Stacy Knapper - SVP and General Counsel Rob Wallstrom - CEO Kevin Sierks - CFO Sue Fuller - CMO Julia Bentley - VP of IR and Communications.

Steve Marotta - CL King & Associates Mark Altschwager - Robert W. Baird Randy Konik - Jefferies Jennifer Davis - Buckingham Research Group Ed Yruma - KeyBanc Capital Markets Evren Kopelman - Wells Fargo Oliver Chen - Cowen and company Ike Boruchow - Sterne Agee Janet Kloppenburg - JJK Research.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Vera Bradley Third Quarter 2015 Earnings Conference Call. 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 for you to queue up for questions.

As a reminder, today’s conference call is being recorded. I would now like to turn the call over to Stacy Knapper, Vera Bradley’s Senior Vice President and General Counsel. Please go ahead..

Good morning and welcome everyone. We would like to thank you for joining us for today’s Vera Bradley’s third quarter earnings conference call.

Some of the statements made on today’s 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 February 1, 2014 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. The company undertakes no obligation to update any information discussed on the call. I will now turn the call over to Vera Bradley’s Chief Executive Officer, Rob Wallstrom..

Thank you, Stacy. Good morning, everyone, and thank you for joining us on today’s call. With me today are Kevin Sierks, our Chief Financial Officer; Sue Fuller, our Chief Merchandising Officer; and Julia Bentley, our VP of IR and Communications. We posted EPS from continuing operations of $0.21 which exceeded our guidance for the quarter.

Our third quarter revenues and gross margin rate were in the mid-range of our guidance but SG&A was favorable to our expectations due to expense control and the timing of certain expenses that will be incurred in the fourth quarter.

Importantly, we have continued to carefully manage our inventories and we ended the quarter with a very solid cash position and no debt. During the third quarter verybradley.com performs solid but our store sales continue to be challenging. As you know, generating store traffic continues to be difficult for many retailers including us.

We are in the early stages of our transformation and we’ve made substantial progress over the last three quarters against our strategic plan.

We are continuing to modernize and elevate our product assortments, expand our reach to opening new full line and factory outlet stores evolve to made-for-factory format, enhance our online presence and grow our department store relationships.

We continue to face short term challenges like very weak store traffic but we believe we’re heading in the right direction and these efforts will pay off in the years ahead.

The third quarter was a period of especially important activity as we introduce our new coordinating collections further intensified our solid microfiber offerings, launched our leather and faux leather halo collections, enhance the visual presentation in our full line stores, added a largest collection of factory exclusive products to our factory outlet stores, open 13 new locations and ramped up a marketing initiatives.

Much of this activity happened towards the end of the third quarter. We are seeing positive customer response to our new products and although they’re still a small portion of the overall assortment.

We’ve hope to attract more new customers to the brand and to gain traction and traffic and sales at this point in time and fortunately the weak trends that extended into the fourth quarter thus far and are reflected in our guidance that Kevin will discuss.

As we move ahead, we’re hopeful that our initiatives will take hold, leading first to stabilization and then to growth in our business. We know this will take time, we’re moving faster on pieces of our business that we know we’re working, like solid microfiber, leather, MFO product and our department store relationships.

We remain confident that our five year strategic plan and the steps we’re taking to evolve our merchandizing distribution and marketing of the right ones for the future of the business.

I believe we outlined a solid foundation to achieve our five year target of approximately 1 billion in sales and high-teen operating margins by the fiscal 2019 time frame. I will now ask Kevin to provide additional details regarding our results and fourth quarter outlook..

Before I begin, let me remind you that in June, we entered into a five-year agreement with Mitsubishi and Look to import and distribute Vera Bradley products in Japan.

As a result of moving to this wholesale business model, we exited our direct business in Japan during third quarter of fiscal 2015 and our accounting for it as a discontinued operation. The income statement numbers I will reference reflect continuing operations which is consistent with how we provide the guidance.

Current year third quarter net revenues from continuing operations of $125.2 million were in the mid-range of our guidance of $123 million to $128 million. This compared to a $128.9 million last year. Third quarter direct segment revenues totaled $77.9 million, a 15.1% increase over $67.7 million in the prior year third quarter.

In our stores, third quarter year-over-year net revenues grew 10.4% reflecting the opening of 11 full line and 12 factory outlet stores during the past 12 months which was partly offset by a comparable store sales decline.

Comparable sales including e-commerce increased 0.9% for the quarter which reflects a 13.5% decline in comparable store sales and a 22.2% increase in e-commerce sale. As expected, our third quarter comparable store sales continue to be negatively impacted by year-over-year declines in store traffic.

Indirect segment revenues decreased 22.8% to $47.3 million from $61.2 million in the prior year third quarter primarily due to lower orders from our specialty retail accounts as well as a reduction in the number of specialty retail accounts.

