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Item 7. Management’s Discussion and Analysis

2021-03-30 compared with 2020-03-31 · 281 added, 351 removed, 268 unchanged (70% of the section changed)

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See “Forward-Looking Statements.” These forward-looking statements are subject to numerous risks and uncertainties, including those described under “Risk Factors.” Our actual results could differ materially from those suggested or implied by any forward-looking statements.

The COVID-19 Pandemic

The COVID-19 pandemic resulted in travel restrictions both domestically and internationally, community and self-quarantines, certain factory closures or reduced operations, as well as mall closures and reduced mall operating hours during fiscal 2021.

Although e-commerce operations remained open for both of our brands, the aforementioned items had a material adverse impact on overall consumer demand, traffic, and sales.

We cannot currently predict the extent that COVID-19 will impact our future liquidity, operating results, and financial condition, but it could have a significant adverse effect on these metrics.

Beginning in mid-March 2020, we began taking several actions to navigate the COVID-19 pandemic, protect our financial position, maximize our liquidity, and to position the Company for a strong reopening and future.

These actions included:

• Temporarily closing all Vera Bradley store locations on March 19;

• Temporarily furloughing approximately 80% of our workforce mid first quarter;

• Temporarily reducing base compensation for remaining salaried associates, with reductions on a graduated scale ranging from 15% to 30%, and 75% for our Chief Executive Officer;

• Temporarily suspending cash compensation to our Board of Directors;

• Temporarily suspending our share repurchase program;

• Drawing $60.0 million of our $75.0 million Credit Agreement;

• Temporarily eliminating the Company 401(k) and associate charitable contribution matches;

• Tightly managing inventory levels through the cancellation of purchase orders, delay of receipts, or seeking price concessions where possible;

• Actively working with landlords on addressing rent abatement, payment terms, accelerating store closures, and delaying or cancelling certain planned new store openings;

• Reducing non-payroll operating expenses, including but not limited to, marketing and travel;

• Extending vendor payment terms.

Update on COVID-19 Actions as of January 30, 2021

On May 5, 2020, we began to open our Vera Bradley retail stores in a phased approach.

All factory and full line stores were opened as of the end of the fiscal year, although with reduced hours, lower staffing levels, reduced foot traffic, and greatly enhanced safety protocols.

The sales of cotton face masks, coupled with a full year of Pura Vida operations, helped to offset sales declines otherwise associated with Vera Bradley.

Net revenues from masks represented approximately 10% of consolidated net revenues for fiscal 2021.

We have brought back substantially all of our associates from furlough;

reinstated the base compensation reductions;

reinstated the cash compensation to our Board of Directors;

paid back $60.0 million of borrowings under our Credit Agreement, leaving us with no debt as of the end of the fiscal year;

and reinstated the 401(k) match in January 2021.

We continued to manage operating expenses and inventory levels, and work with landlords on rent abatement and payment terms, which helped in the achievement of expense leverage.

In addition, the Company is leveraging elements of the Coronavirus Aid Relief and Economic Security (CARES) Act.

The CARES Act tax provisions include retention credits, the deferral of the employer portion of certain payroll taxes, and tax benefits related to a net operating loss carryback.

Executive Summary

As more fully described herein, fiscal 2020 was the second full year of our Vision 20/20 strategic plan, which we began implementing in the third quarter of fiscal 2018.

During fiscal 2020, our key focus areas were on growth, operational excellence, and ownership.

We also achieved various strategic product, distribution, and marketing initiatives.

Strategic Progress

We acquired a majority interest in Pura Vida.

We made progress on our Vision 20/20 initiatives, including:

Generating Vera Bradley comparable sales growth of 3.4% despite the challenging handbag and accessories environment;

Successfully mitigating the impact of increased tariffs;

Beginning the process of re-platforming our technology systems to be more streamlined, nimble, and efficient.

As more fully described herein, fiscal 2021 was the final year of our Vision 20/20 strategic plan, which we began implementing in the third quarter of fiscal 2018.

Despite the COVID-19 situation, we strengthened our infrastructure and better positioned both the Pura Vida and Vera Bradley brands for the future.

Strategic Progress Highlights

• In the Information Technology area:

• We completed Project Novus, our information technology platform conversion, migrating our e-commerce site to cloud-based Shopify Plus and replacing our existing ERP, POS, Business Intelligence, and Order Management systems with cloud-based Microsoft D365.

This conversion not only decreased the complexity of our IT systems but has provided us with a more efficient technology platform enabling our entire enterprise to make quick, data-based, informed decisions in order to further enhance our customer experience and achieve our long-term growth objectives.

• In the Vera Bradley product area:

We continued to establish our key franchise areas of Youth/Campus, Travel, and Everyday, which includes our top 10 items.

We developed a pipeline for innovative fabrications and silhouettes to drive customer engagement and modernization of the brand.

We launched our first in a series of performance fabrics called Performance Twill, which is lightweight, durable, and water-repellent.

We introduced our environmentally-friendly Re-Active collection, made of fabric from recycled plastic bottles.

We introduced the sling along with our Lay Flat collection, versatile travel pieces that unzip on three sides for easy accessibility.

The Accessories Council selected Vera Bradley’s Lay Flat Duffel as a winner for its Design Excellence Awards in the Travel/Luggage Category.

We successfully introduced collaborations with several iconic brands, including Starbucks, Crocs, Disney, and Gillette Venus to create and sell limited-edition product collections.

The Vera Bradley + Venus razor collaboration was recognized in People Magazine’s “Best New Beauty Products of 2019 Awards.” We announced a collaboration with Warner Bros.

Consumer Products to create a Vera Bradley + Harry Potter back-to-campus and dorm line, which will launch in summer 2020.

We expanded our customization program, where customers can design their own bag by mixing patterns and solids along with creating embroidered personalization both inside and out.

• We quickly reacted to the consumer demand for personal protective equipment, producing and selling millions of cotton face masks, generating meaningful revenue and gross margin dollars for the fiscal year.

• We continued another year of collaborations with several iconic brands, including Crocs, Disney, and Gillette Venus to create and sell limited-edition product collections;

introduced our signature masks and 1982 backpacks in Target stores and on target.com;

and launched our collaboration with Warner Bros.

Consumer Products for the creation of our Harry Potter™ + Vera Bradley collection.

• In the Vera Bradley distribution area:

We opened six new factory stores, relocated and expanded three of our top factory stores, and closed 11 underperforming full-line stores, ending the fiscal year with 88 full-line stores and 63 factory locations.

Our annual outlet sale gathered nearly 43,000 brand loyalists and generated sales of over $6 million during the five-day event, highlighting our strong customer community.

Our online outlet flash sales allowed us to sell clearance merchandise in a more discreet manner.

• We continued to strengthen and rationalize our store base.

We opened six new factory stores and closed 13 underperforming full-line stores, ending the fiscal year with 75 full-line and 69 factory locations.

• We expanded and strengthened our partnerships with key online retailers such as Amazon.

• In the Vera Bradley marketing area:

We completed the in-sourcing of our customer data science team, added to our business analytics group, and completed the roll-out of our new customer data platform.

The insights gained from our robust data now allow us to adjust our marketing mix and approach on a real-time basis.

Our “digital first” strategy, focused on targeted digital efforts, increased brand awareness, with total impressions up more than 170% to over 5.7 billion for the year.

Under the umbrella of VB Cares, we reinforced our position as a total stakeholder-focused and socially-conscious organization and continued to strengthen our community support and charitable initiatives that are meaningful to our customers and that make a significant impact on those in need, particularly women and children.

Efforts included supporting New Hope Girls, our national “Blessings in a Backpack” program, and the Vera Bradley Foundation for Breast Cancer.

We supported nearly 30 different charitable organizations in fiscal 2020.

• We successfully launched our new verabradley.com site which allowed us to improve our customer’s online buying experience.

We added a number of key site capabilities to support customers who shifted to online purchasing during the pandemic.

• Our investments in customer data science and business analytics positioned us to navigate through the pandemic, allowing us to collect and analyze data and respond to customer changes and adjust marketing spend in an agile way.

• We reinforced our commitment to be an ESG-driven organization.

• We continued to strengthen our community support and charitable efforts under the umbrellas of VB Cares, particularly through organizations that can profoundly improve the lives of women and children, including raising and donating $1.4 million to the Vera Bradley Foundation Center for Breast Cancer Research, over $630,000 to the Coronavirus Response Fund for Nurses, and donations to New Hope Girls, Blessings in a Backpack, and other causes.

• As another aspect of VB Cares focused on caring for our associates, we paid over $800,000 in bonuses to those serving on the front lines during the pandemic.

Our associate engagement scores also continued to be best in class, underscoring the engagement and commitment from our talented teams.

• For Pura Vida :

We continued to experiment with and introduce new designs in signature cord bracelets and jewelry, as well as introducing new products including the mood ring and bracelet, enameled daisy collection, semi-precious stone charms, and stone hoops.

We reached over $2.0 million in lifetime charitable contributions from charity bracelets.

We surpassed 1.9 million Instagram followers.

Instagram followers, Facebook likes, and monthly club subscribers all rose during the fiscal year.

• Using Vera Bradley’s global sourcing expertise, we significantly strengthened Pura Vida’s supply chain, diversifying raw material sourcing, and adding three additional production facilities in countries outside of El Salvador.

• We re-examined promotional activity and eliminated deep discounting, particularly around Black Friday, which led to gross margin rate improvement.

