Vera Bradley, Inc. (VRA) Q2 2023 Earnings Call Transcript

Good day and welcome to the Vera Bradley Second Quarter Fiscal 2023 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Dely, Chief Administrative Officer. Please go ahead sir.

Good morning, and welcome, everyone. We'd like to thank you for joining us for today's call. 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 in 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 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, and thank you for joining us on today's call. John Enwright, our CFO, also joins me today. While total company's second quarter revenues of $130.4 million were modestly below our expectations, we continue to experience gross margin pressures due to logistics costs. We drove product innovation at both Vera Bradley and Pura Vida, initiated meaningful cost reduction actions, and completed $6 million of share repurchases while maintaining a solid debt-free balance sheet. We are continuing to see bifurcation in the spending of our customer base. At Vera Bradley, direct full-price channel comparable revenues were nearly flat to last year and up double digits to fiscal 2020. Additionally, our Vera Bradley indirect channel continued to experience a healthy year-over-year rebound. However, inflationary pressures, especially higher gas prices, continue to negatively impact the traffic and spending in our Vera Bradley factory stores. However, as gas prices are easing, we have seen a recent improvement in our factory traffic and revenues. We are taking decisive actions to strengthen our core brands and the overall enterprise. We have begun implementation of targeted cost reductions of $25 million, which are expected to be fully realized in fiscal 2024. These cost reductions will help offset inflationary expense pressures and recessionary spending behavior from lower-income households. Expense savings are being derived across various areas of the company, including retail store efficiencies, marketing expenses, information technology, contracts, professional services, logistics and operational costs, and corporate payroll. In addition, we are continuing to evaluate and execute strategic price increases for both brands to offset rising raw material and freight costs. At our Vera Bradley brand, we remain confident in our core strategy by continuing to innovate and build on our lifestyle merchandising focus. We are continuing to optimize the travel category, which is nearly back to pre-pandemic levels, maximizing back-to-campus opportunities with strategic assortment enhancements, and continuing with powerful product collaborations like Disney and Harry Potter. And we are excited about expanding our home assortments this fall and adding Cloud slip-ons and miles to our Vera Bradley footwear franchise next month. Pura Vida's e-commerce revenues continue to be affected by the shift in social and digital media effectiveness and escalating digital media costs. At Pura Vida, we are evolving our business model from one that is largely dependent on e-commerce and digital marketing to one that is a true omni-channel business with a more diversified marketing base. This will take time, but we are taking the actions to make this transformation happen and return the brand to long-term growth. Our number one priority is to build a more diverse, innovative, effective, and performance-based marketing program to drive e-commerce sales. And we are bolstering our internal marketing and data analytics talent. Most importantly, we are in the process of implementing a comprehensive customer data platform from Pura Vida to build a single coherent, complete view of each customer so that we can better target and personalize marketing and become less reliant on third-party marketing. In the meantime, we are continuing to work with our micro-influencers, expanding our TikTok presence, launching impactful ads on connected TV, optimizing SMS and aggressively exploring other methods to effectively reach our customers day in and day out. Pura Vida's future growth will be a balance of online growth and growth in physical distribution channels. Stores will play a key role in driving new customer acquisition as we continue to diversify our marketing platforms. During the quarter, we opened a new Pura Vida store in the Irvine Spectrum Center in Irvine, California. And in August, we opened a third location at Broadway at the Beach in Myrtle Beach, South Carolina. Like our original location opened last year in San Diego's Westfield UTC Mall, both new locations are exceeding our expectations. We will open a fourth store at the San Tan Village in Metro Phoenix in September. Stores can play a key role in driving new customer acquisition as we continue to diversify our marketing platforms, and they demonstrate the power a retail presence has in driving digital sales, omni-channel loyalty, and spending. For example, we continue to experience a double-digit differential in our San Diego e-commerce business relative to the rest of the country since that store opened. We look forward to the impact of more stores in the future. On the product front, we continue to build customer excitement and engagement through collaborations like Disney, Harry Potter, Hello Kitty, and the World Surf League, partnering with key influencers, offering themed collections centered around key events like Shark Week, and the launch of our demi-fine collection featuring 18 karat gold plating, sterling silver, and natural stones. Looking into the balance of the year and even into next year, we are planning for the macro environment to remain challenging. And despite the strength in Pura Vida's store business and opportunity for new store openings, we expect it will take time to return Pura Vida's e-commerce business to growth as we are building and transforming the marketing program. We are taking critical actions that will further strengthen both core brands and our company as a whole, not only to successfully manage through this period but to position us for the future. Our teams are focused and our cash position and balance sheet remain strong. We have successfully managed through challenging business cycles before. And I am confident that we will manage through this period as well. We look forward to returning both brands to steady growth. Now let me turn the call over to John to review the financial results. John?

