Mark Dely; Chief Administrative and Legal Officer and Corporate Secretary; Vera Bradley Inc
Jacqueline Ardrey; President, Chief Executive Officer, Director; Vera Bradley Inc
Michael Schwindle; Chief Financial Officer, Executive Vice President; Vera Bradley Inc
Eric Beder; Analyst; Small Cap Consumer Research, LLC
Daniel Harriman; Analyst; Sidoti & Company, LLC
Operator
Greetings, and welcome to the Vera Bradley fourth quarter fiscal 2025 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mark Dely, Chief Administrative Officer. Thank you. Sir, you may begin.
Mark Dely
Good morning, and welcome, everyone. We'd 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, CEO, Jackie Ardrey. Jackie?
Jacqueline Ardrey
Good morning, everyone, and thank you for joining us today for Vera Bradley's fourth quarter and full year earnings call.
The fourth quarter remained challenging as we continued to navigate the early stages of Project Restoration, our comprehensive strategic initiative to transform our business model and brand positioning. While we experienced sequential improvement, particularly in our Vera Bradley Direct channel, which performed overall at expectations, we acknowledge that our transformation is taking longer than initially anticipated.
The migration of business from stores, particularly in our outlet locations, to e-commerce represented an unexpected shift, creating near-term profitability challenges that we are actively addressing with targeted strategies.
While we remain confident in our strategic direction, we continue to make refinements based on selling data and customer feedback. Most of these shifts are occurring in our product and pricing strategy. We will be expanding our heritage products, reducing assortment in higher price points as well as bringing back regular deliveries of licensed product and some styles our customers are asking for. I'm also excited to share that we have a strong pipeline of new business development in our Indirect channel that will begin to bear fruit later this year.
Before we dive deeper into our results, I'd like to share an important development. In an effort to concentrate our resources on strengthening Vera Bradley's position in the marketplace aligned with our long-term transformation, yesterday, we signed a purchase agreement to sell the Pura Vida business. The sale of Pura Vida represents a significant step in our strategic evolution. We expect to close this sale by the end of the first quarter.
I'll now provide more detail on our quarterly performance and our strategic initiatives before handing it over to Michael to discuss our financial results in greater depth. We registered fourth quarter revenues of $100 million. Our Direct channel performance was mixed. E-commerce revenues were roughly flat to last year, a significant sequential improvement from Q3, while our branded outlet stores experienced declines in both traffic and conversion.
During the quarter, we observed a significant divergence in customer behavior that provides valuable insights for strategic tactical adjustments as we move forward. While our outlet business faced challenges due to macroeconomic pressures and our concentration of customers with household incomes under $75,000, we're seeing promising growth in higher-income segments.
Most notably, we achieved approximately 10% growth among customers aged 18 to 34 with household incomes above $100,000. This shift highlights both our current challenges and future opportunities as we execute our transformation strategy.
We're also encouraged by accelerating new customer acquisition, a trend that has continued into this year. Our early cohort analysis reveals that new customers are making higher-value initial purchases compared to historical averages and spending more on repeat purchases. We remain committed to diversifying our customer base for the long-term health of the Vera Bradley brand.
Our Q4 gross margin was 45.7%, below our expectations and down from 52.3% last year. This variance reflects a mix shift across our store and online channels in response to our strategic decision to adjust promotional and pricing strategies to strengthen our value position and address market conditions.
Moving forward, we're implementing a refined testing framework for both promotional cadence and pricing architecture to optimize the balance between customer engagement and margin protection across all channels. We introduced expanded price points across both branded and outlet channels, which successfully increased customer engagement. This approach delivered particularly strong results in gifting items under $50, cosmetic cases and our Wicked collection product line.
Inventory optimization remains a cornerstone of our strategic transformation. Building on our previous discussions, we've implemented comprehensive changes to our inventory approach across sourcing, procurement and management functions. Our merchandising and planning teams have established rigorous inventory controls across all channels by focusing on three key initiatives: curating tighter assortments, implementing strategic key item management and enforcing more disciplined buying practices.
Additionally, our enhanced material sourcing capabilities now enable us to rapidly adjust to evolving consumer preferences. These efforts have already yielded measurable results with year-end inventory 7% below prior year levels.
