Vera Bradley Inc (VRA) 2022 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vera Bradley First quarter conference call. (Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to turn the call over to Mark Dely, Vera Bradley's Chief Administrative Officer. Please go ahead.

Good morning, and welcome, everyone. I'd like to thank you for joining us for Vera Bradley's earnings call. Some of the statements made during our prepared remarks in response to your questions may constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect. Please refer to today's press release and the company's most recently filed Form 10-K filed with the SEC for a discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. We undertake no obligation to update any information discussed on today's call.

I will now turn the call over to Vera Bradley's CEO, Rob Wallstrom. Rob?

Thank you, Mark. Good morning, everyone, and thank you for joining us on today's call. John Enwright, our CFO, also joins me today. We are pleased with our first quarter performance. We outperformed our revenue and earnings expectations, consumer confidence, traffic and spending grew as vaccines became more widely available, government stimulus funds were distributed and customers began returning to work, social events and travel. E-commerce showed continued strength, even with our stores fully reopened. We experienced solid revenue performance on both a 1-year and 2-year comparison.

Our first quarter consolidated net revenues increased 57% over prior year. On a 2-year comparison, Pura Vida's revenues grew over 40% versus the first quarter of fiscal 2020, and Vera Bradley comp sales were flat with fiscal 2020 first quarter results. As a reminder, Pura Vida's first quarter revenue from fiscal 2020 was not in our consolidated revenue for that time period.

We reduced our promotional levels, expanded our consolidated gross margin rate and prudently managed our expenses. Our balance sheet remains strong with ample cash and no debt. Fiscal 2022 is off to a solid start as we enter the next stage of our company's growth journey. Both of our lifestyle brands Vera Bradley and Pura Vida have growth opportunities ahead well beyond their core product categories, driven by a focus on Digital First, innovation and customer engagement.

Before I turn the call over to John to discuss the financial results, I would like to highlight the appointment of Nancy Twine, Founder and CEO of Briogeo Hair Care to the Vera Bradley, Inc. Board of Directors.

In 2014, Nancy departed her position as VP at Goldman Sachs to officially launch Briogeo, a diverse line of carefully crafted clean hair care products. Today, Briogeo retails in over 3,000 prestige beauty stores globally, is one of the fastest-growing hair care brands at Sephora and is one of the largest independent Black-owned prestige beauty brands in the U.S.

Nancy's appointment, along with last year's appointment of Kristina Cashman and Carrie Tharp bring our female Board representation to 60%. We are one of the elite 6% of public companies listed on the Russell 3000 Index with a gender-balanced Board as well as one of just a few public companies with a female majority board. Nancy's entrepreneurial and retail experience and insight, along with their strong financial expertise, millennial perspective and diverse background will bring in -- will be invaluable as we continue to execute our enterprise's vision of expanding our purpose-driven, multi-lifestyle-brand, high-growth company.

We look forward to Nancy's contributions and counsel. John?

Thanks, Rob, and good morning. Let me go over a few highlights for the first quarter. The numbers I will discuss today are all non-GAAP. For a complete detailed items excluded from the non-GAAP numbers I will discuss, and a complete reconciliation of GAAP to non-GAAP numbers, please reference today's press release.

Consolidated net revenues totaled $109.1 million for the current year first quarter, an increase of 57.5% over $69.3 million in the prior year first quarter. Prior year revenues were adversely affected by COVID-19. Excluding charges, on a non-GAAP basis, our consolidated first quarter net loss totaled $1.7 million or $0.05 per diluted share compared to a net loss of $10.2 million or $0.31 per diluted share last year.

Current year first quarter, Vera Bradley Direct segment revenues totaled $66.7 million, an 81.2% increase over $36.8 million in the prior year. Since our stores were temporarily closed for approximately half of the prior year first quarter, a comparable store sales calculation related to the prior year is not relevant. For a better apples-to-apples comparison, comparable sales were flat to the first quarter of fiscal 2020.

Vera Bradley Indirect segment revenues totaled $15.3 million, a 35.9% increase over $11.2 million in the prior year first quarter. Pura Vida's segment revenues totaled $27.1 million, a 27.7% increase over $21.2 million in the prior year first quarter. First quarter consolidated gross profit totaled $59.2 million or 54.2% of net revenues compared to $35.5 million or 51.2% of net revenues last year on a non-GAAP basis. The year-over-year improvement was driven by a shift in channel mix and more full-price selling.