Thanks, Rob, and good morning. Let me go over a few highlights for the second quarter. The numbers I will discuss today are all non-GAAP and exclude the charges outlined in today's release totaling $32.2 million on an after-tax basis. The major components of this total are a write-down of Pura Vida goodwill and intangible asset impairment charges of $18.2 million, $7 million of severance charges, and consulting fees primarily associated with cost-saving initiatives, and $5.6 million of inventory-related charges for the write-down of masks and other inventory, as well as fees related to the cancellation of certain orders for the spring 2023 goods. For complete details of items excluded from the non-GAAP numbers, as well as a reconciliation of GAAP to non-GAAP numbers, please reference today's press release. Consolidated net revenues totaled $130.4 million compared to $147 million in the prior year second quarter. Consolidated net income totaled $2.4 million or $0.08 per diluted share, compared to $9.5 million or $0.28 per diluted share last year. Vera Bradley direct segment revenues totaled $87 million, a 10.4% decrease from $97.1 million last year. Comparable sales declined 13.8% in the second quarter. Vera Bradley indirect segment revenues totaled $17.3 million, a 2.9% increase over $16.8 million in the prior year second quarter. Pura Vida segment revenues totaled $26 million, a 21.3% decrease from $33.1 million last year. Second quarter gross margin totaled $67.8 million or 52% compared to $80.4 million or 54.6% last year. The current year rate was negatively impacted by higher inbound and outbound freight expenses, deleverage of overhead costs, and channel mix changes partially offset by price increases. Consolidated SG&A expense totaled $64 million, or 49.1% for the current quarter compared to $68 million or 46.2% last year. As expected, Vera Bradley's SG&A current year expenses were lower than the prior year, primarily due to a reduction in variable related expenses due to lower sales volume and other cost reduction initiatives. The company's second quarter consolidated operating income totaled $3.9 million, or 3% of net revenues compared to $13.4 million, or 9.1% of net revenues in the prior year. Now let's turn to the balance sheet. Total quarter-end inventory was $179.6 million compared to $148 million at the end of the second quarter last year. We have $24 million of additional inventory in transit this year as we continue to navigate delays in the supply chain and ensure we have adequate inventory coverage going into the fall and holiday selling periods. Cash, cash equivalents, and investments at quarter-end totaled $38.3 million compared to $76.5 million at the end of last year's second quarter. A key reason for the lower cash position is due to the inventory build of $31.6 million over last year. We remain in a solid cash position with a debt-free balance sheet. We will continue to take a conservative approach to cash, particularly in this volatile and challenging environment. During the quarter, we repurchased approximately $6 million of our common stock, representing 1 million shares at an average price of $6.11. We have $29.3 million remaining under our $50 million repurchase authorization. Now let's shift to our fiscal 2023 outlook. We expect the challenging macroeconomic environment to continue for the balance of the year and anticipate it will take additional time to return Pura Vida's e-commerce business to growth. High gas prices and other inflationary pressures will continue to impact the Vera Bradley factory channel and there will be continued pressure on gross margin. As a result, we have adjusted our outlook for the balance of the fiscal year. All forward-looking guidance numbers that I will discuss are non-GAAP. For fiscal '23, we expect consolidated net revenues of $480 million to $490 million compared to $540.5 million in fiscal 2022. We expect our consolidated gross margin to range from 53.7% to 54.1% compared to 53.3% last year. We expect year-over-year increases primarily related to incremental inbound and outbound freight expenses and expected deleverage on overhead costs, more than offset by price increases. Consolidated SG&A expenses should range from $246 million to $250 million compared to $258.8 million in fiscal 2022. The reduction in SG&A expense is being driven by cost reduction initiatives and a reduction in compensation expense, marketing, and other variable-related expenses due to expected sales decline from last year. We expect consolidated diluted EPS of $0.20 to $0.28 compared to $0.57 last year. Net capital spending should total approximately $8 million to $10 million compared to $5.5 million in the prior year. Operator, we will now open the call for questions.

