Vera Bradley, Inc.

Welcome to Vera Bradley's first quarter fiscal 2027 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Mark DeEli, Chief Administrative Officer. Thank you. You may begin.

Good morning and welcome, everyone. We'd like to thank you for joining us for today's call. Some of the statements made during our prepared remarks 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 in the company's most recent filed 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 today's call. I would now like to turn the call over to Vera Bradley's Chairman and Chief Executive Officer, Ian Bickley. Ian?

Good morning, everyone, and thank you for joining us for Vera Bradley's first quarter fiscal 2027 earnings call. I am pleased to report that our first quarter results demonstrate continued momentum in our Project Sunshine transformation journey to reclaim Vera Bradley's joyful optimism while building operational excellence across the business. We made meaningful progress across multiple fronts, that give us confidence in the path forward. Most notably, following a clear trajectory of sequential improvement, our first quarter achieved a return to positive year-on-year growth of nearly 8%, marking our first quarter of overall revenue growth since Q4 FY22. This achievement marks an important inflection point in our turnaround, reflecting the cumulative impact of our strategic initiatives and the hard work and commitment of our entire team. Our first quarter performance was not solely a top-line story. On a non-GAAP basis, we generated year-over-year gross margin expansion of 430 basis points to 51.8% and continued to manage expenses prudently, with total costs down $5.6 million compared to the prior year. or a favorable decline of nearly 15%. This fueled a year-over-year improvement in our operating loss of $10 million or 76%. We achieved these results while reducing our year-over-year inventory by 26% and improving our operating cash flow for the period by 12.7 million or a 70% improvement over last year. Based on the solid start to the new fiscal year, we are now expecting our year-over-year non-GAAP operating loss improvement to be at least 50%. Although we have much work to do, I'm very pleased with our first quarter performance. We still have a tremendous opportunity to increase market share and return the business to long-term sustainable growth, profitability, and cash flow generation. The improvements we achieved this quarter provide a strong foundation as we continue executing the five strategic pillars of our transformation. Before providing more details on our first quarter performance, I want to personally thank the entire Vera Bradley team for their focus, adaptability, and passion during this pivotal transformation. The progress we are making across our strategic initiatives is a direct result of their exceptional commitment and dedication to reclaiming Vera Bradley's joyful optimism while building operational excellence across every function. Overall sales for the first quarter were up 7.8% versus Q1 of the prior year with growth across nearly all channels of distribution. We achieved strong sequential improvement in our direct segment with revenue growth of 4.1% compared to the prior year. representing our fourth consecutive quarter of sequential improvement. This performance is building confidence in our teams and reinforces that the direction we are taking is resonating with our consumers. Our indirect segment revenue grew approximately 26.6% year over year, driven by improved performance in our specialty and department store accounts, as well as shipments related to strategic wholesale partnerships, including Target. We are seeing stabilization in our existing specialty retail accounts and stronger sell-through in department stores, notably Dillard's, which is very encouraging. It's important to note our indirect segment benefited from several key account collaborations. Excluding this benefit, our indirect channel growth would have been approximately flat year over year, which still represents meaningful stabilization in this channel. We are seeing significantly higher levels of interest and engagement with both existing and new wholesale accounts, which is further validation that our product and marketing efforts are yielding excitement and interest beyond our direct channels, giving us confidence in the future wholesale growth pipeline. During the quarter, we continued to strategically manage our pricing and promotional cadence, to drive sell-through of aged inventory while expanding gross margins year over year. We are pleased with the discipline our team demonstrated in balancing inventory clearance with margin enhancement, and we continue to make progress working through the remaining discontinued product from Project Restoration. Now let me provide an update on our continued progress across the five strategic pillars of Project Sunshine. Pillar one, sharpening our brand focus. As I've shared on previous calls, we had lost sight of what made Vera Bradley distinctive and beloved by our customers. We had become less differentiated in the marketplace and too dependent on promotional activity. Sharpening our brand focus is fundamentally about bringing our unique brand positioning back to life through compelling product, authentic storytelling, and strategic distribution choices. Since taking on a leadership role one year ago, our primary emphasis has been on driving the relevancy of our product offering. Building on the 20% influence we had on the assortment in Q4, we successfully impacted nearly 80% of the spring collection, and I'm pleased with the positive response and strong engagement from customers. In addition to the positive sales trend, This was the first Q1 with year-over-year customer growth in our direct channels since calendar 2021. For back-to-school season and moving forward, 100% of our assortment will be influenced by the work we have done collectively over the past year. Very exciting considering we are in the early stages of recouping customers across all our channels. Customers clearly responded to our focused product strategies, which drove the results. We leaned into cotton as a material, which is now returning to historic levels of importance. We reintroduced beloved heritage styles and prints in addition to fresh, innovative designs. And we focused on more impactful IP collections with more qualitative design and execution. We successfully won back many of our loyal customers and fans. while at the same time engaging with a new generation of customers. Across the business, our cotton material performance nearly doubled versus prior year. In brand, our Winnie the Pooh collection was a huge success, strongly selling through in less than two weeks. At the same time, six of our top 10 non-IP products were new styles, with the small beaded Roxbury bag at $150 and the original 100 bag over-indexing with Gen Z customers. Our iconic duffel in both IP and heritage prints like Cambridge Blue was a winner across generations. In Outlet, Colorful Fun Beach and Spring Prints, as well as the Stitch and Honeydukes IP product resonated across cohorts, while the return of Vera Originals re-engaged many of our longtime fans. The product changes we've implemented remain firmly rooted in the brand attributes that define our DNA. Vera Bradley is feminine, creative, cheerful, whimsical, joyful, fun, colorful, approachable, high quality, and smart value. To amplify the substantial product progress we've made, we're now intensifying our marketing efforts to drive engagement through an enhanced, cohesive, social-first marketing approach. focused brand storytelling with product as hero, and a unified brand framework consistent across all channels, all designed to connect with both our loyal customer base and new audiences. From a creative perspective, under new marketing leadership and leveraging our core brand attributes, we developed and launched a new spring campaign that embodies our return to joyful optimism and authentic Vera Bradley character. including our Cut Through Cherry on Top campaign in brand and Strawberry Girl Summer in outlet. This refreshed creative went live across our website, in stores, email marketing channels, and social media platforms, where we saw improved productivity and higher customer engagement on lower marketing spend. Our Bespoke 100 Bag campaign was also a first, demonstrating our ability to elevate Vera Bradley's in social and cultural conversation. Teased on social media, over 30,000 people queued up online for the release of 52 bespoke 100 bags, ranging in price from $95 to $145, which were sold out in less than three minutes. This activation generated significant buzz, built our social footprint, and created a halo impact for our iconic 100 bags. which we subsequently featured in our Meet the Icons campaign in social and online. Beyond product and marketing, we're also concentrating on our distribution channels to sharpen brand focus and extend our reach. Let me highlight the importance of our wholesale strategy and partnerships within our overall distribution. While the wholesale landscape has evolved significantly, We firmly believe that thoughtfully rebuilding this channel with the right partners is essential to regaining brand relevance and expanding market share. Under new wholesale leadership, our retail partners are realizing meaningful year-over-year margin expansion, underscoring improved assortment productivity and healthier full-price sell-throughs. Strong performance is being driven by elevated print executions. and the reintroduction of iconic legacy styles, reinforcing brand equity and accelerating wholesale growth. In addition to stronger sell-through performance and increased open-to-buys with key department store and specialty accounts, we've also been encouraged by the growing recognition of our brand momentum from leading retail partners. On June 1st, we launched a focused back-to-school Vera Bradley capsule collection in 89 Nordstrom doors, and on Nordstrom.com for the first time. Of significant note this quarter were the success of our strategic collaborations with Bath and Body Works and Target. These collaborations represent the kind of high-impact partnerships that drive buzz and expose the brand to new audiences. The collaborations ignited strong user-generated content and customer