Vera Bradley, Inc.: Form 10-Q for the period ended Aug 3, 2024

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 twenty-six weeks ended August 3, 2024 and July 29, 2023. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, 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 twenty-six weeks ended August 3, 2024, 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. We launched the first of our customer-facing stages of Project Restoration in July of fiscal 2025, which included new products, store remodels, website redesigns, and customer marketing. Project Restoration is focused on four key pillars of the business (Consumer, Brand, Product, and Channel) for each brand to help drive long-term profitable growth.

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. 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 and other related factors that have impacted consumer discretionary spending. We continued to see weakness in both the Vera Bradley outlet store business and full line stores in the second quarter of fiscal 2025. Additionally, the Vera Bradley annual outlet sale was held in the first quarter of fiscal 2025, a timing shift from the second quarter of fiscal 2024.

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; e-commerce sites (verabradley.com, outlet.verabradley.com, and international.verabradley.com); and the Vera Bradley annual outlet sale. 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) 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.

Impairment Charges

Intangible Assets

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

Refer to Note 15 to the Notes to the Consolidated Financial Statements filed with the SEC on Form 10-K for the fiscal year ended February 3, 2024, for additional information regarding the indefinite-lived intangible assets impairment test and impairment charges recorded during fiscal 2024. There were no impairment charges recorded during the thirteen and twenty-six weeks ended August 3, 2024 or July 29, 2023. 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.

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 twenty-six weeks ended August 3, 2024 or July 29, 2023. 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):

(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 August 3, 2024, Compared to Thirteen Weeks Ended July 29, 2023

Net Revenues

For the thirteen weeks ended August 3, 2024, net revenues decreased $17.4 million, or 13.5%, to $110.8 million, from $128.2 million in the comparable prior-year period.

VB Direct. For the thirteen weeks ended August 3, 2024, net revenues in the VB Direct segment decreased $13.5 million, or 15.7%, to $72.2 million, from $85.7 million in the comparable prior-year period. Vera Bradley comparable sales decreased 11.2%, which includes a 14.1% decrease in comparable store sales and a 5.3% decrease in e-commerce sales. In addition, non-comparable store revenue decreased $0.5 million. The decrease in comparable store sales was primarily due to reduced traffic and lower average transaction size in the outlet and full-line channels. In addition, the decrease in net revenues was attributed to a timing shift of sales from the Vera Bradley annual outlet sale held during the first quarter of fiscal 2025 compared to the second quarter of fiscal 2024.

VB Indirect. For the thirteen weeks ended August 3, 2024, net revenues in the VB Indirect segment increased $4.4 million, or 25.3%, to $21.8 million, from $17.4 million in the comparable prior-year period. The increase was primarily due to a significant liquidation order in the current-year period, as well as an increase in key account orders, partially offset by a decrease in specialty account orders.

Pura Vida. For the thirteen weeks ended August 3, 2024, net revenues in the Pura Vida segment decreased $8.3 million, or 33.0%, to $16.8 million, from $25.1 million in the comparable prior-year period. The decrease was primarily due to a decline in e-commerce and wholesale sales, partially offset by an increase in retail store sales associated with the opening of a new retail store in the current-year period.

Gross Profit

For the thirteen weeks ended August 3, 2024, gross profit decreased $15.6 million, or 21.7%, to $56.4 million, from $72.0 million in the comparable prior-year period. As a percentage of net revenues, gross profit decreased to 50.9% for the thirteen weeks ended August 3, 2024, from 56.2% in the comparable prior-year period. Current year gross margin was negatively impacted by increased liquidation sales in the Indirect segment and promotional activity in the Direct segment.

Selling, General, and Administrative Expenses

For the thirteen weeks ended August 3, 2024, SG&A expenses decreased $5.8 million, or 9.7%, to $53.6 million, from $59.4 million in the comparable prior-year period. As a percentage of net revenues, SG&A expenses increased to 48.4% for the thirteen weeks ended August 3, 2024, from 46.3% in the comparable prior-year period. SG&A expenses related to Vera Bradley and corporate unallocated were $44.0 million compared to $47.7 million in the comparable prior-year period. SG&A expenses related to Pura Vida were $9.6 million compared to $11.7 million in the comparable prior-year period. For the thirteen weeks ended August 3, 2024, consolidated SG&A expenses decreased primarily due to a $4.6 million reduction in employee-related costs, including lower variable compensation and reduced headcount, and a $1.8 million reduction in other expenses including variable selling expenses resulting from sales decreases as described above, variable lease costs, certain professional fees, and other cost reduction initiatives. These decreases were partially offset by a $0.6 million increase in advertising spend, largely associated with Project Restoration initiatives.

Other Income, Net

For the thirteen weeks ended August 3, 2024, net other income decreased $0.2 million to $0.1 million compared to $0.3 million in the comparable prior-year period. The decrease in net other income was primarily due to the timing shift of ticket sales from the Vera Bradley annual outlet sale which took place in the second quarter of fiscal 2024, compared to the first quarter of fiscal 2025.