Gross profit from continuing operations for the quarter totaled $65.8 million or 52.5% of net revenues compared to $71.2 million or 55.2% of net revenues in the prior year third quarter.

The year-over-year decline in gross margin rate was primarily related to deleveraging overhead cost and modestly increased year-over-year online promotional activity. The third quarter gross margin rate was consistent with guidance of 52% to 53%.

SG&A expense from continuing operations totaled $53.3 million or 42.5% of net revenues in the current year third quarter compared to $47.6 million or 36.9% of net revenues in the prior year third quarter.

As expected SG&A dollars increased over the prior year primarily due to strategic investments including new store expenses, key management additions, marketing and e-commerce initiatives.

The SG&A expense rate was below the 43% to 44.5% guidance primarily due to cost containment efforts and the timing of about $300,000 of expenses which we delay into the fourth quarter.

Operating income for continuing operations totaled $13.6 million or 10.9% of net revenues, in the current year third quarter, compared to $24.7 million, or 19.2% of net revenues, in the prior year third quarter.

By segment, direct operating income was $13.9 million or 17.8% of sales compared to $15.3 million or 22.6% of sales last year and indirect operating income was $19.2 million or 14.6% of sales compared to $26 million or 42.4% of sales in the prior year.

Cash and cash equivalents as of quarter end totaled $90.3 million compared to 13.7 million at the end of last year’s third quarter. We had no debt outstanding at November 1, 2014. Quarter-end inventory was $106.3 million, below guidance of $125 million to $135 million and compared to $150.5 million last year.

Inventories were below guidance primarily due to the timing of receipt flow. Net capital spending for the nine months totaled 22.4 million. During the quarter, we repurchased approximately $3.5 million under our $40 million share repurchase plan which equates to approximately 169,000 shares at an average price of $20.96 per share.

Now moving on to the outlook. For the fourth quarter, we expect net revenues to be in the range of $158 million to $163 million, compared to prior year fourth quarter revenues of $156.4 million.

We expect direct segment net revenues to increase in the mid to high single digit percentage range with a comparable sales including e-commerce decrease of mid to high single digit. We believe our indirect net revenues will decline in the high single digits to low double digit percentage range during the quarter.

This sales guidance reflects our current fourth quarter selling which is so far below our expectations. The gross margin rate for the fourth quarter is expected to range from 53.5% to 54.5% an improvement from 52.8% in the prior year fourth quarter.

If you recall the prior year fourth quarter gross margin rate was negatively impacted by about 300 basis points due to an inventory right down primarily related to fabrics and certain retired patterns no longer considered salable, ended certain merchandise in the baby gift category which was discontinued by the company.

Excluding the prior year right down the expected year-over-year rate decline is primarily due to deleveraging overhead cost and modestly increased promotional activity. SG&A as a percentage of sales is expected to range from 35.5% to 36.5% for the fourth quarter compared to 33.6% in the prior year fourth quarter.

The expected deleverage is primarily due to incremental investments in key areas like e-commerce, marketing and management. We expect fourth quarter diluted EPS from continuing operations to be in the range of $0.43 to $0.47 based on diluted weighted average shares outstanding of 40.4 million and effective tax rate of 38.4%.

Diluted EPS from continuing operations totaled $0.49 in the prior year fourth quarter. On a continuing operations basis for the full year we expect net revenues will be in the range of $514 million to $520 million $compared to $530.9 million last year.

Our revenue guidance includes direct segment net revenue growth in the mid-single digit percentage range with the decline in comparable sales including e-commerce in the mid-single digit range. Indirect net revenues are expected to decline in the high-teen percentage range.

The gross margin rate for the fiscal 2015 is expected to range from 53% to 53.5% compared to 55% last year. This decline reflects overhead cost deleveraging a slight shift in the channel mix with factory outlet sales to be in the higher percentage of the sales mix and modestly increased online promotional activity in fiscal 2015.

SG&A as a percent of sales to range from 40.8% to 41.3% for fiscal 2015 compared to 37.9% last year. The rate increase is a result of previously discussed strategic investment in the business in fiscal 2015 such as our key management hires and incremental marketing and ecommerce expense.

In addition we expect to incur incremental year over year incentive compensation expense. We do have an active expense control program in place and we are focused on reducing expenses were possible we have identified and are implementing several cost reductions beyond what we originally identified at the beginning of the year.

These include reductions in supply cost and increased manufacturing and shipping productivity. Our expectations for diluted EPS for continuing operations range from $1 to a $1.5 for fiscal 2015. On a comparable basis diluted EPS from continuing operations totaled $1.48 last year.

We believe inventory will be $100 million to a $110 million at the end of the fiscal year compared to a $136.9 million at last fiscal year end. This projected year-end inventory level reflects a much better balance of current to retired inventory than a year ago.