And we'll take our first question from Oliver Chen with Cowen and Company. Please go ahead.

Hi, Rob and John. Good morning. Could you speak to the inventories in terms of the status with having coverage, you’re taking the write-downs, and why was it the right time for the write-downs and what that means going forward? You also have some cancellations. So I want to understand the composition of inventory because it sounds like some things are working, but clearly, some are not. Thank you.

Yes, Oliver, good question. The further write-downs were more specific to certain categories. So as we looked at our mask inventory, we had built a mask inventory based on the pandemic. And we had expected to continue to work through that inventory. With some of the changes from the CDC, as well as just consumer behavior, we aren't really seeing that sell-through. So that was the vast majority of the write-down associated with mask inventory. If you look at the remainder, it was really associated with tech accessories, as in older iPhone accessories. Ultimately, we are also not seeing the sell-through as people have moved on to newer models. So really that was the basis of the write-down and why we took it this time. In inventory, the growth year-over-year has really been driven by two things. It's been driven by in-transit inventories, which are about 100% higher than it was at this point last year in the second quarter, just to ensure we have the appropriate product in place for the holiday season as well as incremental freight expenses burdening the inventory. Year-over-year we've seen that increase from where we were the first half year. Obviously, the back half of the year logistics expense was exacerbated last year, and we're seeing some benefit. We should see a little benefit to that, given how freight is less challenged this year versus last year.

Okay, and the comps being down 13.8%, what happened in terms of the volatility? Is the biggest negative portion of traffic implied in your guidance for what you're seeing? And did you close more stores than expected or is that already in your plans?

So this year, ultimately, we're close about the number of stores that we anticipated. As we continue to look for next year, we're still working through what that means. In regards to the comps, the comps are being driven really from the off-price business, the outlet business. We're seeing better performance in our full-price business, whether that is in full-line stores, or on verabradley.com. We're taking the expected trend that we saw in the first half of the business in those channels and assuming that they're similar in the back half of the year.

Okay. And on the Pura Vida side, the issue around digital marketing has been apparent within the industry at large for a while, what's happening now? What's the state of digital marketing and the path ahead for that business? What are the key hurdles and things that you need to do to improve it more structurally and have it be more sustainably growing over time?

I think from the Pura Vida marketing perspective, Oliver, a few things. One, you're right, in this direct consumer market, everybody's feeling the impact. For us at Pura Vida, we've been bringing in both outside teams and supplementing talent to reduce our reliance on what are called the meta platforms for lack of a better term, in terms of Instagram, Facebook and those platforms, and starting to push more into first-party marketing, building up our CDP platform and looking at other alternatives. In other words, they're launching a connected TV program here in this quarter. So we are looking at new ways of doing that. But long-term, we believe that part of the fix to the marketing challenge is going to be this diversification into omni-channel. If you've seen with other direct consumer companies, what we've seen in San Diego has been encouraging to see, such a significant relative improvement in the San Diego market. If we continue to see that, which the early signs and it's only been weeks and months in the other stores, we're seeing similar behavior in the other locations. We think that stores will play a very important part in stabilizing the Pura Vida business as we go forward.