Operating Income

For the thirteen weeks ended August 3, 2024, operating income decreased $10.0 million, or 77.7%, to $2.9 million in the current-year period, from $12.9 million in the comparable prior-year period. As a percentage of net revenues, operating income was 2.6% and 10.0% for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively. Operating income decreased due to the factors described in the captions above.

VB Direct. For the thirteen weeks ended August 3, 2024, operating income in the VB Direct segment decreased $7.2 million, or 34.9%, to $13.4 million from $20.6 million in the comparable prior-year period. As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 18.6% and 24.1% for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively. 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, as well as SG&A expense deleverage associated with decreased sales.

VB Indirect. For the thirteen weeks ended August 3, 2024, operating income in the VB Indirect segment decreased $1.5 million, or 23.6%, to $4.7 million from $6.2 million in the comparable prior-year period. As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 21.8% and 35.7% for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively. The decrease in operating income as a percentage of VB Indirect segment net revenues was due to a decrease in gross margin as a percentage of net revenues as described above.

Pura Vida. For the thirteen weeks ended August 3, 2024, operating income in the Pura Vida segment decreased $3.9 million, or 97.8%, to $0.1 million from $4.0 million in the comparable prior-year period. As a percentage of Pura Vida segment net revenues, operating income in the Pura Vida segment was 0.5% and 15.9% for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively. The decrease in operating income as a percentage of Pura Vida net revenues was primarily due to SG&A expense deleverage associated with a decrease in sales, excluding non-comparable stores.

Corporate Unallocated. For the thirteen weeks ended August 3, 2024, unallocated expenses decreased $2.6 million, or 14.3%, to $15.4 million from $18.0 million in the comparable prior-year period. The decrease in unallocated expenses was primarily due to a decrease in employee related expenses of $2.8 million and $0.2 million in other net corporate expense reductions. The decrease was partially offset by an increase of $0.4 million in advertising expenses associated with Project Restoration initiatives.

Income Tax (Benefit) Expense

The effective tax rate for the thirteen weeks ended August 3, 2024, was (77.5)%, compared to 28.0% for the thirteen weeks ended July 29, 2023. The change in year-over-year effective tax rate was primarily due to a change in the projection of the Company's annual income in the current fiscal quarter. The year-over-year effective tax rate also reflects 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. See Note 7 "Income Taxes" of the Notes to the Condensed Consolidated Financial Statements for additional information about the Company's interim provision for income taxes.

Net Income

For the thirteen weeks ended August 3, 2024, net income decreased $3.6 million to $5.7 million from $9.3 million in the comparable prior-year period due to the factors described in the captions above.

Twenty-Six Weeks Ended August 3, 2024, Compared to Twenty-Six Weeks Ended July 29, 2023

Net Revenues

For the twenty-six weeks ended August 3, 2024, net revenues decreased $31.1 million, or 14.0%, to $191.4 million, from $222.5 million in the comparable prior-year period.

VB Direct. For the twenty-six weeks ended August 3, 2024, net revenues in the VB Direct segment decreased $16.0 million, or 11.0%, to $128.6 million, from $144.6 million in the comparable prior-year period. Vera Bradley comparable sales decreased 10.5%, which includes a 13.8% decrease in comparable store sales as well as a decrease in e-commerce sales of 4.4%. In addition, non-comparable store revenue decreased $0.7 million. The decrease in comparable sales and comparable store sales was primarily due to reduced traffic and lower average transaction size in the outlet and full-line channels.

VB Indirect. For the twenty-six weeks ended August 3, 2024, net revenues in the VB Indirect segment increased $0.6 million, or 1.7%, to $33.3 million, from $32.7 million in the comparable prior-year period. The increase was primarily due to an increase in liquidation sales and key account orders, partially offset by a decrease in specialty account orders.

Pura Vida. For the twenty-six weeks ended August 3, 2024, net revenues in the Pura Vida segment decreased $15.7 million, or 34.8%, to $29.5 million, from $45.2 million in the comparable prior-year period. The decrease was primarily due to a decline in e-commerce and wholesale sales, partially offset by an increase in retail store sales associated with the opening of a new retail store in the current-year period.

Gross Profit

For the twenty-six weeks ended August 3, 2024, gross profit decreased $25.5 million, or 20.6%, to $98.3 million, from $123.8 million in the comparable prior-year period. As a percentage of net revenues, gross profit decreased to 51.3% for the twenty-six weeks ended August 3, 2024, from 55.6% in the comparable prior-year period. Current year gross margin was negatively impacted by one-time vendor charges, as well as increased liquidation sales and promotional activity.

Selling, General, and Administrative Expenses

For the twenty-six weeks ended August 3, 2024, SG&A expenses decreased $10.5 million, or 8.9%, to $107.4 million, from $117.9 million in the comparable prior-year period. As a percentage of net revenues, SG&A expenses increased to 56.1% for the twenty-six weeks ended August 3, 2024, from 53.0% in the comparable prior-year period. SG&A expenses related to Vera Bradley and corporate unallocated were $88.8 million compared to $95.5 million in the comparable prior-year period. SG&A expenses related to Pura Vida were $18.6 million compared to $22.4 million in the comparable prior-year period. For the twenty-six weeks ended August 3, 2024, consolidated SG&A expenses decreased primarily due to a $7.8 million reduction in employee-related costs, including lower variable compensation, reduced headcount, and decrease in severance charges compared to the prior-year period; and a $3.1 million reduction in other expenses including variable selling expenses resulting from sales decreases as described above, variable lease costs, certain professional fees, and other cost reduction initiatives. These decreases were partially offset by a $0.4 million increase in advertising spend associated with Project Restoration initiatives.

