Vera Bradley Inc (VRA) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Vera Bradley first-quarter fiscal 2015 earnings conference call. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the call over to Stacy Knapper, Vera Bradley's Senior Vice President and general counsel. Please go ahead.

Good morning and welcome, everyone. We would like to thank you for joining us for Vera Bradley's first-quarter earnings conference 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 1, 2014, 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. 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, Stacy. Good morning, everyone, and thank you for joining us on today's call. With me today are Kevin Sierks, our EVP Chief Financial Officer; Sue Fuller, our EVP Chief Merchandising Officer; and Julia Bentley, our Vice President of IR and communications.

While our first-quarter revenues were modestly below our expectations, we were able to post earnings per share above our guidance due to better-than-expected gross margin and expense performance. However, we continue to face a difficult environment and one that is proving much more challenging than we anticipated just two short months ago.

Direct segment sales were weaker than we expected. Sales from our existing customers have been relatively stable, but our traditional patterns and products simply are not attracting enough new customers to our brand and overall traffic is down substantially.

In our indirect segment, while orders from our major accounts are up, orders from our specialty gift channel retailers are down significantly on a year-over-year basis. Until we make meaningful changes to our product offering and marketing initiatives, we don't expect these sales trends to substantially improve. And as a result, we are lowering our revenue and EPS projections for the fiscal year.

As we have noted, this will be an important year of transition and transformation for Vera Bradley. We believe that the product distribution and marketing initiatives we previously outlined as part of our long-term strategic plan are absolutely the right ones for the future.

We are seeing some very encouraging signs from some of our initial product tests and we will be testing and rolling out more new products later this fall. We have been able to take time out of our product development and production cycles, and as soon as we see solid positive results on our product test or introduction, we're now able to react more quickly and make than necessary inventory commitments.

More of our inventory and sales will continue to shift away from the traditional cotton quilted patterns and into other designs and fabrications.

Today, after Kevin discusses the first-quarter performance and the outlook for the balance of the year, Sue and I will update you on our progress related to the three key elements of our five-year strategic plan: product, distribution channels, and marketing.

While the short-term will remain challenging, I am pleased with the progress we are making against our five-year plan.

First, let me take a minute to update you on our latest key management additions. Karen Peters recently joined Vera Bradley as our EVP of retail and wholesale sales, overseeing our full line of factory outlet stores, the indirect segment, store visual, and store real estate.

Karen has 25 years of retail experience, including multi-store management and merchandising. She previously served as SVP Director of Stores for Saks Fifth Avenue Off 5th, and during her tenure at Off 5th, she managed numerous new store openings, relocations and renovations, substantially improved customer service and effectively collaborated with the merchandising and visual teams to elevate product assortments and in-store visual presentations.

And prior to joining Off 5th, Karen held key positions with Target, Kohl's, and Sears. Karen reports directly to me and I am really pleased to have her on board.

So with the exception of the Chief Marketing Officer, all of my EVP-level direct reports positions have been filled, and they include Chief Creative Officer, Barbara Baekgaard; Chief Merchandising Officer, Sue Fuller; EVP of Design, Kim Colby; CFO, Kevin Sierks; EVP of Strategy and Operations, Roddy Mann; and EVP of Sales, Karen Peters. We hope to have the Chief Marketing Officer role filled shortly.

As you know, growing our e-commerce business is a critical piece of our five-year plan. In the last month, we announced that Tom Giacalone joined us as VP of E-commerce. Tom will set the strategic and tactical direction for Vera Bradley.com and all of the digital operations associated with presenting the Vera Bradley brand on the Web.

Tom is an experienced Fortune 50 executive with 25 years of both traditional and omnichannel retail experience. He previously served as VP of Omnichannel Strategy and E-commerce Operations for Office Max, where he led the omnichannel customer experience and drove operational efficiency and revenue growth. Tom is reporting to me in the interim until the new Chief Marketing Officer is on board.

In April, we announced two key hires, both reporting to Sue Fuller. Rosemary Ricketts, with more than 30 years of retail and merchandising experience, joined us as VP of Merchandising. She most recently served as an Executive Director for Avon, and prior to that, she held various merchandising and product development positions of increasing responsibility with companies such as Kohl's, Target, The Disney Store, and Dillards.

In her new role, Rosemary is managing the seasonal assortment planning process and working cross-functionally with the product design, marketing, and sales teams to bring Vera Bradley product to market.

Steve Bohman is our new VP of Global Sourcing. Steve is a seasoned sourcing executive with over 25 years of experience who has a proven track record of reducing costs and improving efficiencies. Steve comes to us from RadioShack, where he served as VP of Global Sourcing.

And prior to that, he held various sourcing and supply chain strategy and merchandising roles with companies such as UnderArmour and J.C. Penney. Steve is charged with leading the development and implementation of Vera Bradley's global sourcing strategy to support our evolving merchandising initiatives.

Fortunately, we have been able to draw from both our own talented leaders and to attract great new talent to the organization. I'm really pleased that such high caliber and seasoned retail executives, such as Karen, Tom, Rosemary, and Steve, have joined Vera Bradley. I believe we have assembled the right team to achieve our long-term goals.

Before I turn the call over to Kevin, let me give you a quick update on Japan.

As you know, we entered Japan on our own over three years ago, and our experience has proven to us that there is a lot of opportunity there. In order to capitalize on our potential, we have entered into a five-year agreement with Mitsubishi and Look Incorporated to import and distribute Vera Bradley in Japan.

Mitsubishi and Look have an unparalleled retail network of department stores, boutiques, and freestanding stores throughout Japan as well as distribution and retail partnerships with several internationally renowned brands. We currently plan to exit our existing 13 locations and begin working with Mitsubishi and Look to determine the right points of distribution for the future. Look expects to open the first point of distribution in October and is targeting as many as 25 locations by the end of the five-year agreement.

Let me now ask Kevin to provide additional details regarding our first-quarter results as well as guidance for the second quarter and full year.

Thanks, Rob, and good morning. Our net revenues totals $113.5 million for the first quarter compared to $123 million in the prior-year first quarter. Net income totaled $6.6 million or $0.16 per diluted share for the current year first quarter compared to net income of $9.2 million or $0.23 per diluted share last year.

Our revenues of $113.5 million fell modestly below our guidance of $116 million to $120 million. Sales were below our expectations, primarily due to weaker-than-expected comparable-store sales performance in the Company's retail stores; lower-than-expected orders from our indirect specialty retail partners; and a shortfall at the annual outlet sale.

