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Item 7. Management’s Discussion and Analysis

2023-03-28 compared with 2022-03-29 · 207 added, 298 removed, 231 unchanged (69% 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

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 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.

Macroeconomic Environment

We continue to experience challenges associated with the unpredictable macroeconomic environment in which we operate our businesses.

The COVID-19 pandemic caused supply chain disruptions that have resulted in delivery delays and increased inbound and outbound shipping costs;

however, these s upply chain disruptions began to stabilize towards the end of fiscal 2023.

We cannot predict the future impacts of the COVID-19 pandemic and its associated factors, which may necessitate temporary closures to some, or all, of our retail stores due to guidance and mandates from governments and public health officials, or require other Company action that may impact our operations.

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

In addition, the macroeconomic environment has been further challenged by inflationary pressures, including high gas prices, and other related factors that have impacted consumer discretionary spending, primarily customers with lower household incomes.

We have also seen a trend of increasing digital media costs.

We implemented strategic price increases across both of our brands to mitigate some of these inflationary and supply chain pressures in late fiscal 2022 and early fiscal 2023.

We will continue to monitor our pricing as it relates to the current macroeconomic trends.

We also continued the implementation of our targeted cost reductions, which are expected to be fully realized in fiscal 2024.

Expense savings are being derived across various areas of the Company, including retail store efficiencies, marketing expenses, information technology contracts, professional services, logistics and operational costs, and corporate payroll.

We will continue to review our expense structure in future years for additional cost reduction opportunities.

While we continue to actively monitor this rapidly evolving macroeconomic environment and are working to mitigate the situation, these matters could have a material adverse effect on our liquidity, operating results, and financial condition.

Executive Summary

Some of our major achievements for fiscal 2023 are as follows:

• In the Vera Bradley product area:

• 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:

• At the Vera Bradley brand:

• We expanded our robust product innovation pipeline, including launching our Featherweight Collection;

continued another year of product collaborations with brands such as Disney, Harry Potter, and Crocs;

and expanded our cozy, sleep, and outerwear collections.

• We continued to strengthen and rationalize our store base.

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:

• 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:

• 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 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:

• 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.

• Net revenues were $540.5 million in fiscal 2022 compared to $468.3 million in fiscal 2021.

• Vera Bradley Direct (“VB Direct”) segment sales were $354.9 million in fiscal 2022 compared to $289.3 million in fiscal 2021.

• 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 $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.

• 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 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;

$2.7 million of charges related to Project Novus;

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

• 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 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;

$2.7 million of charges related to Project Novus;

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

• Net income attributable to Vera Bradley, Inc.

was $17.8 million in fiscal 2022 compared to $8.7 million in fiscal 2021.

• During fiscal 2022, net income attributable to Vera Bradley, Inc.

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.

• Diluted net income per share was $0.52 in fiscal 2022 compared to $0.26 in fiscal 2021.

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.

• Repurchases of common stock for fiscal 2022 totaled $7.7 million, or 0.9 million shares, compared to $2.9 million, or 0.4 million shares, in fiscal 2021.

We opened five new factory outlet stores and closed 19 underperforming full-line stores and one factory outlet store, ending the fiscal year with 51 full-line and 79 factory outlet locations.

We also continued to expand options for customers to shop, including enhancing our presence in third-party marketplaces and adding boutiques in select high-traffic airports.

• At the Pura Vida brand:

• We entered into several high-profile product collaborations, with brands such as Hello Kitty, Disney, and Harry Potter, and expanded our product offerings by launching our demi-fine collection and expanding our assortment of engravable jewelry, all designed to bring new customers to our brand.

• We focused on building a more diverse, innovative, effective, and performance-based marketing program to drive Pura Vida e-commerce sales.

We began the process of implementing a comprehensive customer data platform to build a single, coherent, complete view of each Pura Vida customer so that we can better target and personalize marketing and become less reliant on third-party marketing.

This project is scheduled for

completion in the spring of fiscal 2024.

