Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vera Bradley First Quarter Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the call over to Mark Dely, Vera Bradley's Chief Administrative Officer. Please go ahead.

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 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 today's call. I will now turn the call over to Vera Bradley's CEO, Rob Wallstrom. Rob?

Thank you, Mark. Good morning, and thank you for joining us on today's call. John Enwright, our CFO, also joins me today. While total company first quarter revenues of $98.5 million fell below our expectations and resulted in a net loss before certain charges of $0.19 per diluted share, we continued implementation of our price increases, which helped to offset logistics and sourcing pressures, continued to drive product innovation, controlled expenses, and completed $10.5 million of share repurchases, while maintaining a strong debt-free balance sheet. We are clearly seeing a bifurcation in the spending of our customer base. At Vera Bradley, Direct channel full-line revenues were above last year as customers with higher household incomes remained engaged and spent more than last year. We also saw a healthy year-over-year rebound in Indirect channel revenues. However, inflationary pressures, including rising gas prices, particularly impacted the spending of Vera Bradley customers with household incomes below $55,000, as well as traffic and spending in our Vera Bradley Direct channel factory stores for the quarter. In addition, Pura Vida's e-commerce revenues continue to be significantly affected by the shift in social and digital media effectiveness and rising digital media costs. For the balance of the year, we are taking decisive actions to strengthen the enterprise and remain highly focused on our two core brands. On a company-wide basis, we are in the midst of a comprehensive cost reduction and efficiency process. We expect we will complete the identification of cost reductions and continue implementation in the second quarter, and we anticipate we will realize annualized savings in the range of $15 million to $25 million. We are also continuing to evaluate and execute strategic price increases for both brands to offset rising raw material and freight costs as appropriate. As you might recall, we began taking some price increases in the fourth quarter of last year. At the Vera Bradley brand, we remain confident in our core strategy. The brand is fundamentally strong, although we have been fighting through macro issues, including rapidly increasing supply chain costs, recessionary spending from lower household income customers, skyrocketing gas prices, and exponential increases in digital marketing costs. We are continuing to innovate and build on our lifestyle merchandising strategy with a laser focus on protecting the core amplified by targeted marketing. We are maximizing the travel category, which is nearly back to pre-pandemic levels, and optimizing our very important upcoming back-to-campus season with strategic product assortment enhancements. Of course, we are continuing with successful product collaborations like Disney. And just this second quarter, we have introduced partnerships with iconic names like Star Wars, Coleman and Target, and Tupperware. We are thrilled about expanding our home assortment and adding cloud slip-ons and miles to our Vera Bradley footwear franchise this fall and holiday season. At Pura Vida, we are evolving our business model from one largely dependent on e-commerce and digital marketing to one that is a true omnichannel business with a more diversified marketing base. This will take time, but we are taking the actions to make this transformation happen and return the brand to growth. Chief Growth Officer, Lockie Andrews has joined Pura Vida, who will work with the team with a primary focus on building a more innovative, effective, and performance-based marketing program by bolstering our internal marketing and data analytics talent and platform. Lockie is a great addition to Pura Vida and to our entire organization. Her perspective, expertise, and creative thinking will be instrumental in developing Pura Vida's full potential as a unique lifestyle brand. In this newly created role, she has responsibility for all digital performance marketing, direct-to-consumer sales, and merchandising initiatives across Pura Vida's channels and distribution. Working with co-founder, Griffin Thall, and Paul Goodman, she will not only strengthen the marketing initiatives, but she will explore, develop, and monitor these sales channels and drive category growth and expansion over time. She has a deep background in retail, marketing, digital strategy, technology, and data analytics and most recently held key e-commerce and digital posts at Party City and Untuckit, as well as running a boutique consulting firm for the past 15 years. We are very excited about opening three additional Pura Vida retail store locations this year, building on the success of our first store opening in San Diego last summer. The San Diego store continues to exceed our expectations, and we continue to experience a double-digit differential in our San Diego e-commerce business relative to the rest of the country since the store opened, demonstrating the power of a retail presence in driving digital sales, omnichannel loyalty, and spending. So we are very excited about additional store growth. We will open Pura Vida stores in Irvine Spectrum in Orange County, California, and in the high tourist area of Myrtle Beach, South Carolina in July and in the Phoenix market in September. We look forward to even more store growth in the future. Pura Vida's future growth will be a balance of online growth and growth in physical distribution channels. Stores will play a key role in driving new customer acquisition as we continue to diversify our marketing platforms. We will also continue to build Pura Vida customer excitement and engagement through collaborations like Disney, Hello Kitty, and the World Surfing League, partnering with key influencers and offering collections centered around key events like the upcoming Shark Week. Now let me turn the call over to John to review the financial results. John?

