Vera Bradley Annual Report 2019

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_____________________________________________ FORM 10-K_____________________________________________ xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended February 2, 2019OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period From to Commission File Number: 001-34918_____________________________________________ VERA BRADLEY, INC.(Exact name of registrant as specified in its charter) _____________________________________________ Indiana 27-2935063(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 12420 Stonebridge Road,Roanoke, Indiana 46783(Address of principal executive offices) (Zip Code)(877) 708-8372(Registrant’s telephone number, including area code)_____________________________________________ Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock The NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act:None _____________________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, oremerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant as of August 4, 2018 was $308,855,957.The registrant had 34,164,831 shares of its common stock outstanding as of March 26, 2019._____________________________________________ DOCUMENT INCORPORATED BY REFERENCE:Portions of the registrant’s definitive proxy statement for the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of thisAnnual Report on Form 10-K. Vera Bradley, Inc. intends to file such proxy statement with the Securities and Exchange Commission pursuant to Regulation14A not later than 120 days after its fiscal year ended February 2, 2019. Forward-Looking StatementsThis annual report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or currentfact included in this report are forward-looking statements. Forward-looking statements include references to our current expectations and projectionsrelating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. You can identify forward-lookingstatements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,”“expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” and “likely” and other words and terms of similar meaning inconnection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we makerelating to our estimated and projected earnings, revenues, costs, expenditures, cash flows, growth rates, and financial results, our plans and objectives forfuture operations, growth, initiatives, or strategies, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. Allforward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:•possible inability to successfully implement our long-term strategic plan, including our Vision 20/20 initiatives;•possible continued declines in our comparable sales;•possible inability to maintain and enhance our brand;•possible failure of our multi-channel distribution model;•possible adverse changes in general economic conditions and their impact on consumer confidence and consumer spending;•possible inability to predict and respond in a timely manner to changes in consumer demand;•possible inability to successfully open new stores and/or operate current stores as planned;•possible loss of key management or design associates or inability to attract and retain the talent required for our business;•possible ramifications from the payment card incident disclosed in October 2016; and•possible data security or privacy breaches or disruptions in our computer systems or website.We derive many of our forward-looking statements from our operating plans and forecasts, which are based upon detailed assumptions. While we believe thatour assumptions are reasonable, we caution that it is difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors thatcould affect our actual results.For a discussion of the above described risks and other risks and uncertainties that could cause actual results to differ materially from those contained in ourforward-looking statements, please refer to “Risk Factors” in Item 1A of this report.We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-lookingstatements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statementas a result of new information, future events, or otherwise, except as required by law.2TABLE OF CONTENTS PART I.4 Item 1.Business4 Item 1A.Risk Factors15 Item 1B.Unresolved Staff Comments25 Item 2.Properties25 Item 3.Legal Proceedings26 Item 4.Mine Safety Disclosure26 PART II.27 Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities27 Item 6.Selected Financial Data29 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations32 Item 7A.Quantitative and Qualitative Disclosures About Market Risk49 Item 8.Financial Statements and Supplementary Data50 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure80 Item 9A.Controls and Procedures80 Item 9B.Other Information80 PART III.81 Item 10.Directors, Executive Officers and Corporate Governance81 Item 11.Executive Compensation81 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters81 Item 13.Certain Relationships and Related Transactions, and Director Independence82 Item 14.Principal Accounting Fees and Services82 PART IV.83 Item 15.Exhibits, Financial Statement Schedules83 Item 16.Form 10-K Summary833Table of ContentsPART I In this Form 10-K, references to “Vera Bradley,” “we,” “our,” “us” and the “Company” refer to Vera Bradley, Inc. and its subsidiaries, including Vera Bradley Designs, Inc.The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to January 31. The fiscal year ended February 2, 2019 (“fiscal 2019”) and January 28, 2017(“fiscal 2017”) were each 52-week periods. February 3, 2018 (“fiscal 2018”) was a 53-week period. The fiscal year ending February 1, 2020 (“fiscal 2020”) will be a 52-weekperiod.Item 1. BusinessOur CompanyVera Bradley is a leading designer of women’s handbags, luggage and travel items, fashion and home accessories, and unique gifts. Founded in 1982 byfriends Barbara Bradley Baekgaard and Patricia R. Miller in Fort Wayne, Indiana, the brand’s innovative designs, iconic patterns, and brilliant colorscontinue to inspire and connect women.Vera Bradley offers a unique multi-channel sales model, as well as a focus on service and a high level of customer engagement. The Company sells itsproducts through two reportable segments: Direct and Indirect. The Direct business consists of sales of Vera Bradley products through the Company’s full-line and factory outlet stores in the United States; verabradley.com; the Company’s online outlet site; and the Company’s annual outlet sale in Fort Wayne.As of February 2, 2019, the Company operated 99 full-line stores and 57 factory outlet stores. The Indirect business consists of sales of Vera Bradley productsto approximately 2,300 specialty retail locations, department stores, national accounts, third-party e-commerce sites, and third-party inventory liquidators, aswell as royalties recognized through licensing agreements. For financial information about our reportable segments, refer to Note 16 of the Notes toConsolidated Financial Statements set forth in Part II, “Item 8. Financial Statements and Supplementary Data,” of this report.Our HistoryBarbara Bradley Baekgaard and Patricia Miller founded the Company in 1982 in Fort Wayne, Indiana, after recognizing a lack of stylish travel accessories inthe market. Within weeks, the friends created Vera Bradley, named after Ms. Bradley Baekgaard’s mother, and began manufacturing and marketing theirdistinctive products. The founders, together with past and present members of the executive management team, have been instrumental in our growth andsuccess. The following timeline sets forth a summary of some milestones in Vera Bradley’s history by calendar year:1982–Barbara Bradley Baekgaard and Patricia Miller launched Vera Bradley by introducing three products: the handbag, the sports bag, andthe duffel bag. 1987–Ernst & Young honored our Co-Founders with an “Entrepreneur of the Year” award. 1991–To accommodate the increasing number of attendees, we relocated our annual outlet sale from a tent in our parking lot to its presentlocation at the Allen County War Memorial Coliseum Exposition Center in Fort Wayne, Indiana. 1998–We founded our primary philanthropy, the Vera Bradley Foundation for Breast Cancer. 1999–Our products were sold in all 50 states through Indirect retailers. 2005–We launched the Vera Bradley Visual Merchandising Program, providing our retail partners a framework for presenting the brand andmerchandising our products in a consistent manner. 2006–We launched our e-commerce business through our website, verabradley.com. 2007–We opened a state-of-the-art distribution facility in Roanoke, Indiana and also opened our first full-line store at the Natick Collection,in greater Boston.4Table of Contents2009–We opened our first outlet store at Chicago Premium Outlets in Aurora, Illinois. 2010–We completed our initial public offering. 2011–We opened the Vera Bradley Design Center in Roanoke, Indiana, and launched our products in Dillard's department stores. 2012–We completed a 200,000 square-foot expansion of our distribution facility in Roanoke, Indiana; increased our presence to all Dillard’slocations; and launched a relationship with Von Maur department stores. 2013–We migrated verabradley.com to a more responsive design, providing an enhanced shopping experience and improved product viewing. 2014–We introduced leather and full coordinating collections; began our relationship with Macy's; and launched our first national adcampaign. 2015–We launched several new collections including Collegiate; launched our “I AM” national ad campaign; increased our presence inMacy's; and introduced our products in Belk department stores. 2016–We opened our first flagship store in New York, New York in the SoHo neighborhood; introduced our Gallatin relaxed leathercollection; launched our “It's Good to Be a Girl” national marketing campaign; and expanded our collegiate collection to over 70schools. 2017–We launched our new digital flagship; created an online outlet site; and introduced our Iconic cotton collection. 2018–We launched customization on verabradley.com; were named “Vendor of the Year” by Giftbeat; and partnered with “Blessings inBackpack” to host nationwide events for at-risk children.The passion for design and customer service established by our founders has driven our Company for over 30 years and remains the cornerstone of VeraBradley today. Ms. Baekgaard continues to focus on various Vera Bradley-related projects. Ms. Miller retired in October 2012 as our National Spokesperson,but continues to serve on the Board of Directors along with Ms. Baekgaard.Vision 20/20 InitiativesDuring fiscal 2018, we launched “Vision 20/20” which is an aggressive plan to turnaround our business and restore brand and Company health by the end offiscal 2021. Integrating our Vision 20/20 initiatives into our long-term strategic plan is expected to lay the foundation for growth, a more profitable future,and continued strong cash flows.During fiscal 2019, the key focus areas of Vision 20/20 were moving to a significantly less clearance-driven business model and increasing full-price selling,meaningfully reducing selling, general, and administrative (“SG&A”) expenses and cost of sales expenses, maximizing retention of our customer base, anddriving cash flow from operations.Clearance Reduction, Product Offerings, and Assortment Guardrails. To move to a significantly less clearance driven business model, we focused on threekey product and pricing initiatives: reducing the amount of clearance merchandise offered, narrowing our current product offerings, and introducing tighterassortment guardrails.During fiscal 2019, we significantly reduced the amount of clearance merchandise offered on verabradley.com and in our full-line stores to reset ourcustomers’ pricing expectations and restore our full-price business. To reduce certain clearance sales from verabradley.com, we began the use of our onlineoutlet site in the third quarter of fiscal 2018. This site is marketed to certain members of our customer base. During fiscal 2019, we reduced our clearanceactivity on verabradley.com and our full-line stores by approximately 70% and increased comparable full-price selling in these two channels by over 20%.5Table of ContentsWe are continuing to focus on our best categories and narrowing our current product offering by eliminating unproductive or incongruent categories andSKUs from our assortments. We began to narrow our product offerings in fiscal 2018 and discontinued our fragrance and jewelry collections in the spring offiscal 2019.We have built tighter assortment guardrails around introducing new categories, patterns, and pricing, assuring the right fit for our brand and that our productsnot only provide thoughtful solutions but also reflect our signature attributes of being comfortable, casual, and affordable.These product and pricing initiatives negatively affected revenues in fiscal 2019, but we believe these are the right actions to take for the future health of ourbusiness.Expense Reduction. We also continued to reduce SG&A and cost of sales expenses. SG&A expense reductions began in fiscal 2018 by right-sizing ourcorporate and retail store infrastructure to align with the size of our business. These initiatives continued into fiscal 2019 where we continued to identifycorporate efficiencies, closely monitored our marketing spending to ensure our return was optimized, and reduced store operating expenses by closing tenfull-line stores. We have closed a total of 15 underperforming full-line stores and one underperforming factory outlet store since the beginning of fiscal 2018and forecast that we will close up to an additional 30 full-line stores by the end of fiscal 2022, primarily as leases expire.Our reduced level of clearance activity, combined with other efforts in sourcing and distribution, drove a meaningful year-over-year gross margin rateimprovement.Customer Retention. While, as expected, our overall customer count was down in the mid-single digit range for the fiscal year due to the dramatic reductionin clearance promotions and lower than anticipated factory traffic, the customer count in our full-line stores and on verabradley.com exceeded ourexpectations. In addition, a higher percentage of new customers entered the brand through full-price purchasing.Driving Cash Flows. During fiscal 2019, we generated operating cash flow of $43.6 million and increased our cash and investment position by nearly $20million compared to the prior-year period, while completing over $16 million in share repurchases.Growth StrategiesOur long-term vision is to build on the Company's rich heritage and establish Vera Bradley as a premium global lifestyle brand, expand our customer reach,and grow our customer connections. Our long-term strategic plan, integrated with Vision 20/20, is centered upon the three planks of product, distribution,and marketing.We are focused on creating thoughtful solutions for our customers and believe we have a great opportunity to attract more customers to our brand through ourproduct offerings, our distribution channels, and our marketing efforts.Product. We have identified four key businesses where we can offer our customers thoughtful solutions that we believe will propel our future growth. We arecontinuing to optimize our existing core portfolio by eliminating product categories and specific SKUs that are unproductive or incongruent, as well asexpanding into relevant new categories that reflect our brand and signature attributes of comfortable, casual, and affordable. We will continue to use licensesand strategic partnerships as appropriate to expand our product categories.•Our Fashion Bag and Accessories business continues to be our largest opportunity and allows us to highlight our innovation, function, and fashion.Both patterns and solids are important in this category.•Travel remains a core differentiator for Vera Bradley and allows us to both embrace our heritage and to showcase newness and functionality withproducts like Lighten Up and our unique collapsible luggage.•Our Campus business including backpacks, has been successful, and we believe there are further opportunities to expand our Campus authoritygoing forward.•We believe Home can continue to be a significant growth opportunity for Vera Bradley, with market attractiveness and a great brand fit. Licensingwill continue to play a key role in the home area.In each of these areas, fabric, pattern innovation, and newness remain critical in staying relevant.Distribution Channels. Vera Bradley products are available through our Direct channel including full-line and factory outlet stores, online throughverabradley.com and our online outlet site, and our annual outlet sale, as well as through the Indirect channel including department and specialty retailstores, national accounts, third-party e-commerce sites, and third-party inventory liquidators. We continue to focus on tightly integrating our multi-channelbusiness by strengthening and right-sizing both our Direct and Indirect distribution channels.In 2007 and 2009, we opened our first full-line and factory outlet stores, respectively. We believe there continues to be long-term opportunities for new storesthroughout the United States. We opened six new factory outlet stores in fiscal 2019 and6Table of Contentssuspended full-line store growth. We have closed a total of 15 underperforming full-line stores and one underperforming factory outlet store since thebeginning of fiscal 2018 and forecast that we will close up to an additional 30 full-line stores by fiscal 2022, primarily as leases expire.We plan to open six new factory outlet stores in fiscal 2020. At February 2, 2019, over 95% of the product in the outlet channel was made specifically for ourfactory outlet stores.In 2006, we began selling directly to consumers through verabradley.com. Building our digital flagship remains a key part of our distribution strategy. Aspart of the Company's Vision 20/20 initiatives, we created an online outlet site during the third quarter of fiscal 2018 to allow us to reduce clearance salesfrom verabradley.com. In fiscal 2019, we had approximately 44 million visits to our website and our online outlet site.Our department store relationships allow us to expose our brand to new customers and showcase new product assortments. We are currently in approximately560 department store locations, including Dillard’s, Macy’s, Belk, and Von Maur. In the department stores, we are continuing to work on enhancing ourbrand presentation and to explore expansion of our lifestyle brand offerings.The specialty retail channel is the heritage of our business and remains important to us. We continue to add select accounts while discontinuingunproductive accounts. While the specialty retail business is becoming a smaller percentage of our total revenue base, we are working to stabilize it byassisting retailers with optimizing their businesses.Marketing. Marketing and brand positioning are both critical elements as we continue to engage new consumers and strengthen our bond with existingcustomers.We activated our new branding and brand positioning in fiscal 2017, which included updating elements of our visual identity such as our logo. Wecontinued to increase our brand awareness in fiscals 2018 and 2019 through our “digital first” strategy by partnering with key influencers and leveragingsocial media channels. During fiscal 2019, we emphasized marketing on our full-price offerings and less on our clearance and sale.Well-timed and well-executed brand activation is critical to increasing our brand relevancy and increasing purchase intent. Through comprehensiveconsumer research, we have designed a media plan that we believe effectively targets our customers and attracts both lapsed and new consumers to our brand.Our media efforts include a fully-integrated mix of digital, social, experiential, and print, with our goal being to surround consumers with our brand.Competitive StrengthsWe believe the following competitive strengths differentiate us within the marketplace:Strong Brand Identity and Positioning. We believe the Vera Bradley brand is highly recognized for its distinctive and vibrant style. Vera Bradley ispositioned in the market as a lifestyle brand that inspires consumers to express their femininity, individuality, and sense of style. We have also positioned ourbrand to highlight the high quality and functional attributes of our products. The Vera Bradley brand is more price accessible than many competing brands,which allows us to attract a wide range of consumers and increases our ability to achieve more frequent purchases.Customer Loyalty. The Vera Bradley brand is authentic and has a deep connection with its customers. We believe we have a segment of long-term consumerswho act as loyal and enthusiastic brand advocates. We believe this enthusiasm for our brand by our loyal customers inspires repeat purchases. Our customersoften purchase our products as gifts for family members and friends, who we strive to turn into brand enthusiasts.Product Development Expertise. Our product development team combines an understanding of consumer preferences with a knowledge of color, fashion, andstyle trends to design our products. Our creative design associates utilize a disciplined product design process that seeks to maximize the productivity of ourproduct releases, including our print designs, and drive consumer demand.Dynamic Multi-Channel Distribution Model. We offer our products through a diverse choice of shopping options across channels that are intimate, highlyshop-able, fun, and characteristic of our brand. Whether they visit a Vera Bradley store, specialty retail store, department store, or verabradley.com, we believeconsumers can find the brand in places that match their unique shopping interests. Our multi-channel distribution model enables us to maximize customeraccess to our products.7Table of ContentsUnique Company Culture. We were founded in 1982 by two friends, Barbara Bradley Baekgaard and Patricia Miller, who built our business around theirpassion for design and commitment to customer service. We believe our founders created a unique culture that attracts passionate and motivated employeeswho are excited about our products and our brand. Our employees share our founders’ commitment to Vera Bradley customers and to the Company’s corevalues of Kindness, Ingenuity, Thoughtfulness, Optimism, Tenacity, and Empathy. We believe that a fun, friendly, and welcoming work environment fosterscreativity and collaboration. By empowering our employees to become personally involved in product design, testing, and marketing, they becomepassionate and devoted brand advocates.Experienced Management Team. Our senior management team has extensive experience across a diverse range of disciplines in product design,merchandising, marketing, store operations and development, supply chain management, and finance.Our Product Release StrategyWe introduce new collections monthly. Each launch typically consists of one to three signature cotton-quilted prints, as well as other fabrications includingmicrofiber, leather, Lighten Up, and Midtown, many of which are also available in solid colors. These collections of prints and solids are incorporated intothe designs of a wide range of products, including bags, accessories, and travel items. These collections typically include classic styles, updates to existingdesigns, and new product introductions.To keep our assortment current and fresh, and to focus our inventory investments on our best performers, we discontinue prints and fabrications as necessary.We sell our remaining inventory of retired products primarily through our website (including our online outlet site), factory outlet stores, annual outlet sale,and third-party liquidators.Our ProductsThe following chart presents net revenues generated by each of our four product categories and other revenues as a percentage of our total net revenues forfiscals 2019, 2018, and 2017. Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Bags 41.1% 40.6% 42.8%Travel 25.8% 26.1% 24.5%Accessories 22.3% 22.0% 21.9%Home 7.1% 6.8% 5.7%Other (1) 3.7% 4.5% 5.1%Total 100.0% 100.0% 100.0%(1)Includes primarily apparel/footwear, stationery, freight, licensing, merchandising, and gift card breakage revenue.Bags. Bags are a core part of our product offerings and are the primary component of every seasonal assortment. The category consists of classic and newstyles developed by our product development team. Our bag product category includes items such as totes, crossbodies, satchels, clutches, backpacks, babybags, and lunch bags. Bags play a prominent role in our visual merchandising, and we showcase the different fabrications, patterns, colors, and features ofeach bag.Travel. Our travel product category includes rolling luggage, cosmetics, travel and packing accessories, and travel bags which includes our iconic duffel andweekend bags. The first Vera Bradley product offering included duffel bags, which have consistently been strong performers. We believe their popularity, aswell as the appeal of our other travel items, results from our vibrant designs, functional styles, and lightweight fabrications.Accessories. Accessories include fashion accessories such as wallets, wristlets, eyeglass cases, scarves, and various technology accessories. Our accessories areattractively priced and allow the consumer to include some color in her wardrobe, even if tucked into another bag. Our product development teamconsistently updates the accessories assortment based on consumer demand and fashion trends.Home. Our home category includes textiles, including throw blankets, beach towels, and comforters, as well as items such as mugs and tumblers.8Table of ContentsProduct DevelopmentWe have implemented a fully integrated and cross-functional product development process that aligns design, trend and market research, merchandising,planning, sales, marketing, and sourcing. Product development is a core capability that makes our products unique. Our designs and aesthetics set ourproducts apart and drive customer loyalty. Our design and product development teams combine an understanding of the needs of our target customers, withknowledge of upcoming color, material, consumer, and fashion trends to design new collections, as well as new product categories, which will resonate in themarket.We typically begin the development stage of our products in the Vera Bradley portfolio twelve to eighteen months in advance of their release. Thedevelopment of each new pattern includes the design of a primary print and sometimes a secondary coordinating print. All print development is managed byour internal print design team. Once developed, we generally copyright our patterns as appropriate. We believe that great design is not only central to ourproduct, but also is a fundamental part of our brand development and growth strategies.Our design team works to ensure that new collections contain an assortment of products and styles that are in line with both trends and customer needs andregularly updates classic styles to enhance functionality. Our team monitors fashion trends and customer needs by attending major trend and industry showsin Europe, Asia, and the United States, subscribing to trend monitoring services, and engaging in comparison-shopping.Our product development team works closely with our marketing and merchandising teams to gather consumer insights through a variety of methodologies,including seasonal market research, in-store testing, scheduled interviews, and online and in-person surveys conducted by our internal team. The design andproduct development teams ensure that we offer products that are constructed to meet our design, function, construction, and quality standards in a cost-effective manner. We believe that with our cross-functional, collaborative approach, we are able to introduce and market our products in a way that clearlycommunicates the Vera Bradley brand.In addition to products developed in-house, we also pursue brand extensions through strategic partnerships, licensing agreements, and brandcollaborations. We currently have licenses in place for eyewear, collegiate, bedding, hosiery, swimwear, technology accessories, stationery, health careuniforms and accessories, sleepwear and loungewear, and bath collections. We will continue to look for the right strategic partners and licensees that canaugment the brand and provide established distribution networks for certain categories of business.MarketingWe believe that the growth of our brand and our business is influenced by our ability to introduce and sell our merchandise in a way that clearly conveys theVera Bradley brand personality. We use marketing as a critical tool in our efforts to promote our brand.Retention Advertising. Vera Bradley communicates with our established customers consistently throughout the year with regular e-mails, social media, andseasonal direct mail catalogs, brochures, and notifications. Our retention advertising is geared to keeping Vera Bradley top of mind with our customers,rewarding our customers, and providing them with news of our seasonal launches and new product introductions.New Customer Acquisition Advertising. We primarily employ digital (i.e., display banner, mobile, geo-targeting, and pre-roll video) and print advertising toincrease overall brand awareness and attract new customers. Our advertisements are placed in fashion, lifestyle, and family publications and websites thatcomplement the wide breadth of appeal of our brand. Our ads have recently appeared in StyleWatch, InStyle, Glamour, Cosmopolitan, Vogue, Elle, and O theOprah Magazine.Public Relations and Product Placement. Vera Bradley has received considerable editorial exposure in the press, with mentions in O the Oprah Magazine,Magnolia Journal, Garden & Gun, InStyle, and Southern Living. In addition, we have expanded our public relations efforts to reach popular onlineinfluencers and bloggers.Product placement in feature-length films and on prime-time television shows remains strong with television placements in Modern Family, The Big BangTheory, Blackish, Speechless, and American Housewife. Movie placements include: Pitch Perfect 3, La La Land, Girl's Trip, Baywatch, A Bad MomsChristmas, and Den of Thieves.Partnerships. During fiscal 2019, we partnered with the non-profit organization “Blessings in a Backpack” and a variety of celebrity co-hosts to providecarnival themed charity events at seven elementary schools across the country. We donated 25,000 backpacks filled with food supplies for children in need.9Table of ContentsSocial Media and Online Marketing. We use online marketing and social networking sites as tools to increase brand awareness and drive traffic toverabradley.com and to our stores. We have captured approximately 5.5 million active customer e-mail addresses in our online customer file, with many ofthese customers providing age, occupation, and location data. This information provides us with deeper insight into the products and categories that are ofthe highest interest to our customers, and allows us to better target our customers with appropriate messages. As of February 2, 2019, we had nearly 1.9million Facebook fans and approximately 80,000 Twitter followers. Our Instagram, which we launched in October 2012, has grown to approximately 420,000followers and is our most highly engaged social medium. In addition, we often partner with brand-right bloggers to promote product.Direct Mail. Seasonal Vera Bradley catalogs are a vehicle for promoting our brand and product portfolio. Each catalog is sent to a targeted customer mailinglist. In addition to distributing the catalog, we produce and distribute a number of other marketing pieces, including postcards and mini-mailers. We believeour direct mail medium generates excitement and awareness about the brand and seasonal introductions and allows us to reach both new and loyal customersin their homes.SeasonalityBecause Vera Bradley products are frequently given as gifts, we have historically realized, and expect to continue to realize, higher sales and operatingincome in the fourth quarter of our fiscal year, which includes the holiday months of November and December. In addition, fluctuations in sales andoperating income in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events affecting retail sales.Channels of DistributionWe distribute our products through our Direct and Indirect segments. This multi-channel distribution model is designed to enable operational flexibility andmaximizes the methods by which we can access potential customers.Direct SegmentFull-Line Stores. We have developed a retail presence through our full-line stores, all located in the United States, which provides us with a format toshowcase our brand and the full array of Vera Bradley products. As of February 2, 2019, we operated 99 full-line stores averaging approximately 1,900 squarefeet per store. In fiscal 2017, we opened our first flagship store in the SoHo neighborhood of New York City which offers customers a unique store experience,as well as exclusive product. Our sales associates are passionate about our products and customer service, which, we believe, translates into a superiorshopping experience.Factory Outlet Stores. Our factory outlet stores are a vehicle for selling factory exclusive styles, as well as retired merchandise at discounted prices, whilemaintaining brand integrity. At the end of fiscal 2019, over 95% of the merchandise found in our factory outlet stores consisted of factory exclusive styles.Factory outlet stores are an integral part of our distribution strategy, as this format provides an additional channel of distribution for our products and enablesus to better target value-oriented customers. Our factory outlet stores average approximately 3,200 square feet per store. As of February 2, 2019, we operated57 factory outlet stores, all located in the United States.Store Location Selection Strategy. Our store location decisions for both full-line and factory outlet stores are made based upon our comprehensive retailstrategy that includes actual and planned penetration in both Indirect and Direct segments, as well as existing e-commerce demand. At this time, we do notbelieve all geographical markets have been fully penetrated by our distribution channels. We believe that long-term expansion of our store base will increasebrand awareness and reinforce our brand image. In addition to analyzing store economics, we pay particular attention to the location within the shoppingcenter, the size and shape of the space, and co-tenancies. Along with seeking co-tenants that we believe share our target customer, we seek a balanced mix ofmoderate and high-end retailers to encourage high levels of traffic. Our target full-line store size is approximately 1,800 square feet and our target factoryoutlet store size is approximately 3,500 square feet.Store Operations. The focus of our store operations is providing consumers with a comfortable and memorable shopping experience. We strive to make theexperience interactive through special store events, such as showcasing newly launched products or celebrating our namesake’s birthday. Our customerservice philosophy emphasizes friendly service, merchandise knowledge, and passion for the brand. Consequently, an essential requirement for the success ofour stores is our ability to attract, train, and retain talented, highly motivated district managers, store managers, and sales associates.10Table of ContentsStore Economics. We expect our full-line stores to average approximately 1,800 square feet per store, and we expect to invest approximately $0.4 million pernew store, consisting of inventory, pre-opening costs, and build-out costs, less tenant-improvement allowances.We expect our factory outlet stores to average approximately 3,200 square feet per store, and we expect to invest approximately $0.5 million per new store,consisting of inventory, pre-opening costs, and build-out costs, less tenant-improvement allowances.E-Commerce. In 2006, we began selling our products through the verabradley.com website. The objective of verabradley.com is to provide both a mechanismfor marketing directly to consumers and a storefront where consumers can find the entire full-line Vera Bradley collection. During the third quarter of fiscal2018, we created an online outlet site to reduce clearance sales from verabradley.com. We continue to assess our website for potential upgrades andenhancements, ensuring optimal design and performance. We had approximately 44 million visits to verabradley.com and our online outlet site during fiscal2019.Annual Outlet Sale. Our annual outlet sale is held in the Allen County War Memorial Coliseum Exposition Center in Fort Wayne, Indiana each spring. Theannual outlet sale is an important tradition for Vera Bradley, has many loyal followers, and is an opportunity for us to sell our retired merchandise atdiscounted prices in a brand-right fashion. We attracted over 45,000 attendees to our 2018 annual outlet sale.Indirect SegmentAs of February 2, 2019, we sold our products in approximately 2,300 specialty retail locations, as well as department stores, national accounts, third party e-commerce sites, and third-party inventory liquidators, as well as through licensing agreements. In fiscal 2012, we launched our products in the departmentstore channel. We are currently in approximately 560 department store locations, including Dillard's, Macy's, Belk, and Von Maur.The top 30% of our specialty retailers account for approximately 70% of total specialty retailer revenue. No single Indirect retailer represented more than10% of consolidated net revenues in fiscal 2019, with the top ten Indirect retailers representing in the aggregate approximately 40% of total Indirect netrevenues. The majority of our Indirect retailers have been customers for over five years.Indirect Sales ForceWe believe that having a combination of an in-house field sales force and a third-party agency, covering certain geographies, results in a more consistentbrand presentation and messaging, enhanced support for our Indirect customers, and a more predictable, scalable, and cost-efficient business model. As ofFebruary 2, 2019, our in-house sales team consisted of approximately 25 full-time sales consultants. Beginning in fiscal 2019, the compensation structurewas based upon a full commission model.In addition to acquiring new and growing existing accounts, our sales consultants serve as a support center for our Indirect customers by assisting andeducating them in areas such as merchandising and visual presentation, marketing the brand, product selection, and inventory management. Our visualmerchandising program provides our sales consultants with a framework to guide our Indirect customers regarding optimal product placement and displaythat is intended to reinforce the message that our brand is distinctive.Manufacturing and Supply Chain ModelOur multi-country manufacturing and supply chain model is designed to achieve efficient, timely, and accurate order fulfillment while maintainingappropriate levels of inventory.Our manufacturing and sourcing strategy is part of the larger cross-functional product development process. The overall objective for our sourcing team is tobuild and sustain collaborative partnerships throughout our supply chain, with a focus on identifying appropriate countries and partners to manufacture ourproducts. The sourcing team leverages its expertise in negotiation, relationship management, and change management to maintain a strong global supplychain. Our sourcing team also focuses on achieving the right mix of production sites to mitigate the risk of concentrated production, including potentialincremental tariffs. During fiscal 2019, to assist in this risk mitigation, our sourcing team reduced our production in China from approximately 70% in fiscal2018 to approximately 54% in fiscal 2019.We strive to maintain the appropriate balance of inventory to enable us to provide a high level of service to our customers, including prompt and accuratedelivery of our products. We have an active and nimble sales and operations planning process that helps us balance the supply and demand issues that weencounter in our business, optimize our inventory levels, and anticipate inventory needs. We have also integrated our planning, forecasting, andsegmentation processes under one function called Merchandise Planning and Allocation.11Table of ContentsApproximately half of our products are cotton-based. Our other fabrics include primarily nylon, polyester, microfiber, and leather. We source our materialsfrom various suppliers in Asia, with the majority coming from China and South Korea. Our global sourcing team works with select suppliers enabling us tooptimize the mix of cost, lead time, quality, and reliability within our global supply network. All of our suppliers must comply with our quality standards,and we use only a limited number of pre-approved suppliers who have demonstrated a commitment to delivering the highest quality products. In April 2016,we opened an office in Hong Kong to lead the global supply chain in Asia, including the oversight of sourcing and procurement.The majority of our finished goods, not sourced through licenses or strategic partners, are manufactured by a variety of global manufacturers locatedprimarily in China, Vietnam, Myanmar, and Cambodia. We are not dependent upon any single manufacturer for our products. When determining the size oforders placed with our manufacturers, we take into account forward-looking demand, lead times for specific products, current inventory levels, and minimumorder quantity requirements. Overseas production has resulted in substantial cost savings and a reduction of capital investment. With the oversight of ouroffice in Hong Kong and our independent contractors, we believe these financial benefits have been realized without sacrificing the level of quality inherentin our products or service to our customers.Distribution CenterWe own a 428,500 square-foot distribution center in Roanoke, Indiana. This automated, computerized facility allows Vera Bradley employees to receiveinformation directly from the order-collection center and quickly identify the products and quantities necessary to fulfill a particular order. The facility’stechnology enables us to accurately process and pack orders, as well as track shipments and inventory. We believe that our systems for the processing andshipment of orders from our distribution center have enabled us to improve our overall customer service through enhanced order accuracy and reducedturnaround time; however, we continue to assess our distribution center processes and technology to ensure optimal output.Our products are shipped primarily via third-party common carriers to our stores, our Indirect retailers, and directly to our customers who purchase throughour website. We believe we are positioned well to support the order fulfillment requirements of our business, including business generated through ourwebsite.Management Information SystemsWe believe that high levels of automation and technology are essential to maintain our competitive position. We maintain computer hardware, applications,and networks to enhance and accelerate the design process, to support the sale and distribution of our products to our customers, and to improve theintegration and efficiency of our operations. Our information systems are designed to provide, among other things, comprehensive order processing,production, accounting, and management information and analytics for the product development, retail, sales, marketing, distribution, finance, and humanresources functions of our business. We continue to assess our on premise and cloud-based technology solutions to ensure we have the optimal solutions forour business.CompetitionWe face strong competition in each of the product lines and markets in which we compete. We believe that all of our products are in similar competitivepositions with respect to the number of competitors they face and the level of competition within each product line. Due to the number of different productswe offer, it is not practicable for us to quantify the number of competitors we face. Our products compete with other branded products within their productcategories and with private label products sold by retailers. In our Indirect business, we compete with numerous manufacturers, importers, and distributors ofhandbags, accessories, and other products for the limited space available for the display of such products to the consumer. Moreover, the general availabilityof contract manufacturing allows new entrants access to the markets in which we compete, which may increase the number of competitors and adversely affectour competitive position and our business. In our Direct business, we compete against other independent retailers, department stores, catalog retailers, giftretailers, and Internet businesses that engage in the retail sale of similar products.The market for handbags, in particular, is highly competitive. Our competitors include not only established companies that are expanding their productionand marketing of handbags, but also frequent new entrants to the market. We directly compete with wholesalers and direct sellers of branded handbags andaccessories.In varying degrees, depending on the product category involved, we compete on the basis of design (aesthetic appeal), quality (construction), function, pricepoint, distribution, and brand positioning. We believe that our primary competitive advantages are consumer recognition of our brand, customer loyalty,product development expertise, and our widespread presence through our multi-channel distribution model. Some of our competitors have achievedsignificant recognition for their brand names or have substantially greater financial, distribution, marketing, and other resources than we do. Further, we mayface new12Table of Contentscompetitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets.Copyrights and TrademarksThe development of new patterns includes the design of primary and secondary prints. Once developed, we generally copyright our patterns as appropriate.We currently have approximately 1,000 copyrights.We also own the material trademark rights used in connection with the production, marketing, and distribution of all of our products, both in the UnitedStates and in the other countries in which our products are principally sold. Our trademarks include “Vera Bradley.” We aggressively police our trademarksand copyrights and pursue infringers and counterfeiters both domestically and internationally. Our trademarks will remain in existence for as long as wecontinue to use and renew them in advance of their expiration dates. We have no material patents.EmployeesAs of February 2, 2019, we had approximately 2,620 employees. Of the total, approximately 2,045 were engaged in retail selling positions, approximately280 were engaged in distribution, sourcing and quality functions, approximately 35 were engaged in product design, and approximately 260 were engagedin corporate support and administrative functions. None of our employees are represented by a union. We believe that our relations with our employees aregood, and we have never encountered a significant work stoppage.Government RegulationMany of our imported products are subject to existing or potential duties, tariffs, or quotas that may limit the quantity of products that we may import into theUnited States and other countries or impact the cost of such products. To date, we have not been restricted by quotas in the operation of our business, andcustoms duties have not comprised a material portion of the total cost of a majority of our products. In addition, we are subject to foreign governmentalregulation and trade restrictions, including U.S. retaliation against prohibited foreign practices, with respect to our product sourcing and international salesoperations.We are subject to federal, state, local, and foreign laws and regulations governing environmental matters, including the handling, transportation, and disposalof our products and our non-hazardous and hazardous substances and wastes, as well as emissions and discharges into the environment, including dischargesto air, surface water, and groundwater. Failure to comply with such laws and regulations could result in costs for corrective action, penalties, or the impositionof other liabilities. Compliance with environmental laws and regulations has not had a material effect upon our earnings or financial position. If we violateany laws or regulations, however, it could have a material adverse effect on our business or financial performance.Executive Officers of the CompanyThe following table sets forth certain information concerning each of our executive officers:Name Age Position(s)Robert Wallstrom 53 Chief Executive Officer, President and DirectorJohn Enwright 46 Chief Financial OfficerDaren Hull 45 Chief Customer OfficerKevin Korney 49 Chief Merchandising OfficerBeatrice Mac Cabe 40 Chief Creative OfficerStephanie Scheele 42 Chief Marketing OfficerMark C. Dely 43 Chief Administrative & Legal Officer and Corporate SecretaryMary Beth Trypus 53 Chief Sales OfficerRobert Wallstrom has served as our Chief Executive Officer, President and Director since November 2013. Prior to joining Vera Bradley, Mr. Wallstromserved as President of Saks Fifth Avenue’s OFF 5TH division from 2007 until November 2013. Previously, he was Group Senior Vice President and GeneralManager of Saks’ flagship New York store from 2002 to 2007, where he articulated a vision to return the store to its luxury heritage and dramatically improvemerchandising, service, and the in-store experience.13Table of ContentsJohn Enwright joined the Company in May 2014 as our Senior Director of Financial, Planning and Analysis and was soon promoted to Vice President,Financial, Planning and Analysis. Mr. Enwright was named Chief Financial Officer in April 2017. Prior to joining Vera Bradley, Mr. Enwright spent 15 yearswith Tiffany & Co. in various financial roles of increasing responsibility, including his most recent position of Director of Financial, Planning and Analysis.Daren Hull has served as our Chief Customer Officer since July 2018 and is responsible for all sales, marketing, and digital initiatives. Prior to joining VeraBradley, Mr. Hull served as Senior Vice President, Stores and West Elm Digital for Williams-Sonoma where he evolved the technology and customerexperience from November 2016 until July 2018. Between November 2015 and September 2016, he served as Chief Operating Officer of Outdoor Voiceswhere, among other things, he developed the team, process, programs, and infrastructure to drive revenue growth. Between July 2015 and November 2015 