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Vera Bradley Inc (NASDAQ:VRA)
Q4 2020 Earnings Call
Mar 11, 2020, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Vera Bradley Fourth Quarter and Fiscal Year-End Earnings Conference Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]

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

Mark Dely -- Chief Administrative Officer

Good morning, and welcome everyone. We would like to thank you for joining us for Vera Bradley's earnings call today. Some of the statements made during our prepared remarks and 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 recent Form 10-K filed with the SEC for a discussion of known risks and uncertainties. Investors should not assume that that statements made during the call will remain operative at a later time. We undertake no obligation to update any information discussed on the call.

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

Robert Wallstrom -- President, Chief Executive Officer and Director

Thank you, Mark. Good morning, everyone. And thank you for joining us on today's call. John Enwright, our CFO also joins me today.

Consolidated revenue and SG&A performance were in line with our guidance for the fourth quarter and the fiscal year, although the gross margin rate fell below our expectations. Our promotional cadence was in line with last year, but our customers focus their spend during promotional and clearance periods, which resulted in reduced gross margin across both brands. In addition shipping costs were higher than expected. As a result, our fourth quarter and annual consolidated non-GAAP diluted EPS fell below our guidance.

Although fourth quarter earnings were not as strong as we would have liked, we made significant progress during the year on our path to building a strong foundation for future growth and improved shareholder return. Over two years ago, we embarked on Vision 20/20, our aggressive three year plan to restore the Vera Bradley brand and business to a healthy foundation and to return our company to solid growth.

Two years into our plan, we have made meaningful headway, strengthening the Vera Bradley business and acquiring Pura Vida. We were able to generate a 39% non-GAAP EPS improvement on a 19% growth in revenues for the year. In fiscal 2019, the first stage of 20/20 was to restore brand and company health. We reduced clearance revenues and restored full-price selling, delivered SG&A and cost of goods reductions, maximized retention of the company's customer base and generated cash from operations.

We continued to build on that progress in fiscal 2020 by once again, improving the quality of sales in our full-line stores and on verabradley.com through increased comparable full price selling in these two channels of approximately 3%, which is on top of a 20% increase in the prior year.

As we completed year two of our three-year journey in fiscal 2020, our commitment to growing our customer base, sales, and profitability paid off. And as a reminder, our three key areas of focus for fiscal 2020 were number one, growth. Our main objective was to return to positive comparable sales growth this year, and we generated comp growth of 3.4% at Vera Bradley, despite the challenging handbag and accessories environment. This improvement was driven by innovative product and supported by data driven marketing and a constant focus on customer engagement and the consumer experience. The addition of Pura Vida to Vera Bradley, Inc. portfolio was an important element of our fiscal 2020 growth. Pura Vida is a great strategic fit and has bolstered our position as a unique lifestyle company.

And number two, operational excellence. We mitigated the impact of increased tariffs through rapid replatforming and diversification of our sourcing countries, moving to approximately 25% of our production in China from approximately 54% in 2019, and 70% in fiscal 2018. Midyear, we also began a two year process of replatforming our ERP and other key information systems to become more streamlined, nimble and efficient in our technology platform and business processes.

And number three, ownership. We continually reinforced our unique culture as an ownership-based model. Every associate has the ability to drive significant value creation through both individual and team efforts. Our 2019 Associate Engagement Survey once again generated best-in-class engagement scores, and our fiscal 2020 Customer Satisfaction Score of 88, and our NPS score of 76 were also best-in-class.

Let me talk about some of our other specific fiscal 2020 accomplishments. For Vera Bradley in the product area, we continued to build dominant in our key franchise areas of youth, campus, travel and every day, as well as our Top 10 items. We developed a pipeline for innovative fabrications to drive customer engagement and modernization of the brand. We launched our first in a series of performance fabrics called Performance Twill, which is lightweight, durable and water-repellent. Customers love it, and it is especially appealing to 25 to 40 year olds, urban customers and higher income customers.

We also introduced our environmentally friendly Re-Active collection, made of fabric from recycled plastic bags. In fact, nearly 4 million bottles will be recycled this year for the Re-Active fabric. Re-Active is generating strong customer engagement and media coverage. We also drove silhouette innovation. We introduced this sling along with our Lay Flat collection, versatile travel pieces that unzip on three sides for easy accessibility. The Accessories Council selected Vera Bradley's Lay Flat Duffel as a winner for its Design Excellence Awards in the Travel/Luggage category.

We successfully introduced collaborations with several iconic brands, including Starbucks, Crocs, Disney, and Gillette Venus to create and sell limited addition product collections. The Vera Bradley plus Venus Razor collaboration was recognized in People Magazine's, Best New Beauty Products of 2019 awards. We announced another exciting collaboration with Warner Bros. consumer products to create a Vera Bradley plus Harry Potter Back-to-Campus and dorm line, which will launch in the Summer of 2020. These collaborations increase our brand visibility among new customer groups and provide momentum for growth.

We expanded our customization program, where customers can design their own bag by mixing patterns and solids along with creating embroidered personalization both inside and out. On the Vera Bradley distribution front, we continued to rationalize and strengthen our store base. We opened six new factory stores, relocated and expanded three of our top factory stores and closed 11 underperforming full-line stores, ending the fiscal year with 88 full-line stores in 63 factory locations. Our customer service model and newly implemented voice of customer initiative continued to drive industry leading customer satisfaction scores.

Our annual outlet sale gathered nearly 43,000 brand loyalists, and generated sales of over $6 million during the five day event, highlighting our strong customer community. Our online outlets flash sales allowed us to sell merchandise in a more discreet manner, removing to over $48 million of clearance activity from our full-line stores and VB.com over the last two years.