On a non-GAAP basis, consolidated SG&A expense totaled $60.1 million or 55.1% of net revenues for the current quarter compared to $51.6 million or 74.5% of net revenues for the first -- for the prior year first quarter. Prior year SG&A expenses and leverage were materially affected by COVID-19. On a non-GAAP basis, our first quarter consolidated operating loss totaled $1.2 million or 1.1% of net revenues compared to $16.1 million or 23.2% of net revenues in the prior year.

Let me talk about our outlook for the fiscal year. Based on our first quarter performance, we are raising our revenue and EPS estimates for the full year from our guidance provided in March. All forward-looking guidance numbers are non-GAAP. We are facing a combination of tailwinds and headwinds for the balance of the year. On the plus side, we expect store traffic and revenue to increase particularly in the second half of fiscal 2022 as we anticipate continued improvement in our important Back to School and travel businesses. Customers are demonstrating a degree of pent-up demand.

Negatives include industry-wide port congestion causing product delivery delays, substantial increases in inbound and outbound freight costs and a tightening of the labor market. In addition, we generated meaningful revenues from masks in fiscal 2021, which, as expected, will not be repeated in fiscal 2022. For example, while we are not providing guidance for the second quarter, cotton masks represented over 10% of Vera Bradley brand revenues and added nearly 300 basis points of consolidated gross margin for the second quarter of fiscal 2021.

For fiscal 2022, we expect consolidated net revenues to total between $555 million to $575 million compared to net revenues of $468.3 million in fiscal 2021. Year-over-year, Pura Vida revenues are expected to grow between 20% and 30%, and Vera Bradley revenues are expected to grow between 15% and 20%. Free cash flow between $50 million to $55 million compared to $15 million last year.

Consolidated gross margin of 56% to 57% compared to 57% in fiscal 2021. The potential rate decline relates to an abatement in mask penetration this year coupled with incremental costs for freight expense. Consolidated SG&A expense of $265 million to $275 million compared to $233 million last year. The expected increase is primarily related to Vera Bradley stores being opened for the full year, noncomparable compensation and CARES Act savings in fiscal 2021 and general variable increases associated with higher sales expectations.

Consolidated operating income of $46 million to $53 million compared to $34 million in fiscal 2021. Consolidated diluted EPS of $0.85 to $1. Diluted EPS totaled $0.63 last year. Net capital spending of approximately $8 million to $10 million compared to $5.7 million in the prior year, reflecting new factory locations and technology and logistics enhancements.

Now let me turn to the balance sheet. Cash, cash equivalents and investments at quarter end totaled $52.7 million compared to $85.1 million at the end of last year's first quarter, which included $60 million drawn on our $75 million ABL credit facility. This has since been repaid, leaving no borrowings on the facility.

Total quarter end inventory was $150.3 million compared to $132.9 million at the end of the first quarter last year. Quarter end inventory was higher than the prior year, primarily due to an additional -- due to additional Pura Vida inventory related to category expansions and product intensifications. We expect year-over-year inventory should be down by approximately 5% by fiscal year-end. Rob?

Thanks, John. As a reminder, for fiscal 2022, the 4 key growth drivers for our company are: one, driving our Digital First strategy, by evolving the digital distribution of our products and further refining and utilizing digital experiences to serve our customers. This will be supported by continuously refining our technology, developing business process and technology platforms to improve agility, database decision-making, customer centricity and speed to market.

Number two, enhancing our product innovation pipeline, collaborations and category expansions to attract new customers and increase the share of wallet with existing customers.

Number three, building our community through marketing and by creating an impactful positive brand movement that not only changes lives but deepens our customers' brand loyalty.

And number four, evolving our distribution channels by focusing on future growth opportunities and addressing the drastically changing retail environment and the consumer marketplace.

Let me start with our Pura Vida business. We are off to a good start with total Pura Vida first quarter revenues up 28% over last year and up 44% over fiscal 2020. We look forward to a healthy summer and back-to-school season this year. In order to drive Pura Vida's growth, we are continuing to expand our lifestyle offerings and to strengthen our infrastructure. We are in the midst of our project Novus ERP integration at Pura Vida, which is scheduled for completion this fall. At that point, our entire enterprise will be on a unifying technology platform, and this will allow for enhanced capabilities in sourcing, customer service, CRM and data analytics, among other areas.