heserved as SVP Global eCommerce, Head of Disruptive Innovation at PepsiCo and between January 2012 and April 2015, he served as General Manager forMyHabitat at Amazon. Mr. Hull gained additional experience with L'Oreal and Guthy-Renker.Kevin Korney has served as our Chief Merchandising Officer since January 2018. Prior to joining Vera Bradley, Mr. Korney served as Vice President, GlobalMerchandising for Converse where he introduced the Global Merchandising function in June 2015. Between November 2012 and June 2015, he served asSenior Divisional Merchandise Manager for Fossil. From July 2011 to November 2012, he served as the General Merchandise Manager for Dallas CowboysMerchandising and from September 2006 to March 2009, he served as Global Vice President within various Merchandising and Creative functions at TheWalt Disney Company. Mr. Korney gained prior experience with Nautica, Ralph Lauren, and Gap.Beatrice Mac Cabe joined the Company in January 2016 as our Vice President – Design and was promoted to her current post as Chief Creative Officer inSeptember 2017. From 2013 until joining Vera Bradley, Ms. Mac Cabe served as Vice President, Chief Creative Director at Fossil where she directed thedesign process from initial concept for lifestyle categories. From 2012 to 2013 she was Design and Merchandising Director, Private Brand Accessories for JCPenney and from 2011 to 2012 she was Creative Director, Handbags for Vince Camuto. Ms. Mac Cabe gained prior design and brand developmentexperience at other fashion brands including Diane von Furstenberg, John Galliano in Paris, and Marni in Milan.Stephanie Scheele was named Chief Marketing Officer in April 2018 and before that served as our Vice President – Marketing Strategy and Operations since2015, leading the insights and customer database programs and overseeing the marketing strategy team. Ms. Scheele has spent over 15 years with VeraBradley in various roles of increasing responsibility.Mark C. Dely joined the Company in August 2016 as our Vice President, Chief Legal Officer and Corporate Secretary and was promoted to also serve as theChief Administrative Officer in September 2017. Between January 2013 and August 2016, Mr. Dely served as Senior Vice President, Chief Legal Officer,General Counsel and Secretary of Fred’s, Inc., a publicly-traded retailer and pharmacy with locations throughout the Southeast. From July 2007 to December2012, Mr. Dely was Vice President and Divisional General Counsel of the Franchise Services Group for The ServiceMaster Company, where he managed thelegal function for the Company's global franchise businesses. Mr. Dely’s additional experience includes being the first in-house counsel for NYSE-listed seedand agricultural-biotech company, Delta & Pine Land Company. Mr. Dely began his legal career at New York law firm Fried Frank, LLP.Mary Beth Trypus joined the Company in May 2016 as our Vice President – Global Wholesale Sales and was promoted to her current post as Chief SalesOfficer in March 2018. From September 2015 to May 2016, Ms. Trypus consulted for accessories start-ups and non-profit businesses where she developedbrand architecture, defined the financial structure, and engineered sales and customer acquisition strategy. From August 2014 to August 2015, she wasExecutive Vice President Sales and Marketing for Bulova Corporation where she drove marketing strategy and revenue growth across a multi-brand watchportfolio in the wholesale and e-commerce channels. From March 2011 to July 2014, Ms. Trypus was Senior Vice President Sales and Planning at Nine WestGroup in the handbag division and held prior leadership positions at Liz Claiborne, Inc. and May Department Stores.Available InformationOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our website, www.verabradley.com, as soon asreasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (“SEC”). No information contained on our website isintended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K.14Table of ContentsItem 1A. Risk FactorsYou should carefully consider all of the information in this report, including the following factors, which could materially affect our business, financialcondition, and results of operations in future periods. The risks described below are not the only risks that we face. Additional risks not currently known tous, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition, and results of operations in futureperiods.Risks Related to Our BusinessIf we are unable to successfully implement our long-term strategic plan, including Vision 20/20, and growth strategies, our future operating results couldsuffer.In fiscal 2018, we began to implement our Vision 20/20 plan, which is integrated into our long-term strategic plan, aimed to turnaround our business andrestore brand and Company health by the end of fiscal 2021. The success of our long-term strategic plan and growth strategies, alone or collectively, willdepend on various factors, including the appeal of our product designs, retail presentation to consumers, effectiveness of our marketing initiatives, expensesaving initiatives, competitive conditions, and economic conditions. There is no assurance that we will be able to successfully implement our strategic planand Vision 20/20 initiatives. If we are unsuccessful in implementing some or all of our strategies or initiatives, our future operating results could be adverselyimpacted.Changes in general economic conditions, and their impact on consumer confidence and consumer spending, could adversely impact our results ofoperations.Our performance is subject to general economic conditions and their impact on levels of consumer confidence and consumer spending. Consumer confidenceand consumer spending may be influenced by fluctuating interest rates and credit availability, changing fuel and other energy costs, fluctuating commodityprices, levels of unemployment and consumer debt levels, changes in net worth based on market conditions, general uncertainty regarding the overall futureeconomic environment, political turmoil, and weather and weather-related phenomena. Consumer purchases of discretionary items, including ourmerchandise, generally decline during periods when disposable income is adversely affected or there is economic uncertainty, and this could adverselyimpact our results of operations. In the event that the U.S. economy worsens, or if there is a decline in consumer-spending levels or other unfavorableconditions, including inflation, we could experience lower than expected net revenues, which could force us to delay or slow the implementation of ourgrowth strategies and adversely impact our results of operations.Our inability to predict and respond in a timely manner to changes in consumer demand could adversely affect our net revenues and results of operations.Our success depends on our ability to gauge the fashion tastes of our customers and to provide merchandise that satisfies consumer demand in a timelymanner. Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. Wecannot assure you that we will be able to develop appealing patterns and styles or meet changing consumer demands in the future. If we misjudge the marketfor our products, we may be faced with significant excess inventories for some products and missed opportunities for other products. In addition, changes toour product assortment and to our available fabrications, as well as the availability and breadth of pattern assortment may not gain consumer acceptance.Merchandise misjudgments could adversely impact our net revenues and results of operations.We may continue to experience declines in comparable sales and there can be no guarantee that the strategic initiatives we are implementing to improveour results will be successful.We may not be able to regain the levels of comparable sales that we have experienced in the past, and comparable sales may also further deteriorate. If ourfuture comparable sales fail to meet market expectations, then the price of our common stock could decline. Also, the aggregate results of operations of ourstores have fluctuated in the past and will fluctuate in the future. Numerous factors influence comparable sales, including fashion trends, competition,national and regional economic conditions, pricing, inflation, the timing of the release of new merchandise and promotional events, changes in ourmerchandise mix, marketing programs, changes in consumer shopping trends, site selection strategy, and weather conditions. These factors may cause ourcomparable sales results to be lower in the future than in recent periods or lower than expectations, either of which could result in a decline in the price of ourcommon stock.If our multi-channel distribution model is not successful, our business and results of operations may suffer.We currently sell into two segments: Direct to consumers through our full-line and factory outlet stores in the United States, verabradley.com, our onlineoutlet site, and our annual outlet sale in Fort Wayne, Indiana; and through our Indirect wholesale business which consists of sales to specialty retail locations,department stores, national accounts, third party e-commerce sites,15Table of Contentsthird-party inventory liquidators, as well as royalties recognized through licensing agreements. These channels are sometimes in direct competition and salesthrough these channels may not be incremental to total sales.We may not be able to successfully open new stores and/or operate new and current stores as planned, which could adversely impact our results ofoperations.Our long-term future growth prospects include our ability to successfully open and operate new and current stores. In recent years, however, comparable storesales have declined. Consequently, the rate in which we have opened new stores has slowed and we do not currently have any new full-line stores planned tobe opened during fiscal 2020. As part of our Vision 20/20 initiatives, we have closed a total of 15 underperforming full-line stores and one underperformingfactory outlet store since the beginning of fiscal 2018 and forecast that we will close up to an additional 30 full-line stores by the end of fiscal 2022,primarily as leases expire. We have closed 19 underperforming stores since December 2014. We plan to open six new factory outlet stores during fiscal 2020and will continue to evaluate our plans for store openings in future years in light of demand and store performance.Our ability to successfully open and operate stores depends on many factors, including our ability to:•identify suitable store locations, the availability of which may be uncertain;•negotiate acceptable lease terms, including desired tenant improvement allowances;•hire, train, and retain store personnel and management;•assimilate new store personnel and management into our corporate culture;•source and manufacture inventory; and•successfully integrate new stores into our existing operations and information technology systems.The success of new store openings may also be affected by our ability to initiate marketing efforts in advance of opening our first store in a particular region.Additionally, we will incur pre-opening costs and we may encounter initial losses while new stores commence operations, which could strain our resourcesand adversely impact our results of operations.Our business depends on a strong brand. If we are unable to execute our marketing strategy, intended to enhance our brand, then revenues and our resultsof operations could be adversely impacted.We believe that the brand image that we have developed has contributed significantly to the success of our business. We also believe that enhancing the VeraBradley brand through our marketing strategy is critical to maintaining and expanding our customer base. Enhancing our brand and implementing ourmarketing strategy may require us to make substantial investments in areas such as product design, store operations, store design, community relations, andmarketing. These investments might not succeed. If we are unable to successfully execute our brand strategy, our results of operations could be adverselyimpacted.Our results of operations could suffer if we lose key management or design associates or are unable to attract and retain the talent required for ourbusiness.Our performance depends largely on the efforts and abilities of our senior management and product development teams. These executives and designassociates have substantial experience in our business and have made significant contributions to our growth and success. Although we have entered into anemployment agreement with our Chief Executive Officer, we may not be able to retain his services or those of other key individuals in the future. Theunexpected loss of services of key employees could have adverse impacts on our business and results of operations. As our business grows and we open newstores, we will need to attract and retain additional qualified employees and develop, train, and manage an increasing number of management-level, sales,and other employees. Competition for qualified employees is intense. We cannot assure you that we will be able to attract and retain employees as needed inthe future.Our results of operations are subject to quarterly fluctuations, which could adversely affect the market price of our common stock.Our quarterly results of operations may fluctuate significantly as a result of a variety of factors, including, among other things:•timing of new store openings and store closings;•net revenues and profits contributed by new stores;•increases or decreases in store traffic and comparable sales;•shifts in the timing of holidays, particularly in the United States and China;•changes in our merchandise mix;16Table of Contents•timing of marketing campaigns or promotions;•timing of sales to Indirect retailers; and•timing of new pattern and collection releases and new product introductions.Any quarterly fluctuations that we report in the future may not match the expectations of market analysts and investors. This could cause the trading price ofour common stock to fluctuate significantly.A data security or privacy breach could damage our reputation and our relationships with our customers, expose us to litigation risk and adversely affectour business.We remain dependent on information technology systems and networks, including the Internet, for a significant portion of our sales, primarily through our e-commerce operations and credit card transaction authorization and processing. We are also responsible for storing data relating to our customers andemployees and rely on third parties for the operation of our e-commerce websites and for the various social media tools and websites we use as part of ourmarketing strategy. As part of our normal course of business, we often collect, retain, and transmit certain sensitive and confidential customer information,including the transmission of credit card information, over public networks. There is a significant concern by consumers and employees over the security ofpersonal information transmitted over the Internet, consumer identity theft and user privacy. Despite the security measures we currently have in place, ourfacilities and systems and those of our third-party service providers may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced orlost data, programming and/or human errors, or other similar events. Any electronic or physical security breach involving the misappropriation, loss or otherunauthorized disclosure of confidential or personally identifiable information, including penetration of our network security, whether by us or by a thirdparty, could disrupt our business, severely damage our reputation and our relationships with our customers, expose us to risks of litigation and liability andadversely affect our business and results of operations. We do not control third-party service providers and cannot guarantee that electronic or physicalcomputer break-ins and security breaches will not occur in the future. Any perceived or actual unauthorized disclosure of personally identifiable informationregarding our customers or website visitors could harm our reputation and credibility, reduce our e-commerce net sales, impair our ability to attract websitevisitors, and reduce our ability to attract and retain customers. We may also incur significant costs in complying with the various applicable state, federal, andforeign laws regarding unauthorized disclosure of personal information.Our business could suffer if our computer systems and websites are disrupted or cease to operate effectively.We are dependent on our computer systems to record and process transactions and manage and operate our business, including in designing, marketing,manufacturing, importing, tracking and distributing our products, processing payments, and accounting for and reporting results. We also utilize anautomated replenishment system to facilitate the processing of basic replenishment orders, the movement of goods through distribution channels, and thecollection of information for planning and forecasting. In addition, we have an e-commerce website in the U.S. Given the complexity of our business and thesignificant number of transactions that we engage in on an annual basis, it is imperative that we maintain constant operation of our computer hardware andsoftware systems. Despite our preventive efforts, including back-up systems, our systems are vulnerable from time to time to damage or interruption from,among other things, security breaches, computer viruses or power outages. Any material disruptions in our information technology systems could have amaterial adverse effect on our business, financial condition and results of operations.We are exposed to business risks as a result of our e-commerce operations.We operate an e-commerce store at www.verabradley.com, which includes an online outlet site we created in fiscal 2018. Expanding our e-commerce businessis one of the key objectives of our business strategy. Our e-commerce operations are subject to numerous risks, including unanticipated operating problems,reliance on third-party computer hardware and software providers, system failures and the need to invest in additional computer systems. Specific risksinclude: (i) diversion of sales from our stores; (ii) rapid technological change; (iii) liability for e-commerce content; and (iv) risks related to the failure of thecomputer systems that operate the websites and their related support systems, including from computer viruses, telecommunication failures and electronicbreak-ins and similar disruptions. Internet operations involve risks which may be beyond our control that could have a direct material adverse effect on ouroperating results, including: (i) price competition involving the items we intend to sell; (ii) the entry of our vendors into the Internet business in directcompetition with us; (iii) the level of merchandise returns experienced by us; (iv) governmental regulation; (v) e-commerce security breaches involvingunauthorized access to our and/or customer information; (vi) credit card fraud; and (vii) competition and general economic conditions specific to the Internet,e-commerce, and the accessories industry. Our inability to effectively address these risks and any other risks that we face in connection with our Internetoperations could materially adversely affect our business, financial condition, results of operations, and/or cash flows.17Table of ContentsClosing stores could result in significant costs to us.Since December 2014, we have closed 19 underperforming stores. We have closed a total of 15 underperforming full-line stores and one underperformingfactory outlet store since the beginning of fiscal 2018 and forecast that we will close up to an additional 30 full-line stores by the end of fiscal 2022,primarily as leases expire. We could, in the future, decide to close additional stores that are producing losses or that are not as profitable as we expect. If wedecide to close any stores before the expiration of their lease terms, we may incur payments to landlords to terminate or “buy out” the remaining term of thelease. We also may incur costs related to the employees at such stores, whether or not we terminate the leases early. Upon any such closure, the closing costs,including fixed assets and inventory write-downs, could adversely affect our results and could adversely affect our cash on hand.Our ability to attract customers to our stores depends heavily on the success of the shopping centers in which many of our stores are located.Substantially all of our Direct stores are located in regional mall shopping centers, and many of our Indirect customers are also located in these shoppingcenters. Factors beyond our control impact mall traffic, such as general economic conditions and consumer spending levels. Consumer spending and malltraffic have been depressed in recent years. As a result, mall operators have been facing increasing operational and financial difficulties. The increasinginability of mall “anchor” tenants and other area attractions to generate consumer traffic around our stores, the increasing inability of mall operators to attract“anchor” tenants and maintain viable operations, and the increasing departures of existing “anchor” and other mall tenants due to declines in the salesvolume and in the popularity of certain malls as shopping destinations, have reduced and may continue to reduce our sales volume and, consequently,adversely affect our financial condition, results of operations, and cash flows.We are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs.We lease all of our store locations. We typically occupy our stores under operating leases with terms of ten years. We have been able to negotiate favorablerental rates in recent years due in part to the state of the economy and high vacancy rates within some shopping centers, but there is no assurance that we willbe able to continue to negotiate such favorable terms. Some of our leases have early cancellation clauses, which permit the lease to be terminated by us or thelandlord if certain sales levels are not met in specific periods or if the shopping center does not meet specified occupancy standards. In addition to requiringfuture minimum lease payments, some of our store leases provide for the payment of common area maintenance charges, real property insurance, and realestate taxes. Many of our lease agreements have escalating rent provisions over the initial term and any extensions. If we expand our store base, our leaseexpense and our cash outlays for rent under lease agreements will increase. Our substantial operating lease obligations could have significant negativeconsequences, including:•requiring that a substantial portion of our available cash be applied to pay our rental obligations, thus reducing cash available for other purposes;•increasing our vulnerability to general adverse economic and industry conditions;•limiting our flexibility in planning for or reacting to changes in our business or industry; and•limiting our ability to obtain additional financing.Any of these consequences could place us at a disadvantage with respect to our competitors. We depend on cash flow from operating activities to pay ourlease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities to fund these expenses andneeds, we may not be able to service our lease expenses, grow our business, respond to competitive challenges, or fund our other liquidity and capital needs,which would harm our business.Additional sites that we lease may be subject to long-term non-cancelable leases if we are unable to negotiate our current standard lease terms. If an existingor future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease, includingpaying the base rent for the balance of the lease term. Moreover, even if a lease has an early cancellation clause, we may not satisfy the contractualrequirements for early cancellation under the lease. Our inability to enter new leases or renew existing leases on acceptable terms or be released from ourobligations under leases for stores that we close would, in any such case, affect us adversely.Our failure to effectively compete with other retailers for sales could have a material adverse effect on our financial condition, results of operations, andcash flows.The market for bags, accessories, and travel items is increasingly competitive. Our competitive challenges include:•attracting customer traffic;•sourcing and manufacturing merchandise efficiently;•competitively pricing our products and achieving customer perception of value;18Table of Contents•maintaining favorable brand recognition and effectively marketing our products to consumers in diverse market segments;•developing designs that appeal to a broad range of demographic and age segments;•developing high-quality products;•offering attractive promotional incentives while maintaining profit margins; and•establishing and maintaining good working relationships with our Indirect retailers.In our Indirect business, we compete with numerous manufacturers, importers, and distributors of handbags, accessories, and other products for the limitedspace available for the display of such products to the consumer. In our Direct business, we compete against other gift and specialty retailers, departmentstores, catalog retailers, and Internet businesses that engage in the retail sale of similar products. Moreover, the general