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Vera Bradley, Inc. (VRA)

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Vera Bradley, Inc. (VRA)

Q4 2018 Earnings Conference Call

March 14, 2018 09:30 a.m. ET

Executives

Rob Wallstrom - President, Chief Executive Officer, Director

John Enwright - Chief Financial Officer, Executive Vice President

Mark Dely - Chief Administrative Officer

Analysts

Mark Altschwager - Robert W. Baird

Oliver Chen - Cowen & Company

Edward Yruma - KeyBanc Capital Markets

Presentation

Operator

Good day everyone. Welcome to the Vera Bradley, Fourth Quarter and Year End Fiscal 2018 Earnings Conference Call. Today's conference is being recorded.

At this time I’d like to turn the conference over to the Chief Administrative Officer, Mr. Mark Dely. Please go ahead.

Mark Dely

Good morning and welcome everyone. We’d like to thank you for joining us for Vera Bradley's fourth quarter and fiscal year-end earnings 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 it 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. I am joined today by John Enwright, our CFO.

I want to take a minute to welcome Kevin Korney to our leadership team. Kevin joined Vera Bradley in January as our Chief Merchandising Officer. Kevin has nearly 20 years of apparel, accessories and footwear merchandising experience with several well-known retailers. Most recently he served as VP of Global Merchandising for Converse and prior to Converse, Kevin served as Senior Divisional Merchandise Manager for Fossil where we worked with our Chief Creative Officer Beatrice Mac Cabe. Kevin gained prior experience with Dallas Cowboys Merchandising, The Walt Disney Company, Nautica, Ralph Lauren and Gap. Kevin’s leadership, strategic, analytical and creative skills make him a great fit for Vera Bradley and his important role.

Now let’s turn to the results. From both the fourth quarter and the year, we are pleased that revenues were at the high end of our guidance and our gross margin rate exceeded our expectations. In addition, expense management was a key factor in achieving our results. Allow me to take a minute to highlight several of our fiscal 2018 accomplishments.

In the Product arena we reinvigorated and reinvented cotton, which remains the most important piece of our business. Customers are responding to our newly-introduced Iconic cotton collection, featuring micro-quilting, added functionality and innovation, and several new updated silhouettes.

We expanded our licensing program by launching technology-related products, swimwear, bedding, stationery, hosiery and medical uniforms, which is important to extending our brand and reaching new customers and markets. We continue to see an extremely positive response from the market in terms of placement in both existing and new distribution. For example, our Smartphone cases are offered in 2,500 AT&T stores and Vera Bradley bedding is available in over 200 Bed, Bath & Beyond locations.

On the Distribution front, we launched our new re-platformed verabradley.com website, part of our Digital First strategy, which is key to our long-term growth. In order to reduce clearance sales on verabradley.com we created a new online outlet site and conducted our first two Flash Sales in October and January. We continued to strengthen our store base by completing design upgrades on a number of our go-forward full-line stores with nearly 40 full-line stores now reflecting our new design aesthetic, and an additional 14 stores between updated signage and façades.

Opening a new full-line pop-up store in Boston’s Faneuil Hall, a high-traffic tourist destination, continuing to grow our factory business by opening six new stores, and rationalizing and improving the profitability of our base by closing five underperforming full-line stores and one underperforming factory store. We also made the decision to exit our small wholesale presence in Japan to better focus on strengthening our core, domestic operations.

In Marketing, we increased brand awareness with our Digital First strategy by leveraging social media channels and partnering with key influencers. We continue to strengthen our balance sheet by generating over $40 million in operating cash flow, increasing our cash and investment balance to nearly $140 million, and reducing our inventory levels by 14%. Most importantly, we laid out the framework for our future with Vision 20/20 and started implementation, which I will discuss in more detail after John reviews our financial performance. John.

John Enwright

Thanks Rob and good morning. As I discuss the quarter in the year, current and prior year income statement number exclude severance, store impairment, consulting and other charges outlined in today’s release. As a reminder, the current year fourth quarter and full year results included an extra week that contributed approximately $4.1 million in net revenue and an estimated $0.01 in diluted EPS.

Let me go over a few highlights for the quarter. Current year fourth quarter net revenues of $132 million were at the high end of our guidance range of $127 million to $132 million. Prior year fourth quarter revenues totaled $134.8 million. Excluding charges, non-GAAP fourth quarter net income totaled $11.8 million or $0.33 per diluted share at the high end our guidance range of $0.30 to $0.33. This compares to $10.1 million or $0.28 per diluted share last year.

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