Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's Vera Bradley Fiscal 2014 First Quarter Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the call over to Paul Blair of Vera Bradley's Investor Relations Department. Please go ahead.

Good afternoon and welcome. We'd like to thank you for joining us this afternoon for Vera Bradley's Fiscal 2014 First Quarter Results Conference Call. Some of the statements made on the conference 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 2, 2013, 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 obligation to update any information discussed on the call. We understand that this is a busy period for reporting and intend to keep today's call to an hour in length. [Operator Instructions] I will now turn the call over to Vera Bradley's CEO, Mike Ray.

Thank you, Paul. Good afternoon, everyone, and thank you for joining us today. With me are Kevin Sierks, our interim Chief Financial Officer; and Roddy Mann, our Executive Vice President of Strategy and Business Development. Before we discuss our first quarter results, I'd like to spend a moment on the announcement we made this afternoon regarding my plans to retire from my role as CEO of the company. I want you to know that this decision, while difficult for me to come to, was made with great care. Vera Bradley is an incredibly special organization, and my time here has been most rewarding and exciting in my entire career. I've enjoyed working alongside such a talented and devoted group of colleagues, and I'm extremely proud of all we've accomplished as a team. This includes the creation of a diverse portfolio of highly sought-after products; serving an exceptionally loyal and diverse customer base; the continued development of a profitable Indirect segment comprised of passionate specialty retail and department store partners; the launch of verabradley.com, now representing more than 20% of our business; the opening of our first retail stores, which created a brand-elevating platform for consumer engagement in a highly productive way; the entry into the Japanese market; and the development of a team and infrastructure to support future growth. In my time as CEO, revenue has nearly doubled to $541 million. However, I've decided that after 15 fulfilling years, it's time for me to spend more time with my family and pursue other interests outside of the retail space. It's also the right time for the company to look to a new leader who has the extensive retail and brand management experience Vera Bradley needs to advance into its next phase of growth and success. The board has initiated a…

Thanks, Mike, and good afternoon. I will begin my remarks with a review of our fiscal 2014 first quarter and then provide you with our outlook for the second quarter and full year. As Mike mentioned, we are pleased with our financial performance and operational progress during the first quarter, in which we delivered top and bottom line financial results in line with our expectations. Net revenues for the first quarter increased 5% to $123 million from $117.2 million in the prior year. This performance was on top of revenue growth of 16% the first quarter of last year. In the Direct segment, net revenues increased 24% to $73.7 million, driven by increases in our stores as well as continued growth in e-commerce. The revenue increase in stores resulted from the opening of 19 full-price stores and 4 outlet stores during the past year, and a comparable store sales increase of 0.9% during the quarter. The Direct segment accounted for 60% of total net revenues in the first quarter versus 51% in the prior year. Full-price stores were impacted by an assortment that wasn't as compelling as we would have liked, especially given the highly promotional environment in the mall. This, coupled with maintaining our promotional cadence and discount levels with the first quarter of last year, resulted in a reduction in conversion. Outlet stores benefited from higher conversion and traffic due to higher promotional levels. We ended the quarter with 72 full-price and 13 outlet stores. E-commerce net revenues increased $5.1 million or 23% and represented 22% of total revenues during the first quarter. The increase was primarily due to continued growth in website traffic. This growth was partly driven by a strong response to the spring and summer assortment. Indirect net revenues decreased 15% to $49.3 million, in…

Thank you, Kevin. The 15 years I've spent at Vera Bradley have been exciting and incredibly fulfilling, and the progress we've made a team has exceeded my wildest expectations. Today, we are an authentic lifestyle brand with a powerful multichannel business. Our beautiful high-quality product offerings have made us a girl's best friend to our exceptionally loyal customer base, and we've expanded the reach of the brand into new domestic and international markets. All of these achievements are a testament to our outstanding team. We have a strong vision in place for the future and I'm confident that our are best days are ahead. Operator, we will now take questions.