We continued to engage our micro influencers, significantly expanded our TikTok presence, launched impactful ads on connected TV, optimized SMS, and aggressively explored other methods to effectively reach our customers.

• We opened three new Pura Vida full-line stores during the year, bringing our full-line store count to four, which collectively exceeded our expectations.

These four full-line stores are playing a role in driving new customer acquisition as we continue to diversify our marketing platforms, and they demonstrate the power a retail presence can have in driving digital sales, omni-channel loyalty, and spending.

In addition, we further streamlined our corporate structure by eliminating the positions of Vera Bradley Brand President, Chief Creative Officer, and Chief Revenue Officer, and by adding the position of Chief Marketing Officer, all designed to drive additional annual cost savings of approximately $2.0 million, add more focus on marketing and merchandising, and position the Company to deliver steady top-line and bottom-line growth.

These decisions were made in order to right-size our leadership team and cost structure for the size of our business, to address the continuing challenging macroeconomic environment, and to best position us to achieve our long-term strategic plans.

We also continued to make investments in customer data science, business analytics, and pricing optimization, allowing us to collect and analyze data and make fact-based decisions to more efficiently run our business.

Fiscal 2023 was a challenging year as we saw significant declines in our consolidated net revenues compared to the prior year, largely due to inflationary pressures impacting consumer spending and traffic at our Vera Bradley factory stores and a decline in social and digital media effectiveness which we believe significantly impacted our Pura Vida e-commerce channel.

We also experienced a reduction in our gross margin as a percentage of net revenues compared to the prior year, which reflected charges of approximately $16.7 million in inventory adjustments related to excess Pura Vida inventory, excess mask products, the exit of certain technology products, valuation adjustments to write discounted inventory down to its net realizable value, concept brand exit costs, and $1.6 million for certain purchase order cancellation fees.

Fiscal 2023 SG&A expenses were impacted by approximately $15.0 million of charges primarily related to the change in our leadership and our cost-saving initiatives, which we do not expect to recur in future periods, as well as $3.3 million in intangible asset amortization and impairment charges of $1.4 million for Vera Bradley store assets and a corporate lease-right-of-use asset.

Largely due to lower projected net revenues and operating profits, as well as a change in certain strategies in the Pura Vida segment, we recorded goodwill and Pura Vida brand indefinite-lived asset impairment charges of $69.3 million in the fiscal year.

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

How We Assess the Performance of Our Business

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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.

There were no sales from our Vera Bradley annual outlet sale in Fort Wayne, Indiana for the past three 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, 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

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.

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

Cost of sales includes the direct cost of purchased merchandise, distribution center costs, operations overhead, duty, and all inbound freight costs incurred.

Cost of sales includes the direct cost of purchased merchandise, distribution center costs, operations overhead, duty, all inbound freight costs incurred, and inventory adjustments including adjustments described in Note 16 to the Notes to the Consolidated Financial Statements herein.

The components of our reported cost of sales may not be comparable to those of other retail and wholesale companies.

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•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.

•Pura Vida business expenses primarily related to employee compensation and store expenses.

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.

A portion of our advertising expenses may be reimbursed by Indirect retailers, and such amount is classified as other income.

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

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

Administrative expenses include employee compensation for corporate functions, corporate headquarters occupancy costs, consulting and software expenses, and charitable donations, as well as severance charges and consulting fees associated with cost savings initiatives and the CEO search disclosed in Note 16 to the Notes to the Consolidated Financial Statements herein.

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 net other income.

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

Income Before Income Taxes

Income before income taxes is equal to operating income plus interest income less interest expense.

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

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 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.

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.

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.

There were no transaction costs during fiscals 2022 and 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 acquisi tion.

Refer to Note 14 to the No tes to the Consolidated Financial Statements herein for additional information regarding the Pura Vida acquisition.

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

Operating (Loss) Income

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

Operating (loss) income excludes interest income, interest expense, and income taxes.

(Loss) Income Before Income Taxes

(Loss) income before income taxes is equal to operating (loss) income plus interest income less interest expense.