Thanks, Rob, and good morning. Let me go over a few highlights for the first quarter. The numbers I will discuss today are all non-GAAP. For a complete detail of items excluded from the non-GAAP numbers, as well as a reconciliation of GAAP to non-GAAP numbers, please reference today's press release. Consolidated net revenues totaled $98.5 million compared to $109.1 million in the prior year first quarter. The consolidated net loss totaled $6.1 million or $0.19 per diluted share compared to a loss of $1.7 million or $0.05 per diluted share in the prior year. Vera Bradley Direct segment revenues totaled $61.6 million, a 7.6% decrease from $66.7 million last year. Comparable sales declined 11.1% in the first quarter. Vera Bradley Indirect segment revenues totaled $17 million, an 11.2% increase over $15.3 million in the prior year first quarter. Pura Vida segment revenues totaled $19.8 million, a 26.8% decrease from $27.1 million from last year. First quarter consolidated gross profit totaled $52.5 million or 53.3% of net revenues compared to $59.2 million or 52.2% last year. The current year rate was negatively impacted by higher inbound and outbound trade expenses, partially offset by price increases. Consolidated SG&A expense totaled $59.6 million or 60.5% for the current quarter compared to $60.1 million or 55.1% last year. The first quarter consolidated operating loss totaled $6.9 million or 7% of net revenues compared to $1.2 million or 1.1% of net revenues in the prior year. Now, let's turn to the balance sheet. Cash, cash equivalents, and investments as of April 30, 2022, totaled $64 million compared to $52.7 million at the end of last year's first quarter. We had no borrowings on our $75 million ABL credit facility at quarter-end. We remain in a strong cash position with a debt-free balance sheet. We will continue to take a conservative approach to cash through disciplined expense management, particularly in the volatile and challenging environment. Total quarter-end inventory was $161.8 million compared to $150.3 million at the end of the first quarter last year. During the quarter, we repurchased approximately $10.5 million of our common stock, representing 1.4 million shares at an average price of $7.35. $35.3 million remains available under the $15 million repurchase authorization. Now let's shift to our fiscal 2023 outlook. As we expect a challenging macroeconomic environment to continue for the balance of the year and that it will take time to turn the period e-commerce business to growth, we have lowered our outlook for the fiscal year. All forward-looking guidance numbers that I will discuss are non-GAAP. For fiscal 2023, we expect consolidated net revenues of $490 million to $505 million compared to $540.5 million in fiscal 2022. We expect our consolidated gross margin will range from 54.5% to 55% compared to 53.3% last year. The potential year-over-year increase is primarily related to price increases, partially offset by incremental freight expenses. Consolidated SG&A expense should range from $248 million to $253 million compared to $258.8 million in fiscal 2022. The reduction in SG&A expense is being driven by cost reduction initiatives and a reduction in compensation expense, marketing, and other variable related expenses due to the expected sales decline from last year. We expect consolidated diluted EPS of $0.35 to $0.50 compared to $0.57 last year. Net capital spending should total approximately $10 million to $12 million compared to $5.5 million in the prior year. Operator, we will now open up the call to questions.

Our first question will come from Oliver Chen with Cowen.

Tom Nash on for Oliver Chen. A couple of questions on consumer health. With regard to price increases, could you provide some additional color on where these are occurring across both channel and category? And are there some areas of the business that are taking prices better than others?

