy Mann - Executive Vice President, Strategy and Business Development
Neely Tamminga - Piper Jaffray
Jennifer Davis - Lazard Capital Markets
Erika Maschmeyer - Robert W. Baird
Evren Kopelman - Wells Fargo
Amy Noblin - William Blair
Peter Wahlstrom - Morningstar
Oliver Chen - Citigroup
Steven Marotta - CL King & Associates
Ike Boruchow - JPMorgan
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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's Vera Bradley Fiscal 2013 Second Quarter Results Conference. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session, instructions will be provided at that time. As a reminder today's conference is being recorded. I’d now like to turn the conference over to Paul Blair of Vera Bradley’s Investor Relations Department. Please go ahead, sir.
Good afternoon and welcome. We would like to thank you for joining us this afternoon for Vera Bradley's fiscal 2013 second quarter results conference call.
Some of the statements made on the conference call 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 Form 10-K for the fiscal year ended January 28, 2012 filed with the SEC for a discussion of known risks and uncertainties. Investor's should not assume the statements made during the call will remain operative at a later time. The company undertakes no obligation to update any information disclosed on the call.
We understand that this is a busy period for reporting and intend to keep today's call to an hour in length. Therefore, during our question-and-answer session we ask that participants pose one question with one follow-up to allow as many callers as possible the opportunity to take part in today's call.
I will now turn the call over to the Vera Bradley's CEO, Mike Ray.
Thank you, Paul. Good afternoon, everyone, and thank you for joining us today. With me are Jeff Blade, our Chief Financial and Administrative Officer; and Roddy Mann, our Executive Vice President of Strategy and Business Development. Today we will focus on three main topics; the highlights of our fiscal 2013 second quarter performance, a review of our initiatives and outlook for the remainder of fiscal 2013, and an update on the progress against our long term growth strategy.
Although there were many accomplishments during the quarter, we also fell short of our expectations. As we shared our during our previous call, our most significant challenge has been a product portfolio that has underperformed. While our spring and summer collections had a positive impact on the overall offering, they were not enough to overcome the weakness of prior season in the midst of a challenging consumer environment.
As a result, while we met our revenue expectations, we sacrificed gross margin in the quarter. We will provide more insight on this topic throughout the call. After a challenging May and June, business improved significantly in July with the successful launch of our fall back-to-campus collection. As we begin the third quarter, we’re encouraged by our current momentum, the strong sell-in of the winter collection to our specialty retail partners, and strengthening comparable store sales.
In the second quarter, consolidated net revenue grew 19% over the prior year to $123 million, in line with our guidance. Consolidated gross margin was 55.8%, a decline of 170 basis points to prior year, reflecting the impact of increased promotional activity to address lower than expected sales trends early in the quarter. As a result, net income decreased $200,000 to $13.4 million or $0.33 per share versus $13.6 million or $0.34 per share in the prior year.
In the indirect segment, revenue grew 2.6% in line with our expectations. As a result of the challenges I mentioned earlier, we experienced lower than anticipated reorders from our specialty retail partners during May and June. As we shared in our last call, we’ve been working closely with them by assisting in a variety of ways to support their in-store events and other marketing efforts to improve sell-through. The sales team also provided support to ensure that our partners had the proper merchandise assortment and marketing plans in place to capitalize on the highly anticipated fall back-to-campus launch.
As a result of these efforts, we believe that our specialty retail partners are now appropriately merchandised and are experiencing strong sell-through of our fall offerings as evidenced by the positive reorder activity we’ve experienced since mid-July. Also during the second quarter we continued to expand our presence in the department store channel by opening an additional 70 Dillard’s locations and embarking on a new relationship with Von Maur opening in their 27 stores.
In our direct segment, revenue grew 37%. During the quarter we opened eight new stores, achieved comparable store sales growth of 5.3% and grew our e-commerce business by 21%. In response to the challenges I mentioned previously we were increasingly promotional as the quarter progressed, primarily in outlet stores as well as on our website. The weakness in May and June was partially offset by the successful launch of the back-to-campus collection as well the continued strength of our new store openings.