Net (Loss) Income

Net (loss) income is equal to (loss) income before income taxes less income tax expense.

Net (Loss) Income Attributable to Redeemable Noncontrolling Interest

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

Net (Loss) Income Attributable to Vera Bradley, Inc.

Net (loss) income attributable to Vera Bradley, Inc.

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

Impairment Charges

Goodwill and Other Intangible Assets

We perform our annual impairment test over goodwill and the indefinite-lived Pura Vida brand during the second quarter of each fiscal year.

We have experienced significantly lower sales from our Pura Vida e-commerce channel due to a decline in social and digital media effectiveness, as well as lower wholesale sales.

These lower sales volumes had a negative impact on the fair value determination of the aforementioned assets.

During the assessment for the fiscal 2023 annual test, it was determined that the fair values of the Pura Vida reporting unit and the Pura Vida brand were less than their carrying values.

As a result, we recorded an impairment charge of $9.9 million and $19.4 million for the Pura Vida brand and goodwill, respectively, during the second quarter of fiscal 2023 within the Pura Vida segment.

We identified triggering events during the subsequent quarters of fiscal 2023, due to lower operating profit compared to previous forecasts, as well as changes in the long-range plan such as a pause on the opening of new Pura Vida retail stores.

We performed further testing on the Pura Vida reporting unit and Pura Vida brand as a result.

These analyses caused additional impairment charges to be recorded in the fourth quarter of fiscal 2023 of $15.1 million and $24.9 million for the Pura Vida brand and goodwill, respectively, which reflects a full goodwill impairment.

Collectively, impairment charges for the Pura Vida brand and goodwill during fiscal 2023 totaled $69.3 million.

Refer to Note 15 to the Notes to the Consolidated Financial Statements herein for additional information regarding the goodwill and indefinite-lived intangible assets impairment tests.

Long-lived Assets

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.

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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 $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 year ended February 1, 2020.

Impairment charges of $1.4 million, $0.1 million, and $7.4 million were recognized in the fiscal years ended January 28, 2023, 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 a corporate right-of-use asset 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 $0.6 million were recorded within corporate unallocated during fiscal 2023.

The remaining impairment charges were included in the VB Direct segment.

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;

We are unable to predict the extent of the impact that the inflationary environment, or other macroeconomic factors, 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.

Cost Savings Initiatives and Other Charges

During fiscal 2023, the Company began implementation of its targeted cost reductions, which are expected to be fully realized in fiscal 2024.

Refer to Note 16 to the Notes to the Consolidated Financial Statements herein for additional information regarding charges for cost savings initiatives and remaining liabilities, as well as other charges not comparable with the prior year.

Results of Operations

The following tables summarize key components of our consolidated results of operations for the last three fiscal years, both in dollars and as a percentage of our net revenues.

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

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

Fiscal Year Ended (1)

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2023 January 29,

2021 February 1,

Statement of Income Data:

2022 January 30,

Statement of (Loss) Income Data:

Net revenues $ 499,961 $ 540,453 $ 468,272

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265,016 261,993 252,588

Other income 961 135 1,098

Operating income 26,911 13,065 19,474

Interest expense (income), net 263 1,203 (1,085)

Income before income taxes 26,648 11,862 20,559

Income tax expense (3)

Impairment of goodwill and intangible assets 69,256 — —

Other income, net 457 961 135

Operating (loss) income (94,871) 26,911 13,065

Interest expense, net 153 263 1,203

(Loss) income before income taxes (95,024) 26,648 11,862

Income tax (benefit) expense (3)

(15,640) 6,430 1,173

Net income 20,218 10,689 15,244

Net income (loss) attributable to redeemable noncontrolling interest 2,380 2,008 (803)

Net income attributable to Vera Bradley, Inc.

Net (loss) income (79,384) 20,218 10,689

Net (loss) income attributable to redeemable noncontrolling interest (19,649) 2,380 2,008

Net (loss) income attributable to Vera Bradley, Inc.