availability of contract manufacturingallows new entrants easy access to the markets in which we compete, which may increase the number of competitors and adversely affect our competitiveposition and our business.In addition, in light of a continued difficult consumer environment, pricing is a significant driver of consumer choice in our industry and we regularly engagein price competition, particularly through our promotional programs. To the extent that we decrease our promotional activity, our ability to maintain saleslevels may be impacted.We rely on various contract manufacturers to produce all of our products and generally do not have long-term contracts with our manufacturers.Our various contract manufacturers produce all of our products. We generally do not enter into long-term formal written agreements with our manufacturersand instead transact business with each of them on an order-by-order basis. In the event of a disruption in our contract manufacturers’ systems, we may beunable to locate alternative manufacturers of comparable quality at an acceptable price, or at all. Identifying a suitable manufacturer is an involved processthat requires us to become satisfied with the prospective manufacturer’s quality control, responsiveness and service, financial stability, labor practices, andenvironmental compliance. Any delay, interruption, or increased cost in the manufactured products that might occur for any reason, such as the lack of long-term contracts or regulatory requirements and the loss of certifications, power interruptions, fires, hurricanes, war, or threats of terrorism, could affect ourability to meet customer demand for our products, adversely affect our net revenues, increase our cost of sales, and hurt our results of operations. In addition,manufacturing disruption could injure our reputation and customer relationships, thereby harming our business.We rely on various suppliers to supply a significant majority of our raw materials.We generally do not enter into long-term formal written agreements with our suppliers and typically transact business with each of them on an order-by-orderbasis. In the event of a significant disruption in the supply of fabrics or raw materials from our current sources, we may not be able to locate alternativesuppliers of materials of comparable quality at an acceptable price, or at all. In such a case, we could have difficulty meeting consumer demand and netrevenues could be adversely impacted.We rely on a single distribution facility for all of the products we sell.Our distribution operations are currently concentrated in a single, company-owned distribution center in Roanoke, Indiana. Any significant disruption in theoperation of the facility due to natural disaster or severe weather, or events such as fire, accidents, power outages, system failures, or other unforeseen causes,could devalue or damage a significant portion of our inventory and could adversely affect our product distribution and sales until such time as we couldsecure an alternative facility. If we encounter difficulties with our distribution facility or other problems or disasters arise, we cannot ensure that criticalsystems and operations will be restored in a timely manner or at all, and this would have a material adverse effect on our business. In addition, growth couldrequire us to further expand our current facility, which could affect us adversely in ways that we cannot predict.The cost of raw materials could increase our cost of sales and cause our results of operations to suffer.Fluctuations in the price, availability, and quality of fabrics or other raw materials used to manufacture our products, as well as the price for labor, marketing,and transportation, could have adverse impacts on our cost of sales and our ability to meet our customers’ demands. In particular, fluctuations in the price ofcotton, our primary raw material, could have an adverse impact on our cost of sales. In addition, because a key component of our products is petroleum-based,the cost of oil affects the cost of our products. Upward movement in the price of oil in the global oil markets would also likely result in rising fuel and freightprices, which could increase our shipping costs. In the future, we may not be able to pass all or a portion of higher costs on to our customers.19Table of ContentsOur business is subject to the risks inherent in global sourcing and manufacturing activities.We source our fabrics primarily from manufacturers in China and South Korea and outsource the production of a significant majority of our products tocompanies in Asia. We are subject to the risks inherent in global sourcing and manufacturing, including, but not limited to:•exchange rate fluctuations and trends;•availability of raw materials;•compliance with labor laws and other foreign governmental regulations;•compliance with U.S. import and export laws and regulations;•disruption or delays in shipments;•loss or impairment of key manufacturing sites;•product quality issues;•political unrest;•natural disasters, acts of war and terrorism, changing macroeconomic trends, and other external factors over which we have no control; and•quotas, duties, tariffs, or other trade restrictions or regulations.Significant disruption of manufacturing for any of the above reasons could interrupt product supply and, if not remedied in a timely manner, could have anadverse impact on our results of operations. Additionally, we do not have complete oversight over our contract manufacturers. Violation of labor or otherlaws by those manufacturers, or the divergence of a contract manufacturer’s labor or other practices from those generally accepted as ethical in the UnitedStates or in other markets in which we may in the future do business, could also draw negative publicity for us and our brand, diminishing the value of ourbrand and reducing demand for our products.Our ability to source our products at favorable prices, or at all, could be harmed, with adverse effects on our results of operations, if new trade restrictionsare imposed or if existing trade restrictions become more burdensome.A significant majority of our products are currently manufactured for us in Asia. The United States and the countries in which our products are produced haveimposed and may impose additional quotas, duties, tariffs, or other restrictions or regulations or may adversely adjust prevailing quotas, duties, or tariffs.Countries impose, modify, and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic andpolitical conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. Trade restrictions, whichinclude embargoes, safeguards, and customs restrictions, could increase the cost or reduce the supply of products available to us or could require us to modifyour supply chain organization or other current business practices, any of which could harm our results of operations.We may be subject to unionization, work stoppages, slowdowns, or increased labor costs.Currently, none of our employees are represented by a union. Nevertheless, our employees have the right at any time under the National Labor Relations Actto organize or affiliate with a union. If some or all of our workforce were to become unionized, our business could be exposed to work stoppages andslowdowns as a unionized business. In addition, if the terms of the collective bargaining agreement were significantly more favorable to union workers thanour current pay-and-benefits arrangements, our costs would increase and our results of operations would suffer.We rely on independent transportation providers for substantially all of our product shipments.We currently rely on independent transportation service providers for substantially all of our product shipments. Our utilization of these delivery services, orthose of any other shipping companies that we may elect to use, is subject to risks, including increases in fuel prices, which would increase our shippingcosts, employee strikes and inclement weather, which may impact the shipping company’s ability to provide delivery services sufficient to meet our shippingneeds.If for any reason we were to change shipping companies, we could face logistical difficulties that might adversely affect deliveries, and we would incur costsand expend resources in the course of making the change. Moreover, we might not be able to obtain terms as favorable as those received from the serviceproviders that we currently use, which in turn would increase our costs. We also would face shipping and distribution risks and uncertainties associated withany expansion of our distribution facility and related systems.20Table of ContentsOur inability or failure to protect our intellectual property or our infringement of other’s intellectual property could have a negative impact on ouroperating results.We believe that our registered copyrights, registered and common law trademarks, and other proprietary rights have significant value and are critical to ourability to create and sustain demand for our products. We cannot assure you that the actions taken by us to establish and protect our proprietary rights will beadequate to prevent imitation of our products or infringement of our rights by others. The legal regimes of some foreign countries, particularly China, maynot protect proprietary rights to the same extent as the laws of the United States, and it may be more difficult for us to successfully challenge the use of ourproprietary rights by others in these countries. The loss of copyrights, trademarks, and other proprietary rights could adversely impact our results ofoperations. Any litigation regarding our proprietary rights could be time consuming and costly.We are also subject to the risk that claims will be brought against us for infringement of the intellectual property rights of third parties, seeking to block thesale of our products considered to violate their intellectual property rights or payment of monetary amounts. Although we have not been inhibited fromselling our products in connection with intellectual property disputes, we cannot assure you that obstacles will not arise as we expand our product line andextend our brand as well as the geographic scope of our sales and marketing. In particular, we are subject to copyright infringement claims for which we maynot be entitled to indemnification from our suppliers. In addition, in recent years, companies in the retail industry, including us, have been subject to patentinfringement claims from non-practicing entities, or “patent trolls.” Any infringement or other intellectual property claim made against us, whether or not ithas merit, could be time-consuming and result in costly litigation. As a result, any such claim, or the combination of multiple claims, could have a materialadverse effect on our operating results. If we are required to stop using any of our registered or nonregistered trademarks, our sales could decline and,consequently, our business and results of operations could be adversely affected.Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results and stock price.We are subject to income taxes in many U.S. and certain foreign jurisdictions. We record tax expense based on our estimates of future payments, whichincludes reserves for uncertain tax positions in multiple tax jurisdictions. At any one time, many tax years are subject to audit by various taxing jurisdictions.Further, possible changes in federal, state, local, and non-U.S. tax laws bearing upon our revenues, income, property, or other aspects of our operations orbusiness would, if enacted, affect our results of operations in ways and to a degree that we cannot currently predict.We have recorded asset impairment charges in the past and we may record material asset impairment charges in the future.Quarterly, we assess whether events or changes in circumstances have occurred that indicate the carrying value of long-lived assets may not be recoverable. Ifwe determine that the carrying value of long-lived assets is not recoverable, we will be required to record impairment charges relating to those assets. Forexample, our assessments during fiscal 2018 indicated that operating losses or insufficient operating income existed at certain retail stores, with a projectionthat the operating losses or insufficient operating income for those locations would continue. As such, we recorded non-cash charges of $6.3 million duringfiscal 2018 within selling, general, and administrative expenses in the consolidated statements of operations to write down the carrying values of these stores'long-lived assets to their estimated fair values.Our quarterly evaluation of store assets includes consideration of current and historical performance and projections of future profitability. The profitabilityprojections rely upon estimates made by us, including store-level sales, gross margins, and direct expenses, and, by their nature, include judgments abouthow current strategic initiatives will impact future performance. If we are not able to achieve the projected key financial metrics for any reason, includingbecause any of the strategic initiatives being implemented do not result in significant improvements in our current financial performance trend, this wouldindicate that the value of our long-lived assets was not recoverable and we would incur additional impairment of assets in the future.In the event we record additional impairment charges, this could have a material adverse effect on our results of operations and financial condition.Our Indirect business could suffer as a result of decisions by our Indirect retailers to decrease or eliminate the amount of merchandise purchased from us.We do not enter into long-term agreements with any of our Indirect retailers. Instead, we enter into a number of purchase order commitments with ourcustomers for each of our lines every season. A decision by a significant number of Indirect retailers, whether motivated by competitive conditions,operational or financial difficulties, reduced access to capital, or otherwise, to decrease or eliminate the amount of merchandise purchased from us or tochange their manner of doing business with us could adversely impact our results of operations. Although we recommend retail sale prices for our products toour Indirect retailers, we typically do not provide dealer allowances or other economic incentives to support those prices. Possible promotional pricing ordiscounting by Indirect retailers in response to softening retail demand could have a negative effect on our brand image and prestige, which might bedifficult to counteract.21Table of ContentsBankruptcies or other operational or financial difficulties of our Indirect retailers could adversely impact our business.We sell our Indirect merchandise primarily to specialty retail and department stores across the United States and extend trade credit based on an evaluation ofeach Indirect retailer’s financial condition, usually without requiring collateral. Perceived or actual financial difficulties of a customer could cause us tocurtail or eliminate business with that customer or could decrease demand for our products by that customer. Pending the resolution of a relationship with afinancially troubled Indirect retailer, we might assume credit risk that we would otherwise avoid relating to our receivables from that customer. Inability tocollect on accounts receivable from our Indirect retailers would adversely impact our results of operations.There are claims made against us from time to time that can result in litigation or regulatory proceedings, which could distract management from ourbusiness activities and result in significant liability or damage to our brand image.We increasingly face the risk of litigation and other claims against us. Litigation and other claims may arise in the ordinary course of our business andinclude employee claims, custom and duty claims, commercial disputes, intellectual property issues, product-oriented allegations, and slip and fall claims.Often these cases raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant management time.Litigation and other claims against us could result in unexpected expenses and liability, as well as materially adversely affect our operations and ourreputation.We may suffer negative publicity and our business may be harmed if we need to recall any products we sell.We have in the past needed to, and may in the future need to, recall products that we determine may present safety issues. If products we sell have safetyproblems of which we are not aware, or if we or the Consumer Product Safety Commission recall a product sold in our stores, we may suffer negative publicityand, potentially, product liability lawsuits, which could have a material adverse impact on our reputation, financial condition and results of operations orcash flows.Risks Related to the Securities Markets and Ownership of Our Common StockOur stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell shares at or above the price atwhich you purchase them.The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:•actions by other shopping mall or lifestyle center tenants;•weather conditions, particularly during the holiday shopping period;•unexpected departures of key executives;•financial projections that we may choose to provide to the public, any changes in these projections or our failure for any reason to meet theseprojections;•the public’s response to press releases or other public announcements by us or others, including our filings with the SEC and announcementsrelating to litigation and other matters;•speculation about our business in the press or the investment community;•future sales of our common stock by our significant shareholders, officers, and directors;•our entry into new markets;•changes in laws or regulations that impact the retail industry;•strategic actions by us or our competitors, such as acquisitions or restructurings; and•changes in accounting principles.These and other factors may result in a lower market price of our common stock, regardless of our actual operating performance.In addition, the stock markets, including The NASDAQ Global Select Market, have experienced extreme price and volume fluctuations that have affected andcontinue to affect the market prices of equity securities of many retail companies. In the past, stockholders have instituted securities class action litigationfollowing periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention ofmanagement could be diverted from our business.22Table of ContentsOur business could be negatively affected as a result of the actions of activist stockholders.Over the last few years, proxy contests and other forms of stockholder activism have been directed against numerous public companies in retail businesses.We could become engaged in a consent solicitation, or proxy contest, or experience other stockholder activism, in the future. Activist shareholders mayadvocate for certain governance and strategic changes at our company. In the event of stockholder activism, particularly with respect to matters which ourBoard of Directors (“Board”), in exercising their fiduciary duties, disagree with or have determined not to pursue, our business could be adversely affectedbecause responding to actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention ofmanagement, and perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficultto attract and retain qualified personnel, business partners, and customers.In addition, if faced with a consent solicitation or proxy contest, we may not be able to respond successfully to the contest or dispute, which would bedisruptive to our business. If individuals are elected to our Board with a differing agenda, our ability to effectively and timely implement our strategic planand create additional value for our stockholders may be adversely affected.A limited number of shareholders control a large percentage of the voting power of our common stock, and therefore investors may have limited ability todetermine the outcome of shareholder votes.Michael Ray (our former CEO and Ms. Bradley Baekgaard's son in-law), Robert Hall, Barbara Bradley Baekgaard, Joan Hall (Mr. Hall’s wife and Ms. BradleyBaekgaard’s daughter), Patricia R. Miller, and P. Michael Miller, directly or indirectly, beneficially own and have the ability to exercise voting control over,in the aggregate, 28.6% of our outstanding shares of common stock as of February 2, 2019. As a result, these shareholders are able to exercise significantinfluence over all matters requiring shareholder approval, including the election of directors, any amendments to our second amended and restated articles ofincorporation, and significant corporate transactions. This concentrated ownership of outstanding common stock may limit your ability to influencecorporate matters, and the interests of these shareholders may not coincide with our interests or your interests. As a result, we may take actions that you do notbelieve to be in our interests or your interests and that could depress our stock price. In addition, this significant concentration of stock ownership mayadversely affect the trading price of our common stock should investors perceive disadvantages in owning shares of common stock in a company that hassuch concentrated ownership.Our actual operating results may differ significantly from our guidance, which could cause incongruous fluctuation in our stock price.From time to time, we provide guidance regarding our future performance that represents our management’s estimates as of the date of release. This guidance,which consists of forward-looking statements, is prepared by our management and is qualified by, and subject to, the assumptions and the other informationcontained or referred to in the release. Our guidance is not prepared with a view toward compliance with published guidelines of the American Institute ofCertified Public Accountants, and neither our independent registered public accounting firm nor any other independent expert or outside party compiles orexamines the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.Guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significantbusiness, economic, and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions withrespect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to provide asensitivity analysis as variables are changed, but are not intended to represent that actual results could not fall outside of the suggested ranges. The principalreason that we release this data is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept anyresponsibility for any projections or reports published by any such persons.Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materializeor will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date ofrelease. Actual results will vary from the guidance and the variations may be material. Investors should also recognize that the reliability of any forecastedfinancial data diminishes the further in the future that the data are forecast.In light of the foregoing, if investors, analysts, and others fail to review our guidance within the proper context or place undue reliance on our guidance,deviations from such guidance may result in incongruous fluctuation in our stock price.23Table of ContentsAnti-takeover provisions in our organizational documents and Indiana law may discourage or prevent a change in control, even if a sale of the Companywould be beneficial to our shareholders, which could cause our stock price to decline and prevent attempts by shareholders to replace or remove ourcurrent management.Our second amended and restated articles of incorporation and amended and restated bylaws contain provisions that may delay or prevent a change incontrol, discourage bids at a premium over the market price of our common stock, harm the market price of our common stock, and diminish the voting andother rights of the holders of our common stock. These provisions include:•dividing our board of directors into three classes serving staggered three-year terms;•authorizing our board of directors to issue preferred stock and additional shares of our common stock without shareholder approval;•prohibiting shareholder action by written consent;•prohibiting our shareholders from calling a special meeting of shareholders;•prohibiting our shareholders from amending our amended and restated bylaws; and•requiring advance notice for raising business matters or nominating directors at shareholders’ meetings.As permitted by our second amended and restated articles of incorporation and amended and restated bylaws, our board of directors also has the ability,should they so determine, to adopt a shareholder rights agreement, sometimes called a “poison pill,” providing for the issuance of a new series of preferredstock to holders of common stock. In the event of a takeover attempt, this preferred stock would give rights to holders of common stock (other than thepotential acquirer) to buy additional shares of common stock at a discount, leading to the dilution of the potential acquirer’s stake. The adoption of a poisonpill, or the board’s ability to do so, can have negative effects such as those described above.As an Indiana corporation, we are governed by the Indiana Business Corporation Law (as amended from time to time, the “IBCL”). Under specifiedcircumstances, certain provisions of the IBCL related to control share acquisitions, business combinations, and constituent interests may delay, prevent, ormake more difficult unsolicited acquisitions or changes of control of us. These provisions also may have the effect of preventing changes in our management.It is possible that these provisions could make it more difficult to accomplish transactions that shareholders might deem to be in their best interest.24Table of ContentsItem 1B. Unresolved Staff CommentsNone. Item 2. PropertiesThe following table sets forth the location, use, and size of our distribution, corporate facilities, and showrooms as of February 2, 2019. The leases on theleased properties expire at various times through 2029, subject to renewal options. Location Primary Use Approximate Square Footage Leased/OwnedRoanoke, Indiana Corporate headquarters, designcenter, and showroom 188,000 OwnedRoanoke, Indiana Warehouse and distribution 428,500 OwnedNew York, New York Office and showroom 3,700 LeasedHong Kong Asia sourcing office 5,100 LeasedAtlanta, Georgia Showroom 5,200 LeasedDallas, Texas Showroom 1,800 LeasedLas Vegas, Nevada Showroom 2,200 LeasedAs of February 2, 2019, we also leased 162 store locations in the United States, including six store locations opened or to be opened in fiscal 2020. See belowfor more information regarding the locations of our open stores as of February 2, 2019.We consider these properties to be in good condition generally and believe that our facilities are adequate for our operations and provide sufficient capacityto meet our anticipated requirements. The properties in the above table are used by both the Direct segment and Indirect segment, excluding the threeshowrooms which are used exclusively by the Indirect segment.Store LocationsOur full-line stores are located primarily in high-traffic regional malls, lifestyle centers, and mixed-use shopping centers across the United States. Thefollowing table shows the number of full-line and factory outlet stores we operated in each state as of February 2, 2019: State Total Number ofFull-Line Stores Total Number ofFactory Outlet Stores State Total Number ofFull-Line Stores Total Number ofFactory Outlet StoresAlabama 1 1 Minnesota 2 1Arizona 1 — Mississippi — 1California 3 — Missouri 2 2Colorado 3 1 Nebraska — 1Connecticut 2 1 Nevada — 1Delaware 1 1 New Jersey 8 2Florida 6 8 New York 8 4Georgia 1 2 North Carolina 1 4Hawaii 1 1 Ohio 4 1Illinois 6 1 Oklahoma 2 1Indiana 2 2 Pennsylvania 5 3Iowa 1 1 Rhode Island 1 —Kansas 1 — South Carolina — 2Kentucky 2 1 Tennessee 3 2Louisiana 2 — Texas 13 6Maryland 4 — Virginia 3 2Massachusetts 4 1 Wisconsin 1 1Michigan 5 2 Totals 99 5725Table of ContentsWe lease all of our stores. Lease terms for our retail stores are generally ten years with options to renew for varying terms. The leases generally provide for afixed minimum rental plus contingent rent, which is determined as a percentage of sales in excess of specified levels. Item 3. Legal ProceedingsWe may be involved from time to time, as a plaintiff or a defendant, in various routine legal proceedings incidental to the ordinary course of our business. Inthe ordinary course, we are involved in the policing of our intellectual property rights. As part of our policing program, from time to time we file lawsuits inthe United States and abroad, alleging acts of trademark counterfeiting, trademark infringement, trademark dilution, and ancillary and pendent state andforeign law claims. These actions often result in seizure of counterfeit merchandise and negotiated settlements with defendants. Defendants sometimes raiseas affirmative defenses, or as counterclaims, the purported invalidity or unenforceability of our proprietary rights. We believe that the outcome of all pendinglegal proceedings in the aggregate will not have a material adverse effect on our business or financial condition. Item 4. Mine Safety DisclosureNot Applicable26Table of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is listed on the NASDAQ Global Select Market under the symbol “VRA”.As of March 27, 2019, we had approximately 30 registered shareholders of record. The number of shareholders of record is based upon the actual number ofshareholders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associations, corporations, or otherentities identified in security position listings maintained by depositories.Unregistered Sales of Equity Securities and Use of ProceedsOn December 8, 2015, the Company's board of directors approved a share repurchase program (the “2015 Share Repurchase Program”) authorizing up to$50.0 million of repurchases of shares of the Company's common stock. On November 30, 2017, the board of directors authorized the Company to extend the2015 Share Repurchase Plan to December 31, 2018. The 2015 Share Repurchase program was completed on November 27, 2018. On November 29, 2018, theCompany's board of directors approved a new share repurchase plan (the “2018 Share Repurchase Program”) authorizing up to $50.0 million of repurchasesof shares of the Company's common stock. The 2018 Share Repurchase Program is scheduled to expire on December 14, 2020.During the fiscal year ended February 2, 2019, the Company purchased and held 1,293,138 shares at an average price of $12.58 per share, excludingcommissions, for an aggregate amount of $16.3 million. Of these purchases, 320,296 shares at an average price of $8.86 per share, for an aggregate amount of$2.8 million, were purchased under the 2018 Share Repurchase Plan.During the fiscal year ended February 3, 2018, the Company purchased and held 934,031 shares at an average price of $8.47 per share, excludingcommissions, for an aggregate amount of $7.9 million, under the 2015 Share Repurchase Program.During the fiscal year ended January 28, 2017, the Company purchased and held 1,606,102 shares at an average price of $15.27 per share, excludingcommissions, for an aggregate amount of $24.5 million, under the 2015 Share Repurchase Program.As of February 2, 2019, there was $47.2 million remaining available to repurchase shares of the Company's common stock under the 2018 Share RepurchaseProgram.As of February 2, 2019, the Company held as treasury shares 6,935,623 shares of its common stock at an average price of $13.39 per share, excludingcommissions, for an aggregate carrying amount of $92.8 million. The Company’s treasury shares may be issued under the 2010 Equity and Incentive Plan orfor other corporate purposes.Details on the shares repurchased under the 2015 and 2018 Share Repurchase Programs during the thirteen weeks ended February 2, 2019 are as follows:Period (1)Total Number of SharesPurchased Average Price Paid perShare Total Number of SharesPurchased as Part ofPublicly Announced Plansor Programs Maximum ApproximateDollar Value of Shares thatMay Yet be Purchased Underthe Plans or ProgramsNovember 4, 2018 - December 1, 2018188,976 $12.22 188,976 $—December 2, 2018 - January 5, 2019159,400 8.48 159,400 48,647,810January 6, 2019 - February 2, 2019160,896 9.24 160,896 47,161,294 509,272 $10.11 509,272 (1) The Company began repurchasing shares under the 2018 Share Repurchase Program in December 2018.DividendsOur common stock began trading on October 21, 2010, following our initial public offering. Since that time, we have not declared any cash dividends, andwe do not anticipate declaring any cash dividends in the foreseeable future.27Table of ContentsStock Performance GraphThe graph set forth below compares the cumulative shareholder return on our common stock between February 1, 2014, and February 2, 2019, to thecumulative return of (i) the S&P 500 Index and (ii) the S&P 500 Apparel, Accessories, and Luxury Goods Index over the same period. This graph assumes aninitial investment of $100 on February 1, 2014, in our common stock, the S&P 500 Index, and the S&P 500 Apparel, Accessories, and Luxury Goods Indexand assumes the reinvestment of dividends, if any.The comparisons shown in the graph below are based on historical data. We caution that the stock price performance presented in the graph below is notnecessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock. Information used in the graph was obtainedfrom The NASDAQ Stock Market website. As such, although we believe the information to be accurate, we cannot assure you of its accuracy.Company/Market/Peer Group 2/1/2014 1/31/2015 1/30/2016 1/28/2017 2/3/2018 2/2/2019Vera Bradley, Inc. $100.00 $79.39 $61.53 $48.29 $38.84 $36.88S&P 500 Index $100.00 $114.22 $113.46 $137.14 $168.46 $168.36S&P 500 Apparel, Accessories, and Luxury Goods Index $100.00 $103.68 $86.86 $74.01 $94.47 $88.0428Table of Contents Item 6. Selected Financial DataThe following tables present selected consolidated financial and other data as of and for the years indicated. The selected income statement data for the mostrecent three fiscal years presented and the selected balance sheet data as of February 2, 2019 and February 3, 2018 are derived from our audited consolidatedfinancial statements included in Item 8 of this report. The selected income statement data for the fiscal years ended January 30, 2016, and January 31, 2015,and selected balance sheet data as of January 28, 2017, January 30, 2016, and January 31, 2015, are derived from our audited consolidated financialstatements that are not included elsewhere in this report. The historical results presented below are not necessarily indicative of the results to be expected forany future period. You should read this selected consolidated financial and other data in conjunction with the consolidated financial statements and relatednotes and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in thisreport. 29Table of Contents Fiscal Year Ended (1)($ in thousands, except per share data and asotherwise indicated) February 2, 2019 February 3, 2018 January 28, 2017 January 30, 2016 January 31, 2015Consolidated Statement of IncomeData (2): Net revenues $416,097 $454,648 $485,937 $502,598 $508,990Cost of sales 177,510 200,639 209,891 221,409 239,981Gross profit 238,587 254,009 276,046 281,189 269,009Selling, general, and administrativeexpenses (3) 211,984 239,810 249,155 236,836 208,675Other income 498 782 1,329 2,369 3,736Operating income 27,101 14,981 28,220 46,722 64,070Interest (income) expense, net (1,125) (413) 178 263 407Income from continuing operationsbefore income taxes 28,226 15,394 28,042 46,459 63,663Income tax expense (4) 7,469 8,378 8,284 18,901 22,828Income from continuing operations 20,757 7,016 19,758 27,558 40,835Loss from discontinued operations, net oftaxes — — — — (2,386)Net income $20,757 $7,016 $19,758 $27,558 $38,449Basic weighted-average sharesoutstanding 35,222 35,925 36,838 38,795 40,568Diluted weighted-average sharesoutstanding 35,467 36,026 36,970 38,861 40,632Net income (loss) per share - basic Continuing operations $0.59 $0.20 $0.54 $0.71 $1.01Discontinued operations — — — — (0.06)Net income per share $0.59 $0.20 $0.54 $0.71 $0.95Net income (loss) per share - diluted Continuing operations $0.59 $0.19 $0.53 $0.71 $1.00Discontinued operations — — — — (0.06)Net income per share $0.59 $0.19 $0.53 $0.71 $0.95Net Revenues by Segment (2): Direct $328,034 $351,786 $355,175 $351,286 $335,602Indirect 88,063 102,862 130,762 151,312 173,388Total $416,097 $454,648 $485,937 $502,598 $508,990Store Data (5): Total stores open at end of year 156 160 159 150 125Comparable sales (including e-commerce)decrease (6) (10.3)% (6.7)% (7.0)% (10.6)% (7.6)%Total gross square footage at end of year 379,792 377,861 368,640 342,362 278,779Average net revenues per gross squarefoot (7) $635 $640 $642 $703 $760 30Table of Contents As of($ in thousands) February 2, 2019 February 3, 2018 January 28, 2017 January 30, 2016 January 31, 2015Consolidated Balance Sheet Data: Cash and cash equivalents $113,493 $68,751 $86,375 $97,681 $112,292Short-term investments 19,381 54,150 30,152 — —Working capital 208,912 201,749 193,070 187,090 204,648Long-term investments 23,735 15,515 — — —Total assets 362,148 350,669 373,509 380,679 377,284Shareholders’ equity 294,703 285,283 283,786 285,255 284,471(1)The Company utilizes a 52-53 week fiscal year. Fiscal year 2018 consisted of 53 weeks. Fiscal years 2019, 2017, 2016, and 2015 consisted of 52weeks. The extra week contributed approximately $4.1 million in net revenues and added an estimated $0.01 to diluted net income per share in fiscal2018. By segment, the extra week contributed net revenues of approximately $3.0 million to Direct and $1.1 million to Indirect in fiscal 2018.(2)Refer to Notes 3 and 14 to the Notes to the Consolidated Financial Statements herein for accounting standard adoption and charges affecting thecomparability of results.(3)Impairment charges, related to underperforming stores, totaled $6.3 million, $12.7 million, $2.8 million, and $0.4 million, during the fiscal yearsended February 3, 2018, January 28, 2017, January 30, 2016, and January 31, 2015, respectively. There were no impairment charges during the fiscalyear ended February 2, 2019.(4)Fiscal 2018 includes a $2.1 million net charge as a result of the Tax Cuts and Jobs Act. Refer to Note 6 to the Notes to the Consolidated FinancialStatements herein for additional information.(5)Includes full-line and factory outlet stores.(6)Comparable sales are calculated based upon stores that have been open for at least 12 full fiscal months and net revenues from e-commerceoperations. Decrease is reported as a percentage of the comparable sales for the same period in the prior fiscal year. Remodeled stores are included incomparable sales unless the store was closed for a portion of the current or comparable prior period, in which case the non-comparable temporaryclosure periods are not included, or the remodel resulted in a significant change in square footage. Calculation excludes sales for the 53rd week infiscal 2018.(7)Dollars not in thousands. Average net revenues per gross square foot are calculated by dividing total net revenues for our stores that have been openat least 12 full fiscal months as of the end of the period by total gross square footage for those stores. Remodeled stores are included in average netrevenues per gross square foot unless the store was closed for a portion of the period. Calculation excludes sales for the 53rd week in fiscal 2018.31Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the informationcontained in other sections of this report, particularly under the headings “Risk Factors,” “Selected Financial Data” and “Business.” This discussion andanalysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Thestatements in this discussion and analysis concerning expectations regarding our future performance, liquidity, and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements. See “Forward-Looking Statements.” These forward-looking statementsare subject to numerous risks and uncertainties, including those described under “Risk Factors.” Our actual results could differ materially from thosesuggested or implied by any forward-looking statements.Executive SummaryAs more fully described herein, fiscal 2019 was the first full year of our Vision 20/20 strategic plan, which we began implementing in the third quarter offiscal 2018. During fiscal 2019, our key focus areas were on product and pricing initiatives, SG&A and cost of sales expense reductions, maximizingretention of our customer base, and driving cash flow from operations. We also achieved various strategic product, distribution, and marketing initiatives.Strategic Progress•We made progress on our Vision 20/20 initiatives, including:•Reducing clearance activity in our full-line stores and on verabradley.com by approximately 70% and increasing comparable full-priceselling in these two channels by over 20%;•Reducing SG&A expenses to our targeted level of $212 million during fiscal 2019, which reflects the closure of ten underperforming full-linestores and various expense management initiatives;•Exceeding our customer count retention expectations in our full-line stores and on verabradley.com, despite the reduction in clearancepromotions. As expected, our overall customer count was down in the mid-single digit range for fiscal 2019; and•Generating operating cash flow of $43.6 million.•We made progress in the product area, including:•Implementing tighter assortment guardrails around categories, patterns, and pricing assuring the right fit for our brand and that our productsreflect our core attributes of comfortable, casual, and affordable;•Driving full-price selling by focusing on our top ten styles, solids, and category dominance in our signature categories like back-to-campusand travel;•Implementing processes that allow us to extend full-price selling periods and accelerate retirement as needed;•Continuing to expand our licensing program by entering into new agreements for a loungewear and soft bath collection, as well as expandingdistribution of our licensed stationery and health-care apparel merchandise;•Reducing the impact of China tariffs by decreasing our reliance on China and increasing production in duty-free countries. Our production inChina decreased from approximately 70% in fiscal 2018 to approximately 54% in fiscal 2019; and•Launching customization, where our customers can design their own duffel, hipster, tote, or shoulder bag.•We made progress in the distribution area, including:•Opening six factory outlet stores;•Beginning to experiment with new store formats and customized product assortments;•Completing the rollout of our online outlet site which began in fiscal 2018; and•Continuing to segregate Vera Bradley from the online discount-driven marketplace by exiting our partnership with eBay.•In the marketing area, we continued to increase brand awareness through our “digital first” strategy by focusing our marketing on high-qualityplacements and targeted digital efforts, with an emphasis on full-price offerings. Total impressions were up more than 50% to over 2.1 billion forthe fiscal year. We also entered into several successful social media collaborations with our license partners and influencers, as well as partneredwith “Blessings in a Backpack” to host nationwide events for at-risk children.32Table of ContentsFinancial SummaryFiscal 2019 was a 52-week period compared to fiscal 2018 which was a 53-week period.•Net revenues were $416.1 million in fiscal 2019 compared to $454.6 million in fiscal 2018. The extra week in fiscal 2018 added approximately$4.1 million to net revenues.•Direct segment sales were $328.0 million in fiscal 2019 compared to $351.8 million in fiscal 2018. The extra week in fiscal 2018 addedapproximately $3.0 million to net revenues. Comparable sales for fiscal 2019 decreased 10.3%.•Indirect segment sales were $88.1 million in fiscal 2019 compared to $102.9 million in fiscal 2018. The extra week in fiscal 2018 addedapproximately $1.1 million to net revenues.•Gross profit was $238.6 million (57.3% of net revenue) in fiscal 2019 compared to $254.0 million (55.9% of net revenue) in fiscal 2018.•SG&A expenses were $212.0 million (50.9% of net revenue) in fiscal 2019 compared to $239.8 million (52.7% of net revenue) in fiscal 2018.•Operating income was $27.1 million (6.5% of net revenue) in fiscal 2019 compared to $15.0 million (3.3% of net revenue) in fiscal 2018.•Net income was $20.8 million in fiscal 2019 compared to $7.0 million in fiscal 2018.•Diluted net income per share was $0.59 in fiscal 2019 compared to $0.19 in fiscal 2018. The extra week in fiscal 2018 added an estimated $0.01 todiluted net income per share.•Vision 20/20-related charges and other charges (including store impairment charges) were $19.5 million ($12.3 million after the associated taxbenefit) in fiscal 2018.•Income tax expense was negatively impacted by a $2.1 million net charge related to the Tax Cuts and Jobs Act (“Tax Act”) for fiscal 2018.•Cash, cash equivalents, and investments were $156.6 million at February 2, 2019 compared to $138.4 million at February 3, 2018.•Capital expenditures for fiscal 2019 totaled $8.1 million compared to $11.8 million for fiscal 2018.•Repurchases of common stock for fiscal 2019 totaled $16.3 million, or 1.3 million shares, compared to $7.9 million, or 0.9 million shares, in fiscal2018.How We Assess the Performance of Our BusinessIn assessing the performance of our business, we consider a variety of performance and financial measures.Net RevenuesNet revenues reflect revenues from the sale of our merchandise and from distribution and shipping and handling fees, less returns and discounts. Revenues forthe Direct segment reflect sales through our full-line and factory outlet stores, verabradley.com, our online outlet site, and our annual outlet sale in FortWayne, Indiana. Revenues for the Indirect segment reflect sales to approximately 2,300 specialty retail partners, department stores, national accounts, thirdparty e-commerce sites, third-party inventory liquidators, and sales generated through licensing agreements.Comparable SalesComparable sales are calculated based upon our stores that have been open for at least 12 full fiscal months and net revenues from our e-commerceoperations. Comparable store sales are calculated based solely upon our stores that have been open for at least 12 full fiscal months. Remodeled stores areincluded in comparable sales and comparable store sales unless the store was closed for a portion of the current or comparable prior period, in which case thenon-comparable temporary closure periods are not included, or the remodel resulted in a significant change in square footage. Some of our competitors andother retailers calculate comparable or “same store” sales differently than we do. As a result, data in this report regarding our comparable sales andcomparable store sales may not be comparable to similar data made available by other companies. Non-comparable sales include sales from stores notincluded in comparable sales or comparable store sales. The 53rd week in fiscal 2018 is excluded from comparable sales and comparable store sales.Measuring the change in year-over-year comparable sales allows us to evaluate how our store base and e-commerce operations are performing. Various factorsaffect our comparable sales, including:33Table of Contents•Overall economic trends;•Consumer preferences and fashion trends;•Competition;•Timing of our releases of new patterns and collections;•Changes in our product mix;•Pricing and level of promotions;•Amount of store and mall traffic;•Level of customer service that we provide in stores;•Our ability to source and distribute products efficiently;•Number of stores we open and close in any period; and•Timing and success of promotional and advertising efforts.Gross ProfitGross profit is equal to our net revenues less our cost of sales. Cost of sales includes the direct cost of purchased merchandise, distribution center costs,operations overhead, duty, and all inbound freight costs incurred. The components of our reported cost of sales may not be comparable to those of other retailand wholesale companies.Gross profit can be impacted by changes in volume; fluctuations in sales price; operational efficiencies, such as leveraging of fixed costs; promotionalactivities, such as free shipping; commodity prices, such as cotton prices; tariffs; and labor costs.Selling, General, and Administrative Expenses (“SG&A”)SG&A expenses include selling; advertising, marketing, and product development; and administrative expenses. Selling expenses include Direct businessexpenses such as store expenses, employee compensation, and store occupancy and supply costs, including store impairment charges, as well as Indirectbusiness expenses consisting primarily of employee compensation and other expenses associated with sales to Indirect retailers. Advertising, marketing, andproduct development expenses include employee compensation, media costs, creative production expenses, marketing agency fees, new product designcosts, public relations expenses, and market research expenses. A portion of our advertising expenses may be reimbursed by Indirect retailers, and suchamount is classified as other income. Administrative expenses include employee compensation for corporate functions, corporate headquarters occupancycosts, consulting and software expenses, and charitable donations.Other IncomeOther income includes certain legal settlements, proceeds from the sales of tickets to our annual outlet sale, and sales tax credits received for timely filings. Inaddition, we support many of our Indirect retailers’ marketing efforts by distributing certain catalogs and promotional mailers to current and prospectivecustomers. Our Indirect retailers reimburse us for a portion of the cost to produce these materials. Reimbursement received is recorded as other income. Therelated cost to design, produce, and distribute the catalogs and mailers is recorded as SG&A expense.Operating IncomeOperating income is equal to gross profit less SG&A expenses plus other income. Operating income excludes interest income, interest expense, and incometaxes.Income Before Income TaxesIncome before income taxes is equal to operating income plus interest income less interest expense.Net IncomeNet income is equal to income before income taxes less income tax expense.34Table of ContentsResults of OperationsThe following tables summarize key components of our consolidated results of operations for the last three fiscal years, both in dollars and as a percentage ofour net revenues. Fiscal Year Ended (1)($ in thousands) February 2, 2019 February 3, 2018 January 28, 2017Statement of Income Data: Net revenues $416,097 $454,648 $485,937Cost of sales 177,510 200,639 209,891Gross profit 238,587 254,009 276,046Selling, general, and administrative expenses (2) 211,984 239,810 249,155Other income 498 782 1,329Operating income 27,101 14,981 28,220Interest (income) expense, net (1,125) (413) 178Income before income taxes 28,226 15,394 28,042Income tax expense (3) 7,469 8,378 8,284Net income (4) $20,757 $7,016 $19,758Percentage of Net Revenues: Net revenues 100.0 % 100.0 % 100.0%Cost of sales 42.7 % 44.1 % 43.2%Gross profit 57.3 % 55.9 % 56.8%Selling, general, and administrative expenses 50.9 % 52.7 % 51.3%Other income 0.1 % 0.2 % 0.3%Operating income 6.5 % 3.3 % 5.8%Interest (income) expense, net (0.3)% (0.1)% —%Income before income taxes 6.8 % 3.4 % 5.8%Income tax expense 1.8 % 1.8 % 1.7%Net income 5.0 % 1.5 % 4.1%The following tables present net revenues by operating segment, both in dollars and as a percentage of our net revenues, and full-line and factory outlet storedata for the last three fiscal years: Fiscal Year Ended (1)($ in thousands, except as otherwise indicated) February 2, 2019 February 3, 2018 January 28, 2017Net Revenues by Segment: Direct $328,034 $351,786 $355,175Indirect 88,063 102,862 130,762Total $416,097 $454,648 $485,937Percentage of Net Revenues by Segment: Direct 78.8% 77.4% 73.1%Indirect 21.2% 22.6% 26.9%Total 100.0% 100.0% 100.0%35Table of Contents Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Store Data (5): Total stores opened during period 6 7 10Total stores closed during period (10) (6) (1)Total stores open at end of period 156 160 159Comparable sales (including e-commerce) decrease (6) (10.3)% (6.7)% (7.0)%Total gross square footage at end of period 379,792 377,861 368,640Average net revenues per gross square foot (7) $635 $640 $642 (1)The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to January 31. Fiscal year 2018 consisted of 53 weeks. Fiscal years2019 and 2017 consisted of 52 weeks. The extra week contributed approximately $4.1 million in net revenues and added an estimated $0.01 todiluted net income per share in fiscal 2018. By segment, the extra week contributed net revenues of approximately $3.0 million to Direct and $1.1million to Indirect in fiscal 2018.