Direct segment revenues totaled $73.4 million, essentially flat with $73.7 million in the prior-year first quarter. In our retail stores, year-over-year net revenues grew 5.9%, reflecting the opening of 16 full-line and three outlet stores during the past 12 months, which was partially offset by a comparable-store sales decline.

Total Company comparable-store sales fell 9.4% for the quarter, which includes a 14.4% decline in store sales and a 3.2% decline in e-commerce sales. Our comparable-store revenues were negatively impacted by year-over-year declines in traffic and underperformance of our product offering. Severe winter weather also affected store traffic during the first two months of the quarter and negatively impacted comps by at least 100 basis points.

The direct segment accounted for approximately 65% of total net revenues in the first quarter versus 60% in the prior-year first quarter. We had 88 full-line stores and 16 outlet stores at the end of the quarter.

Unfortunately, as Rob noted, the indirect segment of our business continues to deteriorate. Indirect segment revenues decreased 18.9% to $40 million or from $49.3 million in the prior-year first quarter, primarily due to lower orders from our specialty retail accounts. We further strategically pared back our distribution a bit and ended the first quarter with our products in approximately 3000 specialty retail doors.

Gross profit for the quarter totaled $60.5 million or 53.3% of net revenues compared to $68.5 million or 55.6% of net revenues in the prior-year first quarter. The year-over-year decline in gross margin rate was primarily related to overhead cost deleveraging and increased year-over-year promotional activity.

The first quarter gross margin rate was better than guidance of 52% to 52.6%, primarily due to the timing of a portion of the inventory liquidation initially planned for the first quarter that will now occur later in the year.

SG&A expense totaled $51.3 million or 45.2% of net revenues in the current year first quarter compared to $55.2 million or 44.9% of net revenues in the prior-year first quarter.

In spite of lower-than-expected revenues, the SG&A expense rate was favorable to guidance of 46% and 46.6% due to various cost containment efforts, including discretionary spending cuts. In addition, certain management positions were budgeted but unfilled in the first quarter.

Operating income totaled $10.8 million or 9.5% of net revenues in the current year first quarter compared to operating income of $15.2 million or 12.3% of net revenues in the prior-year first quarter.

By segment, direct operating income was $13.4 million or 18.3% of sales compared to $17 million or 23% of sales last year. And indirect operating income was $15.4 million or 38.6% of sales compared to $17.7 million or 35.9% of sales in the prior year.

Cash flow from operations for the first quarter totaled $27 million compared to $14.9 million for last year's first quarter. The improvement was driven primarily by a reduction in inventory levels.

Cash and cash equivalent as of May 3, 2014, totaled $81.5 million compared to $8.2 million at the end of last year's first quarter. Accounts receivable totaled $18.6 million at the end of the first quarter compared to $26.8 million in the prior year. And related days sales outstanding totaled 39 compared to 44 in the prior year. The Company had no outstanding debt at May 3, 2014.

Quarter-end inventory was $126.6 million, modestly lower than guidance of $128 million to $133 million and compared to $138.9 million at the end of last year's first quarter. Net capital spending for the quarter totaled $7.1 million.

I would now like to move on to guidance for the second quarter and full year. As Rob and I have discussed, we are continuing to see significant challenges in the topline in both our direct and indirect segments. We're working hard to reverse these trends, but know it will take time until our merchandising and marketing initiatives take hold.

Consequently, as Rob noted, we are lowering our revenue and EPS outlook for the balance of the year. For the second quarter, we expect net revenues to be in the range of $113 million to $120 million compared to prior-year second-quarter revenues of $125.4 million. We expect the direct segment net revenues to increase by low-to-mid single digits, with comparable-store sales, including e-commerce, down in the low double digits.

We believe our indirect net revenues will decline from high teens to low 20% range during the quarter, based on the weakness we experienced in the gift channel during fall EOP.

The gross margin rates for the second quarter is expected to range from 53.5% to 54% compared to 57.2% in the prior-year second quarter. This expected decline is primarily due to overhead costs, deleveraging, modestly increased promotional activity, and our planned inventory liquidation.

SG&A as a percentage of sales is expected to range from 43% to 44.5% for the second quarter compared to 38.6% in the prior-year second quarter. The deleverage is being caused by lower sales and incremental investment in key areas like e-commerce and management.

We expect diluted earnings per share to be in the range of $0.18 to $0.20 in the second quarter of fiscal 2015 compared to diluted earnings per share of $0.37 in last year's second quarter.

We believe inventory will be $118 million to $128 million at the end of the second quarter compared to $142.9 million at the end of last year's second quarter.

Before I talk about our full-year guidance, let me provide a few more details on Japan. As a result of moving to the wholesale business model in Japan, we will exit this business in the third quarter and will account for this business as a discontinued operation from that point forward.

We expect to incur a pre-tax charge related to Japan in the third quarter of approximately $2 million, equating to $0.03 per share, which will be reflected in discontinued operations and is not in our annual guidance.

Approximately $1 million of that amount relates to a noncash charge for a currency translation loss that has accumulated in equity since entering the Japan market over three years ago. The remaining charge relates to the write-off of certain assets, employee severance, and other exit charges.

The new wholesale business in Japan is included in the indirect segment guidance, but given that the new Look operated distribution points are not expected to be open until late in the fiscal year, the impact of the current year sales and earnings guidance is minimal.

For fiscal 2015, we expect net revenues to be in the range of $510 million to $530 million compared to $530.9 million last year. The current-year estimate includes between $5 million and $10 million of liquidation sales, which could be completed through our own outlet channel, pop-up outlets, or e-commerce flash sales, or by selling to third parties.

Our revenue guidance includes direct segment net revenue growth of high single to low double digits, with a decline in comparable-store sales, including e-commerce, of mid single digits. Indirect net revenues are expected to decline in the low 20% range.

The gross margin rate for fiscal 2015 is expected to range from 52.5% to 53.5% compared to 55.1% last year. This decline reflects our planned inventory liquidation, overhead costs deleveraging, and modestly increased promotional activity in fiscal 2015.

SG&A as a percentage of sales is expected to range from 40% to 41.5% for fiscal 2015 compared to 38.4% last year. We're making certain key investments in the business in fiscal 2015, such as the previously discussed key management hires and incremental technology and e-commerce expense, that will increase SG&A but that are intended to enable us to realize our long-term objective.

