Vera Bradley, Inc.: Form 10-Q for the period ended Oct 28, 2023

The following discussion summarizes the significant factors affecting the condensed consolidated operating results, financial condition, liquidity, and cash flows of the Company as of and for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, and our unaudited condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report. The results of operations for the thirteen and thirty-nine weeks ended October 28, 2023, are not necessarily indicative of the results to be expected for the full fiscal year.

Strategic Progress, Macroeconomic Factors, and Other Factors Impacting our Financial Condition and Results of Operations

Strategic Progress. In the third quarter of fiscal 2024, we continued work on Project Restoration, which is focused on four key pillars of the business for each brand to help drive long-term profitable growth. These pillars are: Consumer, Brand, Product, and Channel.

During the third quarter, we continued with product innovation and collaborations at both brands.

In addition, we continued to identify cost reductions as part of our overall plan to right-size the expense structure of our Company and lay the groundwork for success to help drive long-term profitable growth.

These expense savings are expected to be fully realized in fiscal 2025. 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 for additional cost reduction opportunities.

Macroeconomic and Other Factors. We have 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. We continued to see weakness in the Vera Bradley outlet store business in the third quarter, which was partially offset by the return of the Vera Bradley annual outlet sale in the second quarter of fiscal 2024.

Within our supply chain, the COVID-19 pandemic caused disruptions that have resulted in delivery delays and increased inbound and outbound shipping costs. However, these supply chain disruptions began to stabilize towards the end of fiscal 2023 and we continued to see favorability in our operating results associated with the reduction in these costs in the third quarter of fiscal 2024 compared to the prior-year period.

We also 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.

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.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures.

Net Revenues

Net revenues reflect sales of our merchandise and revenue from distribution and shipping and handling fees, less returns and discounts. Revenues for the VB Direct segment reflect sales through Vera Bradley full-line and outlet stores; the Vera Bradley website, verabradley.com; the Vera Bradley online outlet site; and the Vera Bradley annual outlet sale. The Vera Bradley annual outlet sale was cancelled in the prior year but resumed in June 2023. Revenues for the VB Indirect segment reflect sales of Vera Bradley-branded products to specialty retail partners; key accounts consisting of department stores, national accounts, third-party e-commerce sites, and third-party inventory liquidators; 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 (http://www.puravidabracelets.com), www.puravidabracelets.ca (http://www.puravidabracelets.ca), and www.puravidabracelets.eu (http://www.puravidabracelets.eu); through the distribution of Pura Vida-branded products to wholesale retailers; and through Pura Vida retail stores.

Comparable Sales

Comparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our Vera Bradley e-commerce operations. Remodeled stores are included in both comparable sales and comparable store sales unless the store was closed for more than one week of the current or comparable prior period, in which case the non-comparable temporary closure periods are not included, or the remodel resulted in a significant change in square footage. Some of our competitors and other retailers calculate comparable or “same store” sales differently than we do. As a result, data in this report regarding our comparable sales and comparable store sales may not be comparable to similar data made available by other companies. Non-comparable sales include sales from stores not included in comparable sales or comparable store sales.

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

• Overall economic trends;
• Consumer preferences and fashion trends;
• Competition;
• The timing of our releases of new patterns and collections;
• Changes in our product mix;
• Pricing, as well as timing and level of promotions;
• Amount of store, mall, and e-commerce traffic;
• The level of customer service that we provide in stores and to our on-line customers;
• Our ability to source and distribute products efficiently;
• The number of stores we open and close in any period; and
• The timing and success of promotional and marketing efforts.

Gross Profit

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, duties, all inbound freight costs incurred, and inventory adjustments, if any. The components of our reported cost of sales may not be comparable to those of other retail and wholesale companies.

Gross profit can be impacted by changes in volume; fluctuations in sales price; inbound freight and other logistical costs; operational efficiencies, such as leveraging of fixed costs; promotional activities, including free shipping; commodity prices, such as for cotton; tariffs; and labor costs.

