Vera Bradley Inc (VRA) 2017 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vera Bradley first-quarter FY17 earnings conference call.

(Operator Instructions)

As a reminder, today's conference 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.

Thank you. Good morning and welcome, everyone. We would like to thank you for joining us for Vera Bradley's first-quarter earnings 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 January 30, 2016, filed with the SEC for a discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. The Company undertakes no obligation to update any information discussed on the call.

I will now turn 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, Chief Financial Officer; and Sue Fuller, Chief Merchandising Officer. Our year-over-year improvement in diluted EPS was primarily related to our 220-basis-point gross profit expansion, largely driven by sourcing and operational efficiencies and an increased sales penetration of higher-margin made-for-outlet products. Our overall promotional levels remain controlled.

Our first-quarter diluted EPS was at the high end of our guidance, primarily due to diligent expense management and a lower-than-planned tax rate. We achieved this EPS despite revenues at the low end of our guidance range. We were disappointed in our comp-sales performance, which was a reflection of weaker traffic in a more challenging retail environment.

We're now in the third year of our multi-year turnaround, and our team is committed to executing our long-term strategic plan, focusing on the core areas of product distribution and marketing as we create beautiful solutions for our Daymaker customer. We are encouraged by our progress to return the business to sustainable growth. As a reminder, our three main objectives for FY17 are to: complete our brand transformation; drive core growth through optimizing our existing product portfolio and by strengthening our distribution channels; and begin to explore additional licensing and international growth opportunities.

Our exciting new brand positioning will be launched in September, and we believe this will lay the foundation for comparable-sales growth in the second half of this year as we: introduce our fall products assortment with our new logo; launch our comprehensive fall creative campaign; open our SoHo flagship store; begin to update key full-line stores incorporating our new logo and modern visual package; and launch our new digital flagship. We remain very excited about the future.

I will now ask Kevin to give us a brief update on our first-quarter results and our outlook to the second quarter and full fiscal year. Kevin?

Thanks, Rob, and good morning. Let me go over a few highlights for the quarter. As a reminder, prior-year income statement numbers exclude charges outlined in the release related to our manufacturing facility closing, severance and restructuring costs, and an income tax adjustment.

Current-year first-quarter net revenues totaled $105.2 million, a 4% increase over $101.1 million last year, and at the lower end of our guidance of $105 million to $109 million. Net income totaled $2.4 million, or $0.06 per diluted share, compared to $0.1 million, or $0.00 per share last year. As Rob noted, our EPS was at the high end of our guidance range of $0.04 to $0.06.

In our Direct segment, revenues totaled $72.9 million, a 3.6% increase from $70.4 million in the prior-year first quarter. This revenue number reflects a comparable-sales decline, including e-commerce of 6.7% for the quarter, which was more than offset by new-store growth. First-quarter comparable sales were negatively impacted by year-over-year declines in store and e-commerce traffic. E-commerce sales were also negatively impacted by lower levels of promotional activity. In fact, we removed 29 hyper-promotional days from verabradley.com in the first quarter.

Indirect segment revenues increased 5.1%, to $32.2 million, from $30.7 million in the prior year, primarily due to higher-than-expected sales to certain non-department store key accounts and the timing of a product launch in the specialty channel moving from the second quarter last year to the first quarter this year, which positively impacted current-year first-quarter revenues. These gains were partially offset by lower orders from the Company's specialty retail accounts. At quarter end, the number of specialty accounts remained essentially flat, at around 2,600.

Gross profit for the quarter totaled $59.7 million, or 56.7% of net revenues, compared to $55.1 million, or 54.5% in the prior year. The year-over-year 220-basis-point gross profit percentage improvement, primarily related to sourcing efficiencies, leveraged overhead costs resulting from the closing of our domestic manufacturing combined with lower product sourcing costs, as well as operational efficiencies and increased sales penetration of higher-margin MFO products. The gross profit percentage was at the low end of the guidance range of 56.7% to 57.2%, primarily due to modestly increased promotional activity in our factory stores and higher-than-expected sales to certain lower-margin key accounts.

SG&A expense totaled $56.4 million, or 53.6% of net revenues this year, compared to $55.1 million, or 54.5% of net revenues in the prior year. As expected, SG&A dollars increased over the prior year primarily due to new-store expenses; however, our SG&A expense rate was at the lower end of our guidance range of 53.5% to 54.8%, due to diligent expense management.