In the marketing area at Vera Bradley, we completed the insourcing of our customer data science team, added to our business analytics group, and completed the rollout of our new customer data platform. The insights gained from our robust data now will allow us to adjust our marketing mix and approach on a real-time basis. Consequently, we experienced a year-over-year increase in new customers of over 10%.

Our Digital First strategy, focused on targeted digital efforts, increased brand awareness, with total impressions up more than a 170% to over 5 billion for the year. We increased brand collaborations and influencer engagement, show the strength and relevance of our brand and generated tremendous media buzz. Our influencer programs won several industry awards. Vera Bradley won the 2019 Outlet Retail Chain Best Marketing Program Award at the International Council of Shopping Center Deal Making Conference. Vera Bradley was among 84 outlet chains nominated for this prestigious industry award.

Under the umbrella of VB Cares, we reinforced our position as a total stakeholder focused and socially conscious organization and continued to strengthen our community support and charitable initiatives that are meaningful to our customers and then make a significant impact on those in need, particularly women and children. Efforts including supporting New Hope Girls, our national Blessings in a Backpack program and raising $2.1 million for the Vera Bradley Foundation for breast cancer. We are proud to have supported nearly 30 different charitable organizations in fiscal 2020.

At Pura Vida, Pura Vida had a terrific revenue year with sales up more than 50% over the prior year. The team continued to experiment with and introduced new designs in signature cord bracelets and jewelry, as well as introducing new trends including the mood ring and bracelet, enameled daisy collection and semi-precious stone charms and stone hoops. Charity bracelets continued to be a big draw with Pura Vida reaching over $2 million in lifetime charitable contributions.

Pura Vida's social media engagement is strong. They are one of the most highly engaged brands in the accessory space, surpassing the 1.9 million mark of followers on Instagram, and consistently listed as one of the most, if not the most engaged jewelry brands on Instagram.

Instagram followers, Facebook likes, and monthly club subscribers all rose during the year. Pura Vida continued to rank at the top of the industry for their net promoter and customer satisfaction scores. Looking ahead, Vision 20/20-Year Three. Last year was an important year filled with both successes and challenges. In the end, we improved our financial results, strengthened our customer engagement, enhanced our culture, and established a growth plan for the future. Fiscal 2021 promises to be an exciting but challenging year as we complete our three-year journey. Our goal is to build upon the progress of the last two years and as a company, we will focus on two key areas, robust growth and sustainable health.

I will talk more in a few minutes about our initiatives for fiscal 2021, however, the uncertainties in the global environment, particularly surrounding coronavirus and its potential supply chain and revenue implications make our fiscal 2021 financial performance difficult to predict. And as a result, we are only providing guidance for the full year, which does not reflect any future ramifications from COVID-19. We will not be providing quarterly guidance until we have more clarity on the situation. We do not believe this will affect our long-term strategy and initiatives.

Now let me turn the call over to John to review the financial results and outlook.

John Enwright -- Executive Vice President and Chief Financial Officer

Thanks, Rob, and good morning. As a reminder, financial results have been consolidated to include Pura Vida beginning July 17, 2019, the first full day following the acquisition. Prior period numbers have not been restated. The current year non-GAAP of fourth quarter and fiscal year income statement numbers referenced below excludes the previously disclosed Pura Vida, IT and other net charges outlined in today's release. Fourth quarter consolidated net revenues totaled $156.9 million within our $155 million to $162 million guidance range.

Excluding Pura Vida, Vera Bradley net revenues totaled $121.4 million, a 2.7% increase over $118.2 million in the prior year fourth quarter. Excluding net charges, consolidated fourth quarter Vera Bradley, Inc. net income totaled $14.3 million or $0.42 per diluted share, an increase of more than 60% [Phonetic] from last year's net income of $8.6 million or $0.25 per share. The current year number included $0.08 attributable to Pura Vida. As Rob noted, our fourth quarter results fell below our guidance of $0.49 to $0.53.

Current year fourth quarter Vera Bradley direct segment revenues totaled $103.6 million, a 5.7% increase over $98 million last year. Comparable sales increased 2.4% for the quarter. Vera Bradley indirect segment revenues totaled $17.8 million and a 11.6% decrease from $20.2 million in the prior year fourth quarter. The decline was primarily related to a reduction in orders and in the number of department store accounts. Pura Vida segment revenues totaled $35.5 million.

On a non-GAAP basis, excluding the Pura Vida -- the Pura Vida inventory step-up amortization, gross margin totaled $87.2 million or 55.6% of net revenue, compared to $67.1 million or 56.8% of net revenues in the prior year fourth quarter. Pura Vida had no impact on the current year fourth quarter non-GAAP gross margin. The non-GAAP gross margin was below our guidance range of 57.5% to 57.8%, primarily due to higher customer spending during promotional and clearance periods and incremental shipping costs.

On a non-GAAP basis, excluding net charges, consolidated SG&A expense totaled $67.2 million or 42.8% of net revenues for the quarter, compared to $55.6 million or 47.1% of net revenues in the prior year fourth quarter. These non-GAAP expenses were within the guidance range of $66 million to $67.5 million. Pura Vida added $14.3 million of SG&A expenses, which excludes the aforementioned intangible asset amortization. Total SG&A expenses were higher than the prior year, primarily due to these Pura Vida expenses.

On a non-GAAP basis, excluding net charges, fourth quarter consolidated operating income totaled $20.1 million or 12.8% of net revenues compared to $11.7 million or 9.9% of net revenues in the prior year fourth quarter. Consolidated net revenues totaled $495.2 million for the current fiscal year. Excluding Pura Vida, Vera Bradley net revenues totaled $429.3 million, a 3.2% increase from $416.1 million in the prior year. Excluding net charges, Vera Bradley, Inc. consolidated net income for the fiscal year totaled $28.2 million or $0.82 per diluted share. This performance included $0.16 attributable to Pura Vida.