(2)Impairment charges, related to underperforming stores, totaled $6.3 million and $12.7 million during the fiscal years ended February 3, 2018 andJanuary 28, 2017, respectively. There were no impairment charges recorded during the fiscal year ended February 2, 2019.(3)Fiscal 2018 includes a $2.1 million net charge as a result of the Tax Act. Refer to Note 6 to the Notes to the Consolidated Financial Statements hereinfor additional information.(4)Refer to Notes 3 and 14 to the Notes to the Consolidated Financial Statement herein for accounting standard adoption and charges affecting thecomparability of results.(5)Includes full-line and factory outlet stores.(6)Comparable sales are calculated based upon stores that have been open for at least 12 full fiscal months and net revenues from e-commerceoperations. Decrease is reported as a percentage of the comparable sales for the same period in the prior fiscal year. Remodeled stores are included incomparable sales unless the store was closed for a portion of the current or comparable prior period, in which case the non-comparable temporaryclosure periods are not included, or the remodel resulted in a significant change in square footage. Calculation excludes sales for the 53rd week infiscal 2018.(7)Dollars not in thousands. Average net revenues per gross square foot are calculated by dividing total net revenues for our stores that have been openat least 12 full fiscal months as of the end of the period by total gross square footage for those stores. Remodeled stores are included in average netrevenues per gross square foot unless the store was closed for a portion of the period. Calculation excludes sales for the 53rd week in fiscal 2018.Payment Card IncidentDescription of EventOn September 15, 2016, we received information from law enforcement regarding a potential data security issue related to our retail store network. Findingsfrom the investigation showed unauthorized access to our payment processing system and the installation of a program that looked for payment card data.The program was specifically designed to find track data in the magnetic stripe of a payment card that may contain the card number, cardholder name,expiration date, and internal verification code as the data was being routed through the affected payment system. There is no indication that other customerinformation was at risk. Payment cards used at Vera Bradley store locations between July 25, 2016 and September 23, 2016 may have been affected. Not allcards used in stores during this time frame were affected. Cards used on verabradley.com were not affected.We timely resolved this incident and continue to work with a computer security firm to further strengthen the security of our systems to help prevent eventsof this nature from happening in the future. We promptly notified the payment card networks so that the banks that issue payment cards could initiateheightened monitoring on the affected cards. As of the date of this filing, we have resolved all claims associated with this incident and do not expect anymaterial changes to our exposure.Expenses Incurred and Amounts AccruedDuring the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017, we recorded an immaterial amount of expense relating to thePayment Card Incident. Expenses included remediation activities during fiscals 2019 and 2018 and costs to investigate the Payment Card Incident andobtain legal and other professional services during fiscal 2017. There were no incremental expenses associated with the claims received in fiscals 2019 or2018 as they were reimbursed under our insurance coverage. The insurance deductible was accrued during fiscal 2017.36Table of ContentsFuture CostsWe believe there are no outstanding amounts due with respect to this matter.Insurance CoverageWe maintain $15.0 million of cyber security insurance coverage above a $0.1 million deductible.Vision 20/20 InitiativesFifty-Three Weeks Ended February 3, 2018During fiscal 2018, we launched our Vision 20/20 strategic plan, which involves a more aggressive approach to turn around our business by the end of fiscal2021. This plan is primarily focused on product and pricing initiatives, as well as SG&A expense reduction initiatives.The product and pricing initiatives include restoring our full-price business by significantly reducing the amount of clearance merchandise offered onverabradley.com and in our full-line stores, streamlining current product offerings by eliminating unproductive or incongruent categories and SKUs from ourassortment, and introducing tighter guardrails around new categories, patterns, and pricing. These initiatives negatively impacted fiscal 2019 revenues.The SG&A expense reduction initiatives include right-sizing our corporate infrastructure to better align with the size of the business, optimizing ourmarketing spending by focusing on efficiencies while keeping our most loyal customer engaged, and taking a more aggressive stance on reducing storeoperating costs and closing underperforming full-line stores. We reduced SG&A expenses by $23.5 million in fiscal 2019 (based off of our fiscal 2017 baselevel and excluding severance, store impairment, and Vision 20/20 charges from all periods). We have closed a total of 15 underperforming full-line storesand one underperforming factory outlet store since the beginning of fiscal 2018 and forecast that we will close up to an additional 30 full-line stores by theend of fiscal 2022, primarily as leases expire.The implementation of the plan began in the third quarter of fiscal 2018, with the majority of the product and pricing initiatives completed in the currentfiscal year. The SG&A expense reductions began in the third quarter of fiscal 2018, largely aimed at right-sizing our corporate infrastructure. There have been$16.7 million of pre-tax Vision 20/20-related charges ($10.6 million after the associated tax benefit) since inception, all of which were recognized duringfiscal 2018. There were no Vision 20/20-related charges during fiscal 2019.We have incurred the following Vision 20/20-related charges during the fiscal year ended February 3, 2018 (in thousands): Fiscal 2018 Statements of Income Line Item Total Expense Reportable Segment UnallocatedCorporateExpensesSG&A Cost of Sales Direct Indirect Asset impairment charges (1)$6,298 $— $6,298 $6,298 $— $—Strategic consulting charges (2)4,649 — 4,649 — — 4,649Severance charges3,867 199 4,066 826 1,184 2,056Inventory-related charges (3)— 935 935 — 935 —Other charges (4)751 — 751 466 230 55Total$15,565 $1,134 $16,699(5) $7,590 $2,349 $6,760 (1) Refer to Note 4 to the Notes to the Consolidated Financial Statements herein for additional details(2) Consulting charges for the identification and implementation of Vision 20/20 initiatives(3) Inventory adjustments for the discontinuation of certain inventory categories(4) Includes a net lease termination charge and accelerated depreciation charges(5) After the associated tax benefit, the charges totaled $10.6 million37Table of ContentsOther Charges Affecting Comparability of the Fifty-Two Weeks Ended February 2, 2019, Fifty-Three Weeks Ended February 3, 2018, and Fifty-TwoWeeks Ended January 28, 2017Fifty-Three Weeks Ended February 3, 2018Other charges recognized in SG&A expenses during fiscal 2018, before the implementation of Vision 20/20, totaled $2.8 million ($1.7 million after theassociated tax benefit). These pre-tax charges consisted of $2.5 million in severance charges (recognized within corporate unallocated expenses) and $0.3million for a net lease termination charge (recognized within the Direct segment).Other charges recognized in tax expense during fiscal 2018 totaled $2.1 million related to the Tax Act as described below.Fifty-Two Weeks Ended January 28, 2017Other charges recognized in SG&A expenses during fiscal 2017 totaled $13.6 million ($8.6 million after the associated tax benefit) and consisted of storeimpairment charges of $12.7 million (recognized within the Direct segment) and a severance charge of $0.9 million (recognized within corporate unallocatedexpenses). Refer to Note 4 to the Notes to the Consolidated Financial Statements herein for additional details regarding the store impairment charges. Fiscal2017 also included a $1.6 million tax benefit (reflected in income tax expense) related to the release of certain income tax reserves.Tax ActOn December 22, 2017, the Tax Act was signed into law. The Tax Act includes, among other things, a corporate tax rate decrease from 35% to 21% effectivefor tax years beginning after December 31, 2017, bonus depreciation that allows for full expensing for qualified property, the transition of U.S. internationaltaxation from a worldwide system to a territorial system with a new provision designed to tax global intangible low-taxed income (“GILTI”), and a one-timetransition tax on the mandatory deemed repatriation of cumulative foreign earnings. As a result of the enactment of the Tax Act, we recorded $2.1 million inprovisional income tax expense during the fourth quarter of fiscal 2018 based upon our understanding of the Tax Act and guidance as of the date of the fiscal2018 filing. There were no material changes to the provisional estimates upon completion of the accounting during fiscal 2019. Refer to Note 6 to the Notesto the Consolidated Financial Statements herein for additional information regarding the Tax Act.Impairment ChargesProperty, plant, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets maynot be recoverable. The reviews are conducted at the lowest identifiable level of cash flows. If the estimated undiscounted future cash flows related to theproperty, plant, and equipment are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, asfurther defined in Note 2 to the Notes to the Consolidated Financial Statements herein. Impairment charges of $6.3 million and $12.7 million wererecognized in the fiscal years ended February 3, 2018 and January 28, 2017, respectively, for assets related to underperforming stores and are included inSG&A expenses in the Consolidated Statements of Income and in impairment charges in the Consolidated Statements of Cash Flows. The impairment chargesare included in the Direct segment. There were no impairment charges recorded during the fiscal year ended February 2, 2019.Revenue from Contracts with CustomersWe adopted Accounting Standards Codification (“ASC”) Topic 606 beginning in the first quarter of fiscal 2019 using the modified retrospective adoptionmethod. The adoption of this standard impacted fiscal 2019 beginning retained earnings by $0.5 million. As a result of the adoption of ASC Topic 606 usingthe modified retrospective method, the financial statements from the prior-year periods are not reported under ASC Topic 606 which affects the comparabilityof the Consolidated Financial Statements. The primary impacts from the adoption of the standard are that we are no longer reversing sales associated withshipments not yet received by customers, gift card breakage revenue recognition is accelerated, a change in the method of recognizing minimum guaranteedroyalties in certain licensing agreements, and the re-classification of certain liabilities for estimated product returns to other accrued liabilities from a contra-asset within accounts receivable, net, in the current-year period. Refer to Note 3 to the Notes to the Consolidated Financial Statements herein for additionalinformation, as well as what the reported financial results would have been under prior accounting principles generally accepted in the United States(“GAAP”).38Table of ContentsFiscal 2019 Compared to Fiscal 2018Net RevenuesFor fiscal 2019, net revenues decreased $38.5 million, or 8.5%, to $416.1 million, from $454.6 million for fiscal 2018. Fiscal 2018 includes approximately$4.1 million of net revenues related to the 53rd week. The adoption of ASC 606 benefited the current-year period by $1.5 million.Direct. For fiscal 2019, net revenues decreased $23.8 million, or 6.8%, to $328.0 million, from $351.8 million for fiscal 2018. This change resulted from a$14.0 million contribution of revenue from our non-comparable stores, which included six additional factory outlet stores in the current year, more thanoffset by a comparable sales decrease of $34.5 million, or 10.3%, and approximately $3.0 million of net revenues generated from the 53rd week in fiscal2018. The decrease in comparable sales includes a 24.7% decrease in e-commerce sales and a 4.2% decrease in comparable store sales. Comparable sales(particularly for verabradley.com) were negatively impacted by the planned reduction in clearance activity. The aggregate number of full-line and factoryoutlet stores decreased from 160 at the end of fiscal 2018 to 156 at the end of fiscal 2019. The Company closed ten stores during the current year.The adoption of ASC 606 negatively impacted Direct segment net revenues in the current-year period by $0.1 million.Indirect. For fiscal 2019, net revenues decreased $14.8 million, or 14.4%, to $88.1 million, from $102.9 million for fiscal 2018, primarily due to a decline inorders from the Company's specialty retail accounts and certain key accounts, as well as approximately $1.1 million of net revenues generated from the 53rdweek in fiscal 2018.The adoption of ASC 606 benefited Indirect segment net revenues in the current-year period by $1.6 million primarily due to the timing of shipments tocustomers as a result of changes in the frequency of product launches compared to the prior-year period.Gross ProfitFor fiscal 2019, gross profit decreased $15.4 million, or 6.1%, to $238.6 million, from $254.0 million for fiscal 2018. As a percentage of net revenues, grossprofit increased to 57.3% for fiscal 2019, from 55.9% for fiscal 2018. The increase as a percentage of net revenues was primarily due to reduced clearanceactivity and increased full-price selling on verabradley.com and in our full-line stores, freight and shipping savings, channel mix changes, and a reduction inproduct costs. The prior year included certain reserves taken against slow-moving inventory in the second quarter and adjustments taken against certaininventory categories as a result of Vision 20/20 initiatives in the third quarter that did not recur in the current year.The adoption of ASC 606 benefited the current-year period gross profit by $0.8 million primarily due to the factors described above.Selling, General, and Administrative Expenses (“SG&A”)For fiscal 2019, SG&A expenses decreased $27.8 million, or 11.6%, to $212.0 million, from $239.8 million for fiscal 2018. As a percentage of net revenues,SG&A expenses were 50.9% and 52.7% for fiscal 2019 and fiscal 2018, respectively. The decrease in SG&A expenses was primarily due to expenses incurredin the prior-year period that did not recur in the current-year period that provided savings of approximately $18.4 million, of which $6.4 million related toseverance expenses, $6.3 million related to store impairment charges, and $4.6 million related to strategic consulting charges. In addition, there wereapproximately $9.4 million in expense reductions due in part to expense management strategies associated with Vision 20/20, including a $4.7 milliondecrease in employee-related expenses and a $2.2 million decrease in depreciation expenses. SG&A expenses as a percentage of net revenues decreasedprimarily due to the aforementioned expense savings, partially offset by SG&A expense deleverage associated with lower sales.Other IncomeFor fiscal 2019, other income decreased $0.3 million, or 36.3%, to $0.5 million, from $0.8 million for fiscal 2018, primarily due to a decrease in participationin the co-op mailer program.Operating IncomeFor fiscal 2019, operating income increased $12.1 million, or 80.9%, to $27.1 million from $15.0 million for fiscal 2018. As a percentage of net revenues,operating income was 6.5% and 3.3% for fiscal 2019 and fiscal 2018, respectively. Operating income increased due to the factors described above.The adoption of ASC 606 benefited the current-year period operating income by $0.8 million due to the factors described above.39Table of ContentsThe following table provides additional information about our operating income (in thousands). Fiscal Year Ended $Change %Change February 2, 2019 February 3, 2018 Operating Income: Direct $67,862 $60,979 $6,883 11.3 %Indirect 34,500 34,763 (263) (0.8)%Less: Unallocated corporate expenses (75,261) (80,761) 5,500 (6.8)%Operating income $27,101 $14,981 $12,120 80.9 %Direct. For fiscal 2019, operating income increased $6.9 million, or 11.3%. As a percentage of Direct segment net revenues, operating income in the Directsegment was 20.7% and 17.3% for fiscals 2019 and 2018, respectively. The increase in operating income as a percentage of Direct segment net revenues wasprimarily due to $6.3 million in store impairment charges incurred in the prior-year period that did not recur in the current-year period, a $5.9 millionreduction in employee-related expenses due in part to expense management strategies associated with Vision 20/20, and a reduction of $1.6 million indepreciation expense primarily as a result of prior-year store impairment charges. In addition, there was an increase in gross margin as a percentage of netrevenues. These benefits were partially offset by SG&A expense deleverage associated with lower sales.The adoption of ASC 606 negatively impacted the current-year period Direct segment operating income by $0.1 million.Indirect. For fiscal 2019, operating income decreased $0.3 million, or 0.8%. As a percentage of Indirect segment net revenues, operating income in theIndirect segment was 39.2% and 33.8% for fiscals 2019 and 2018, respectively. The increase in operating income as a percentage of Indirect segment netrevenues was primarily due to an increase in gross margin as a percentage of net revenues, a reduction in employee-related expenses, and severance expensesincurred in the prior-year period that did not recur in the current-year period, as described above, partially offset by SG&A expense deleverage associatedwith lower sales.The adoption of ASC 606 benefited the current-year period Indirect segment operating income by $0.9 million due to the factors described above.Corporate Unallocated. For fiscal 2019, unallocated expenses decreased $5.5 million, or 6.8%. The decrease in unallocated expenses was primarily due toexpenses from the prior-year period that did not recur in the current-year period, including $4.6 million in severance charges and $4.6 million in strategicconsulting charges. These savings were partially offset by an increase in incentive compensation expense of approximately $2.5 million primarily as a resultof Company performance.Interest Income, NetFor fiscal 2019, net interest income increased $0.7 million, or 172.4%, to $1.1 million, from $0.4 million in fiscal 2018. The year-over-year increase wasprimarily a result of interest earned on our investment portfolio and certificates of deposit. Refer to Note 15 to the Notes to the Consolidated FinancialStatements herein for additional information regarding our investments.Income Tax ExpenseFor fiscal 2019, we recorded income tax expense of $7.5 million at an effective tax rate of 26.5%, compared to 54.4% for fiscal 2018. The year-over-yeardecrease in the effective tax rate was primarily due to a decreased annual effective tax rate as a result of the reduction in the U.S. corporate income tax rate to21% from 35%, and the relative impact of $2.1 million of net charges in the prior-year period associated with the Tax Act enacted during the fourth quarter.Refer to Note 6 to the Notes to the Consolidated Financial Statements herein for additional information regarding the Tax Act.40Table of ContentsNet IncomeFor fiscal 2019, net income increased $13.8 million, or 195.9%, to $20.8 million from $7.0 million in fiscal 2018 due to the factors described above. Theprior-year period included severance charges of $6.6 million, store impairment charges of $6.3 million; strategic consulting charges of $4.6 million;inventory adjustments of $0.9 million; and net lease termination charges and other Vision 20/20 charges of $1.1 million ($12.3 million collectively after theassociated tax benefit) that did not recur in the current-year period. There was an additional $2.1 million recorded in income tax expense in the prior-yearperiod related to the Tax Act.The adoption of ASC 606 benefited the current-year period net income by $0.6 million due to the factors described above.Fiscal 2018 Compared to Fiscal 2017Net RevenuesFor fiscal 2018, net revenues decreased $31.3 million, or 6.4%, to $454.6 million, from $485.9 million for fiscal 2017. Fiscal 2018 includes approximately$4.1 million of net revenues related to the 53rd week.Direct. For fiscal 2018, net revenues decreased $3.4 million, or 1.0%, to $351.8 million, from $355.2 million for fiscal 2017. This change resulted fromapproximately $3.0 million of net revenues generated from the 53rd week in fiscal 2018 and a $17.8 million contribution of revenue from our non-comparable stores, which included seven additional stores in fiscal 2018, more than offset by a comparable sales decrease of $23.1 million, or 6.7%. Thedecrease in comparable sales includes a 9.3% decrease in e-commerce sales and a 5.5% decrease in comparable store sales. The decline in comparable saleswas primarily due to year-over-year declines in store and e-commerce traffic. The aggregate number of full-line and factory outlet stores grew from 159 at theend of fiscal 2017 to 160 at the end of fiscal 2018, which excludes six stores closed during fiscal 2018.Indirect. For fiscal 2018, net revenues decreased $27.9 million, or 21.3%, to $102.9 million, from $130.8 million for fiscal 2017, primarily due to a decline inorders from the Company's specialty retail accounts and certain key accounts along with a reduction in the number of specialty retail accounts. This declinewas partially offset by approximately $1.1 million of net revenues generated from the 53rd week in fiscal 2018.Gross ProfitFor fiscal 2018, gross profit decreased $22.0 million, or 8.0%, to $254.0 million, from $276.0 million for fiscal 2017. As a percentage of net revenues, grossprofit decreased to 55.9% for fiscal 2018, from 56.8% for fiscal 2017. The decrease as a percentage of net revenues was primarily due to increasedpromotional activity in our factory outlet stores, inventory adjustments taken against certain product categories in the second and third quarters of fiscal2018, and channel mix changes, partially offset by a reduction in product cost.Selling, General, and Administrative Expenses (“SG&A”)For fiscal 2018, SG&A expenses decreased $9.4 million, or 3.8%, to $239.8 million, from $249.2 million for fiscal 2017. As a percentage of net revenues,SG&A expenses were 52.7% and 51.3% for fiscal 2018 and fiscal 2017, respectively. Fiscal 2018 included $18.4 million of Vision 20/20 and other charges,which consisted of $6.4 million of employee severance charges; $6.3 million of store impairment charges; $4.6 million of strategic consulting charges; and$1.1 million for net lease termination charges and other Vision 20/20 charges. The prior-year period included $13.6 million of other items consisting