Yes. In terms of prices, let me talk about it, maybe first by brand. At Pura Vida, they have had price increases across nearly all of the product categories, and it seems to be a good level of acceptance from the consumer. At Vera Bradley, we've been more targeted in those price increases, really looking at it by item because of the diversity of our assortment there. And what we're seeing though is that as we've increased prices, consumers have accepted them, but not with unlimited acceptance. So we're having to be very disciplined and very targeted, and we'll continue to evaluate that as we move forward. But I would say overall, the reaction has not necessarily been different by channel. However, what we have seen, as we talked about earlier, is just more acceptance and more spending overall by the higher income customer, whereas a pullback has been noted from the lower-income customer. Interestingly, even looking at promotional activity, we found that the promotional activity has been really unnecessary for the high-income customer, who seems to be accepting those price increases.

Okay. Great. And a follow-up on supply chain disruptions. I'd love to hear your thoughts on inventory management through the summer. And additionally, if we reach peak inflation here, how does the overall business view promotional possibilities across categories and channels?

I can take that question. In regards to supply chain, we continue to see kind of some disruptions in the supply chain. We're not back to pre-pandemic levels on on-time delivery, even with extending our expectations of when that product should be delivered. All that being said, we are in a good inventory position, better inventory position than we were throughout last year, and we expect to be in a better inventory position during the summertime. Given our sales reduction, we will be looking at potentially curbing forward purchases given where our current inventory level is. In regards to promotionality, as we think about later in the year, as with our kind of our gross margin guidance, we expect promotionality not to change based on our original expectations, but we'll continue to assess that throughout the summer and throughout the rest of this year.

That's very helpful. And one final question on Pura Vida. Can you provide some additional detail regarding the strategies for the marketing platform enhancements and any synergies that might be available from the Vera Bradley platform?

Yes. Great question. First of all, bringing Lockie in was a critical step. If you've been following our story a few years ago, we brought Daren Hull in, who kind of rebuilt the marketing platform at Vera Bradley, brought in data analytics, and really moved us forward. What we're doing with Pura Vida is basically going down a similar path by bringing Lockie in. The Pura Vida team has done an extraordinary job of really leveraging the social media platforms for customer acquisition over the years; we're really best in class. But as this whole channel and the world change, that's become obviously much less effective. So now, what we're doing is really building out our data platform, enhancing our first-party marketing, but then also starting to expand in stores and using stores as another avenue for acquisition, which will be really critical. Moreover, as we're thinking about the marketing for Pura Vida, it's not just about the data, but it's also looking at different channels, both from a performance marketing perspective while also leveraging the influencer part of the business. We've seen in many direct-to-consumer companies with lower AOVs the importance of leveraging the influencer network, so to speak. That is well underway with Griff really leading that initiative.

And our next question will come from Eric Beder with SCC Research.

Could you discuss the collaborations, particularly regarding their costs and innovations like the recent partnership with Tupperware? How far do you see yourselves taking these collaborations in the future for both Pura Vida and Vera Bradley?

One, our collaboration partnerships that we're doing are really about customer acquisition, reaching out to new customers, expanding the tribe of customers inside Vera Bradley and Pura Vida. Over the last couple of years, we’ve really had a lot of success in doing that through our Disney partnerships, our Harry Potter partnerships, and most recently through the Star Wars partnership. We find that these collaborations really bring a new excitement and introduce new customers who discover our brands, which we think is great. I think you're right that as we think about the Coleman opportunity, moving into some of this outdoor space in Target is great. It gets a lot of new customers to see it while also thinking about things like Tupperware, which allows us to get new customers into the brand—people who might not have previously considered us from a bag business. Still, they love the pattern and love the brand and find a new way to join us. So we believe we must continue to balance that, continuously look for new, unique partnerships to keep it fresh and exciting. I would say the level of collaborations we've been doing is probably around where we would want to be. I don't think we will continue to pursue more and more. The trick is finding more powerful collaborations. We have been very excited with the ones we've launched in both brands so far and have had very good customer responses.