[Operator Instructions] And we'll take our first question from Evren Kopelman with Wells Fargo.

In the Indirect channel, clearly a lot of pressure. Can you give us a little bit more color there? Is it a certain group of your resellers that you're seeing more pressure with? Is there some analysis there that can give us a little bit more color? Is it more just a -- I don't know, is it like the colors are off in the new patterns? Is it the style? If you could give a little bit more color why there's so much more pressure, you think, in that channel, that would be great.

Evren, this is Mike. This goes to kind of one of the core challenges that we face right now, and it really goes to how we manage our offering to the customer through the various channels. This is not a design challenge as much as it is an assortment management and merchandising challenge. And we've spoken to this, to some degree, in the past. But I think what we're seeing with -- our independent retailers do is kind of self-adjust to an assortment that they can manage, kind of much like Dillard's does. Dillard's kind of narrows down to the top 6 or 8 patterns, the top 20 styles. And their experience in great productivity in their doors. I think, on the Indirect side, many of our partners of kind of touted themselves as basically featuring the entire assortment. And while we've worked with them, over time, to help them understand that they need to be managing the assortment differently, from time to time, they still get themselves over-assorted, so I think that's primarily what we're seeing. And then certainly -- I think we mentioned during the call, the winter 2012 buy-in. That buy-in, of that assortment, there was probably an overbuy across channel. It's not necessarily a pattern performance issue, it's just that they bought too much of that merchandise, so it's part of the challenge as well.

Okay. And then the follow-up is your sales guidance for the full year. It sounds like you're assuming some improvement in the trends in the Indirect channel. Maybe what's your level of confidence there? Why do you think trends will improve?

Evren, this is Kevin. We do expect the trend to improve. First off, pulling some of those styles forward from fiscal 2015 has improved the assortment in the back half of the year, and we think that'll pay dividends with the Indirect accounts. As well as we've got some accounts in the back half of the year that weren't participating in the first half of the year. One, notably, is Disney. So Disney will pick up in Q3, so that helps the back half of the year as well. And then what we're doing is lifting MSRP as well on that winter assortment. We'll hopefully allow them to sell-through that assortment and then open up their open-to-buy dollars so that they can buy-in a little more heavily in the back half of the year.

And we will now take our next question comes from Alex Fuhrman with Piper Jaffray.

Can you talk a little bit more about -- you mentioned in the prepared remarks bringing some of the 2015 patterns to round out some of the assortment this year. Curious to why the 2015 pattern do not -- maybe some of the 2014 ones, I'm not sure if I heard that correctly. We would love to get a sense of what you're really doing there. And will that mean that there will be more patterns than originally planned in the back half of this year or is it just a matter of different patterns?

Alex, this is Roddy. Actually, what we're pulling forward are really styles from fiscal '15. We're reaching all the way into summer to identify some, actually, some great styles that we feel will not only resonate with the consumer but will be attractive for our retail partners and increase their buy-in levels up to what is probably -- back to a normal part. Although on the pattern side, as we shared before, we're actually reducing one of the patterns we have, and this year it's in the fall season. And we felt it's the right thing to do. During the past, we've talked about whether or not a particular pattern resonate. We don't think there's any design issues there. We do feel that there's probably too many patterns, especially for the Indirect segment. And we'll actually be moving one pattern forward from the spring, that's January, and so it's actually all within the fourth quarter, but we're moving that from January into November as part of, really, a winter assortment. But what we spoke to earlier was really about moving styles forward.

Great, that's helpful, Roddy. And then can you also just comment on -- I think you mentioned that you're going to be giving your retail partners a chance to react, change their suggested pricing ahead of changes that you're making on the website. Now, could you talk a little bit more about the motivation for that? Is that something that your retail partners have been asking for a while?