We still expect our total capital expenditures to be approximately $40 million for the full year with approximately $20 million related to our corporate office campus consolidation. The balance primarily is related to new store openings and continued investment in our system.

Let me turn the call over to call over to Sue, who will update you on the product component of our strategic plan.

Sue?.

As you know, we are working hard to more fully engage our core customers and also to acquire new customers through execution of our product strategies. We have spent a lot of time this year on elevating and modernizing our assortment, and trying to stabilize the business through better focusing our assortment and narrowing that in the short term.

We have introduced a lot of newness this year; we launched laser cut in May our lighten-up fabrication in June, faux leather in August and leather in September. In addition in October we expanding our solid micro fiber assortment and introduced our full coordinating collections including our smaller trends.

Our customers are responding to the newness and any aggregate our skew productivity on these products is higher than on a traditional merchandize. Our customers are also definitely shifting towards solids and support pattern.

Consequently, we are continuing to lesson our dependence on our signature patterns and we’ll continually refresh and expand the colors in styles in our laser cut faux leather and solid micro fiber assortment and we will continue our fabric and product innovation going forward.

By the fiscal year end approximately 30% of our assortment will be these new items introduced in 2014 of these new introductions I believe our two biggest needle movers going forward will be solid micro fiber and our new coordinating collection.

As we better focused our assortments we have reduced the numbers of signature cotton quilted pattern launches from 18 last year to 14 this year. We are no longer thinking simply in terms of signature pattern launches but we’ll instead focus on our collection.

Going forward we expect to introduced in the range of 11 or 12 collections annually as a post to our previous 18 pattern launches.

The gap left by the reduced signature patterns is being filled in with the coordinating collections pieces as well as our new fabrication like solid micro fiber leather and faux leather part of focusing our assortment is measuring in the majors.

Making a bigger impact in the big volume drivers in classification Vera Bradley is known for and what we do best, like travel, backpacks, bags and accessories. The success of our backpack business during the back to campus period at the beginning of the quarter is a great example of this.

We intensified our inventory assortment introducing a style and supported the products of the comprehensive marketing and service strategy it worked improved that when we put our energy and resources behind in an initiative it will be successful.

We are very optimistic that these product changes will lead to better sale through increase revenues in higher gross margin overtime. We are also taking other actions that we believe will expand our future gross margin rate.

For example we are in the process of building a more flexible efficient and cost effective supply chain through vendor and countries of versification. We are broadening our base to countries outside of China to other countries with expertise in specific product classification. For example we recently began manufacturing certain products in Vietnam.

Rob?.

marking the brand, building our customer base and increasing our customer’s wallet of share. We intend to market the brand by increasing our advertising spend and being more strategic about the marketing investment we’re making and reallocating our total spend to be more impactful.

We will increase both digital and print advertising and enhance our PR and social media efforts with the intent of doubling our media impressions and exponentially increasing our customer reach. We want to modernize and strengthen how the brand is perceived.

These efforts have begun, as you know we launched our first national ad campaign in September focused on leather and faux leather. This campaign included a strategic combination of carefully placed national ad special events, social media with a focus on Twitter and Instagram, and creating buzz through bloggers and fashion influencers.

And in November we also launched a digital campaign with a 180 million impressions targeting 45 million customers and our brightest gifts ever, holiday print and digital campaign. As we think about building our customer base, our focus will be to attract new customer segments and to ensure continuity across all life stages.

Our primary focus is for new customer growth are to those unaware of our brand, career women and male gift givers. In order to increase our customer share of wallet we much engage our customers beyond single – focused on multiproduct marketing and implement a more robust CRM program using our recently implemented omni-channel database.

We are in the very early stages of these marketing efforts and we’ll have more to share on future calls. Operator, we’ll now open up the call to questions..

Thank you. [Operator Instructions] We’ll take our first question from Steve Marotta from CL King & Associates..

Good morning everybody, I have a couple of quick questions.

So, the first is that, can I believe you decided that gross margins were a little bit under pressure in the quarter due to more promotional activities and initially expected online, that was supposed to be a little bit more of a full price resource for you guys I thought that was part of the strategy going forward, can you reference out of those please?.

Sure, over the long term that’s exactly right Steve but it was highly competitive during Q3. We are also moving some of our liquidation inventory through the web, we’ve realized higher margins on the web to move it there via some outlet sales versus trying to sale it some liquidator.

So, we’re ultimately able to get some margin dollars by selling that on the web but over the long term that is a part of our strategic plan which is moving the Web site to more of a full price offering..

Okay, great.

As I pertains specifically to the inventory decline you mentioned that it’s largely a timing or some of the differential between guidance and actual the timing of [receipts], does anything have to do with import issues?.

That was a little bit related to import issues we’ve seen about a 7 to 14 days delay in terms of getting our product here. We didn’t have anything up significance impacting the quarter but nevertheless there was a little bit related to that.