In addition, we're budgeting incremental year-over-year incentive compensation expense. However, we do have an active expense control program in place and we're focus on reducing expenses where possible. We have identified and are implementing several cost reductions beyond what we originally identified at the beginning of the year. These include reductions in supply costs and increased manufacturing and shipping productivity.

We now expect diluted earnings per share from continuing operations to range from $1.00 to $1.10 for fiscal 2015. On a comparable basis, diluted earnings per share from continued operations totaled $1.48 last year.

This reduction from our prior guidance primarily reflects two key things: first, we anticipate additional softness in our topline. We expect an incremental reduction in our gift channel sales based on the low order levels for fall EOP. We also anticipate continued softness in direct segment sales.

Second, we are expecting further deleveraging of our overhead costs, which will negatively affect gross margin. This is primarily caused by two things. First, we are reducing inventory purchases commensurate with a reduction in revenue guidance to appropriately manage inventory risk.

Second, we are both accelerating our MFO strategy and shortening our production lead times. As a result, inventory will be received later in the fiscal year than originally planned and overall inventory purchases will be reduced.

We still expect our total capital expenditures to be approximately $40 million for the full year, with approximately $20 million related to our corporate office campus consolidation. The balance primarily is related to planned new store openings and continued investment in our systems, including our e-commerce platform.

Let may turn the call over to Sue, who will give you an update on the first key component of our strategic plan: product. Sue?

Thanks, Kevin, and good morning, everyone. While we have a very loyal customer base and a dominant share of the market in the cotton casual handbag and travel accessories business, we still own a narrow percentage of the total market share in these categories when all fabrications are included.

We believe that we have a relevancy issue and that we are not attracting enough new customers with our existing products. To grow, we must become more relevant by modernizing and elevating our products to appeal to a wider array of customers. This will take time.

But today, I would like to share a bit of the progress we are making. As a reminder, our product strategy is four pronged and includes an elevated product assortment; a focused product assortment; brand extensions; and gross margin expansion. Let me update you on each of these.

First, we are elevating our product assortment by adding aspirational halo products and extending our price offering, which is currently very narrow. Over time, I believe at least 10% of our product will be in this halo category.

In May, we introduced our faux leather black-and-white laser-cut tote and matching wallet. This tote has consistently been in our top-selling SKUs and we believe it is attracting a new customer to the brand.

We subsequently released three other laser-cut color combinations. Based on the success, we will continue with our best selling black-and-white color combination and will add several other seasonally appropriate color combinations later this fall.

The success of this first faux-leather launch makes us even more optimistic about the late August rollout of our collection of high quality faux-leather handbags, totes, and accessories. These goods will be available on verabradley.com and all our full-priced stores and in our top independent gift retailers.

There are eight styles in the faux-leather collection in black, green, fuchsia, and cobalt and we will be adding red and winter white for the holidays. The price points range from $24 to $138.

Similarly, we will roll out our high-quality American Hide quilted leather collection online and in all Vera Bradley stores and to about half of Dillard stores in late September. This collection will feature six styles in black, taupe, and burnt orange as well as in two color block combinations of black/taupe and taupe/burnt orange, followed by adding magenta in November.

Also in September, we will roll out a complementary version of our leather collection in five non-quilted styles online and in limited Vera Bradley stores. Leather prices range from $98 to $298. This is elevated from our typical price points, but still very competitively priced.

Our next faux-leather and leather collections will be introduced in November. We believe the faux-leather and leather products will become an even more important piece of our assortment as we work to expand our customer base and particularly as we grow our department store presence.

Second, we are focusing our assortment and narrowing it in the short term to improve productivity. Solids continue to be a big win for us, and black continues to be our top seller month in and month out. In addition to black, we will consistently include several other seasonally appropriate solid colors in our mix.

By the end of this year, we expect solids to represent approximately 15% of our assortment, moving to 30% to 40% over time. These percentage targets do include leather and faux leather.

By the end of the year, we will roll out more cohesive collections that tie together both visually and functionally, with stripes, solids, and geometric patterns coordinating to signature patterns and all relating to each other.

We have already introduced some smaller scale coordinating patterns and our cotton quilted and faux-leather totes in these patterns have been among our top recent sellers. We are increasing our on orders of these items going into the fall and holiday season.

We are on track with our pattern and SKU reductions. Our SKU count for summer is already down by approximately 30% and we are tracking to a 35% reduction by early next year.

In addition, we are dramatically reducing our pattern introductions. This year, we're introducing only 14 quilted cotton patterns compared to 18 last year. In fiscal 2016, we are targeting just 11 signature patterns and eventually plan to get the number to as low as 8.

We are majoring in the majors, aiming to make a bigger impact in the big volume drivers and classifications that Vera Bradley is known for and what we do best -- like travel, backpacks, bags, and accessories.

For example, we are expanding our travel collection this winter, adding new travel totes, luggage, and accessories updated with more solids. We are also investing in emerging growth and brand-enhancing opportunities that should strengthen the core of the future, such as scarves and jewelry.

As Rob mentioned, we have been able to shorten our product development and production cycles. We have tightened our internal product development process by about 30 days and partnered with the vendor community to reduce our printing and manufacturing lead times by 30 days. This enables us to get a closer read on the market and to react accordingly.

So in general, we are taking the items that are working, like the laser-cut bags, solids, and our geometric prints, and more quickly increasing these elements in our assortment for fall and beyond. While our traditional cotton quilted products will continue to be a piece of the assortment, we are substantially lessening our dependence on them and diversifying our offering.

Third, over the long term, we will pursue brand extensions that will enhance our position as a lifestyle brand via structured approach. We will look for the right strategic partners or licensees that can augment the brand and provide established distribution networks for certain categories of business, such as stationary, rolling luggage, and fragrance.

Finally, we are evaluating several other aspects of the business, determining what changes we can implement to improve our gross margin rate over time. With the addition of Rosemary Ricketts as Vice President of Merchandising, we are adding more discipline and coordination to our overall planning and allocation processes. We are implementing a product forecasting and demand management system this fall.

With the addition of Steve Bohman overseeing sourcing, we are determining waste to make our existing supply chain more efficient and cost effective and exploring lower cost manufacturing facilities and countries. We believe that we can further reduce our manufacturing cycle and sourcing costs as we move into next year.