$ (59,735) $ 17,838 $ 8,681

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Selling, general, and administrative expenses 53.0 % 48.5 % 53.9 %

Other income 0.2 % — % 0.2 %

Operating income 5.0 % 2.8 % 3.9 %

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

Income before income taxes 4.9 % 2.5 % 4.2 %

Income tax expense 1.2 % 0.3 % 1.1 %

Net income 3.7 % 2.3 % 3.1 %

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

Net income attributable to Vera Bradley, Inc.

Impairment of goodwill and intangible assets 13.9 % — % — %

Other income, net 0.1 % 0.2 % — %

Operating (loss) income (19.0) % 5.0 % 2.8 %

Interest expense, net — % — % 0.3 %

(Loss) income before income taxes (19.0) % 4.9 % 2.5 %

Income tax (benefit) expense (3.1) % 1.2 % 0.3 %

Net (loss) income (15.9) % 3.7 % 2.3 %

Net (loss) income attributable to redeemable noncontrolling interest (3.9) % 0.4 % 0.4 %

Net (loss) income attributable to Vera Bradley, Inc.

(11.9) % 3.3 % 1.9 %

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2023 January 29,

2021 February 1,

2022 January 30,

Net Revenues by Segment:

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2023 January 29,

2021 February 1,

2022 January 30,

Vera Bradley Store Data (4) :

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Total stores open at end of period 130 145 144

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

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

(9.5) % NM NM

Total gross square footage at end of period 381,664 397,037 380,100

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Fiscal years 2023, 2022, and 2021 consisted of 52 weeks.

(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.

(2) Impairment charges, related primarily to underperforming stores, totaled $1.4 million, $0.1 million, and $7.4 million during the fiscal years ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively.

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

Decrease 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.

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Fiscal 2023 Compared to Fiscal 2022

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 2023, net revenues decreased $40.5 million, or 7.5%, to $500.0 million, from $540.5 million for fiscal 2022.

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 2023, net revenues decreased $26.7 million, or 7.5%, to $328.2 million, from $354.9 million for fiscal 2022.

Vera Bradley comparable sales decreased $33.3 million, or 9.5%, which includes a 14.6% decrease in comparable store sales partially offset by a 1.5% increase in e-commerce sales.

This comparable sales decrease was partially offset by sales from

our stores with non-comparable periods, including our five factory outlet stores that opened in the current fiscal year, which contributed $6.5 million of revenue.

The decrease in comparable sales and comparable store sales was impacted by reduced traffic, conversion, and units sold primarily in the factory outlet channel.

These decreases were partially offset by price increases on certain merchandise in the current-year.

For fiscal 2023, net revenues increased $7.3 million, or 11.1%, to $73.3 million, from $66.0 million for fiscal 2022.

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.

The increase was primarily due to an increase in orders from certain key accounts.

For fiscal 2023, net revenues decreased $21.2 million, or 17.7%, to $98.4 million, from $119.6 million for fiscal 2022.

The decrease was primarily due to a decline of $16.2 million in e-commerce sales due to a decline in social and digital media effectiveness and lower marketing spending, as well as a decline of $7.0 million in wholesale orders.

These decreases were partially offset by sales from our new store openings.

We are working to evolve our Pura Vida business model from one that is largely dependent on e-commerce and digital marketing to one that is a true omni-channel business with a more diversified marketing program.

For fiscal 2023, gross profit decreased $48.9 million, or 17.0%, to $239.0 million, from $287.9 million for fiscal 2022.

As a percentage of net revenues, gross profit decreased to 47.8% for fiscal 2023, from 53.3% for fiscal 2022.

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.

Gross profit as a percentage of net revenues was negatively impacted by approximately 330 basis points for inventory adjustments related to excess inventory in the Pura Vida business and excess mask products, the exit of certain technology products, valuation adjustments to write discounted inventory down to its net realizable value, and concept brand exit costs, as well as approximately 30 basis points for purchase order cancellation fees related to certain spring 2023 products and certain raw materials.

