Greetings. Welcome to Vera Bradley, Inc.'s Third Quarter Fiscal 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. Anyone today should require operator assistance, please press 0 from your telephone keypad. Please note that today's conference is being recorded. At this time, I'll turn the conference over to Mark C. Dely, Chief Administrative Officer. Mark, you may now 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 and the company's most recent Form 10-Ks 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.

First, we are sharpening our brand focus. Leveraging our joyful and authentic brand DNA through innovative product relevance and storytelling. To reconnect with our loyal customers while engaging new audiences. Ensuring consistent messaging across all consumer touch points. Second, we are resetting our go-to-market approach by transforming our product, planning, promotional, and inventory decisions through data-led insights. To create more productive assortments supported by integrated marketing. Third, we are rewiring our digital ecosystem. To optimize performance across all digital touch points. From social media and vb.com to our outlet online presence and emerging social commerce platforms ensuring clear brand identity, and channel roles supported by cohesive storytelling, for customer acquisition and retention. Fourth, implementing Outlet 2.0 under the umbrella of a broader reinvention of our physical retail. To develop a more brand-enhancing and productive outlet experience given the importance of this channel to our business. This aligns with our efforts to create cohesive customer experiences across all digital and brick-and-mortar channels. And finally, we are reimagining how we work, by building critical new capabilities and aligning our organizational structure operating model, and culture for sustainable future growth. Before diving into our progress on each of these five transformation initiatives, I would like to briefly discuss our results. For the third quarter, we registered revenues of $62.3 million, 11.7% below prior year. This compared to a 24.6% decline during the second quarter. Revenues in our direct business segment were $49.7 million, 5.3% below prior year compared to a decline of 16.2% in the second quarter. Importantly, we achieved sequential improvement in our key metrics in nearly all direct segment channels. Highlighted by positive comparable channel sales in our brand channels that have been product-led and have continued for five months extending from back to school through the Black Friday weekend. Additionally,…

I have a few brief comments to make about our performance for the quarter. For the sake of clarity, all the numbers I am discussing today are non-GAAP 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 be found in that release. For the 2026, our consolidated revenues totaled $62.3 million, compared to $70.5 million in the prior year third quarter. Net loss from continuing operations for the third quarter totaled negative $8.3 million or negative $0.30 per diluted share compared to negative $3.7 million last year negative 13¢ per diluted share. Results from continuing operations for the quarter were significantly by a $5.9 million inventory write down related to the brands to strategic product shift toward cotton and heritage prints along with a $4 million write off of television media credits, were acquired to support the company's project restoration efforts and won't be fully utilized with the focus on digital and performance marketing. The previously mentioned charges had a negative 35¢ impact on diluted earnings per share for the quarter. In terms of segment performance, Vera Bradley, Inc. Direct segment revenues for current third quarter totaled $49.7 million a 5.3% decrease from $52.5 million in the prior year third quarter. Comparable sales similarly declined 5.8%, which represents our third quarter of sequential comparable sales improvement. Initial efforts to improve products along with a return to back to school resulted in positive brand comps and overall positive growth versus last year. Total revenues year over year were also impacted by five new store openings and 14 store closures since the prior year third quarter. Vera Bradley, Inc. indirect segment revenues for the third quarter totaled $12.6 million a 30.2% decrease…

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Thank you. And one moment while we pull for questions. Thank you. Our first question is from the line of Eric Beder with SCC Research. Please proceed with your question. Good morning.

Good morning. Good morning, Ian.

Hi. So lot of changes this quarter, more rolling into Q4.

When we roll into 2026, what you would be thinking about as the kind of the key signpost that Project Sunshine is starting to have an even greater impact than it had in Q3 and into Q4.

Yeah. Thanks, Eric. Look. I think from day one, I've really believed that product is really the key. And, as you know, this was the first thing that we really began to focus on. We were able, obviously, to have a more limited impact on product for back to school and holiday. Although some successes. And, really, the first sort of window where we've been able to have a significant impact on product will be 2026, really starting with product that will flow between January and July. What gives us a lot of confidence is that, you know, our sort of strategy around refocusing on the reinvention of iconic styles, with critical, delightful function. Returning heritage-inspired prints, and the border iconography, reinvesting back into cotton. Which, you know, is now north of 50%, and it was below 40% and sort of much more qualitative and impactful IP products. As well as really focusing on sort of occasions that we can own like back to school, spring break, Mother's Day, travel. All of that, what we see and what we're doing, is working. And so we're entering really into the spring summer season with confidence knowing that we've been able to make bigger commitments into the things that we really believe are going to work. And I believe that, you know, success with product will be the most important thing that can turn the business. Frankly, is you know, the positive experience that we're having in our brand channels right now, I believe, is primarily product-led.

