Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vera Bradley First Quarter Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Mark Dely. Please go ahead.

Good morning and welcome everyone. I would like to thank you for joining us for Vera Bradley's conference call. Some of the statements made 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 most recent Form 10-K 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. We undertake no obligation to update any information discussed on the call. I will now turn the call over to Vera Bradley's CEO, Rob Wallstrom. Rob?

Thank you, Mark. Good morning everyone and thank you for joining us on today's call. John Enwright, our CFO also joins me today. Let's start with what is on everyone's mind the COVID-19 pandemic. Undoubtedly, this has been one of the most disruptive and challenging periods in the company's history, but our strong culture and innovation are leading us through this period. We have worked to minimize the pandemic's impact on our associates, shareholders and other stakeholders. The well-being and safety of our associates and customers remain our top priorities in every decision we make. It will take time for consumer confidence, customer traffic and shopping activity to return to pre-pandemic levels. But I am confident, the actions we have taken will allow us to manage through this challenge and position us to emerge a stronger company and thrive over the long term. With adversity comes opportunity. This crisis will have a lasting effect on consumers and transform the way they shop. Our 2019 acquisition of Pura Vida has resulted in e-commerce being a larger share of our total company revenues and the digital skills of both companies will be even more critical in this new environment. We are moving ahead with the innovation that will enhance the consumer experience and propel us forward, innovation in product, marketing and technology. Many of our customers were anxious to shop, even as our stores were closed. Our Vera Bradley and Pura Vida e-commerce businesses combined, which represents about one-third of our total company revenues on a normalized basis was strong in the first quarter and continues to exceed last year's performance into the second quarter. At both Vera Bradley and Pura Vida, customers are responding to new product launches and our marketing initiatives. And at Vera Bradley, sales of cotton masks are…

Thanks Rob and good morning. As a reminder, financial results have been consolidated to include Pura Vida beginning July 17, 2019 the first full day following the acquisition. Prior period numbers have not been restated. The current non-GAAP first quarter income statement numbers, I will discuss exclude the previously disclosed impairment charges, intangible asset amortization, expenses related to the re-platforming of our IT systems, adjustments of the Pura Vida earn-out liability and COVID-19-related charges all of which have been outlined in today's release. Non-GAAP EPS also excludes the ASC 480 measurement adjustment described in today's release. The prior year first quarter non-GAAP income statement numbers exclude Pura Vida transaction charges. Consolidated net revenues totaled $69.3 million for the current year first quarter, a decrease of 23.9% over the prior year. Excluding Pura Vida Vera Bradley net revenues totaled $48.1 million a 47.2% decrease from $91 million in the prior year first quarter. For the first quarter excluding charges, Vera Bradley Incorporated, non-GAAP consolidated net loss totaled $10.2 million or $0.31 per diluted share. For the prior year first quarter excluding charges, the company posted a non-GAAP net loss of $1.8 million or $0.05 per diluted share. Vera Bradley Direct segment revenues totaled $36.8 million, a 48.2% decrease from $71.1 million in the prior year first quarter. The decline primarily resulted from the company stores that were temporarily closed as a result of COVID-19 for approximately half of the first quarter. First quarter e-commerce sales included in the Direct segment revenues increased 20.5% over the last year. Vera Bradley Indirect segment revenues totaled $11.2 million, a 43.5% decrease from $19.9 million in the prior year first quarter. The decline was primarily due to a reduction in orders from both specialty and department stores, as well as other key accounts largely related…

Thanks John. As I noted earlier, we remain focused on enhancing both the Vera Bradley and Pura Vida brands through innovation that will enhance consumer engagement and propel us forward; innovation in products, marketing and technology. Let me start with Vera Bradley. Our products must remain authentic and true to our brand, but innovation is becoming more and more critical to our product assortment. We have developed an ongoing pipeline of fabric innovation to ensure market relevance, by offering cotton updates and cotton alternatives, both to retain existing customers and attract new customers to the brand. We will continue to grow our newest offerings of Performance Twill and Re-Active and will launch more fabric innovation over the next 12 to 24 months. We will also continue to bring new styles and differentiated silhouettes to the market to meet all facets of our customer's lifestyles. One focus is hands-free, as it is becoming increasingly important to our customers. Our long-term focus continues to be on building dominance in our key franchise areas of youth campus, travel and everyday. As a result of the current environment, we have ramped up our manufacturing and distribution of masks and other personal protective equipment. I will talk more about these initiatives in just a minute. We are continuing with our collaborations and strategic alliances that excite and engage existing and new customers, expand our brand reach, increase brand awareness, generate media buzz, and provide opportunities for Vera Bradley to strategically test. And ultimately enter new product categories. These partnerships are truly a testament to the strength and wide appeal of our brand. We launched our newest Disney collection on verabradley.com in March, are continuing with our Gillette Venus collaboration distribution through Target. And look forward to the second year of our collaboration with Crocs, which…