• In the Pura Vida Product area:

• Pura Vida continued to show strength as a lifestyle brand by successfully expanding into new product categories.

Nearly 50% of our e-commerce business is now comprised of jewelry categories other than traditional string bracelets, such as metal, semi-precious stones, charms, and the engravable collection,

underscoring the brand’s lifestyle appeal.

We believe this lifestyle appeal will continue to be a key driver of growth.

• Charity bracelets remained an important element of the Pura Vida lifestyle and an important draw for our cause-minded customers.

Since inception, Pura Vida has donated over $3.0 million to more than 200 charities.

• In the Pura Vida Distribution area:

• Pura Vida expanded on the distribution front by launching fulfillment capabilities in Canada and entering into a third-party agreement for the wholesale distribution of our products in Europe to complement our existing e-commerce business and third-party operations there.

• We added Pura Vida shop-in-shops to six full-line Vera Bradley stores and expanded our presence in wholesale partners with larger in-store presentations.

• In the Pura Vida Marketing area:

• Our brands in the accessories space remained one of the most highly-engaged brands in terms of social media engagement, with over 2.0 million Instagram followers.

We are consistently listed as one of the most, if not the most, engaged jewelry brands on Instagram.

TikTok exposure also increased with over 200,000 followers, a team of Brand Ambassadors, and close to 150,000 micro influencers who collectively are an active part of the brand and a key part of our marketing strategy.

Financial Summary

Fiscal 2020 results included Pura Vida operations as of July 17, 2019, the first full-day following the acquisition.

Refer to "The COVID-19 Pandemic" for additional information regarding the impacts of the pandemic on fiscal 2021 financial results.

Fiscal 2020 results (our prior fiscal year) included Pura Vida operations as of July 17, 2019, the first full-day following the acquisition.

• Net revenues were $468.3 million in fiscal 2021 compared to $495.2 million in fiscal 2020.

• Vera Bradley Direct (“VB Direct”) segment sales were $289.3 million in fiscal 2021 compared to $347.5 million in fiscal 2020.

Comparable sales for fiscal 2020 increased 3.4% .

• Vera Bradley Indirect (“VB Indirect”) segment sales were $66.5 million in fiscal 2021 compared to $81.8 million in fiscal 2020.

Pura Vida segment sales were $65.9 million in fiscal 2020.

• Pura Vida segment sales were $112.5 million in fiscal 2021 compared to $65.9 million for the partial period since the acquisition.

• Gross profit was $265.5 million (56.7% of net revenue) in fiscal 2021 compared to $271.8 million (54.9% of net revenue) in fiscal 2020.

COVID-19-related purchase order cancellations totaled $1.3 million (0.3% of net revenue) during fiscal 2021.

Inventory step-up amortization related to the Pura Vida acquisition totaled $8.3 million (1.7% of net revenue) during fiscal 2020.

• SG&A expenses were $252.6 million (53.9% of net revenue) in fiscal 2021 compared to $253.4 million (51.2% of net revenue) in fiscal 2020.

SG&A expenses include $8.0 million of Pura Vida purchase-related net charges and $3.0 million of charges related to the Company’s technology-related re-platforming during fiscal 2020.

• During fiscal 2021, SG&A expenses included $9.2 million of Pura Vida purchase-related charges;

$7.4 million of store asset impairment charges;

$2.7 million of charges related to Project Novus;

and $0.2 million of COVID-19-related charges.

• During fiscal 2020, SG&A expenses included $8.0 million of Pura Vida purchase-related charges and $3.0 million of charges related to Project Novus.

• Operating income was $13.1 million (2.8% of net revenue) in fiscal 2021 compared to $19.5 million (3.9% of net revenue) in fiscal 2020.

Operating income was negatively impacted by Pura Vida purchase-related net charges of $16.3 million and charges of $3.0 million related to the Company’s technology-related re-platforming.

• During fiscal 2021, operating income was negatively impacted by $9.2 million of Pura Vida purchase-related charges;

$7.4 million of store asset impairment charges;

$2.7 million of charges related to Project Novus;

and $1.5 million of COVID-19-related charges.

• During fiscal 2020, operating income was negatively impacted by Pura Vida purchase-related charges of $16.3 million and charges of $3.0 million related to Project Novus.

• Net income attributable to Vera Bradley, Inc.

was $8.7 million in fiscal 2021 compared to $16.0 million in fiscal 2020.

Net income attributable to Vera Bradley, Inc.

was negatively impacted by Pura Vida purchase-related net charges of $9.7 million and charges of $2.4 million related to the Company’s technology-related re-platforming.

• During fiscal 2021, net income attributable to Vera Bradley, Inc.

was negatively impacted by $4.5 million of store asset impairment charges;

$5.0 million of Pura Vida purchase-related charges;

$2.1 million of charges related to Project Novus;

and $1.1 million of COVID-19-related charges.

• During fiscal 2020, net income attributable to Vera Bradley, Inc.

was negatively impacted by Pura Vida purchase-related charges of $9.7 million and charges of $2.4 million related to Project Novus.

• Diluted net income per share was $0.26 in fiscal 2021 compared to $0.47 in fiscal 2020.

The Pura Vida purchase-related net charges and the Company’s technology re-platforming negatively impacted diluted net income per share by $0.35 in fiscal 2020.

Cash, cash equivalents, and investments were $73.8 million at February 1, 2020 compared to $156.6 million at February 2, 2019 .

The aforementioned charges negatively impacted net income per share by $0.38 and $0.35 in fiscal 2021 and 2020, respectively.

• Cash, cash equivalents, and investments were $65.5 million at January 30, 2021 compared to $73.8 million at February 1, 2020.

The Company provided cash consideration of $76.0 million during fiscal 2020 for the Pura Vida acquisition.

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and royalties recognized through licensing agreements related to the Vera Bradley brand.

Revenues for the Pura Vida segment reflect revenues generated through the Pura Vida websites, www.puravidabracelets.com and www.puravidabracelets.eu, and through the distribution of Pura Vida-branded products to wholesale retailers.

Revenues for the Pura Vida segment reflect revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca, and through the distribution of Pura Vida-branded products to wholesale retailers.

Comparable Sales

Comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our Vera Bradley e-commerce operations.

Pura Vida e-commerce operations are not currently included within comparable sales, but will be considered comparable sales once reflected in the Company’s operations for 12 full fiscal months.

Typically, comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our Vera Bradley e-commerce operations.

Pura Vida e-commerce operations are included within the Company's comparable sales beginning with the fiscal 2021 third quarter.

Pura Vida e-commerce operations include sales from the subscription club.

Comparable store sales are calculated based solely upon stores that have been open for at least 12 full fiscal months.

Remodeled stores are included in both comparable sales and comparable store sales unless the store was closed for more than one week of the current or comparable prior period, in which case the non-comparable temporary closure periods are not included, or the remodel resulted in a significant change in square footage.

Fiscal 2019 comparable sales do not adjust for the shift in weeks during the period associated with the 53rd week in fiscal 2018.

Some of our competitors and other retailers calculate comparable or “same store” sales differently than we do.

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Non-comparable sales include sales from stores not included in comparable sales or comparable store sales.

Measuring the change in year-over-year comparable sales allows us and our investors to evaluate how our store base and e-commerce operations are performing.

As a result of the temporary closure of all Vera Bradley stores due to COVID-19 during portions of the first and second quarters, the Company's fiscal 2021 comparable store sales and comparable sales calculations are not meaningful and therefore are not provided.

Typically, measuring the change in year-over-year comparable sales allows us and our investors to evaluate how our store base and e-commerce operations are performing.

Various factors affect our comparable sales, including:

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• Consumer preferences and fashion trends;

Timing of our releases of new patterns and collections;

• Competition;

• The timing of our releases of new patterns and collections;

• Changes in our product mix;

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• Amount of store, mall, and e-commerce traffic;

Level of customer service that we provide in stores and to our on-line customers;

• The level of customer service that we provide in stores and to our on-line customers;

• Our ability to source and distribute products efficiently;

Number of stores we open and close in any period;

Timing and success of promotional and marketing efforts.

• The number of stores we open and close in any period;

• The timing and success of promotional and marketing efforts.

Gross profit is equal to our net revenues less our cost of sales.

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and administrative expenses.

Selling expenses include VB Direct business expenses, such as store expenses, employee compensation, and store occupancy and supply costs, VB Indirect business expenses consisting primarily of employee compensation and other expenses associated with sales to Indirect retailers, as well as Pura Vida business expenses primarily related to employee compensation.

Selling expenses include:

• VB Direct business expenses, such as store expenses, employee compensation, and store occupancy and supply costs;

• VB Indirect business expenses consisting primarily of employee compensation and other expenses associated with sales to Indirect retailers;

• Pura Vida business expenses primarily related to employee compensation.

Advertising, marketing, and product development expenses include employee compensation, media costs, creative production expenses, marketing agency fees, new product design costs, public relations expenses, and market research expenses.

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Administrative expenses include employee compensation for corporate functions, corporate headquarters occupancy costs, consulting and software expenses, and charitable donations.

Other income includes certain legal settlements, proceeds from the sales of tickets to our annual outlet sale, and sales tax credits received for timely filings.

Other income includes certain legal settlements, proceeds from the sales of tickets to our annual outlet sale (for fiscals 2020 and 2019), and sales tax credits received for timely filings.

In addition, we support many of our Indirect retailers’ marketing efforts by distributing certain catalogs and promotional mailers to current and prospective customers.

