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Vera Bradley, Inc. (VRA)

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Vera Bradley, Inc. (VRA)

Q2 2018 Earnings Conference Call

August 30, 2017, 09:30 AM ET

Executives

Mark Dely - Chief Legal Officer and Corporate Secretary

Rob Wallstrom - President, Chief Executive Officer, Director

John Enwright - Chief Financial Officer, Executive Vice President

Analysts

Oliver Chen - Cowen and Company

Mark Altschwager - Robert W. Baird

Eric Beder - FBR

Matt DeGulis - KeyBanc Capital Markets

Andrew Gordon - E.F. Gordon Capital

Dana Telsey - Telsey Advisory Group

Steve Marotta - C.L. King & Associates

Presentation

Operator

Good day ladies and gentlemen and welcome to the Vera Bradley second quarter fiscal 2018 earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Mark Dely, Vera Bradley's Chief Legal Officer. Please go ahead, sir.

Mark Dely

Good morning and welcome everyone. We would like to thank you for joining us for Vera Bradley's second quarter call. Some of the statements made on today's call 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 Form 10-K for the fiscal year ended January 28, 2017, 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. The company undertakes no obligations to update any information discussed on the call.

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

Rob Wallstrom

Thank you Mark. Good morning everyone and thank you for joining us on today's call. John Enwright, our CFO, is also on the call.

Before I get started, let me update you on some executive changes. I am happy to announce that Beatrice Mac Cabe has been named Vera Bradley's Chief Creative Officer. Our founder, Barbara Bradley Baekgaard, has had the opportunity to work closely with Beatrice since she joined the company 18 months ago and has great confidence in her. Beatrice joined Vera Bradley in January 2016 as our VP of Design coming to us with over 15 years of extraordinary design and brand development experience at several well-known retailers and brands including Fossil, Vince Camuto, Diane Von Furstenberg, John Galliano, and Marni. Beatrice has an incredible design sensibility and since she has been at Vera Bradley, she has led our cotton reinvention. In her new role, Beatrice will continue to oversee product design and will work closely with the product development, marketing in stores and verabradley.com teams to ensure brand and design consistency between our offerings, marketing, stores, and digital flagship.

Barbara remains the heart and the soul of our brand. She will remain with the company, but this change will allow her to spend more time focusing on several Vera Bradley projects that she is very passionate about including the Vera Bradley Foundation for Breast Cancer and promoting her book, A Colorful Way of Living.

Theresa Palermo, our former EVP of Marketing, has left the company, accepted another marketing position in her hometown of Dallas, and we wish her all the best. Stephanie Scheele, our VP of Marketing Strategy and Operations with over 20 years of industry experience has been named our interim Chief Marketing Officer.

Now let's shift to our performance. Although our comparable sales trends improved over those in the first quarter, challenges in the retail environment continued into the second quarter. Total revenues were in line with our expectations. Our second quarter EPS of $0.13, excluding charges exceeded guidance primarily due to our diligent expense management.

Over the last three years, we embarked on a plan to strengthen and modernize our brand. We made meaningful progress on many fronts including evolving our product offerings, distribution channels, and marketing as well as broadening our customer base. However, given the backdrop of continuing challenging retail environment, our progress has not been made at the pace that we had planned. And as a result, we are in the process of refining our business model and strategic plan, which will involve taking a much more aggressive approach to turning around our business over the next three years.

Our ultimate goal is to restore brand and company health by methodically moving to a less clearance driven business model and reducing our SG&A expenses. We have engaged an outside consulting firm working alongside our team to perform a comprehensive review of our business model, existing strategic plan, and historic performance, and to provide us with in-depth analysis and research on critical components of our business. And this information and research is being integrated into our plan which we are calling Vision 2020.

We will have more details on specific action plans to share in the coming months, but Vision 2020 will primarily center around two key areas, product and pricing and SG&A expense reductions. We believe Vision 2020 will lay the foundation for growth, a more profitable future and continued solid cash flow. I will give you an update on our current year initiatives as well as some additional color on Vision 2020 after John reviews our second quarter results and our outlook for the balance of the year.

John?

John Enwright

Thanks Rob and good morning. Let me go over a few highlights for the quarter. The numbers I will discuss are non-GAAP which excludes various charges outlined in today's release. Net revenues of $112.4 million were in line with our guidance of $111 million to $115 million. Direct segment revenues totaled $89.3 million, compared to $87.2 million last year or a 2.4% increase.

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