We posted net income of $20.8 million or $0.59 per diluted share in the prior year. Vera Bradley direct segment revenues for current fiscal year totaled $347.5 million, a 5.9% increase from $328 million in the prior-year. Comparable sales increased 3.4% for the year. Full price selling and the company's full-line stores and on verabradley.com increased by approximately 3% for the year. Vera Bradley indirect segment revenues for the fiscal year totaled $81.8 million, a 7.1% decrease from $88.1 million in the prior year, reflecting reduction in orders and in the number of department store accounts.

Pura Vida segment revenues totaled $65.9 million for the partial year. Excluding the inventory step-up amortization, non-GAAP gross margin for the fiscal year totaled $280.1 million or 56.6% of net revenues compared to $238.6 million or 57.3% of net revenues in the prior year. The inclusion of Pura Vida benefited the current year non-GAAP gross margin by approximately 40 basis points. The non-GAAP gross margin was below our guidance range of 57.3% to 57.4% due to higher customer spending during promotional and clearance periods and incremental shipping costs.

On a non-GAAP basis, excluding net charges, SG&A expense totaled $242.4 million or 49% of net revenues in the current year, compared to $212 million or 50.9% of net revenues in the prior year. These non-GAAP expenses were within the guidance range of $241 million to $243 million. Pura Vida added $28.2 million of SG&A expenses, which excludes the aforementioned intangible asset amortization. Total SG&A expenses were higher than the prior year, primarily due to these Pura Vida expenses. Excluding net charges, current year consolidated operating income was $38.8 million or 7.8% of net revenues compared to $27.1 million or 6.5% of net revenues in the prior year. Operating cash flow totaled $20.6 million for the fiscal year.

Now let me turn to the balance sheet. Net capital spending for the fiscal year totaled $13.3 million in line with our expectations. During the fourth quarter, we repurchased approximately $2.3 million of common stock. At fiscal year-end, we had approximately $35.8 million remaining under our $50 million share repurchase authorization.

Cash, cash equivalents and investments at fiscal year-end totaled $73.8 million compared to $156.6 million last year. The reduction from the prior year primarily relates to the Pura Vida acquisition. We continue to have no outstanding debt. Total fiscal year-end inventory was $123.6 million, which includes $17.1 million of inventory related to Pura Vida. Inventory was $91.6 million at last fiscal year-end. Inventory was -- level was modestly lower than our guidance range of $125 million to $135 million.

Now, let me take a couple of minutes to review our outlook for fiscal 2021. As Rob noted, based on the uncertain environment we are not providing first quarter guidance, only annual guidance. Our annual guidance does not include any impact from coronavirus. All forward-looking guidance numbers that I will discuss are non-GAAP and include expected Pura Vida performance. Prior year numbers include Pura Vida after July 16, 2019 acquisition date. The prior year gross margin, SG&A, and earnings per diluted share numbers exclude the previously disclosed net charges. Current year guidance excludes any similar charges.

For full year, we expect net sales of $555 million to $585 million. This includes estimated Pura Vida revenues of $125 million to $135 million for the full year compared to $65.9 million of partial year revenues last year. Net revenues totaled $495.2 million in last year. Our full year revenue guidance in Vera Bradley direct segment net sales will increase in the low to mid single digit range, compared with the prior year. Total comparable sales which will include Pura Vida direct-to-consumer results in the back half of the year are expected to be flat-to-mid single digit increase. We expect the Vera Bradley indirect net sales will be down in the mid single-digit range for the full year. We expect our consolidated gross margin for fiscal '21 will be 56.7% to 56.9% compared with 56.6% last year. The rate increase should be driven by sourcing and operational efficiencies, as well as inclusion of Pura Vida. We expect SG&A expense to total between $269 million and $280 million for the year compared to $242.4 million last year.

This estimate includes $52 million to $56 million of Pura Vida expenses for the full year compared to $28.2 million of SG&A expenses for the partial year last year. We expect full year diluted EPS will range from $0.93 to $1.08. This estimate includes $0.33 to $0.37 attributable to Pura Vida for the full year compared to last year's partial year Pura Vida EPS accretion of $0.16. We expect capital expenditures will total between $8 million to $10 million compared to $13.3 million last year, reflecting investments in new factory stores and technology and logistics enhancements.

We expect to generate $60 million to $70 million of consolidated operating cash flow in fiscal 2021. Rob?

Robert Wallstrom -- President, Chief Executive Officer and Director

Thanks, John. Fiscal 2021 promises to be a challenging but exciting year as we complete the third and final phase of our Vision 20/20 journey. We have a strong plan in place with a robust innovation pipeline across product, marketing and distribution. On the other hand, there are some internal and external risks, most notably is COVID-19. Nonetheless, we will focus on building upon the progress of the last two years. For both Vera Bradley and Pura Vida, our fiscal 2021 strategic priorities will center around robust growth and sustainable health.

Let me start with Vera Bradley. Vera Bradley's growth will be driven by continued product innovation, as well as enhanced brand and customer engagement. Our products will remain authentic and true to our brand, but innovation is becoming more and more critical to our product assortment. We have developed an ongoing pipeline of fabric innovation to ensure marketing relevance by offering cotton updates and cotton alternatives both to retain existing customers and attract new customers to the brand. We will continue to grow our newest offerings of Performance Twill and Re-Active and will launch more fabric innovation over the next 12 months to 24 months.

We will also continue to bring new styles and differentiated silhouettes to the market to meet all facets of our customers' lifestyles. Our focus is on building dominance in our key franchise areas of youth campus, travel and every day. The branded customer engagement has several facets including marketing initiatives, collaborations, VB Cares, ESG and store profitability. In the marketing area, we will capitalize on and build upon the investments we made last year in data science, business analytics and customer data. Additional engagement will be driven by more advanced use of customer data to further refine medium spend and mix on a real-time basis.