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

SG&A expenses include selling; advertising, marketing, and product development; and administrative expenses. Selling expenses include:

• VB Direct business expenses, such as store expenses, employee compensation, and store occupancy and supply costs;
• VB Indirect business expenses consisting primarily of employee compensation and other expenses associated with sales to Indirect retailers; and
• 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. 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 disclosed in Note 14 to the Notes to the Condensed Consolidated Financial Statements herein.

Operating Income (Loss)

Operating income (loss) is equal to gross profit less SG&A expenses plus other income, net. Operating income (loss) excludes interest income, interest expense, and income taxes.

Net Income (Loss)

Net income (loss) is equal to operating income (loss) plus interest income less interest expense and income taxes.

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

Net income (loss) attributable to Vera Bradley, Inc. is equal to net income (loss) less net loss attributable to redeemable noncontrolling interest.

Impairment Charges

Goodwill and Other Intangible Assets

We perform our annual impairment test of the indefinite-lived Pura Vida brand (and goodwill in prior years) during the second quarter of each fiscal year.

Due to the operating loss incurred by the Pura Vida segment during the third quarter, the Company determined there was a triggering event and performed additional analysis on the valuation of the Pura Vida brand as of October 28, 2023. As of October 28, 2023, the Company determined that the fair value of the Pura Vida brand exceeded its carrying values by a nominal amount and concluded that no additional impairment existed for the brand asset.

The Company recognizes that any changes to actual fourth quarter results within the Pura Vida segment for fiscal 2024 or projected fiscal 2025 results could potentially have a material impact on our assessment of the Pura Vida brand impairment. The Company will continue to monitor actual performance against expectations. Should any indicators of impairment arise in subsequent periods, the Company will be required to perform additional analysis to determine whether additional impairment of the brand asset exists.

There were no impairment charges recorded during the thirteen and thirty-nine weeks ended October 28, 2023. During the second quarter of fiscal 2023, impairment charges of $9.9 million and $19.4 million for the Pura Vida brand and goodwill, respectively, were recorded within the Pura Vida segment. There were no impairment charges recorded during the thirteen weeks ended October 29, 2022. Refer to Note 13 herein, as well as Note 15 to the Notes to the Consolidated Financial Statements filed with the SEC on Form 10-K for the fiscal year ended January 28, 2023, for additional information regarding the goodwill and indefinite-lived intangible assets impairment tests and impairment charges recorded during fiscal 2023.

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. The reviews are conducted at the lowest identifiable level of cash flows. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, as further defined in Note 5 to the Notes to the Condensed Consolidated Financial Statements herein. There were no impairment charges recorded during the thirteen and thirty-nine weeks ended October 28, 2023, or the thirteen weeks ended October 29, 2022. Impairment charges of $1.4 million were recognized during the thirty-nine weeks ended October 29, 2022, for store-related property, plant, and equipment and a lease right-of-use asset which are included in SG&A expenses in the Condensed Consolidated Statements of Operations and in other impairment charges in the Condensed Consolidated Statements of Cash Flows. $0.8 million of the impairment charge is included in the Direct segment for the thirty-nine weeks ended October 29, 2022, and $0.6 million of the impairment charge is included in corporate unallocated expenses for the thirty-nine weeks ended October 29, 2022. We are unable to predict the extent of the impact that the inflationary environment could have on our operations, the economy, or other factors; therefore, it is possible additional impairments could be identified in future periods, and such amounts could be material.

Results of Operations

The following tables summarize key components of our condensed consolidated results of operations for the periods indicated, both in dollars and as a percentage of our net revenues ($ in thousands):

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The following tables present net revenues and operating income (loss) by operating segment, both in dollars and as a percentage of associated net revenues, and store data for the periods indicated ($ in thousands, except as otherwise indicated):

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(1) Includes Vera Bradley full-line and outlet stores. These figures do not include Pura Vida retail locations or Pura Vida e-commerce operations.