of $12.7million of store impairment charges and $0.9 million for an executive severance charge. The $4.8 million increase in SG&A expenses for fiscal 2018, as aresult of the aforementioned charges, was more than offset by a $14.2 million decrease in SG&A expenses for fiscal 2018. The decrease in SG&A expenseswas primarily due to a reduction in both employee-related expenses and advertising expenses, partially offset by new store expenses, including expensesassociated with stores opened during fiscal 2018 and incremental expenses associated with the annualization of stores opened during fiscal 2017. SG&Aexpenses as a percentage of net revenues increased primarily due to SG&A expense deleverage associated with lower sales, new store expenses, and theaggregate incremental impact of the fiscal 2018 Vision 20/20 charges and other charges, partially offset by the impact of the aforementioned incrementalexpense savings.Other IncomeFor fiscal 2018, other income decreased $0.5 million, or 41.2%, to $0.8 million, from $1.3 million for fiscal 2017, primarily due to a decrease in participationin the co-op mailer program.41Table of ContentsOperating IncomeFor fiscal 2018, operating income decreased $13.2 million, or 46.9%, to $15.0 million from $28.2 million for fiscal 2017. As a percentage of net revenues,operating income was 3.3% and 5.8% for fiscal 2018 and fiscal 2017, respectively. Operating income decreased due to the factors described above.The following table provides additional information about our operating income (in thousands). Fiscal Year Ended $Change %Change February 3, 2018 January 28, 2017 Operating Income: Direct $60,979 $62,577 $(1,598) (2.6)%Indirect 34,763 50,955 (16,192) (31.8)%Less: Unallocated corporate expenses (80,761) (85,312) 4,551 (5.3)%Operating income $14,981 $28,220 $(13,239) (46.9)%Direct. For fiscal 2018, operating income decreased $1.6 million, or 2.6%. As a percentage of Direct segment net revenues, operating income in the Directsegment was 17.3% and 17.6% for fiscals 2018 and 2017, respectively. The decrease in operating income as a percentage of Direct segment net revenues wasprimarily due to new store expenses, a decline in the gross profit as a percentage of net revenues as described above, and deleverage of SG&A expenses due tolower sales, partially offset by lower store impairment charges and employee-related expenses as compared to the prior-year period.Indirect. For fiscal 2018, operating income decreased $16.2 million, or 31.8%. As a percentage of Indirect segment net revenues, operating income in theIndirect segment was 33.8% and 39.0% for fiscals 2018 and 2017, respectively. The decrease in operating income as a percentage of Indirect segment netrevenues was primarily due to deleverage of SG&A expenses as a result of lower sales and a decrease in gross profit as a percentage of net revenues, asdescribed above.Corporate Unallocated. For fiscal 2018, unallocated expenses decreased $4.6 million, or 5.3%. The decrease in unallocated expenses was primarily due to adecrease in advertising spending and employee-related expenses principally as a result of expense management, which was associated in part with theimplementation of Vision 20/20 initiatives during the third quarter. These savings were partially offset by Vision 20/20 and other charges of $9.3 million infiscal 2018 which consisted of $4.6 million of strategic consulting charges, $4.6 million of employee severance charges, and $0.1 million of other Vision20/20 charges. The prior-year period included $0.9 million for an executive severance charge.Interest (Income) Expense, NetFor fiscal 2018, net interest (income) expense increased $0.6 million, or 332.0%, to $(0.4) million, from $0.2 million in fiscal 2017. The year-over-yearincrease was primarily a result of interest earned on our investment portfolio which was implemented during fiscal 2018. Refer to Note 15 to the Notes to theConsolidated Financial Statements herein for additional information regarding our investments.Income Tax ExpenseFor fiscal 2018, we recorded income tax expense of $8.4 million at an effective tax rate of 54.4%, compared to 29.5% for fiscal 2017. The year-over-yearincrease in the effective tax rate was primarily due to the relative impact of $2.1 million of net charges associated with the Tax Act enacted during the fourthquarter of fiscal 2018 along with the relative impact of permanent and discrete items, including a tax shortfall from stock-based compensation. Refer to Note6 to the Notes to the Consolidated Financial Statements herein for additional information regarding the Tax Act. The prior-year period included a $1.6million income tax benefit for the release of certain income tax reserves.Net IncomeFor fiscal 2018, net income decreased $12.8 million, or 64.5%, to $7.0 million from $19.8 million in fiscal 2017. Fiscal 2018 included $19.5 million ($12.3million after the associated tax benefit) of Vision 20/20-related charges (including store impairment charges) and other charges and $2.1 million of taxexpense associated with the enactment of the Tax Act, as described further in Note 6 to the Notes to the Consolidated Financial Statements herein. Thecomparable prior-year period included other charges (including store impairment charges) of $13.6 million ($8.6 million after the associated tax benefit),partially offset by a $1.6 million income tax benefit related to the release of certain income tax reserves.42Table of ContentsLiquidity and Capital ResourcesGeneralOur primary sources of liquidity are cash on hand and cash equivalents, investments, and cash flow from operations. We also have access to additionalliquidity, if needed, through availability under our $75.0 million asset-based revolving credit agreement (the “New Credit Agreement”) which we enteredinto on September 7, 2018. Through September 6, 2018, we had access to additional liquidity under our $125.0 million second amended and restated creditagreement (the “Prior Credit Agreement”). There were no borrowings under the New Credit Agreement or Prior Credit Agreement during the fiscal year endedFebruary 2, 2019, and there was no debt outstanding as of February 2, 2019. Historically, our primary cash needs have been for merchandise inventories;payroll; store rent; capital expenditures associated with operational equipment, buildings, information technology, and opening new stores; and sharerepurchases. The most significant components of our working capital are cash and cash equivalents, short-term investments, merchandise inventories,accounts receivable, accounts payable, and other current liabilities.We believe that cash on hand and cash equivalents, cash flows from operating activities, investments, and the availability of borrowings under our NewCredit Agreement or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures, as well asshare repurchases and other strategic uses of cash, if any, and debt payments, if any, for the foreseeable future.InvestmentsCash Equivalents. Investments classified as cash equivalents relate to highly-liquid investments with a maturity of three months or less from the date ofpurchase. As of February 2, 2019, these investments consisted of commercial paper and a money market fund. As of February 3, 2018, these investments alsoincluded municipal securities.Short-Term Investments. As of February 2, 2019, short-term investments consisted of U.S. and non-U.S. corporate debt securities, municipal securities, U.S.treasury securities, and commercial paper with a maturity within one year of the balance sheet date. As of February 3, 2018, short-term investments consistedof U.S. and non-U.S. corporate debt securities, municipal securities, commercial paper, and a certificate of deposit.Long-Term Investments. As of February 2, 2019, long-term investments consisted of U.S. and non-U.S. corporate debt securities, U.S. and non-U.S. asset-backed securities, and municipal securities with a maturity greater than one year from the balance sheet date. As of February 3, 2018, these investmentsconsisted of U.S. and non-U.S. corporate debt securities, municipal securities, and U.S. treasury securities.Refer to Note 15 to the Notes to the Consolidated Financial Statements herein for additional information regarding our investments.Cash Flow AnalysisA summary of operating, investing, and financing activities is shown in the following table (in thousands): Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Net cash provided by operating activities $43,564 $42,642 $65,186Net cash provided by (used in) investing activities 17,955 (51,604) (50,770)Net cash used in financing activities (16,771) (8,649) (25,715)Net Cash Provided by Operating ActivitiesNet cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation, amortization, impairmentcharges, deferred taxes, and stock-based compensation, the effect of changes in assets and liabilities, and tenant-improvement allowances received fromlandlords under our store leases.Net cash provided by operating activities was $43.6 million during fiscal 2019, as compared to $42.6 million during fiscal 2018. The increase in cashprovided by operating activities was primarily a result of the change in income taxes and accrued and other liabilities which resulted in a $4.9 million and$0.1 million source of cash in the current-year period, respectively as compared to a use of cash of $0.9 million and $5.4 million in the comparable prior-yearperiod, respectively. These factors were partially offset by the change in accounts receivable which resulted in a $0.4 million source of cash as compared to a$7.3 million source of cash in the comparable prior-year period, primarily a result of timing and a decrease in Indirect segment net43Table of Contentsrevenues, and an increase of $13.8 million in net income, more than offset by a reduction of $17.1 million in non-cash and cash adjustments. The change innon-cash and cash adjustments was primarily a result of non-cash deferred income taxes and store impairment charges.Net cash provided by operating activities was $42.6 million during fiscal 2018, as compared to $65.2 million during fiscal 2017. The decrease in cashprovided by operating activities was primarily a result of a decrease in net income of $12.8 million and a change in accounts payable which resulted in a useof cash of $18.2 million as compared to a source of cash of $9.0 million in the comparable prior-year period primarily as a result of a reduction in certaininventory categories along with timing of payments. These factors were partially offset by a change in income taxes which resulted in a use of cash of $0.9million as compared to a use of cash of $12.0 million in the comparable prior-year period and a change in inventories that resulted in a source of cash of$14.4 million as compared to a source of cash of $11.3 million in the comparable prior-year period. The inventory change was primarily due to a reduction incertain inventory categories. The income tax change was primarily a result of the timing of an $11.5 million federal income tax payment in the prior-yearperiod.Cash payments of approximately $7.6 million were made as a result of Vision 20/20 initiatives during the fiscal 2018 period. Refer to Note 14 to the Notes tothe Consolidated Financial Statements herein for additional information.Net Cash Provided by (Used in) Investing ActivitiesInvesting activities consist primarily of short-term investments, long-term investments, and capital expenditures related to new store openings, buildings,operational equipment, and information technology investments.Net cash provided by investing activities was $18.0 million in fiscal 2019, compared to net cash used in investing activities of $51.6 million in fiscal 2018.The increase in cash provided by investing activities was primarily a result of net investment activity related to debt securities and certificates of deposit inthe current-year period compared to the comparable prior-year period.Net cash used in investing activities was $51.6 million in fiscal 2018, compared to $50.8 million in fiscal 2017. There was a decrease of $9.0 million inspending for property, plant, and equipment in fiscal 2018 primarily due to a $4.2 million reduction in information technology investment spending and theconstruction of seven retail stores and 20 store remodels in fiscal 2018 as compared to the construction of ten retail stores and 14 store remodels in thecomparable prior-year period. In addition, there was a net use of cash of $39.8 million as a result of investment activity in fiscal 2018 compared to a use ofcash of $30.0 million in the comparable prior-year period.Capital expenditures for fiscal 2020 are expected to be approximately $13.0 million.Net Cash Used in Financing ActivitiesNet cash used in financing activities was $16.8 million in fiscal 2019 compared to $8.6 million in fiscal 2018. The increase in cash used in financingactivities was primarily due to an increase in cash purchases of our common stock under the 2015 Share Repurchase Plan and purchases of stock under the2018 Share Repurchase Plan.Net cash used in financing activities was $8.6 million in fiscal 2018 compared to $25.7 million in fiscal 2017. The decrease in cash used in financingactivities was primarily due to $7.9 million of cash purchases of our common stock under the 2015 Share Repurchase Plan in fiscal 2018 compared to $25.0million of cash purchases of our common stock under the 2015 Share Repurchase Plan in the prior-year period.New Credit AgreementOn September 7, 2018, Vera Bradley Designs, Inc. (“VBD”), a wholly-owned subsidiary of the Company, entered into an asset-based revolving CreditAgreement (the “New Credit Agreement”) among VBD, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto.The New Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of $75.0 million orthe amount of borrowing availability determined in accordance with a borrowing base of certain assets. Any proceeds of the credit facilities will be used tofinance general corporate purposes of VBD and its subsidiaries, including but not limited to Vera Bradley International, LLC and Vera Bradley Sales, LLC(collectively, the “Named Subsidiaries”). The New Credit Agreement also contains an option for VBD to arrange with lenders to increase the aggregateprincipal amount by up to $25.0 million.Amounts outstanding under the New Credit Agreement bear interest at a per annum rate equal to either (i) for CBFR borrowings (including swingline loans),the CB Floating Rate, where the CB Floating Rate is the prime rate which shall never be less than the adjusted one month LIBOR rate on such day, plus theApplicable Rate, where the Applicable Rate is a percentage spread ranging from -1.00% to -1.50% or (ii) for each eurodollar borrowing, the Adjusted LIBORate, where the44Table of ContentsAdjusted LIBO Rate is the LIBO rate for such interest period multiplied by the statutory reserve rate, for the interest period in effect for such borrowing, plusthe Applicable Rate, where the Applicable Rate is a percentage ranging from 1.00% to 1.30%. The applicable CB Floating Rate, Adjusted LIBO Rate, orLIBO Rate shall be determined by the administrative agent. The New Credit Agreement also requires VBD to pay a commitment fee for the unused portion ofthe revolving facility of up to 0.20% per annum.VBD’s obligations under the New Credit Agreement are guaranteed by the Company and the Named Subsidiaries. The obligations of VBD under the NewCredit Agreement are secured by substantially all of the respective assets of VBD, the Company, and the Named Subsidiaries and are further secured by theequity interests in VBD and the Named Subsidiaries.The New Credit Agreement contains various affirmative and negative covenants, including restrictions on the Company's ability to incur debt or liens;engage in mergers or consolidations; make certain investments, acquisitions, loans, and advances; sell assets; enter into certain swap agreements; paydividends or make distributions or make other restricted payments; engage in certain transactions with affiliates; and amend, modify, or waive any of itsrights related to subordinated indebtedness and certain charter and other organizational, governing, and material agreements. The Company may avoidcertain of such restrictions by meeting payment conditions defined in the New Credit Agreement. The Company was in compliance with these covenants asof February 2, 2019.The New Credit Agreement also requires the loan parties, as defined in the New Credit Agreement, to maintain a minimum fixed charge coverage ratio of 1.00to 1.00 during periods when borrowing availability is less than the greater of (A) $7.5 million, and (B) 10% of the lesser of (i) the aggregate revolvingcommitment, and (ii) the borrowing base. The fixed charge coverage ratio, availability, aggregate revolving commitment, and the borrowing base are furtherdefined in the New Credit Agreement.The New Credit Agreement contains customary events of default, including, among other things: (i) the failure to pay any principal, interest, or other feesunder the New Credit Agreement; (ii) the making of any materially incorrect representation or warranty; (iii) the failure to observe or perform any covenant,condition, or agreement in the New Credit Agreement or related agreements; (iv) a cross default with respect to other material indebtedness; (v) bankruptcyand insolvency events; (vi) unsatisfied material final judgments; (vii) Employee Retirement Income Security Act of 1974 (“ERISA”) events that couldreasonably be expected to have a material adverse effect; and (viii) a change in control (as defined in the New Credit Agreement).Any commitments made under the New Credit Agreement mature on September 7, 2023.On July 15, 2015, VBD entered into the Second Amended and Restated Credit Agreement among VBD, the lenders from time to time party thereto, JPMorganChase Bank, National Association, as administrative agent; Wells Fargo Bank, National Association, as syndication agent; and KeyBank NationalAssociation, as documentation agent (the “Prior Credit Agreement”). The Prior Credit Agreement provided for certain credit facilities to VBD in an aggregateprincipal amount not to initially exceed $125.0 million, the proceeds of which could be used for general corporate purposes of VBD and its subsidiaries,including but not limited to Vera Bradley International, LLC and Vera Bradley Sales, LLC. The Prior Credit Agreement was terminated concurrently withentering into the New Credit Agreement.Contractual ObligationsWe enter into long-term contractual obligations and commitments in the normal course of business, primarily non-cancellable operating leases. As ofFebruary 2, 2019, our contractual cash obligations over the next several periods are as follows: Payments Due by Period (3)($ in thousands) Total Less Than1 Year 1 - 3 Years 3 - 5 Years More Than5 YearsOperating leases (1) $187,664 $32,658 $61,724 $48,183 $45,099Purchase obligations (2) 49,667 49,667 — — —Total $237,331 $82,325 $61,724 $48,183 $45,099 (1)Our store leases are generally ten years with varying renewal options. Our future operating lease obligations would change if we were to extend theseleases, terminate these leases early, or if we were to enter into new operating leases. As part of our Vision 20/20 initiatives, we are forecasting to closeup to 30 additional full-line stores by fiscal 2022. Additional potential closures are not reflected in the table until an agreement with the landlord hasbeen reached.(2)Purchase obligations consist primarily of inventory purchases.(3)Due to the uncertainty with respect to the timing of future cash flows associated with our uncertain tax positions at February 2, 2019, we are unable tomake reasonably reliable estimates of the period of cash settlement with the45Table of Contentsrespective taxing authorities. Therefore, $0.1 million of uncertain tax positions have been excluded from the contractual obligations table above.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet financing or unconsolidated special purpose entities.Critical Accounting Policies and EstimatesThe preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management tomake estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues, and expenses, as well as the disclosures relating tocontingent assets and liabilities at the date of the consolidated financial statements. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under thecircumstances. Actual results may differ from these estimates under different assumptions and conditions.We evaluate the development and selection of our critical accounting policies and estimates and believe that the following policies and estimates involve ahigher degree of judgment or complexity and are most significant to reporting our results of operations and financial position, and are therefore discussed ascritical. The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financialstatements. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have amaterially favorable or unfavorable impact on subsequent results of operations. Our historical results for the periods presented in the consolidated financialstatements, however, have not been materially impacted by such variances. More information on all of our significant accounting policies can be found inNote 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements.Revenue RecognitionVera Bradley product sales to Direct and Indirect customers, including amounts billed to customers for shipping fees, as well as royalties from our licensingarrangements, are included in net revenues. Costs related to shipping of product are classified in cost of sales in the Consolidated Statements of Income. Wehave elected to treat shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise totransfer the product rather than as an additional promised service. Net revenues exclude sales taxes collected from customers and remitted to governmentalauthorities from the transaction price.Revenue from the sale of our products is recognized when control of the promised goods or services is transferred to customers, in the amount that reflects theconsideration the Company expects to be entitled to in exchange for those goods or services. Revenue is recognized using the five-step model identified inAccounting Standards Codification (“ASC”) Topic 606. These steps are: (i) identify the contract with the customer; (ii) identify the performance obligations;(iii) determine the transaction price; (iv) allocate the transaction price to each performance obligation; and (v) recognize revenue as the performanceobligations are satisfied.We collect payment at the point of sale for full-line and factory outlet store transactions and upon shipment for e-commerce transactions. We generallycollect payment in arrears in accordance with established payment terms for each customer within the Indirect segment.We reserve for projected merchandise returns based on historical experience and other assumptions that we believe to be reasonable. In the Direct business,returns are refunded by issuing the same payment tender of the original purchase and in the Indirect business the customer is issued a credit to its account toapply to outstanding invoices. Merchandise exchanges of the same product at the same price are not considered merchandise returns. Product returns areoften resalable through our annual outlet sale or other channels. Additionally, we reserve for customer allowances for certain Indirect retailers based uponvarious contract terms and other potential product credits granted to Indirect retailers. The balance of the reserve for returns and retailer credits was $1.9million and $3.3 million as of February 2, 2019, and February 3, 2018, respectively. The balance as of February 3, 2018 included reserves for shipments tocustomers not yet received.InventoriesInventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. Appropriate consideration isgiven to obsolescence, excess quantities, and other factors, including the popularity of a pattern or product, in evaluating net realizable value. We recordvaluation adjustments to our inventories, which are reflected in cost of sales, if the cost of specific inventory items on hand exceeds the amount we expect torealize from the ultimate sale or disposal of the inventory. This adjustment calculation requires us to make assumptions and estimates, which are based on46Table of Contentsfactors such as merchandise seasonality, historical trends, and estimated sales and inventory levels, including sell-through of remaining units. In addition, aspart of inventory adjustments, we provide for inventory shrinkage based on historical trends from our physical inventory counts. We perform physicalinventory counts throughout the year and adjust the shrinkage provision accordingly.The balance of inventory adjustments was $0.6 million and $2.7 million for these matters as of the fiscal years ended February 2, 2019, and February 3, 2018,respectively. The balance related primarily to certain collections being discontinued or currently discontinued by the Company and retired patterns. In thecurrent-year period, the Company has significantly reduced the amount of clearance activity and increased full-price purchasing which helped to decrease theamount of necessary inventory reserves. The change in inventory adjustments during fiscal 2019 primarily related to the sell-through of certain reservedinventory categories. We have the ability