As Kevin noted, we have already identified some cost reductions in distribution, shipping, supply, and other overhead costs, but we are continuing to look for additional savings where possible.

All of these changes will take time, but we are optimistic that our enhanced assortment and our other improvements will begin to positively impact sales and gross margin by next year. Rob?

Thanks, Sue. Let me update you on the second key component of our strategic plan, our multichannel distribution opportunities. Our goal is to shape Vera Bradley into a tightly integrated multichannel business by growing our direct distribution channel, including full-line stores, factory outlet stores, and e-commerce; rightsizing and stabilizing our gift channel; and further developing our department store and other indirect channel relationships.

During the first quarter, we opened four full-line stores located in New Orleans, Akron, Detroit, and Houston, and we will open another Houston location in the second quarter. We will add eight additional stores in the third quarter, bringing our total for the year to 13. These new stores will be pretty equally divided between the Northeast and Midwest and the Southeast.

As we previously noted, we believe we will add an average of 20 to 25 new stores per year going forward, expanding into essentially untapped geographies like the West Coast. We still believe that we can have about 300 full-line stores over time.

We are working with a design firm to create our new prototype full-line store. Our goal is to modernize our stores while maintaining the warmth and feel that are associated with Vera Bradley. We believe the new design will better showcase our products, making the merchandise the focal point of the store instead of the store itself, and that the new design will resonate with new customers and demographics while retaining the Vera Bradley familiarity for existing customers.

We expect to launch the new prototype, including a new fixture design, early next year. In the meantime, later this fall, you should see a big difference in the way we are merchandising our products. Our visual presentation will be decluttered, and instead of a sea of patterns, our traditional cotton quilted patterns will be better showcased in collections with solids and other complementary fabrications.

As you know, we believe the outlet channel is an opportunity for us. We previously announced that we would open at least seven outlets this year. Hopefully we could that growth and open a few more to align with our annual target of 10 to 15.

We have since identified five additional opportunities, bringing our planned openings to 12 this year. We already opened one story in the first quarter in metro Atlanta and expect to open four in the second, located in Las Vegas, Denver, metro Knoxville, Tennessee, and Louisville, Kentucky, with the balance opening in the third quarter.

We think there is an opportunity to have over 100 factory outlet stores in the long term, which will equate to a ratio of about two to three full-line stores to every one factory outlet store.

As we noted on the last call, we will continue to use our outlet stores as a clearance vehicle for merchandise from our full-line stores, but the foundation of our outlet strategy will evolve into products specifically manufactured for the outlet. Our accelerated factory outlet store growth will allow us to liquidate existing inventory and move up our MFO introduction a bit earlier.

In fact, in the fall season, we will begin to flow MFO product into our outlet stores, and within three years, we expect approximate 40% of the product in the outlet channel to be made specifically for the outlets, growing to approximately 70% in a five-year timeframe.

We believe this MFO strategy is a profitable financial model which should drive both sales and gross margins. The factory outlet stores offer value and will help us reach a new demographic as research indicates less than 10% overlap between full-line shoppers and outlet shoppers.

E-commerce is an integral component of our five-year plan and will be a key part of the foundation to support our brand and marketing strategies. Our eventual goal is for the e-commerce experience to mirror the in-store shopping experience by segregating our full-line and factory outlet product onto different sites.

Perhaps the most important thing we're working on regarding e-commerce is making the strategic decision on what technology platform to use for the future. We are looking for a partner who has the vision to support a single commerce engine across all of our channels in order to ultimately deliver an omnichannel experience to our customers. We expect to make a platform decision during the second quarter.

During the first quarter, we were able to make some improvements to the site designed to drive customer acquisition, full-price conversion, and retention. And specifically, we enhanced the navigation, improved the browsing and sorting capabilities, and added customer survey and cart side abandonment emails.

We are also refining and streamlining our search capability and increasing segmentation of our emails between our full price and outlet customers with more targeted messaging. We will be adding additional features to the site, such as personalized display ads later this year.

We are also very focused on leveraging our strong mobile customer base, where 35% of our online sales are generated.

In the first quarter, we implemented omni-customer capabilities so that we can now understand what our customers are purchasing in all channels. Later this year, we will implement our omni-product capabilities so that customer orders can be fulfilled from the stores or via the Web if inventory is out in either location.

As we work towards improving the productivity in our indirect segment, we are placing greater focus on department stores. And today, we announced our new relationship with Macy's. By mid July, Macy's will offer a selection of Vera Bradley products in approximately 70 locations across the country.

We will continue to have a presence in all 280 Dillard stores and in the Weimar store throughout the Midwest. We believe there are some short-term opportunities to improve our brand presentation and productivity within our existing department store distribution, and we believe there are additional future expansion opportunities in the department store space.

Department stores are the number one destination for handbag purchasing and they will be a great place to showcase our leather and faux-leather goods as well as our other collection pieces going forward. Our department store relationships allow us to acquire a new handbag customers, and will offer great venues as we expand into more lifestyle categories.

We remain focused on improving the productivity of the indirect specialty gift channel. This channel continues to be in a state of declining sales and margins due to the overassortment of patterns and styles. We have closed about 500 unproductive accounts over the last couple of years, and our current specialty gift distribution stands at about 300 doors comprised of about 2100 accounts.

While we will continue to add new select accounts, we will also discontinue unproductive ones and expect the total number to further decline in the future. Even though the specialty gift business will become a smaller percentage of our total revenue base over time, we are working hard to stabilize this channel by narrowing our product assortments, changing the order cycle, assisting the retailers with assortment planning and inventory balancing, and better segmenting our assortments by door. We are primarily focusing on growing the sales of our largest accounts.

Lastly, let me touch on the third strategic component of our strategic plan: marketing. Our marketing goal will be to generate excitement and desire for the aspirational Vera Bradley brand, attracting new customers while continuing to foster strong connections with our loyal fan base. We plan to build a cohesive brand story that connects with our target customers and more of our spend will be allocated to our halo brand enhancement assortments.

For example, we have engaged a New York advertising agency to help develop a comprehensive, print-creative campaign for upcoming our leather and faux-leather launches, including national ads and social media. We're also leveraging our database and insights to conduct more segmented and even personalized digital and direct mail marketing.

Operator, we will now open the call to questions.

(Operator Instructions)

Edward Yruma, KeyBanc.