Our Indirect retailers reimburse us for a portion of the cost to produce these materials.

Our Vera Bradley Indirect retailers reimburse us for a portion of the cost to produce these materials.

Reimbursement received is recorded as other income.

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Net income is equal to income before income taxes less income tax expense.

Net Loss Attributable to Redeemable Noncontrolling Interest

Net loss attributable to redeemable noncontrolling interest represents the operating results of Pura Vida that are not attributable to Vera Bradley, Inc.

based on Vera Bradley Inc.’s seventy-five percent (75%) ownership interest in Pura Vida.

Net Income (Loss) Attributable to Redeemable Noncontrolling Interest

Net income (loss) attributable to redeemable noncontrolling interest represents the operating results of Pura Vida that are not attributable to Vera Bradley, Inc.

Net Income Attributable to Vera Bradley, Inc.

Net income attributable to Vera Bradley, Inc.

is equal to net income less net loss attributable to redeemable noncontrolling interest.

2019 Novel Coronavirus (COVID-19)

COVID-19, first identified in Wuhan, China, has led to work and travel restrictions within, to, and out of mainland China, as well as temporary factory closures or production and logistics constraints due to workforce availability in China.

Although we continue to reduce our reliance on production from China, we expect our China production to be approximately 20% during fiscal 2021.

As a result of the aforementioned restrictions, we may experience delayed shipments and increased shipping costs for some of our fiscal 2021 merchandise.

Travel restrictions, mall closures or reduced mall operating hours, and community and self-quarantines related to the pandemic could have a material adverse impact on the Company’s revenues and profits.

As a result, the Company’s liquidity, results of operations, and financial condition could be materially adversely impacted.

In light of the pandemic, we have temporarily closed our retail stores.

The stores are currently closed through April 4, 2020;

however, some or all of the closures will likely continue beyond this date.

Sales have declined as a result of the impact on consumer demand and the reduced store operations.

Our e-commerce sites for Vera Bradley and Pura Vida are still in operation.

We cannot predict the impact of COVID-19 at this time due to the uncertainty of the duration and impact on overall demand.

We had $73.8 million in cash and investments as of February 1, 2020, with no borrowings under our Credit Agreement, further described in Liquidity and Capital Resourced herein.

Subsequent to the end of the fiscal year, we have drawn $60.0 million of our $75.0 million Credit Agreement to provide additional flexibility.

is equal to net income less net income (loss) attributable to redeemable noncontrolling interest.

Pura Vida Acquisition

On July 16, 2019, the Company completed its acquisition of a seventy-five percent (75%) ownership interest in Creative Genius, Inc.

which also operates under the name Pura Vida Bracelets (“Pura Vida”) (the “Transaction”) in exchange for cash consideration of approximately $75.0 million .

or Pura Vida (the “Transaction”) in exchange for total cash consideration of approximately $75.0 million.

During the third quarter of fiscal 2020, the Company provided additional cash consideration of approximately $3.0 million for a working capital adjustment.

In accordance with the Interest Purchase Agreement, the Company also agreed to a contingent payment of up to $22.5 million based on calendar year 2019 adjusted EBITDA of Pura Vida, as defined in the Interest Purchase Agreement.

This contingent payment is recorded as an earn-out liability on the Company’s Consolidated Balance Sheets at its estimated amount payable of $18.4 million .

Subsequent to the end of the fiscal year, the Company paid the earn-out liability.

The Company also received a working capital reimbursement of $1.0 million during the first quarter of fiscal 2021.

Additional measurement period adjustments were recorded for conditions that existed as of the acquisition date.

Pura Vida, based in La Jolla, California, is a growing, digitally native, and highly engaging lifestyle brand that deeply resonates with its loyal consumer following.

The Pura Vida brand has a differentiated and expanding offering of bracelets, jewelry, and other lifestyle accessories.

The Company believes that the acquisition strengthened the Company by providing increased product diversification and future growth opportunities partially as a result of resource and knowledge-sharing.

In accordance with the Interest Purchase Agreement, the Company also agreed to a contingent payment of up to $22.5 million payable during the first quarter of calendar year 2020 based on calendar year 2019 adjusted EBITDA of Pura Vida, as defined in the Interest Purchase Agreement.

This contingent payment was made during the first quarter of fiscal 2021 totaling $18.7 million.

The Company’s existing available cash, cash equivalents, and investments funded the purchase price due at the closing of the Transaction and subsequent to the closing.

On July 16, 2019, as contemplated by the Interest Purchase Agreement, the Company and certain of its subsidiaries and the owners of the remaining twenty-five percent (25%) ownership interest in Pura Vida (the “Sellers”) which was not indirectly acquired by the Company (the “Remaining Pura Vida Interest”) entered into a Put/Call Agreement (the “Put/Call Agreement”).

Pursuant to the Put/Call Agreement, and subject to the terms and conditions thereof, the Sellers have the right to sell all of the Remaining Pura Vida Interest to the Company, and the Company has the right to purchase all of the Remaining Pura Vida Interests from the Sellers, in each case generally at any time following the fifth anniversary of the closing date of the Transaction until the tenth anniversary thereof.

The purchase price for any Remaining Pura Vida Interest put to, or called by, the Company will be determined based on the arithmetic average of a multiple of adjusted EBITDA of Pura Vida and a multiple of adjusted EBITDA of the Company, as defined in the Put/Call Agreement, over the twelve-month period ending on the last day of the month immediately preceding the month in which an exercise notice is delivered by a relevant party.

In the event of a change in control of the Company, the parties may exercise a portion of their put and call rights prior to the fifth anniversary of the closing date (as defined in the Put/Call Agreement).

There were no transaction costs during fiscal 2021.

Pre-tax transaction costs totaled $2.7 million for fiscal 2020.

These costs are recorded within selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations and within corporate unallocated expenses.

Pura Vida has been fully consolidated within our financial statements beginning on July 17, 2019, the first full day following the acquisition.

Pura Vida was also added as a reportable segment as a result of the acquisition.

Refer to Note 16 to the Notes to the Consolidated Financial Statements herein for additional information regarding the Pura Vida acquisition.

We adopted Accounting Standards Codification (“ASC”) Topic 842, Leases, beginning in the first quarter of fiscal 2020 using the modified retrospective adoption method.

The adoption of this standard impacted fiscal 2020 beginning retained earnings by $0.2 million .

As a result of the adoption of ASC Topic 842 using the modified retrospective method, the financial statements from the prior-year period are not reported under ASC Topic 842 which affects the comparability of the Consolidated Financial Statements.

The primary impact from the adoption of the standard is the addition of right-of-use assets and lease liabilities on the Company's Consolidated Balance Sheet.

The Consolidated Statements of Cash Flows also had material presentation changes within operating activities upon adoption.

The adoption of this standard had no impact on the Consolidated Statements of Operations.

Refer to Notes 2 and 4 to the Notes to the Consolidated Financial Statements herein for additional information.

Vision 20/20 Initiatives

Fifty-Three Weeks Ended February 3, 2018

During fiscal 2018, we launched our Vision 20/20 strategic plan, which involves a more aggressive approach to turn around our business by the end of fiscal 2021.

This plan is primarily focused on product and pricing initiatives, as well as SG&A expense reduction initiatives.

The product and pricing initiatives include restoring our full-price business by significantly reducing the amount of clearance merchandise offered on verabradley.com and in our full-line stores, streamlining current product offerings by eliminating unproductive or incongruent categories and SKUs from our assortment, and introducing tighter guardrails around new categories, patterns, and pricing.

These initiatives negatively impacted fiscal 2019 revenues.

The SG&A expense reduction initiatives include right-sizing our corporate infrastructure to better align with the size of the business, optimizing our marketing spending by focusing on efficiencies while keeping our most loyal customer engaged, and taking a more aggressive stance on reducing store operating costs and closing underperforming full-line stores.

We reduced SG&A expenses by $23.5 million in fiscal 2019 (based off of our fiscal 2017 base level and excluding severance, store impairment, and Vision 20/20 charges from all periods).

We have closed a total of 26 underperforming full-line stores and one underperforming factory outlet store since the beginning of fiscal 2018 and forecast that we will close additional full-line stores.

The implementation of the plan began in the third quarter of fiscal 2018, with the majority of the product and pricing initiatives completed in fiscal 2019.

As previously mentioned, fiscal 2020 was focused on growth, operational excellence, and ownership.

The SG&A expense reductions began in the third quarter of fiscal 2018, largely aimed at right-sizing our corporate infrastructure.

There have been $16.7 million of pre-tax Vision 20/20-related charges ($10.6 million after the associated tax benefit) since inception, all of which were recognized during fiscal 2018.

There were no Vision 20/20-related charges during fiscal 2019 or fiscal 2020.

We incurred the following Vision 20/20-related charges during the fiscal year ended February 3, 2018 (in thousands):

Statements of Income Line Item

Total Expense

Reportable Segment

Unallocated Corporate Expenses

Cost of Sales

Asset impairment charges (1)

Strategic consulting charges (2)

Severance charges

Inventory-related charges (3)

Other charges (4)

(1) Refer to Note 5 to the Notes to the Consolidated Financial Statements herein for additional details

(2) Consulting charges for the identification and implementation of Vision 20/20 initiatives

(3) Inventory adjustments for the discontinuation of certain inventory categories

(4) Includes a net lease termination charge and accelerated depreciation charges

(5) After the associated tax benefit, the charges totaled $10.6 million

On December 22, 2017, the Tax Act was signed into law.