In addition, gross profit as a percentage of net revenues was negatively impacted by inbound and outbound freight and shipping costs, deleverage of overhead costs, channel mix changes, and increased promotional activity, partially offset by price increases on certain merchandise in the current-year.

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

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The increase in consolidated SG&A expenses for fiscal 2023 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 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.

• severance charges of $9.2 million including for CEO retirement severance and Vera Bradley brand executive severance;

• $4.4 million of consulting fees related to our cost saving and strategic initiatives, CEO search, and other Pura Vida and Vera Bradley professional fees that did not occur in the prior year;

• $1.3 million for incremental Vera Bradley store impairment charges and a corporate lease right-of-use asset impairment charge;

• new CEO sign-on bonus and relocation expenses of $1.0 million;

• $0.4 million of former CEO November and December salary expense and stock-based compensation expense associated with retirement.

The aforementioned increases in SG&A expenses were partially offset by a $6.9 million reduction in advertising and marketing expenses, primarily related to the Pura Vida brand;

a $4.1 million reduction in expense associated with incentive compensation due to company performance estimates and forfeitures compared to the prior-year period;

a $1.7 million reduction in lease expense due to contingent rental payments associated with lower store sales and store closures, which was partially offset by new store openings for both brands;

and a $1.0 million reduction in employee-related and other costs due primarily to headcount reductions, including closed Vera Bradley stores, partially offset by an increase in travel expenses.

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

Impairment of Goodwill and Intangible Assets

Fiscal 2023 included a $69.3 million charge for impairment of goodwill and intangible assets related to Pura Vida goodwill and the indefinite-lived Pura Vida brand asset, which is reflected within the Pura Vida segment.

For additional information, refer to Goodwill and Other Intangible Assets herein.

There were no similar charges in the comparable prior-year period.

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 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 increased due to the factors described above.

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

For fiscal 2023, net other income decreased $0.5 million to $0.5 million, from $1.0 million for fiscal 2022.

The decrease in net other income was primarily due to legal settlements in the prior-year period that did not recur.

Operating (Loss) Income

For fiscal 2023, operating loss increased $121.8 million, or 452.5%, to $(94.9) million from operating income of $26.9 million for fiscal 2022.

As a percentage of net revenues, operating (loss) income was (19.0)% and 5.0% for fiscal 2023 and fiscal 2022, respectively.

Operating loss increased due to the factors described above.

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

Fiscal Year Ended $

2023 January 29,

Operating Income:

Operating (Loss) Income:

VB Direct $ 51,097 $ 73,506 $ (22,409) (30.5) %

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Unallocated corporate expenses (90,342) (76,437) (13,905) 18.2 %

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

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

Operating (loss) income $ (94,871) $ 26,911 $ (121,782) (452.5) %

For fiscal 2023, operating income decreased $22.4 million, or 30.5%.

As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 15.6% and 20.7% for fiscals 2023 and 2022, respectively.

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.

The decrease in operating income as a percentage of VB Direct segment net revenues was primarily due to a decrease in gross margin as a percentage of net revenues as described above, including approximately 190 basis points related to inventory adjustments for the exit of certain technology products, excess mask products, and concept brand exit costs, as well as certain purchase order cancellation fees;

SG&A expense deleverage associated with decreased sales;

and a decrease in advertising expense, employee-related costs including incentive compensation expense, and lease expense.

These decreases in SG&A expenses were partially offset by $0.8 million in incremental store impairment charges.

VB Indirect .

For fiscal 2022, operating income decreased $4.2 million, or 17.1%.

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 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 2023, operating income increased $2.6 million, or 13.0%.

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.

As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 31.3% and 30.8% for fiscals 2023 and 2022, respectively.

The increase in operating income as a percentage of VB Indirect segment net revenues was primarily due to SG&A leverage associated with increased sales, partially offset by a decrease in gross margin as a percentage of net revenues as described above, including approximately 230 basis points related to inventory adjustments for the exit of certain technology products, excess mask products, and valuation adjustments to write discounted inventory down to its net realizable value, as well as certain purchase order cancellation fees.