engagement. Approximately 80% of consumers who engage with us through these collaborations we're new to Vera Bradley's social channels, demonstrating the power of these strategic partnerships in generating brand heat, growing our social footprint, and attracting new customers. The success of these partnerships has also generated additional inbound interest in future collaborations, which we are now exploring. The progress we're making in sharpening our brand focus across product, marketing, and channels validates that we're on the right path and we remain committed to this strategic direction as a cornerstone of our transformation. Turning to our second pillar, resetting our go-to-market approach. As we've shared previously, we've been fundamentally transforming how we work to deliver what our customers truly need and value, focusing on six critical areas. Concentrated investments in hero products and bigger ideas, strategic channel assortment alignment, social first integrated marketing supporting key moments like back to school, enhanced planning and inventory management to drive improved turns, disciplined pricing and promotion governance to enhance margins, and strengthened analytics and business intelligence capabilities to enable better data-informed decision-making. Our objective has been to rebuild the operational engine that converts our creativity into measurable commercial success while fostering a more integrated and agile way of working. In Q1, we saw continued evidence that this reimagined approach is positively influencing our business performance. The team has advanced its cross-functional collaboration, examining and refining how we operate from product development through buying, marketing, and channel execution. ensuring our products reach customers through their preferred shopping venues and experiences. At the top of the funnel, we've now deeply embedded consumer insights into our operating rhythm through comprehensive customer research and segmentation work, including in-home ethnographic studies, AI digital twins to product test across customer segments during the product development phase, and Gen Z focus groups, for co-creating our assortments. These insights are actively shaping product development decisions from silhouette selection to print development, helping us address customer needs and preferences more precisely. Operationally, we've demonstrated greater agility in Q1, leveraging real-time data to optimize promotions, marketing initiatives, and digital communications to meet evolving customer needs. These data-driven approach contributed to the strong 430 basis point gross margin expansion we experienced in Q1, while also enabling continued inventory management discipline. For Q1, we executed a streamlined promotional plan that was more focused and less complex to implement, which we believe contributed to our margin performance. Our marketing and data analytics teams have been working on building a single, connected customer journey enabled by a unified customer data platform, email service provider, and SMS ecosystem. Powered by predictive AI analytics, this connectivity is aimed at driving a significantly higher level of personalized customer engagement across channels. We're also making strides in how we approach our go-to-market timeline. Our design and development teams are now engaging with factory partners much earlier in the process. which is enabling us to streamline our overall go-to-market calendar. One benefit is that we were able to have our first-ever sample line for pre-market, allowing for account order validation prior to Vera Bradley's investing in buys for our wholesale accounts. Additionally, we've aligned our wholesale buying cycles with standard market practices by transitioning to four seasons from two, bringing us in sync with how the accessories industry operates and making it easier for wholesale partners to work with us. Overall, we're encouraged by the operational progress we've made and the increasing effectiveness of our integrated approach. The foundation we're building through resetting our go-to-market approach with a centralized calendar, aligned milestones, and clear owners for decision-making is strengthening our ability to translate creative vision into commercial results while working with greater speed, efficiency, and collaboration across the organization. Turning to our third pillar, rewiring our digital ecosystem. Our digital commerce business across own sites and third-party marketplaces represents a significant and highly profitable component of Vera Bradley's overall business. However, historically, our various digital platforms have not delivered a cohesive, seamless customer journey. We've been working to fundamentally transform this, building on the organizational changes we made in Q4, where we consolidated the P&Ls of all digital platforms, including DTC e-commerce and third-party marketplace operations. I'm pleased to announce that our new head of digital commerce joined the team on May 4th. This leader brings exceptional credentials and relevant experience, having built significant digital businesses and operations for multiple brands, including