We have also strengthened key merchandising, inventory planning and customer analytic functions at Pura Vida. Pura Vida continues to innovate on the product front at a rapid pace. We are constantly adding new designs and elements to our jewelry collections, and we have diversified well beyond our core traditional spring bracelets. Now about 50% of our e-commerce business is made up of non-string jewelry categories, which really underscores our brand's broad lifestyle appeal.

Further underscoring the brand's appeal is our ability to expand into non-jewelry categories. In April, we launched our Pura Vida apparel collection of shirts and hoodies, a perfect extension of the Pura Vida lifestyle. While we started with a limited collection, we believe this is a significant revenue opportunity going forward. Several sizes sold out quickly. All of the products are Fairtrade certified and key styles have cause related tie-ins, similar to our popular charity bracelet program.

Just last month, we introduced our fun affordable backpack collection. You might recall, Pura Vida and Vera Bradley previously collaborated on a special backpack, and it sold out in just a few hours. So we know there is a lot of interest in the backpack with a Pura Vida twist.

Apparel and backpacks not only appeal to our existing customers but are driving new customers to the Pura Vida brand. In just a couple of months, we will begin announcing some exciting product collaborations and licensing partnerships. Stay tuned. In the marketing area, Pura Vida has demonstrated expertise in engaging customers, building loyalty and introducing new devotees into the Pura Vida lifestyle. We are continually focused on looking for new ways to creatively engage our customers, drive new customers to our brand, design more inclusive marketing and generate more efficiency in paid advertising.

On the distribution front, we are targeting strong e-commerce and wholesale growth at Pura Vida this year, particularly as we have strengthened our supply chain infrastructure. As the world has returned to more normalcy, our first quarter wholesale revenues doubled over last year and grew by approximately 50% of our fiscal 2020 levels. We are continuing to add new wholesale partners, and we have significantly expanded our presence in existing retailers with larger in-store presentations. And we are experiencing tremendous growth in core product categories within our wholesalers.

We remain excited about opening our first Pura Vida lab store in San Diego's Westfield UTC Mall by August. This will allow us to showcase existing products as well as new product innovations, receive invaluable customer feedback and allow us to host influencer events. We will evaluate the store's performance for possible future expansion. We will continue to look for additional shop-in-shop opportunities to showcase a full array of Pura Vida products in Vera Bradley stores. We successfully rolled out our Vera Bradley plus Pura Vida Charity Bracelet program in all Vera Bradley full-line stores this spring, and have been very pleased with the results thus far.

So our core product growth, coupled with new product categories and expanded distribution, are expected to drive meaningful top and bottom line growth this year at Pura Vida.

Now let's shift to Vera Bradley. We have a robust calendar of exciting product launches and marketing initiatives for the year. And as John noted, we especially look forward to the continuing recovery of our campus and travel segments of the business. Research indicates that nearly 3/4 of Americans plan to travel this summer alone.

On the product front, we have ramped up our innovation pipeline to continually develop new fabric offerings and to build on our platform of sustainable fabrics. This pipeline is important to not only increase share of wallet with our existing customers, but to attract new customers to Vera Bradley.

Our newest commitment starts at our core. Just last month, we partnered with actor and fashion influencer Lana Condor to launch our new recycled cotton collection. Consciously crafted from 50% recycled and 50% conventional cotton, for the first time available in solid colors, the collection has a lighter impact on the environment, with the same soft hand feel and real-world performance as our iconic cotton that our customers have loved for nearly 40 years. Our COTTON ReIMAGINED collection is lightweight and washable and also features several brand-new utility silhouettes, bringing the functionality to the bags exteriors with lots of pockets and handy clips.

The utility collection includes a limited edition Lana Utility Backpack, with special custom details dreamed up by Lana herself, available now online and in our stores. By using recycled cotton, we are giving discarded materials new life and using fewer environmental resources. In fact, we estimate that the use of recycled cotton will improve our water scarcity impact by 43% and reduce our global warming impact by 13%. We are also continuing to grow our popular ReActive collection made from recycled water bottles. We're constantly researching and innovating to bring our customers more eco-friendly options, and we are committed to updating 100% of our fabrics to more sustainable alternatives by 2025. Also, last month, we launched a reuse program with thredUP, offering cleanout kits in our stores and online to help customers give new life to their old Vera Bradley favorites and other high-quality used items for many brands in their closets. Customers who participated in the program will earn gift cards to purchase new Vera Bradley styles.