Thank you. [Operator Instructions] And we can now take our first question from Eric Beder from SCC Research. Please go ahead. Your line is open.

Good morning.

Good morning, Eric.

Hi, Eric.

Two questions. One is what was the response to Re-Active? And I know that you had some of it opened before you closed out. And are you seeing the younger customer that was the goal for that?

Yeah. The overall response to Re-Active has been extremely positive and across a couple of areas. First of all, we are seeing a younger customer really react to that. And I believe that's for two reasons. One is the sustainability aspect of it that they're reacting very strongly too. And the second is really the active influence in kind of a lifestyle of it. In addition to that, we've had a lot of media coverage on it. Obviously, the environment and sustainability is so important that a lot of people are picking that up, because we're able to have a true impact there. And we really believe that that will be the first of many actions over the next few years as we continue to make our products more sustainable.

And then the rollout of stores you've done a significant number of outlets and a lesser number of full price stores. Is that by design or is that just kind of happen stance on what's opening up and how you can handle it?

It really is by design for a couple of reasons. One is that, our outlet stores are more outside, right? They're outdoor malls and we're finding the consumer seems to be responding and feeling more comfortable in the outdoor environment. So, we believe that's very important, as well as the volume levels in our outlet stores are higher. And therefore, even with the lower revenue as we begin to open up, they're still very positive for us. So we thought, we would focus our energy where the consumer is responding more and where we have the best economic environment. And – but we're working hard to get our full line stores open. And we're targeting to have all of our stores open hopefully by the beginning of July, depending upon government regulations, how the health situation continues to evolve. But assuming all those liens go as expected, we would expect to have our stores open by the beginning of July.

And last question is the Harry Potter collection going to be in the outlets or the full-price stores or a combination of both? How is that going to flow out?

So it's going to be in our full line doors as well as on our website on verabradley.com.

All right.

And our partner stores too, and our Indirect channel too that will also have it.

Okay. Thank you.

And we can now take our next question from Oliver Chen from Cowen. Please go ahead.

Hi. Good morning. Thank you. The pent-up demand number impressive of that 75% productivity. What are your thoughts how that may trend with the other opening vintages? And were you – how are you prepared relative to competition as you thought about labor and inventory – regional differences?

Could you repeat the first part of your question? I think...

Yeah. Oliver, you're a little bit hard to hear, because we were – didn't quite get it.

The productivity the 75% positive number was impressive. So I just would love your thoughts on, how you plan inventories and labor? And also how that would trend with other new store openings and regional differences?

So let me try to answer it and Oliver please ask, if I missed part of it, because it still broke up a little bit. But overall, as we've opened our stores what we're finding is that our Southern and Midwestern stores are the ones that have been the strongest. You really see in certain communities really an aggressive pushback to kind of get back to a state of normal and those are the areas that have responded the quickest. We've seen in our Texas location that has started a little bit slower, but it's beginning to pick up momentum. The amount of openings that we have in the Northeast right now right really, we're not really open in the Northeast. So we'll watch that. The areas that have been hit harder by the health crisis, we'll see how they return. We anticipate it might start off a little bit slower, but we've been very say positively – as we felt very good about how the sales have opened. We thought that they would open up much slow than they did. And so now the real next stage for us is not only getting the rest of the stores open, but just seeing that curve and how did that – does that continue to build week-after-week, month-after-month. From an inventory standpoint, what we did is we did go ahead and reduced our inventory purchases when we entered into the crisis a lot of that reduction happens in the back half of the year. Just the way the pipeline works that's where a lot of the reductions happened. It's kind of in the back half of the year as well as the very beginning of next year. But we feel overall very good in terms of where our inventory position is going to be. Due to the nature of our product, which is less seasonal, we were able to take even some of the product that was produced for this year and bring it back next year or reposition it later in the year, which really allowed us to get our inventory back in line quicker. So if we were stuck with a lot of seasonality, we would've had a really hard time making that. So we feel really good about that. And then obviously, we're just making sure that with each location as it opens up that we're just managing that inventory by geography right very different by area, and how the consumers reflected. So – but luckily, with all the tools we've been putting in place the technology, the data analytics, we're in a much better place to execute against that than we might have been just a year ago.