The Tax Act includes, among other things, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, bonus depreciation that allows for full expensing for qualified property, the transition of U.S.

international taxation from a worldwide system to a territorial system with a new provision designed to tax global intangible low-taxed income (“GILTI”), and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.

As a result of the enactment of the Tax Act, we recorded $2.1 million in provisional income tax expense during the fourth quarter of fiscal 2018 based upon our understanding of the Tax Act and guidance as of the date of the fiscal 2018 filing.

There were no material changes to the provisional estimates upon completion of the accounting during fiscal 2019.

Refer to Note 7 to the Notes to the Consolidated Financial Statements herein for additional information regarding the Tax Act.

Pura Vida was also added as a reportable segment as a result of the acquisi tion.

Refer to Note 15 to the No tes to the Consolidated Financial Statements herein for additional information regarding the Pura Vida acquisition.

Impairment Charges

Property, plant, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Property, plant, and equipment and lease right-of-use assets (the "asset group" for store-related assets) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable.

The reviews are conducted at the lowest identifiable level of cash flows.

If the estimated undiscounted future cash flows related to the property, plant, and equipment are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, as further defined in Note 2 to the Notes to the Consolidated Financial Statements herein.

Impairment charges of $6.3 million were recognized in the fiscal year ended February 3, 2018 for assets related to underperforming stores and are included in SG&A expenses in the Consolidated Statements of Operations and in impairment charges in the Consolidated Statements of Cash Flows.

If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, as further defined in Note 2 to the Notes to the Consolidated Financial Statements herein.

Impairment charges of $7.4 million were recognized in the fiscal year ended January 30, 2021 for property, plant, and equipment assets and lease right-of-use assets related to underperforming stores and are included in SG&A expenses in the Consolidated Statements of Operations and in impairment charges in the Consolidated Statements of Cash Flows.

The impairment charges are included in the VB Direct segment.

There were no impairment charges recorded during the fiscal years ended February 1, 2020 or February 2, 2019.

Revenue from Contracts with Customers

We adopted Accounting Standards Codification (“ASC”) Topic 606 beginning in the first quarter of fiscal 2019 using the modified retrospective adoption method.

The adoption of this standard impacted fiscal 2019 beginning retained earnings by $0.5 million .

As a result of the adoption of ASC Topic 606 using the modified retrospective method, the financial statements from the prior-year periods are not reported under ASC Topic 606 which affects the comparability of the Consolidated Financial Statements.

The primary impacts from the adoption of the standard are that we are no longer reversing sales associated with shipments not yet received by customers, gift card breakage revenue recognition is accelerated, a change in the method of

recognizing minimum guaranteed royalties in certain licensing agreements, and the re-classification of certain liabilities for estimated product returns to other accrued liabilities from a contra-asset within accounts receivable, net, in the fiscal 2019 period.

Refer to Note 3 to the Notes to the Consolidated Financial Statements herein for additional information, as well as what the reported financial results would have been under prior accounting principles generally accepted in the United States (“GAAP”).

The COVID-19 pandemic, including the temporary closure of Vera Bradley retail stores beginning in mid-March, significantly impacted the Company's operations and cash flows which was the main driver of the impairment charges.

We are unable to predict the extent of the impact that the COVID-19 pandemic will have on our operations, the economy, or other factors;

therefore, it is possible additional impairments could be identified in future periods, and such amounts could be material.

Results of Operations

1 unchanged sentence

Fiscal 2020 includes Pura Vida operations beginning on July 17, 2019, the first full business day following the acquisition.

Prior periods have not been recast.

Fiscal 2019 has not been recast to include the results of Pura Vida.

Refer to Note 15 to the Notes to Consolidated Financial Statements herein for additional information.

Fiscal Year Ended (1)

($ in thousands)

($ in thousands) January 30,

2021 February 1,

2020 February 2,

Statement of Income Data:

Net revenues $ 468,272 $ 495,212 $ 416,097

Cost of sales 202,754 223,411 177,510

Gross profit 265,518 271,801 238,587

Selling, general, and administrative expenses (2)

252,588 253,425 211,984

Other income 135 1,098 498

Operating income 13,065 19,474 27,101

Interest income, net

Interest expense (income), net 1,203 (1,085) (1,125)

Income before income taxes 11,862 20,559 28,226

Income tax expense (3)

1,173 5,315 7,469

Net income 10,689 15,244 20,757

Net loss attributable to redeemable noncontrolling interest

Net income (loss) attributable to redeemable noncontrolling interest 2,008 (803) —

Net income attributable to Vera Bradley, Inc.

$ 8,681 $ 16,047 $ 20,757

Percentage of Net Revenues:

Net revenues 100.0 % 100.0 % 100.0 %

Cost of sales 43.3 % 45.1 % 42.7 %

Gross profit 56.7 % 54.9 % 57.3 %

Selling, general, and administrative expenses 53.9 % 51.2 % 50.9 %

Other income — % 0.2 % 0.1 %

Operating income 2.8 % 3.9 % 6.5 %

Interest income, net

Interest expense (income), net 0.3 % (0.2) % (0.3) %

Income before income taxes 2.5 % 4.2 % 6.8 %

Income tax expense 0.3 % 1.1 % 1.8 %

Net loss attributable to redeemable noncontrolling interest

Net income 2.3 % 3.1 % 5.0 %

Net income (loss) attributable to redeemable noncontrolling interest 0.4 % (0.2) % — %

Net income attributable to Vera Bradley, Inc.

The following tables present net revenues by operating segment, both in dollars and as a percentage of our net revenues, and full-line and factory outlet store data for the last three fiscal years:

1.9 % 3.2 % 5.0 %

The following tables present net revenues by operating segment, both in dollars and as a percentage of our net revenues, and Vera Bradley full-line and factory outlet store data for the last three fiscal years:

Fiscal Year Ended (1)

($ in thousands, except as otherwise indicated)

($ in thousands, except as otherwise indicated) January 30,

2021 February 1,

2020 February 2,

Net Revenues by Segment:

VB Direct $ 289,274 $ 347,484 $ 328,034

VB Indirect 66,517 81,811 88,063

Pura Vida 112,481 65,917 —

Total $ 468,272 $ 495,212 $ 416,097

Percentage of Net Revenues by Segment:

VB Direct 61.8 % 70.2 % 78.8 %

VB Indirect 14.2 % 16.5 % 21.2 %

Pura Vida 24.0 % 13.3 % — %

Total 100.0 % 100.0 % 100.0 %

Fiscal Year Ended

Store Data (5) :

2021 February 1,

2020 February 2,

Vera Bradley Store Data (4) :

Total stores opened during period 6 6 6

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Comparable sales (including e-commerce) increase (decrease) (5)

NM 3.4 % (10.3) %

Total gross square footage at end of period 380,100 386,028 379,792

Average net revenues per gross square foot (6)

NM $ 652 $ 635

(1) The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to January 31.

Fiscal years 2021, 2020, and 2019 consisted of 52 weeks.

Fiscal year 2018 consisted of 53 weeks.

The extra week contributed approximately $4.1 million in net revenues and added an estimated $0.01 to diluted net income per share in fiscal 2018.

By segment, the extra week contributed net revenues of approximately $3.0 million to VB Direct and $1.1 million to VB Indirect in fiscal 2018.

Impairment charges, related to underperforming stores, totaled $6.3 million during the fiscal year ended February 3, 2018.

(2) Impairment charges, related to underperforming stores, totaled $7.4 million during the fiscal year ended January 30, 2021.

There were no impairment charges recorded during the fiscal years ended February 1, 2020 and February 2, 2019.

Fiscal 2018 includes a $2.1 million net charge as a result of the Tax Act.

Refer to Note 7 to the Notes to the Consolidated Financial Statements herein for additional information.

Refer to Note 3 to the Notes to the Consolidated Financial Statements herein regarding adoption of ASC 606, Revenue from Contracts with Customers, which was effective beginning in fiscal 2019.

Also refer to Note 14 regarding Vision 20/20-related charges affecting the comparability of financial information.

(3) Includes a $2.8 million tax benefit related to the net operating loss carryback provisions of the CARES Act in fiscal 2021.

(4) Includes Vera Bradley full-line and factory outlet stores.

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Remodeled stores are included in comparable sales unless the store was closed for a portion of the current or comparable prior period, in which case the non-comparable temporary closure periods are not included, or the remodel resulted in a significant change in square footage.

Calculation excludes sales for the 53 rd week in fiscal 2018.

As a result of Vera Bradley retail stores being temporarily closed for approximately half of the first and second quarters of fiscal 2021, comparable sales were not meaningful and were therefore not provided.

(6) Dollars not in thousands.

1 unchanged sentence

Remodeled stores are included in average net revenues per gross square foot unless the store was closed for a portion of the period.

Calculation excludes sales for the 53 rd week in fiscal 2018.

As a result of Vera Bradley retail stores being temporarily closed for approximately half of the first and second quarters of fiscal 2021, average net revenues per gross square foot were not meaningful and were therefore not provided.

Fiscal 2021 Compared to Fiscal 2020

For fiscal 2020 , net revenues increased $79.1 million , or 19.0% , to $495.2 million , from $416.1 million for fiscal 2019 .

For fiscal 2020 , net revenues increased $19.5 million , or 5.9% , to $347.5 million , from $328.0 million for fiscal 2019 .