Switching gears. Our collaborations and strategic alliances remain a key element of our strategy. This quarter, we continued our high-profile product collaborations with new launches of Harry Potter, Crocs and Disney. And just this week, we announced a new exciting collaboration with classic accessories for an outdoor collection of furniture covers, seats and lounge cushions, accent pillows, umbrellas, rugs and more.

In addition to being available on verabradley.com, classicaccessories.com and in select Vera Bradley stores, this collection can also be purchased online through leading retailers such as Wayfair, Amazon, Lowe's and Home Depot. These partnerships excite and engage existing and new customers, increased brand awareness, generating incredible media attention and provide opportunities for Vera Bradley to strategically test and ultimately enter new product categories. We are continually approached by outside partners about potential new collaborations, which speaks to the power and wide appeal of our brand.

On the marketing front, we are continuing to capitalize and build upon the investments we have made in data science, business analytics and customer data over the last couple of years. Quality media placements continue to drive brand awareness with year-over-year media impressions up over 200% fueled by our collaborations in VB Cares efforts.

As expected, our customer count is up dramatically over last year, and our customer journey centered activations and customer-level personalized messaging are meaningfully aiding in the reactivation of labs customers across our full line and factory stores. We are driving more engagement in social media. Specifically, we are utilizing more user-generated content, have expanded our influencer program, continue to enhance our storytelling and have expanded social selling.

We have revamped our brand ambassador program pattern after Pura Vida's highly successful one. We are proud that all of our marketing efforts, including our ambassador program, are reflective of our commitment to diversity and inclusion. We continue to amplify our VB Cares mission. We just introduced our pride collection in honor of pride month with a charity component going to Free Mom Hugs. And as always, this back-to-school season, we will once again support Blessings in a Backpack and their commitment in childhood hunger across America.

On the distribution front, over the last 18 months, we have prioritized Digital as the primary revenue growth driver for Vera Bradley, making major strategic shifts and investments to pivot us to a digital-first company. We are enabling her to shop in a seamless manner. We will continue to expand the capabilities introduced by Project Novus, further enabling revenue growth through the expansion of the digital channels and enhancing the customer experience across all channels through customer analytics.

Although our digital business is becoming a larger portion of our revenues, stores continue to be an important supporting part of our omnichannel strategy. More and more customers are comfortable shopping in stores. There is a degree of pent-up demand for our in-person interaction and many are seeking shared experiences. We continue to focus on enhancing and reinventing the customer experience in our full-line stores. Digital sales are typically higher in markets where we have a retail presence and the average omnichannel customer spends over 3x more than the single-channel customer.

We are continuing to improve the profitability of our full-line fleet by focusing on our highest potential stores, optimizing and localizing our assortments and rationalizing our existing portfolio through select closures. We have closed 2 full-line stores so far this year and expect to close up to 8 more this fiscal year, which will bring our total full-line closings to 49 since the beginning of fiscal 2018. This year, we will continue to maximize our factory performance by adding 6 new locations and renovating 3 high-performing locations. At Vera Bradley, we will continue to drive growth through product innovation and collaborations, targeted marketing and enhanced distribution.

Operator, we will now open up the call to questions.

(Operator Instructions) And our first question today will come from Mark Altschwager with Baird.

This is Sarah Goldberg on for Mark. It sounds like there's a lot of exciting initiatives underway here and definitely a strong start to the year. With regards to the revenue outlook, can you talk a little bit more about how you're thinking about the shape of the year? And then the first quarter came in nicely ahead of expectations, and we're just trying to frame that within the magnitude of the guidance raise.

Yes. Thanks, Sarah. The -- so as you think about the revenue as we look out for the remainder of year, it's going to be fairly consistent to our historical averages when you think about the balance of the summer months and then the winter months being consistent with what we've done in the past. But we think we have an opportunity, as I spoke to, in regards to our back-to-school season, which kind of crosses over between Q2 and Q3. We think there might be some pent-up demand there as well as the travel season, we think there's some opportunity there. I think we have -- as we look into kind of the holiday season, we think, ultimately, there could be some benefit there as everyone gets back out and shops in the stores. So...

Great. And then secondly, you mentioned -- you've talked about M&A opportunities. And I was just hoping you could give us an update on what the acquisition pipeline looks like today.

Absolutely. In terms of real specific conversations on M&A, obviously, we don't comment too detail, but we are actively in the market talking to people and looking at different opportunities, but we want to make sure that we are very prudent and really find the appropriate one over time. So that's probably the best update I can give you right now.

