Greetings. Welcome to the Vera Bradley First Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll now turn the conference over to Mark Dely, Chief Administrative Officer. Mr. Dely, 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 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 in the company's most recent Form 10-K filed with the SEC for discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. We undertake no obligation to update any information discussed on today's call. I will now turn the call over to Vera Bradley, CEO, Jackie Ardrey. Jackie?

Thank you, Mark. Good morning, everyone, and thank you for joining us on today's call. We have a lot to discuss today about the upcoming rollout of project restoration, but let me begin by making a few comments on the first quarter. Overall, our first quarter performance reflected the continuation of a number of trends from last year. Many of these were driven by the same economic challenges that several other specialty retailers have noted in their earnings releases. We are also in a transitionary phase with the upcoming July public facing rollout of Project Restoration, which includes the introduction of new Vera Bradley product assortments late in the second quarter. Not surprisingly, our first quarter performance was a bit choppy. I'd like to note that we expected much of this turbulence and that our guidance for this year, which Michael will discuss later in the call, is unchanged. I'm especially proud of the entire Vera Bradley organization for running the ongoing business while simultaneously taking on the extraordinary amount of effort necessary to enter the launch phase of Project Restoration. While we have been working on this for well over a year, many pieces are now going into motion as we make this long anticipated transition. We are very excited. In our first quarter, Vera Bradley direct revenues fell 4%, primarily related to continued traffic challenges in our outlet channel. We are seeing the impact of reduced visits and spending across all household incomes and channels, but especially in the under $75,000 households where we have high penetration on our outlets. Full line store and e-commerce revenues were down modestly, boosted by the shift of our annual outlet sale in Fort Wayne to the first quarter this year from the second quarter last year, as well as our recently…

Thank you, Jackie. Good morning, everyone, and thank you for joining us. We will open up for questions in a few minutes, but I'd first like to cover a few highlights for the quarter and briefly update our guidance for the year. For the sake of clarity, the numbers I am discussing today are all non-GAAP numbers 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 numbers can be found in that release. For the first quarter, our consolidated revenues totaled $80.6 million compared to $94.4 million in the prior year first quarter. First quarter net loss totaled $6.5 million, or $0.21 per share, compared to a net loss of $2.6 million, or $0.09 per share last year. Current year first quarter Vera Bradley direct segment revenues totaled $56.4 million, a 4% decrease from $58.9 million in the prior year first quarter. As Jackie noted a few minutes ago, we have continued to experience trends that began last year, although our direct segment revenue performance sequentially improved quarter-over-quarter. Comparable sales declined 9.6%, primarily driven by weakness in the outlet channel. Total revenues were also impacted by six previous full line store closures over the last 12 months. We look forward to the future reversal of our sales trends as we roll out Project Restoration late in the second quarter. Vera Bradley Indirect segment revenues totaled $11.5 million, a 25% decrease from $15.4 million in the prior year first quarter. The decrease was primarily related to lower sales from certain specialty partners and key accounts as well as the timing of a large off-price order shifting to the second quarter this year from the first quarter last year. As Jackie noted earlier…

[Operator Instructions] And our first question today is from the line of Daniel Harriman with the Sidoti & Company. Please proceed with your questions.

Good morning, Jackie. Good morning, Michael. Thank you for the details.

Good morning.

I've just got a couple of questions that I'm going to try to combine if that's okay. But given the weakness you're currently experiencing both from a macro perspective and also the timing of the initiatives and the headwinds that those bring, could you just, I guess, give us your level of confidence and how strong of a back half you are going to have. And then with one first quarter sales and the weakness that you expect in the second quarter, obviously it looks like you're expecting a year-over-year increase in the back half of the year. Do you see any opportunity for additional upside to what you've already guided and then along those lines, what are the key risks that you see in the second half of the year?