Okay. When we look at – and you mentioned a little bit about the back-to-campus season, obviously, that's a big season for you and last year there were some opportunities that because of supply chain flows didn't materialize great news we like. How focused and what should we be thinking about you guys doing in terms of that season going forward for – in Pura Vida, I'm sure that's going to start in about two to three weeks.

Yes. No, I think the back-to-campus season coming up looks very hopeful. If you think about last year, there was still a lot of noise, shall we say, around COVID, people going back to school, and all the stuff that was happening in the media. So between having some supply chain disruptions and perhaps a lack of singular focus with kids getting back to school, we think there's an opportunity as we move into this year. Our inventories are in much better condition than they were last year, and we're anticipating that the customer will be more open to spend overall as they head back to school. So we are hopeful. We feel like we're set up and ready to go. And this year, we are really leveraging Vera Bradley with streaming TV, and we think it's a way to bring new customers into our back-to-campus business.

Great. As a final question, regarding the store mix, you currently have more outlet locations on the Vera Bradley side compared to full-price stores. What should we consider about this mix, especially as you have been reducing the number of full-price stores? What do you see as the ideal balance of product and store presence for Vera Bradley?

Yes. Regarding store mix, I think two things as we think about our full-line business. What we think about is the omnichannel approach between our e-commerce business and our full-line stores. We believe it's essential to have a mix of both. Brick-and-mortar plays an important role in that mix, and we'll continue to do so. You will see us look for different ways to innovate within our full-line portfolio and keep looking for opportunities. Going forward, as we explore new real estate formats to meet customers where they are, I think you'll continue to see experimentation there. At the same time, we believe that the factory channel is crucial for us. Obviously, right now, with gas prices, there's cyclical pressure on that channel, but long term, it's been a very good channel for us, both from an acquisition and volume and profitability standpoint. So, we expect to maintain a focus on the factory channel to balance our full-price e-commerce and brick-and-mortar strategy.

And our next question comes from Joe Gomes with Noble Capital.

The first question, you mentioned the household income under $55,000; we're seeing some difficulty there. Any data on what percentage of your overall customers that group makes up? And how has that been shifting over time?

Yes. A couple of things. One, about 20% of our customer spend is coming out of that customer group. Over the last two years, we've been focusing on really bringing in the 25- to 35-year-old customer, as we've continued to bring new customers into the Vera Bradley brand. When we started bringing in that younger customer, the average household income was lower in that group than in our traditional customer base. So we’ve seen that group grow slightly, but it's really due to the age. We believe that acquiring that customer and that age category is vital to the long-term health of the brand. The cyclical pressure we're experiencing is obviously painful to go through, but we believe it is cyclical and that it will change. Having that population in our database and attracting them to our brand will ultimately make the brand stronger over the long term.

Okay. And then you mentioned the cost reduction initiatives. I think you said you hope to identify them here by the end of this quarter. Maybe a little more color on when you think those reductions will be implemented? And when do you think you'll start to see the $15 million to $25 million of cost savings come through?

It's a great question. First of all, we already have begun to take some of the costs out. What we're really doing is a top-to-bottom scrub to figure out with the economy potentially being in this lower household income customer. If that continues for a while, we feel that bringing down the overall cost structure, more of what I’ll call the structural cost structure, is crucial. We're in the midst of all that work to explore both the short-term actions that we'll begin to take even now as we identify them, as well as more long-term process improvement actions that might take a bit longer to implement. But we will start pushing those cost reductions even now, and we'll have more clarity on the next call, but we want to ensure everyone knows that the work is underway.

Yes. I think to Rob's point—last point there, we'll be able to give a little bit more color on the second quarter call. The range of $15 million to $25 million, if you want to think about it, that is an annualized number that suggests our structure would be about $15 million to $25 million less in SG&A for next year. We will work through some of that benefit in the second, third, and fourth quarters of this year, but we will not get all of that benefit this year.

And then we have other SG&A actions underway as well as variable cost actions in motion as we speak.

We have embedded what we believe we will get in benefit this year in the SG&A guidance of $240 million to $253 million.

Okay. And one last one for me, if I may. One of the things that we've talked about in the past is the potential of doing another Pura Vida-type acquisition. Given the challenges in the market today, it would seem to be a potentially opportunistic time to make such an acquisition. Just trying to get a feel for what your thoughts are on the acquisition pipeline today?

I think it's a great question. You're correct that there's always this balance between the macro environment being more challenging and that can put downward pressure on valuations, which can be opportunistic. So we are observing that. But at the same time, we believe that our focus should remain on getting expenses out and really working on the two core businesses to strengthen them in the short term. We are however keeping our eyes open in the M&A market. Right now, we are head down, focusing on these two brands and ensuring that we address the cost structure effectively as we proceed through the short-term recessionary environment.

Our next question comes from Steve Marotta with CL King & Associates.

John, can you talk a little bit about the costing increases that you're feeling—the offsetting price increases and how that may play out in gross margin in the second, third, and fourth quarters?

Yes. The second quarter is going to continue to be under pressure from the inbound and outbound freight expenses that we're seeing. We're not lapping some of the high points of last year, and we'll be lapping that next year. So the second quarter will definitely have more pressure in it, similar to the pressure you saw in the first quarter. As we think about the back half of the year, we should be lapping some of the higher freight expense and hopefully seeing relief with inbound and outbound freight expenses if we see some change in the macroeconomic environment. But all that being said, we're also seeing some incremental expenses associated with fuel surcharges affecting our P&L, which we expect to impact many P&Ls going forward. As for cost increases, your question regarding input cost increases mostly relates to next year. We'll see some cotton price increases flowing into next year, and we're trying to get ahead of that with some price increases this year that will ultimately benefit us next year.

That's helpful. And besides travel and the back-to-campus, Rob, that you had already mentioned, are there other categories that you're relatively optimistic about in the second half? And if so, why?

Yes. The other area we have been building out is what we've called our winning intersections in terms of things like our home category, and we're seeing nice growth there. We have important launches coming out, such as our cloud footwear launch that is on the way. So we feel really good about what's in the pipeline—a lot of innovation and excitement coming forward. The real balance is how to continue expanding the brand while managing through the cyclical short-term recessionary pressure, but we have significant innovation in the pipeline that will strengthen the brand as we move forward.

And that does conclude the question-and-answer session. I'll now turn the conference back over to Rob Wallstrom for closing remarks.

Before I close, I would like to thank John Kyees, who has served with distinction on the Vera Bradley Inc. Board since 2010, and he has held the important roles of Lead Independent Director and Chair of the Audit Committee. John retired from the Board in conjunction with this year's Annual Shareholders Meeting last month. On behalf of the other Directors and the entire company, I would like to express my gratitude to him for his service and invaluable counsel over the last 12 years. Fran Philip has been named Lead Independent Director. She has tremendous institutional knowledge serving on our Board since 2011 and a wealth of industry experience, having served as Chief Merchandising Officer of L.L. Bean and holding a variety of roles with other retailers, including Williams-Sonoma and The Gap. Fran is currently on the boards of publicly traded Coats Group and Vista Outdoor. Kristina Cashman, a member of our Board for 2 years, has stepped into the role of Audit Chair. A CPA with a strong financial and accounting background, she has served as CFO for several companies and currently chairs the Audit Committee for publicly held Bassett Furniture Industries. In closing, we are preparing for the macro environment to remain challenging through the remainder of this year and into next year. Despite the strength in Pura Vida's store business and the opportunity for new store growth, we acknowledge that it will take time to return the e-commerce business to growth, while we build the marketing platform and remix the marketing program. We are taking decisive actions that will further strengthen both core brands and our enterprise as a whole, not only to manage through this period but to position us for the future. Our teams are focused, and our cash position and balance sheet remain strong. We have managed through difficult periods before, and we will again. We look forward to returning both brands to steady growth. We will keep you posted on our progress. Thank you for joining us today, and we look forward to speaking with you on August 31 on our second quarter earnings call.

And that does conclude today's conference. We do thank you for your participation. Have an excellent day.