What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-29 compared with 2021-03-30 · 195 added, 215 removed, 334 unchanged (55% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this report, particularly under the headings “Risk Factors,” “Selected Financial Data” and “Business.” This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.

You should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this report, particularly under the headings “Risk Factors” and “Business.” This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.

The statements in this discussion and analysis concerning expectations regarding our future performance, liquidity, and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements.

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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

During fiscal 2021, the COVID-19 pandemic resulted in global travel restrictions, quarantines, and certain factory closures or reduced operations, as well as mall closures and reduced mall operating hours.

Although the Vera Bradley and Pura Vida e-commerce operations remained open during this time, the aforementioned items had a material adverse impact on overall consumer demand, traffic, and sales during the period.

We took various actions to navigate the pandemic which included, but were not limited to, temporarily closing all Vera Bradley store locations on March 19, 2020;

temporarily furloughing 80% of our workforce during the middle of the first quarter;

temporarily reducing base compensation for certain associates;

preserving cash by drawing on our Credit Agreement, which was repaid during the fourth quarter of the 2021 fiscal year;

and managing inventory, rent, and other expenses.

During the second quarter of fiscal 2021, we brought back substantially all associates from furlough and began to reinstate portions of the base compensation reductions.

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.

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

Our retail stores remained open during fiscal 2022;

however, guidance and mandates from governments and public health officials may necessitate closures to some, or all, of our retail stores which we cannot predict.

We have also experienced certain global supply chain disruptions due in part to the COVID-19 pandemic further discussed under Supply Chain Disruptions below.

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 in fiscal 2021.

Net revenues from masks represented approximately 2% and 10% of consolidated net revenues for fiscals 2022 and 2021, respectively.

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

Supply Chain Disruptions

During fiscal 2022 for the Vera Bradley brand, we faced supply chain disruptions that caused delivery delays.

We are working diligently to mitigate the situation, but expect shipping delays and inbound and outbound freight expense increases to continue for the near future.

We have also been impacted by higher tariffs from previously duty-free countries, where we source products, as a result of the Generalized System of Preferences (“GSP”) duty-free status expiring at the end of calendar year 2020.

We cannot guarantee if or when the GSP duty-free status will be reinstated and retro-actively applied by Congress.

These matters could have a material adverse effect on our liquidity, operating results, and financial condition.

In the fourth quarter of fiscal 2022, we began initiating strategic price increases across both of our brands to mitigate some of these inflationary and supply chain pressures, and we will continue to implement price increases throughout fiscal 2023.

Executive Summary

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.

Some of our major achievements for fiscal 2022 are as follows:

• In the Vera Bradley product area:

• 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.

• We accelerated our robust fabric innovation pipeline to develop new fabric offerings and continued to build on our platform of sustainable fabrics.

We expanded our full-line Performance Twill and recycled Re-Active collections and our Factory Ultralight fabrication and launched our Cotton ReIMAGINED Collection crafted from 50% recycled and 50% conventional cotton.

We are constantly researching and innovating to bring our

customers more eco-friendly options, with a goal of updating 100% of our fabrics to more sustainable alternatives by 2025.

• We continued another year of high-profile product collaborations with several iconic brands, including Disney, Harry Potter, and Crocs to create and sell limited-edition product collections and launched our collaboration with Classic Accessories for a first-ever outdoor collection.

• We expanded our apparel collection, adding graphic tees, puffer jackets, vests, leggings, and a larger selection of pajamas to our already popular cozy collection of sleepwear and robes.

• In the Vera Bradley distribution area:

• 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.

We opened six new factory stores and closed five underperforming full-line stores, ending the fiscal year with 70 full-line and 75 factory locations.

• We continued to focus on enhancing and reinventing the customer experience in our full-line stores, and certain digital shopping additions that gained popularity during the pandemic have remained popular, like appointment selling, buy-online/pick-up in-store, and curbside pickup.

• We continued to expand our options for customers to shop .

• We launched our Canadian website as our first international, localized website experience which is managed internally.

• We continue to be excited about alternative payments such as AfterPay, which is driving higher units per transaction and increased sales.

• As sustainability and resale continue to gain traction, so does our partnership with ThredUp, which was launched in early fiscal 2022.

• We added Chewy.com as a new distribution partner for our line of pet products.

• We opened a Vera Bradley store in the LAX airport as part of our travel expansion focus.

• In the Vera Bradley marketing area:

• 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 :

• 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.