First, on the specialty or in the indirect performance, how much of the sales shortfall was due to exiting doors, due to the change in the order cadence, and how much of it was actual weakness in reorders from the accounts you want to continue moving forward with?

Most of it does relate to the comp doors. If you think about it, as we exited the year, we had about 3100 accounts. Now we have about 3000 accounts, so the majority of that shortfall really did relate to the comp doors.

Got it. And as it relates to liquidated inventory, I think you quoted us a number for the second quarter. You had also guided to overall liquidation inventory for the year in the last call. How should we think about your inventory liquidation, particularly in light of the sales shortfall?

Yes, we expected to liquidate a little bit more in the first quarter than we did. As we talked to third-party liquidation companies, we realized we could probably get better margin and better cash by selling it through our direct channels ourselves.

So what you will see, we're going to test this year is we are opening a little less than a handful of pop-up outlet stores, and we're going to try to sell our liquidation through that channel as opposed to third party.

We announced, I believe in the fourth quarter, that we would sell up to $12 million of liquidated product. We lowered that slightly because of the shortfall in Q1. But nevertheless, we still expect to liquidate between $5 million and $10 million of product through the course of the year.

Got it. And a final caution -- on the Macy's introduction, is that the final number for the remainder of the fiscal year or is there an opportunity to add more doors heading into holiday? Thank you.

Thank you, Ed. There is an opportunity to add more doors. We are just making sure that we are working with Macy's to roll out our stores in a very prudent manner and really getting initial sell throughs on the initial orders that are in the store before we develop the rollouts. But we are in discussions about additional stores this year.

Great. Thanks so much.

Evren Kopelman, Wells Fargo.

My question is also on the indirect side. The change in guidance for the full year is pretty significant. Can you give us a little bit more color on it; I think it is about a $30 million reduction relative to your guidance just a couple of months ago. Can you give us a little bit more color?

And I'm not sure if I heard it right, but how many accounts do you plan to have by the end of this year and then next year? Maybe that would be helpful, too.

We expect to continue to have modest declines in the number of accounts. We haven't stated exactly where we expect to end the year, but we do have that baked into our guidance.

As far as why the additional reduction from the gift channel, it really relates to our fall early order period. So that is one of our largest EOPs for the current year. Part of that hits Q2 and part of it hits Q3.

And keep in mind, fall is the second-biggest time of the year for us from a sales perspective. So we already took those orders from the indirect side. And those orders came in a lot lighter than we expected.

We, frankly, used that experience to predict the sales for the remainder of the year. So that's really what we expect for Q3 and Q4 as well as we roll into winter EOP and spring EOP that hits in January. So we really forecasted that segment according to how the fall EOP results came in, which were obviously negative, Evren.

Okay, that makes sense. On the more positive side, the indirect margin look like it was up in the quarter. Can you talk about the drivers of that and what we should expect for that indirect margin for the rest of the year?

Sure. They have done a pretty good job paring back expenses, so a few things that we challenged ourselves with this year is sales meetings and our premiere meetings and how we can do those more cost effectively. So a fair amount of that expense came out this year. And you're seeing that in Q1.

Also what you're seeing is a reduction in some compensation just as it relates to forecasting the sales, and about 20% or so of the compensation for the sales consultants is based on sales performance. And as the sales performances came down, we have taken down compensation in Q1 as well.

But as far as the rest of the year, we don't separate the operating margin percentage for indirect, but we have done a fairly good job managing that percentage in light of the sales fall.

Okay. Then lastly on the comps, just to clarify, you used to report comps without e-commerce and going forward, it looks like you will be including e-commerce. Maybe just for the time being for the full year, can you tell us what is your comp expectation for the full year without e-commerce? Just so we have a comparable.

Yes, I sure can. So without e-commerce, we are expecting to be kind of in the high single digits to very low double digits. Decline.

Decline for the full year. Okay, great. Well, thank you very much. Good luck with everything.

Randy Konik, Jefferies.

A couple of questions. First, can you give us some compare and contrast how you think about the wins you have been able to have with the Dillards department store, how similar or different could we expect Macy's to be. Within Macy's, the shop-in-shops or whatever is going to happen, can you give us some perspective on SKU count in those doors?

And what percent would be like historical product or core product versus -- you sounded pretty excited about the faux-leather and the leather and some of the new product that you're coming out with. So a perspective of what you are going to be selling into Macy's and is that different from Dillards.

And the other question I have is more like high level. And it's when you think about all the things you have been saying -- the monochromatic wins, the faux-leather wins, et cetera -- and you are wanting to reduce the new pattern introductions down to eight, or have you.

If we use this -- use Cadillac as analogous to this type of story here, I guess what we know about Cadillac is they totally changed out their product line. They got rid of the El Dorado, the Seville, the Deville, what have you, as they got wins with new products styles to open up the addressable market and go to an almost different customer base.

How do you think about that Cadillac-type story in terms of what is going on at Vera Bradley and in terms of what is going to happen to long-term product trajectory at the business? Thanks.

Thanks, Randy. I will try to answer your questions and feel free to give us a follow-up if I miss part of it.

But, specifically, you talked about Dillards and Macy's to start with. And with Dillards, it has been a very solid relationship. And we recently just had a meeting with them and they were very excited about our new product launches and have very aggressively gone after our new leather program, which is very exciting to see.

With the Macy's approach, as we look at these 70 locations, we are doing a very focused launch here over the summer, really focusing on the back-to-school categories, which are completely appropriate for that timeframe. So much more historical patterns, but also having solid flowthrough in terms of some of the microfiber coming in.

But we don't have the new fabrications in during the Macy's launch because they are not out yet. Most of these new fabrications will launch at the end of August going into September. And we are still finalizing our future orders with Macy's as we speak.

But the initial launch will really be about focusing on back to school and back-to-school assortments. But we believe long term, the Macy's opportunity is significant. We just want to work together with them hand in hand to make sure that it's a very profitable model for both of us.

As we talk about the Cadillac example, what we're doing here -- what we see currently when we look at our customer base is our loyal customers spend is holding up. So even as we are having comp store decreases and seeing traffic decreases, we're seeing that traffic and the sales decrease coming out of new customers.

So what we believe is that we really are seeing a need to have more relevancy to attract a new customer into our brand. And we're losing, I believe, share in the new customer category. And that is why we're really focusing on all of these new product introductions.