In addition, we will utilize more user-generated content, drive more engagement on social media, extend our brand investor programs, strengthen our customer journey centered activations, improve storytelling, and amplify our VB Cares messaging. Our customer segmentation work will fine-tune our product development and go-to-market strategies. We will also allocate funding to expand customer acquisition efforts to underrepresented customer groups. We are continuing with our collaborations and strategic alliances that excite and engage existing and new customers, expand our brand reach, increase brand awareness, generate media buzz and provide opportunities for Vera Bradley to strategically test and ultimately enter new product categories.

These partnerships are truly a testament to the strength and wide appeal of our brand. This year we will enter into another year of high-profile product collaborations with brands like Gillette Venus, Disney and Crocs. We are working with several other iconic internationally known brands and exciting future product collaborations, most notably we are thrilled about our 2020 collaboration with Warner Bros. consumer products to create a Vera Bradley plus Harry Potter Back-to-Campus and dorm line and a Vera Bradley plus Harry Potter cozy capsule for holiday gifting. This collaboration will not only appeal to our Vera Bradley fans, but will also attract new customers to the Vera Bradley brands.

Under the umbrella of VB Cares, we are strengthening our sustainable purpose-driven company that delivers meaningful social impact and value for all stakeholders, our associates, our customers, our shareholders and our communities. Although our company has been purpose-driven throughout our history, we are enhancing that focus and increasing the visibility to our activities in this area. This spring, we will be publishing our comprehensive ESG report with our proxy and posting it to our website, which will outline our accomplishments and initiatives in detail.

We will continue to strengthen our community support in charitable initiatives, identifying areas where we can make a real impact, particularly for women and children. We want to create positive change and often invite our customers to participate with calls to action. Just last week, we announced our second annual collaboration with New Hope Girls, a non-profit organization that provides jobs for vulnerable women and refuge and education for girls in the Dominican Republic. The limited edition mini collection features a travel bag and travel pouch. It was designed and sold by women -- by Dominican Republic artists.

Like last year, the collection launched on March 8 in celebration of International Women's Day and generated enormous media attention. We couldn't be happier to continue our support of New Hope Girls and bring awareness to their organization with this collection. In April, we will proudly support Autism Speaks with a custom plush throw blanket in honor of Autism Awareness Month. We are looking forward to our Third Annual Back-to-School partnership with Blessings in a Backpack in organization that mobilizes communities, individuals and resources to provide food for the millions of elementary school children across America who might otherwise go hungry. And of course activities supporting the Vera Bradley Foundation for breast cancer go on all year.

Our Annual Vera Bradley Foundation for Breast Cancer Classic in June, the largest women's amateur golfing event in the country, typically raises over $1 million for breast cancer research. On the store front, we will focus on strengthening performance in our stores, and particularly on restoring our full-line channel to health. We are improving the profitability of our full-line store portfolio by rebalancing our existing fleet through select closures along with identifying future market opportunities. We know that improving the top and bottom line performance, the full-line channel will improve the long-term sustainability of the brand portfolio.

We will continue to focus on our highest potential stores, enhancing the customer experience and further localizing our assortments. We will continue to develop and test new formats. We expect to close approximately 12 additional full-line stores during the year, which would bring our total full line closings to 38 since the beginning of the fiscal 2018. This year we will continue to maximize our factory performance by adding six new locations and expanding one additional high performance store in Myrtle Beach, South Carolina. We will continue to sustain and strengthen our health through operational excellence and by enhancing our already strong and unique culture. We are in the midst of implementing Project Novus, our new technology platform that will be flexible, streamlined and efficient.

The project should be complete by the end of fiscal 2021 or early in fiscal 2022, and we will not only invest in the complexity of our IT systems, but will also reduce ongoing expenses and enable the company to achieve our future objectives, both in the short and long-term. At the same time, we are in the process of enhancing our go-to-market discipline, evaluating opportunities for efficiency improvements and reduction in timeline in calendar. We are continuing to decrease our reliance on China with our production in China expected to drop to less than 20% this year.

Our culture is being enhanced by our ownership-based model, which gives every associate the framework to drive significant value creation through their individual and team efforts. Overall, we are moving to a more innovative, agile, data obsessed and customer centric organization.

Now let's talk about Pura Vida's robust growth and sustainable health. We remain really excited about the future of the Pura Vida business. It continues to be a rapidly growing brand, driven by expansion of its distribution strategy and product innovation, combined with a market-leading customer engagement and marketing program. Pura Vida continues to experiment with and introduce new designs in their signature cord bracelets and jewelry and play upon the successes of last year's launches like the mood ring and bracelet and semi-precious stone charms and jewelry.

Pura Vida's signature Cherry bracelets continue to be a big draw. This year, we will launch charm bracelets that tie back to specific charities, which we believe will be very popular with Pura Vida's cause mining customers. This will also enable us to increase price points as well as increase total donations, Pura Vida will continue to innovate and grow in the signature area of the business.

New product categories for fiscal 2021 including engravables, leaning into the personalization trend, hair accessories, jewelry for the hair and fashion bags, which are distinctly different than Vera Bradley bags. Pura Vida will also open its first lab store in San Diego by fall of this year. This will allow us to showcase existing products as well as new product innovations and to get direct customer feedback. The store will also create Instagram-able moments and host influencer events. We will evaluate the historic performance for possible future expansion. On the marketing front, Pura Vida's social media engagement is strong. An army of 100,000 plus micro influencers have been on-boarded. And this is a key part of our strategy.