• Our investments in customer data science and business analytics have continued to position us well, allowing us to collect and analyze data and respond to customer changes and adjust marketing spend in an agile way.

• We continue to engage, diversify, and grow our customer base through analytics, targeted marketing, and VB Cares efforts.

Vera Bradley’s customer count grew by nearly 15% over last year essentially bringing us back to pre-pandemic levels, and social media followers continue to grow, with Facebook at nearly 2 million, Instagram approaching 600,000, and TikTok climbing.

• Our targeted digital media, traditional media, and public relations efforts drove increased brand awareness and improved earned media, with total media impressions up approximately 140% to slightly over 22 billion for the year.

• Our customer service model and voice of the customer program continued to drive industry-leading customer satisfaction scores.

• Regarding Pura Vida's infrastructure:

• We completed Pura Vida’s ERP integration, so that our entire enterprise is now on a unified technology platform, allowing for enhanced capabilities in sourcing, customer service, CRM, and data analytics.

• We strengthened key merchandising, inventory planning, and customer analytics’ functions at Pura Vida.

• 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.

• We continued to show strength as a lifestyle brand by successfully expanding into new product categories, including shirts, hoodies, and backpacks.

This lifestyle appeal will continue to be a key driver of growth.

• We entered into several high-profile product collaborations, including Hello Kitty, Disney, and Harry Potter, bringing new customers to our brand.

In addition, we launched our first jewelry collection with Outer Banks star and influencer Madison Bailey, which is appealing to a more diverse customer.

• 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.

• Pura Vida opened its first retail store in San Diego’s Westfield UTC Mall in August.

Since opening, sales have far surpassed expectations in our San Diego e-commerce business relative to the rest of the country demonstrating the power a retail presence has in driving digital sales, omni-channel loyalty, and spending.

• We continued to add new wholesale partnerships, adding over 400 new accounts in fiscal 2022, exceeding our expectations.

In addition, Dillard’s joined Nordstrom as a Pura Vida department store distributor.

• We added Pura Vida shop-in-shops to 23 full-line Vera Bradley stores and completed our roll out of the Pura Vida charity bracelet program to all Vera Bradley full-line and factory locations.

• 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.

• Pura Vida’s social media engagement remains exceptional, as one of the most highly-engaged brands in the accessories space on social media, with over 2.0 million Instagram followers and over 450,000 TikTok followers, a little more than a year after launch.

• Pura Vida continued to rank at the top of the industry for our net promoter and customer satisfaction scores.

• We reinforced our commitment to be a Purpose- and ESG-driven organization.

• In fiscal 2022, Pura Vida completed its B-Corp Impact Assessment, and in February 2022 was awarded the B Corporation Certification.

• We continued to strengthen our community support and charitable efforts under the umbrella of VB Cares, particularly through organizations that can profoundly improve the lives of women and children, including raising $1.5 million to the Vera Bradley Foundation Center for Breast Cancer Research, bringing total contributions to date to $37.5 million, and entering the third consecutive year of partnership with Blessings in a Backpack, raising and donating approximately $750,000 to date, with the help of our customers, to the organization.

• Charity bracelets and other products continued to be an important element of the Pura Vida lifestyle and an important draw for our cause-minded customers.

To date, Pura Vida has raised and donated over $4.0 million to a myriad of special causes.

• We amplified our Company-wide diversity and inclusion initiative, Project Quilt, to continue to enhance diversity, equality, and inclusion, focusing on three key areas – the Associate Experience, the Customer Experience, and the Community Experience.

• We further strengthened and diversified our Board of Directors with the addition of Nancy Twine, bringing our female board representation to 60%, making us one of only 8% of the Russell 3000 Index companies with gender-balanced boards according to the 50/50 Women on Boards Gender Diversity Directory™.

Financial Summary

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 $540.5 million in fiscal 2022 compared to $468.3 million in fiscal 2021.

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• Vera Bradley Indirect (“VB Indirect”) segment sales were $66.0 million in fiscal 2022 compared to $66.5 million in fiscal 2021.

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

• Pura Vida segment sales were $119.6 million in fiscal 2022 compared to $112.5 million in fiscal 2021.

• Gross profit was $287.9 million (53.3% of net revenue) in fiscal 2022 compared to $265.5 million (56.7% of net revenue) in fiscal 2021.

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 $262.0 million (48.5% of net revenue) in fiscal 2022 compared to $252.6 million (53.9% of net revenue) in fiscal 2021.