Adidas, Talbots, and Crocs. His expertise in scaling digital commerce businesses on existing platforms like Amazon and Target, as well as emerging platforms like TikTok Shop will be instrumental as we execute our integrated digital strategy and drive future growth and profitability. Under this new leadership, we're taking a comprehensive approach to optimizing our digital ecosystem. we continue to enhance our e-commerce platform with improved site navigation and an elevated overall customer experience. Our data-driven approach to pricing and promotions has enabled us to operate with reduced promotional intensity while sustaining strong customer engagement and improved margins. We've also deployed enhanced digital capabilities designed to drive deeper customer engagement and streamline the path to purchase. The progress we're making in rewiring our digital ecosystem from organizational integration to platform enhancements to strategic marketplace positioning is strengthening our ability to meet customers where they are, delivering compelling digital experiences, drive profitable growth through our digital channels. We were proud this year to have been named the Target Plus 2025 Partner of the Year on their marketplace. Moving to our fourth pillar, Outlet 2.0. As a reminder, our 2.0 initiative represents a strategic transformation in how we approach our outlet channel. This initiative is designed to create an elevated customer experience while preserving our smart value proposition and extending our reach to customers in markets where we don't currently operate brand stores. The enhancements we've implemented include include a more curated and focused assortment with an initial 35% SKU reduction, while strategically incorporating new brand products from our heritage collections and select IP collaborations. We've introduced elevated visual merchandising standards and elements throughout the stores that drive greater category clarity and enable easier customer navigation, including mannequins, light boxes, and brand fixtures that showcase our signature use of color, pattern, and lifestyle storytelling. Our enhanced selling experience incorporates updated training programs and improved in-store tools that enable our teams to deliver better selling support and personalization for our customers. This transformation is moving us towards a more engaged, curated experience that reinforces brand equity while simultaneously driving conversion and profitability. Under a newly appointed visual experience leader, we're building on the pilot program we launched during the holiday season while maintaining a disciplined test and learn approach. We continue to see encouraging results that not only validate this direction, but inspire us to be bolder in our approach. Beyond the positive qualitative feedback that we're receiving from both customers and store employees, we're observing measurable improvements across key retail performance indicators. This sustained momentum demonstrates that the outlet 2.0 experience is resonating with consumers and creating a more meaningful brand engagement, which we believe we can build upon. Looking ahead, we're planning to open four new outlet stores while evaluating enhancements to this strategy as we approach holiday. Our approach remains measured and data-driven ensuring we capture learnings from each conversion to optimize the model before broader implementation. Importantly, through Q1, our outlet channel has now achieved four consecutive months of positive comparable sales growth. Finally, turning to our fifth pillar, reimagining how we work. Streamlining our organization while strategically building and investing in new capabilities. We are rebuilding Vera Bradley for long-term sustainable growth and profitability. We are fundamentally redesigning our organization to be future-ready, cultivating new capabilities, and making deliberate investments in talent that will drive our transformation forward. In summary, we are encouraged by our first quarter results and the continued progress we are making across all five pillars of Project Sunshine. The sequential improvement we have achieved over multiple quarters validates that our strategic direction is gaining traction and represents the right path forward to revitalize the Vera Bradley brand, expand market share, and return the business to long-term sustainable growth, profitability, and cash flow generation. We're building a best-in-class team with relevant experience and proven track records that will enable us to move with speed and win in the marketplace. We're reimagining how we work, fostering a culture of performance, agility, accountability, and strong cross-functional collaboration, while leveraging data-driven insights to make intelligent decisions that drive our business forward. We are stabilizing our business and gaining better visibility into underlying growth and efficiency opportunities. While we still have significant work ahead, we are encouraged by the momentum we are building and the alignment and commitment of our entire team. With that, I will turn the call over to Marty for a detailed financial review, and then we'll be happy to take your questions.