Thanks for your question. So I'll start and then I'll let Michael take anything I've missed in my answer. But, so again, we certainly expected some of this weakness in this quarter. When you have the completeness of a transformation in Vera Bradley with product like we're doing next month, it's normal for wholesale partners to wind down their purchases in the old product and wait for the new. So we're not concerned about what's happened here, and we know that there's periods of -- it really is kind of a month to month and a week to week story where our ears are certainly to the ground listening to our indirect partners and hearing what's going on in the stores. But we see that we certainly have orders booked and we're very optimistic about what's going to happen in the back half of the year. What we don't know, of course, is just consumer response. We've done everything we possibly can do, with the data that we have and the outside research that we've done, to match what we think our consumers want and the customers that we don't have to target them and create a very strong and compelling marketing plan to deliver the growth that we expect to see in the back half. What we don't know, of course, is just the macroeconomic trends. We've certainly seen this quarter, as I mentioned, the real difference in our level of visits from our households that are under $75,000, which disproportionately affected the outlet business. So we're hoping that we start to see some more optimism in the consumer, but we think we're positioned in every possible way that we can be further back half to present something that's very compelling.

Yeah, I’d add a couple of additional finer points to this. I think if you look at the year-over-year for the first quarter, obviously a big drag on this was the Pura Vida side. We've talked about for a couple quarters now, this is very intentional. It's very deliberate. This is about positioning that brand for long-term profitability and as such, was very much anticipated. That was not a surprise for us. I think on the wholesale side, on the Vera Bradley side, there is a bit of a choppiness there and a great deal of that is we're starting to get visibility to the oncoming book of new product, we'll call it product restoration assortments. Our visibility to that gives us a lot of confidence that we're looking at a large amount of timing distortion that we'll start to see that pick up in the back half of the year. We'll see some of it pick up, I think, in the second quarter, but mostly the back half consistent with what we've said, is kind of this tale of two halves. To your question, that leaves the rest of it is varying degrees of lesser challenges, but certainly not to minimize, it has been a challenging traffic environment, in particular in the outlet arena. And that's also, by the way, that's also consistent with things that we have heard from some of our landlords as well about the nature of traffic that's going into outlets and frequent, the number of store visits as well as to all times. So I think the final point on this is by virtue of us reaffirming our guidance, a great deal of this was expected. We were expecting the first half to be choppy. We were expecting a degree of macroeconomic challenges. We do see some upside in the business in the back half of the year. In terms of your questions on the relative risk and opportunity, I'd say we're trying to strike a somewhat conservative stance, which would imply there's upside, but there's always risk as well. So I'm not going to say there's no risk, and I'm not going to say there's no opportunity either.

Okay, I really appreciate it, Jackie and Michael, and best of luck with the rollout next month and the last three quarters of your fiscal year. I really appreciate it.

Thank you.

Thank you, Dan.

Our next question is from the line of Eric Beder with SCC Research. Please proceed with your questions.

Good morning. Thank you for the details on Project Restoration.

Thank you.

Thanks, Eric.

Good morning. When you look at kind of, it's really exciting to see you decide to start growing the store base on both sides. What kind of led you to decide that, and how do you think about the stores versus online as growth drivers going forward?

I love that question, Eric. So the store base, especially just, this is a, I believe the first time we've talked a little bit more in detail about the full line stores and the fact that we really want to stop closing them. So what I think has been very influential in that decision is really determining how we can make these stores more profitable. So, and we've done an amazing job outlining just the ways in which we are going to continue and have already addressed the profitability in those stores. So as we are ramping up and planning to continue or to begin driving revenue growth, we want to get that expense structure in line in those stores so that we're ready for a really nice result when the sales do come through. So it was really about evaluating the profitability and looking at our labor models and rent renegotiations and determining really where we needed to be, which malls, which locations, and we're still working on that with a pretty fine detail to ensure that we can grow this store fleet again. As it comes to online, I think about online in obviously two different ways. Our vb.com business, which will have a pretty significant reset next month with all new tools, capability, creative, it's really, it'll really be a great relaunch. And then our always on VBOO site. So that launched at the end of last year and has really exceeded our expectations in terms of revenue and new customer growth. So we really see that in two pieces and both of those sites having a different job for the consumer and different assortments where perhaps they're a little bit too similar now. We'll definitely see with Project Restoration an elevation in the vb.com assortment and kind of a continuation of our existing product assortment on the outlet site. So overall, if you take those things together, we're expecting growth in e-commerce. We've mentioned several times that we're digital first. That's really reinforced here in the company. We're doing a lot to really look at what should our online assortments look like versus our store assortments. What does the customer want? How can we market to her? So there's a lot of work being done, and we'll begin to roll out next month when we see the launch of Project Restoration.