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

• During fiscal 2022, SG&A expenses included $3.1 million of Pura Vida intangible asset amortization and $0.1 million of store asset impairment charges.

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

$7.4 million of store asset impairment charges;

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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 $26.9 million (5.0% of net revenue) in fiscal 2022 compared to $13.1 million (2.8% of net revenue) in fiscal 2021.

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

• During fiscal 2022, operating income included $3.1 million of Pura Vida intangible asset amortization and $0.1 million of store asset impairment charges.

• During fiscal 2021, operating income included $9.2 million of Pura Vida intangible amortization and other purchase-related charges;

$7.4 million of store asset impairment charges;

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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.

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• During fiscal 2022, 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;

included $1.8 million of Pura Vida intangible asset amortization and store impairment charges.

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

included $5.0 million of Pura Vida intangible asset amortization and purchase-related charges;

$4.5 million of store asset impairment 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 $0.52 in fiscal 2022 compared to $0.26 in fiscal 2021.

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.

The aforementioned charges impacted net income per share by $0.05 and $0.38 in fiscal 2022 and 2021, respectively.

• Cash, cash equivalents, and investments were $88.4 million at January 29, 2022 compared to $65.5 million at January 30, 2021.

• Capital expenditures for fiscal 2022 totaled $5.5 million compared to $5.7 million for fiscal 2021.

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Revenues for the VB Direct segment reflect sales through Vera Bradley full-line and factory outlet stores;

verabradley.com;

our Vera Bradley online outlet site;

and our Vera Bradley annual outlet sale in Fort Wayne, Indiana.

the Vera Bradley websites verabradley.com and verabradley.ca;

and our Vera Bradley online outlet site.

There were no sales from our Vera Bradley annual outlet sale in Fort Wayne, Indiana for the past two years as it was cancelled due to the COVID-19 pandemic.

Revenues for the VB Indirect segment reflect sales of Vera Bradley-branded products to specialty retail partners;

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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, www.puravidabracelets.eu, and www.puravidabracelets.ca, 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, through the distribution of Pura Vida-branded products to wholesale retailers, and through Pura Vida's first retail store opened in August 2021.

Comparable Sales

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

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.

As a result of the temporary closure of all Vera Bradley stores due to COVID-19 during portions of the first and second quarters of fiscal 2021, the Company's fiscal 2022 and 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.

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

Reimbursement received is recorded as other income.

The related cost to design, produce, and distribute the catalogs and mailers is recorded as SG&A expense.

SG&A expenses include intangible asset amortization and store impairment charges.

Other Income, Net

Other income, net primarily includes certain legal settlements and sales tax credits received for timely filings.

Fiscal year 2020 included proceeds from the sales of tickets to our annual outlet sale.

Operating Income

Operating income is equal to gross profit less SG&A expenses plus other income.

Operating income is equal to gross profit less SG&A expenses plus net other income.

Operating income excludes interest income, interest expense, and income taxes.

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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.

There were no transaction costs during fiscal 2021.

There were no transaction costs during fiscals 2022 and 2021.

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

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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.

Impairment charges of $0.1 million and $7.4 million were recognized in the fiscal years ended January 29, 2022 and January 30, 2021, respectively, 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.

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.

There were no impairment charges recorded during the fiscal year ended February 1, 2020.

The COVID-19 pandemic, including the temporary closure of Vera Bradley retail stores beginning in mid-March of fiscal 2021, significantly impacted the Company's operations and cash flows which was the main driver of the impairment charges in fiscal 2021.

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;

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

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

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

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($ in thousands) January 29,

2021 February 1,

2022 January 30,

2021 February 1,

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($ in thousands, except as otherwise indicated) January 29,

2021 February 1,

2022 January 30,

2021 February 1,

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Fiscal Year Ended

2021 February 1,

2022 January 30,

2021 February 1,

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Total stores open at end of period 145 144 151

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

NM 3.4 % (10.3) %

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

Total gross square footage at end of period 397,037 380,100 386,028

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Fiscal years 2022, 2021, and 2020 consisted of 52 weeks.

(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.

(2) Impairment charges, related to underperforming stores, totaled $0.1 million and $7.4 million during the fiscal years ended January 29, 2022 and January 30, 2021, respectively.

There were no impairment charges recorded during the fiscal year ended February 1, 2020.

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

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

Increase (decrease) is reported as a percentage of the comparable sales for the same period in the prior fiscal year.

Increase is reported as a percentage of the comparable sales for the same period in the prior fiscal year.

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.

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.