Operating income totaled $3.9 million, or 3.7% of net revenues, in the current year, compared $0.9 million, or 0.9% of net revenues, in the prior year. By segment, Direct operating income was $12.1 million, or 16.6% of sales, compared to $11.5 million, or 16.3% of sales, last year, which excluded $3.5 million of the aforementioned charges. And Indirect operating income was $12.6 million, or 39.1% of sales, compared to $11.1 million, or 36% of sales, last year, which excluded $1.1 million of the aforementioned charges.

Cash and cash equivalents, and short-term investments, as of April 30, 2016, totaled $81.8 million, compared to $96.6 million at the end of last year's first quarter, and we had no debt outstanding at quarter end. Quarter-end inventory was $113.4 million, slightly below guidance of $114 million to $119 million, and compared to $101.8 million at the end of last year's first quarter.

Net capital spending for the quarter totaled $5.6 million. During the first quarter, we continued to repurchase shares under our $50 million share repurchase plan. We purchased approximately $5.7 million, equating to approximately 354,000 shares at an average price of $16.05. This brings the total repurchases under the plan to approximately $9.8 million, equating to approximately 637,000 shares at an average price of $15.42.

Now let's talk about our outlook for the second quarter and the full year. We believe we are approaching the balance of the year realistically and taking into account macro factors including continued headwinds in the handbag space, ongoing challenges in mall traffic, and the overall promotional environment. We continue to be in a very unpredictable environment. Keep in mind that, as I discuss our prior-year comparisons, the prior-year numbers exclude the aforementioned charges.

For the second quarter, we expect net revenues of $118 million to $123 million, compared to prior-year second-quarter revenues of $120.7 million. We expect Direct segment net revenues to increase in the low- to mid-single-digit percentage range, with a comparable-sales decrease -- including e-commerce -- in the low- to mid-single-digit percentage range. We believe our Indirect net revenues will be down in the low-double-digit percentage range during the quarter. This Indirect trend expectation is worse than the first-quarter and full-year guidance due to the timing of a product launch in the specialty channel which positively impacted the first quarter and will negatively impact the second.

The gross profit percentage for the second quarter is expected to range from 58% to 58.5%, compared to 55.1% in the prior-year second quarter. The planned improvement reflects sourcing efficiencies and increased sales penetration of higher-margin MFO products. SG&A as a percentage of net revenues is expected to range from 51.3% to 51.7% for the second quarter, compared to 47.5% in the prior-year second quarter.

We expect to incur approximately $1 million of incremental severance charges in the second quarter. We expect second-quarter diluted EPS to be in the range of $0.13 to $0.15. This compares to diluted EPS of $0.15 in the prior-year second quarter. Our second-quarter EPS estimate is being negatively affected by the product launch timing in the specialty channel, as well as the incremental severance I just mentioned.

We expect inventory to be $105 million to $110 million at the end of the second quarter, compared to $103.9 million at the end of the second quarter last year. This projected inventory level reflects investments in key growth classifications including new fabrications.

For the full year, we expect net revenues of $510 million to $520 million, compared to $502.6 million last year. Our revenue guidance includes Direct segment net revenue growth of a mid-single-digit percentage increase, with comparable sales, including e-commerce, down in the low-single-digit percentage range. As Rob noted, we expect comparable sales to turn positive sometime in the second half of the year.

Indirect net revenues are expected to decline in the low- to mid-single-digit percentage range for the full year. The gross profit percentage for FY17 is expected to range from 57.7% to 58.2%, compared to 56.6% last year. The planned improvement reflects sourcing efficiencies and increased sales penetration of higher-margin MFO product. We expect to realize more gross profit rate improvement in the first half of the year than in the back half of the year, as we will anniversary certain sourcing efficiencies and the buildup of MFO product to its current penetration level in the second half of the year.

SG&A as a percentage of net revenues is expected to range from 47.3% to 47.9% for FY17, compared to 46.6% last year. The planned increase is primarily related to incremental expenses related to new stores, e-commerce, severance and incentive compensation. As a side note, our year-over-year marketing spend will be approximately flat. However, some [spend in shift seen] out of the first, second, and fourth quarters into the third quarter with the launch of our fall campaign.