In addition, we’ve one key supplier now over in China that’s actually taking ownership of the fabric, they ultimately had more inventory than we expected as we exited the quarter that was an impact of about $6 million as well.

So, primarily timing but nevertheless import is a very small issue there but then a key supplier over there we’ve actually been able to move the risk of holding the fabric to that key supplier that helps this move our inventory number down as well..

Terrific and lastly as you were guiding to Q4 accounts, if you gave it I missed that differential between store and e-commerce..

Yes, sure. We expect from a store perspective to be we didn’t get that number but we do expect that to be down similar to Q3 but down slightly more so you can call that mid to high team..

Okay, and e-commerce?.

And e-commerce, we don’t typically give guidance for that in particular but if you look at what we’ve given from guidance range for the quarter, high single digits down..

We’ll now take our next question from Mark Altschwager from Robert W. Baird..

Rob, you mentioned in the prepared remarks that you expected maybe a bit more traction by now from these initiatives I guess what you think is driving in that divergence? And then if the store comp transmitting more sales for longer period than expected with that to reconsider the pace of new store expansion over the next year or two or how do you thinking about that?.

Yes. The number one thing we’ve been facing is the change in the customer traffic environment, is definitely bit more challenging than we had anticipated going into the third quarter going into the fourth quarter. And our business when you look our sales performance and traffic performance there is high co-relation.

So on the positive side what we’re seeing is the customer is absolutely responding to the new product assortment. So as we look at the selling of all the new product introduction is outselling our core.

And so that part has been very encouraging but the store traffic is definitely been a large challenge then it was definitely one that we did not anticipate as we were going forward.

So it’s going to make a tab to work hard to the marketing initiatives that we put in place literally and just started have particularly the digital marketing, we started at the very end of October and going through December and a lot of those impressions campaigns take a little while to get consumers back in store but the early reason quick through in customer response with the digital advertising has been encouraging but we need to get more customers in our store.

The second question you raised is that we continue to see a challenging traffic environment and therefore a challenging comp environment in the store as what we look at our -- constantly looking at our real estate. We are constantly looking in how many stores we’re opening.

We do have our leases completed for next year, so as we look at the next fiscal year of course leases are basically solid and moving forward. But we definitely are watching these comps closely and we’ll continue to evaluate our store opening based on the comp performance.

But at the same time as we’ve said, we do believe we still have a very small store footprint.

So we have just under a 100 full line stores and we believe that attracting new customers to our brand exposing new customers to our brand is critical so the store expansion is one of those areas that we’re leveraging as a marketing opportunity to gain new customers..

Great, thank you. And then Sue, as the company shifts in more of the collection strategy, what are your expectations for the indirect channel in terms of depths of buys in each of these collections.

And then more broadly what’s the biggest point of differentiation between what we see in the full line stores versus the wholesale channel moving forward? Thank you..

Yes. So as it relates on the question, we actually have started selling in these collections to our independent channel actually starting with -- we did actually we were very pleased with the results of what our initial EOP reflected and we are in fact seeing that the consumer is on that channel responding to moving towards this direction as well.

From the depth of buy perspective, again we were pleased with the initial results we feel that they’re buying in at the appropriate amount that we had anticipated and in terms of how we continue to differentiate as we move forward one of the things that we’re shipping has really careful eye on is as we continue to expand and diversify into fabrications and also continues to diversify print penetration we are considering what that looks like by each channel of business moving forward..

And I think the one thing that I would add as you look at the fabrications that we’re introduce in leather product, we definitely see those more elevated price points being distorted within our own stores and the department store channel as oppose to the gift channel. And we do believe that the gift channels base is on the more opening price point.

So we do believe that that’s what focused majority of the assortment is more on the opening price within our especially gift channel and then the higher fabrications will be more on stores and in our department stores..

Moving on, we’ll take next question from Randy Konik from Jefferies..

Hi guys, couple of things. I guess Sue can you elaborate a little bit more firm data points on what you’re saying really improve response to the new product.

I guess second question, when you look at the indirect order, the indirect sales pattern you’re reflecting lower orders and as well as reduction on the specialty channel you guys have mentioned, what was more impactful today indirect number, was it the reduction on the specialty in number of doors versus lower orders and then within the lower orders is that a function of the base kind of classic type products being ordered less versus the newer type looks that are maybe up in orders, can you give us some color there.

And I guess lastly if you kind of think about decors uggs brand as somewhat similar situation here, there uggs business saw a big decline and then as rebounded that company transformed itself to get their classic uggs boot as new under, about under 40% of total sales.

If you look at a similarity here with your business, you're going after new product and some of the older styles or the two styles the classic style you could say are going down.