It is. So there's 2 parts to this. One is we've mentioned that, winter 2012, they bought in probably a little too heavy to that, and it's been slow to sell-through. So they have a little bit too much inventory and that's sort of across the channel coupled with -- in the past, what they have asked for is the ability to sell at a reduced price prior to us marketing it down on the web. So what we're doing is we had planned all along to mark some of the patterns down, to retire them as we call it, in the fall. And what we're doing is, essentially, in stores we'll be marking down some of those patterns, primarily the winter patters, early. So they'll be available not only in our retail partner stores but also in our stores at a lower price prior to discounting on the web.

And we will now go to Edward Yruma with KeyBanc Capital Markets.

This is Luke Whorton on for Ed Yruma. Wanted to visit on SG&A, particularly you called out one of the reasons, in addition to the lower sales -- in relation to the employee-related expenses. Could you talk a little bit to what that is and how we think about SG&A leverage or deleveraged going forward? Also, given the continued investment in the merchant function in e-com.

Yes, sure. So most of that does relate to investment in corporate last year annualizing into this year. So it's all the headcount from fiscal '13 annualizing this year. Now we did add a few heads into Q1. Most of our headcount adds this year are really focused in the merchant group as well as e-commerce, because that's tied to our strategic priorities for the current year. Other than that, we're really holding the line in terms of headcount to help SG&A as a percentage of sales this year. A few other things we're working on is not only headcount management but travel and training and some other things, just in light of the uncertain demand side of things. So that's what we're focused on and so you'll see some leverage in SG&A in the back half of the year.

Great. And then just a follow-up on inventory. How are you feeling about the quality of the Indirect channel. You talked a little bit about some of the initiatives and you continue to work with them and feel they're taking a cautious approach, but do you feel there's still a lot of work left to do with them in terms of some of their buying patterns, using the systems to get better insight to that and also that $15 million over-buy from some quarters ago? Do you still feel that's going to be used in replenishment and no markdown reserve necessary there?

I'll start on the question about the inventory, the levels of inventory in our retail partners. We spoke earlier about the winter. Based on the surveys that we've conducted, that's really the area where we feel there's a little bit head there, a little bit heavy on inventory. Beyond that, actually, in light of the fact that they have, as Mike called it, self-adjusted and lightened their buys, both in the spring and summer seasons, we don't feel that there's any over-inventory levels within our partners. Specifically, with helping with that, in some ways not only are they self-adjusting but the order management system that you mentioned, it is working. Actually, we mentioned Giftbeat magazine earlier. There was a recent article in Giftbeat about just online ordering and the visibility it kind of provides to retailers, just in the industry in general, and some great positive comments by some of our partners on the Vera Bradley system itself.

And then maybe with regards, Luke, to inventory in general. We are comfortable with the mix of our inventory to support our growth. But given the shortfall in revenue for Q1, Q2, we do need to be a little more strategic to move through some of this inventory in the back half of the year, including not manufacturing for outlet for a longer period of time than we expected. We have built this into our gross margin guidance, obviously, but to the extent we underperform on revenue, it does give us a little too much inventory than we've got to be more strategic on selling-through. So, as an example, we have recurring meetings where we talk about whether or not we're going to manufacture for our outlet stores and for the web. And to the extent we have inventories sitting in the distribution center, we will typically make decisions not to make that inventory and to use what we have. So that does puts some pressure on the demand side to have to sell that inventory.

And we will now go to Jennifer Davis with Lazard Capital Markets.

I was hoping, Kevin, I'm sorry, but I was hoping that you could maybe just dive a little bit deeper into SG&A. It seems like a pretty drastic reduction in the back half going forward. So I was hoping that maybe you could help us get our arms around that a little bit more. And then I don't know if you can kind of about this but is there a way to -- can you compare your inventory in terms of -- this inventory that you have now is still in relatively current styles, the over-order, could you have a -- can you talk about how your inventory compares in terms of current styles versus older styles, this year versus last year? I think you're probably a little more current this year even though it's -- you might have ordered a little too much. So, anyway, if you could...