(2) Dollars not in thousands. Average net revenues per gross square foot are calculated by dividing total net revenues for our stores that have been open at least 12 full fiscal months as of the end of the period by total gross square footage for those stores. Remodeled stores are included in average net revenues per gross square foot unless the store was closed for a portion of the period.

(3) 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. Comparable sales 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.

Thirteen Weeks Ended October 28, 2023, Compared to Thirteen Weeks Ended October 29, 2022

Net Revenues

For the thirteen weeks ended October 28, 2023, net revenues decreased $9.0 million, or 7.3%, to $115.0 million, from $124.0 million in the comparable prior-year period.

VB Direct. For the thirteen weeks ended October 28, 2023, net revenues in the VB Direct segment decreased $7.8 million, or 9.7%, to $72.3 million, from $80.1 million in the comparable prior-year period. Vera Bradley comparable sales decreased 8.2%, which includes a 11.3% decrease in comparable store sales and a 2.1% decrease in e-commerce sales. In addition, non-comparable store revenue decreased $1.4 million. Closed retail store locations were partially offset by three outlet stores opened in the current year. The decrease in comparable sales and comparable store sales was impacted by reduced conversion and units sold primarily in the outlet channel.

VB Indirect. For the thirteen weeks ended October 28, 2023, net revenues in the VB Indirect segment increased $2.7 million, or 12.0%, to $25.0 million, from $22.3 million in the comparable prior-year period. The increase was primarily due to a significant one-time key account order that did not take place in the prior period.

Pura Vida. For the thirteen weeks ended October 28, 2023, net revenues in the Pura Vida segment decreased $4.0 million, or 18.3%, to $17.7 million, from $21.7 million in the comparable prior-year period. The decrease was primarily due to a decline in wholesale and e-commerce sales, partially offset by an increase in retail store sales associated with three non-comparable retail stores opened in the prior year.

Gross Profit

For the thirteen weeks ended October 28, 2023, gross profit decreased $2.9 million, or 4.4%, to $63.0 million, from $65.9 million in the comparable prior-year period. As a percentage of net revenues, gross profit increased to 54.8% for the thirteen weeks ended October 28, 2023, from 53.1% in the comparable prior-year period. Current year gross margin was favorably impacted by lower year-over-year inbound and outbound freight expense and the sell-through of previously-reserved inventory, partially offset by an increase in promotional activity.

Selling, General, and Administrative Expenses

For the thirteen weeks ended October 28, 2023, SG&A expenses decreased $3.7 million, or 6.2%, to $56.4 million, from $60.1 million in the comparable prior-year period. As a percentage of net revenues, SG&A expenses increased to 49.0% for the thirteen weeks ended October 28, 2023, from 48.4% in the comparable prior-year period. SG&A expenses related to Vera Bradley and corporate unallocated were $45.0 million compared to $46.6 million in the comparable prior-year period. SG&A expenses related to Pura Vida were $11.4 million compared to $13.5 million in the comparable prior-year period. The decrease in consolidated SG&A expenses for the thirteen weeks ended October 28, 2023 was primarily due to a $1.6 million decrease in employee-related expenses due to a reduction in headcount, partially offset by an increase in incentive compensation due to Company performance estimates; a $0.9 million decrease in expenses associated with cost savings initiatives and other professional fees; and $1.2 million in other net expense reductions which included spending reductions related to information technology contracts, visual merchandising, certain professional fees, and other expenses. SG&A expenses as a percentage of net revenues increased primarily due to SG&A expense deleverage associated with a decrease in sales.

Impairment of Goodwill and Intangible Assets

There were no impairment charges of goodwill and intangible assets for the thirteen weeks ended October 28, 2023 and October 29, 2022. For additional information, refer to Goodwill and Other Intangible Assets herein.

Other Income, Net

For the thirteen weeks ended October 28, 2023, net other income totaled $0.1 million, consistent with the comparable prior-year period.

Operating Income

For the thirteen weeks ended October 28, 2023, operating income increased $0.8 million, or 13.9%, to $6.8 million in the current-year period, from $6.0 million in the comparable prior-year period. As a percentage of net revenues, operating income was 5.9% and 4.8% for the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively. Operating income increased due to the factors described in the captions above.

