Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's Vera Bradley Fiscal 2013 Second Quarter Results Conference. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session, instructions will be provided at that time. As a reminder today's conference is being recorded. I’d now like to turn the conference over to Paul Blair of Vera Bradley’s Investor Relations Department. Please go ahead, sir.

Good afternoon and welcome. We would like to thank you for joining us this afternoon for Vera Bradley's fiscal 2013 second quarter results conference call. Some of the statements made on the conference 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 28, 2012 filed with the SEC for a discussion of known risks and uncertainties. Investor's should not assume the statements made during the call will remain operative at a later time. The company undertakes no obligation to update any information disclosed on the call. We understand that this is a busy period for reporting and intend to keep today's call to an hour in length. Therefore, during our question-and-answer session we ask that participants pose one question with one follow-up to allow as many callers as possible the opportunity to take part in today's call. I will now turn the call over to the Vera Bradley's CEO, Mike Ray.

Thank you, Paul. Good afternoon, everyone, and thank you for joining us today. With me are Jeff Blade, our Chief Financial and Administrative Officer; and Roddy Mann, our Executive Vice President of Strategy and Business Development. Today we will focus on three main topics; the highlights of our fiscal 2013 second quarter performance, a review of our initiatives and outlook for the remainder of fiscal 2013, and an update on the progress against our long term growth strategy. Although there were many accomplishments during the quarter, we also fell short of our expectations. As we shared our during our previous call, our most significant challenge has been a product portfolio that has underperformed. While our spring and summer collections had a positive impact on the overall offering, they were not enough to overcome the weakness of prior season in the midst of a challenging consumer environment. As a result, while we met our revenue expectations, we sacrificed gross margin in the quarter. We will provide more insight on this topic throughout the call. After a challenging May and June, business improved significantly in July with the successful launch of our fall back-to-campus collection. As we begin the third quarter, we’re encouraged by our current momentum, the strong sell-in of the winter collection to our specialty retail partners, and strengthening comparable store sales. In the second quarter, consolidated net revenue grew 19% over the prior year to $123 million, in line with our guidance. Consolidated gross margin was 55.8%, a decline of 170 basis points to prior year, reflecting the impact of increased promotional activity to address lower than expected sales trends early in the quarter. As a result, net income decreased $200,000 to $13.4 million or $0.33 per share versus $13.6 million or $0.34 per share in the prior year.…

Thanks, Mike, and good afternoon. I will begin my remarks with a review of our fiscal 2013 second quarter and then provide you with our outlook for the third quarter and full year. As Mike mentioned, the second quarter was challenging in May and June as we managed the product portfolio that underperformed prior to the launch of the fall back-to-campus collection on June 28. We were able to overcome some of the sales challenges but required increased promotional activities that impacted gross margin and earnings per share. Net revenues for the second quarter increased by 19% to $123 million from $103.8 million in the prior year. This performance was on top of revenue growth of 30% in the second quarter of last year. In the direct segment, net revenues increased 37.2% to $65.7 million, driven by increases across our full price and outlet stores as well as continued growth in ecommerce. The direct segment accounted for 53% of total net revenues in the second quarter versus 46% in the prior year. In our stores, net revenues grew 51% during the quarter driven by the opening of 17 full price and four outlet stores during the past year, as well as an increase in comparable store sales of 5.3%. In the second quarter, we opened seven full price stores, one outlet store in both current and new markets. During the balance of the year we have six remaining stores to open for a total of 20 which is one more than originally planned. Overall, we’re encouraged with the performance of our new stores. We ended the quarter with 60 full price and 10 outlet stores. Ecommerce net revenues grew 21% and represented 22% of total net revenues during the second quarter. This was due primarily to increased traffic from marketing…

Thank you, Jeff. In closing, I’d like to reiterate that while the second quarter was challenging, we are encouraged by the success of the fall back-to-campus launch, the current momentum of the business, and the lineup of great product introductions for the remainder of the year. We also remain optimistic about the long term prospects for Vera Bradley and the progress we continue to make in executing our growth strategies. I’d also like to thank all of our team members and our retail partners for their hard work and dedication during a challenging period. Our optimism around the long-term prospects for Vera Bradley is based on the strength of our brand, our unique culture and the ongoing commitment to serve our loyal and passionate customers. Operator, we will now take questions.

(Operator Instructions) We will go first to Neely Tamminga with Piper Jaffray.