What has been very exciting is we just launched this new laser cut and we loved what we were seeing. First of all, some weeks, it has been our number one selling SKU; it has been bouncing between three and one for the entire period. So that is great.

The second thing that is great is we look at customer comments in the social media world, and we have had a customer intercepts who are interacting with our retail partners and ourselves.

What we are hearing is that our core Vera Bradley customer loves it, but even more exciting, what they are talking about is when their friends are seeing it, that their friends who have never bought Vera Bradley before love the new laser cut and are purchasing it.

I love one of the stories that Sue Fuller was in our Detroit airport getting a Starbucks as she was coming into Fort Wayne, and we had a customer literally who came running across the terminal up to Sue and said, whose bag is that?

And this customer, 26 years old, carrying a Louis Vuitton. And Sue said, it is Vera Bradley. And she said, no way. She said, no, it really is. Let me see your phone. And she pulled up the customer's phone and the customer ordered the bag right then and there.

So we are seeing some really exciting responses to the new product assortment. And because of what we're seeing in our current trend line, because of the initial reads on the new product, we are actually speeding up and increasing the amount of investment we have in new going into fall.

And between the laser cuts, the faux-leather, the leather, and what we haven't spoken about are these small geometric prints or what we call bringing the lining to the outside, we're moving to -- 30% of our assortment in fall will be in these new areas to really attract a new customer in.

So we have really moved much quicker than we expected into new. Because we have watched over the last couple of months this traffic in new customer attraction really soften on us.

Got it. Can I follow up?

Please.

That's great. So two follow-ups would be in the Macy's -- you know how Dillards was started with a test and then rolled out to the entire chain of stores. Could we expect if the Macy's goes okay or goes well, that there could be a partnership that this gets -- your products get rolled out into the entire 800-plus door chain of their business?

And then separately, on top of that, do you view Dillards and Macy's as the stopping point on a potential partnerships? Or could there be additional partnerships with other department store nameplates, like a Bloomingdale's or Nordstrom, is my first follow-up.

And the second follow-up is with all the success going on with these new products, there's got to be a point where the consumer thinks about or is just lost with the idea of overassortment. And I heard the idea of cutting the SKU count and 30% to 35%.

How should we be thinking about how these products or this time story of keeping core but bringing in new and being merchandised through the store through the indirect channel of distribution with these partners -- how will it look? How will the story of product look to the consumer? Thanks.

Great, thank you. A couple of things. One, with Macy's -- we are excited about the Macy's relationship and I think what is exciting is that we share a customer who is excited about both brands.

And when we were speaking with Macy's, they talked about that they have a high desire from their consumers, they were doing consumer research, that this was one of the top brands that the consumer was looking for.

We do believe there is an opportunity to roll out to more Macy's stores. We do know that if you look at the Michael Kors or Coach distribution to Macy's, it is the vast majority of the Macy's store, so we think that there is more opportunity in the long run.

We just need to work through that, because just like we did in the Dillards relationship, we want to get it in; we want to build a profitable model before we roll it out to all stores. But I would expect expansion as we go forward.

The second part of your question is are we going to stop with Macy's and Dillards. And the answer to that would be no; we would continue to look for the appropriate department store partners.

As we look at what type of department stores we want to expand into with the type of department stores that carry really competitive brands. So when we look at people like where is Michael Kors, where is Coach, where is Kate Spade, those are the type of department stores that we would be looking for additional relationships.

We just want to make sure that we do the department store expansion in a prudent manner, making sure that our existing partners grow while we are expanding our distribution. So we are doing that.

In terms of timing, in terms of when you'd begin to see the new look in the store and how does that roll out, what we're seeing in our own stores is you go into the very end of August into September, you will see our full faux-leather assortment rolling out into our stores. You will see our leather assortment in mid-September rolling out to our stores. So our stores will carry the full assortment.

As we look at the faux-leather assortment, a lot of that distribution is going to be in our top part of our gift channel in our own stores, and the leather segment is going to be focused on our department store channel. Because what we have heard from our department stores is they are very excited about the leather assortment and want to take the brand even higher, which is very encouraging to see.

But as you look at fall, what I would expect is as you get into September, you begin to see the change in the store. We will begin to remerchandise the store to highlight our solids and all fabrications. And then as you move into fourth quarter, it will just continue to convert more and more of the stores.

We have less pattern introductions this year versus last year. And all of the coordinating patterns that we have been speaking to, a lot of those begin to launch with our spring deliveries, which will start hitting the stores the first of the year.

Got it. Okay. That is super helpful. Thank you.

Mark Altschwager, Robert W. Baird.

This is Blair Pearson in for Mark. I had a follow-up question on the indirect fall EOP. Last quarter, you had talked about testing a new timing or reversing the order for the indirect accounts. Did that have an impact on the fall EOP for those accounts? If you could comment on that.

Yes, no, it didn't. We didn't change the order cycle yet. We have been in conversations with them about changing the order cycle. There's been a lot of receptivity. But one of the reasons we didn't change it yet is Sue and her team are making such dramatic improvements in our whole sourcing timeline, and when we have to get orders into the system, we are trying to lock in all of those changes first before we reset the indirect order cycle.

So we expect to reset that order cycle sometime late this year going into the beginning of next year.

Okay. And then any other color you can provide on commentary you are getting back from them as to why that fall EOP is so weak. Is it macro pressures on them? Or is it their desire for the particular product offering that you have currently?

It's a great question. First of all, what we are hearing from our indirect partners is that they have been oversaturated with patterns. They have -- they are working through retired product and some of the product that has been marked down. And therefore, they are reducing some of their future orders just to keep their inventory in balance.

So we have been working with them through that process. What has been very encouraging is we just brought in almost 20 of our top indirect partners into Fort Wayne in the last couple weeks and had them really walk through the strategic plan, walk through the merchandise assortment. And we continue to get very, very positive comments about the new merchandise that is coming through.

Some of the new product that we talked about, in terms of the faux-leather, wasn't available during our EOP. It is really post this current EOP process. So we are expecting as we get the new products in stores that it will begin to turn around from what we saw in our current EOP.

Okay, great. Thanks so much.

Steve Marotta, CL King & Associates.

I heard during the prepared remarks the shortening of the product lifecycle. There were 230-day segments in there, I believe, so it has been shortened 60 days. Can you confirm that?