In fiscal 2021, we will continue to build upon this very impactful influencer program, particularly focusing on those with the greatest number of followers. Co-founders Griffin Thall and Paul Goodman will also invigorate their grassroots customer outreach events, focusing on their popular meet-up events and college tours. To ensure sustainable health, Pura Vida will focus on profit management primarily on optimizing marketing spend and generating solid gross margin performance. We will build scale in the core bracelet business, carefully reviewed product pricing and introduce new product categories with the potential for higher margins.

On the distribution front, we will target some larger accounts, and those that will build the Pura Vida brand. And as Pura Vida grows, we want to continue to build and retain the talented organization that will drive the ongoing expansion. In closing, I am so proud of each of our associates throughout the company in both brands, their talent, teamwork, tenacity and their accomplishments thus far over the course of Vision 20/20. We have restored the company to a healthy foundation, return to revenue and EPS growth and further strengthened our special culture. We still have significant work ahead, but we are looking forward to completing our Vision 20/20 journey and continuing our momentum into the future.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] We will now take our first question from Oliver Chen from Cowen, please go ahead.

Oliver Chen -- Cowen and Company -- Analyst

Thank you. Hi, Rob, and John. The indirect and Pura Vida revenues were a little bit softer than we had modeled. Would love to hear your thoughts on how those are trending relative to your expectations and visibility and what happened during the quarter? Also, regarding the gross margin just would love you to elaborate on shipping costs as well as the promotional response, and why? Thank you.

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah. So a couple of things. I think one in terms of Pura Vida, as we were going through the quarter, the business was exceptionally strong through the Black Friday period, so much so that we had shortened the promotional cadence that we had plans and they had actually shortened that promotion, but as we saw the consumer in December and January, we had some outages in terms of inventory that impacted our availability and impacted our sales volume at the back half of the quarter. And then there was just some timing of shipments in wholesale. But overall, we still feel good with the Pura Vida growth rate as we go forward.

In terms of indirect, we continue to see some pressure in the indirect space, as departmental stores continue to get tighter and tighter on inventory levels. It was a shortened holiday periods. There was a little bit more pressure in the indirect channel than we had anticipated. Whereas, it is worth forecasting and this year we still expect some small contraction in the indirect channel. On the gross margin line, there were really two primary factors. One, we just saw a lot of customer spend really concentrated on two key periods. One was around the Black Friday timeframe, which performed very strong across both brands. And then very strong in kind of the around Christmas period going into January with the rollout performance after Christmas.

So we just saw the customer gravitate toward those periods of spend, which happened to be more promotional in nature. Our promotional cadence overall was very similar to last year, but where the customer chose to spend was a little distorted. So, that was about half of the gross margin challenge. The other half of that was just due to shipping costs and as shipping costs were going up that was the other half the gross margin pressure.

John Enwright -- Executive Vice President and Chief Financial Officer

And just to add a little bit on the shipping costs, when you look at both brands miss a little bit on shipping costs and I would say from a Pura Vida perspective, being a little bit more newer to the business, we use our third quarter estimate to estimate fourth quarter and obviously at the store, a little bit more expensive. And then for Vera Bradley, at the end of the day, we estimated based on how we have been trending and it was just slightly more impactful than we had thought. The increases, as we think about next year, we brought those increases into our expectation for gross margin.

Oliver Chen -- Cowen and Company -- Analyst

Thank you. And coronavirus is something we're all monitoring on a hourly basis. What are your thoughts on what you're seeing with the consumer and how this may or may not manifest in traffic trends to a large degree out of your control? Another concern we have is thinking about the consumer and the possible recession and how your business will -- may fare and what kind of strategies you may have within your control as you look at various scenarios?

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah, thanks Oliver. Yeah, the coronavirus obviously is the big unknown this year. I think it first is it's starting to break in China and supply chain. The team reacted very quickly and just like last year with the China tariffs, I think the team did really well in navigating the supply chain challenges, and we've been able to mitigate the vast majority of it so far. And hopefully, as we see in China stabilize that the supply chain side will not be a big problem. But we're obviously continuing to watch that particularly as it relates to logistics and logistics timing because the lack of supply category through the logistics supply chain is disrupting a little bit of that flow. But we think we can manage through that.

The real big question is what happens with US consumer demand and we have travel, spring breaks coming up and all the travel activity, we're just not quite sure how the consumer is going to be responding. I mean that's why to have clarity, we're not -- we're not totally clear on the impact. But we're watching it, we have seen some impact to our travel businesses already, in terms of our beach categories, which is really purely Spring break oriented. We have seen some early softness in those businesses, but we will see as consumers make their Spring break decisions, will they travel, will they stay home, will they shop locally? We don't know yet.

So we are seeing some traffic particularly over the last couple of days, some impact of the traffic kind of in line with what I've said on market numbers out there, but we're just watching this close. If we get into as you mentioned a more recessionary environment, we've had a history of a brand being able to navigate that fairly well due to our price point. We've been one of the brands in the past we've seen people trade down into. So we would hope that we would repeat that type of performance, but obviously it's something that we're watching very closely. The team is focused on. We're making decisions daily based upon the information that were given.

Oliver Chen -- Cowen and Company -- Analyst

Thank you, Rob. The outlet channel as well as the interplay between digital relative to physical traffic at large. What's your hypothesis for what may happen with customer behavior in the coronavirus?

Robert Wallstrom -- President, Chief Executive Officer and Director

Well, we do expect to see more of the impact on our physical channels than our digital channels. So I think that's again a lot of what we put out in the market is generally what we're seeing. But again, we're just, it's going to be time to see how the consumer really respond. Is it merely a shift or does the consumer just taken a more cautious approach to spending in the short term? I think that we just have to watch how this develops over the next few months.

Oliver Chen -- Cowen and Company -- Analyst

Thank you very much. Best regards.

Robert Wallstrom -- President, Chief Executive Officer and Director

Thank you, Oliver.