I just wanted to follow-up a little bit on the momentum. You guys keep referring to the momentum post the back-to-college launch, and it sounds like it was more than just a modest improvement or rather more of a market improvement. But, Jeff, it seems to me that your comp guidance of being just mid-singles for Q3 relative to the number you set up for Q2, are you currently experiencing trends that are above that and you’re just baking in some conservatism? Just trying to get a sense of squaring all the comments that you’re making? Thanks.

Sure. Yeah. So as we mentioned with the fall back-to-campus launch at the end of June beginning of July, we did see very nice consumer response to that launch, and that helped drive our overall comps to 5.3% for Q2. We are seeing momentum into August, both in comparable store sales as well as reorders from our indirect retailers. So, while we have good momentum and we’re feeling good about it, we also want to make sure that we’re guiding in a way that’s reflective of the overall marketplace and the fact that we still have half a year to go.

So you’re trending better than that but there is conservatism? Is that how we’re supposed to interpret that?

You know, I can’t tell you. I can’t comment on that either way other than to say that we’re pleased with the way that August has trended. But it has been in a choppy environment this year.

All right. And then if I may, as a follow-up. Dare I ask if you have enough inventory at this point considering where we’ve been, but just you made a couple of comments as to what you’re expecting for Q3 and the full year. Are you feeling good about you have the appropriate level of inventory to feed into the momentum right now?

Yeah, I think we’re feeling good about overall inventory levels. So as we mentioned, we just finished the sell-in of winter to our specialty retail partners and that has been well-received. And I think overall inventory levels we’re feeling good about, both for winter and fall fashion, which launches tomorrow and Ribbons.

We will hear next from Jennifer Davis with Lazard Capital Markets.

I was wondering if you could comment maybe on the response that you’ve gotten from the indirect retailers regarding Fall 2. On your blog there was some commentary that seemed a little more negative, but it sounds like with guidance for the third quarter, you’re a little bit more optimistic?

Jen, this is Mike. The sell-in of Fall 2, fall fashion, which launches tomorrow was very good. And that season tested very well. We’ve got a great degree of confidence in that offering. When we posted those images on the blog, I will have to say, it probably wasn’t our best foot forward in terms of images that we used. We quickly put up updated images. We also posted on Facebook I think earlier this week. All three of those patterns for Fall 2. And the responses that we’ve gotten since then with better imagery has been overwhelmingly positive for that collection. So, that said, I wouldn’t put too much emphasis on what you see on the blog. At the end, until the consumer sees it, it’s difficult to replicate the actual product. But we feel very good about Fall 2.

Moving on to Erika Maschmeyer with Robert W. Baird.

Could you talk a bit more about the cadence of your comp trends in Q2, how May and June looked versus July? I guess did things drop off dramatically after you gave guidance? Was June really the month that led the underperformance? And then does the guidance that you gave assume that July and August trends continue? Thanks.

This is Jeff. So to give you some complexion on the cadence for the quarter. So May started out fine, and at the time we guided May we had seen some choppiness but overall it was looking okay. Right at the end of May we did see a deceleration. June was a very tough month for us and we really didn’t see the consumer sort of bounce back until we launched fall back-to-campus on June 28. And then in regards to what we saw in the balance of July and into August, our guidance for Q3 does reflect the fact that we saw nice steady comps and a comp trend that’s continued through July and then into and through August.

And then just to kind of go forward with that. Can you talk a little bit more about what is giving you less confidence in Q4 and does the guidance take into account the shift in the launch timing? It seems like that should certainly be a positive for the holidays.

Yeah. I think if you go back to our prepared remarks, so again it has been a somewhat unpredictable and uncertain consumer environment. And with the current cadence change, while we feel very good about the cadence change, we think it’s the right thing to do for our consumers. We think it will play very well in our own retail stores in terms of opportunities for new news. And while our selling of winter to our independent retailers has been good, the reality is this is the first year we’ve done a cadence change so we still don’t know exactly how it’s going to play out. So a combination of those two things is the reason that we’re more cautious on the back half and especially Q4.

We will move on to Evren Kopelman with Wells Fargo.

Can you talk a little bit more about -- you mentioned the reorders in May and June were weaker and then they picked up in July. Maybe give us a little bit more color on what is, I guess, product portfolio that your customers are reordering from? Did you get new products, is that why the reorder picked up? Or do you think there is a change in reorder patterns of your customers? If you can give a color a little bit more about that that’d be great?