Can you talk a little bit about where the product lifecycle is right now and where you think it can go? Where it has been, where it is now, and where you think you can go?

Yes. We were very pleased that we found two areas immediately to reduce our cycle time. First one was 30 days internally and that was really from streamlining processes and handoffs.

And then from an external perspective, it was really working with the vendors to understand the visibility to their timelines from both the printing and manufacturing lead times. It was -- the other 30 days were split about 50-50 between where we found the lead-time reduction.

As we look forward, we are anticipating another 30 days, actually, to take out of the cycle by early next year. Last time when we spoke, we discussed the vendor portal that will be up and running by the end of this year, which will provide visibility, a two-way visibility, between Fort Wayne, our China office, and also to the vendor communities that we are anticipating big pickups there, as well as raw material positioning and planning. And we think that there is additional time to be picked up. We have not quantified exactly what that looks like.

Just a couple things that I would add to those statements. We talked a little bit about how was the overall process changed. And there's actually a lot of things that are changing, part of what Sue just articulated.

But in the past, since really everything we produced was pattern driven. That when you looked it from a pattern development cycle all the way through the in store, you are looking at a process that could take up to 18 months. So part of what has happened is as we introduced new fabrications, we're able to do things much quicker.

So what that mean? What we have been able to do without print development, and particularly as we get into faux and leather and some of these other fabrications, and we already have raw materials in the pipeline, that we can develop new product much quicker.

So it could be six to nine months in terms of new product development in those categories as well as we are able now to chase much better than we were before as we're starting to get early reads.

So Sue and the team have really been working very hard to take significant time out. But our different product categories will have very different lead times. Because if we have to develop a pattern, the pattern development in and of itself adds significantly to the lifecycle, which is another exciting part about rebalancing and going to about 40% solids -- that product cycle will be significantly shorter.

That is very helpful. Two follow up questions, more housekeeping. You are expecting low double-digit comps in Q2, is that accurate, in your direct channel?

And the second, what is the actual average or initial SKU per Macy's store? Thanks.

Yes, so it is correct in terms of low double digits from a comp perspective in our own doors. And then from an SKU perspective in Macy's, is that what you are asking? The square footage will be much lower than Dillards's doors to start, but we are still working on the number of SKUs that we are actually going to put in Macy's. But we expect to only have about 100 square feet to start. But obviously, that's something we'd build on over time.

And what is your average currently in Dillards?

It's between 300 square feet and 400 square feet.

That is very helpful. Thank you much.

Dana Telsey, Telsey Advisory.

Can you talk a little bit about as you have been seeing the outlet business and you talked about liquidation? I think it was originally supposed to be $12 million; now it is $5 million to $10 million. Is the balance carried into next year? How do you see the positioning of the outlet stores going forward?

And then in terms of the new product, where will you be in terms of getting the product to where you want as you think for holiday and as you think through next year and how the difference in margin is on the new product versus the older product. Thank you.

Great. Let me start with liquidation. Yes, we do expect to liquidate somewhat less inventory this year. Keep in mind, we did liquidate about $2.5 million, though, in Q1 through our own channel. So we moved about $1.5 million through our outlet sale, which was a big success in terms of just moving liquidation product. And then we moved a small amount on the Web as well as in our outlet stores.

We will continue as we look forward to have a clearance section, with a high percentage off in our outlet stores. And we will move some liquidation product there. We are also planning on opening a few, three or four, pop-up outlet stores. That will really be a test for us to be able to move the liquidation product in that manner as opposed to selling it to third-party liquidators.

As far as the margin profile, when we did testing of our MFO product, we had great success in realizing a higher margin on the MFO product. That will start to hit the stores in a big way, anyway, in Q3 and also in Q4.

So that will help our margin profile. We expect that to be about 15% in the back half of the year. And then that will grow as we look into the following year. And then as it relates to product, maybe Sue or Rob, do you guys want to touch on product?

We expect our new product -- and I'm sorry, I just wanted to follow up, Dana, you are talking about overall product or MFO, specifically?

Overall product, thank you.

Yes. Right. So we expect to start to see the new product in a more substantial way toward the end of Q4. And obviously, Q1 is when we are certainly ramping up our new product and making sure that it's visible across all doors in all aspects. In terms of the product margin thus far on the new product that is coming in relatively comparable to where we have been historically. And in some cases, actually it's a slightly over our internal.

Thank you.

Neely Tamminga, Piper Jaffray.

This is Kayla Berg on for Neely. Just wondering if you could give us some more color around the inventory and how much of the Macy's inventory is represented in your guidance.

And then also for Sue, just wondering as you talk about the new product initiatives for fall and the back half of this year, can you give us a sense of how the biometric testing is playing a role in this and whether it is working, not working, any initial learnings you are seeing there? Thanks.

Sure, I can start with -- we look at retired product and we try to manage our retired product down. As you know, especially Q3 of last year, we hit our height of retired product as a percentage of total. Definitely not comfortable with where we are at; that is the reason we're going to work to liquidate $5 million to $10 million this year. But nevertheless, we continue to improve there.

We have also, because of the supply chain improvements, we have been able to reduce our orders this year and push our orders out closer to launch date, which helps us a lot in terms of managing inventory risk.

Specifically to Macy's, because we're going to be in 70 doors and the square footage will be only about 100 square feet, the inventory as it relates to Macy's is very small as a percentage of total. Obviously, as we expand that relationship, which we hope to do, the inventory related to that will grow.

Kayla, as it relates to the biometric testing and the way that we're continuing to utilize that, we did find that for our summer patterns that we did see a straight-line trajectory in terms of the actual ranking of the patterns according to the way that the biometric came out.

One of the changes that we are making is we are actually testing -- overtesting more patterns so that we can get a broader read, and that will really start to take place in the second half of the year. But we will continue to utilize the information to inform. Briefly, it is still an art and a science in the way that patterns are picked. But we are, in fact, continuing to utilize the data as a reference point.

And we also utilized it in the fall season. We had a couple of patterns -- one tested extremely well and one came in with a lower response. And we really were able very quickly to reshuffle and bring the strong pattern forward and invest more in it as well as divest in the secondary pattern and move it out slightly. And those are the types of things we can do with the biometric testing that really should impact our business positively as we move forward.

Great, thanks.

Oliver Chen, Citigroup.

Regarding the way the cash flow statement is going to look this year, what does the guidance imply for free cash flow? And is net working capital going to be neutral or a source or use of cash?