We are maintaining our full-year diluted EPS guidance range of $0.90 to $0.98. On a comparable basis, diluted EPS totaled $0.82 last year. Net capital expenditures should total approximately $20 million for the full year, primarily related to new-store openings, store renovations, and continued technology investments. Our inventories are expected to grow in the first half of the fiscal year and then be modestly down from prior-year levels in the second half of the year.

Let me turn the call over to Sue, who will give us an update on product. Sue?

Thanks, Kevin. As a reminder, our three main objectives in the product area are: number one, delivering innovation newness and diversification of fabrication; number two, segmenting our offerings by channel; and, number three, enhancing our growth profit percentage, which Kevin has already discussed.

We are still focused on majoring in the majors and optimizing our existing product portfolio. We have identified five key businesses where we can win by offering beautiful solutions to our Daymaker aspirational customers. As a reminder these five businesses are: Fashion Bags and Accessories; Travel; Campus; Beauty and Wellness; and Home. In each of these five categories, fabrication, pattern, and style innovation and newness are critical in order to stay relevant. We certainly want to maintain our market-leadership position and market share in cotton, but will continue to innovate our heritage offerings supporting our new brand positioning. Cotton remains the largest and most important piece of our business, and our design team is working hard to reinvigorate and modernize our cotton assortment with new patterns, styles, silhouettes, hardware, and functionality.

We will have new ideas to share in the next several months. Customers have responded positively to our newer non-cotton fabrications like microfiber, Sycamore leather, Streeterville, and Lighten Up, and we are continually looking to test, learn, and adjust our assortment. For example, this summer, we will be adding a distinctive more casual leather collection called Gallatin and discontinuing our more traditional Wildwood leather collection, which we believe was not differentiated enough in the marketplace.

As we focus on offering newness and providing beautiful solutions for our Daymaker, brand extension will be critical. In addition to our Collegiate, fragrance, jewelry, and eyewear collection, we believe there are several other licensing and strategic partnership opportunities for brand extension for us going forward.

This spring, [Stephanie Lauren] joined our team as vice President of Licensing, and she is busy working on licensing ideas and partnerships in various areas, first focusing on Home. Stephanie has more than 30 years of experience in the consumer products industry and has spent much of her career focused specifically on licensing. We are thrilled to have her on board leading this very important initiative.

As a side note, our Collegiate Collection currently represents 17 colleges and universities. By back to campus, this summer, we will offer Collegiate in 75 schools. We are excited about this opportunity to bring new customers to our brand.

Rob?

Thanks, Sue. Let me take a minute to update you on distribution. As of quarter end, we had a store base of 111 full-line and 41 factory stores. During the quarter, traffic remained very weak in many of the malls that housed our stores, especially our full-line stores. We are working with our store teams to drive traffic and sales through enhancing our sell-and-service culture, nurturing more community outreach, and building more localized assortments.

Over time, we believe ample opportunities remain for both full-line and factory growth, but as you might recall we have slowed our new-store growth this year. We will open a total of four new full-line stores, with each of these being a very unique property. All of these locations will feature our new-store design, logo, and visual package.

In the first quarter, we opened a full-line store in Woodfield Mall in Metro Chicago, which has been a good market for us, and relocated our Park Meadow store in Metro Denver to a higher-traffic location within the mall. In May, we opened our Disney Springs full-line store in Orlando, which features a mixture of our core assortment with our Disney-themed Vera Bradley offerings. In August, we will open a store in the International Marketplace in Honolulu, and -- probably most exciting -- in September, we will open a flagship store in SoHo. This modern showcase location will embody innovative design elements, will feature exclusive patterns, limited-edition items, and unique store experiences, and will be supported by a myriad of marketing initiatives and special events.

In addition, this fall, we will fully renovate our Jefferson Pointe store in our hometown of Fort Wayne. In September and October, we will also refresh 16 of our higher-traffic, higher-volume, full-line stores with our new branding, including storefront-to-side logo and interior changes. By the end of the year, approximately 35 of our full-line stores will reflect our new, modern store design. And by the end of FY19, we expect that nearly all full-line stores will be refreshed.