And the only thing I would add to that is in regards to labor, I think your question also asked about labor. We assume we open up in kind of a minimum staff position, but as our stores have performed, we've kind of ramped staffing up to support the levels of the customer demand so.

And the other thing, we've also been really happy in seeing the store volume response, because keep in mind that we're operating on reduced hours and reduced capacity. So, getting these numbers with reduced hours and reduced capacity has definitely been encouraging.

Yeah, that certainly is. On the real estate footprint, what are your thoughts now for your overall store base and the nature of lease renewal, as we really rethink physical state post-crisis and what might be necessary?

Yes, as we look at the physical real estate, two different things are happening, right? One, we have to make sure that we're very, very hyper-diligent on store location, and make sure that we're looking at each market and what is the right number. And I would agree that a number of locations we need tomorrow, will be less than we might have needed five years ago. So we're making sure that we're being very focused on that. The second thing that's happening though, with what's happening in real estate and real estate costs, because I think that what we have seen happen over the last few years is that occupancy rates have been climbing and climbing, and making the brick-and-mortar environment highly, highly challenging. What's been happening with this crisis is I think it's been forcing landlords to re-evaluate that cost structure. And some of those opportunities for reduced rents, all of a sudden make the economics of brick-and-mortar better than what we have been seeing in the last couple of years. So we're kind of navigating the balance of the two. Because at the end of the day having the right economics, we know that customers still want a physical presence as well as the digital presence. We believe strength is in the combination of the two, but we need to make sure that the economics in the brick-and-mortar world work. And where we can get that right, we think we can provide an exceptional experience for our customer, and it really helps us engage and find new customers for the brand.

Thank you. And our last question is, you've been agile with product innovation and you have launches ahead. Overall, what will that do to your average unit retail and margin mix, if there are implications as you roll up on the decisions you're making? And then also, do you expect merchandise margin to be down versus prior year, just given the environment and what you're seeing?

A couple of different things. So, as you talk about all the new product come in, we don't expect a huge difference in AUR. Some of the fabrics like Performance Twill obviously have a higher retail than our cotton product has had. But at the same time, we're also trying to remix the styles. So what we're finding is that the hands-free movement cross bodies, belt bags, are growing as a penetration to the total, which put some downward pressure on price. At the same time, some of the fabric innovation might be putting some upward pressure on price. But we think that the equilibrium is pretty close. From a margin standpoint, I would say the same thing overall. When we introduce a product, it might be slightly less than the margin, but with time it gets better as we build up scale. In terms of what we expect for the rest of the year, we do still expect some margin pressure as we go through the year. But so far, I would say, we've been encouraged that we haven't seen a kind of a massive run to the bottom shall, you say, in the retail environment how the stores are opening up. Obviously, we've seen more pressure in the seasonal apparel category. But in the Accessory category, we haven't seen a significant downward pressure on pricing, which is good to see.

Thanks, Rob. Thanks, John. Best regards.

Thanks, Oliver.

Thanks, Oliver.

There no further questions at this time. I would now like to turn the call back to Rob for any closing remarks.

Well, thank you very much for joining us on today's call. Vera Bradley Inc. is an authentic, iconic lifestyle company with two powerful brands and passionate emotionally connected customers. We are focused on continual innovation in product, customer engagement and technology. We have a solid balance sheet and ample liquidity, are socially conscious and ESG-focused and our leadership team is entrepreneurial and agile. We will weather the storm and come out on the other side a stronger company. Thank you for your interest and support, and we hope you can join us for our second quarter call on September 2.

Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.