And our next question comes from Eric Beder with SCC Research.

Congratulations on a good start to the year. Last year, you had -- Pura Vida had some production issues and other pieces. Where is that right now? And do you have the flexibility now with Pura Vida to be even more aggressive in terms of some of the products in terms of the production flows?

Yes. So last year -- so currently, right, I mean, currently, we don't have any production issues associated with the Pura Vida organization. So last year, it really impacted our second -- and into our third quarter. So we have the flexibility now that we're able to go to. We've found different sources for the string bracelet manufacturing that we -- if we need to, we can go to those different sources. So definitely in a better place this year than we were last year.

Great. And in terms of the Vera Bradley stores, last year, you rolled out ReActive. This year, you're rolling out the recycled cotton. The push seems to be a little bit -- to a little bit younger customer and obviously, Back to School flows into that also. How do you see -- are you seeing the younger customer coming to Vera for wider selection? And is that who's seeing attracted here by the environmental-friendly products?

Absolutely. As we've been moving down the sustainability channel, we definitely have seen a younger customer being attracted by that as well as all of the other activities that we kind of do through VB Cares. We have seen our core customers age in terms of kind of the fastest-growing group, kind of the one we're targeting is really in that 25- to 35-year range, which is a significant change from the past. And I think it really underscores between all the collaborations, the sustainability, the new approach to marketing, focused on social media advertising, influencers. All of that has made us more relevant with that kind of millennial group.

And let me just squeeze one last question. Our Performance Twill. What are you seeing with that? Is there any thoughts maybe to changing the cadence and rolling that out a little bit more than you roll out now?

In terms of Performance Twill, overall, it's definitely been a nice solid performer for us. It's definitely one of the categories that we see growing in the years ahead. And we really think it fits a unique part of our customers' lifestyle, right? It gives them the opportunity to wear Vera Bradley in new areas, right? It's a little bit cleaner. It's a little bit dressier than what our normal product is. So we're getting a lot of good response for people being able to bring that more into the work environment, more out to dinner. And I think it expands our brand to a new customer. So we think there's real opportunity there.

Our next question will come from Oliver Chen with Cowen.

On your comments on traffic and store traffic, what are you seeing in full-price/malls relative to outlet? And how do you see this evolving relative to 2019? Do you expect a fair degree of volatility for it to continue to improve over time?

Yes. So traffic is still down at a greater extent in kind of mall traffic versus outlet traffic. And we do anticipate this year is going to be volatile. We would hope as we kind of -- as vaccines continue to roll out as people get out and get more comfortable out going to malls that we would hope to see kind of an improvement in kind of the factory traffic first and then ultimately kind of the mall traffic.

Okay. And on your comments on port congestion as well as the labor market, what's within your control and what risk factors might there be as you plan inventory in this dynamic environment?

Yes. So what's within our control is really looking at kind of our future launches and making a determination on what we may need to air freight in versus kind of ship in. As you know, with many other retailers, ultimately, there's a lot of congestion at the ports. There's a lot of container shortages. So we're looking at our future launches and determining what is the appropriate level to air in versus what is the appropriate level to allow to just ship in and look through that basis.

I think the other thing to the -- Oliver, the only thing I was going to say, too, is that in addition to kind of managing the best we can, we've really tried to look at the whole design process, kind of start to finish and when orders are getting placed. Because part of what's happened is that we do not think that the port congestion is only for a few months. It feels like it's going to be here for a while. So we're really trying to look at the complete supply chain from design all the way through and give ourselves a little bit more space because things are just going to take more time in this environment and be less reliable.

Rob, on that topic, regarding pricing and inflation, it's a major industry and sector driver right now. How do you see your pricing leverage and/or average unit retails in the Vera Bradley brand evolving, whether that be mix or like-for-like?

Yes. I think that's something that we definitely are evaluating and looking at in terms of we want to be careful because we think that we have an important positioning from a pricing standpoint. So there might be some opportunity in pricing, but we want to make sure that we don't raise prices too fast. But we definitely are watching the environment. I think at Pura Vida, we're also taking a look at the pricing environment and what the opportunities might be on that side of the business. But we definitely are kind of watching these inflationary pressures for sure.

Okay. And on the digital road map, you gave a lot of great innovation factors. What would you say is lower-hanging fruit and/or will impact the financial modeling substantial most substantially in the priority list?