Looking ahead to fiscal 2026, we're targeting a further 10% reduction in overall inventory. This disciplined approach will increase our operational agility to respond to customer trends while accelerating our product innovation cycle to deliver greater newness to market.
Looking ahead, we're steadily decreasing our business reliance on clearance and liquidation activities, a natural by-product of our stronger inventory management practices. Over a multiyear period, we anticipate several structural changes in the business, some of which have already begun. While we may experience some reduced sales velocity, this will be partially offset by improved gross margins as clearance and liquidation become structurally smaller components within our business model. This shift will affect both our Direct channel and our Indirect channel, which has historically relied more heavily on high levels of discounting.
Having said that, a particular Q4 highlight was our performance on Target marketplace, which delivered exceptional results and is informing our new channel initiative to be where she shops. This digital marketplace success demonstrates the importance of engaging customers in their preferred shopping environments. We are developing a clear path forward for our business designed to diversify our distribution and strengthen our partnerships. I look forward to updating you on our progress on future calls.
Shifting briefly to our Indirect channel, in Q4, the primary headwinds we faced stemmed from a reduction in specialty accounts and strategically reduced liquidation sales. Our Urban Outfitters collaboration was a standout performer in Q4 as we deepened our strategic partnership with more exciting things to come. The Urban Outfitters customer base aligns well with our more diverse and younger target demographic, creating mutual value for both Vera Bradley and Urban Outfitters.
I'd like to highlight our data-driven product refinements based on sales analytics and customer insights. Our Q4 rollout of adjusted styles has showcased encouraging results, outperforming the balance of our assortment. These targeted modifications, including longer and wider straps and zipper closures, directly address specific customer requests we've identified through our feedback channels. This successful initial response validates our agile adaptation strategy, and we're accelerating implementation throughout Q1 and Q2. This early market validation not only confirms our customer-centric approach, but also demonstrates our ability to rapidly translate feedback into tangible product improvements that drive results.
Partnerships and collaborations continue to be a vital component of our strategic approach. Our Wicked collection was extremely successful, not only driving significant revenue, but also attracting new high-value customers within our target demographic range. This success reinforces our belief that licensed properties remain an important customer acquisition tool for Vera Bradley, and we have several exciting properties in our pipeline for both our outlet and brand channels this year.
As I mentioned, I'm excited about our partnership and collaboration pipeline that will begin to take shape later this year and next year. We are in advanced negotiations with several major retailers and expect to finalize these strategic partnerships in the near future. While we can't disclose specific names today, these opportunities represent significant potential for brand heat and expansion, new customer acquisition and revenue growth. We look forward to sharing more details about these exciting developments in the coming months as these partnerships are finalized.
Operational improvements continue to be a core focus as we strengthen the fundamentals of our business. As discussed in prior calls, we're making great progress on enhancing our operational acumen across the organization. We've sharpened our attention on cost structure through targeted improvements in store operations, distribution center efficiency, marketing effectiveness and overall cost management.
As Michael will discuss, we met our internal SG&A expectation, and we anticipate further improvements this year. I'm also pleased to report that our previously announced efficiency initiative for fiscal 2026 remains on track, and we expect to deliver cost savings at a minimum of $20 million this year.
Importantly, and in light of the uncertain macro and consumer environment, we will continue to manage the Vera Bradley business prudently. Our capital spending will be down significantly in fiscal 2026, and we anticipate improved working capital and other operational efficiencies to result in a higher cash position at year-end compared to last year.
We entered the new fiscal year in a strong financial position with no debt, $30 million in cash and liquidity of $75 million, providing flexibility to operate our business transformation while maintaining a solid financial foundation. As we look ahead to fiscal 2026, we see this as a year of stabilization, requiring patience and continued optimization. Vera Bradley is on a journey to long-term health, and the steps we are taking today are critical to our successful path forward.
This year, we will focus on stabilizing our customer file and beginning to grow from a healthier place with marketing spend diversification and optimization serving as critical inputs to our success. Generating brand heat and relevancy is a key focus for fiscal 2026. We recognize that when our business was at its peak, placements in thousands of doors across the country drove brand awareness.