On the factory side, we expect to open a total of six stores this year: Foley, Alabama, opened in the first quarter; Auburn Hills, Michigan, opened last month; Columbus, Ohio, and Branson, Missouri, will open later in the second quarter; Nevin, North Carolina, will open in the third quarter; and Daytona Beach, Florida, will open early in the fourth quarter.

Building our digital flagship remains a key part of our distribution strategy. The redesign and conversion of our website to a new platform is scheduled to launch in September. Our new site will reflect our more modern brand positioning, allow us to better convey our brand and product story, and increase customer engagement with the Daymaker by stimulating interaction and storytelling to make our brands come alive. The new site will be mobile first and will offer many features, including: additional navigation and certain enhancements; strategic segmentation and personalization; express checkout; preorders; PayPal; e-gift cards; order online/pickup in-store; FDO optimization; improved mobile responsive design; and mini-site capabilities for future foreign expansion.

Expanding our department store relationships remains a part of our long-term growth strategy. We now have a presence in approximately 620 department stores, including all Dillard's locations and about 250 Macy's stores. Our plans are to add about 100 more Macy's, Belk, and Bon Ton locations this year. However, our main focus is to build the productivity of our existing doors through editing and curating assortments by location, adding more floor space where appropriate, and delivering visual consistency across all locations. In addition, we are adding our jewelry collection to nearly 100 department stores and our fragrance collection to over 350 stores this fall.

Now, let me spend a minute on marketing. Last year, our primary focus was on raising brand awareness and, through our initial marketing efforts, we successfully increased our overall aided brand awareness by over 600 basis points. And, this year, we have shifted our focus and media spend to improving brand perception, engaging a new audience, increasing desire for our brand, and ultimately growing market share.

To help us accomplish this, we have refined our marketing message and method to focus on our targeted Daymaker customer. Our message is modern but leverages our brand heritage of being female centric. We believe women, and in turn femininity, should be celebrated. That's why we design beautiful solutions that support this belief and help women connect to their femininity and to each other.

Our comprehensive multifaceted media plan is a fully integrated mix of digital, social, experiential, and print, with our goal being to surround her with our brand. We will target our Daymaker consumer, reaching her where she already is looking, and giving her content that celebrates femininity and showcases our product as beautiful solutions to everyday problems. Our marketing will be featured in Glamour, InStyle, People StyleWatch, Pandora, Spotify, Pinterest, and SheKnows, just to name a few.

As we surround our Daymaker, we will continue to connect with bloggers and other fashion and lifestyle influencers. You will see fewer digital banners and more engaging social media, including video, as well as lifestyle fashion magazine spreads that reach a high concentration of Daymakers. Our plan calls for a nearly 25% increase in fall fashion impressions.

Our new creative campaign will launch in September and will connect women with one another, celebrating their femininity and bringing the idea of beauty and solutions to life. Our new marketing campaign is just one of many reasons that we have an exciting fall ahead.

Operator, we will now open the call to questions.

(Operator Instructions)

Oliver Chen, Cowen and Company

Great job on margins and inventories. On the inventory front, what are your thoughts for the back half in terms of how you are planning inventories relative to the trends? I know there's a lot of traffic concerns but you also have the newness coming so I'm just curious about optionality and how you are thinking about conservatism versus upside?

Good question Oliver. We did pull down our purchases slightly in the back half of the year. Along with pulling down our revenue guidance by about $5 million, we did pull down our purchases a little bit.

To think about the back half of the year, we still feel like that $100 million to $110 million probably make sense in the back half of the year in terms of a total balance for inventory, But we feel really good about inventory as we exited this quarter. I think the supply chain team and the planning team has just done a wonderful job negotiating better pricing for the inventory and ordering the right quantities and obviously we were a little long and inventory at some new fabrications that are really working for us.

Okay, and Rob the traffic situation is definitely industry, and also specific, but was it more than you expected in terms of the traffic impact and the volatility you are seeing? What do you think is happening and if you could brief us on the dynamics between your direct to consumer outlet versus full price business and why the outlet business seems more promotional?

Absolutely, Oliver. For last quarter what we saw from a traffic standpoint is we did see a slower traffic coming in the first quarter than what we experienced in fourth-quarter, which did catch us by surprise. We did not expect that, the slippage on comparable store sales.