For fiscal 2023, operating loss increased $88.1 million.

As a percentage of Pura Vida segment net revenues, operating (loss) income in the Pura Vida segment was (79.9)% and 8.0% for fiscals 2023 and 2022, respectively.

The increase in operating loss as a percentage of Pura Vida net revenues was primarily due to goodwill and indefinite-lived Pura Vida brand impairment charges in the current-year period of $44.3 million and $25.0 million, respectively.

In addition, there was expense deleverage associated with a decrease in sales, inventory adjustments for excess inventory and valuation adjustments to write discounted inventory down to its net realizable value which impacted the operating loss as a percentage of net revenues by approximately 1,000 basis points in the current year, and new store expenses.

These decreases to operating income were partially offset by reductions in advertising expense compared to the prior-year period.

Corporate Unallocated .

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.

For fiscal 2023, corporate unallocated expenses increased $13.9 million, or 18.2% to $90.3 million from $76.4 million in the prior-year period.

The increase in corporate unallocated expenses was primarily due to severance charges of $8.7 million, including CEO retirement severance and Vera Bradley brand executive severance;

consulting fees of $4.2 million associated with cost savings, strategic initiatives, and CEO search;

$2.4 million increase in corporate advertising expense;

$1.0 million for new CEO sign-on bonus and relocation expenses;

$0.7 million primarily related to legal settlements in the prior-year period that did not recur;

$0.6 million related to a lease right-of-use asset impairment charge in the current-year period;

and $0.4 million related to former CEO November and December salary payments and stock compensation expense associated with retirement.

These increases were partially offset by a $3.6 million decrease in employee-related expenses, primarily related to a decline in incentive compensation expense as a result of company performance estimates and forfeitures along with reduced headcount.

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 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.

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

For fiscal 2023, net interest expense totaled $0.2 million compared to $0.3 million in fiscal 2022, consistent with the prior year.

Income Tax (Benefit) Expense

For fiscal 2023, we recorded an income tax benefit of $15.6 million at an effective tax rate of 16.5%, compared to income tax expense of $6.4 million at an effective tax rate of 24.1% for fiscal 2022.

The effective tax rate decreased 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 non-deductible executive compensation and stock-based compensation.

Net (Loss) Income

For fiscal 2023, net loss increased $99.6 million to $(79.4) million from net income of $20.2 million in fiscal 2022 due to the factors described in the captions above.

Net (Loss) Income Attributable to Redeemable Noncontrolling Interest

For fiscal 2023, net loss attributable to redeemable noncontrolling interest was $(19.6) million compared to net income attributable to redeemable noncontrolling interest of $2.4 million in the prior-year period.

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

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

Net (Loss) Income Attributable to Vera Bradley, Inc.

For fiscal 2023, net loss attributable to Vera Bradley, Inc.

increased $77.5 million to $(59.7) million from net income attributable to Vera Bradley, Inc.

of $17.8 million in fiscal 2022 due to the factors described in the captions above.

Fiscal 2022 Compared to Fiscal 2021

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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 was no debt outstanding as of January 29, 2022.

There was no debt outstanding under the Credit Agreement as of January 28, 2023.

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

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2023 January 29,

2021 February 1,

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

2022 January 30,

Net cash (used in) provided by operating activities $ (13,421) $ 39,861 $ 20,702

Net cash (used in) provided by investing activities (8,239) (4,154) 17,680

Net cash used in financing activities (20,105) (11,413) (24,146)

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;

Net Cash (Used in) Provided by Operating Activities

Net cash (used in) provided by operating activities consists primarily of net (loss) income adjusted for non-cash items, including depreciation, amortization, impairment charges, deferred taxes, and stock-based compensation;

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.

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 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 operating activities was $13.4 million during fiscal 2023, as compared to net cash provided by operating activities of $39.9 million during fiscal 2022.