Our comparable sales increased $10.4 million , or 3.4% .

The increase in comparable sales includes a 7.4% increase in e-commerce sales and a 2.0% increase in comparable store sales which we believe indicates that our customers are responding to both our innovative product and our targeted consumer engagement efforts.

Our non-comparable stores contributed $9.7 million of revenue, which included six additional factory outlet stores opened in the current fiscal year.

For fiscal 2020 , consistent with recent periods, net revenues decreased $6.3 million , or 7.1% , to $81.8 million , from $88.1 million for fiscal 2019 .

This decrease was primarily due to a reduction in orders and in the number of specialty and department store accounts.

For the partial period of fiscal 2020 since the acquisition, net revenues attributable to Pura Vida were $65.9 million .

For fiscal 2021, net revenues decreased $26.9 million, or 5.4%, to $468.3 million, from $495.2 million for fiscal 2020.

For fiscal 2021, net revenues decreased $58.2 million, or 16.8%, to $289.3 million, from $347.5 million for fiscal 2020.

The decline primarily resulted from the Company’s stores that were temporarily closed as a result of COVID-19 and lower traffic and sales as they reopened with reduced staffing, hours, and capacity, as well as the COVID-19-related

cancellation of our annual outlet sale which typically occurs in April.

This decline was partially offset by current-year period Vera Bradley e-commerce sales which increased 49.0% over the comparable period in the prior-year.

For fiscal 2021, net revenues decreased $15.3 million, or 18.7%, to $66.5 million, from $81.8 million for fiscal 2020.

The decline was primarily due to a reduction in orders from specialty, department stores and other key accounts, largely related to COVID-19, as well as a reduction in the number of specialty and department store accounts.

For fiscal 2021, net revenues were $112.5 million compared to $65.9 million in the partial period of the prior-year.

E-commerce revenues increased 6.5% during the comparable six-month periods of fiscals 2021 and 2020.

Refer to Note 15 to the Consolidated Financial Statements herein for additional information regarding the Pura Vida acquisition.

For fiscal 2020 , gross profit increased $33.2 million , or 13.9% , to $271.8 million , from $238.6 million for fiscal 2019 .

As a percentage of net revenues, gross profit decreased to 54.9% for fiscal 2020 , from 57.3% for fiscal 2019 .

The amortization of $8.3 million of expense for an inventory step-up adjustment as a result of the Pura Vida acquisition negatively impacted gross profit as a percentage of net revenues by 1.7% .

The remaining decrease as a percentage of net revenues was primarily due to increased shipping costs, increased consumer spending during promotional and clearance periods in the fourth quarter, and the impact of U.S.

tariffs on goods from China, partially offset by improvement in full-price selling.

For fiscal 2021, gross profit decreased $6.3 million, or 2.3%, to $265.5 million, from $271.8 million for fiscal 2020.

As a percentage of net revenues, gross profit increased to 56.7% for fiscal 2021, from 54.9% for fiscal 2020.

Charges for the cancellation of certain purchase orders due to COVID-19 in the current-year totaled $1.3 million and negatively impacted gross margin as a percentage of net revenues by 0.3%.

The prior-year period included $8.3 million o f inventory step-up amortization related to the Pura Vida acquisition that negatively impacted gross margin as a percentage of net revenues by 1.7% .

The remaining increase as a percentage of net revenues was primarily due to mask sales, product collaborations, and inventory management.

Selling, General, and Administrative Expenses (“SG&A”)

For fiscal 2020 , SG&A expenses increased $41.4 million , or 19.5% , to $253.4 million , from $212.0 million for fiscal 2019 .

For fiscal 2021, SG&A expenses decreased $0.8 million, or 0.3%, to $252.6 million, from $253.4 million for fiscal 2020.

As a percentage of net revenues, SG&A expenses were 53.9% and 51.2% for fiscal 2021 and fiscal 2020, respectively.

The increase in SG&A expenses was primarily due to Pura Vida operating expenses of $28.2 million ;

Pura Vida acquisition-related charges of approximately $6.4 million including intangible asset amortization, acquisition-related transaction costs, and a reduction to expense associated with a reduction of the earn-out liability;

$3.0 million of certain professional fees and accelerated depreciation charges related to our information technology re-platforming;

$1.6 million associated with incremental stock-based compensation expense as a result of Pura Vida performance and Pura Vida transaction bonuses;

and an increase in certain advertising and marketing expenses of approximately $0.9 million .

SG&A expenses as a percentage of net revenues increased primarily due to the aforementioned items, partially offset by SG&A expense leverage associated with increased sales.

For fiscal 2020 , other income increased $0.6 million , or 120.5% , to $1.1 million , from $0.5 million for fiscal 2019 , primarily due to a legal settlement.

SG&A expenses related to Vera Bradley and corporate unallocated were $194.7 million compared to $219.9 million in the comparable prior-year period.

SG&A expenses related to Pura Vida were $57.9 million compared to $33.5 million in the partial period of the prior-year.

The decrease in consolidated SG&A expenses for fiscal 2021 was primarily due to:

• Vera Bradley initiatives to reduce expenses in light of COVID-19 including the temporary furlough of certain associates;

temporarily reducing the base compensation for all other salaried associates;

certain expense reductions associated with the CARES Act retention credit;

and reducing other non-payroll expenses including marketing, professional fees, and travel;

• a reduction of approximately $6.3 million in lease expense primarily as a result of lower contingent rent, lease right-of-use asset impairments recorded in the first quarter of the current-year, 13 full-line store closures during the last 12 months, and COVID-19-related rent abatements;

• a reduction of $4.5 million in depreciation expense primarily as a result of legacy software depreciation in the prior-year period that did not recur in the current-year period and savings as a result of property, plant, and equipment impairments recorded in the first quarter of the current-year;

• $2.7 million of Pura Vida acquisition-related transaction costs that were incurred in the prior-year period that did not recur in the current-year.

These expense savings were partially offset by incremental Pura Vida operating expenses of $20.7 million;

store impairment charges of $7.4 million;

$3.7 million for incremental intangible asset amortization;

and an adjustment to reduce the earn-out liability related to the Pura Vida acquisition of $1.6 million in the prior-year period that did not recur in the current-year period.

SG&A expenses as a percentage of net revenues increased primarily due to the aforementio ned items, as well as SG&A expense de-leverage associated with decreased sales.

For fiscal 2021, other income decreased $1.0 million, or 87.7%, to $0.1 million, from $1.1 million for fiscal 2020, primarily due to a legal settlement received in the prior-year period that did not recur in the current-year period, as well as outlet sale ticket sales not received in the current-year period due to the cancellation of our 2020 annual outlet sale as a result of COVID-19.

Operating Income

4 unchanged sentences

Fiscal Year Ended $

2021 February 1,

Operating Income (Loss):

VB Direct $ 48,524 $ 68,505 $ (19,981) (29.2) %

VB Indirect 24,502 31,077 (6,575) (21.2) %

Pura Vida 8,031 (3,179) 11,210 352.6 %

Unallocated corporate expenses (67,992) (76,929) 8,937 (11.6) %

Operating income $ 13,065 $ 19,474 $ (6,409) (32.9) %

For fiscal 2020 , operating income increased $0.6 million , or 0.9% .

For fiscal 2021, operating income decreased $20.0 million, or 29.2%.

As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 16.8% and 19.7% for fiscals 2021 and 2020, respectively.

The decrease in operating income as a percentage of VB Direct segment net revenues was primarily due to an increase in certain advertising expenses, certain professional fees and accelerated depreciation charges for the Company’s technology re-platforming, and a decrease in gross margin as a percentage of net revenues as described above, partially offset by SG&A expense leverage associated with increased sales.

The decrease in operating income as a percentage of VB Direct segment net revenues was primarily due to store impairment charges, legacy software depreciation in the prior-year period that did not recur in the current-year period, and an allocation of charges for the cancellation of certain purchase orders related to COVID-19.

These decreases were partially offset by an increase in gross margin as a percentage of net revenues and COVID-19-related expense savings, as described above.

VB Indirect .

1 unchanged sentence

As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 36.8% and 38.0% for fiscals 2021 and 2020, respectively.

The decrease in operating income as a percentage of VB Indirect segment net revenues was primarily due to SG&A expense deleverage associated with lower sales and a decrease in gross margin as a percentage of net revenues as described above.

For fiscal 2020 , operating loss in the Pura Vida segment was $3.2 million , or (4.8)% of Pura Vida segment net revenues.

These operating results included $8.3 million related to an inventory step-up adjustment and $5.4 million of intangible asset amortization expense.

The decrease in operating income as a percentage of VB Indirect segment net revenues was primarily due to SG&A expense de-leverage associated with lower sales and an increase in the bad debt provision, partially offset by an increase in gross margin as a percentage of net revenues as described above.

For fiscal 2021, operating income in the Pura Vida segment was $8.0 million, or 7.1% of Pura Vida segment net revenues, compared to an operating loss of $(3.2) million, or (4.8)% of Pura Vida segment net revenues, in the partial prior-year period.

The current-year operating results included $9.0 million of intangible asset amortization expense.

The prior-year period included $8.3 million of inventory step-up amortization and $5.4 million of intangible asset amortization.

Refer to Note 15 to the Notes to Consolidated Financial Statements herein for additional information regarding the Pura Vida acquisition.

Corporate Unallocated .

For fiscal 2020 , unallocated expenses increased $1.7 million , or 2.2% .