VB Direct. For the thirteen weeks ended October 28, 2023, operating income in the VB Direct segment decreased $1.4 million, or 7.9%, to $15.7 million from $17.1 million in the comparable prior-year period. As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 21.7% and 21.3% for the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively. Income as a percentage of VB Direct segment revenues was essentially flat for the current year thirteen weeks ended as compared to the same period of the prior year primarily due to an increase in gross margin as a percentage of net revenues as described above. These increases were partially offset by SG&A expense deleverage associated with decreased sales.

VB Indirect. For the thirteen weeks ended October 28, 2023, operating income in the VB Indirect segment totaled $9.0 million, consistent with the comparable prior-year period. As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 35.9% and 40.4% for the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively. The decrease in operating income as a percentage of VB Indirect segment net revenues was primarily due to a decrease in margin resulting from a large key account order in the current year.

Pura Vida. For the thirteen weeks ended October 28, 2023, operating loss in the Pura Vida segment decreased $0.8 million, or 57.1%, to $(0.6) million from $(1.4) million in the comparable prior-year period. As a percentage of Pura Vida segment net revenues, operating loss in the Pura Vida segment was (3.3)% and (6.2)% for the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively. The decrease in operating loss as a percentage of Pura Vida net revenues was primarily due to an increase in gross margin as a percentage of net revenues as described above, a decrease in marketing and advertising spend, as well as employee-related expenses as compared to the prior year period.

Corporate Unallocated. For the thirteen weeks ended October 28, 2023, unallocated expenses decreased $1.5 million, or 7.7%, to $17.3 million from $18.8 million in the comparable prior-year period. The decrease in unallocated expenses was primarily due to prior year consulting fees of $0.8 million associated with cost savings initiatives and other professional fees; a decrease in employee-related expenses of $0.6 million; and $0.4 million in other net expense reductions which included spending reductions related to information technology contracts, visual merchandising, certain professional fees, and other expenses, partially offset by an increase in advertising spend of $0.3 million.

Income Tax Expense

The effective tax rate for the thirteen weeks ended October 28, 2023, was 27.6%, compared to 18.4% for the thirteen weeks ended October 29, 2022. The year-over year effective tax rate increase was primarily due to the relative impact of permanent items in the current-year period compared to the prior-year period, primarily as a result of noncontrolling interest in the prior-year period and non-deductible executive compensation.

Net Income

For the thirteen weeks ended October 28, 2023, net income increased $0.3 million to $5.1 million from $4.8 million in the comparable prior-year period due to the factors described in the captions above.

Net Loss Attributable to Redeemable Noncontrolling Interest

For the thirteen weeks ended October 29, 2022, net loss attributable to redeemable noncontrolling interest was $(0.3) million. This represents the allocation of the Pura Vida net loss to the noncontrolling interest. On January 30, 2023, we purchased the remaining 25% interest in Pura Vida resulting in 100% ownership. As a result, there was no noncontrolling interest for the current-year period.

Net Income Attributable to Vera Bradley, Inc.

For the thirteen weeks ended October 28, 2023, net income attributable to Vera Bradley, Inc. decreased $0.1 million to $5.1 million from $5.2 million in the comparable prior-year period due to the factors described in the captions above.

Thirty-Nine Weeks Ended October 28, 2023, Compared to Thirty-Nine Weeks Ended October 29, 2022

Net Revenues

For the thirty-nine weeks ended October 28, 2023, net revenues decreased $15.4 million, or 4.4%, to $337.5 million, from $352.9 million in the comparable prior-year period.