The increase in cash used in operating activities was primarily related to an increase in the net loss after non-cash charges of $47.5 million, as well as the change in assets and liabilities.

Changes in assets and liabilities resulting in a use of cash were primarily related to the change in accounts payable due to a reduction in inventory in-transit and timing of payments, an increase in accounts receivable partly associated with increased VB Indirect segment sales, as well as a reduction in accrued and other liabilities reflecting a reduction in freight and duty accruals due to lower inbound units and costs at the end of the year, and a reduction in certain variable liabilities due in part to lower sales including the percent rent liability, partially offset by accruals associated with severance payments.

The change in inventory reflects $16.7 million in inventory adjustments associated primarily with excess inventory, the exit of certain technology products, valuation adjustments to write discounted inventory down to its net realizable value in the current-year period, and concept brand exit costs.

The change in inventory was also impacted by decreased sales compared to the prior-year period, a reduction in transit times, as well as incremental freight and duty costs.

Changes that provided a source of cash were due primarily to net payments of $6.6 million in income taxes which we received during the current-year period.

Net Cash 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.

Net cash used in investing activities was $8.2 million in fiscal 2023, compared to $4.2 million in fiscal 2022.

The increase in cash used in investing activities was primarily a result of increased spending associated with purchases of property, plant, and equipment due mostly to relocations of certain existing Vera Bradley factory outlet stores, incremental Pura Vida retail stores, and timing of payments.

Capital expenditures for fiscal 2024 are expected to be approximately $5.0 million related to planned investments associated with new Vera Bradley factory store locations and technology and logistics enhancements.

Net Cash Used in Financing Activities

Net cash used in financing activities was $20.1 million in fiscal 2023 compared to $11.4 million in fiscal 2022.

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.

The increase in cash used in financing activities was primarily due to $18.1 million of common stock repurchases in the current-year period compared to $7.7 million in the comparable prior-year period.

Refer to the Company's Annual Report on Form 10-K filed with the SEC on March 29, 2022, for a comparison of fiscal 2022 to fiscal 2021 cash flow activity.

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The Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of $75.0 million or the amount of borrowing availability determined in accordance with a borrowing base of certain assets.

Any proceeds of the credit facilities will be used to finance general corporate purposes of VBD and its subsidiaries, including but not limited to Vera Bradley International, LLC and Vera Bradley Sales, LLC (collectively, the “Named Subsidiaries”).

Borrowings under the credit facilities are available to finance general corporate purposes of VBD and its subsidiaries, including but not limited to Vera Bradley International, LLC and Vera Bradley Sales, LLC (collectively, the “Named Subsidiaries”).

The Credit Agreement also contains an option for VBD to arrange with lenders to increase the aggregate principal amount by up to $25.0 million.

Amounts outstanding under the Credit Agreement bear interest at a per annum rate equal to either (i) for CBFR borrowings (including swingline loans), the CB Floating Rate, where the CB Floating Rate is the prime rate which shall never be less than the adjusted one month LIBOR rate on such day, plus the Applicable Rate, where the Applicable Rate is a percentage spread ranging from -1.00% to -1.50% or (ii) for each eurodollar borrowing, the Adjusted LIBO Rate, where the Adjusted LIBO Rate is the LIBO rate for such interest period multiplied by the statutory reserve rate, for the interest period in effect for such borrowing, plus the Applicable Rate, where the Applicable Rate is a percentage ranging from 1.00% to 1.30%.

The applicable CB Floating Rate, Adjusted LIBO Rate, or LIBO Rate shall be determined by the administrative agent.

The Credit Agreement also requires VBD to pay a commitment fee for the unused portion of the revolving facility of up to 0.20% per annum.

VBD’s obligations under the Credit Agreement are guaranteed by the Company and the Named Subsidiaries.

The obligations of VBD under the Credit Agreement are secured by substantially all of the respective assets of VBD, the Company, and the Named Subsidiaries and are further secured by the equity interests in VBD and the Named Subsidiaries.