Great. And let's talk a little bit about the split between full price and outlets in some of the pieces here. So you mentioned leather. I know leather’s done really well for full price stores. So how are you going to take that to the outlet stores and offer, I guess, compelling value at leather at the same time? And I want to clarify something. You talked about collaborations being in both the full price and the outlets and historically that hasn't happened at the same time. Is that a change in thought process that you'd want to have some of the collaborations at the same time in the outlet stores that are in the main line stores?

Yeah, very insightful question. Thanks, Eric. So, we will have product collaborations in both channels, perhaps not at the same time. So, you won't necessarily see, or you may or may not see, I should say, a specific property in both the outlet and the full line assortment at the same time. But -- so we're really strategically looking at what, just our customer base and who's shopping where and where do those properties make the most sense and what's the timing of those launches. And the size of them, like everything's being really looked at. How do we have differentiation in price points, in styling, in look, so that both the outlet customer and the full-line customer can enjoy those properties no matter what price point they're shopping for or look they're shopping for.

Okay. A question for Michael. Inventory, you've done a great job with the inventories. How are inventories going to shift now that Project Restoration is starting to go into the stores and go live?

Thank you. I appreciate the question as well. We have made a lot of progress on our inventory. I think as we look forward, there's a fairly substantial movement that's literally in front of us right now as we migrate the new assortments into the brand stores, as well as online properties, and start a larger migration of the existing assortments over into the outlet channels and the other value channels. I think as we look at our outlook for inventory through the end of the year, we expect it to be flat to slightly down by the end of the year. That will be inclusive of maybe a little bit of average cost creep as well as this movement that will still have a little bit of hangover. So I do think we'll continue to see structural improvement in our inventory management through the end of the year as well as beyond.

Great, congrats and we look forward to seeing the stores in July.

Fantastic. Thank you, Eric.

[Operator Instructions] The next question is from the line of Doug Lane with Water Tower Research. Please proceed with your questions.

Hi. Good morning, everybody. I want to stay on the channel mix here. You talk in terms of three broad channels, the wholesale, the bricks and mortar retail, and the digital retail. What is the approximate mix of those three as a percent of your business now, and where do you think it will be after Project Restoration is fully implemented?

Our wholesale business runs in the mid-teens to 20%. It obviously shifts a little bit from time to time, from period to period. The digital side of the business runs closer in the quarter, a little bit higher than a quarter of the business in the balances than the retail side. And so, as we look forward, I'm going to articulate this, I think, more in a branded versus value kind of shift is I think the way we're looking at this. Because as we think about the consumer, we're not trying to legislate where the customer wants to purchase Vera Bradley products. Our goal is to be more positioned where the customer is and where the customer would like to see our products and purchase our products. In terms of a value versus branded perspective, we have been a little bit overweighted on the value side for a number of years, we see the opportunity here as a growth opportunity to grow our branded side of our business, branded weight of our business, full line -- the full price side of the business, I should say, and to grow that side of the business. That's where a lot of the work in terms of customer marketing is coming from, the targeting, the product, where we're exposing the new product and how we're exposing the new product. There's a lot of work on the value side as well, but clearly we've spent a great deal of time talking about the branded assortments here. So we see a growth opportunity to get that weight shifted back to heavier on the full line, full price branded side. Jackie, you want to add anything to that?