I think on the digital side, there's probably a couple of key pieces. One, the data analytics and the targeted marketing, customer journey, reactivation, really owning our customer data particularly at the Vera Bradley brand, kind of having first-party data, I think, becomes super critical, not only today, but as we're moving through the iOS updates, the pending Google updates, and we think that will be really critical to continuing to grow our direct own digital. And now we're working with Pura Vida to move them quicker along that paradigm because they haven't been as focused on first-party data. So that's part of the marketing push right now.

Okay. Final 2 questions. On Pura Vida, if you had a view of like the non-jewelry revenue percentage over time or any way for us to dimensionalize what could happen to that over time, given that it's a powerful lifestyle brand. And if you could elaborate on thredUP, why that partnership made sense? Why now? And what are some of the key synergies you expect from that deal?

With Pura Vida, right, with the launch of apparel and backpacks, we're seeing some really nice early results. Obviously, those collections are limited, but we're learning a lot about the customer, which is responding to sizing. And we definitely think that really building up Pura Vida from a lifestyle brand over multiyears is -- provides some real significant opportunity because I think that Pura Vida can become much more balanced instead of just so heavy on the jewelry category. So I think there's significant opportunity long term as we build out those categories.

In terms of thredUP, there are really a few reasons why we did the thredUP up partnership: one is really continuing as the customer continues to be more focused on environmental, right, it gives us an opportunity for -- to lead into this up cycle environment; and two, the ability for customers to kind of clean out their closet as we definitely know a lot of our loyalists have a lot of Vera Bradley product. So hopefully, they could open up some space, kind of use those gift cards to repurchase again and buy into the newer Vera Bradley product. We think that provides another opportunity for stimulation of future revenue. But it's a new program for us. We just launched it. We've been pleased with the early results, and we'll just see how it scales over time.

And on the sustainability front, what should investors focus on? And what will you measure as important? And from another angle, what do you think customers care about the most as you think about a new generation of customers that care about this topic and mission and purpose a lot?

Yes. I think a couple of different ways to answer that, right? One is just under the environmental side. We started down the environmental path really by focusing on what we felt we got the biggest impact, which was fabrications. And we felt, one, that, that could have the biggest impact short-term on the environment being a good corporate citizen. But second of all, it was a way to really position Vera Bradley more in the forefront of what's going on out there, addressing the environmental needs, and we're seeing a younger customer respond to that. And so I would encourage everybody to kind of watch as we continue to move more fabrications to this sustainable platform becomes really important.

But we're not stopping there, right? We have a team focused on how do we continue to address environmental issues, water scarcity, supply chain, zero emissions. So expect more details coming out over the next year as we continue to lay out our plans there. But simultaneously, I think as important, if maybe not even more important to our customer base, is the social impact as we're looking at how important the Charity Bracelet program is to Pura Vida. The impact of the charity on the apparel business at Pura Vida, everything that Vera Bradley has done over the years from the foundation of Blessings in a Backpack. We really think that this younger customer really expects brands that they want to be part of and brands part of the community to have a very strong social as well as environmental positioning. So that's how we're looking at this. But our whole purpose ESG program is critically important to us, and we're going to continue to invest time and resources to build that out and really become an industry leader in this category of purpose.

(Operator Instructions) And our next question will come from Steve Marotta with CL King & Associates.

I have a follow-up on 2 topics that we've already touched on. The first is, from a sourcing standpoint, can you remind us where you are geographically maybe as a percent of the total? And as a follow-up there, is there opportunities maybe to shift some of that production to non-port-related geographies like Mexico or Central America?

So the majority of our product is out of Southeast Asia for the Vera Bradley brand. I think about, call it, 15% is out of China, the remainder is out of -- whether it's Myanmar, Cambodia, Indonesia, those are the main countries that we're out of. And right now, we're looking for opportunities of other opportunities where we could source our product. But in the near term, we will likely be out of Southeast Asia.

And then Pura Vida is the opposite.

Opposite.

Right? The majority of it is in Central America. So we don't have the same port issues with Pura Vida that we're having with Vera Bradley. And also with Pura Vida even stuff that's coming out of other parts of the world, since a lot of it is jewelry product, it's easier to air and kind of get around the port issue.

Great. That's very helpful. And as far as acquisitions go, maybe can you talk a little bit about the availability currently versus, say, 2 years ago? Would you say that there are more or fewer? And maybe also comment on the multiples being asked higher or lower. I could see they're maybe being higher given that they're 2 years away from, say, '19. But on the other hand, maybe lower because they might have been a little financially distressed coming out of the pandemic. Obviously, you're not looking for specifics. But if you could maybe just talk about availability and current valuations.