Yes, maybe I'll start -- no problem, Jennifer, I'll start there. With regards to inventory, we typically don't break out the retired versus current, but it is fairly similar this year compared to last year. I think as we progressed through the year, that's where we'll have to be a little more strategic as things retire in May. Just last 2 weeks ago, I guess. And then we have further retirements as we get into the fall. That's when our retirement inventory will creep up a little bit. We need to be strategic about being able to move that through our channels. And then with regards to SG&A, the group here in Q1, we saw some SG&A savings. You saw that we over achieved by $0.01 in Q1 and some of that did have to do with the management team here being committed to reducing expenses. So we saw some success in Q1. The management team understands the importance of being able to manage the bottom line in light of the top line. One other thing that maybe I didn't mention before is we did have some severance that hit in the back half of last year, of about $800,000 related, 2 of our executives that left the company. So we obviously will annualize that and that gives us some leverage as well in the back half of the year.

And we will now go to Mark Altschwager with Robert W. Baird. Mark R. Altschwager - Robert W. Baird & Co. Incorporated, Research Division: I just want to start with a big picture question on strategy. I believe in the press release you discussed narrowing the focus in the near term. And I know you touched on a couple of things in the prepared remarks, but as you look at the strategic initiatives you've outlined in recent quarters, what is on hold, if anything? What is changing and what will continue during the transition period?

I'll fill it. This is Roddy. We've actually -- many of the things we talked about over the past few quarters are part of the broader strategic areas of focus that we have really developed over the past 12 months. We have known for -- we had a focus for a while on improving our merchandising capabilities, both at sort of strategic level as well as the tactical level, and that goes back to the implementation of the merchandising function. We also know that we do need to evolve verabradley.com and we've shared that, and finally the evolution and the overall enhancement of the productivity in the Indirect segment. So all those are in place and active. Some of the things we're pulling back on and that narrowing of the focus that Mike spoke to really relates to some of the more distribution -- call it new distribution points focuses that we've had in the past. So on the Direct side, we have a full pipeline for '14. We feel great about that. We have some of the pipeline full for fiscal '15. But as we had looked to identify new locations for the pipeline for the remainder of fiscal '15, we'll probably pull back on that and allow the team to give more attention to the comp base itself. And I just want to note that this is not about -- again, this is about focusing attention on the comp base, it's not about the productivity of those new stores. We're very pleased with those. Other area is -- narrowing the focus is incremental doors on the Indirect side. We have attrition every year. We usually characterize it about 5% to 10%. We usually make that up by opening new doors. We think that, going forward, we could be probably a little bit more opportunistic and less focused on opening new doors there. Lastly, in Japan, this is a shift. Japan's working for us, especially on the top line, it has been an investment. But it's also been an investment of time and energy for the team. So we think, by identifying a great global partner, we can build that business and turn the overall team's attention back to the U.S. Mark R. Altschwager - Robert W. Baird & Co. Incorporated, Research Division: Great, that's very helpful. And then just a follow-up on the transition. Has the board or search committee identified any candidates at this point? And any sense for how long the search is expected to last?

Yes, just given kind of the fact that my decision was made recently, the board recently convened, formed the search committee and they are working with Spencer Stuart. So we're just kicking off the process. We really don't have anything more than that to share. And as I mentioned in the prepared remarks, the board understands the need to move expeditiously, and I'm certain that they will do that and I'm confident they'll find the right person.

And we will now go to Oliver Chen with Citigroup.

This is Gerard Miller filling in for Oliver. First, I'd like to discuss, what type of characteristics are you guys looking for in the new leader? And what kind of strategic vision do you see in playing and then going forward for the company?