Today, our approach has evolved to leverage social media, strategic collaborations and targeted wholesale door expansion. Exposure in mass retailers where people shop with modernized and relevant product will be a critical part of our brand revitalization.
I want to emphasize that our leading indicators show we're on the right path. Although lagging indicators are developing more slowly than we'd like, we have confidence that the adjustments we're making are the right ones for long-term health. The green shoots we've discussed today all validate our strategic direction. We remain committed to returning Vera Bradley to long-term profitable growth and creating value for our shareholders.
I want to thank our teams across the organization for their continued agility and flexibility as we march forward on the Vera Bradley transformation journey.
With that, I will pass it to Michael to provide a financial review of our fourth quarter results and our outlook for fiscal 2026. Michael?
Michael Schwindle
Thanks, Jackie. Good morning, everyone, and thank you for joining us. I'll open this up for questions in a few minutes, but first, I want to cover the results for the quarter as well as briefly discuss our guidance for fiscal 2026.
For the sake of clarity, all the numbers I am discussing today are non-GAAP and exclude the charges outlined today in today's press release. A complete detail of items excluded from the non-GAAP numbers as well as a reconciliation of GAAP to non-GAAP can be found in that release.
Additionally, our prior year was a 53-week year versus a normal 52-week year. This extra week in the prior year fourth quarter and full year contributed approximately $6 million in net revenues and increased earnings -- diluted earnings per share by approximately 1p. Where appropriate, I will be highlighting our performance on a 52-week basis on this call.
So for the fourth quarter of fiscal 2025, our consolidated revenues totaled $100 million compared to $133.3 million in the prior year fourth quarter. Our net loss for the fourth quarter totaled $8.3 million or $0.30 per diluted share compared to a net income of $3.5 million last year or $0.11 per diluted share.
In terms of segment performance, Vera Bradley Direct segment revenues for the current year fourth quarter totaled $76.5 million, a 17.8% decrease from $93 million in the prior year fourth quarter. On a 52-week basis, however, the fourth quarter Direct revenue decreased approximately 15%. Comparable sales similarly declined 17.5% with the largest impact in the outlet channel, which continued to experience similar challenges to prior quarters. Total revenues year-over-year were also impacted by eight new store openings and six store closures since the prior year fourth quarter.
Vera Bradley Indirect segment revenues for the fourth quarter totaled $9.9 million, a 39% decrease from $16.1 million in the prior year fourth quarter. The decrease was related primarily to a decline in specialty and key account orders and a decrease in liquidation sales as well as end-of-quarter third-party shipping delays, which caused some shipments to slip into the first quarter of our fiscal 2026.
Pura Vida segment revenues for fourth quarter totaled $13.6 million, a 44% decrease from $24.2 million in the prior year fourth quarter, primarily related to declines in e-commerce and wholesale revenues, partially offset by retail store growth associated with two new stores. In response to rising digital marketing costs that began in late third quarter last year, the Pura Vida team has been focused on marketing efficiency as well as digital marketing diversification.
Non-GAAP fourth quarter gross margin totaled $45.7 million or 45.7% of net revenues compared to $69.6 million or 52.3% of net revenues in the prior year. The year-over-year margin rate decrease was driven by sales channel mix, which also contributed to increased outbound freight cost, along with excess inventory reserve adjustments in the Pura Vida segment.
Non-GAAP SG&A expense totaled $57.9 million or 57.9% of net revenues compared to $65.7 million or 49.3% of net revenues in the prior year fourth quarter. The $7.8 million decrease in expenses was primarily due to cost reduction initiatives along with lower variable expenses.
We have discussed in prior updates our focus on strong operating discipline, and we're pleased with the progress of the organization is in building this discipline. We continue to closely examine areas of our organization for process and cost opportunities, and our teams are increasingly diligent and attentive to cost management. Our fourth quarter non-GAAP consolidated operating loss totaled $12 million compared to operating income of $4.1 million in the prior year.
Now turning to the balance sheet, our year-end cash and cash equivalents totaled $30.4 million. We continue to have no borrowings on our $75 million ABL facility at quarter end. Total year inventory declined 7% to $110 million compared to $118.3 million at the prior year fiscal year-end.
We have been intensely focused on redefining how we approach inventory acquisition and management, as Jackie noted earlier, and continue to take strategic actions in our merchandising and sourcing processes to improve both product flow and quality. These efforts have already impacted meaningfully our ability to navigate this fiscal year and will continue to drive improvements as well as reduced inventory levels into the future.
During the fourth quarter, we repurchased approximately $600,000 of common stock or approximately 113,000 shares, bringing the total repurchased for the fiscal year to approximately $21.8 million. In December 2024, our Board of Directors approved an additional $30 million repurchase authorization, which commenced in December fiscal 2025 and extends for three years. The company does not currently have plans to purchase under the 2024 share repurchase agreement, but anticipates utilizing it in the future depending on the company's cash position.
Finally, I'd like to go through our guidance for fiscal 2026. As a reminder, all forward-looking guidance is on a non-GAAP basis. This guidance also excludes results for Pura Vida, pursuant to our sale announcement this morning and for all period -- and will exclude Pura Vida for all periods where -- except where I note otherwise.
As Jackie noted in her comments, we continue to make progress in our transformation journey. In light of economic trends and consumer uncertainty, however, we expect continued business headwinds for this coming year. Similar to what other retailers have noted in their business updates, our customer continues to experience wide-ranging economic concerns, which has caused shifts across our channels that we are actively addressing with targeted strategies.
For the full year of fiscal 2026, we expect consolidated net revenues of approximately $280 million. This broadly reflects continued consumer challenges, especially in the first half of this year. As a result, we expect to see sequential improvement as we move through the year. We expect consolidated gross margin for the year of approximately 52.5% compared to 50.3% in fiscal 2025. The gross margin change is the result of product margin improvements, along with lower supply chain costs from continued structural cost reductions.
Consolidated SG&A expense is expected to be approximately $155 million compared to $178.2 million in fiscal 2025. Year-over-year SG&A expense reductions are the result of continued structural cost reductions across many aspects of our business, along with decreased variable costs. We remain very dedicated to sound business discipline, and we are pleased to see the financial and operational improvements that have come with organizational simplification and focus.
All this is expected to result in a consolidated operating loss of approximately $6 million compared to an operating loss of $16.9 million in fiscal 2025. Consolidated diluted earnings per share are expected to be approximately $0.15 loss. Fiscal 2025 non-GAAP diluted earnings per share totaled $0.64 on a total company basis, which does include Pura Vida. In terms of capital spend, we expect approximately $4 million this year versus $10 million last year. This reflects a much tighter focus on our business, in particular, around technology and infrastructure investments.
In terms of inventory management, we continue to sharpen our focus around disciplined buying and open-to-buy management, as I mentioned earlier, and this heightened focus will help drive our improvements from last year and will enable us to make further inventory reductions of approximately 10% in fiscal 2026, our third year in a row of structural inventory reductions. As a result, we expect an end-of-year cash balance of approximately $40 million.
That concludes our formal remarks. Christine, can you open up the line for questions?
Operator
(Operator Instructions) Eric Beder, SCC Research.
Eric Beder
(technical difficulty) in terms of the -- .
Michael Schwindle
Eric, we can barely hear you.
Eric Beder
Is that a little better?
Michael Schwindle
That's better. Thank you. That's much better.
Eric Beder
Okay. So I want to talk a little bit about some of the -- unpack some of these green shoots here a little bit. In terms of the digital marketplaces, you mentioned Target. Is the focus here, a, to add more of those? And b, what are you seeing in the differences in terms of purchasing and customer base from those items?
Jacqueline Ardrey
So Eric, it's a great question. We're definitely seeing on target marketplace that the customer doesn't look very different, and what we're selling is pretty similar to what we're selling. I think it's, again, as I mentioned, it's around being where the customer wants to shop and meeting her where she is.
And that has been -- it's been a really great development. Target marketplace has been extremely successful and much better than our expectations. So it's, again, it's really kind of helped us pivot into an indirect strategy that we think is going to bear fruit later this year.