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

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 2022 Compared to Fiscal 2021

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 2022, net revenues increased $72.2 million, or 15.4%, to $540.5 million, from $468.3 million for fiscal 2021.

For fiscal 2022, net revenues increased $65.6 million, or 22.7%, to $354.9 million, from $289.3 million for fiscal 2021.

The increase primarily resulted from higher store sales in the current-year since in the prior-year the Company’s stores

temporarily closed, as a result of COVID-19, beginning on March 19, 2020.

The stores began to re-open on May 5, 2020 of the prior-year.

The increase was partially offset by a decline in mask sales compared to the prior-year period.

We also opened six Vera Bradley factory outlet stores over the past 12 months.

For fiscal 2022, net revenues decreased $0.5 million, or 0.8%, to $66.0 million, from $66.5 million for fiscal 2021.

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

The decline was primarily due to a reduction in mask sales compared to the prior-year period, partially offset by an increase in orders from specialty and certain key accounts in other product categories, largely related to the impacts of COVID-19 in the prior-year period.

For fiscal 2022, net revenues increased $7.1 million, or 6.3%, to $119.6 million, from $112.5 million for fiscal 2021.

Pura Vida wholesale sales increased over the prior-year period, which was impacted by the COVID-19 pandemic.

Our marketing effectiveness for the e-commerce channel was negatively impacted by the Apple IDFA update in the current-year period resulting in a decline in e-commerce sales.

This update impacted Facebook and Instagram, which have been our primary marketing vehicles.

For fiscal 2022, gross profit increased $22.4 million, or 8.4%, to $287.9 million, from $265.5 million for fiscal 2021.

As a percentage of net revenues, gross profit decreased to 53.3% for fiscal 2022, from 56.7% for fiscal 2021.

Increased shipping expense and incremental expense from the expiration of the GSP duty-free status negatively impacted the gross profit as a percentage of net revenues for the current-year by approximately 145 basis points and 70 basis points, respectively.

Higher-margin mask sales benefited the prior-year gross profit as a percentage of net revenues by approximately 200 basis points, which did not recur in the current-year.

The prior-year period also included charges for the cancellation of certain purchase orders due to COVID-19, which totaled $1.3 million and negatively impacted gross margin as a percentage of net revenues by 30 basis points.

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

For fiscal 2022, SG&A expenses increased $9.4 million, or 3.7%, to $262.0 million, from $252.6 million for fiscal 2021.

As a percentage of net revenues, SG&A expenses were 48.5% and 53.9% for fiscal 2022 and fiscal 2021, respectively.

SG&A expenses related to Vera Bradley and corporate unallocated were $205.8 million compared to $194.7 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;

SG&A expenses related to Pura Vida were $56.2 million compared to $57.9 million in the comparable prior-year period.

The increase in consolidated SG&A expenses for fiscal 2022 was primarily due to:

• Vera Bradley initiatives in the prior-year period 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.

and reducing other non-payroll expenses including marketing that did not recur in the current-year period;

• Amortization expense of certain cloud computing costs associated with Project Novus technology enhancements.

The aforementioned increases in SG&A expenses were partially offset by:

• A reduction of $7.3 million of Vera Bradley store impairment charges;

• A $5.9 million reduction of intangible asset amortization associated with the Pura Vida acquisition;

• A reduction in depreciation expense primarily as a result of legacy software depreciation from the prior-year.

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

Other Income, Net

For fiscal 2022, net other income increased $0.9 million to $1.0 million, from $0.1 million for fiscal 2021.

The increase in net other income was primarily due to legal settlements in the current-year period.

Operating Income

For fiscal 2021, operating income decreased $6.4 million, or 32.9%, to $13.1 million from $19.5 million for fiscal 2020.

For fiscal 2022, operating income increased $13.8 million, or 106.0%, to $26.9 million from $13.1 million for fiscal 2021.

As a percentage of net revenues, operating income was 5.0% and 2.8% for fiscal 2022 and fiscal 2021, respectively.

Operating income decreased due to the factors described above.

Operating income increased due to the factors described above.

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

Fiscal Year Ended $

2021 February 1,

Operating Income (Loss):

2022 January 30,

Operating Income:

VB Direct $ 73,506 $ 48,524 $ 24,982 51.5 %

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Operating income $ 26,911 $ 13,065 $ 13,846 106.0 %

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

For fiscal 2022, operating income increased $25.0 million, or 51.5%.

As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 20.7% and 16.8% for fiscals 2022 and 2021, respectively.

