Vera Bradley, Inc. (NASDAQ:VRA) Q3 2018 Earnings Conference Call Transcript

Dec 06, 2017 • 09:30 am ET

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Vera Bradley, Inc. (NASDAQ:VRA) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day everyone and welcome to the Vera Bradley Third Quarter Fiscal 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Dely. Please go ahead, sir.

Executive
Mark Dely

Good morning and welcome, everyone. We'd like to thank you for joining us for Vera Bradley's third quarter earnings call.

(Forward-Looking Cautionary Statement)

I'll now turn it over to Vera Bradley's CEO, Rob Wallstrom. Rob?

Executive
Rob Wallstrom

Thank you, Mark. Good morning everyone, and thank you for joining us on today's call. John Enwright, our CFO, is also on the call.

Excluding charges, third quarter EPS of $0.23 was meaningfully ahead of our $0.13 to $0.15 EPS guidance. This was primarily due to our ability to implement certain expense reductions in conjunction with Vision 20/20 more quickly than originally expected, along with diligent expense management. Third quarter revenues were within our guidance and our gross margin rate was slightly below.

As we discussed last quarter, Vision 20/20 is an aggressive plan to turn around our business over the next three years. Vision 20/20 will restore brand and company health by strategically moving to a less clearance-driven business model and meaningfully reducing our SG&A expenses. In addition to resetting customers' pricing expectations and restoring our full price business by significantly reducing the amount of clearance product available on verabradley.com and in our full-line stores, we are also focusing on streamlining and building more discipline into our overall assortment offerings. Of course, we will also remain keenly focused on our customer and on providing innovation, newness and creativity in our product offerings and our marketing initiatives and in both our online and in-store customer experiences.

As a reminder, we will implement the majority of the Vision 20/20 product and pricing initiatives beginning in fiscal 2019. As a result, we expect that our revenues will be negatively impacted by $30 million to $50 million next year from this year's revenue base. As a side note, while reducing clearance activity will have a long-term positive effect on our gross margin, there will be offsetting pressure on gross margin in the short to moderate term as our channel mix changes and we take inventory levels down and experience related deleveraging of overhead cost. As a key part of Vision 20/20, we also expect to reduce our annual net SG&A spending by up to $30 million, excluding charges, from our baseline fiscal 2017 level of $236 million by rightsizing the organization to better align with the reduced size of the business. Certain cost reductions have already begun and are reflected in our third quarter results and in our fourth quarter guidance. We expect that a total of $20 million to $25 million of the annualized SG&A reductions will be made by the end of fiscal 2019, with about $11 million of those reductions completed in fiscal 2018. We are still finalizing our operating plans for next year, and we'll provide more complete guidance for fiscal 2019, in conjunction with