Okay. When you look at Outlet 2.0,

Yes.

Some ways, it's a we, you know, we visited two of them, and it's a great concept. It also in some ways provides for some consumers who have lost kind of their full price store a way for them to still see and touch kind of full price items. I'm curious what's kind of been the response to consumers to seeing kind of full price items in the Outlet 2.0 stores. And when you look at it, does that become a bridge given that a lot of you know, there's been a lot of closures in the full price stores.

Yeah. No. Great. Listen. Great question. I'll first talk about Outlet 2.0, and then I think I'll talk more broadly about sort of distribution and how customers can access, you know, the full price product and brand experience. Look. On Outlet 2.0, it's early days. You know, we launched seven pilot stores this holiday season. I would say that the qualitative feedback that we're getting from our teams as well as customers has been very positive. You know, positive about sort of the overall store environment, positive that it's, you know, more brand enhancing. Positive about the customer journey in the stores, with much clearer destinations and heroing of lifestyles and different products. You know, stronger visual merchandising, also supported by in-store, imagery. And you know, what we have seen again, at a very, very high level and recognizing it's early, you know, is even with sort of the very strong focused assortment editing of the assortment of SKUs, You know, we've seen sort of performance in line with stores that, you know, have 35% more SKUs. We're also seeing a positive impact on the profitability of each customer that comes in the store. Know? So we're leveraging the traffic that we do have because it's gonna take longer to get traffic to come back with stronger, conversion. And we're also seeing that, you know, the more time that these Outlet 2.0 stores have, to work through sort of the new system. The better they're performing. And, frankly, we're already seeing certain things in Outlet 2.0 that we feel we can take to other stores without having to do the full sort of Outlet 2.0, you know, update. Where we can get some wins. We also are planning to do more follow-ups, you know, visiting, we're gonna be visiting, a…

Yeah. I agree. I think also think there's somewhat of a lagging indicator but we'll see. Final question. I'd say to one two questions here. One one on inventory losing really impressive job reducing inventory. How should we be thinking about the opportunities, I guess, to tap working capital and get more productive going forward with the inventory. And, you know, how long of a journey do you think it can be to go young go a little find that younger customer That's a that's historically, it seems it takes a few years to start moving that kind of average age down Thank you. Yeah. Great question. I'll let Marty handle the first part on the inventory, and then, maybe I can talk about sort of the know, your question about the younger customer.

Thanks for the question, Eric. On inventory, we definitely see the opportunity for improvement there and to improve our know, from a productivity standpoint, And today, our turns are less than two, but we have seen you know, we're starting to see the improvement in turns this quarter, and we think that we're on track through our planning processes and other activities we're taking on to kinda move that into the greater than two to three range you know, over the course of the next twelve to eighteen months.

Great. And look, Eric, I think on the younger customer, you're right. It will take some time. And look. I think first and foremost, we have a significant opportunity in front of us, right, to reengage with our loyal customer, who is still you know, the biggest and most important part of our business. We have an opportunity to reengage them with the brand, bring back lapsed purchasers. I think also get them you know, used to buying, you know, better products that really invoke what I like to think of as the OG Vera Bradley, Inc. with, you know, not only the iconic styles and function, and prints, but also, you know, bringing back some of that craft. If you look at the 100 bag you know, where we have that sort of iconic quilt through lining, you know, the reversible tote, which we're introducing for spring, is really phenomenal. You know? It's basically a two-in-one bag. And so we have that opportunity But I think where we're now focused you know, besides product, you know, with the recent appointment of Melinda as our chief brand officer is now also starting to shift some of that focus into the marketing and the digital commerce, which are both areas where I believe we have significant opportunity to reinforce you know, the great work we're doing on product with great storytelling, that can you know, and targeted storytelling that can really, you know, spark the emotion of younger customers. And, you know, we saw in a limited way with the 100 bag, right, which we weren't able to have as much product as we wanted to have. We didn't have quite all the right focused marketing. But even that, you know, we saw twice the penetration of Gen Z customers on that bag that we've we have across other products in the range. And that for me is super encouraging. And I think the speed at which we can travel is all about what we see and how agile we can be at leaning into things and making them bigger. Okay.

Alright. Great. And good luck for the rest of the holiday season.

Thank you. Thank you.

As a reminder, if you'd like to ask a question, you may press 1. Thank you.

At this time, ladies and gentlemen, this does conclude our question and answer session, and we'll also conclude today's conference. We thank you for your participation. You may now disconnect your lines, and have a wonderful day.