Sure. As we said in the prepared remarks, we really are looking for someone with extensive retail and brand management expertise. And I would characterize it as someone who has kind of grown up on the front end of the business, someone who has a deep understanding of merchandising. Certainly, a strategic focus, team building, team management. My background is accounting and I grew up in the wholesale side of the business. Just considering where we are today and where we're going as a brand. The profile of the personal really needs to be someone with extensive retail and brand expertise.

And then just a quick follow-up in terms of your pattern and flow strategy, how do you see the patterns playing out over the rest of the year?

The overall cadence should be roughly the same. As we shared in the last call, the one shift is -- last year, we had a fall season and potentially an off -- there was -- I'll step back. There was a Back to Campus release in July. There's another fall release in August and then a subsequent release in September of just a single pattern. We actually like that September timeframe, so we're sort of the moving that second fall release forward a little bit. And of course, we don't have a separate pattern. That separate pattern was related -- tied to breast cancer awareness, our ribbons pattern. So generally speaking, especially at a quarterly level, the cadence is the same.

[Operator Instructions] And we will now go to Ike Boruchow with Sterne Agee. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: Quick question about the pipeline in new stores. I think you said you're going to open 23 stores this year. And I wasn't sure if I heard you correctly on the comments for fiscal '15, was there some commentary that maybe we should expect? A fewer number of stores in the pipeline for next year? How do you think about store growth going forward after fiscal '14?

Ike, this is Roddy. Yes, generally, I mean, we have a range of 14 to 20. And some years we have -- couple of years we've exceeded that slightly. This year, we're up at 23. Next year, it certainly won't be 23. We've got some of the pipeline filled, but it could be more towards the lower end of that range. We don't really have that visibility right now that we can share. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: Okay, that's helpful. And the other question I had was -- the inventories are up 40%, but your gross margin guidance for Q2 is very strong, up 200 basis points, but then you took down the back half guidance to get to the full year, down 20. Is there something timing related there? Can you help us understand where your inventories are? Why Q2 could be so strong? And in the back half, would it be weaker? I'm just trying to connect the dots there.

Yes, Ike, a lot of that has to do with the promotional environment. So our planned promotions for Q2 are much lower than what we experienced in Q2 of last year. So it's really how we planned the promotions. Last year end Q2, we were heavily promotional and our plan is not to get as promotional in Q2 of this year. And then you think about the back half, it's kind of fairly normal compared to the prior year. So slightly down, obviously, given the 200 basis points in Q2.

And we will now go to Dana Telsey with Telsey Advisory Group.

Mike, we'll miss working with you but I'm glad that you're still going to be around. Two things. Number one, as you do the search for CEO -- and, Kevin, I know you're the candidate for a permanent CFO. Anything you're looking for different? I know that John, obviously, is going to be conducting part of the search and will be involved the search too. What is the skill set that you're looking for? And then as you think about the Indirect business and the Direct business, ultimate operating margins, given the changes and process that are going on, how do you see them being able to evolve?

Dana, I'll address the first question. Obviously, with my announcement and my plans to retire, it makes sense to get my replacement in place to evaluate and consider what they may want in the way of a CFO. Kevin has done an outstanding job of stepping in and he has performed very well, but I think it just makes sense to get my seat filled. Kevin's certainly capable of keeping the ball rolling here, and we'll allow that new CEO to determine how they want to move forward with the CFO role.

And then, Dana, specific to operating margins. So, the Indirect side, the way I think about that is, if you look at our historical operating margins, I really feel pretty good about that. I think there's opportunities, maybe, to improve that, but I think we may use those dollars of savings to maybe further support our key accounts and some of the new accounts we have in our department stores. But I see that as more of a reallocation as we realize savings there. So as you're thinking about that, I think about how we've performed over the last year or two. On the Direct side, because we're still young in the retail space, I do feel like there's still significant opportunity there to improve the operating margin. We've got some stores, obviously, from '07 and '08 that have lower operating margins than some of our stores we've opened over the last 3 years. I think as we look to improve the operations of those stores or exit those malls over the long term, I think that can help us provide an increase to the operating margin there. Another initiative, obviously, that we talk about a lot is e-commerce. As we migrate that to more of a full-price offering, you obviously get that pick up from a operating margin perspective. Other things we're doing to help the operating process of the Direct segment is with regards to labor management. So we've implemented a refined process -- manual process in the interim to make sure we're managing labor a little more tightly in our stores. And that's really a payroll matrix that ranks the stores based on volumes and making sure the store managers know exactly how many hours they're allowed to have people work. So that, as we implement a system in the back half of the year, will help us manage those expenses better. So those are some of the things that we're doing. We've also changed the comp plan for our store managers, so I think that will help us, as well, just drive revenues. We've got them focused on ADS [ph] and conversion primarily. And I think in the past we've had them focused on maybe too many metrics. So those are some of the things that I think we can do to move the operating margin of Direct, at least, closer to Indirect.

And we will now take our last question from Amy Noblin with William Blair. Amy Wilcox Noblin - William Blair & Company L.L.C., Research Division: A couple of quick questions. First, you mentioned investing or needing to invest in the e-commerce channel, including hiring someone to oversee that channel. Can you elaborate on that a little bit, whether other investment might be needed within that channel, timing and if this year is not included in your guidance. I assume it is. And then my second question is on baby. You seemed pleased with that. Can you elaborate a little bit on the performance of baby? What worked? What didn't work? Did you pick up a new customer? Build an existing customer? And then curious what you saw from the Tiny Prints partnership. And, Mike, wish you all the best.

Amy, I'll start on the e-commerce and let Mike speak to baby. First of all, the investments that we plan to make this year, they are all baked into the guidance. There's sort of human resource investments. A number of them just increasing the bandwidth, the team. From an analytical perspective, from a creative perspective, all of this is to make sure that we have the capability to really focus on growing the full-price sales aspect of our web business. And we've been pleased with what we saw, the uptick that we saw in Q1. And we think there's opportunities to build on that, but it does take resources to do it. The other one is the head of e-commerce sales that we mentioned in the prepared remarks. That's essentially -- that's a dedicated resource. Someone with the experience, but also importantly, someone who's waking up in the morning thinking about how we can grow that business and how we can evolve it. Over on the infrastructure side, there's a few investments that, right now, are more capital in nature. Infrastructure just on the back end, as it relates to, one, tying the customer base across customers -- across channels, so that there's greater visibility to transactions and, say, full-price stores, as well as online. It allows us to do certain things in the future such as -- whether that's registry, it's loyalty programs. It just gives us greater flexibility to do things in the future. There's also some sort of more building blocks to allow us to evolve the user interface more efficiently in the future. So those are -- to give you a flavor of what we're doing this year, it's all baked in. As we evolve -- move through the year, we may identify some additional investments to make next year, but we really feel that we can start that evolution in fiscal '15, to some extent.

And, Amy, this is Michael. I'll speak to baby. Just at a high level, I would say baby has performed relatively well. It is kind of a niche category. We're seeing good response on both Indirect and the Direct side. I think, primarily, what we're seeing is sales to existing customers, but we are seeing new customers. We're opening new doors as a result of having the category. I would also say that I think one thing that we've learned is that while baby is a great category for the brand and there are other extensions that will make sense, I think that understanding that we need to continue to focus on the core categories and continue to invest in the handbags, accessories and travel, and continue to exploit what we've built over 30 years, there's still tons of opportunity there. And we want to make sure the team remains focused on growing through the core assortment, and so that's what the focus will be going forward. But baby's performing relatively well.

And that concludes today's question-and-answer session. Mr. Ray, at this time, I'll turn the conference back to you for any additional or closing remarks.

Okay, brief closing remarks. Thank you for joining us today and for your continued interest in Vera Bradley. We look forward to speaking with you during our second quarter conference call, which will be held on September 5 at 4:30 p.m. Thank you.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation.