Greetings. Welcome to Vera Bradley's Fourth Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Mark Dely, Chief Administrative Officer. Thank you, you may begin.

Good morning and welcome everyone. We'd like to thank you for joining us for today's call. Some of the statements made 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 most recent Form 10-K 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. We undertake no obligation to update any information discussed on today's call. I will now turn over the call over to Vera Bradley's CEO, Jackie Ardrey. Jackie?

Thank you, Mark. Good morning everyone and thank you for joining us on today's call. I want to start with some comments on the quarter. We're pleased with the completion of the first full year of our turnaround story. We've successfully pivoted the organization towards a bright future and effectively managed both the existing business as well as the turnaround efforts through Project Restoration, which will begin to bear fruit in the coming year. Our teams continued to carefully manage both gross margin and expenses in the fourth quarter consistent with efforts earlier in the year. We've improved discipline around gross margin management and cost control, a part of our go-forward DNA. In addition to this discipline, our strategic efforts are focused on stabilizing and growing our sales base. Our recent sales results demonstrate the need for change in our branding, product assortments and store environments, the exact areas that Project Restoration is addressing to position Vera Bradley Inc. for long-term profitable growth. After a year of foundational work, we're very excited about the customer facing changes through Project Restoration that we will unveil this year. For the fourth quarter, Vera Bradley brand revenues fell 6.1% with soft sales in all direct channels. Sales were also negatively impacted by store closures. Customers responded to some of our latest product collaborations and to our newer product offerings like leather, but overall they continued to be more discriminating with their discretionary spending in light of the macroeconomic environment. A bright spot was the November transformation of our online outlet from a flash-sale model to an everyday extension of our outlet stores. This brought new customers to the brand and helped offset weakness in the outlet store channel. On the Indirect side, our wholesale partners were cautious with inventory buys in the fourth…

Thank you Jackie and good morning everyone and thank you for joining us. Before we open for questions, I have a few highlights for the fourth quarter and the full year to cover. For the sake of clarity, the numbers I am discussing today are all non-GAAP in nature and exclude the charges outlined in today's press release. A complete detail of items excluded from the non-GAAP numbers, as well as a reconciliation of GAAP to non-GAAP can also be found in the release. Beginning with our fourth quarter, consolidated net revenues totaled $133.3 million compared to $147.1 million in the prior year. Consolidated net income totaled $3.5 million, or $0.11 per diluted share, compared to a net loss of $1 million, or $0.03 per diluted share last year. The current year fourth quarter consisted of 14 weeks compared to 13 weeks in the prior year fourth quarter. The full year fiscal 2024 consisted of 53 weeks compared to 52 weeks in the prior fiscal year. Comparable sales discussed by Jackie and myself during this call were calculated based on 13 weeks in each of the fourth quarters and 52 weeks in each of the fiscal years. The additional week contributed approximately $6 million in net revenues and increased earnings per share by approximately one penny for both, the current year fourth quarter and the fiscal 2024 year. Current year fourth quarter Vera Bradley direct segment revenues totaled $93 million, a 6.6% decrease from $99.5 million in the prior year fourth quarter. Comparable sales decreased 10% from the prior year, largely driven by weakness in the outlet and full-line channels. Total revenues were also impacted by store closures over the last twelve months, including eight full-line stores and one outlet store, while we also opened three outlet stores over the…

Thank you. [Operator Instructions] Our first question is from Joe Gomes with Noble Capital Markets. Please proceed.

Good morning.

Good morning, Joe.

So just Jackie, you've talked about a lot of changes coming on both of the brands in calendar year 2024. You've been there for 18 months. Michael, you've been there for about a year, talked about Project Restoration for roughly a year. The challenge of turning around just that much bigger than you originally anticipated, or is there just things that are occurring that it's taken you a relatively long period of time to get your hands around it in order to come up with the changes here that you've outlined today?

That's a great question, Joe and the short answer to that is no. We are absolutely on track in terms of our efforts to turn around the business. The first thing that we really had to deal with was a very long product lifecycle. So I've been here about 15 months and our product lifecycle is roughly 18 months. So kind of getting in the seat and then hiring the team to be able to do this level of transformation. We're right really where we need to be in terms of launching all of this in the middle of the year. And I would say further to that, that it's a big change and it's the one thing over the years many people have followed the brand, and there's been a lot of things at Vera Bradley specifically that we've done. This is a different effort. This is a very comprehensive effort that's really outlined by Project Restoration. It's not just one part of the pillar, it's the entire pillar. So this was a bigger effort. And then expect to see that in the middle of the year when we launch New Day for Vera Bradley, that we'll see some really good results. On the Pura Vida side definitely different issues. We're seeing some other external issues that have really kind of caused us to say, you know what, this is a business that we're going to manage for profitability and we did that this year. We did that for the year. We did that for the quarter. So I feel our plans are really on track.

Okay, thanks for that. I appreciate that. And in the comments today, you talked about improving the quality of the fabrics with an unchanged retail price. Does that have any margin impact, or have you got to the point where margins, that won't impact margins by improving the quality of your fabrics, but maintaining price?

Yes, that's a great question, too and we kind of expected that one today. So it’s definitely -- the short answer to that is no. We are actually expecting our product margins to be about the same or a little bit better. And that's because of mix shift for sure, is one element, and then another element is just the designs that we've just been able to design into styles that can highlight the fabrics, the new and improved fabrics that we're using with less make.

Okay, thank you. And you also talked about the new full-line format with a focus on lifestyle centers and I was wondering if you could just kind of give us what you meant by that or what you mean by that?

Sure. It's really just the alternative to our in-mall format, which is currently the majority of our fleet. We would like to mix up that ratio and be in a little more lifestyle center, so places that are -- shopping centers that are anchored with whole foods, and in places where she's going all the time. So all of this is really centered around, for Vera Bradley, centered around the customer and understanding where she shops, not only from a specialty or lifestyle retailer point of view, but where she's going every day and how do we just get more in the front of her mind and consideration set?

Okay, one more, if I may. So fiscal 2025 is based on your guidance today, kind of going to be a replay of 2024 from a financial point of view. And I was just wondering, what do you think, or what do you see could occur that might make 2025 a better outcome from a financial point of view than 2024?

Michael, do you want to take that?

Let me jump in first. I think the first and the biggest of this would be customer reaction on the other side of New Day. We are being pretty diligent and judicious in our expectations, making sure that we've got an organization that's focused on delivering. So to the extent that consumer reaction is obviously better than what we had planned, that would obviously be better results as well. I think additionally, as I mentioned in my forward looking comments, we are anticipating some continued overhang, economic -- macroeconomic overhang. We saw over the course of 2024 and we talked about this on prior calls, we saw sequential declines in traffic patterns across most of the year. That continued through into the fourth quarter as well. And I think that's reflective in a lot of other retailer results that have been released over the last week or two. So we have continued to anticipate that some portion of that's going to continue to hang over into 2025. So if that outlook gets better, then of course the rising tide lifts all boats on that as well.

Great. I appreciate you guys taking my questions and look forward to an interesting 2025.

Thanks, Joe.

Thanks, Joe.

Our next question is from Eric Beder with SCC Research. Please proceed.

Good morning.

Good morning, Eric.

Good morning. So you've made tremendous progress in terms of reducing inventory levels. I gather from what I'm hearing in your guide that's going to start to level off. How should we be thinking about the inventories going forward?

Broadly, as we guide it broadly, we're expecting inventory to be relatively flat on a yearend over year end basis in fiscal 2025. However, given what's going on underneath the surface that will actually represent a bit of an improvement. We are doing a fairly substantial merchandise shift across our channels as part of launching New Day, which will happen midyear. Additionally, there might be some additional unit to turnover improvements that I think will be under the surface beyond that as well. And we'll see as we go forward broadly, you should start to see sales and inventory patterns run similarly on the other side of that. But we think that it'll actually, yearend flat will be actually some structural improvement under the hood.

Okay. You talked about looking at the, while you're adding storage, you also talked about looking at the composition of the storage you have. What do you have in terms of lease expirations and flexibility to do that now and going forward?

That's a great question. Every year we have a body of stores come up for renewal. As we are approaching landlords at this juncture, we are finding a lot of receptivity to renegotiating lease terms as we move forward. Broadly, there's a couple of closures that will happen this year on the full-line side, but broadly, we're very happy with the fleet as it is and are looking to continue to extend our stays. But as Jackie mentioned, there's a body of work that we will be doing in our stores this coming year as part of New Day, so there'll be a lot of refreshing going on in our stores, so that's part of the conversation as well. We've started to have initial conversations with landlords, and I think the landlords are excited about what we're doing and the outlook on both product and store refreshes.

Great. Is the goal to have the refreshes done at the start of New Day, or is that going to be an ongoing process? How should we be thinking about that?

I think the short answer to your question is yes. This is one of those that with all of the different refreshes across all of the different stores, it will not all exactly synchronize to the day of product arriving in the stores. But we're working very diligently as a team to make sure that everything is coordinated as tightly as possible.

Okay. And when we look at, you've kind of hinted around this, what should we be thinking in terms of the categories that are going to be in the stores? Are we going to see less categories and a deeper focus? I think you've kind of implied that, but I'd like to get kind of a confirm and beyond travel, what are the key core categories that you want to be in?

Yes, that's a great question, Eric, and I think it will vary a little bit from the outlet segment to the full-line segment. So in outlet, you'll largely see that the categories remain unchanged though, we are looking obviously, we have a lot of tests that are going on right now from marketing, store merchandising, price points, discounts, everything. A lot of tests around the outlet fleet now, but largely, you won't see a lot of difference in terms of product category breadth. You will likely see some difference in offer breadth and reduction there. And then on the full-line side, really in the stores, there will be more of a focus on travel and bags. Really that's where we looked at the data, that is the place where we're really owed business is bags, but as much backpacks. I mean, backpacks we've kind of maintained our business over the years, but true handbags, belt bags, some of those little more fashionable items, we have not been as strong. So you'll definitely see our commitment to travel, which is really the core of our brand, but then some extension into bags and potentially some unproductive categories moving out of the full-line stores.

Okay. And last one on Pura Vida. So you mentioned opening some more stores in Pura Vida. Obviously, the sales have been tough. Are you still seeing the strong results in the stores that you have opened to mix and I guess the surrounding areas to justify more stores? And what would be different on the stores you're opening now than the ones you did the first two or three?

Yes, that's a great question. I'll take the first part and then I'll let Michael add if there's anything. So we still see, this is a -- the Pura Vida performance is largely. It's almost three different businesses in terms of the category results or the channel results and retail is still strong and very profitable. And ecommerce really is, because so much of the business is in ecommerce. And the minute that we hit increased costs that affect our new customer acquisition rate, you definitely see challenges in the top line. So, but we still feel strongly about the stores. Some of the stores that we opened last year are really good. So we're kind of looking at how do we take that specific model and find the places that are going to produce those same results. So that's really what we're doing right now. Anything to add?

I would add that we've seen some really good success in tourist oriented areas. And as we look forward and are mapping out the next couple of stores, that's a bit where our focus is. I think the upside from that, from a broader branding and business perspective is it gives you a much bigger footprint nationally than it does just in the local market, because you're tapping people who are coming into that area from all over the country.

Okay. All right, guys, I look forward to seeing this all in July. Thank you.

Thanks, Eric.

Thank you, Eric.

[Operator Instructions] With no further questions, I would like to hand the conference back over to Jackie for closing remarks.

Thank you, Sherry. Our entire team is dedicated to returning the company to profitable growth and generating strong cash flow through Project Restoration, which should deliver value to our shareholders over the long-term. We are on track with our Project Restoration initiatives. Thank you for joining us today, and we look forward to sharing our progress with you on our first quarter earnings call on June 12.

Thank you. This will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.