Evren, this is Mike. We discussed on the last call the challenges that we were having in the portfolio. We were also sharing the challenges that the independent retailers had just in terms of the assortment they had in our stores, the level of inventory they had. And we said that it’s going to really take us through the end of the second quarter to work through that. And so what we have seen, our sales consultants were in the field, we provided assistance just in terms of marketing tools. We helped the retailers move through that merchandise, again, primarily by supporting marketing efforts. And so now largely they’ve moved through a lot of that merchandise. The inventory challenges that existed early on are largely resolved and the launch of back-to-campus has been very strong. So what they are reordering right now is primarily the fall season that launched June 28th and July 7th.

Okay. And then a follow-up is on your comments around the increased promotional activity. Is that primarily in your direct channels, ecommerce, on your owned stores? Because I believe you don’t do mark-down allowance type of things with your indirect customers, and also along with that, could you talk about why the indirect segment margin was down? Thanks.

Sure. So because of the sales challenges that we saw especially early on in the quarter, we were more promotional than we normally would be and it was in both our indirect and direct segments. In the direct segment it was primarily in our outlet stores and ecommerce. So our full price stores were still largely full price other than our normal sale period in June. In the indirect segment we had some sales of retired products as well as expedited shipping to some of our indirect retail partners. So, because a lot of our sales to them came in late in June, we wanted to make sure they have the products for the launch because a number of them were actually staging launch events. And as a result of that we wanted to make sure that they had the product to be able to have at those events. So we expedited shipping in a number of instances to make sure we were doing the right thing for our customers and ultimately their customers as well. So those were the things that drove the margin issues in the indirect channel.

Amy Noblin with William Blair has our next question.

I was just curious if you could talk, I know it’s early, but what are some of your early learnings from the shifting of your delivery cadence? It sounds like you’re pleased with how you’re managing through the shifting cadence with your wholesale partners. And maybe if you could talk a little bit about the plans for spring and any adjustments you’re going to make there. And I think a derivative question of that is, as you’re changing these cadences and gearing them more towards self purchasing, given the broad appeal of your product, how do you ensure that you have patterns that are relevant to everyone that will be purchasing, and this is really in reference to some of the comments that are on the blog about Fall 2 patterns. I view the blog as kind of a younger customer set. Are those necessarily who those patterns were geared for? So how do you manage that process given how broad in appeal your product is? Thank you.

Amy, this is Roddy. I’ll -- to start on the cadence change question. The feedback – the reasons for confidence around the cadence change as it relates to our specialty retail partners, to this point they’ve been pleased with what we’re doing. They completely understand that we’re shifting to the consumer schedule rather than to more a traditional wholesale schedule of launching. We’re also excited about shifting the winter release later into the season and closer to holiday. So it’s not such a big gap and time between our last calendar release of the year and the actual holiday period. So, we’ve gotten good feedback on that and it seems like winter has been -- to this point we’re pleased with how it’s selling in. As it relates to the patterns themselves, again the blog, it may be a younger customer. I think there is as many younger customers on Facebook now positively commenting on it. So we do think that a lot of that was just how we featured those. The patterns themselves, the design team is actively working. They are looking out well in advance at the trends, reacting to what they believe is in fashion. Certainly bear in mind that we are marketing to a younger consumer increasingly and I think you’ll actually see over time, the evolution of patterns in that way. So we feel very good about the patterns in that they are the right blend for our customers across all the generations that we’re marketing to.

Okay. Thanks. And are you in a position to give us any visibility into spring and how you’ll be shifting your pattern deliveries, if at all, after spring?

Yes. The spring will look like spring of this year. It will be more of a traditional release that we’ve had. So it will be apples-to-apples.

Moving on to Peter Wahlstrom with Morningstar Investment Research.

I was hoping to get a bit more color behind the full year gross margin expectation for the year. Now you’re expecting 30 basis points expansion and you’d been assuming some channel mix benefits and potentially some tailwinds from lower cotton costs. Just trying to drill down a little bit, as how much do you attribute to a function of lower volumes, maybe some pricing pressure on newer product coming to market or discontinued outgoing patterns?

Sure. So the primary -- so we had originally -- when we gave guidance originally for the full year we had guided to positive 50 basis points. We had raised that to 90 when we gave Q2 guidance. So the reduction back to 30 is a function really of two things. It’s a function of the miss in the second quarter because of needing to meet more promotional and then secondly some of the uncertainty around the fourth quarter that we’ve reflected in our guidance. So, it’s really those two things. In terms of the cost of savings, we are fully realizing those and in terms of margins on any new products on an overall blended basis we are still in line.