I think, Doug, one of the other things that we really feel like we're going to have the ability to do is look at our assortment and determine which channels, which wholesale partners they should actually go into based on our kind of strategic thoughts about those product categories. So leather, for example, has specific distribution points. Obviously, it's in a full line. Part of that's in wholesale. We'll do some faux leather in outlet. But we're thinking about this not only just from a business unit point of view, but also an assortment point of view, so that we can really be strategic about where we're matching the product assortment to the customer we want. So, and I think that that is, that's a thought process that's really going to benefit us and help us to deliver on our goals.

Okay, that's really good color. Thank you for that. And just shifting gears to capital here, you mentioned the CapEx at $12 million to $14 million, up from just under $4 million last year and even $8 million the year before. So clearly elevated capital spending here. So as I'm looking out, is this a one year thing with Project Restoration or do you expect elevated spending to continue beyond fiscal ‘25?

So I'll take just the first part of it and then turn it over to Michael. But one of the key points in our research when we started thinking about Project Restoration and deciding what we wanted to do was that our store environments were not always places that our new target customer, this 35 to 54 year old who values both fashion and function, where she really wanted to shop. We really looked at the experience in the store, the amount of merchandise that was in the store, fixturing, all of that. And so we said we really needed to make some changes to the environment of the stores in order to ensure we can capture the new customers that are critical to our plan and our future growth.

Yeah, and I think that's a premise behind a lot of the refreshers remodeling activity that we're doing across many of our stores. Each store is different. Each store has a different story and has a different degree of needs depending on its current state, how long it's been in place, some of the design standards that were -- that have been employed in each store. I'd say, Doug, back to your, the specifics of your question, I would say a great deal of the elevated capital is, I'm not going to say one time, but it is definitely not consistent with trend and other ongoing maintenance kind of capital. We are addressing a lot of the shopping experience in our branded stores and to a lesser degree in our outlets as well. A great deal of that is kind of one-time-ish or not every year in nature, I'll say it that way. We also have some additional capital in there associated with the new stores we've talked about. And then we do have some other maintenance and other kind of ongoing kind of capital. That maintenance ongoing capital every year kind of stuff is, think about that as a sub $5 million a year kind of volume. The rest of this is more specific to either growth or specific issues around Project Restoration.

Okay, that’s very helpful. Thank you, Michael. And just lastly, it begs the question, what are the uses of free cash flow going forward?

That's a great question. Obviously, this year, our net cash flow for the year will be a lot lower than the last -- most of the last several years. That is Project Restoration related predominantly, as I just said. As we look forward, we are unabashedly conservative on the balance sheet. I think this is something that the company has been very consistent about. We have no intentions of changing that at this juncture, and we believe in the value of conservatism in this regard. As we look forward, there are a number of avenues and opportunities for growth as you look forward. Some of them are more capital consumptive than others. We're not providing guidance on specifically which ones and to what degrees we're going to be pursuing those in future years, But we do see the opportunity for future investment and growth, as Jackie talked earlier. And we do see opportunities for other capital returns at some point in the future.

And, Doug, just as a reminder, we did -- we bought back a million shares in first quarter and we still have $19.2 million remaining on our $50 million repurchase authorization that runs through the end of the year. So that's another significant place that we're looking at for capital allocation.

Is there any talk of a dividend here?

We're not providing any guidance at this time. If and when we make a decision to that with our Board, we'll announce that.

Okay, fair enough. Good luck this summer with the rollout.

Thank you.

Thank you.

Thank you. We've reached the end of the question-and-answer session and I'll now turn the call over to Jackie Ardrey for closing remarks.

Thank you. Our team is dedicated to returning the company to long-term profitable growth and creating value for our shareholders through Project Restoration. We are on track with our initiatives and we're excited about our Vera Bradley brand relaunch in July. We've assembled a talented leadership team who are retail growth and turnaround experts and they have been the foundational support of Project Restoration. I want to thank our entire team for working so diligently and collaboratively over the last year to position us to deliver. Thank you for joining us today and we look forward to sharing our Project Restoration progress with you on our second quarter earnings call on September 11th.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.