Where do you in vision over a long period of time from a merchandizing standpoint that the new stuff for the more fashion more modern brand stuff would be as a percent of the mix versus the core classic I would say that everybody knows is traditionally known of prestige where it brought it to be. .

Yes so what I’ll do is I’ll start with first of all on your question on orders and where we’re seeing that balance between newer versus older as we’re moving forward on Europe. And what I would say is a basically then in line with we’re our sales have been on those diversified fabrications et cetera.

So signatures still mix up in that channel so the vast majority of the overall sales volume.

As we continue to move forward we had given guidance that by the end of this fiscal year we would be at 30% in terms of newness and we are in fact seeing that the specialty track channel is in fact tracking with us when you look at where the orders are coming in.

And so I would say they’re right in line with our expectations and so to what we had projected what we have project for them. Also over the long term and obviously we’re going to continue to keep a very close eye on this as you can imagine.

But we have given a guidance that said that we believe that 70% of our business will still remain within core but that core of mix may change overtime. So a good example of that would be as we continue to see micro fiber continue to trend that will now become a core fabrication for us.

But we expect core made up of, over the next couple of years made up of signature and now micro fiber which is a brand new core business for us along with lighten up fabrication which is a brand fabrication for us.

Representing about 70% of the volume 20% will be in what we’re calling our fashion core product or some of those newer introductions like faux leather that we’re seeing checking representing about 20% and then 10% will remain Halo Road from the perspective.

And we see that being pretty consistent overtime and as things checked moving into the core bucket.

From a skew productivity perspective what we are seeing is in the high double digits where we have seen our increases and we’ve been really pleased with that it actually exceeded our initial expectations of where we thought that skew productivity will come in on the new products specifically..

Got it so just trying to ask one more math question and so if the signature or the core is like to 70% number now this micro fiber is now part of the core.

How big of that 70% tied you in vision of that micro fiber to get towards because I am just trying to get to the end of when how load is the signature piece get in terms of this merchandizing mix of the company..

Yes so micro fiber by the end of this year we will represent about 20% of our overall volume. And if you remember that was in the single digit one year ago. This is one of the major strategies that we said that we were going after first and foremost in order to stabilize this business we were going to invest in solid.

So where do we see that we will continue to watch it but we do continue to see that expanding into fiscal 2016 in terms of percentage points as well. But by the end of this fiscal year, we would be up around represent around 20% already..

Great and very helpful. Thank you. I am sorry go ahead Rob. .

Just to add that a little bit because I other part of your question Randy is surely around what I called this signature cotton coated printed business.

And interestingly enough that we believe that business probably is going to end up representing somewhere give or take 50% of the business as we go forward it might get down to the 40 but hope we have followed around the 50%. And what we’ve seen as we’ve gone through the third quarter is that we are getting growth out of all other fabrications.

But the core place we were losing the most is in kind of that core cotton pre-mature business and that’s really where we are dropping to the customer definitely responding to newness, definitely responding to the newness we’re making in product innovation but there is a little bit of the dig in the core..

Moving now. We’ll take our next question from Jennifer Davis Buckingham Research Group..

Did you guys say and give any more detail on kind of what the difference will be in the specialty channel the specialty gift channel versus year on stores I think you said you were not in some exclusive product in their just wondering if I was skews or different kinds of pattern.

And then also just wondering anecdotally what you are seeing with the new product in leather and the faux leather in terms of new customers or existing customers any anecdotal takeaways from that. .

So to talk specifically about the specialty gift channels, it’s one of the areas that we started with was the diversification between the two channel segments starting with leather. And we -- again we will continue with that strategy where in our own stores as well as in select department stores and very limited specialty stores.

We will continue with the diversification of our leather products. We also had -- also product segmented the faux leather this year as well, where we actually had it in our full line stores obviously our online our full line concept. We also segmented that into select department stores and only very select specialty stores.

So our strategy as we move forward and introduce new fabrications is we will take that same approach. We will take a channel segmentation approach determining which fabrication is based upon consumer type and write for that new -- to drive that new innovation and to make sure we are appropriate in that channel of business.

As we start to see those different fabrications checking and once we’re getting the customer data back, we may continue to then expand that fabrication into other channels or deeper into channels as we see fit.

And then constantly introduce new newness in innovation in our own stores and in our online business, so that is sort of the methodology that we’re following from a merchandising perspective. From a pattern perspective right now we are diversifying our print obviously our print portfolio that has been our first avenue that we have gone after.

We have not really segmented specifically by channel there, we believe that’s an opportunity overtime.

And then from leather and faux leather I’ll actually last going to be answering that question on the new customers, but at a high level what we are seeing is that the new customers in fact we did see these fabrications and we did see a response from the new customers..

And I think what’s been exciting as we look at the new customer performance in the new fabrications is that, we are over indexing in the very customer that we wanted to attract to the brand. So really getting in that 25 year old to 35 year old career focused customer, we are definitely seeing an over index there which is very encouraging.