VB Direct. For the thirty-nine weeks ended October 28, 2023, net revenues in the VB Direct segment decreased $11.8 million, or 5.2%, to $216.9 million, from $228.7 million in the comparable prior-year period. Vera Bradley comparable sales decreased 5.8%, which includes a 8.5% decrease in comparable store sales. E-commerce sales were flat compared to the prior-year period. In addition, non-comparable store revenue decreased $3.1 million. Closed retail store locations were partially offset by three outlet stores opened in the current year. The decrease in comparable sales and comparable store sales was impacted by reduced traffic, conversion, and units sold primarily in the outlet channel. These decreases were partially offset by sales from the Vera Bradley annual outlet sale held during the current-year period but not in the comparable prior-year period.

VB Indirect. For the thirty-nine weeks ended October 28, 2023, net revenues in the VB Indirect segment increased $1.1 million, or 2.0%, to $57.7 million, from $56.6 million in the comparable prior-year period. The increase was primarily due to an increase in certain key account orders in the current year period.

Pura Vida. For the thirty-nine weeks ended October 28, 2023, net revenues in the Pura Vida segment decreased $4.6 million, or 6.9%, to $62.9 million, from $67.5 million in the comparable prior-year period. The decrease was primarily due to a decline in wholesale and e-commerce sales, partially offset by an increase in retail store sales associated with three non-comparable retail stores opened in the prior year.

Gross Profit

For the thirty-nine weeks ended October 28, 2023, gross profit increased $7.9 million, or 4.4%, to $186.8 million, from $178.9 million in the comparable prior-year period. As a percentage of net revenues, gross profit increased to 55.3% for the thirty-nine weeks ended October 28, 2023, from 50.7% in the comparable prior-year period. Current year gross margin was favorably impacted by lower year-over-year inbound and outbound freight expense and the sell-through of previously-reserved inventory, partially offset by an increase in promotional activity.

Selling, General, and Administrative Expenses

For the thirty-nine weeks ended October 28, 2023, SG&A expenses decreased $20.7 million, or 10.6%, to $174.3 million, from $195.0 million in the comparable prior-year period. As a percentage of net revenues, SG&A expenses decreased to 51.6% for the thirty-nine weeks ended October 28, 2023, from 55.3% in the comparable prior-year period. SG&A expenses related to Vera Bradley and corporate unallocated were $140.5 million compared to $157.6 million in the comparable prior-year period. SG&A expenses related to Pura Vida were $33.7 million compared to $37.4 million in the comparable prior-year period. The decrease in consolidated SG&A expenses for the thirty-nine weeks ended October 28, 2023 was primarily due to a decrease in employee-related expenses of $5.6 million due to a reduction in headcount, partially offset by an increase in incentive compensation due to Company performance estimates; a decrease in severance charges of $3.7 million, which includes severance related to our CFO transition in the current year more than offset by the retirement severance related to our former CEO in the prior year; a $3.9 million decrease in professional expenses, a portion of which were associated with cost savings initiatives and other professional fees that did not recur in the current year; a $2.5 million reduction in marketing spend; $1.4 million related to store and lease right-of-use asset impairment charges in the prior year that did not recur in the current year; and $3.6 million in other net expense reductions which included spending reductions related to information technology contracts, visual merchandising, certain professional fees, and other expenses.

Impairment of Goodwill and Intangible Assets

There were no impairment charges of goodwill and intangible assets for the thirty-nine weeks ended October 28, 2023. For the thirty-nine weeks ended October 29, 2022, impairment of goodwill and intangible assets totaled $29.3 million. These charges related to Pura Vida goodwill and the indefinite-lived Pura Vida brand asset and are reflected within the Pura Vida segment. For additional information, refer to Goodwill and Other Intangible Assets herein.

Other Income, Net

For the thirty-nine weeks ended October 28, 2023, net other income increased $0.4 million to $0.8 million compared to $0.4 million in the comparable prior-year period. The increase in net other income was primarily due to a legal settlement in the current year that did not occur in the prior year, ticket sales from the Vera Bradley annual outlet sale, and sublease income.