What I would say is, obviously, valuations are tricky, right, every company is different. The environment is very different based upon each individual one. So that's hard to comment because there's a pretty wide range out there. What I would say though that we've seen is maybe more interest in direct-to-consumer companies coming out earlier than in the past. So there's more companies that are in earlier stages that are kind of coming to market than maybe we saw 2 years ago. That's probably the biggest difference that I would see right now. But in terms of -- there's still definitely opportunities that are sitting out there. It's just really making sure they're kind of the right fit for our company.

Yes. I would only add that I think versus 2 years ago, when we were looking for our first acquisition, I think there's more activity or more inbound activity with us now that we've completed our first acquisition. So I think if you're just looking at apples-to-apples for Vera Bradley, there's probably a little bit more activity.

More deal flow.

Yes.

And our next question will come from Dana Telsey with Telsey Advisory Group.

Last year, masks were an important part of revenue. And you mentioned that in the second quarter, it contributed over 10% of Vera Bradley sales and around 300 basis points in gross margin. What -- how do you frame it for the rest of the year? Or was the second quarter the most impactful?

Yes. So as you think about last year, the second quarter was the most impactful, and it was still impactful for the third quarter and then it kind of -- it went down into the fourth quarter. But definitely, from a percentage of total and percentage of gross margin, it definitely was the most impactful quarter.

Got it. And then as stores are reopening, what are you seeing happening to your online sales and from the customers that you picked up from online, how are you keeping them within the network?

Well, I think a couple of things. I think, one, what we're seeing is as stores have opened that the early read on e-commerce was a lot of holding of -- in that e-commerce volume, which was great to see. As we're looking at our business, whether it's about masks, whether it's about e-commerce, we are definitely very focused on kind of the 2-year stack because obviously, there's a lot of peaks and valleys as you look at last year and what happened. But we're really kind of looking at it on a 2-year stack basis. And we expect to have really strong e-commerce growth. Our customer engagement is still strong across all of the channels.

But it is exciting to begin to see some movement back to stores because we do think that having that omnichannel environment, kind of that holistic ecosystem is really important long term for just brand loyalty. So it's going to be fun to watch summer months as customers continue to travel and back to school. I think that what we saw industry-wide in first quarter, right, was this really strong pop in apparel, right? As everybody got out of their house and got prepared and they hadn't bought spring clothes last year, a nice pop in apparel. We're hoping as we get into the summer months that we could see travel even begin to accelerate more and back to school accelerate. Those will kind of be key times for not only the Vera Bradley brand but also the Pura Vida brand.

Got it. And then just as you think about the operating margins of the Direct business and the Indirect business, how do you -- what do you see as the cadence of indirect or direct and the factors behind it for each of the operating profits of those channels?

As I think about some of the headwinds we have, it's really going to be associated with the logistics side of the business and making sure we have the appropriate product to sell. And there will be some headwinds associated with just getting product here that we may not have in years past. But as you think about it, I think we have opportunity in the second quarter, as Rob just kind of indicated, in regards to kind of the hope associated with the travel and the back-to-school season. As we kind of come up on those months, we think there's opportunity there to drive sales, which will get leverage and drive operating performance there from a Pura Vida perspective, but also in a Pura Vida. Pura Vida does a nice business from a Back to School from a customized bracelet perspective. So we think there's opportunity there.

And that does conclude the question-and-answer session. I'll now turn the conference back over to Rob Wallstrom for closing remarks.

Thank you. Our forward-looking strategy is to be a purpose-driven multi-lifestyle brand high-growth company. We have an extraordinary culture, an exceptional team, loyal customers and a vision for the future. Our strong cash position, debt-free balance sheet and ability to generate free cash flow will allow us to continue to invest in our 2 powerful brands and to seek out appropriate acquisitions of other comfortable, affordable, purpose-driven, digitally native brands, similar to our successful Pura Vida acquisition over time.

We have an exciting future ahead, and we look forward to creating value for all of our stakeholders. In fiscal 2022, we expect to deliver double-digit revenue and operating income growth over both fiscal 2021 and fiscal 2020 performance. Thank you for your time and interest in Vera Bradley, Inc. We hope you can join us for our second quarter call on September 1st.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.