If you look at the traffic, we don't necessarily break it down completely between the two but if you pulled apart the pieces we did see more slowdown in terms of how our outlook performance was. We had not seen the slowdown that you had heard in the industry last year. We saw a little bit of that slowdown in first quarter, which was the primary driver, but generally we saw a little bit lighter traffic flow across the board.

Okay, just lastly, Sue - on the product front and also regarding how we will look at the stores, how do you anticipate consumers in terms of the consumer experience? And also making sure you showcase your product and bring in the newness in a harmonized way that is experiential and clear?

How do you expect that to happen in September and what should we watch for? Just because I know its important to be curated and you also have a lot of newness coming in the store just to make the shopping experience kind of seamless and make sense for the customer and the context of the changes?

That's a great question. One of the things that we have done is, we have been introducing new product as it's not a complete departure from where we are at. We make sure we look at the line holistically to make sure that it flows both from a print and pattern perspective as well as from a color perspective and we think that will create a lot of synergies.

Secondly, in our own stores the way that we are curating the assortment is by the collection-based merchandising. So it's clear to the customer when she walks in that this is a new collection and we have merchandised that together, highlighting what I would say is key item-based as well within those collections. And then last but not least we have a strong synergy between, obviously the merchandising and the visual merchandising team, and we've made sure that we've highlighted both in the windows through the signage as well as our front and forward tables - what we call zone one - to make sure that the consumer is aware that the newness is existing.

I think I can add on that Oliver, too, is I think the design team has really done a nice job for fall making sure that all of the collections in terms of the different fabrications really harmonize and work together from a coloration standpoint. Which I think there's more unity in the fabrications as a whole than we've seen in the past, which I think is going to help us. The other thing we are really pushing visually, as Sue was talking about, to really maximize key item presentation in our store and really have a clear communication to the consumer both from a key item standpoint as well as a newness standpoint.

So making sure that they invite the Gallatin launch, which is a new, I would say fabrication because it's leather, but new style in leather, a much more casual line. Really get that highlighted and clean focus. We definitely are working on both the visual as well as the cohesiveness of how the design group is putting the collection together.

Thanks for those details. Great.

Thank you, Oliver.

Mark Altschwager, Robert W. Baird

Good morning, thank you for taking the question. Just wanted to start out asking about new customer acquisition? As you look at the comp performance, what are you seeing with frequency of visits and the change in spend from your existing customers versus contribution from your customers to Vera Bradley?

Thank you, Mark. As you break down in terms of consumer behavior, what we're seeing with the metrics, the selling metrics across all three channels is generally an improvement in ADS, so the average dollar sale was definitely improving. We've seen conversion generally improving across the channels.

We had a slight softening in our full-line store in first quarter but generally we have seen conversion continue to increase. As you look at the retained customer and the new customer we are continuing to see the overall customer file, in terms of our active customer file for the total Company continue to go up. The strongest driver in that has been the growth of our factory business.

But we are seeing total growth in total customer households in both retained and new customers. And where we are continuing to see nice strength in the new customer is in the targeted age demographics we've been going after. So we're continuing to see the best growth in the new customer segment approaching what we are targeting in this Daymaker category.

That's helpful. Thank you. Rob, I wanted to follow up on distribution. There's been a lot of focus on the department store channel, just given the rough start to the year, for those retailers.

So the question is, are you feeling any destocking pressure from the department stores in terms of like-for-like doors? Or is the market share capture been more than enough to offset that? And separately on distribution, any update to your progress on adding the higher-end boutiques and apparel boutiques to your mix? Thank you.

Yes a couple things - one, in department stores, what we are seeing for us is obviously a little bit different than some of our competitive set in that we're not as mature in the department store space as they are. So we are seeing continued growth and new opportunities in department store, whether it's in our core segments and categories or whether it's in some of these new brand extensions that we've been talking about. But we have seen a little bit of pressure in, you say, true like-for-like performance. So there's a little bit but we are able to more than offset that as we continue to grow and expand.

And in terms of adding new distribution, obviously that's something we are continuing to look at in the specialty store. We have been adding a few new apparel and accessories stores to the mix. And I would still say we are early in that growth.

Thank you very much, and best of luck.

Thank you, Mark.

Bill Dezellem, Tieton Capital Management.