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.

The increase in operating income as a percentage of VB Direct segment net revenues was primarily due to SG&A expense leverage associated with increased sales, partially offset by a decrease in gross margin as a percentage of net revenues as described above and COVID-19-related expense savings from the prior-year period that did not recur.

The increase in SG&A expenses caused by the COVID-19-related savings from the prior-year period that did not recur were partially offset by a reduction in store impairment charges and depreciation expense.

VB Indirect .

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As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 30.8% and 36.8% for fiscals 2022 and 2021, respectively.

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.

The decrease in operating income as a percentage of VB Indirect segment net revenues was primarily due to a decrease in gross margin as a percentage of net revenues as described above, partially offset by a decrease in the bad debt provision compared to the prior-year period.

For fiscal 2022, operating income increased $1.5 million, or 18.5%.

As a percentage of Pura Vida segment net revenues, operating income in the Pura Vida segment was 8.0% and 7.1% for fiscals 2022 and 2021, respectively.

The increase in operating income as a percentage of Pura Vida net revenues was primarily due to SG&A expense leverage associated with increased sales and a decrease in the intangible asset amortization expense compared to the prior-year period, partially offset by a decrease in gross margin as a percentage of net revenues partly due to channel mix changes as a result of the impact of the COVID-19 pandemic on wholesale sales in the prior-year period.

Corporate Unallocated .

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.

For fiscal 2022, unallocated expenses increased $8.4 million, or 12.4% to $76.4 million from $68.0 million in the prior-year period.

The increase in unallocated expenses was primarily due to prior-year period initiatives to reduce expenses in light of COVID-19 that did not recur in the current-year including the temporary furlough of certain associates;

temporarily reducing the base compensation for all other salaried associates;

and reducing other non-payroll expenses including marketing, as well as amortization expense associated with certain cloud computing costs for Project Novus technology enhancements.

These increases in SG&A expense were partially offset by a decrease in depreciation expense, as described above.

Interest Expense, Net

For fiscal 2022, net interest expense totaled $0.3 million compared to net interest expense of $1.2 million in fiscal 2021.

Interest expense decreased primarily due to borrowings under the Company's credit agreement during the prior-year period that did not recur in the current-year period.

Income Tax Expense

For fiscal 2022, we recorded income tax expense of $6.4 million at an effective tax rate of 24.1%, compared to income tax expense of $1.2 million at an effective tax rate of 9.9% for fiscal 2021.

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 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.

The effective tax rate increased primarily due to the relative impact of permanent and discrete items in the current-year period compared to the prior-year period, primarily as a result of stock-based compensation, and the relative impact of a $2.8 million tax benefit related to the net operating loss carryback provisions of the CARES Act in the prior-year that did not recur.

For fiscal 2022, net income increased $9.5 million, or 89.1%, to $20.2 million from $10.7 million in fiscal 2021 due to the factors described above.

Net Income Attributable to Redeemable Noncontrolling Interest

For fiscal 2022, net income attributable to redeemable noncontrolling interest was $2.4 million compared to $2.0 million in the prior-year period.

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

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

Net Income Attributable to Vera Bradley, Inc.

For fiscal 2022, net income attributable to Vera Bradley, Inc.

decreased $7.3 million to $8.7 million from $16.0 million in fiscal 2020 due to the factors described above.

increased $9.1 million to $17.8 million from $8.7 million in fiscal 2021 due to the factors described in the captions above.

Fiscal 2021 Compared to Fiscal 2020

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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 $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.

There was no debt outstanding as of January 29, 2022.

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

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and share repurchases.

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.

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 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.

Long-Term Investments.

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.

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.

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

We believe that cash on hand and cash equivalents, 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 Flow Analysis

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Fiscal Year Ended

2021 February 1,

2022 January 30,

2021 February 1,

Net cash provided by operating activities $ 39,861 $ 20,702 $ 20,624

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

Net cash (used in) provided by investing activities (4,154) 17,680 (69,966)

Net cash used in financing activities (11,413) (24,146) (14,285)

Net Cash Provided by Operating Activities

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation, amortization, impairment charges, deferred taxes, and stock-based compensation, the effect of changes in assets and liabilities, and tenant-improvement allowances received from landlords under our store leases.

and the effect of changes in assets and liabilities.

Net cash provided by operating activities was $39.9 million during fiscal 2022, as compared to $20.7 million during fiscal 2021.

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

The increase in cash provided by operating activities was primarily related to the change in assets and liabilities.