Okay. And on the merchandise margins, price increases. Could you update us on your thoughts there? It sounds like the environment has gotten worse. Yet you've been able to get some price increases. What are you thinking about what's embedded from merchandise margins and also inflation of the COGS relative to price increases going forward?

From a merchandise margin perspective, we're actually seeing that the price increases are being accepted and we're seeing improvement year-over-year. Really the challenge that we're seeing is associated with logistics costs. We're actually seeing some benefit from logistics costs and potentially back up here, and we're thinking we'll see that benefit into next year, just given some of the inflationary pressures on the macro economy. So we would expect to see some benefit from those inflationary costs, i.e., freight, into the back half and into next year. In regards to product costs, we're still working through some of the challenges associated with that. But we don't anticipate a significant increase next year in some of our raw material costs, given some of the macro events happening or how the economy, generally speaking from a worldwide perspective, is not as strong as it was this time last year. We are still assessing whether or not it makes sense to continue to push prices, and we'll continue to do that through the remainder of this year and look as we look into next year.

Though from a price increase, Oliver, what we're doing is we took pretty broad price increases across both brands beginning of the year and kind of been working through that in the first half of the year. As we look at going forward, it's going to be more micro-adjustments on those price increases, so not as much across the board. We think in a lot of cases, we've kind of hit the point where consumers accepted, but we can already begin to see that there's some resistance in a few items. So it's going to be a much more detailed adjustment in prices as we go to the next 12 months.

Okay, very helpful. On the balance sheet and cash balance, what do we know about working capital and the source or use of cash flow in terms of 3Q, 4Q? Your cash balance went down to $38.3 million, you're surely worried about that.

Yes, obviously, everything's contingent on performance in the back half of the year. I would say as we think about our cash and cash utilization in the first half of the year, we spent some money increasing from an inventory perspective as well as usage of cash associated with share repurchases. We'd like to be more conservative on the back half of the year in both of those uses of cash. As we currently forecast, we expect our cash balance to grow by the end of the year, but that's all contingent on our performance.

Okay, Rob, on the consumer, this bifurcation trend has continued, and you called that out earlier. Then plenty of retail companies are just even taking guidance out. What are you seeing now with the consumer? Does the volatility concern you? We certainly have a lot of negatives and positives, but the consumer still has spending power.

Yes, I think a couple of points. What we're seeing from a spending behavior, the biggest story for us is the impact of gas prices on the factory channel. To be perfectly honest, it's not so much total discretionary spending, but just the ability to go out to factory stores and generate the traffic there—that's what we're seeing the impact. So, that's our biggest concern. As gas prices have started to moderate a little bit, we saw traffic beginning to rebound and factory stores relative to trend. We began to see that come through on the revenue line. So, we're hoping that the gas price situation continues to moderate, and that could be helpful. Overall, it’s been interesting to watch the consumer. I know all of us are thinking about the back half and what's going to be happening with the consumer. But as we think about what's been happening in July and August, we haven't seen an overall further deterioration. I think a lot of it is that gas price piece that's been rebounding and moderating. So, we're hopeful that where we see the consumer today, as we move through the year, will be similar to what we see in the back half. It's not robust by any means, but we're not seeing further deterioration, which is good.

Okay. And I'd love if you could just talk briefly about the key product initiatives, both Vera and Pura Vida, that we should be focused on just a few priorities. You've done a lot of innovative partnerships, and the Pura Vida brand is definitely mission-focused.

