Good morning ladies and gentlemen and thank you for standing by. Welcome to the Vera Bradley First Quarter 2016 earnings call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session and instructions will be provided at that time for you to queue for questions. As a reminder, today’s conference is being recorded. I would now like to turn the call over to Julia Bentley, Vice President of Investor Relations and Communications. Please go ahead.

Good morning and welcome everyone. We'd like to thank you for joining us this morning for Vera Bradley's First Quarter 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 31, 2015, 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. I will now turn the call over to Vera Bradley's Chief Executive Officer, Rob Wallstrom.

Thank you, Julia. Good morning everyone and thank you for joining us on today’s call. With me today are Kevin Sierks, our Chief Financial Officer, and Sue Fuller, our Chief Merchandising Officer. Excluding the charges outlined in this morning’s release, we achieved first quarter diluted EPS at the low end of our guidance. Reduced promotional activity led to better than planned gross margin rate performance while revenues fell below our expectations. We continue to make progress on our key initiatives. It is frustrating to us, and I’m sure you, that the progress we have made is not reflected in our current financial results. It is evident that our overall business trends remain difficult. We are not attracting enough new customers to the brand and traffic and sales are still very challenging. Our market initiatives will continue to accelerate throughout the year with our first significant investment in conjunction with Mother’s Day at the end of first quarter. Let me take just a minute to let you know what customers are telling us. We have conducted several surveys and focus groups with both lapsed customers and those that have never shopped with us. The results were not surprising. Many of these consumers associate Vera Bradley only with quilted cotton bags and overall interest in traditional quilted cotton products is not as strong as it used to be. She wants us to scale back on but not eliminate our cotton offerings. She wants solids and new fabrications. She wants trendy and stylish, and she wants us to distribute our products in more locations where she frequently shops for bags, like department stores. Once they are shown our assortments, these consumers overwhelmingly have a favorable reaction to the new fabrications and products we are offering. They are just not aware of our new…

Thanks Rob, and good morning. Before I begin, let me remind you that as a result of moving to a wholesale business model in Japan, we exited our direct business during the third quarter of fiscal 2015 and have accounted for it as a discontinued operation. The prior year income statement numbers I will reference reflect continuing operations. In addition, the current year numbers I will discuss will exclude the charges outlined in the morning’s release related to our manufacturing facility closing, severance and other restructuring charges, and an income tax adjustment. Let me go over a few highlights for the quarter. Net revenues totaled $101.1 million for the current year first quarter compared to $112.2 million last year and our guidance of $103 million to $109 million. Net income from continuing operations before charges totaled $0.1 million or $0.00 per diluted share for the current year first quarter compared to $6.9 million or $0.17 per diluted share last year. As Rob stated, the flat EPS was at the low end of our guidance. In our direct segment, total revenues of $70.4 million declined by 2.4% from last year. This revenue number reflects a 16.9% comp sales decline partially offset by new store growth. Indirect segment revenues fell 23.3% to $30.7 million primarily due to lower reorders from our specialty retail accounts and the timing of our summer product launch, which shifted approximately $3.7 million of revenues into the second quarter. Gross profit for the quarter totaled $55.1 million or 54.5% of net revenues compared to $59.8 million or 53.3% of net revenues in the prior year first quarter. The year-over-year rate improvement primarily related to an increased penetration of higher margin MFO product in our factory outlet stores, leverage of overhead costs due to fall 2014 cost reductions at…

Thanks, Kevin. In the product area, [indiscernible] our fiscal 2016 initiative into three key categories: delivering innovation, newness and diversification, strategically segmenting our products by channel, and enhancing our gross margin. We continue our focus on increasing the relevance of our products through innovation and newness. Our core customer is responding to the newness, and we know this product evolution is critical to attract customers that have lapsed or never have shopped with us. We are continuing to improve our internal innovation pipeline to keep fresh fabrication and style ideas coming. Our cotton performance is declining faster than our overall business trend. At this point, the introduction of newness and innovation is not enough to offset declines of our core quilted cotton business. Having said that, both our retail partners and consumers are telling us that our assortments have never looked better and been more trend right, and our offerings are continuing to improve each season. I am really excited about our summer, fall and winter collections. We are moving faster and adding more inventory in certain new product fabrications and categories. By diversifying into a variety of new fabrications, we believe we are now more effectively able to compete and better positioned to take market share in the long run. By offering primarily quilted cotton products, we were only able to compete in approximately 10% of the bag market. Our expanded offerings allow us to compete in approximately 90% of the market. As Rob mentioned, our core customer wants us to scale back on but not eliminate our quilted cotton offering. Two years ago, we had two fabrications in our full line business: solid microfiber, which made up less than 5% of our fabric-based assortment, and quilted cotton, which comprised the rest. Currently, we offer five fabrications: quilted cotton,…

Thanks, Sue. Our distribution strategy remains a key element of our long-term plan. We still believe there is ample opportunity for both full line and factory outlet store growth in the future; however, in the interim, until we change the trajectory of our comparable store sales performance, we have slowed the growth from our original annual target of 20 to 25 full line stores and 10 to 15 factory outlet stores. We have plans to open 15 full line stores this year. Five opened in the first quarter and five will open in each of the second and third quarters. Seven of these stores will be in the western United States, where we are dramatically under-represented: three in metro L.A., two in metro Denver, and one each in San Diego and Scottsdale. We expect to open 11 factory outlet stores this year. Five opened in the first quarter, three are opening in the second, and three are opening in the third. At the end of the first quarter, we had 101 full line stores and 34 factory outlet stores. In fiscal 2017, our current plans are to slow the growth even more to a total of about five to 10 new stores. However, over time we still believe there are opportunities to grow our full-line store base to about 300 and our factory outlet base to approximately 100, equating to the three-to-one ratio we have talked about in the past. The first iteration of our new, more modern full line store design was introduced in our Kierland Commons store in Scottsdale, Arizona, which opened in March. All of our new stores this year will reflect our updated store configuration and design. We are receiving positive responses from our customers on the changes. The Kierland Commons store is currently performing better…

[Operator instructions] We’ll first go to Ed Yruma with Keybanc Capital Markets.

Hi, good morning. Thanks for taking my question. Just a quick update on some of your re-platformed stores. I think you did one in New Jersey. Are you seeing a different level of performance in those stores that you’ve touched and re-merchandised versus rest of fleet?

Good morning, Ed. Yes, in terms of New Jersey, what we’re seeing in New Jersey and Dallas first overall is customer feedback has been incredibly positive. What they’ve been telling us is that both the new merchandising as well as the refurbishing allows them to see the product much clearer. It’s also attracting a new customer to the brand, but where we’re seeing the biggest results from a sales impact are on the new merchandising standards. So for example, we did a new travel wall that we implemented in the stores, and we’ve seen a nice lift in the travel assortments and we’ve begun to roll that out to all of our stores. We instituted a backpack merchandising wall that also was very successful, that we’ve moved out across the store. So we continue to see again here positive response from our customers, beginning to get pieces of it that are really working, and we’re continuing to refine that.

Got it, and two quick follow-ups, I guess. First, I know you had planned incentive comp to be up pretty meaningfully year-over-year. I guess given the results, has that changed, and was there any kind of an accrual reversal? And then I guess the bigger picture question, I understand you don’t want to give us--you’re not going to give us any updates on the long-term guidance, but I guess what kind of markers should we be looking for in this period of turn to assume or understand if you’re kind of hitting some of your internal objectives or making progress against some of these goals that you’ve outlined? Thank you.

Let me start with the first one with regards to compensation. You’re exactly right - that did come down. We expected to have to hurdle about $7 million this year from a compensation perspective compared to last year. That number is now down to about $2 million to $3 million, so that is reflected in our guidance.

In terms of key markers, two different ways of looking at it. First of all, the most important one is going to be seeing an increase in the comp sales performance as we go forward. That will be the first place we really feel great that the consumer is responding. In the interim, the markers that we’re looking at, there are a few different ones. First of all, the performance of all of the new products that we’re introducing, and again during first quarter our new products met our planned expectations, which was encouraging as well as all of the feedback we’ve been receiving from customer focus groups. So the response to the new product is one key marker. Another key marker, we talked about the role of factory and MFO exclusives, and as we discussed, we’ve been exceeding what our plans were in terms of penetration of MFO and seeing very nice margin flow-through from MFO expansion, so that is another one. The third area that we will begin to track against is watching as the marketing gets out, watching the brand awareness and increasing the brand awareness, particularly of the new product categories. Those are the areas that we’re focusing on.

Got it. Thanks so much, guys.

We’ll go next to Oliver Chen with Cowen & Company.

Hi, thanks for the transparency. I just had a bigger picture question on the state of the business. When you think about the needs between marketing versus product and speed, I wanted your thoughts on where you see the bigger opportunity, just because it does sound like your product plan is attractive in terms of where you’re headed but it sounds like you’re solving for this overall traffic and awareness and demand creation. Then I know you just mentioned Vera Bradley on Amazon. I was just wondering how this fits into your channel strategy and how products might be segmented there versus both your bricks and mortar and online. Thank you.

I want to make sure I get that question right, Oliver, and thank you for it. But in terms of what we’re focusing on right now, you’re right that the number one issue is building awareness, that the $8 million that we’ve invested in marketing is really critical. We laid out a plan at the beginning of the year, which we’re executing to. We obviously have Theresa, who is joining us, and I think Theresa brings a lot of great skills to the team, particularly working at retail brands and having more of a true CRM program in place and a great balance between creative and analytical. She is really going to focus on how do we build the buzz and awareness of what we’re doing out in the community much faster, particularly through PR and how do we leverage PR and social media in the interim as we are still implementing our $8 million marketing investment. So that really is the critical initiative this year as we’ve talked about the unfolding of our plan, that marketing is definitely key to building the awareness because we believe that the product has started to get to where we need it to be. We’ve received a lot of great response. We think we’re going to continue to innovate. Sue and the team are doing a great job of driving innovation, and we will continue to innovate, but we do believe that the primary focus is building awareness. Regarding Amazon--yes, go ahead?

[Indiscernible] are you feeling like traffic is [indiscernible] across all the channels, or are there channels you’re more--you see bigger opportunity for improvement there as marketing [indiscernible] impact?

Yes, we definitely are seeing traffic really across all of the channels right now being challenging. It is interesting, though - for example in our department store environment where traffic is much more stable, our business is stronger within the department store channel, which again speaks to the importance of getting consumers in. So we do expect that where we should see the first influx of traffic would be through our ecommerce site, followed by our own full line stores. One of the pieces that we have to break down in ecommerce though is that hyper-promotion has been a primary traffic driver, and we are severely dialing that back. So that is one lever we’re pulling off of ecommerce as we begin to build awareness to get a new full price customer in, so that one is a little bit [indiscernible] to look at the macro traffic number. We have to look underneath it and separate out the hyper-promotional traffic from the full price traffic.

Thank you, and if you could talk about the Amazon topic, that would be great.

Yes, as we look at all of our channels of distribution, we definitely are looking at product segmentation, and the product that Amazon will go up with is definitely a limited assortment, and we’ve made sure that it’s really focused on kind of our freshest product and our newest product. Again, we believe the number one thing we need to do is get in front of a new consumer. We need to let new consumers see our product, and obviously with Amazon’s very large reach, we feel it’s an opportunity to put our product in front of new customers, and that’s what we’re really using it for, is a marketing reach.

Yes, and Oliver, from a sales perspective, we obviously expect it to be fairly small this year, and it will be in the indirect segment from a segment perspective if you’re looking at modeling.

Okay, and Kevin, just a final question as we model. It sounded like you’re on track to introduce some good products. Where is inventory, what does it do to your net working capital this year, and are there any guidelines for the cash flow from operations this year in terms of [indiscernible]?

Yes, we definitely expect to grow inventory this year, and obviously profitability is down, so from a working capital perspective generally speaking I expect it to be negative this year, mainly because of inventory growth in the back half of the year to support a lot of the new fabrications and the new product that’s working. We don’t give guidance for the full year, but you can obviously expect it to be much lower than last year, and even lower than the prior couple years from an operating cash flow perspective and free cash flow perspective. Then as far as inventory, Oliver, our current or retired inventory continues to get more and more positive. We moved a lot of our liquidation inventory last year, so if you look at the health of our inventory, that’s not something keeping us up at night this year like it maybe was last year. We continue to improve assorting by channel as well, and Sue and team have done a great job improving there. Over the long term, we expect inventory to grow with sales, but this will be the sixth quarter here in Q2 where inventory has actually grown less than sales, or actually been reduced actually quarter over quarter. So expect in Q3 and then in Q4 for inventory to start to grow slightly higher than sales.

Okay, great. Thanks for the color and the details on the freshness. Thank you.

Thank you, Oliver.

We’ll go to Ike Boruchow with Sterne Agee.

Hey guys, it’s actually Tom Nikic on for Ike. Thanks for taking our questions. Just a bit of housekeeping. I think I may have missed the guidance for the indirect sales in Q2. Would you mind just repeating what the guidance was for Q2?

Sure, no problem. It’s down high single digits to low teens.

Okay, got it. Okay, now my actual question. So your gross margin guidance seems to imply a lot of improvement in the back half of the year. I understand some of it is the MFO penetration and some of it is the pullback in promotions, but what continues to give you confidence that you get hundreds of basis points of gross margin in the back half of the year, given some of the top line trends that you’re having and some of the difficulty on the top line? Thanks.

Yes, good question, Tom. The real thing we saw in Q1, which Sue mentioned on the call, is we’ve seen a lot of good success with MFO. Not only is it selling very well from a productivity perspective, we’re seeing a 3% to 4% higher margin on that product, and our penetration is a lot higher, so we felt we’d be at around 30% to 40% in the quarter and we’re actually north of 40% in the quarter. Now, we expect it to go above 60% as we get to Q4. So MFO alone is over a percent - it’s about 1.25% improvement this year compared to last year, so that’s the single largest item. Another thing is just closing our domestic manufacturing here in town. A lot of that hits in Q4, but some of it does hit early in the year just because we reduced second shift back in October, so that’s beginning to benefit us here in Q2. So we’ll get about, call it 70 basis points improvement from the manufacturing facility being shut down. The remaining, call it percent is really around some operating efficiencies that came down a little bit compared to our original expectations, because Sue and I toned down our purchases of inventory in the back half of the year to more align with sales, so that came down a little bit. You can call that half a percent, and then we expect about half a percent from less promotions or less liquidation sales. So that’s really that approximately 3% improvement we expect to get this year compared to last year. Some of that--you know, MFO, pretty high confidence level on MFO. Operating efficiencies, that could move a little bit, but the domestic manufacturing is all shut down and wrapped up, so a lot of that is pretty much baked in at this point in time.

Got it, thanks. Just one quick follow-up - so you said five to 10 stores, next stores being open next year. Is that combined between the two channels, or is that in each channel, full price and outlook?

Combined.

Combined - okay, great. Thank you.

We’ll go to Mark Altschwager with Robert W. Baird.

Good morning, thanks for taking the question. First one is on the competitive environment. The handbag space is looking more promotional than it was a year ago. How is this impacting your view of the white space opportunity from a price point perspective?

Mark, thanks for the question. I think we’re definitely hearing obviously in the handbag space that a lot of our competitors are beginning to look at promotions and trying to pull back. We definitely are looking at that white space and looking at the promotional impact, but we still believe there’s really opportunity, particularly with the introduction of the new Wildwood leather collection, you can see that we’re filling in those price points and bringing some price points down, as well as the introduction of these new fabrics we think really fit in this kind of $100 to $200 price range, which we believe is where the big white space is as opposed to the above $200.

Okay, that’s helpful, thank you. Following up on the indirect channel, lots of puts and takes there with the success with the department stores offset by some of the changes with the specialty accounts. Bigger picture, is there a steady state revenue level you would anticipate in that channel moving beyond fiscal ’16? And then specifically, how have these liquidation sales and the department store expansion in recent quarters impacted the specialty relationships?

I’ll let Rob talk about the relationships a little bit, but with regards to the numbers, we still expect a modest decline in the specialty channel in terms of number of doors. We exited the quarter with about 2,700 doors. It was only slightly down from year-end, which was a pleasant surprise to us, but we still expect some modest decline there. As far as stabilization, we are looking to add additional doors, especially in the specialty apparel area, so we’re looking for that to somewhat offset some of that modest decline in the gift channel doors. But as far as stabilization, we haven’t seen it yet. You can see the guidance, obviously - we still expect it to be down in the back half of the year. Obviously we’re looking to stabilize that as soon as possible, we just haven’t seen it yet, Mark.

I’ll answer the question about the relationships. First of all, I believe the relationships between us and our specialty gift partners continues to strengthen. There is a lot of things that we’re doing to address their core concerns. One of the core concerns is that we needed to really work on giving them segmented products so that they could improve their margin, have exclusive product, and Sue and the team have done a great job of developing that and they’ve been very excited about that. We saw them begin to market their exclusives, maybe microfiber which they had earlier in the spring, which really helped some of our partners turn around their business. So the ones that are jumping on the exclusive product are seeing some nice results, so that’s one thing we’ve done. The other thing that they’ve asked us to do is really pull back on the hyper-promotional discounts. The level of promotional discounts that we’ve been running as a company over the last few years are not sustainable for them, and it was definitely a big factor in our decision to pull down that promotional activity, and we’ve taken very aggressive steps in the first quarter and are ramping up those efforts as we get to the back half of the year. So those were two of the major ones that we were focusing on. Obviously as we were liquidating last year and running deep discounts, that did cause frustration on the specialty environment, but they understood that we needed to do that to get our inventories clean, so they kind of endured that. Then we’re also working with them as we open up these department stores to make our lines in both channels more exclusive so that they’re not competing head-to-head. We believe both can operate effectively. A lot of the pressure that the specialty stores have seen recently is the same pressure that we’ve seen in our full line stores, and that’s really due to the need for new product innovation, and as we begin to get that into the stores, we’re beginning to see some stabilization, particularly for the accounts that are much more aggressive in going after the new product. The ones that are not moving as aggressively on the new product are not recovering as well.

Thanks for all that additional color, and best of luck.

Thank you.

As a reminder, it’s star, one to ask a question. We’ll go to Eric Beder with Wunderlich.

Good morning. Could you talk a little bit about, in terms of the department stores, what kind of product offerings you want to give them in terms of the leather product, and where do you see that channel becoming more or less important going forward?

Eric, it’s Sue. I’ll take the question. So we do see department stores playing an important role, particularly as we introduce new innovation of leather as well as our brand new poly tulle and preppy poly. We have completed some of our markets and we are in fact seeing those placements take place, so we do believe that they are an important structure in order to change the perception of the brand and to make sure that the new innovation is in front of the consumer that is walking in that door.

Are you seeing any cannibalization in the malls where you have department stores that have taken on the product and your own stores, or is it a different customer base looking at these?

We have not seen cannibalization in our own stores, and as a matter of fact we’ve even--and talking to our department stores, it works kind of the same way that when we open a store where we already have a department store distribution, they don’t see any cannibalization either. So we definitely believe that there’s synergy between our own stores and the department stores.

Okay. On the incremental $8 million marketing spend, where are the buckets going to go in terms of where you’re going to put the meatiest spend in terms of online, magazines and other areas? How should we think about that?

Primarily we’re focused on digital, first and foremost, so that’s where the majority of that spend is going to go. Obviously we have Theresa joining us in a few weeks, and she may change this a little bit, but digital first and foremost, also increasing spend in terms of social media and PR pretty significantly this year. That hasn’t been a focus for us over the years, so we’re definitely looking to increase that, including potential ambassadors, which we obviously have one already. And then print as well - you’ll see us in a lot of different magazines. We mentioned on the call a few of them that we were in, but we’re in fashion magazines such as Vogue and Teen Vogue, et cetera. We’re in Better Homes and Gardens, Shape, Real Simple, Seventeen, et cetera, so you’ll see us in print throughout the year as well.

Great. Thank you and good luck for the rest of the year.

Thank you.

We’ll go to Neely Tamminga with Piper Jaffray.

Great, good morning - Neely Tamminga. Rob, can we just step back just a little bit on this, and almost arc back maybe to our analyst event. Could you help us think through this? So the company built itself into a half billion dollar brand with basically great design, authenticity and word of mouth, and over the last three years, and understanding you’re coming in here batting clean-up a little bit, right, but over the last three years you’re basically heading into three years of revenue declines. So we hear from you, you want to talk about awareness and raising awareness. Could you just help us ground that assessment around what some of the key metrics are around unaided awareness or aided awareness, or how your new-to-file is tracking with some of these newer product initiatives that go outside the core? We’re just trying to better fully understand the progress on raising awareness right now. Thanks.

Great question, thank you. First of all, when you think about this whole issue of awareness, when we talk about awareness, there’s two pieces of it. One is just brand awareness, as you say - do they know Vera Bradley, which is one piece of it. But as important, it’s what does Vera Bradley stand for? And what we found in our latest research is that the consumer still equates Vera Bradley with cotton quilted pattern bags, and we definitely know from a fashion standpoint that it doesn’t have the same resonance that it did before, so we need to expand the consumer’s awareness of what Vera Bradley represents, and what we’re finding in these focus groups, and we held focus groups in three major cities in the U.S., and what we found is when we showed them the new product, it really resonated with them but they weren’t aware that it was there. They had a notion that Vera Bradley was good when they had a backpack or good when they bought a duffle, but once they bought their cotton quilted one, they didn’t need another cotton quilted one. But when they began to see all these new products, they were excited and much more apt to come back and visit the store and make an additional purchase. So it’s really building awareness around a fuller product offering, that we have more fabrications, more solids, more styles that can fit into her current life. So when we talk about awareness, it’s a little bit deeper than just brand awareness but what they’re aware of. We are finding that the new consumers coming into our file are reacting to the new product. We are finding that the new product is bringing in the new consumer, that more of their purchase or more of their cart is focused on the new product than the core product, so we are seeing that resonance. Our overall brand awareness is still high in terms of people have heard of Vera Bradley, except when you go to the west coast; but they don’t understand what we offer, and that’s what we have to build, is the awareness of our offering.

Thank you, and could you just bridge that then with the strategy at outlet? So the success that I think we’re hearing around the made for outlet strategy, are those MFO products primarily in what you consider the traditional more quilted pattern, or does it also encompass the newness that you’ve been bringing out there to broaden the awareness of the Vera Bradley spectrum? So help us now arc that to the MFO strategy. Thanks.

Yes, absolutely. In terms of MFO, we always expect MFO to follow but not be concurrent with our full line strategy. So what does that mean? Currently, the vast majority of the MFO product that is in our outlet is in the core cotton quilted program. We have begun to introduce microfiber into the outlet channel, which is doing exceptionally well and outselling the core cotton, so there’s definitely a need for newness in our factory channel also. We are also beginning the development of these other fabrications into our MFO strategy, but we want to make sure that whatever we take into our MFO strategy is highly differentiated from our full price offering, because we obviously want to make sure that we’re maintaining a very strong fashion presence in our full line stores and a reason to buy full price. But you will begin to see these fabrics over the next year as some of them begin to trail into our outlet.

Great, thank you.

We’ll go to Steve Marotta with CL King & Associates.

Good morning, everyone. Thank you for all the detail on the call. I just have one question. As it pertains specifically to your marketing plans between now and the holiday season, so that would be obviously summer, back to school and holiday, what specifically are you doing to endeavor to increase traffic to the stores? Is there anything that you can talk about - direct mailers, anything to drive additional traffic to your company-owned stores? Thank you.

Thank you, Steve. First of all, the total campaign as we look at the $8 million, we definitely are continuing to invest that as we go through the third and fourth quarters. Obviously in the third quarter, it has a very strong back to school focus, but it is a combination of a lot of digital advertisement, a lot of working with blogs and the social media world as well as looking at PR opportunities, because what we believe we really need to do is get people talking about Vera Bradley again. We think it’s the most important thing. Then, we also are working on a localized basis. We’ve been testing some local kind of mall-based marketing in Dallas, which we’re starting to get some good initial results on in terms of really working locally with the malls to drive consumers into our stores. So I would say there’s really a two-part strategy, but the vast majority of it is built upon building brand awareness and getting consumers to talk about us again.

Okay, thank you.

We’ll go to Dana Telsey with Telsey Advisory Group.

Good morning everyone. As you think about some of the marketing that you have done, the I Am campaign and the testing phase, and you mentioned that execution fell short of expectations, what changed from what you had expected at the beginning, the difference between the testing and the execution, and just lastly when you talk about the indirect retailers, the specialty retailers, what are they seeing in terms--what feedback are they giving you, and with their order reductions, how do you see that progressing throughout the year? Thank you.

Thank you, Dana. First of all, let me talk about I Am just to make sure that we’re really clear. What happened is that we had the I Am campaign set to launch for back to school, and because we had received such good feedback, Angel had tried to work with the agency to scramble and move that all the way up to Mother’s Day. In that scramble, he worked directly with the agency and placed advertising in national magazines that nobody else had seen, and our agency just was not able to execute it that quickly so we put advertising out in the market that did not truly align with I Am. I would not really say that the Mother’s Day campaign was the I Am campaign. That still really focused on back to school. So it was really a matter of rushing and having the person who was steering that not have the same creative focus as we really had envisioned for the brand, but obviously that’s changed. We have a new CMO in place who we feel is definitely aligned with the creative execution, and so we feel much better about how we’ll be able to execute that going forward. So that’s really the I Am campaign, but you’ll begin to see the real flavour of I Am as you get into back to school in July, going into fall and September. That’s really where that focus is.

And then Dana, with regards to the indirect segment in total anyway, which we gave guidance on of being down in the high single digits to low teens, keep in mind we had about $3.7 million of revenue that went into Q2 this year which was in Q1 last year, so you can tell that number, that guidance number for Q2 is obviously much better than what we had in Q1. And then as you get into Q3 and Q4 in the back half of the year, we still expect obviously it to be similar to what the Q2 guidance is as you look at the full year guidance for the indirect segment.

What we’re hearing from that channel, and it’s been interesting because we’ve been spending a lot of time - Sue, myself, Barb, everybody has been out with them, listening to them, and we keep asking them, what are their customers saying, what do they want us to do? And what they say overwhelmingly is that you have to continue to evolve the product, that what happened with your brand is that for too long, you did not evolve the product, and then you started to use hyper-promotions to drive business. So we are addressing both of those things very aggressively. They’re very excited about the new product direction and they continue to say their customers are commenting positively, but there’s a lack of awareness out there and they’re saying it’s going to take time to build that awareness, so keep pursuing the path that you’re on. They keep pushing us - move faster to reduce the promotional activity, the hyper-promotional activity, which is exactly what we’re doing. So we believe that we’re on the right path, but it is taking some time to see the fruits of that strategic implementation.

Perfect, thank you very much.

Thank you, Dana.

This does conclude today’s question and answer session. I will now turn it back to you for any additional or closing remarks.

Thank you. I continue to be extremely proud of the progress that our team has made over the past year. We are transforming our product assortments, modernizing our stores, evolving our outlet stores to a factory outlet model, improving our online shopping experience, adding important department store relationships, and ramping up our marketing efforts. It will take time for these efforts to pay off, but I believe all of these are the right steps to attract new customers to our brand and for the future of the business. Thank you for joining us today and for your interest, time and questions. We look forward to speaking to you on our second quarter call in September.

This does conclude today’s conference. Thank you for your participation.