Operator

We will now take our next question from Matt Altschwager from Baird. Please go ahead.

Mark Altschwager -- Robert W. Baird -- Analyst

Good morning. Thanks for taking my question. Just to start out, on the Vera Bradley comp in Q4, can you speak to traffic versus AUR in your various channels? And then along those lines, looking at fiscal 2020 in aggregate that the positive 3.4% comp at Vera Bradley, can you speak to how much of that was driven by some of the tactical price increases that you took to offset tariffs last year? Thank you.

John Enwright -- Executive Vice President and Chief Financial Officer

Sure, this is John. Mark, from a traffic perspective in the fourth quarter, traffic was relatively flat within our store network. So ultimately we saw some increases to AUR that drove the performance. And as you think about from a full-year perspective, our total comp performance, I would say, a good portion of that was driven by our price increase. Ultimately, we took close to low single digit price increase between both channels and that likely drove a proportion of the increase. We also saw some improvement in customer count and so in our overall business as well as online. And we saw some increased ADS on our online business.

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah, we do think as you go into this year and you look at our projected comp performance for the Vera Bradley business, there is really a couple of big drivers in that. One is this customer growth that we've seen this year, we are hitting double digit customer growth this year, gives us a much larger customer file going into the next year. And as we continue to work through the best way of stimulating their customer that gives us an opportunity, as well as just our innovation, our innovation specifically around product, our innovation around marketing and those are really the key drivers as we look at to this next year.

Mark Altschwager -- Robert W. Baird -- Analyst

It's really helpful. And maybe just following up there. Bigger picture on the fiscal 2021 guidance, if I'm doing the math correctly, it appears to imply operating income ex-Pura Vida that's down slightly year-over-year. I guess, one, am I looking at that correctly? And if I am, just maybe help me reconcile that outlook with the commentary on focusing on robust growth, sustainable health, and some of the other innovative things that you were just speaking to. So I think you -- I mean I understand there's a lot of uncertainty today, but I think you said COVID-19 is not included in that outlook?

Robert Wallstrom -- President, Chief Executive Officer and Director

No, so COVID-19 is not included in the outlook. The only thing that's included in the outlook is really performance from February. So if we look at just the Vera Bradley brand, we don't expect Vera Bradley brand from an operating income perspective to be lower than last year. That might not -- there will be probably a low single digit increase from operating profit, but ultimately, we don't expect a decline.

Mark Altschwager -- Robert W. Baird -- Analyst

That's helpful. Thank you, and best of luck.

Robert Wallstrom -- President, Chief Executive Officer and Director

Thanks.

John Enwright -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

We will now take our next question from Eric Beder from SCC Research. Please go ahead.

Eric Beder -- Small Cap Consumer Research -- Analyst

Good morning.

Robert Wallstrom -- President, Chief Executive Officer and Director

Good morning.

Eric Beder -- Small Cap Consumer Research -- Analyst

Can you talk a little bit about, so you've rolled out in the last -- basically six months you rolled out Performance Twill and Re-Active. How are you seeing in that in terms of changing your customer base and becoming and broadening the customer base, a little bit.

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah, Eric. It's a great question. One thing we definitely are seeing with Performance Twill is really a strengthening of kind of that 25 to 40 year-old customer base, which has been really encouraging to see a little bit more strength in our urban areas, an area that has not been strong, historically for us. So those are some great early signs. We're also getting good feedback from partners that it's attracted a new customer into their store. And with Re-Active, a little bit similar, it's the same type of attraction to different customer but the customer who is very environmentally focused, has been very excited and reacted very positively to the Re-Active collection. And we think that long term, that's really an important platform as well as just an important beginning for us as we move more and more of our product to environmental-friendly type of design, which will happen over the next few years.

We feel we're just continued to be able to attract not only a young customer who is very focused on it, but we're also finding that that younger customer, we'll call it that 20-year-old customer is also influencing her mom. So we're not only seeing an attraction in a young environmentally focused customer, but we're also seeing kind of that 40-50 year old customer also is reacting very positively. And so we're having kind of a benefit on both sides.

Eric Beder -- Small Cap Consumer Research -- Analyst

Are you seeing the same impact with some of your hands-free designs like the sling in the same way that as the younger customer initially and then it is driving customers, older customers to it?

Robert Wallstrom -- President, Chief Executive Officer and Director

Yes, absolutely, we are seeing that through the silhouette design also. And what we found has been great about sling introduction is that it's really also become an incremental purchase, right, it's a different function, it's something very different in the line and it's driving incremental purchasing. And as we go forward, we'll continue to look for what are those opportunities in the assortment that we are not meeting and [indecipherable].

Eric Beder -- Small Cap Consumer Research -- Analyst

The flash sales, what has been the response to that? And is that something that makes a ton of sense for you strategically? Or is that something you're going to continue to expand? How should we think about the flash sales in terms of clearing out product?

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah, the online outlets sales. What we really are trying to do there is just that we do not see that as a major growth engine for us by any means. We see it as a liquidation channel. The number one purpose of the online outlet is to keep our other channels more pure and clean and focused on full price business. And it allows us to clear inventory more discreetly, but we do not see that as a growth driver as we go forward. We just see it as an important liquidation channel.

Eric Beder -- Small Cap Consumer Research -- Analyst

Okay. All right, guys congrats, and good luck for 2020.

Robert Wallstrom -- President, Chief Executive Officer and Director

Thank you, Eric.

John Enwright -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

[Operator Instructions] We'll now take the next question from Dana Telsey from Telsey Advisory Group. Please go ahead.

Dana Telsey -- Telsey Advisory Group -- Analyst

Good morning, everyone. As you think about the components of gross margin, merchandise margin. How -- can you unpack them a little bit for Q4 and what you're thinking about for 2020. And then on the direct business which has been a bit more challenging, how do you think of the long-term game plan for the indirect business? Thank you.

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah. So I'll talk about the margins for Q4 and for full year for next year. So we saw in the quarter based on how our consumer shopped that we saw merchandise margins down year-over-year, given the fact that they were more -- centered around more promotional and clearance periods. So at the end of the day, we saw merchandise margins down and we also saw some, obviously, our shipping costs, we brought it back down. So you can think about that next year-over-year, and the miss to guidance being, it's basically being about 50% based on merchandise margins and 50% being on shipping costs.

As we think about next year, at this point we're not seeing -- we're not expecting to see any significant change in our promotional cadence. Obviously depending on how coronavirus plays out that could change, but at this point we're not expecting to see any differences there. So our merchandise margins we would expect to be able to be maintained, where we saw compared to fiscal 2020.

And then in terms of indirect, indirect there is a couple of things. I think first of all, we're really focused in on our strong partners and how to distort our business and grow our business with our strong partners. And we're seeing that across various elements of the business but there has been partners like Amazon, who has been a big growth partner for us. We know that we need to begin to replatform indirect and find partners that are more in a growth mode as opposed to in a consolidation mode and we're in the process of doing that right now, but we think definitely next year, we still see some contraction in the indirect channel, but we will continue to focus on new points of distribution.

Dana Telsey -- Telsey Advisory Group -- Analyst

Got it. And then when you think about supply chain, given what's happened with the disruption in China. Where are you on supply chain? And I know you've been diversifying. How would you sum it up in terms of opportunities for supply chain in this year and the status? Thank you.

John Enwright -- Executive Vice President and Chief Financial Officer

Yeah, from a supply chain perspective, we believe we will from a finished goods production we will be below 20% from outside of China. And I think everyone -- we should remind everyone, ultimately a significant portion of our raw materials still travels from China into the other countries, but we believe that we have probably diversified outside China as much as we're probably going to going to in the near term, we don't believe we can get that below 10%. I would say we have made significant progress over the last three years and using kind of our partners to move into countries where ultimately we have a lower cost on a total FOB because we're not paying duty in some of those countries. So I don't see any significant changes outside of next year, going from 25 to call it, between the high teens area for production inside China.

Robert Wallstrom -- President, Chief Executive Officer and Director

I just I feel like I would add is, I think that the supply chain, the way that we're viewing the supply chain is that it's definitely continuing to morph and change and develop. I think the flexibility is one of our strategic assets, I think we have a talented team here and they're able to react quickly. And we've seen them react quickly last year to the China tariffs. We've seen them react quickly to the issues that we faced early in terms of with coronavirus impact in China. And the team is just continuing to stay nimble to reinvest in our most important partners but continue to keep an eye on the global market and where are the opportunities to continue to maintain flexibility. So it's definitely one of our strategic assets.

Dana Telsey -- Telsey Advisory Group -- Analyst

Thank you.

Robert Wallstrom -- President, Chief Executive Officer and Director

Thank you, Dana.

Operator

Thank you. We will now take the next question from Rick Fearon from Accretive Capital Partners. Please go ahead.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Hey, Rob. Hey John. Thank you for taking the call and nice job navigating through things and assimilating the Pura Vida acquisition. It does look like a wonderful contributor to the company, and it certainly provides diversification with respect to what's going on here at the coronavirus. I'm assuming that as part of your forecast, you're looking at the Pura Vida side of the business, not having, not being impacted too much by coronavirus, is that fair to say?

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah, we definitely believe that Pura Vida is less exposed to the impact of coronavirus as compared to the Vera Bradley brand, absolutely.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

And it does sound also like the forecast, including what -- I'm sure you've kind of modeled out is potential impact from coronavirus. Nevertheless you're forecasting a profitable year for Pura Vida -- I'm sorry, for Vera Bradley on its own.

John Enwright -- Executive Vice President and Chief Financial Officer

Yes, yeah, we're. So if we look at both brands independent we're expecting both brands to deliver profitable earnings next year.

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah, excluding the impact of coronavirus there is obviously, right now the world's rapidly changing, it's hard to get our hands around what that looks like.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Right. And some of the potential impact of coronavirus, I'm assuming it's offset by what is a very nicely cash flowing business with Pura Vida that shouldn't have a similar impact, is that fair to say?

Robert Wallstrom -- President, Chief Executive Officer and Director

Yeah, absolutely. And one of the things that we think really helps us through if the coronavirus environment gets more challenging, we do have a incredibly strong balance sheet, a very strong cash flow position, and a lot of resources to get through it. And as you said, Pura Vida is much less exposed. It gives us some diversification to hedge against that. So those two assets really help us as we go through this period, but we're really focused on the long-term execution of our strategy. And we believe that the coronavirus impact is more of a short, mid-term as opposed to a long-term impact to the business.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Well, I couldn't agree more with you, Rob. And in fact, I'm imagining that the impact is going to be far less than the dire predictions of some out there and your balance sheet, is the cash and cash -- and cash equivalents, the investments, is did I read that right $75 million of cash with no debt?

John Enwright -- Executive Vice President and Chief Financial Officer

Yeah, at year-end, we were $73.8 million with no debt.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Okay. So at $6 per share right now and the share of the fully diluted share count, what is that John?

John Enwright -- Executive Vice President and Chief Financial Officer

It's called 33.5 million shares.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Okay. So we're looking at sort of a total enterprise value of around $200 million and less the cash and equity value of about $125 million, is that -- do I have those numbers?

John Enwright -- Executive Vice President and Chief Financial Officer

Yeah.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

So the operating income was $19.5 million last year and did that -- was that after some of these bonuses and things that went toward Pura Vida and if you kind of once you sort of adjust that for that, is there -- is there a number that is somewhat higher, that I mean $19.5 million is very, very healthy operating income, but it seems like there is even some things that we're back down to that that related to the Pura Vida acquisition.