Well, I think a couple of things. If you think about the product assortment, there are a couple of different ways we look at product innovation. So from a licensing standpoint, that's been very successful across both brands, that's been very impactful, not only in driving some revenue and excitement, but really in customer acquisition. Those programs are really important to bring new customers in, and they make the marketing efficiency stronger. We continue to see that and will continue to look for those partnerships and keep them exciting as we move forward. If you get into specifics in terms of product categories across the two brands, at Vera Bradley, they continue to do a lot of innovation. We have things not only in our core innovation that we've seen coming through but also newness. The Vera Bradley footwear launch this fall is going to be an important launch for us, and we're going to watch that. At Pura Vida, two key things we're looking at are one: the consumer is very engaged in the core bracelet business, particularly as travel has rebounded, and we're seeing that business pop back up, which is encouraging. And at the same time, they've launched into this demi-fine collection, which is just a higher price point and higher quality, and the initial response has been very positive there, really helping us to reengage deeper with that 25 to 35 year old customer, which has historically been part of the magic if you're a beta kind of both a young teenage customer as well as a 25 to 35-year-old customer. So those are the areas that I would say are the most important to be watching.

Yes, the only thing I would add to that, Rob, is if you think about Pura Vida, in the stores, the apparel business, when the consumer gets the opportunity to touch and feel the quality of the apparel business, we're seeing them engage with that product much more broadly than they do when they're online.

Okay. Regarding the charges, the largest was the $18.2 million impairment charge for the Pura Vida store. Can you explain the factors behind that valuation from both a governing and market perspective? Additionally, could you provide more details about the $0.8 million charge and its relation to the $0.6 million store impairment? Thank you.

Sure. If you think about the Pura Vida impairment, the majority of that is associated with a goodwill impairment or trade name impairment. We do a test after we made the purchase, and we look at future cash flows. Given the current performance and near-term expectations for the brand based on expected cash flows, we had to write down that goodwill and that trade name. In regards to the store impairments, we looked at the future cash flows of those individual stores compared to the current asset value for those stores, and based on the expected cash flows, we needed to write off some of those assets.

Should we be concerned about incremental write-offs? I mean, I get this is a review process that has to be done from an accounting perspective. And Rob, as you said back, what do you think are the key risk factors that you're monitoring?

So I'll just answer the first question, right? Yes, we have to regularly review the goodwill balance. We'll do that on a quarterly basis. As a review, we do an actual test on an annual basis, which is done in the second quarter. We'll continue to review it. Based on what we've put forward and our expectations for the business, we would say if we perform to those expectations, we shouldn't see another write-down. I think your second question, Oliver, was regarding risks and opportunities. It's important to discuss both. From a risk standpoint, at Vera Bradley, I'd say the number one risk factor at this point is gas. If gas rebounds to $5, $6, $7, $8 a gallon as we go into the back half of the year, that will suppress the factory channel. So I would say gas is by far the largest risk. At Pura Vida, I think it’s just a matter of recovery, this digital marketing and how what was a big asset for the business must roll into the features we need to get set up in digital marketing management. I think both the risks and opportunities are really important. From a macro standpoint, we consider logistics cost, which is flowing to our P&L now at peak levels. We're beginning to see logistics cost, particularly international inbound shipping, start to moderate. Hopefully, that'll be a tailwind as we move forward. That’s encouraging. The second big factor is the impact of gas prices in the factory channel. As gas prices moderate, that should provide a lift. The third is the performance marketing of Pura Vida. As we have more stores, that'll help us and as we invest in our data platform, and rebuild our marketing team, I think that’s another significant positive. But the three major areas affecting our business are gas, logistics, and digital media shifts.

Okay, and last question. So one, on the digital marketing and performance. Was that an issue with the Vera Bradley brand as you are highlighting—highlighted there? And second, regarding the inventory cancellation, it sounds proactive. Which parts of the inventory did you do that with in terms of the composition? Thanks a lot.

John, would you like to address some of the inventory cancellations? I can discuss the additional factors.

Yes, to repeat your question on inventory—I didn't hear the specific question, Oliver.

In terms of the inventory calculations, which ones did you need, which parts of the inventory needed to be cancelled?

So we looked at future orders that were made in all categories, quite honestly. We looked at where we expected the sales to come in on a forward basis, into next year, and how we expected to fit in inventory. We identified opportunities where we felt we could offset some of the liability based on new sales expectations and with inventory growing year-over-year. So it wasn't specific to a particular category. It was about finding an opportunistic ability to cancel some orders, really.

Yes, I think the only thing I would add to that, Oliver, is that given what's been happening in our factory channel, as gas prices have gone up, business has slowed. Getting that inventory back in line is one of the primary drivers of that cancellation. So don’t think about it as a category issue; it’s just overall demand. It gave us the opportunity to moderate that risk as we moved into next year. So yes, it's more channel specific versus categories, which is a good way to think about it. I think your second question, Oliver, was what about Vera Bradley and digital marketing? I think there's two aspects. One of the great assets at Vera Bradley is our very strong first-party marketing. We control our customers and communicate with them directly. We're not as dependent on third-party marketing for our known customer base. We use third-party marketing more for acquisition. What the team has been able to do over the last couple of years at building out our highly detailed analytical performance marketing base has mitigated some of the costs by rebalancing and refocusing their efforts. We have a few more tools in the toolbox, and we’re taking a lot of those learnings that we already implemented at Vera Bradley and beginning to leverage back against Pura Vida to learn from. The biggest difference at Vera Bradley is that it’s not that they haven’t experienced some of the same challenges—they have been a bit more effective in finding workarounds. It’s not as impactful to the total business as it has been at Pura Vida.

Okay. Thanks for answering all my questions. Best regards.

Thank you, Oliver.

All right. Up next, we'll take questions from Joe Gomes with Noble Capital. Please go ahead.

Good morning.

Good morning, Joe.

So you’re talking about the positive impact of opening Pura Vida stores; we got the one additional one in Phoenix to open, I think, in September. Can you kind of give us a game plan of what you see on a go-forward basis for new store openings in Pura Vida?

Yes, Joe, I can jump into that one. First of all, we do have the new store in San Tan opening. We are now anniversarying our UTC store in San Diego. So we’re watching that from a comp performance standpoint. Once we evaluate this fall how all the new stores are performing, it will inform our go-forward real estate strategy. I believe there's significant opportunity for stores in the Pura Vida brand going forward.

Okay. And then you talked about the $25 million in cost reduction initiatives, which is at the high end of what you discussed previously. I’m wondering how you got to the higher end? And two, how much of that impacted the second quarter? Because I think in the first quarter call you mentioned you expected to see some of that flow through in the second quarter.

Yes, we saw a little bit of the second quarter flow through because we weren't finalized with all the plans in the middle part of the second quarter. But we, on a quarterly basis, given performance, look for opportunities to make savings regardless if it was associated with the $25 million. We will see some of that benefit, which is built into our guidance in the back half of the year. How we ended up at the high end really was based on collective effort by the teams around current performance and expectations for next year. We identified areas where we felt we could reduce costs.

Okay. And just one of the things that you had talked about in the past was M&A being part of the growth strategy; given the transition progressing here, do we still see M&A as part of the growth plan, or is that going to kind of take a backseat to focus on the two existing brands?

It's a great question, Joe. I think that what the team's focus is, number one, is getting the two core brands strong. Vera Bradley, overall, we think is in a pretty good place, but we need to see the macro environment improve there. For Pura Vida, we need to get the performance marketing really working and turn that brand around. The board is very focused on those two accomplishments first before highly focusing on M&A activity. I think we're always open to looking at shareholder returns. However, I don't think the M&A activity is going to be a primary focus over the next 12 months. As we get through the transition, the Board and the new CEO will decide what role M&A will play as we move forward.

Okay, great. Thanks for taking the questions. I’ll get back in queue and let someone else ask a question.

Thanks, Joe.

All right. And our next question will come from Eric Beder with SCC Research. Please go ahead.

Good morning.

Good morning.

Good morning.

Actually, I want to do a follow-up on the $25 million in savings. How much of that is going to be incremental next year? What should we think about in terms of the flow of? I know you mentioned some will be in the back half. How much of that should we think about?

Yes, if you think about your question as to how much we're going to achieve this year versus the full run rate next year, I think there's an opportunity this year to capture 40% of the total. There might be more opportunity, but we're looking at the timing associated with that.

Okay. So if I look at some of the pricing, you've gone through almost 2 years as a Harry Potter piece, it's had its time come up. How have you taken away from that? Are there collaborations in terms of how long they should be? And how do you keep them fresh going forward?

There are a couple of things we’ve learned from our collaborations. First of all, they are a great way to bring customers into the brand. We've had success in bringing new customers in and converting them, which has been very encouraging across both Vera Bradley and Pura Vida. We think it definitely plays an important role. We have seen it's important to keep that licensing pipeline fresh and to look for the right opportunities. Whenever we introduce new licensing, the first launch is often the largest. The follow-ups generally have lower impact. So keeping that pipeline fresh and looking for new partnerships has been crucial, as you saw in last year's holiday season with the Peanuts collaboration at Vera Bradley, which was fresh, new and impactful.

I think I would add that the execution of products at Pura Vida has been positive. We're in the second release of the Harry Potter line, and we're seeing good success with it, potentially better success than in the first release. That speaks to how the product evolves over time.

Marketing execution really matters, as we saw that for Harry Potter, there were some effective campaign videos released. I think it’s the combination of product and marketing execution that’s key.

Okay. So you have about 65 or so full price and 77 or so; what are your longer-term thoughts on those pieces of the chain? I know oil prices have decreased, and those prices continue to decline. What should we consider regarding that?

Yes, I would continue to think that we'll close some full price stores. Ultimately, we are still working through that for next year to determine what that number will be. I think we'll see that number come down, and we still see opportunity in the factory channel for Vera Bradley next year and beyond that. But I don't think we'll be opening six new stores a year, as we typically have done in the past few years. However, we still believe there’s room for growth in that area.

Okay. And last quarter, you guys did some online flash sales for the outlets. What was the response to that? Is that something that's going to continue to expand going forward? I know you tried to limit outlet sales to online channels.

On a monthly basis, we have what's called a flash sale or our online outlet. That has been up for 2 to 3 years. We've been working through that and expect it to include more factory product. As we navigate through our inventory this year, we will likely have a higher percentage of factory product in those sales compared to historical levels.

Yes, everything John said is on point. Our online outlet has helped us efficiently liquidate inventory. Because factory inventory is building, we are placing more factory products in those channels. In a different situation, where we may not have excess inventory, we would adjust our approach. For now, we are utilizing it as an efficient channel for liquidation but not as a primary growth channel.

Okay. All right, guys. Good luck for the back half of the year.

Thanks, Eric.

Thanks, Eric.

All right. And we have no additional questions at this time. I'll turn the call back to Rob Wallstrom for closing remarks.

Before we close, I wanted to give you a brief update on the CEO search. As you know, I recently announced my planned retirement, but my plans are to remain in the CEO role until my successor is named, which is expected by the beginning of 2023. The Board has formed a search committee, and a national search is underway. As the Board searches for the next CEO, they are in the desirable position of having two iconic brands with a loyal and dedicated customer base, a solid balance sheet, and a talented leadership team. The Board takes very seriously its responsibility to find the right CEO and will continue its focus on building consistent sustainable growth over the long term. We are preparing for the macro environment to remain challenging through the remainder of this year and into next year. We know it will take time, but we are taking decisive actions that will further strengthen both core brands and our enterprise as a whole. Our challenges have been largely driven by the macro environment, but we have a solid foundation with our two unique brands, strong customer loyalty, and amazing cultures. I'm confident that the company will return to growth as the economic headwinds and cost pressures begin to ease. Thank you for joining us today, and we look forward to speaking with you on December 7 on our third-quarter earnings call.

And this concludes today's call. We thank you again for your participation. You may now disconnect.