The Credit Agreement contains various affirmative and negative covenants, including restrictions on the Company's ability to incur debt or liens;

engage in mergers or consolidations;

make certain investments, acquisitions, loans, and advances;

enter into certain swap agreements;

pay dividends or make distributions or make other restricted payments;

engage in certain transactions with affiliates;

and amend, modify, or waive any of its rights related to subordinated indebtedness and certain charter and other organizational, governing, and material agreements.

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 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.

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

The Credit Agreement contains customary events of default, including, among other things:

(i) the failure to pay any principal, interest, or other fees under the Credit Agreement;

(ii) the making of any materially incorrect representation or warranty;

(iii) the failure to observe or perform any covenant, condition, or agreement in the Credit Agreement or related agreements;

(iv) a cross default with respect to other material indebtedness;

(v) bankruptcy and insolvency events;

(vi) unsatisfied material final judgments;

(vii) Employee Retirement Income Security Act of 1974 (“ERISA”) events that could reasonably be expected to have a material adverse effect;

and (viii) a change in control (as defined in the Credit Agreement).

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

For further information regarding the Credit Agreement, please see Note 6 of the Notes to Consolidated Financial Statements set forth in Part II, “Item 8.

Financial Statements and Supplementary Data,” of this report.

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;

• The $10.0 million purchase of the remaining Pura Vida Interests paid subsequent to fiscal 2023 as further described in Note 2 to the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report;

• Approximately $3.1 million of severance liability associated with cost savings initiatives further described in Note 16 to the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report;

• Operating lease obligations as disclosed further in Note 4 to the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report;

• Purchase order commitments primarily related to inventory purchases;

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing or unconsolidated special purpose entities.

We expect to fund these cash requirements using cash on hand, cash provided by our operations and, to the extent necessary, borrowings under our Credit Agreement.

Critical Accounting Policies and Estimates

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The balance of inventory adjustments was $16.5 million and $0.6 million for these matters as of the fiscal years ended January 28, 2023, and January 29, 2022, 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.

The increase in the balance was primarily related to adjustments for excess Pura Vida inventory and excess mask inventory, the exit of certain technology products, and valuation adjustments to write discounted inventory down to its net realizable value.

We believe we have the ability to move some of our retired finished goods through a number of channels, including our Vera Bradley and Pura Vida websites, the Vera Bradley online outlet site, Vera Bradley factory outlet stores, the Vera Bradley Annual Outlet Sale which is planned to resume in June 2023, 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 $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.

Impairment charges are classified in SG&A expenses and were $1.4 million, $0.1 million, and $7.4 million for the periods ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively.

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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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 29, 2022, the Company had recorded $44.3 million of goodwill which was allocated to the Pura Vida reporting unit.

As of January 28, 2023, the Company had no goodwill recorded as it recorded a full goodwill impairment charge of $44.3 million within the Pura Vida reporting unit during fiscal 2023.

For the annual goodwill impairment analysis performed during fiscal 2023, we performed a quantitative analysis.

No impairment was recorded for goodwill during fiscal 2022.

We performed subsequent impairment tests during the third and fourth quarters of fiscal 2023 due to triggering events, including lower operating profit compared to previous forecasts, as well as changes in the long-range plan such as a pause on the opening of new Pura Vida retail stores.

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

2 unchanged sentences

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.

2 unchanged sentences

For the annual impairment analysis performed during fiscal 2023, we performed a quantitative analysis.

No impairment was recorded for the Pura Vida brand during fiscal 2022.

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

See Item 13, “Certain Relationships and Related Transactions, and Director Independence,” of this report for information regarding transactions with related parties.

Consistent with the goodwill analysis, we performed subsequent impairment tests during the third and fourth quarters of fiscal 2023 due to the aforementioned triggering events.

We recorded $25.0 million in impairment charges for the Pura Vida brand during fiscal 2023.

The estimated fair value of the Pura Vida brand is 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 for the Pura Vida brand asset may be necessary in future years.

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