It’s also been very encouraging to see how well newness has performed across all channels, so whether it’s been the faux leather in our select specialty stores, whether it’s been our leather product has been very encouraging in our own stores to watch how well the consumer has responded to leather, because it was such a significant jump in price point for us.

Again, very encouraging signs in terms of the performance of these new fabrications throughout.

And we’ve talked a little bit earlier in the script in terms of how [is as] we’re going through this time, we’ve made the decision even as we go into next year to move faster and sort of heavier in continue to push these new fabrications to our supply chain and become less dependent upon the poor signature pattern business.

We believe that’s still a great foundation for us and what people know Vera Bradley for. I think the analogy to drugs is a good one and always will be. The core of our business, but we do believe the consumer is responding very-very well to the newness. And we need to continue to drive the newness..

Moving on, we will take the next question from Ed Yruma with KeyBanc Capital Markets..

I guess first on the e-commerce, I know you mentioned it’ll a little bit more promotional.

I know you have an exclusive broke out eBay as part of it, but just kind of any rough color as to what contribution? And then maybe an update on the percent of sales that were done at kind of full price versus that were done either close out for the outlet that you mentioned can mix unit..

First I will start with eBay. eBay is relatively small to the total, it’s very small and we’re annualizing that number as well, so we started selling to eBay really in Q3 last year. So if you think about Q3 and Q4 this year, it’s not impacting that comp rate much at all in Q3 or Q4. So there’s not a lot there.

As far as the mix with regards to what’s sold online, it’s been relatively consistent year-over-year, so not a lot of changes there. We have moved more liquidation products than we originally expected, so I think on the last call I said 5 million to 10 million, but we’re leaning towards the high end of that range and potentially more than 10 million.

We now expect to sell from a liquidation perspective somewhere in the range of 15 million to 20 million. And a lot of that has been moved through our web channel as well as through some liquidators.

Good news is, we’ve been able to sell it at a little better margin than we originally predicted and it will help us exit the year with a much better inventory position..

Encouraging is even as we’ve been getting through some of our liquidation on the web, we’ve actually seen it lifting the full price to because of traffic that it generated through the web. So with time we still want to remove the high liquidation from our Web site, it’s definitely one of our core initiatives as we go into next year.

But this year it did help drive more new customers into the brand in third quarter, which was encouraging..

And a follow up. I think last call you mentioned that the you’re starting to see some really nice results in the preorder period. I think it was the first kind of positive commentary you had on that order of period in some time and I guess I will assume maybe that didn’t manifest itself in the quarter.

So just trying to understand kind of the performance of some of the new patterns that you’ve launched, not necessarily the new product but the new classic patterns? And kind of what’s working and what’s not? And how we should think about the aging of some of the older patterns and the performance of that are older in the portfolio? Thank you..

So, couple of things, one in terms of what’s been going on in our indirect channel.

The early order period have been flat basically with last year which has been encouraging where we feel continue to see weaknesses in reorders and part of that is due to our independence are much cleaner I think are very focused on what’s new in order to customers responding to new.

So they’re not taking as long as view in terms of reordering in stain and stock to moving forward into the new assortments so I think what we’re seeing is a recovery in the EOP first but we’re not seeing recovery in the reorder as I believe that, that channel is just really changed in terms of the way we’re looking at it and that’s part of what’s driving the weakness in the indirect channel that you’re referring to.

In terms of the cleanliness of the inventory and overall throughout all the channels we feel that the inventory is much cleaner than it’s been in the long time we’re getting that feedback from our indirect specialty stores, we’re seeing that in our own stores and in our inventory levels and so we feel very good about the cleanliness and the quality of the inventory.

Overall, pattern selling is not so much about one pattern’s performance versus the others right now it’s just an overall softness in the pattern part of our business and moving to our customer to new fabrications and new solid patterns..

And then Ed, with regards to Q4 guidance on the indirect side so we’ve said, down high single digits to low double digits that looks like an improvement compared to the first three quarters but a lot of that is timing, so our launch for a winter that hit towards the end of October, some of that flowed into Q4, which is as expected and then the same thing with our spring launch which is towards the end of January more of that’s hitting Q4 than Q1 and that’s just timing with the prior year.

So as Rob mentioned EOPs which is our early order period relatively flat for the prior year but our reorders still are down significantly..

Well moving now we’ll take our next question from Evren Kopelman from Wells Fargo..

I have a question on the department stores, that look percent of sales here expect the department store channel to be next year and maybe thoughts on its focus for use to accelerate that and maybe what kind of pace we can expect and if you would consider moving more broadly which hasn’t been done at the company before but into channels like a -- J.C.

Penney?.

