Vera Bradley (NASDAQ:VRA) reported higher second-quarter fiscal 2027 revenue and a return to profitability from continuing operations, as growth in its direct-to-consumer business offset a planned decline in indirect-channel sales.
Consolidated revenue increased 1.1% to $71.6 million from $70.9 million a year earlier. Non-GAAP net income from continuing operations was $3.3 million, or $0.11 per diluted share, compared with a loss of $0.5 million, or $0.02 per diluted share, in the prior-year quarter, according to Chief Operating Officer and Chief Financial Officer Martin Layding.
“The underlying health of the business continued to strengthen across our direct channels, our margin structure, and our balance sheet,” Bickley said.
Direct channel growth offsets indirect decline
Vera Bradley’s Direct segment, which represents more than 90% of company sales, posted an 8% revenue increase to $65.4 million. Comparable sales across the company’s stores and digital channels rose 9.2%, with both the full-price and outlet businesses recording positive comparable sales.
Layding said the Direct segment’s total revenue growth was reduced by about 100 basis points because the company had 14 fewer stores open than in the prior-year quarter. Bickley described the performance as the fifth consecutive quarter of sequential improvement in the Direct business.
Indirect segment revenue fell 39% to $6.3 million from $10.3 million. Management attributed the decline to intentional changes in marketplace timing and reduced liquidation sales. However, Bickley said sales to strategic wholesale accounts, including specialty retailers and department stores, showed mid-single-digit growth.
The company recently decided to reestablish an in-house sales team and discontinue its prior arrangement with a third-party sales representative agency. Bickley said the move is intended to help rebuild the wholesale business with strategic specialty and department-store accounts.
Margins aided by tariff refunds, product and freight gains
Second-quarter gross profit rose to $42.8 million, or 59.8% of net revenue, from $35.4 million, or 49.9% of net revenue, a year earlier. The company received $8 million in tariff refunds, net of interest, during the quarter. Those refunds increased gross profit by $7.7 million and inventory by $0.3 million, accounting for roughly 980 basis points of gross-margin-rate expansion from the prior year.
Excluding the tariff refunds, gross margin improved by more than 40 basis points, Bickley said. Layding cited improved product margins and freight efficiencies, partly offset by pressure from clearing non-go-forward Project Restoration merchandise.
The company said it is now beyond the halfway point in selling through its legacy Project Restoration inventory. It continued to limit promotional events while working through that merchandise, according to management.
Selling, general and administrative expense was $38.7 million, or 54% of revenue, compared with $36.3 million, or 51.2% of revenue, in the year-earlier period. Layding said the increase reflected higher variable compensation expense and comparison with stock forfeitures in the prior-year quarter related to senior leadership changes.
Operating income from continuing operations totaled $4.3 million, or 5.9% of revenue, compared with an operating loss of $0.6 million a year earlier.
Inventory and liquidity improve
Inventory declined 28.4% year over year to $69.3 million from $96.7 million. Layding said the reduction reflected improved assortment planning, sales performance and a $5.3 million Project Restoration inventory reserve.
Cash and cash equivalents totaled $34.2 million at quarter-end, compared with $15.2 million a year earlier, and the company had no borrowings under its asset-based lending facility. Cash flow for the quarter increased $21.7 million, compared with an increase of $3.9 million in the prior-year period, driven primarily by tariff refunds, inventory management and improved accounts receivable, Layding said.
In response to an analyst question, Layding said inventory is expected to continue declining through the end of fiscal 2027 before potentially increasing modestly next year as the business grows. He said the company remains focused on improving inventory turns into a range of two to three.
Back-to-school, product and channel initiatives
Bickley said back-to-school sales increased from a year earlier as the season gained momentum during the latter half of the quarter. The company’s back-to-school and holiday assortments marked the first period in which 100% of the assortment reflected the company’s current product strategy.
Management highlighted contributions from cotton products, Vera Originals and intellectual-property collaborations. Hello Kitty performed strongly during the back-to-school period, while Winnie the Pooh, Disney Princesses, Star Wars droids, Stitch and Honeydukes products also performed well, according to Bickley.
During the question-and-answer session, Bickley said one back-to-school learning involved an opportunity to offer coordinating lunch bags with backpack prints. He said the company intends to continue emphasizing the back-to-school occasion and is approaching holiday assortment planning with the same focus on product, prints, accessories and small bags for gifting.
Vera Bradley also said its Outlet 2.0 test stores delivered improved sales, conversion and gross-margin results compared with control stores. The company is developing a broader “One Vera” strategy intended to create a more consistent brand experience across channels.
For fiscal 2027, Vera Bradley reiterated guidance for sales of $255 million to $270 million and year-over-year operating-profit improvement of at least 50%. Management said it expects continued full-year gross-margin improvement while maintaining cost discipline.
About Vera Bradley (NASDAQ:VRA)
Vera Bradley, Inc (NASDAQ: VRA) is a lifestyle and accessories designer specializing in colorful, patterned handbags, luggage, travel accessories and coordinated home décor. Founded in 1982 by Barbara Bradley Baekgaard and Patricia R. Miller, the company first gained recognition for its quilted cotton bags sold at craft shows before expanding into an established fashion brand. Headquartered in Fort Wayne, Indiana, Vera Bradley has built a reputation for distinctive prints and functional design aimed primarily at women’s casual and travel needs.
The company’s product portfolio includes day bags, weekenders, backpacks, wallets, and organizational cases, as well as an expanding range of travel gear such as rolling luggage and travel pouches.