The increase in unallocated expenses was primarily due to Pura Vida acquisition-related transaction costs of $2.7 million ;

$1.4 million of incremental stock-based compensation expense associated with Pura Vida performance and Pura Vida transaction bonuses;

and $1.0 million of certain professional fees and accelerated depreciation charges for the Company’s technology re-platforming.

These expenses were partially offset by a $1.9 million decrease in unallocated advertising expenses and a $1.6 million adjustment to reduce the earn-out liability related to the Pura Vida acquisition.

Interest Income, Net

For fiscal 2020 and fiscal 2019 , net interest income was $1.1 million .

For fiscal 2021, unallocated expenses decreased $8.9 million, or 11.6% to $68.0 million from $76.9 million in the prior-year period.

The decrease in unallocated expenses was primarily due to COVID-19-related expense savings , Pura Vida acquisition-related transaction costs of $2.7 million in the prior-year period, as well as a reduction in depreciation expense primarily as a result of legacy software depreciation in the prior-year period that did not recur in the current-year period.

These decreases were partially offset by a $1.6 million adjustment to reduce the earn-out liability in the prior-year period.

Interest Expense (Income), Net

For fiscal 2021, interest expense totaled $1.2 million compared to interest income of $1.1 million in fiscal 2020.

Interest expense increased primarily due to borrowings under the Company's credit agreement during the current-year period.

Income Tax Expense

For fiscal 2020 , we recorded income tax expense of $5.3 million at an effective tax rate of 25.9% , compared to 26.5% for fiscal 2019 .

The effective tax rate was substantially similar with the prior-year period.

For fiscal 2021, we recorded income tax expense of $1.2 million at an effective tax rate of 9.9%, compared to income tax expense of $5.3 million at an effective tax rate of 25.9% for fiscal 2020.

The effective tax rate decreased primarily due to the relative impact of a $2.8 million tax benefit related to the net operating loss carryback provisions of the CARES Act, partially offset by the impact of non-deductible executive compensation and tax shortfalls related to stock-based compensation.

For fiscal 2021, net income decreased $4.5 million, or 29.9%, to $10.7 million from $15.2 million in fiscal 2020 due to the factors described above.

Net Loss Attributable to Redeemable Noncontrolling Interest

For fiscal 2020 , net loss attributable to redeemable noncontrolling interest was $0.8 million .

This represents the allocation of the Pura Vida net loss to the noncontrolling interest.

The net loss was due to the factors described above in the Pura Vida operating segment.

Net Income (Loss) Attributable to Redeemable Noncontrolling Interest

For fiscal 2021, net income attributable to redeemable noncontrolling interest was $2.0 million compared to a net loss of $0.8 million in the prior-year period.

This represents the allocation of the Pura Vida net income (loss) to the noncontrolling interest.

The net income (loss) was due to the factors described above in the Pura Vida operating segment.

Net Income Attributable to Vera Bradley, Inc.

2 unchanged sentences

Fiscal 2020 Compared to Fiscal 2019

For fiscal 2019, net revenues decreased $38.5 million, or 8.5%, to $416.1 million, from $454.6 million for fiscal 2018.

Fiscal 2018 includes approximately $4.1 million of net revenues related to the 53rd week.

The adoption of ASC 606 benefited the fiscal 2019 period by $1.5 million.

For fiscal 2019, net revenues decreased $23.8 million, or 6.8%, to $328.0 million, from $351.8 million for fiscal 2018.

This change resulted from a $14.0 million contribution of revenue from our non-comparable stores, which included six additional factory outlet stores in fiscal 2019, more than offset by a comparable sales decrease of $34.5 million, or 10.3%, and approximately $3.0 million of net revenues generated from the 53rd week in fiscal 2018.

The decrease in comparable sales includes a 24.7% decrease in e-commerce sales and a 4.2% decrease in comparable store sales.

Comparable sales (particularly

for verabradley.com) were negatively impacted by the planned reduction in clearance activity.

The aggregate number of full-line and factory outlet stores decreased from 160 at the end of fiscal 2018 to 156 at the end of fiscal 2019.

The Company closed ten stores during fiscal 2019.

The adoption of ASC 606 negatively impacted VB Direct segment net revenues in the fiscal 2019 period by $0.1 million.

For fiscal 2019, net revenues decreased $14.8 million, or 14.4%, to $88.1 million, from $102.9 million for fiscal 2018, primarily due to a decline in orders from the Company's specialty retail accounts and certain key accounts, as well as approximately $1.1 million of net revenues generated from the 53rd week in fiscal 2018.

The adoption of ASC 606 benefited VB Indirect segment net revenues in the fiscal 2019 period by $1.6 million primarily due to the timing of shipments to customers as a result of changes in the frequency of product launches compared to the prior-year period.

For fiscal 2019, gross profit decreased $15.4 million, or 6.1%, to $238.6 million, from $254.0 million for fiscal 2018.

As a percentage of net revenues, gross profit increased to 57.3% for fiscal 2019, from 55.9% for fiscal 2018.

The increase as a percentage of net revenues was primarily due to reduced clearance activity and increased full-price selling on verabradley.com and in our full-line stores, freight and shipping savings, channel mix changes, and a reduction in product costs.

Fiscal 2018 included certain reserves taken against slow-moving inventory in the second quarter and adjustments taken against certain inventory categories as a result of Vision 20/20 initiatives in the third quarter that did not recur in fiscal 2019.

The adoption of ASC 606 benefited the fiscal 2019 period gross profit by $0.8 million primarily due to the factors described above.

Selling, General, and Administrative Expenses (“SG&A”)

For fiscal 2019, SG&A expenses decreased $27.8 million, or 11.6%, to $212.0 million, from $239.8 million for fiscal 2018.

As a percentage of net revenues, SG&A expenses were 50.9% and 52.7% for fiscal 2019 and fiscal 2018, respectively.

The decrease in SG&A expenses was primarily due to expenses incurred in the fiscal 2018 period that did not recur in the fiscal 2019 period that provided savings of approximately $18.4 million, of which $6.4 million related to severance expenses, $6.3 million related to store impairment charges, and $4.6 million related to strategic consulting charges.

In addition, there were approximately $9.4 million in expense reductions due in part to expense management strategies associated with Vision 20/20, including a $4.7 million decrease in employee-related expenses and a $2.2 million decrease in depreciation expenses.

SG&A expenses as a percentage of net revenues decreased primarily due to the aforementioned expense savings, partially offset by SG&A expense deleverage associated with lower sales.

For fiscal 2019, other income decreased $0.3 million, or 36.3%, to $0.5 million, from $0.8 million for fiscal 2018, primarily due to a decrease in participation in the co-op mailer program.

Operating Income

For fiscal 2019, operating income increased $12.1 million, or 80.9%, to $27.1 million from $15.0 million for fiscal 2018.

As a percentage of net revenues, operating income was 6.5% and 3.3% for fiscal 2019 and fiscal 2018, respectively.

Operating income increased due to the factors described above.

The adoption of ASC 606 benefited the fiscal 2019 period operating income by $0.8 million due to the factors described above.

The following table provides additional information about our operating income (in thousands).

Fiscal Year Ended

Operating Income:

Unallocated corporate expenses

Operating income

For fiscal 2019, operating income increased $6.9 million, or 11.3%.

As a percentage of Direct segment net revenues, operating income in the VB Direct segment was 20.7% and 17.3% for fiscals 2019 and 2018, respectively.

The increase in operating income as a percentage of VB Direct segment net revenues was primarily due to $6.3 million in store impairment charges incurred in the fiscal 2018 period that did not recur in the fiscal 2019 period, a $5.9 million reduction in employee-related expenses due in part to expense management strategies associated with Vision 20/20, and a reduction of $1.6 million in depreciation expense primarily as a result of prior-year store impairment charges.

In addition, there was an increase in gross margin as a percentage of net revenues.

These benefits were partially offset by SG&A expense deleverage associated with lower sales.

The adoption of ASC 606 negatively impacted the fiscal 2019 period VB Direct segment operating income by $0.1 million.

VB Indirect .

For fiscal 2019, operating income decreased $0.3 million, or 0.8%.

As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 39.2% and 33.8% for fiscals 2019 and 2018, respectively.

The increase in operating income as a percentage of VB Indirect segment net revenues was primarily due to an increase in gross margin as a percentage of net revenues, a reduction in employee-related expenses, and severance expenses incurred in the fiscal 2018 period that did not recur in the fiscal 2019 period, as described above, partially offset by SG&A expense deleverage associated with lower sales.

The adoption of ASC 606 benefited the fiscal 2019 period VB Indirect segment operating income by $0.9 million due to the factors described above.

Corporate Unallocated .

For fiscal 2019, unallocated expenses decreased $5.5 million, or 6.8%.

The decrease in unallocated expenses was primarily due to expenses from the fiscal 2018 period that did not recur in the fiscal 2019 period, including $4.6 million in severance charges and $4.6 million in strategic consulting charges.

These savings were partially offset by an increase in incentive compensation expense of approximately $2.5 million primarily as a result of Company performance.

Interest Income, Net

For fiscal 2019, net interest income increased $0.7 million, or 172.4%, to $1.1 million, from $0.4 million in fiscal 2018.

The year-over-year increase was primarily a result of interest earned on our investment portfolio and certificates of deposit.

Refer to Note 15 to the Notes to Consolidated Financial Statements herein for additional information regarding our investments.

Income Tax Expense

For fiscal 2019, we recorded income tax expense of $7.5 million at an effective tax rate of 26.5%, compared to 54.4% for fiscal 2018.

The year-over-year decrease in the effective tax rate was primarily due to a decreased annual effective tax rate as a result of the reduction in the U.S.

corporate income tax rate to 21% from 35%, and the relative impact of $2.1 million of net charges in the fiscal 2018 period associated with the Tax Act enacted during the fourth quarter.

Refer to Note 7 to the Notes to Consolidated Financial Statements herein for additional information regarding the Tax Act.

For fiscal 2019, net income increased $13.8 million, or 195.9%, to $20.8 million from $7.0 million in fiscal 2018 due to the factors described above.

The fiscal 2018 period included severance charges of $6.6 million, store impairment charges of $6.3 million;

strategic consulting charges of $4.6 million;

inventory adjustments of $0.9 million;

and net lease termination charges and other Vision 20/20 charges of $1.1 million ($12.3 million collectively after the associated tax benefit) that did not recur in the fiscal 2019 period.

There was an additional $2.1 million recorded in income tax expense in the fiscal 2018 period related to the Tax Act.

The adoption of ASC 606 benefited the fiscal 2019 period net income by $0.6 million due to the factors described above.

Refer to the Company's Annual Report on Form 10-K filed with the SEC on March 31, 2020, for a comparison of fiscal 2020 to fiscal 2019 operating results.

Liquidity and Capital Resources

1 unchanged sentence

We also have access to additional liquidity, if needed, through borrowings under our $75.0 million asset-based revolving credit agreement (the “Credit Agreement”) which was entered into on September 7, 2018.

There were no borrowings under the Credit Agreement during the fiscal year ended February 1, 2020 , and there was no debt outstanding as of February 1, 2020 .

There were $60.0 million of borrowings under the Credit Agreement during the fiscal year ended January 30, 2021 which were repaid by the end of the fiscal year, and there was no debt outstanding as of January 30, 2021.

Historically, our primary cash needs have been for merchandise inventories;

2 unchanged sentences

The most significant components of our working capital are cash and cash equivalents, short-term investments, merchandise inventories, accounts receivable, accounts payable, and other current liabilities.

In light of the COVID-19 pandemic, we anticipate that we will have increased needs for cash due to store closures and a general decline in sales related to the pandemic.

While we believe that cash on hand and cash equivalents, investments, cash flows from operating activities, and the availability of borrowings under our Credit Agreement or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures, and other strategic uses of cash, if any, and debt payments, if any, for the foreseeable future, we cannot predict the full cash needs of the Company during the pandemic, which may be substantial, and cannot guarantee that current cash on hand and cash equivalents, investments, cash flows and borrowings will be sufficient to meet all cash needs.

Subsequent to the end of the fiscal year, we have drawn $60.0 million of our $75.0 million Credit Agreement to provide additional flexibility as a result of the pandemic.

We believe that cash on hand and cash equivalents, investments, cash flows from operating activities, and the availability of borrowings under our Credit Agreement or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures, and other strategic uses of cash, if any, for the foreseeable future.

Cash Equivalents.

Investments classified as cash equivalents relate to highly-liquid investments with a maturity of three months or less from the date of purchase.

As of February 1, 2020 and February 2, 2019 , these investments consisted of commercial paper and a money market fund.

As of January 30, 2021 and February 1, 2020, these investments consisted of a money market fund.

The balance as of February 1, 2020 also included commercial paper.

Short-Term Investments.

As of January 30, 2021, short-term investments consisted of U.S.

corporate debt securities with a maturity within one year of the balance sheet date.

As of February 1, 2020, short-term investments consisted of U.S.

corporate debt securities, commercial paper, municipal securities, and U.S.

asset-backed securities with a maturity within one year of the balance sheet date.

As of February 2, 2019 , short-term investments consisted of U.S.

corporate debt securities, municipal securities, U.S.

Treasury securities, and commercial paper.

asset-backed securities.

Long-Term Investments.

As of February 1, 2020 , long-term investments consisted of U.S.

As of February 1, 2020, these investments consisted of U.S.

corporate debt securities, U.S.

asset-backed securities, and other foreign securities with a maturity greater than one year from the balance sheet date.

As of February 2, 2019 , these investments consisted of U.S.

corporate debt and asset-backed securities and municipal securities.

There were no long-term investments as of January 30, 2021.

Refer to Note 14 to the Notes to Consolidated Financial Statements herein for additional information regarding our investments.

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Fiscal Year Ended

2021 February 1,

2020 February 2,

Net cash provided by operating activities $ 20,702 $ 20,624 $ 43,564

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities 17,680 (69,966) 17,955

Net cash used in financing activities (24,146) (14,285) (16,771)

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Net cash provided by operating activities was $20.7 million during fiscal 2021, as compared to $20.6 million during fiscal 2020.

The decrease in cash provided by operating activities was primarily a result of the change in inventories, accrued and other liabilities, and income taxes.

The change in inventories resulted in a $12.6 million use of cash, primarily as a result of accelerated inventory receipts, compared to a $4.0 million use of cash in the comparable prior-year period.

The change in income taxes resulted in a $0.3 million use of cash compared to a $4.9 million source of cash in the comparable prior-year period primarily as a result of timing of payments.

The change in accrued and other liabilities resulted in a $7.9 million use of cash compared to a $0.1 million source of cash in the comparable prior-year period primarily due to timing of expenses, Vera Bradley incentive compensation earned in fiscal 2019 and paid in fiscal 2020, as well as payments for Pura Vida accrued expenditures.

Net cash provided by operating activities was $43.6 million during fiscal 2019, as compared to $42.6 million during fiscal 2018.

The increase in cash provided by operating activities was primarily a result of the increase of $13.8 million in net income and the change in income taxes and accrued and other liabilities which resulted in a $4.9 million and $0.1 million source of cash in the fiscal 2019 period, respectively as compared to a use of cash of $0.9 million and $5.4 million in fiscal 2018, respectively.

These factors were partially offset by the change in accounts receivable which resulted in a $0.4 million source of cash as compared to a $7.3 million source of cash in the fiscal 2018 period, primarily as a result of timing and a decrease in VB Indirect segment net revenues and by a reduction of $17.1 million in non-cash and cash adjustments.

The change in non-cash and cash adjustments was primarily a result of non-cash deferred income taxes and store impairment charges.

Cash payments of approximately $7.6 million were made as a result of Vision 20/20 initiatives during the fiscal 2018 period.

Refer to Note 14 to the Notes to Consolidated Financial Statements herein for additional information.

Net Cash (Used in) Provided by Investing Activities

Investing activities consisted primarily of short-term investments, long-term investments, and capital expenditures related to new store openings, buildings, operational equipment, and information technology investments, as well as the Pura Vida acquisition.

Net cash used in investing activities was $70.0 million in fiscal 2020 , compared to net cash provided by investing activities of $18.0 million in fiscal 2019 .

The increase in cash used in investing activities was a result of the acquisition of a 75% interest in Pura Vida.

Refer to Note 16 to the Notes to Consolidated Financial Statements herein for additional information regarding the Pura Vida acquisition.

Cash provided by operating activities was substantially similar to the prior-year period.

The net income adjusted for non-

cash items in the current-year benefited by the full-year of Pura Vida operations compared to six months of operations in the prior-year period.

Additional inventory payments primarily related to incremental Pura Vida inventory purchases which included inventory for the Charli D'Amelio launch in March 2021 and the acceleration of inventory purchases for Vera Bradley to mitigate industry-wide port and shipping delays.

There were also additional payments related to Project Novus expenditures.

These purchases were offset by timing of payments, including for income taxes (which included a benefit associated with the net operating loss carryback provisions of the CARES Act);

deferrals of certain payments associated with the CARES Act;

and accrued expenses, as well as timing;

rent abatements;

and store closures associated with operating leases.

Net Cash Provided by (Used in) Investing Activities

Investing activities consisted primarily of investments and capital expenditures related to new store openings, buildings, operational equipment, and information technology investments, as well as the Pura Vida acquisition.

Net cash provided by investing activities was $17.7 million in fiscal 2021, compared to net cash used in investing activities of $70.0 million in fiscal 2020.

The increase in cash provided by investing activities was primarily a result of net investment activity related to debt securities and certificates of deposit in the fiscal 2019 period compared to the fiscal 2018 period.

Capital expenditures for fiscal 2021 are expected to be approximately $8.0 million .

The increase in cash provided by investing activities was a result of the decreased spending related to property, plant, and equipment and net investment activity in the current year, as well as the July 2019 acquisition of Pura Vida that occurred in the prior-year period.

Capital expenditures for fiscal 2022 are expected to be approximately $8.0 million to $10.0 million.

Net Cash Used in Financing Activities

Net cash used in financing activities was $24.1 million in fiscal 2021 compared to $14.3 million in fiscal 2020.

The decrease in cash used in financing activities was primarily due to a decrease in cash purchases of our common stock partially offset by $1.8 million of distributions to the owners of the redeemable noncontrolling interest of Pura Vida.

Net cash used in financing activities was $16.8 million in fiscal 2019 compared to $8.6 million in fiscal 2018.

The increase in cash used in financing activities was primarily due to an increase in cash purchases of our common stock under the 2015 Share Repurchase Plan and purchases of stock under the 2018 Share Repurchase Plan.