Okay. And quickly taking a look at the retail real estate landscape today. As you look at your pipeline for new stores and continue negotiations with some of the A mall landlords, how much is the discussion surrounding rents, length of lease, location within the mall and concessions changed within the last few months?

Pete, this is Roddy. It has not over the past few months. We have seen a general shift since the down turn off -- since the recessionary period and that we are having better tenant allowances at that point. Tenant allowances have ticked up a little bit but nothing meaningfully over the past few months. We do continue to get great locations offered to us in the malls and that’s been consistent over the past few years related a lot just to our performance.

Oliver Chen with Citi has our next question.

I had a question related to the patterns that had performed a little bit worse than expected in terms of the prior seasons. Going forward, do those still exist in your portfolio? Are there ones that you still have to clear through? And then my follow-up question is broadly related to your indirect line. It looks like it’s been trending more consistently than in the past. Do you feel like -- some your comments kind of led me to believe that you guys have a little bit better visibility into how that moves. Is that a true statement, if you could offer some commentary there I’d appreciate it? Thank you.

I will take the first question. This is Mike. In terms of portfolio, we retired just recently about five patterns Deco Daisy, Watercolor, Viva La Vera, Plum Petals and Safari Sunset, and kind of collectively those patterns had underperformed. They might have performed well in season but the kind of life or the tail on those patterns dropped off. The encouraging news is that from the both the spring and summer seasons, we have strong patterns that continues to sell well. In addition, to the three we just launched in fall, Island Blooms and Lime’s Up are in the top tier of patterns. So, we continue to refresh the portfolio with stronger patterns. We’re parsing out some of the older underperforming patterns. So we feel good about the quality of portfolio and understanding what’s coming down the pike in terms of newness and freshness. We’re pretty encouraged by what we’re seeing in the product performance and feel good about in the back half of the year. And with regards to the question about the indirect channel and visibility, as we mentioned in our prepared remarks, we’ve been working with our independent retailers during the year obviously as we work through and they manage through a weaker product portfolio. So, we work with them to ensure that they were able to work through inventory, to refresh their overall lineup. Work with them to make sure that as we launched the fall back-to-campus collection, which we long anticipated would be very strong, that they were properly inventoried. Since then what we’ve seen is that they are seeing nice consumer traffic, nice sell-through that’s reflected in reorder volume. And then because of the cadence change in the timing of selling in the winter collection, we do have higher visibility than we normally would during a quarter like Q3 because that sell-in has ended. So, overall, we are feeling good about where we’re at from a visibility standpoint, with the one exception that as we go to the back half of the year we do have a little bit uncertainty around Q4.

Thank you. Thanks for all the detail and great work. I really like the back to school products. So, good luck.

We move on to Steven Marotta with CL King & Associates. Steven Marotta - CL King & Associates: Quick question regarding new stores. Can you talk about the stores that have opened up in the last year and how productive they are versus the average of the chain? As well as the newer stores that have been added to the comp recently, so just over a year old, and how those are comping to the balance of the chain? Thank you.

Yeah, we’ve talked for a number of quarters about the fact that what we’ve seen in the last two plus years is that the classes that we’ve been opening have been extremely productive, and we think that’s a combination of several factors. One, we continue to learn. So we opened our first retail store in 2007, so we’re still relatively new as a retailer and we continue to learn what it takes to open a successful store. As we become more successful we’re also getting much better real estate locations. So I think that’s continued to help us from an improvement standpoint. We continue to dial in the associate staffing of those stores and the overall experience. So, all of that combined, our stores what we’ve seen in the last two plus classes and the stores that have opened thus far this year look like they are going to follow a similar trend. Is that those stores are opening very productive so they are opening at the high end or above our first year target store economics. In terms of stores rolling into the comp base, so the stores that are coming into the comp base this year, overall, some of the ones that are opening with very high productivity they’re coming into the comp base with more moderate comps as we’ve talked about in the past. And that’s a function of the fact that they’re already operating in many instances well above the sales per square foot of the mall average. Steven Marotta - CL King & Associates: That’s helpful. And one quick follow-up, do you anticipate opening up roughly 20 doors again next year? Is that safe to assume?