The increase in net income of $9.5 million was offset by the change in non-cash items.

Changes in assets and liabilities resulting in a source of cash were primarily related to:

• An increase in trade accounts receivable collections, mostly due to the impact of COVID-19 on the prior-year period, partially offset by an increase in Pura Vida accounts receivable as a result of increased wholesale sales;

• A decrease in inventory receipts compared to the prior-year, partially offset by an increase in in-transit inventory due to industry-wide shipping delays;

• Lower prepaid deposits related to Pura Vida inventory purchases and lower payments related to Project Novus expenditures compared to the prior-year;

• A change in the income tax receivable due to timing of payments and income compared to the prior-year, which included a benefit associated with the net operating loss carryback provisions of the CARES Act.

Changes in assets and liabilities resulting in a use of cash primarily related to operating leases mostly as a result of payment deferrals in the prior-year, timing of payments, a decrease in rent abatements compared to the prior-year, and store closures.

Net Cash (Used in) Provided by 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 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 investing activities was $4.2 million in fiscal 2022, compared to net cash provided by investing activities of $17.7 million in fiscal 2021.

The increase in cash used in investing activities was primarily a result of proceeds from investment activity in the prior-year period that did not recur in the current-year period.

Capital expenditures for fiscal 2023 are expected to be approximately $10.0 million to $12.0 million related to planned investments associated with new Vera Bradley factory and Pura Vida store locations and technology and logistics enhancements.

Net Cash Used in Financing Activities

Net cash used in financing activities was $11.4 million in fiscal 2022 compared to $24.1 million in fiscal 2021.

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.

The decrease 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 in the prior-year, partially offset by incremental common stock repurchases of $4.7 million.

Refer to the Company's Annual Report on Form 10-K filed with the SEC on March 30, 2021, for a comparison of fiscal 2021 to fiscal 2020 cash flow activity.

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The Company was in compliance with these covenants as of January 29, 2022.

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.

10% of the lesser of (i) the aggregate revolving commitment, and (ii) the borrowing base.

The fixed charge coverage ratio, availability, aggregate revolving commitment, and the borrowing base are further defined in the Credit Agreement.

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

Material Cash Requirements

Our material cash requirements from known contractual and other obligations include the following:

• The Put/Call Agreement associated with the July 2019 acquisition of Pura Vida, further described in Note 2 to the Notes to the Consolidated Financial Statements herein;

• Operating lease obligations as disclosed further in Note 4 to the Notes to the Consolidated Financial Statements herein;

• Purchase order commitments primarily related to inventory purchases;

• Salaries, cash incentives, benefits, and other employee-related costs;

• Planned capital expenditures;

• Income tax payments;

• Other supply and service agreements entered into as part of our normal operations.

We may be subject to additional material cash requirements that are contingent upon certain events that have not yet occurred.

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 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.

The balance of inventory adjustments was $0.6 million and $0.7 million for these matters as of the fiscal years ended January 29, 2022, and January 30, 2021, respectively.

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

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

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 $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.

Impairment charges are classified in SG&A expenses and were $0.1 million and $7.4 million for the periods ended January 29, 2022 and January 30, 2021, respectively.

There were no impairment charges recorded for the period ended February 1, 2020.

The discounted cash flow models used to estimate the applicable fair values involve numerous estimates and assumptions that are highly subjective.

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If economic conditions were to deteriorate, future impairment charges may be required.

Business Combinations

The Company acquired a majority interest in Pura Vida on July 16, 2019.

In connection with a business combination, the Company records the identifiable assets acquired, liabilities assumed, contingent consideration liabilities, if any, and any noncontrolling interest in the acquiree at their acquisition-date fair values.

Goodwill is measured indirectly as the excess of the sum of (1) the consideration transferred (including contingent consideration, if any) and (2) the fair value of any noncontrolling interest in the acquiree over the net assets acquired and liabilities assumed.

These fair value assessments require management judgment and include the use of significant estimates and assumptions including future cash flows, discount and other market rates, and asset lives, among other items.

The details of these assessments for the Pura Vida acquisition are as follows:

• Inventories were valued using the cost approach.

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 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.

• Customer relationships were valued using the multi-period excess earnings method.

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

• Contingent consideration related to the earn-out provision was valued using a Monte Carlo simulation in order to forecast the value of the potential future payment.

Significant assumptions used for the valuation include the discount rate, projected cash flows, and calculated volatility.

Goodwill and Other Intangible Assets

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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.

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.

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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