The increase in cash used in financing activities was primarily due to the $18.7 million payment of contingent consideration associated with the July 2019 acquisition of Pura Vida, partially offset by a decline of $8.3 million in repurchases of common stock.

Refer to the Company's Annual Report on Form 10-K filed with the SEC on March 31, 2020, for a comparison of fiscal 2020 to fiscal 2019 cash flow activity.

Credit Agreement

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The Company may avoid certain of such restrictions by meeting payment conditions defined in the Credit Agreement.

The Company was in compliance with these covenants as of February 1, 2020 .

The Company was in compliance with these covenants as of January 30, 2021.

The Credit Agreement also requires the loan parties, as defined in the Credit Agreement, to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 during periods when borrowing availability is less than the greater of (A) $7.5 million, and (B) 10% of the lesser of (i) the aggregate revolving commitment, and (ii) the borrowing base.

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Any commitments made under the Credit Agreement mature on September 7, 2023.

Contractual Obligations

We enter into long-term contractual obligations and commitments in the normal course of business, primarily non-cancellable operating leases.

As of February 1, 2020 , our contractual cash obligations over the next several periods are as follows:

Payments Due by Period (4)

($ in thousands)

Operating leases (1)(2)

Purchase obligations (3)

Our store leases are generally ten years with varying renewal options.

Our future operating lease obligations would change if we were to extend these leases, terminate these leases early, or if we were to enter into new operating leases.

We forecast that we will close additional full-line stores.

Additional potential closures are not reflected in the table until an agreement with the landlord has been reached.

Includes lease and nonlease components (recognized as a single lease component) included in the measurement of the lease liability.

Refer to Notes 2 and 4 to the Notes to Consolidated Financial Statements herein for additional information.

Purchase obligations consist primarily of inventory purchases.

Due to the uncertainty with respect to the timing of future cash flows associated with our uncertain tax positions at February 1, 2020 , we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Therefore, $0.1 million of uncertain tax positions have been excluded from the contractual obligations table above.

Off-Balance Sheet Arrangements

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We perform physical inventory counts throughout the year and adjust the shrinkage provision accordingly.

The balance of inventory adjustments was $0.7 million and $0.6 million for these matters as of the fiscal years ended February 1, 2020 , and February 2, 2019 , respectively.

The balance of inventory adjustments was $0.7 million for these matters as of the fiscal years ended January 30, 2021, and February 1, 2020.

The balance related primarily to certain collections being discontinued or currently discontinued by Vera Bradley and retired patterns.

We have the ability to move retired finished goods through a number of channels, including the Vera Bradley annual outlet sale, our Vera Bradley website and online outlet site, factory outlet stores, and through third-party liquidators as needed.

Our effective tax rate is based on our pre-tax income, statutory tax rates, tax laws and regulations, and tax planning opportunities available in the jurisdictions in which we operate.

Significant judgment is required in determining our annual tax expense and in evaluating our tax positions.

We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the positions become uncertain based upon one of the following:

(1) the tax position is not “more likely than not” to be sustained;

(2) the tax position is “more likely than not” to be sustained, but for a lesser amount;

or (3) the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.

Taxing authorities periodically audit our income tax returns.

We believe that our tax filing positions are reasonable and legally supportable.

Taxing authorities, however, may take a contrary position.

Our results of operations and effective tax rate in a given period could be impacted if, upon final resolution with taxing authorities, we prevail in positions for which we have established reserves, or are required to pay amounts in excess of established reserves.

The balance of the gross amount of unrecognized tax benefits (excluding interest and penalties) was $0.1 million as of February 1, 2020 , February 2, 2019 , and February 3, 2018 .

Benefits of $19 thousand , $17 thousand , and $0.5 million were recognized in income tax expense for these matters during the fiscal years ended February 1, 2020 , February 2, 2019 , and February 3, 2018 , respectively.

On December 22, 2017, the Tax Act was signed into law.

There were no material changes to the provisional estimates upon completion of the accounting during fiscal 2019.

Refer to Note 7 to the Notes to Consolidated Financial Statements herein for additional information regarding the Tax Act.

Valuation of Long-lived Assets

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With respect to our stores, we analyze store economics, location within the shopping center, the size and shape of the space, and desirable co-tenancies in our selection process.

Impairment charges are classified in SG&A expenses and were $6.3 million for the period ended February 3, 2018 .

Impairment charges are classified in SG&A expenses and were $7.4 million for the period ended January 30, 2021.

There were no impairment charges recorded for the periods ended February 1, 2020 and February 2, 2019.

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The significant assumptions used for the valuation include inventory balances, projected gross and operating margins, and cost and time to dispose (sell) inventory on hand.

The brand intangible asset was valued using the relief-from-royalty method.

• The Pura Vida brand intangible asset was valued using the relief-from-royalty method.

The significant assumptions used for the valuation include the royalty rate, estimated projected revenues, long-term growth rate, and the discount rate.

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Goodwill and Other Intangible Assets

Upon an acquisition, the Company records the fair value of the identifiable intangible assets.

As of February 1, 2020 , these items consisted of the Pura Vida brand, customer relationships, and non-competition agreements.

Assets that are determined to have an indefinite life, including goodwill and the Pura Vida brand, are not amortized but are assessed for impairment at least annually or whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable.

Definite-lived intangible assets, including customer relationships and non-competition agreements, are amortized over their estimated useful lives and are also subject to impairment testing, similar to the Company’s long-lived assets.

The Company may first use a qualitative analysis to determine whether the quantitative process is required to be performed.

The qualitative analysis may assess whether it is more-likely-than-not that the fair value of the reporting unit (including goodwill) is less than its carrying value.

The Company tests goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired.

The Company may first use a qualitative analysis to assess whether it is more-likely-than-not that the fair value of the reporting unit (including goodwill) is less than its carrying value.

This qualitative analysis may include, but is not limited to:

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If it is determined that it is more-likely-than-not that the fair value is less than the carrying value after this analysis, a quantitative impairment test is performed.

The quantitative impairment test compares the fair value of a reporting unit with its carrying amount.

We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if any, not to exceed the total amount of goodwill allocated to the reporting unit.

The fair value is determined as the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.

This fair value includes factors such as estimated discount rates and estimated revenue growth rates.

Actual results could differ from these estimates.

Additional impairment charges may be required if conditions were to deteriorate.

The Pura Vida tradename may first be evaluated using a qualitative analysis, similar to the approach for goodwill.

If a quantitative analysis is required, the Company estimates the fair value of the tradename by utilizing the relief-from-royalty method.

The significant assumptions used for the valuation include the royalty rate, estimated projected revenues, long-term growth rate, and the discount rate.

If the carrying value of the tradename exceeds the fair value estimate, an impairment charge is recorded to write the tradename down to its fair value.

Other intangible assets .

Definite-lived intangible assets include customer relationships.

Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable.

If determined that the asset group may not be recoverable, the Company estimates the fair value of the customer relationships by utilizing the multi-period excess earnings method.

Significant assumptions used for the valuation include projected cash flows, the discount rate, and customer attrition rate.

If the carrying value of the customer relationships exceeds the applicable fair value estimate, an impairment charge is recorded to write the asset group down to its fair value.

If we elect to bypass the qualitative assessment for the reporting unit, or if a qualitative assessment indicates it is more likely than not that the estimated carrying value of the reporting unit exceeds its fair value, we perform a quantitative goodwill impairment test.

Under the quantitative test, the fair value of the reporting unit is compared with its carrying value (including goodwill).

If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit.

The fair value of the reporting unit is determined using an income-based approach and a market-based approach.

The income approach estimates fair value of the reporting unit using a discounted cash flow model that involves subjective estimates and assumptions such as projected revenue growth, operating profit, and the discount rate.

Under the market approach, the Company may use the guideline public company method and/or the guideline transaction method to estimate fair value of the reporting unit.

The guideline public company method uses market multiples derived from market prices of stocks of companies that are engaged in the same or similar lines of business as the reporting unit.

The guideline transaction method employs transaction multiples derived from the acquisition of controlling interests in stocks of companies that are engaged in the same or similar lines of business as the reporting unit.

As of January 30, 2021, the Company had recorded $44.3 million of goodwill which was allocated to the Pura Vida reporting unit.

For the annual goodwill impairment analysis performed during fiscal 2021, we performed a quantitative analysis.

No impairment was recorded for goodwill during fiscal 2021.

Our indefinite-lived intangible asset represents the Pura Vida brand.

We test the Pura Vida brand for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired.

Our annual impairment test may be completed through a qualitative assessment to determine if the fair value of the Pura Vida brand is more likely than not greater than the carrying amount.

If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that the estimated carrying value exceeds the fair value, we test for impairment using a quantitative process.

Our quantitative process includes comparing the carrying value to the fair value of the Pura Vida brand, with any excess recognized as an impairment loss.

Fair value is estimated using a relief-from-royalty method.

The estimates and assumptions used in the determination of the fair value of the Pura Vida brand include the projected revenue growth, long-term growth rate, the royalty rate, and discount rate.

As of January 30, 2021, the carrying value of the Pura Vida brand was $36.7 million.

For the annual impairment analysis performed during fiscal 2021, we performed a quantitative analysis.

No impairment was recorded for the Pura Vida brand during fiscal 2021.

The estimated fair values of our Pura Vida reporting unit and the Pura Vida brand are subject to change as a result of many factors including changing economic conditions.

Should actual cash flows and our future estimates deteriorate from the estimates we used, impairment charges may be necessary in future years.

Transactions with Related Parties

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis