Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vera Bradley Fourth Quarter and Fiscal Year-end Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Mark Dely, Vera Bradley's Chief Administrative Officer.

Thank you. Good morning, and welcome, everyone. We'd like to thank you for joining us for Vera Bradley's fourth quarter and year-end 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 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 it over to Vera Bradley's CEO, Rob Wallstrom. Rob?

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 pleased that our fourth quarter revenues were at the high end of our guidance and our gross margin rate exceeded our expectations and expenses were well-controlled. These factors led to fourth quarter EPS of $0.25 at the top of our guidance range. We are also pleased with our fiscal 2019 performance with EPS of $0.59, at the high end of our guidance and substantially better than the annual per share guidance of $0.35 to $0.45 that we originally projected at the same time last year. As you recall, approximately 18 months ago, we initiated Vision 20/20, our 3-year plan to restore our brand and business to a healthy foundation and to return our company to solid growth. Fiscal 2019 was the first full year in our 3-year journey. As a reminder, our major focus areas in fiscal 2019 as part of Vision 20/20 were: drastically reducing clearance revenues and restoring full-price selling, delivering SG&A and COGS reductions; maximizing retention of the company's customer base; and delivering cash from operations. We made excellent progress against these key initiatives over the last year. We improved the quality of sales by reducing clearance activity in our full-line stores and on verabradley.com by approximately 70% and increasing comparable full-price selling in these 2 channels by over 20%. We continued to deliver on our SG&A reductions through diligent expense management and implementation of our Vision 20/20 initiatives, reducing SG&A to our targeted level of $212 million for fiscal 2019. Our reduced level of clearance activity, combined with other efforts in sourcing and distribution, drove meaningful year-over-year gross profit margin improvement. While as expected, our overall customer count was down in…

Thanks, Rob, and good morning. Let me go over a few highlights for the quarter. As I discuss the quarter and the fiscal year, keep in mind that the prior year fourth quarter income statement numbers are non-GAAP and exclude the charges outlined in today's release. Fourth quarter net revenues of $118.2 million were at the high end of our guidance range of $114 million to $119 million. Prior year fourth quarter revenues totaled $132 million. For the current year fourth quarter, we posted net income of $8.6 million or $0.25 per diluted share at the high end of our guidance range of $0.22 to $0.25 per share. Non-GAAP net income totaled $11.8 million or $0.33 per diluted share last year. Fourth quarter Direct segment revenues totaled $98 million, an 11.2% decrease from $110.4 million in the prior year. Comparable sales, including e-commerce, decreased 11.2% for the quarter. As expected, comparable sales continued to be negatively impacted by year-over-year declines in store and e-commerce traffic. Indirect segment revenues decreased 6.4% to $20.2 million from $21.6 million in the prior year, reflecting lower orders, coupled with a reduction in the number of specialty accounts. Gross margin totaled $67.1 million or 56.8% compared to non-GAAP gross margin of $74.3 million or 56.3% last year. The 50 basis point adjusted gross margin improvement mainly related to reduced clearance activity and increased full-price selling on verabradley.com and in the company's full-line stores; a higher percentage of made-for-factory products sold within the factory channel; and operational savings, partially offset by increased China tariffs and higher-than-expected inbound shipping costs. The gross margin percentage was modestly above the guidance of 56% to 56.5% mainly due to the impact of Chinese tariffs being at the lower end of our expectations. SG&A expense totaled $55.6 million or 47.1% of…

Thanks, John. Allow me to make a few comments about our focus areas for fiscal 2020. As I mentioned earlier, the first stage of Vision 20/20 was to restore brand and company health, and I am happy with the progress we have made. Fiscal 2020 promises to be an exciting and challenging year as we move into year 2 of our journey. While we remain focused on strengthening our foundation, in fiscal 2020, our key areas of focus will be growth, operational excellence and ownership. And let me give you some details. Our goal is to return to positive comp sales growth this year. The key to our growth will come from delivering compelling product tailored to our customers, coupled with engaging marketing and customer experiences that both build engagement with our current customers and bring new and returning customers to the brand. On the product front, we will continue to build dominance in our key franchise areas like travel, Back to Campus, beach, gifts and our top 10 items. We continue to make gains in pattern performance and consistency. Cotton remains the most important piece of our business, but we will continue to add lightweight, high-performance fabrics, like our performance twill collection, which is being introduced in August. Our products remain authentic and true to our brand, but innovation is becoming more and more critical to our product assortment, including styles that provide both new functionality and beautiful design, new fabric innovations, new product categories, limited-edition collections in collaboration with unique partners and special novelty collections. Expanding our licensing initiatives and collaborations will increase our brand awareness and provide momentum to our growth. Several product collaborations are underway. Just last week, we announced our partnership with New Hope Girls, a nonprofit organization that provides jobs for vulnerable women and…

[Operator Instructions] We will now take our first question from Mark Altschwager from our R.W. Baird.

Congrats on the progress in year 1 of Vision 20/20. I apologize if I missed it, but did you share the full-price selling metric for the fourth quarter?

We did not talk about it in the script, but we can obviously talk about it. We continue to see very strong double-digit full-price growth. So we actually saw the momentum of our full-price selling even accelerate in fourth quarter over what it had been all year, so continue to see real strength.

Okay, that's great. And then, turning to the revenue guidance for fiscal 2020, Rob, you mentioned that it's the company's goal to return to positive comps. And I'm trying to reconcile that with the overall guidance of plus 1% to 6%, especially given the context of some comp uncertainty and the pressure that we've seen in the Indirect channel over the last several years. So maybe if you could just talk about some of the revenue drivers beyond the comps that are giving you the confidence in that revenue outlook?

Yes. I think a couple of things. I think, one, the comps is obviously a critical piece of that, but in addition to that it's the new store openings and factory. So factory is also providing incremental revenue, which is why total revenue looks like it's outpacing comps slightly. It's really due to the new factory store openings.

Okay. Got it. And then finally, I was hoping you could speak a bit about the outlet environment. We've heard about traffic pressure and pretty intense promotional backdrop from some other brands. What did you experience there in Q4? What's your outlook for fiscal 2020? And along those lines, I think about half of your square footage is now in outlet. So what do you embed in your flat gross margin guidance in terms of the promotional intensity within the outlet environment?

Yes. Mark, we -- in terms of what we've seen happening in the outlet environment is we've talked about in the past that it has become more promotional. Particularly within our category, it's been a highly promotional category. You know for the last year that we basically held back a lot in terms of joining in at the level of promotion that some of our competition was doing. We took the opportunity, as we worked through last year and resetting pricing going into this year, to set ourselves up to be able to be a little bit more promotional in the factory channel, which we began to test in fourth quarter, and we saw a positive response from our customer in doing that. So we feel that we've been able to look at the pricing structure and the promotional structure and plan appropriately for this year, which we believe will help offset some of the traffic pressure that we're seeing in the factory channel.

And just to mention specifically for the fourth quarter for factory, we actually saw a little bit of an improvement sequentially in factory traffic in the fourth quarter. We've seen a little bit of slowdown in the first quarter. But ultimately, in -- for the fourth quarter, we saw it be a little bit better than we had expected.

[Operator Instructions] We will now take our next question from Oliver Chen from Cowen and Company.

On the comp store sales guidance of flat to slight positive, what do you think underpins that in terms of product and marketing? And what aspects of newness would you highlight, which are most different versus last year -- for product? I'm also curious about the opportunity [ that's ] in the process. What are your thoughts on where that could happen and timing of that possibility?

Thanks, Oliver. I guess, a couple of things to talk about in terms of the comp fees. One thing that is a big change this year from last year is don't forget that last year, we had a significant reduction in overall revenue due to taking clearance out. So we're expecting to see a slight decrease in our clearance revenue this year, but we don't have that same headwind we had in the prior year. So as we see our full-price business continue to grow, we think that, that's the primary driver. And it's been encouraging to see, as we've moved into this year, that the full-price selling continues to be very strong. So that's a key driver as we talk about the comp performance. From a specific product assortment standpoint, what do we believe is driving that, I think it's actually a bunch of factors. So first of all, what we're seeing from a product standpoint is our pattern performance is much more consistent as we've put in all of the work around our pattern DNA and really being more consistent in pattern development, we're seeing a positive response from the customer, which is critical. Second of all, we've been adding in a lot of new fabric and fabrications around solids, whether it's been the denim and the velvets. And our customer really is responding to fabric innovation, which we think is another key driver for us and we think one that we're going to be focusing a lot on. And the third area is really around understanding customer needs and, therefore, style introductions. So whether it's been the success we saw last year like in our convertible duffle or whether it's some of our product introductions that are coming up this year, we think that this focus on style and focus on problem solution is really going to be critical to our growth. So I'd really say it's a combination of stronger patterns; the customer responding to fabric innovation; and number three, style. And then from a kind of a marketing customer standpoint, it's really around 2 different things. First of all, as we talk about these collaborations and creating this buzz that's going to be a key piece and we're seeing that whether it's been in the Disney response, the New Hope response, the Blessings in a Backpack response. Also, the marketing team has been focusing a lot on analytics, driving efficiency in our marketing. And so whether it's through search engine optimization, whether it's through return on advertising spend, we're seeing really significant improvements in those areas as we become much more data-obsessed.

Rob, that's helpful. And on the speed front, that would be -- it would be great to hear your views on what can happen there. The other question we had is as you think about assortment and localization, what's your -- what do you see is the opportunity with that and how that may evolve over time?

Great questions, and I think they're a little bit related. So first of all, from a time line standpoint, there's 2 ways we look at time line. One is core product development, which, obviously, as we move out of China and move to other duty-free countries, that's actually putting a little bit of pressure. So that's, in some ways, lengthening time lines that we have to offset to keep our time lines, which we're working hard on. But the other thing is the ability to produce innovative collections, new product reacting to trends on more of a fast-track process. And we have 2 ways of looking at that. One is through our standard factory process where we have been able to bring product to market in as little as 4 months going through our standard channel. But in addition to that, one of the benefits of our customization program and some of the local manufacturing we're doing in Fort Wayne, we've been able to do things like with -- we just did a special collection through QuiltCon where we actually digitally printed our fabric and made it here. And we were able to bring that to market in key styles in under 30 days. So that's given us a new ability to really do unique, innovative, small collections and -- with more of a drop mentality to kind of bring them in and sell them out quickly, which we think is helping not only in understanding our consumer but also driving a lot of excitement. So we believe that this novelty mini collection drop mentality will be part of what you see us really expand upon in this coming year.

Okay. And amongst your channels, how would you speak to the channels interacting in terms of your Indirect partners in light of the product innovation that you're doing and the changes you're making? Would love your thoughts on how the channels are harmonizing.

It's a great question. I'll answer it from a couple of different ways. First of all, the biggest thing that's been helping our Indirect channel and why the business is beginning to improve there is reducing all this clearance activity where we were basically marketing against our Indirect partners from a price standpoint. Removing that from the equation is really helping their core business improve, which is great to see. Secondly, as we move forward, we're really talking about becoming much more segmented in our offerings. And what we're learning through a hyperfocus on data is how we really localize assortments. Localize assortments means both geographically in terms of what works but also from a customer need standpoint. And as we work with our partners, we believe that getting their assortments very micro-focused on what's right in their store will only improve the strength of their business. The days of every store having the same assortment is just not resonating with the customer like it used to. So the ability to micro-sort we believe will be critical to helping our indirect partners succeed while, at the same time, allowing our direct-to-consumer business to succeed.

And our last question just is on that data discussion, which you brought up on your call and in these comments. What are your focus areas for data? And what investment there would generate the best return in the near term as well as your longer-term view of how you'll use data throughout the organization?

Yes. What we've been doing first, is really focus on data from a customer standpoint. So we've done a lot of different things like building the voice of customer practice here where we hired somebody to really come in and look at all of the different areas we're getting customer feedback and turn it into actionable tasks that we can get done to really focus on our customer more. It's also another area that we focused on data is this learning from our customer in terms of how to micro-segment the assortment. That's what we did in our Del Amo store, and we saw significant improvement in Del Amo. We think that that's really important. And so we're continuing on the data side. We've hired more people into our organization with strong data statistical background. So we believe that that's a talent we'll continue to build up. And then we're continuing to just invest in technology of how to make sure our technology is quick and that we're able to respond, so we're looking at systems at the same time. So we've started to bring a lot of our customer work back in-house, which we think is really helping us become quicker, more knowledgeable and really able to leverage those learnings much quicker.

We will now take our next question from Dana Telsey from Telsey Advisory Group.

As you think about margins, both on the gross margin side and the SG&A side, excluding the reduced level of markdowns, what do you think of the levers that move in terms of gross margin for this upcoming year? And how do you think of the buckets of SG&A, whether it's marketing or occupancy?

So Dana, from a gross margin perspective, some of the levers that we're pulling really is from a sourcing initiative, ultimately is moving some product out of China and into other GSP countries. And right now, that's going to be offset by the Chinese tariffs that are noncomp in the first half of the year. We're also looking at our distribution center and making some investments in our distribution center in order to become more efficient over there, which should help improve margin over the longer term -- probably not in the medium term -- in this year, but over the long term, we should see some benefit to gross margin there. From an SG&A perspective, we're really focused on driving efficiency, operation efficiencies within the corporate organization and at the stores. Marketing, we're looking to spend pretty flat to the prior year. So I wouldn't say we're going to get a significant leverage this year based on our SG&A rate, where that's going to come based on more significant growth in sales. As we look at opportunities within corporate, we do think there is probably a few points to get over the longer term, but in the near term, it will really be more driving it through sales.

As there are no further questions, I would like to hand the call back to Robert Wallstrom for any additional or closing remarks.

Well, thank you for joining us today. We are pleased with the progress we made in the first year of Vision 20/20, and we are looking forward to significant progress this year as we focus on growth. We look forward to speaking to you on our first quarter earnings call scheduled for June 5.

This concludes today's call. Thank you for your participation. You may now disconnect.