Operating Income (Loss)

For the thirty-nine weeks ended October 28, 2023, operating income increased $58.4 million, or 129.4%, to $13.3 million in the current-year period, from an operating loss of $(45.1) million in the comparable prior-year period. As a percentage of net revenues, operating income (loss) was 3.9% and (12.8)% for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively. Operating income increased due to the factors described in the captions above.

VB Direct. For the thirty-nine weeks ended October 28, 2023, operating income in the VB Direct segment increased $11.1 million, or 33.9%, to $43.7 million from $32.6 million in the comparable prior-year period. As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 20.1% and 14.3% for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively. The increase in operating income as a percentage of VB Direct segment net revenues was primarily due to an increase in gross margin as a percentage of net revenues as described above; a decrease in employee-related expenses due to closed stores and cost savings initiatives; store impairment charges in the prior year that did not recur in the current year; and a reduction in spending associated with visual merchandising, professional fees, and other variable expenses.

VB Indirect. For the thirty-nine weeks ended October 28, 2023, operating income in the VB Indirect segment increased $1.5 million, or 8.0%, to $19.9 million from $18.4 million in the comparable prior-year period. As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 34.4% and 32.5% for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively. The increase in operating income as a percentage of VB Indirect segment net revenues was due to an increase in gross margin as a percentage of net revenues as described above, as well as decreased SG&A expenses.

Pura Vida. For the thirty-nine weeks ended October 28, 2023, operating income in the Pura Vida segment increased $33.8 million, or 117.3%, to $5.0 million from a net loss of $(28.8) million in the comparable prior-year period. As a percentage of Pura Vida segment net revenues, operating income (loss) in the Pura Vida segment was 7.9% and (42.7)% for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively. The increase in operating income as a percentage of Pura Vida net revenues was primarily due to goodwill and indefinite-lived Pura Vida brand impairment charges in the prior-year period of $19.4 million and $9.9 million, respectively; a decrease in marketing and advertising expenses; a decrease in employee-related expenses due to headcount reductions and cost savings initiatives; and an increase in gross margin as a percentage of net revenues as described above.

Corporate Unallocated. For the thirty-nine weeks ended October 28, 2023, unallocated expenses decreased $12.0 million, or 17.9%, to $55.3 million from $67.3 million in the comparable prior-year period. The decrease in unallocated expenses was primarily due to a reduction in severance charges of $3.7 million which included severance related to our CFO transition in the current year more than offset by severance associated with the retirement of our former CEO in the prior year that did not recur in the current year; prior year consulting fees of $3.3 million associated with cost savings initiatives and other professional fees that did not recur in the current year; a reduction in employee-related expenses of $2.5 million primarily related to lower headcount, partially offset by an increase in incentive compensation expense as a result of Company performance estimates; $0.6 million for a lease right-of-use asset charge in the prior year that did not recur in the current year; and $1.9 million in other net corporate expense reductions including a reduction in information technology contracts, corporate advertising expense, and other corporate expenses.

Income Tax Expense (Benefit)

The effective tax rate for the thirty-nine weeks ended October 28, 2023, was 28.3%, compared to 14.2% for the thirty-nine weeks ended October 29, 2022. The year-over year effective tax rate increase was 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, noncontrolling interest in the prior-year period, and non-deductible executive compensation.

Net Income (Loss)

For the thirty-nine weeks ended October 28, 2023, net income increased $48.5 million to $9.7 million from a net loss of $(38.8) million in the comparable prior-year period due to the factors described in the captions above.

Net Loss Attributable to Redeemable Noncontrolling Interest

For the thirty-nine weeks ended October 29, 2022, net loss attributable to redeemable noncontrolling interest was $(7.2) million. This represents the allocation of the Pura Vida net loss to the noncontrolling interest. On January 30, 2023, we purchased the remaining 25% interest in Pura Vida resulting in 100% ownership. As a result, there was no noncontrolling interest for the current-year period.

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

For the thirty-nine weeks ended October 28, 2023, net income attributable to Vera Bradley, Inc. increased $41.3 million to $9.7 million from net loss attributable to Vera Bradley, Inc. of $(31.6) million in the comparable prior-year period due to the factors described in the captions above.

Liquidity and Capital Resources

General

Our primary sources of liquidity are cash on hand and cash equivalents, as well as cash flow from operations. We also have access to additional liquidity, if needed, through borrowings under our $75.0 million asset-based revolving credit agreement (the “Credit Agreement”). There was no debt outstanding as of October 28, 2023. Historically, our primary cash needs have been for merchandise inventories; payroll; store rent; capital expenditures associated with operational equipment, buildings, information technology, and opening new stores; and share repurchases. 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

A summary of operating, investing, and financing activities is shown in the following table (in thousands):

Net Cash Provided by (Used in) Operating Activities

Net cash provided by (used in) operating activities consists primarily of net income (loss) 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 for the thirty-nine weeks ended October 28, 2023 was $21.1 million compared to net cash used in operating activities of $36.8 million for the thirty-nine weeks ended October 29, 2022. The increase in cash provided by operating activities was primarily related to an increase in net income of $48.5 million, partially offset by the change in non-cash items of $23.4 million, as well as the change in assets and liabilities. A source of cash was provided by lower inventory receipts; the timing of collection of tenant allowances associated with our store leases; a lower accounts receivable change due to lower sales and timing; and an increase in incentive compensation liability in the current-year period compared to the prior-year period. These sources of cash were partially offset by a lower amount of accrued liabilities for severance and cost savings initiatives; timing of accounts payable; and the change in income taxes. There was a net income tax refund of $6.6 million in the prior-year period compared to net cash payments of $0.7 million in the current-year period.

Net Cash Used in Investing Activities

Investing activities consist 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 $12.5 million for the thirty-nine weeks ended October 28, 2023 compared to $7.0 million for the thirty-nine weeks ended October 29, 2022. The increase in cash used in investing activities was a result of the purchase of the remaining 25% interest in Pura Vida for $10.0 million, partially offset by a decline in property, plant, and equipment spending primarily as a result of a lower amount of new store construction in the current year and Vera Bradley store relocations in the prior year that did not recur.

Capital expenditures for fiscal 2024 are expected to be approximately $4.0 million.

Net Cash Used in Financing Activities

Net cash used in financing activities was $2.9 million for the thirty-nine weeks ended October 28, 2023 compared to $19.3 million for the thirty-nine weeks ended October 29, 2022. The decrease in cash used in financing activities was primarily due to $1.9 million of common stock repurchases in the current-year period compared to $17.3 million in the comparable prior-year period.

Credit Agreement

On September 7, 2018, Vera Bradley Designs, Inc. (“VBD”), a wholly-owned subsidiary of the Company, entered into an asset-based revolving Credit Agreement (the “Credit Agreement”) among VBD, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. 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. 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.

On August 3, 2023, certain subsidiaries of the Company, JP Morgan Chase Bank, N.A., as the administrative agent, and lenders from time to time party thereto, entered into a Third Amendment (the “Third Amendment”) to the Credit Agreement.

For further information regarding the Credit Agreement and the Third Amendment, please see Note 6 of the Notes to Condensed Consolidated Financial Statements herein.

Material Cash Requirements

As of October 28, 2023, there were no material changes outside the ordinary course of business to material cash requirements, as disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Off-Balance-Sheet Arrangements

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

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. A summary of the Company’s significant accounting policies is included in Note 2 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Certain accounting policies and estimates of the Company are considered critical, as these policies and estimates are the most important to the depiction of the Company’s consolidated financial statements and require significant, difficult, or complex judgments, often about the effect of matters that are inherently uncertain. Such policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023. There were no significant changes to any of the critical accounting policies and estimates described in the Annual Report as of October 28, 2023.

Recently Issued Accounting Pronouncements

Refer to Note 1 “Description of the Company and Basis of Presentation” within Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements.

As of October 28, 2023, there was no material change in the market risks described in “Quantitative and Qualitative Disclosures About Market Risks” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

At the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Disclosure Committee and management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of October 28, 2023.

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023.