Sure, with regards to the numbers Evren, we don’t give that breakdown in terms of department stores versus specialty versus key accounts just as we managed that segment as one segment within the business and there is bound to be some ups and downs and we’ve said to our advantage to be honest with you Evren, as far as acceleration and then maybe -- and pennies I’ll let Rob speaks to that..

Yes, we definitely believe that there is an opportunity to continue to accelerate the department store opening and so we’ve been very happy with the initial results that may season the partnership there.

We believe there is a real opportunity to expand our department store reach and the north and the west coast and so we continue to look for that but we just want to make sure that we’re prudent and how we build up the department store sector, part of what really become important is that our in store presentation becomes critical as a department store expansion and getting Harry Cunningham on team was really a key piece of that, because what we don’t want to do is expand too quickly the department store world without the reputation.

We want the department store expansion to enhance the brand and attract new customers to the brand and so we need to make sure that we’ve the right in store presentation but we definitely will continue to expand aggressively in the department stores but right now we think there is so much opportunity and what I’ll call kind of that core department store sector, the Macy’s Dillard’s types of department stores that we believe that, that’s our primary focus we want to be careful about getting to spread out in terms of going into a [indiscernible] at this time..

Okay, and then the second question is as you do more in the you said 11 to 12 collections per year instead of the old I guess launched way, should is there going to be a big change and how the quarterly revenue flow that we should think about as we model out 2015 quarters?.

We’re not obviously given guidance for next year, currently we don’t expect big changes but obviously on our call really that the Q4 -- that out for there is changes from a launch sequence will definitely go through that with you at that point but we don’t expect significant changes at this point..

Moving on, we’ll take our next question from Oliver Chen with Cowen and company..

Regarding the -- in terms of seeing the product differently, what’s happening to the overall AUR on an overall basis as you look to elevate some elements of that and also just regarding that the big spread between bricks and motor versus online.

So was that due to the assortment being more promotional this quarter or where, how the assortment differentiated in-store versus online maybe now and I understand that you want a transition that more of a full price over a longer term basis.

And then a just a housekeeping question, is networking capital are going to be neutral for the full year and/or how should we model free cash flow? And if there is anything we should know about special needs for CapEx next year that would be helpful? Thank you..

Yes, with regard to networking capital we obviously don’t provide guidance for that for the full year but nevertheless we gave you the inventory number continues to come down and that really is what drives our network and capitalizing -- So that coming down that’s going to significantly add to our operating cash flow for the year.

So as you compare to prior year’s or at maybe 50 million operating cash flow just because of that inventory number coming down by 30 million or so you can expect operating cash flow to be closer to $80 million number something like that.

And then you look at CapEx be in around $40 million and then obviously repurchasing a small amount of shares for the year as well that 3.5 million and then we still have kind of quarter to go on that.

In the next year, it is relates to CapEx we’re not giving guidance there but keep in mind given our store numbers going up you’d expect that now we’re going to spend on our stores to go up from CapEx perspective and then we also expect to in depth more heavily in the web and some of that will be CapEx as well.

So I don’t expect this to go back to kind of our norm of 20 million or 25 million from CapEx number. We’re not giving guidance right now but I expect it to be something north of that..

And then in terms of the AUR, couple of different things we definitely have seen no resistance from the customer as we’ve introduced the leather product and again that’s been very encouraging. But keep in mind that the whole leather part of the assortment is still a very small piece and not large enough to make any significant changes in AUR.

We’re seeing across the retail metrics though in terms of ABS, AUR conversion all of those numbers, is basically similar performance to last year. The big metric is that drive in the negative comp is store traffic. Store traffic is responsible for the down comparable sales.

So our number focus is getting consumers back in the store and we believe that the innovation and marketing initiatives that we’re working on are really key as well as expanding our reach through our new department store relationships. .

Thank you.

Rob, as the product does involve, is your competitive peer group change as well, from a bigger picture perspective where do you see it going versus where it is now?.

I think one we definitely, Vera Bradley I think has been in a unique white space which is I think always been part of the success of the company and we believe that we still will continue to be in a white space.

We believe that introducing leather product will bring new customer in, but we are not trying to transform into the next micro core as we’re trying to really be true to what the heritage of the brand is.

And I think brand that really focuses on women, solves women’s needs and what we’ve been trying to do to the leather and full leather assortment is address the one whole we thought we really had in our assortment that our customer told us that she need bag that she can take to the office and she can take in more formal situations and we wanted to listen and respond and I think that’s why we have such encouraging response to it.

But we’re not necessarily moving into a completely new competitive set.

We really do believe that we provide in the department store environment a great bridge between where I call the brands like [indiscernible] world and then [indiscernible] that we kind of fit in this nice bridge between and where we have this great plan and at the same time we offer very affordable product is very focused on functionality and what women really need not just fashion.

.

Okay.