Other Income, Net

For the twenty-six weeks ended August 3, 2024, net other income was $0.6 million, consistent with comparable prior-year period.

Operating (Loss) Income

For the twenty-six weeks ended August 3, 2024, there was an operating loss of $(8.6) million, a $15.1 million decrease, or 232.0%, from operating income of $6.5 million in the comparable prior-year period. As a percentage of net revenues, operating (loss) income was (4.5)% and 2.9% for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. Operating loss increased due to the factors described in the captions above.

VB Direct. For the twenty-six weeks ended August 3, 2024, operating income in the VB Direct segment decreased $10.6 million, or 37.7%, to $17.4 million from $28.0 million in the comparable prior-year period. As a percentage of VB Direct segment net revenues, operating income in the VB Direct segment was 13.5% and 19.3% for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. 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, as well as SG&A expense deleverage associated with decreased sales.

VB Indirect. For the twenty-six weeks ended August 3, 2024, operating income in the VB Indirect segment decreased $2.3 million, or 21.5%, to $8.6 million from $10.9 million in the comparable prior-year period. As a percentage of VB Indirect segment net revenues, operating income in the VB Indirect segment was 25.7% and 33.3% for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. The decrease in operating income as a percentage of VB Indirect segment net revenues was due to a due to a decrease in gross margin as a percentage of net revenues.

Pura Vida. For the twenty-six weeks ended August 3, 2024, there was an operating loss in the Pura Vida segment of $(1.1) million, a $6.7 million decrease, or 120.0%, from operating income of $5.6 million in the comparable prior-year period. As a percentage of Pura Vida segment net revenues, operating (loss) income in the Pura Vida segment was (3.8)% and 12.3% for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. The increase in operating loss as a percentage of Pura Vida net revenues was primarily due to SG&A expense deleverage associated with decreased e-commerce and wholesale revenues.

Corporate Unallocated. For the twenty-six weeks ended August 3, 2024, unallocated expenses decreased $4.5 million, or 11.9%, to $33.4 million from $37.9 million in the comparable prior-year period. The decrease in unallocated expenses was primarily due to a $5.0 million reduction in employee-related costs, including lower variable compensation, reduced headcount, and decrease in severance charges compared to the prior-year period; as well as a reduction in professional fees of $0.7 million, partially offset by an increase in advertising spend of $1.2 million related to Project Restoration initiatives.

Income Tax (Benefit) Expense

The effective tax rate for the twenty-six weeks ended August 3, 2024, was 68.3%, compared to 29.0% for the twenty-six weeks ended July 29, 2023. The change in year-over-year effective tax rate was primarily due to a change in the projection of the Company's annual income in the current fiscal quarter. The year-over-year effective tax rate also reflects 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. See Note 7 "Income Taxes" of the Notes to the Condensed Consolidated Financial Statements for additional information about the Company's interim provision for income taxes.

Net (Loss) Income

For the twenty-six weeks ended August 3, 2024, there was a net loss of $(2.4) million, a $7.0 million decrease, from net income of $4.6 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 August 3, 2024. 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 (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 used in operating activities for the twenty-six weeks ended August 3, 2024 was $13.2 million compared to net cash provided by operating activities of $16.0 million for the twenty-six weeks ended July 29, 2023. The increase in cash used in operating activities was primarily related to a net loss of $(2.4) million, a $7.0 million decrease, from net income in the comparable prior-year period, a change in non-cash items of $3.8 million, as well as a change in assets and liabilities of $18.3 million.

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 $3.6 million for the twenty-six weeks ended August 3, 2024 compared to $11.7 million for the twenty-six weeks ended July 29, 2023. The decrease in cash used in investing activities was a result of the purchase of the remaining 25% interest in Pura Vida for $10.0 million in the prior year, partially offset by an increase in property, plant, and equipment spending primarily as a result of Vera Bradley relocations in the current year and Project Restoration initiatives.

Net Cash Used in Financing Activities

Net cash used in financing activities was $16.4 million for the twenty-six weeks ended August 3, 2024 compared to $2.4 million for the twenty-six weeks ended July 29, 2023. The increase in cash used in financing activities was primarily due to $15.9 million of common stock repurchases in the current-year period compared to $1.4 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. 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. 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, Vera Bradley Sales, LLC, and Creative Genius, 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 $50.0 million.

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

Material Cash Requirements

As of August 3, 2024, 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 February 3, 2024.

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 February 3, 2024.

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 February 3, 2024. There were no significant changes to any of the critical accounting policies and estimates described in the Annual Report as of August 3, 2024.

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 August 3, 2024, 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 February 3, 2024.

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 August 3, 2024.

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 February 3, 2024.