Thank you, a couple of questions. First of all, would you bring us up to speed relative to May, and how you would characterize the overall retail environment relative to what you experienced in Q1? And if there were any changes?

Generally, the May performance is really reflected in our guidance as we talk about second quarter and we haven't seen a material difference.

Bill, as it related to Q1, February was probably our best month and then really, March, April and May have been much of the same for the most part.

That's helpful and then the additional severance this quarter -- would you help us understand where that's coming from?

Yes, that's one of our executives - we put out an 8-K, I think just a couple of weeks ago, and it's Roddy Mann who is leading up the sales force. So he left us, actually today - or yesterday was his last day - and we've also hired Mary Beth, who will be leading the wholesale side of our business. And that we have Melissa leading the direct side and both of those individuals will be reporting to Rob directly.

Basically, just for your knowledge too, that was something that Roddy and I had worked out that he basically spent the last year helping get our sales organization ready for this transition and we feel really good about the team we have in place.

Thank you and that MFO what percentage of factory was that in Q1, Q4 and Q1 last year?

Oh gosh. In Q1 of this year, it's in the 70%s, the low 70% range, and it's really very similar to Q4. And then if you look at Q1 of last year it was probably in the 40% range. We started the year at 25%, worked our way up to 70%, it so its probably in the 40% range in Q1 of last year.

That's helpful. And would it be fair to assume that your MFO balance is right where you want it, and so we shouldn't expect dramatic changes going forward?

That is correct. We'll still get a little bit of a benefit in our gross margin in Q2, and then post- Q2 we're really at that percentage we foresee being at for the foreseeable future, Bill. So not a lot of benefit going forward after Q2

Excellent, thank you both.

Thank you, Bill.

Steve Marotta, CL King & Associates.

Good morning everybody, thank you for taking my question. The question pertains specifically to store comps in the back half of the year? If you alluded to this earlier I missed it -- I understand that you expect comps to turn positive, does that include brick and mortar comps as well?

We've just stated at this point that the total comp is what we are expecting to turn positive at some point in the back half of the year. We're obviously expecting improvement across the board as you look at our full price stores as well, but what we've stated is the total comp we expect to be positive as we exit the year.

Okay so it's possible that brick and mortar is flattish, but will become significantly better given the launch of the flagship website that would bring it over the mark nicely?

That's correct. That could be one way to get there.

Okay. My other question pertains to the product launch shipments that were pulled into first quarter from second-quarter? Can you quantify, roughly, the size of that?

It was about $2.5 million. That's the amount -- it related to a pattern launch we did in May last year - I think it was Sierra that was the pattern name. We actually pulled that into Q1 of this year, and it was around $2.5 million on the specialty side of our business, which was the significant movement from Q2 to Q1 this year.

Great, thank you very much.

Thank you.

(Operator Instructions)

Dana Telsey, Telsey Advisory Group.

Hi, good morning, everyone. You had nice improvement in the operating margins for both direct and indirect -- what are the levers for each and how do you see the opportunity going forward?

You know, still feel like on the direct side of the business it's getting comps going and to be able to leverage our SG&A expenses, obviously we've been very proud of the gross margin improvement we've seen this year and last year. But really on the direct side, it's really being able to leverage the SG&A expenses by getting the sales up.

On the indirect side -- probably there, I feel like we are in a good place. I don't feel like there's a huge improvement looking forward. I think we are right around 39%, 36% I think -- oh no, 39% in the quarter, and I feel like that was a pretty good percentage. And what we've stated over the long-term is we really don't see that number going up very significantly.

I think there will continue to be pressure on the indirect side as we continue to expand in the department stores, just with regards to chargebacks and returns and things like that we need to manage very closely, which we are. So I feel like the opportunity to leverage from an operating income percentage perspective is on the direct side of the business. And beyond that we can leverage a little bit our corporate expenses as well, looking forward.

Thank you.

And with no further questions in the queue, I would like to turn the conference back over to Mr. Rob Wallstrom for any additional closing remarks.

As we continue with our business turnaround, we believe we have a clear direction and road map to assure our brand is more modern and relevant to the Daymaker. We remain energized and excited about the future of Vera Bradley and thank you for joining us today and for your interest, time and questions. And we look forward to speaking with you on our second quarter call on August 31.

Again, that does conclude today's presentation. We thank you for your participation.