And if you could just on the e-com channel question, so what was the reality of this quarter in terms of the assortment and whether the non-recurring kind of those given the differential in the assortment online versus in store?.

Yes, the biggest difference that you would see between the two is that our webs during the third quarter definitely had significant portion of liquidation going through it so that was definitely a difference in the assortment. So the deeper discount that you saw going to our web was a differential.

It was a necessarily what our -- assortment issues that was really a liquidation issue and some of the retirement issue. So that was really the difference in why you saw it.

And at the same time as we’ve been doing a lot of our marketing, residual marketing the first response we’ve seen is customers visiting our website and so it’s been driving traffic quickly to website is obviously much easier to convert from the digital add to a website visit and then from a digital add into a store visit.

The store visit takes a little bit longer to get to. But we’re seeing a quick run our e-commerce side of business. .

Moving on, we’ll take a next question from Ike Boruchow from Sterne Agee..

I think Kevin first question for you, when we think about inventory, how you’re planning your inventory needs for next year I think there is lot of rationalization this year. Do you think that the inventory growth should go back in line with sales as we get back in the 2015 as everything is kind of normalize from the ski perspective..

Yes, I think that’s a safe assumption at this point. We expect inventories start growing with sales as we said this year and get into next year. From the ski rationalization perspective and Sue can add to this, but I think we don’t expect ski to change significantly at this point next year compared to this year so relatively flat year-over-year.

So we’re going to be down 30% to 35% this year. We see that is -- slightly growing as we get into next year and definitely see inventory growing at least with sales next year especially as we look at our other opportunities for distribution..

Got it. Okay..

We continue to add innovation and one of things that we knew we have the opportunity to right size our business in terms of the skews that were out there but as Kevin said we believe that we’ve gone through that process now.

We feel really good about the skews where we’re at and the level that we’re at and then it does allows us to introduce that new innovation to the consumer..

Got it and I think Rob you talked about the web conversion and the cost that will be associated with that and then Kevin had mentioned that part of that might close to CapEx.

Can you help us understand the next two years you are trying to do a lot on the web? What are the costs associated with that, what will flow through CapEx, what will flow through to your SG&A and just to help us understand a little better..

It is a good question. But we are going to save that for our Q4 relief because than we’ll have our operating plans finalize and we’ll know exactly those numbers. But we do expect a pretty significant investment in the web platform in the coming year.

We announced that at our Investor Day in New York we’re excited about that we think it is way that we will be over to drive more traffic little more predictability to the web and make it a better customer experience. But at this point we’re not given out those numbers between CapEx and SG&A..

We definitely believe that the web site kind of repositioning and really focusing on the full price brand experience in the web site is still in absolute critical initiative for us. We’ve been taking the steps this year to set us up for. And then this migration that we’re going to begin to work on next year is going to be the next step.

Because we believe that’s the front door for our brand and it’s critical that we get that brand..

And finally we’ll take our final question from Janet Kloppenburg from JJK Research..

I just had a couple of question Rob I heard you talk a lot about trafficking cost to the stores. I am just wondering what you’re analysis of you initial marketing campaign is been terrific.

But is there anything you can do the to try and tweak them perhaps to access a wider customer base board to motivate greater traffic from the existing customer base.

And also I think you said you have about 2,000 gift accounts and I am wondering should we modeling the stable level going forward or do you look for modification in the gift account basis going forward. Thank you. .

First of all let me answer your second question in terms of the account base for the indirect channel. We think that is going to be fairly stable maybe slight reduction but if we’re reducing it is going to be more on the marginal accounts. So we’re not looking for significant changes in the accounts and our indirect channels at this point. Go ahead..

No, no I just great thanks..

The second question was around store traffic in the marketing campaign and we are definitely testing a lot of different market in the initiative. We definitively believe good in customer reengage with the brand and a new customer engage with the brand is a primary focus. As I said we’re still early in that process.

We saw a significant engagement coming to the website from our leather campaign a lot of people trying to understand what we were doing and getting excited about the new leather launched. As we’ve done the digital campaign again it is so new and so fresh that part of that is about building impression.

But what’s that encouraging is to see the put through rates and the engagement with the digital as which has been encouraging. Now we just have to build up the impression we timed to get the consumer in the stores. So we’re going to continue to test innovated marketing initiatives to more in the stores so stay tuned..

And at this time I like to turn the conference back over to our speakers for any additional and closing remarks..

As I look back over the prior three quarters I am proud that how much the team has accomplished in such a short amount of time. While the current environment is difficult and we continue to face challenges in the business I believe we are taking the right steps to position very proudly for the future.

As we evolve our products our distribution and our marketing there will undoubtedly be some bumps in the road. But I am very optimistic about the future of our business and our plans. And I thank you for your interest and time..

Thank you. That will conclude today’s conference. We thank you everyone for your participation..