Also, on all these initiatives, which sound quite exciting with respect to product, what is the timing from which quarter will potentially return to positive comps? And when will the materiality kick in in terms of the mix impacts in which you can positive comp?

Also, regarding the comp situation, which comp lever do you anticipate having the most upside to as you inflect in the future? Thanks.

Let me start with cash flow and then we will get to those other ones, Oliver. But cash flow in the first quarter, as you can see, was very positive at $27 million. But if you look at the course of over the last couple of years, last year was a very high cash flow year for us, namely because inventories came down fairly significantly in the back half of the year.

But if you look over the years, typically operating cash flow is right around $50 million. We typically have about $20 million of what I'd say is normalized CapEx in a year, but this year it will be about double that because of the campus consolidation.

So as much as we are not providing guidance for the cash flow for the full year, typically it's around $50 million and we plan on spending about $40 million from a CapEx perspective, which would be free cash flow of about $10 million.

Given how we pulled down results, that could be a little bullish. It may be slightly lower than that, but we still feel pretty good about cash flow. Keep in mind, we have $81 million of cash sitting on our balance sheet as we exited the quarter as well. So very liquid.

Yes, and as we look at the material input in terms of all the new product introductions, obviously we're very excited about the early test, the response from our retailers, the response from customers. It's very encouraging.

As we look at fourth quarter, particularly later in fourth quarter, we get up to almost 30% of our inventory investment is new. So that starts to become material and is able to begin to move the performance of the Company over all.

But as we are looking at comps, we're starting to move into next year to start to see more serious improvements. But it's so early, is hard for us to determine exactly where that is.

The other piece of our strategy that we're still in the midst of implementing is the marketing strategy. We're working on getting the CMO on board and really build up a marketing plan. Because what we do know, the number one metric we need to change, is the new customer traffic into our stores.

We have to get a new customer in. That will be the key one we're looking at. And then additionally what we would expect as we get these new products in and the higher price points in that we would begin to see our average dollar sale increase.

To date, our UPT, our average unit retail, or ADF, all that kind of stuff has remained relatively flat. That has not been the issue. The issue has been getting the new customer in. And that is what we have to focus on. And obviously, the new marketing strategy will be a key component of that. So we need to get that ramped up.

But we wanted to make sure we had great product first, before we ramped up the marketing. And we are excited about the product we have in the pipeline.

And then specific to this year from a comp perspective, we do expect to be negative this year, but you can think about it as incremental improvement as we move throughout the year as we introduce the new product, Oliver.

Okay, thanks. Thanks for all the details. Best regards.

Ike Boruchow, Sterne, Agee.

Robert, you had said that 20 to 25 stores potentially is the run rate after we get out of this year. I just wanted to double check -- is that inclusive of 10 to 15 outlets or is that the total store number with outlets and full price?

That was just specifically the full price. And then the outlet stores were 10 to 15.

Okay. Okay. All right, and then from a high level, this business has been high teens, low 20%s margins for on average for several years, but there's some differences that are taking place now as you look to ramp square footage growth. And you change the mix of how your wholesale accounts look.

Do you still think this is a high teens margin five years from now? Or do you think that the profitability will be a little bit less as you go into, again, more department stores and lay some more fixed costs into the retail base? Thanks, guys.

No, we definitely believe that the operating margin of the Company should return to the high teens. That is what we have talked about in our five-year plan and we feel very good about that.

What has been encouraging as we have identified areas that really help on that margin. For example, the improvements in the sourcing, in the production, in our cost structure. We have been able to already get some wins there and starting through that process.

We also believe that there is an opportunity to improve some of our existing expense base that we have been working through and making some nice progress against. So we'd do believe we will get there.

The number one action we need to take in order to get there is to get the new product in, to get the comps going back in a positive direction, that that is most of the pressure right now has been on the declining comp base.

So once we get that turned around in both our indirect and direct channels, that will help us get back to those historical margins. I don't believe there is anything in the model that would take us below our long-term historical performance.

Yes, to Rob's point, we are deleveraging today because of our topline really and the opposite is true: once we fix the comps and we expand distribution and then it will be pretty easy to start to leverage. So you'll be able to see that once we turn around the topline.

Okay, great. And then the comments about new customer acquisition, is that broad-based across all channels or you seeing it more within the wholesale versus retail question. Is there anything you could add there?

Well, what I would say, I guess, it is two ways. When you look at it in the retail, when you look at all of our channels that there's definitely a story across all three channels. New customer -- so whether it is that are full-line stores, our factory store, our Web -- all three of those are seeing a decline in new customer acquisition.

So from that standpoint, if you look at our indirect channel, what I would say is two different things. One, if you look from a wholesale standpoint in our specialty gift channel, we have been reducing more doors than we have been opening, and so we haven't been bringing in the new there.

We have heard from our indirect partners the same exact thing, though, that their existing Vera customer is still coming in, but they are not attracting the new customer to the brand.

And one thing that has been so exciting is we have been touring -- been out there, going into our indirect partners, showing them what we are doing with product. They have things like the laser cut in store. They all are talking about that it's bringing a new customer to the brand.

So I believe that the changes that we are making for the direct side are also going to positively impact the indirect side.

Got it. Thanks, guys.

That does end our Q&A session. I will turn the conference back over to Robert Wallstrom for any additional or closing remarks.

Thank you. Fiscal 2015 will no doubt continue to be a very challenging year, but one of important transformation as we take the necessary actions to position us for the long term. There is much to be done, but we have made a lot of progress in just a few short months. The executive team is largely in place.

We are seeing several green shoots in the product area that are making us even more optimistic about the future, like the early success of the laser cut tote and customer reception to our smaller geometric patterns. And we're nearly ready to roll out our leather and faux-leather collections.

We are working on our new prototype store design, have an important new department store relationship with Macy's, and have made improvements on our e-commerce site. It will take time, but as we execute our product distribution and marketing strategies, I believe we will improve our performance and enhance shareholder value over the long term.

In closing, I want to say a special thank you to our associates. We have a great group of talented people, many of whom have been with us for a significant portion of the Vera Bradley growth cycle. I am so appreciative of the dedication, hard work, passion, and collaboration of our team members as we go through this transformational period. Thanks to them, I believe we will emerge a much stronger Company.

Thank you for your interest and time.

That does conclude today's presentation. Thank you for your participation.