We haven’t guided for next year but our long-term guidance is 14 to 20 stores per year.

Randy Konik with Jefferies has our next question.

This is [Amanda Seguen] in for Randy. Just a question about the winter collection, you mentioned it’s been well received. Have you done any consumer testing around that and just curious how that compares to prior releases if you have. And then also on the new online outlet store, how does that fit into the overall strategy? Is this something you plan to use regularly going forward or more selectively? Thanks.

This is Roddy. Just beginning with the last question, the online outlet store. We are evaluating how we use that, so right now it’s on a selective basis. And what.…

I was just asking about the winter collection.

Yeah, the winter collection. Yes, we have tested winter and are pleased with how it has tested. Actually, we’re quite pleased with how Ribbons itself tested such that we were actually going to originally bring it in in a limited assortment of styles and have decided to bring in the full assortment of styles as a result.

I think the other thing would be good to point out is that while we’re very kind of bullish on the patterns that are coming down the pipe, what is different about where we are today relative to history is we’re refreshing the assortment with patterns but also with great new styles. For the back-to-campus collection, we had bedding, had throw blankets, we had pillows, we had dorm rugs. We had a lot of things for decorating the dorm. And in other new styles we have an expanded backpack collection, a number of cross body styles that we launched on July 10. And those have invigorated portfolio as well. So we’re becoming over time less dependent on patterns which I think is an important thing for everybody to understand that this will be a style story as well as the merchant team starts to impact the overall assortment.

We move on to Ike Boruchow with JPMorgan.

I guess the question about the gross margins in the quarter. You guys were a little more promotional like you pointed out. I guess the question I have is, the momentum that kind of picked up mid-July and into August, was that a function of something within the portfolio, was that a function of that’s when you became more promotional, was it both? And then your outlook for the back half of the year, does that incorporate being incrementally able to do more promotional or not?

What was driving the business in July, Ike, was the new products. And what continues to drive the business at the moment and we see right now is the new merchandise that we launched in late June and July, and we expect to see that continue. The nice thing about where we are right now is that we’re launching a new collection tomorrow. A year ago, there was a longer period of time between launches. So we expect to continue to build momentum as we go through the back half.

And we do not anticipate needing to operate in as promotional environment as was required during May and June.

Okay. Great. And just one quick follow-up. Jeff on the SG&A now that we are kind of annualizing a lot of those investments you made, how should we think about SG&A dollar growth and is it possible to get your SG&A guidance just for the third quarter?

I think if you do the math we have provided guidance on revenue margins and EPS, so I think SG&A should model out in line.

And we will go back to Jennifer Davis with Lazard.

I was wondering if you guys could talk about the release cadence for next year, will it be similar to this year, similar kind of anniversary some of this shifting? And then also wondering, if you could tell us what percent of your sales are new product and new patterns and how did this launch kind of compare to prior launches in terms of that? And then finally, did you or are you offering similar extended payment terms this holiday like you did last year? So will that be kind of apples-to-apples? Thanks.

Jen, this is Roddy. You can think of -- generally speaking think of a cadence next year as looking very similar to what it is this year. As far as the mix of new and old, I think the best representation of that, and we shared this in the prepared remarks, is that the top ten styles since the launch, half of them are new styles and half of them the classics. And this is a trend -- this is something we haven’t necessarily seen in a few seasons. So it’s a good sign that the styles we are bringing to market are performing well as well as the [line] of things we’ve had in line.

All right. I agree with that. What about patterns?

As we shift to -- Mike mentioned the Island Blooms, Lime’s Up, essentially the patterns that we have released this year are performing much better than some of the patterns from last year. Typically that’s -- naturally the case is patterns age and sort of tail off, but it’s a little bit more marked difference this year and that’s sort of why the portfolio of patterns earlier in the year was more challenging.

Okay. thanks.

Can you repeat your question on the date again?

I asked about the extended payment terms that you offered for holiday last year. Are you offering those again this year, so will that kind of be apples-to-apples?

Yeah, we’re not anticipating doing any extended dating terms in the back half in any material way.

And Mr. Ray, I’ll turn the conference back to you for closing remarks.

Okay. We appreciate everybody’s time and thank you for joining us today and for your continued interest in Vera Bradley and our brand. We look forward to speaking with you during our third quarter conference call which will be held on December 5 at 4.30 pm. Thank you.

That concludes today’s conference. Thank you all for joining us.