Eric Beder
And in terms -- okay. And so in terms of collaborations and other pieces, I know last year, with all the Project Restoration and other pieces going on, it was a little bit tougher to plan that. But as you saw with Wicked, Wicked was a very strong collaboration. How should we be thinking here this year in terms of the flows of those collaborations, both in-store and, as you mentioned, like with Urban Outfitters as a collaboration out-store?
Jacqueline Ardrey
Yes. So the Wicked -- as we think about it internally, Wicked is more kind of the what we call IP or intellectual property, and so a little bit more under our control in terms of just going out and negotiating with those properties and being able to launch them on our floor. We'll see -- we did pull back a little bit during new day with the IP collections. But we obviously are seeing that IP can bring us a new -- a very desirable customer, and also our existing customer loves our IP group. So we'll definitely see a more robust IP assortment to come through this year and next year.
But then the collaborations and partnerships, some like Urban, for example, Urban Outfitters, there's -- those have really just come since New Day. So again, we've got a couple of quarters of difficult results. But all those things that we started with New Day are actually behind the scenes really starting to bear fruit in terms of brands and other companies who want to collaborate with us. So it's -- we've got a really nice pipeline even through next year now that will really help us bring new customers to the brand.
Eric Beder
Okay. And the final question here. So I know that you have done changes in terms of kind of how you've shown the product and tweaked it. They came out in February like more straps and zippers and pockets. What has been the response to that? And how do you balance -- and I know this is kind of -- it's kind of the whole point. How do you balance the old customer, new customer to make kind of both of them happy?
Jacqueline Ardrey
So first, I would say that we watch our selling very closely in terms of age ranges and new versus existing just to really understand her better and understand how -- what she's buying, what each customer is interested in. And so we take cues from that analysis to ensure that we're going forward in the right direction.
But the -- going back to your question about the straps and zippers, we don't even -- there's -- the product is still flowing in, but we clearly -- I mean, I have to own it, we made a mistake. This -- some of the styling that we replaced, it was just not something that she wanted. So as we see those styles come in, they are actually outselling at this point what the previous styles were. So we're really encouraged by that.
And as the different styles and colors continue to flow in, we're very hopeful that this customer is resilient and she sees that we're listening. She's definitely told us that, that she hears that, hey, we -- they spoke up and said, we need these things, and we gave them to her as quickly as we could. So I'm very happy about that.
Operator
(Operator Instructions) Daniel Harriman, Sidoti.
Daniel Harriman
Just a quick one for me today. And obviously, I know that the company has had to pivot many times now, and I know that's frustrating. But as we look to fiscal 2026 and beyond, just curious how you feel about your ability to pivot again if something else should come up.
And then with the revenue guide for fiscal 2026 of $280 million versus what it was in fiscal '25 without Pura Vida, should we look at that simply as the company continuing to manage the business through a conservative lens and also, obviously, the macroeconomic headwinds that the consumer is facing right now? Best of luck in the beginning of the year?
Jacqueline Ardrey
Yes. Thanks, Daniel. First, I'd like to say that the pivots that we've had to make, I think that they are to be expected given the amount of change that we drove. I mean we would have expected that there were going to be things that she didn't like and things that we needed to change. So I think the pivoting is not necessarily a bad thing. It's definitely when you kind of shake up a big promo strategy and shake up some styling, there's going to be things that you have to go back and adjust. And so we're doing that, and the team is excited and embracing it.
I do think, though, our consumer, in particular, is just stretched right now, and that is reflected in our guidance this year. We know that, especially in our outlet channels, we have a greater proportion of customers who are under $75,000 household income. And they're just not coming to the outlet stores right now. And so we are working on a lot of different strategies to improve performance within the four walls as well as marketing programs to drive people to the store. So -- but we expect that this year is going to continue to be tough, and we are just making all the adjustments that we need to based on customer feedback and our selling results.
Operator
We have reached the end of the question-and-answer session. Ms. Ardrey, I'd like to turn the floor back over to you for closing comments.
Jacqueline Ardrey
Thank you all for joining today. We look forward to talking to you next time on our next call. This concludes our remarks today. Thank you.
Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
