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Vera Bradley, Inc. (VRA)

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Vera Bradley, Inc. (VRA)

Q1 2019 Earnings Conference Call

June 6, 2018 09:30 ET

Executives

Mark Dely - Chief Administrative Officer

Rob Wallstrom - President & CEO

John Enwright - EVP & CFO

Analysts

Janet Kloppenburg - JJK Research

Presentation

Operator

Good day and welcome to the Vera Bradley First Quarter Fiscal 2019 Earnings Conference Call. This call is being recorded.

And now at this time I'd like to turn the conference over to Mr. Mark Dely, Chief Administrative Officer. Please go ahead, sir.

Mark Dely

Good morning and welcome everyone. We'd like to thank you for joining us for Vera Bradley's first 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 February 3, 2018 filed with the SEC for 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, also joins me today.

We are very pleased that our first quarter results exceeded both expectations and prior year performance. This was primarily driven by a higher than planned gross margin rate, largely related to reduced inventory clearance and improved full price selling and better than expected expense leverage. Vision 20/20 – our plan to strengthen our brand and Company health by materially reducing clearance and realigning our expense structure continues to be the driving force behind every action we make. As a reminder, we continue to implement Vision 20/20, we are routinely monitoring and reporting on four key elements; progress on restoring full price selling, delivering our SG&A and cost of sales reductions, cash flow generation, and retention of our customer base. We made excellent progress against these initiatives in the first quarter.

We improved the quality of sales by reduced clearance activity in our full-line stores and on verabradley.com by over 75% and increasing comparable full-price selling in these two channels in the high-single digit range. We continued to deliver on our SG&A reductions through diligent expense management, and implementation of our Vision 20/20 initiatives. We increased our cash and investment balances compared to the prior first quarter by more than $30 million to over $130 million. As expected, our overall customer count was down in the quarter reflecting lower online traffic due to significantly reducing clearance levels combined with continued traffic issues in the factory channel. The good news is that the customer count in our full-line stores and on verabradley.com exceeded our expectations and a higher percentage of new customers are entering the brand through full price purchasing.

A primary goal for fiscal 2019 is to drive brand desirability through product and marketing innovation, and we made substantial progress on these fronts as well. And I will talk more about this later in the call.

Now, I will turn the call over to John to review the first quarter financial performance. John?

John Enwright

Thanks Rob, and good morning. Let me go over a few highlights for the quarter. As I discuss the quarter, keep in mind that the prior year income statement numbers exclude previously disclosed severance structures.

Current year first quarter net sales of $86.6 million were in line with our guidance range of $84 million to $89 million. Prior year first quarter net sales totaled $96.1 million. Our first quarter net loss totaled $1.4 million or $0.04 per diluted share which was better than our guidance range of $0.08 to $0.10 loss. Last year before severance charges, we posted a net loss of $3.2 million or $0.09 per share. Current year first quarter direct segment sales totaled $65.5 million, a 4.8% decrease from $68.8 million in the prior year first quarter. Comparable sales, including e-commerce decreased 8.5% for the quarter, which was partially offset by new store growth. As expected, first quarter comparable sales, especially verabradley.com sales were negatively impacted by the reduction in clearance activity. Indirect segment sales decreased 22.9% to $21.1 million from $27.3 million in the prior year first quarter, reflecting a reduction in orders from both, specialty accounts and certain key accounts.

Gross profit for the quarter totaled $48.6 million with 66.1% of sales compared to $52.7 million or 54.8% of sales in the prior year first quarter, a year-over-year 130 basis point improvement, primarily related to reduced clearance activity and increased full-price selling on verabradley.com and in our full-line stores, channel mix changes, a reduction in product costs and freight savings. These improvements were partially offset by flash sale activity on our online outlet sale and increased promotional activity at our factory outlet stores. The gross margin rate was meaningfully better than the guidance of approximately 54.8%, primarily due to better-than-expected full-price selling on verabradley.com and in the full-line stores.

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