John Enwright -- Executive Vice President and Chief Financial Officer

Yes. So ultimately, there is some non-GAAP adjustments, it's included in some incentive comp associated with Pura Vida acquisition as well as the amortization of some of the purchase accounting that ultimately are non-cash events that on a go forward basis that you can add into your model.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

And what -- do you have a rough number on that -- that I can kind of look to?

John Enwright -- Executive Vice President and Chief Financial Officer

In regards to what? Last year's --

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Yeah last year's just to get that $19.5 billion of operating income sort of adjusted obviously, what it would be prior to that non-cash adjustments?

John Enwright -- Executive Vice President and Chief Financial Officer

Yeah so we took a non-GAAP charges of around $39 million. Operating income excluding the non-GAAP adjustment is $39 million.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

So $39 million of operating income. And then in addition to $39 million of operating income is the depreciation, is that $18 million, or $19 million -- $18.5 million, is that -- do I have that right?

John Enwright -- Executive Vice President and Chief Financial Officer

That sounds about right. Ultimately as depreciation and amortization would be, it's going to be a little bit higher given kind of the one-time charges that we will be amortizing out, I mean we can, if you want to call after we could go through more detail call if you'd like to go through some of this off the call. We will be happy to --

Dana Telsey -- Telsey Advisory Group -- Analyst

Yeah thank you. I appreciate that John. And I am just trying to get it back of the napkin, I mean it seems like the operating income and the depreciation together, you're talking about sort of an adjusted EBITDA around $50 million and valuation that the market is subscribing to the business today of $125 million. So, like 2.5 times cash flow, in 20 years of investing and running Accretive Capital Partners and managing our investments in small and micro-cap public companies, I have, I'm not sure if we run across the business that's being this discounted by the market and it's -- I'm encouraged to see the retirement of shares that you've been buying back some shares. The treasury stock has increased and there has been I guess an attempt to try one plan that is under way in terms of share buybacks.

John Enwright -- Executive Vice President and Chief Financial Officer

Yes.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Well it's just, it's such a extraordinary opportunity for shareholders, it would be wonderful to see if the company could somehow capitalize on this opportunity, where a market is valuing this business at a discount. That's probably 60, 70 maybe 100. Yeah. The discount to intrinsic value is truly extraordinary. So on business like this you can think of it as like an 8 times to 10 times cash flow multiple that the business ought to enjoy, given that it's a -- you're actually growing the business, you've made a wonderful acquisition, the margins are very healthy, everything is pointing toward a very profitable and positive future, a very short-term blip here, which seems to have created or exacerbated a true anomaly in terms of valuation of the stock and there are other ways of going out into the market and buying back stock more aggressively.

But I just can't imagine a better investment opportunity for the company other than buying back its own stock with $75 million of cash and equivalents on the balance sheet and growing when the market cap itself is $125 million. I mean we as a company, and I say we because Accretive Capital Partners is now a very substantial shareholder of the company. There is really a -- just a terrific opportunity here that I think you've seen your stock, it's a very volatile stock you've seen it bounce around over the years, but it's at an all-time low right now. And it would just be, it would just be terrific if the Board and if management put some serious thought into a very aggressive stock repurchase plan perhaps something like a tender offer for some stock, Dutch auction tender, modified Dutch auction tender, which allows you to go out and buy very large blocks without being constrained by the 10b5-1 and 10 b-18 rules and I say this just as some food for thought and real opportunity, which I think probably won't be here too long. But it's is something that would really benefit shareholders.

So anyway -- I don't know if you have any thoughts or --

Robert Wallstrom -- President, Chief Executive Officer and Director

No, I appreciate your perspective, and we definitely have those types of conversations with our Board all the time to talk about what would be the best utilization of cash and understanding that right now we are at an all-time low from a stock perspective, we will continue to have those conversations.

Richard E. Fearon -- Accretive Capital Partners -- Analyst

Appreciate that. And nice job, Rob, I mean this is -- it's a really difficult retail environment at the mall level and the shift over to e-commerce is impressive that is under way here. I know that there is a larger portion today than there was a year ago through the e-commerce channels and certainly the benefit of working with the Pura Vida folks who were very successful at e-commerce and utilizing some of those techniques at Vera Bradley is a real opportunity here, but you've got a wonderful 30 plus year old brand, really truly spectacular management team. We really like what you're doing. You've been very prudent with our capital and a strong balance sheet and and there is just such a nice opportunity here that we hope you will give us some serious thought in terms of going out aggressively buying back stock.

Robert Wallstrom -- President, Chief Executive Officer and Director

No we definitely appreciate all your comments and your confidence and we definitely -- we'll consider everything that you've said today.

Operator

As there are no further questions, I'll turn the call back to Rob.

Robert Wallstrom -- President, Chief Executive Officer and Director

Thank you very much for joining us on today's call. And thank you for following our journey and the progress we have made since we launched Vision 20/20 over two years ago. We have an exciting future and are ready to tackle fiscal 2021 and beyond. We remain confident of our ability to deliver enterprise growth and revenue, profit and shareholder value in the years ahead. Thank you for your time, and we hope you can join us for our first quarter call on June 3.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Mark Dely -- Chief Administrative Officer

Robert Wallstrom -- President, Chief Executive Officer and Director

John Enwright -- Executive Vice President and Chief Financial Officer

Oliver Chen -- Cowen and Company -- Analyst

Mark Altschwager -- Robert W. Baird -- Analyst

Eric Beder -- Small Cap Consumer Research -- Analyst

Dana Telsey -- Telsey Advisory Group -- Analyst

Richard E. Fearon -- Accretive Capital Partners -- Analyst

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