to move retired finished goods through a number of channels, including the annual outlet sale, our website andonline outlet site, factory outlet stores, and through third-party liquidators as needed.Income TaxesOur effective tax rate is based on our pre-tax income, statutory tax rates, tax laws and regulations, and tax planning opportunities available in thejurisdictions in which we operate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions. We establishreserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the positions become uncertain based upon one ofthe following: (1) the tax position is not “more likely than not” to be sustained; (2) the tax position is “more likely than not” to be sustained, but for a lesseramount; or (3) the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken. Taxingauthorities periodically audit our income tax returns. We believe that our tax filing positions are reasonable and legally supportable. Taxing authorities,however, may take a contrary position. Our results of operations and effective tax rate in a given period could be impacted if, upon final resolution withtaxing authorities, we prevail in positions for which we have established reserves, or are required to pay amounts in excess of established reserves. Thebalance of the gross amount of unrecognized tax benefits (excluding interest and penalties) was $0.1 million, $0.1 million, and $0.9 million as of February 2,2019, February 3, 2018, and January 28, 2017, respectively. Benefits of $17 thousand, $0.5 million, and $1.9 million were recognized in income tax expensefor these matters during the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017, respectively.On December 22, 2017, the Tax Act was signed into law. The Tax Act includes, among other things, a corporate tax rate decrease from 35% to 21% effectivefor tax years beginning after December 31, 2017, bonus depreciation that allows for full expensing for qualified property, the transition of U.S. internationaltaxation from a worldwide system to a territorial system with a new provision designed to tax global intangible low-taxed income (“GILTI”), and a one-timetransition tax on the mandatory deemed repatriation of cumulative foreign earnings. As a result of the enactment of the Tax Act, we recorded $2.1 million inprovisional income tax expense during the fourth quarter of fiscal 2018 based upon our understanding of the Tax Act and guidance as of the date of the fiscal2018 filing. There were no material changes to the provisional estimates upon completion of the accounting during fiscal 2019. Refer to Note 6 to the Notesto the Consolidated Financial Statements herein for additional information regarding the Tax Act.Valuation of Long-lived AssetsProperty, plant, and equipment assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an assetmay not be recoverable. In evaluating an asset for recoverability, we estimate the future cash flows expected to result from the use of the asset at the storelevel, the lowest identifiable level of cash flow, if applicable. If the sum of the estimated undiscounted future cash flows related to the asset is less than thecarrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by an estimated discounted cashflow analysis of the asset. Factors used in the valuation of long-lived assets include, but are not limited to, our plans for future operations, brand initiatives,recent operating results, and projected future cash flows. With respect to our stores, we analyze store economics, location within the shopping center, the sizeand shape of the space, and desirable co-tenancies in our selection process. Impairment charges are classified in SG&A expenses and were $6.3 million and$12.7 million for the periods ended February 3, 2018 and January 28, 2017, respectively. There were no impairment charges recorded for the period endedFebruary 2, 2019.The discounted cash flow models used to estimate the applicable fair values involve numerous estimates and assumptions that are highly subjective. Changesto these estimates and assumptions could materially impact the fair value estimates. The estimates and assumptions critical to the overall fair value estimatesinclude: (1) estimated future cash flow generated at the store level; and (2) discount rates used to derive the present value factors used in determining the fairvalues. These and other estimates and assumptions are impacted by economic conditions and our expectations and may change in the future based on47Table of Contentsperiod-specific facts and circumstances. If economic conditions were to deteriorate, future impairment charges may be required.Transactions with Related PartiesSee Item 13, “Certain Relationships and Related Transactions, and Director Independence,” of this report for information regarding transactions with relatedparties.48Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market RiskInterest Rate RiskWe are subject to interest rate risk in connection with borrowings under our asset-based revolving credit agreement (the “New Credit Agreement”). The NewCredit Agreement allows for a revolving credit commitment of $75.0 million, bearing interest at a variable rate, based on a per annum rate equal to either (i)for CBFR borrowings (including swingline loans), the CB Floating Rate, where the CB Floating Rate is the prime rate which shall never be less than theadjusted one month LIBOR rate on such day, plus the Applicable Rate, where the Applicable Rate is a percentage spread ranging from -1.00% to -1.50% or(ii) for each eurodollar borrowing, the Adjusted LIBO Rate, where the Adjusted LIBO Rate is the LIBO rate for such interest period multiplied by the statutoryreserve rate, for the interest period in effect for such borrowing, plus the Applicable Rate, where the Applicable Rate is a percentage ranging from 1.00% to1.30%. The applicable CB Floating Rate, Adjusted LIBO Rate, or LIBO Rate shall be determined by the administrative agent. Assuming borrowingsavailable under the New Credit Agreement are fully extended at $75.0 million, each quarter point increase or decrease in the interest rate would change ourannual interest expense by approximately $0.2 million.Impact of InflationOur results of operations and financial condition are presented based on historical cost. Although it is difficult to accurately measure the impact of inflationdue to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have beenimmaterial.Foreign Exchange Rate RiskWe source a majority of our materials from various suppliers primarily in China and South Korea. Substantially all purchases and sales involving foreignpersons are denominated in U.S. dollars, and therefore we do not hedge using any derivative instruments. Historically, we have not been impacted materiallyby changes in exchange rates.49Table of ContentsItem 8. Financial Statements and Supplementary DataVera Bradley, Inc.Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm51Consolidated Balance Sheets as of February 2, 2019, and February 3, 201853Consolidated Statements of Income for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201754Consolidated Statements of Comprehensive Income for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201755Consolidated Statements of Shareholders’ Equity for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201756Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201757Notes to Consolidated Financial Statements5850Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors ofVera Bradley, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Vera Bradley, Inc. and subsidiaries (the “Company”) as of February 2, 2019 and February3, 2018, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the periodended February 2, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, inall material respects, the financial position of the Company as of February 2, 2019 and February 3, 2018, and the results of its operations and its cash flows foreach of the three years in the period ended February 2, 2019, in conformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of February 2, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated April 2, 2019, expressed an unqualified opinion on theCompany's internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Deloitte & Touche LLPIndianapolis, IndianaApril 2, 2019We have served as the Company’s auditor since calendar 2016.51Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors ofVera Bradley, Inc. Opinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of Vera Bradley, Inc. and subsidiaries (the “Company”) as of February 2, 2019, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2019, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedfinancial statements as of and for the year ended February 2, 2019, of the Company and our report dated April 2, 2019, expressed an unqualified opinion onthose financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ Deloitte & Touche LLPIndianapolis, IndianaApril 2, 201952Table of ContentsVera Bradley, Inc.Consolidated Balance Sheets(in thousands) February 2, 2019 February 3, 2018Assets Current assets: Cash and cash equivalents $113,493 $68,751Short-term investments 19,381 54,150Accounts receivable, net 15,604 15,566Inventories 91,581 87,838Income taxes receivable 809 4,391Prepaid expenses and other current assets 11,600 11,327Total current assets 252,468 242,023Property, plant, and equipment, net 77,951 86,463Long-term investments 23,735 15,515Deferred income taxes 6,724 5,385Other assets 1,270 1,283Total assets $362,148 $350,669Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $14,595 $13,503Accrued employment costs 13,316 13,616Other accrued liabilities 13,482 12,343Income taxes payable 2,163 812Total current liabilities 43,556 40,274Long-term liabilities 23,889 25,112Total liabilities 67,445 65,386Commitments and contingencies Shareholders’ equity: Preferred stock; 5,000 shares authorized, no shares issued or outstanding — —Common stock, without par value; 200,000 shares authorized, 41,283 and 41,102 shares issued and 34,347and 35,459 outstanding, respectively — —Additional paid-in capital 95,572 91,192Retained earnings 291,994 270,783Accumulated other comprehensive loss (24) (114)Treasury stock (92,839) (76,578)Total shareholders’ equity 294,703 285,283Total liabilities and shareholders’ equity $362,148 $350,669The accompanying notes are an integral part of these consolidated financial statements.53Table of ContentsVera Bradley, Inc.Consolidated Statements of Income(in thousands, except per share data) Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Net revenues $416,097 $454,648 $485,937Cost of sales 177,510 200,639 209,891Gross profit 238,587 254,009 276,046Selling, general, and administrative expenses 211,984 239,810 249,155Other income 498 782 1,329Operating income 27,101 14,981 28,220Interest (income) expense, net (1,125) (413) 178Income before income taxes 28,226 15,394 28,042Income tax expense 7,469 8,378 8,284Net income $20,757 $7,016 $19,758Basic weighted-average shares outstanding 35,222 35,925 36,838Diluted weighted-average shares outstanding 35,467 36,026 36,970 Basic net income per share $0.59 $0.20 $0.54Diluted net income per share $0.59 $0.19 $0.53The accompanying notes are an integral part of these consolidated financial statements.54Table of ContentsVera Bradley, Inc.Consolidated Statements of Comprehensive Income(in thousands) Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Net income $20,757 $7,016 $19,758Unrealized gain (loss) on available for sale debt investments 96 (51) —Cumulative translation adjustment (6) (13) (7)Comprehensive income, net of tax $20,847 $6,952 $19,751The accompanying notes are an integral part of these consolidated financial statements.55Table of ContentsVera Bradley, Inc.Consolidated Statements of Shareholders’ Equity($ in thousands, except share data) Number of Shares AccumulatedOtherComprehensiveLoss CommonStock TreasuryStock AdditionalPaid-inCapital RetainedEarnings TreasuryStock TotalEquityBalance at January 30, 2016 37,701,171 3,102,352 $85,436 $244,009 $(43) $(44,147) $285,255Net income — — 19,758 — — 19,758Translation adjustments — — — — (7) — (7)Restricted shares vested, net of repurchasefor taxes 123,002 — (729) — — — (729)Stock-based compensation — — 4,032 — — — 4,032Treasury stock purchased (1,606,102) 1,606,102 — — — (24,523) (24,523)Balance at January 28, 2017 36,218,071 4,708,454 $88,739 $263,767 $(50) $(68,670) $283,786Net income — — — 7,016 — — 7,016Translation adjustments — — — — (13) — (13)Unrealized loss on available for saleinvestments — — — — (51) — (51)Restricted shares vested, net of repurchasefor taxes 174,985 — (618) — — — (618)Stock-based compensation — — 3,071 — — — 3,071Treasury stock purchased (934,031) 934,031 — — — (7,908) (7,908)Balance at February 3, 2018 35,459,025 5,642,485 $91,192 $270,783 $(114) $(76,578) $285,283Net income — — — 20,757 — — 20,757Translation adjustments — — — — (6) — (6)Unrealized gain on available for saleinvestments — — — — 96 — 96Restricted shares vested, net of repurchasefor taxes 181,533 — (547) — — — (547)Stock-based compensation — — 4,927 — — — 4,927Treasury stock purchased (1,293,138) 1,293,138 — — — (16,261) (16,261)Cumulative adjustment for accountingstandard adoption — — — 454 — — 454Balance at February 2, 2019 34,347,420 6,935,623 $95,572 $291,994 $(24) $(92,839) $294,703The accompanying notes are an integral part of these consolidated financial statements.56Table of ContentsVera Bradley, Inc.Consolidated Statements of Cash Flows(in thousands) Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Cash flows from operating activities Net income $20,757 $7,016 $19,758Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant, and equipment 16,540 19,570 19,516Impairment charges — 6,298 12,706Provision for doubtful accounts 184 425 439Stock-based compensation 4,927 3,071 4,032Deferred income taxes (1,497) 8,154 (2,176)Gain on short-term investment — — (152)Cash gain on investments 32 162 —Other non-cash charges, net 512 103 14Changes in assets and liabilities: Accounts receivable 438 7,322 7,542Inventories (3,994) 14,445 11,307Prepaid expenses and other assets (100) 566 (798)Accounts payable 738 (18,214) 9,001Income taxes 4,933 (870) (12,009)Accrued and other liabilities 94 (5,406) (3,994)Net cash provided by operating activities 43,564 42,642 65,186Cash flows from investing activities Purchases of property, plant, and equipment (8,148) (11,822) (20,778) Purchases of investments (59,461) (85,530) (30,000) Proceeds from maturities and sales of investments 85,559 45,716 — Proceeds from disposal of property, plant, and equipment 5 32 8Net cash provided by (used in) investing activities 17,955 (51,604) (50,770)Cash flows from financing activities Tax withholdings for equity compensation (547) (618) (729)Repurchase of common stock (16,064) (7,908) (24,959)Payments of debt-issuance costs (160) (123) —Other financing activities, net — — (27)Net cash used in financing activities (16,771) (8,649) (25,715)Effect of exchange rate changes on cash and cash equivalents (6) (13) (7)Net increase (decrease) in cash and cash equivalents 44,742 (17,624) (11,306)Cash and cash equivalents, beginning of period 68,751 86,375 97,681Cash and cash equivalents, end of period $113,493 $68,751 $86,375Supplemental disclosure of cash-flow information Cash paid for income taxes, net $4,035 $1,942 $24,824Cash paid for interest $169 $187 $248Supplemental disclosure of non-cash activity Non-cash operating, investing, and financing activities Repurchase of common stock incurred but not yet paid As of February 2, 2019, February 3, 2018 and January 28, 2017 $197 $— $— As of February 3, 2018, January 28, 2017 and January 30, 2016 $— $— $436 Purchases of property, plant, and equipment incurred but not yet paid As of February 2, 2019, February 3, 2018 and January 28, 2017 $1,065 $1,183 $2,204 As of February 3, 2018, January 28, 2017 and January 30, 2016 $1,183 $2,204 $2,872The accompanying notes are an integral part of these consolidated financial statements.57Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statements1.Description of the CompanyVera Bradley, Inc. (“Vera Bradley” or the “Company”) is a leading designer of women’s handbags, luggage and travel items, fashion and homeaccessories, and unique gifts. Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand’s innovative designs, iconicpatterns, and brilliant colors continue to inspire and connect women.Vera Bradley offers a unique multi-channel sales model, as well as a focus on service and a high level of customer engagement. The Company sells itsproducts through two reportable segments: Direct and Indirect. The Direct business consists of sales of Vera Bradley products through the Company’sfull-line and factory outlet stores in the United States; verabradley.com; the Company’s online outlet site; and the Company’s annual outlet sale in FortWayne, Indiana. As of February 2, 2019, the Company operated 99 full-line stores and 57 factory outlet stores. The Indirect business consists of sales ofVera Bradley products to approximately 2,300 specialty retail locations, substantially all of which are located in the United States, as well as departmentstores, national accounts, third party e-commerce sites, third-party inventory liquidators, and royalties recognized through licensing agreements.Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has eliminatedintercompany balances and transactions in consolidation.Fiscal PeriodsThe Company utilizes a 52-53 week fiscal year ended on the Saturday closest to January 31. As such, fiscal years 2019 and 2017, ending on February 2,2019 and January 28, 2017, respectively, each reflected a 52-week period. Fiscal year 2018 ending on February 3, 2018 reflected a 53-week period. 2.Summary of Significant Accounting PoliciesUse of Significant EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requiresmanagement to make estimates and assumptions that affect the reported amounts of the Company’s assets, liabilities, revenues, and expenses, as well asthe disclosures relating to contingent assets and liabilities at the date of the consolidated financial statements. Significant areas requiring the use ofmanagement estimates include the valuation of inventories, valuation of long-lived assets, accounts receivable valuation allowances, sales returnallowances, and the useful lives of assets for depreciation or amortization. Actual results could differ from these estimates. The Company revises itsestimates and assumptions as new information becomes available.Cash and Cash EquivalentsCash and cash equivalents represent cash on hand, deposits with financial institutions, and investments with an original maturity of three months or less.InvestmentsShort-term investments consist of investments with a maturity within one year of the balance sheet date. As of February 2, 2019, these investmentsconsisted of U.S. and non-U.S. corporate debt securities, municipal securities, U.S. treasury securities, and commercial paper. As of February 3, 2018,these investments consisted of U.S. and non-U.S. corporate debt securities, municipal securities, commercial paper, and a certificate of deposit. Long-terminvestments consist of investments with a maturity of greater than one year from the balance sheet date. As of February 2, 2019, these investmentsconsisted of U.S. and non-U.S. corporate debt securities, U.S. and non-U.S. asset-backed securities, and municipal securities. As of February 3, 2018, theseinvestments consisted of U.S. and non-U.S. corporate debt securities, municipal securities, and U.S. treasury securities. The Company’s objective withrespect to these investments is to earn a higher rate of return, relative to deposit accounts, on funds that are otherwise not anticipated to be required tomeet liquidity needs in the near term while maintaining a low level of investment risk. These debt securities are classified as available-for-sale; therefore,unrealized gains and losses are recorded within other comprehensive income. Interest income earned is recorded within interest (income) expense, net, inthe Company's Consolidated Statements of Income.Refer to Note 15 herein for additional information regarding the Company's investments.58Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsInventoriesInventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. Appropriateconsideration is given to obsolescence, excess quantities, and other factors, including the popularity of a pattern or product, in evaluating net realizablevalue. The Company's inventory consists solely of finished goods.Property, Plant, and EquipmentProperty, plant, and equipment are carried at cost and depreciated or amortized over the following estimated useful lives using the straight-line method: Buildings and building improvements ..............................................39.5 years Land improvements ...........................................................................5 – 15 years Furniture and fixtures, and leasehold improvements ........................3 – 10 years Equipment .........................................................................................7 years Vehicles .............................................................................................5 years Computer equipment and software ...................................................3 – 5 years The Company recognizes depreciation and amortization expense within cost of sales for expenditures related to distribution center, sourcing, and otherrelated functions and selling, general, and administrative expenses for all other expenditures. Leasehold improvements are amortized over the shorter ofthe life of the asset or the lease term. Lease terms typically range from three to ten years.When a decision is made to abandon property, plant, and equipment prior to the end of the previously estimated useful life, depreciation or amortizationestimates are revised to reflect the use of the asset over the shortened estimated useful life. At the time of disposal, the cost of assets sold or retired and therelated accumulated depreciation or amortization are removed from the accounts and any resulting loss is included in the Consolidated Statements ofIncome.Property, plant, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assetsmay not be recoverable. The reviews are conducted at the lowest identifiable level of cash flows. If the estimated undiscounted future cash flows relatedto the property, plant, and equipment are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying valueand the fair value, as further defined below in “Fair Value of Financial Instruments.”Routine maintenance and repair costs are expensed as incurred.The Company capitalizes certain costs incurred in connection with acquiring, modifying, and installing internal-use software. Capitalized costs areincluded in property, plant, and equipment and are amortized over three to five years. Software costs that do not meet capitalization criteria are expensedas incurred.Revenue Recognition and Accounts ReceivableVera Bradley product sales to Direct and Indirect customers, including amounts billed to customers for shipping fees, as well as royalties from theCompany’s licensing arrangements, are included in net revenues. Costs related to shipping of product are classified in cost of sales in the ConsolidatedStatements of Income. The Company has elected to treat shipping and handling activities that occur after the customer has obtained control of a good asan activity to fulfill the promise to transfer the product rather than as an additional promised service. Net revenues exclude sales taxes collected fromcustomers and remitted to governmental authorities from the transaction price.Revenue from the sale of the Company’s products is recognized when control of the promised goods or services is transferred to customers, in the amountthat reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Revenue is recognized using the five-stepmodel identified in Accounting Standards Codification (“ASC”) Topic 606. These steps are: (i) identify the contract with the customer; (ii) identify theperformance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to each performance obligation; and (v) recognizerevenue as the performance obligations are satisfied.The Company collects payment at the point of sale for full-line and factory outlet store transactions and upon shipment for e-commerce transactions. TheCompany generally collects payment in arrears in accordance with established payment terms for each customer within the Indirect segment.59Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsHistorical experience provides the Company the ability to reasonably estimate the amount of product sales that customers will return. Product returns areoften resalable through multiple channels. Additionally, the Company reserves for customer allowances for certain Indirect retailers based upon variouscontract terms and other potential product credits granted to Indirect retailers.The returns and credits reserve and the related activity for each fiscal year presented were as follows (in thousands): Balance atBeginning of Year ProvisionCharged toNet Revenues AllowancesTaken / Written Off Balance at Endof YearFiscal year ended February 2, 2019 $2,695 $17,946 $(18,730) $1,911Fiscal year ended February 3, 2018 5,360 23,504 (26,169) 2,695Fiscal year ended January 28, 2017 2,317 32,905 (29,862) 5,360The Company establishes an allowance for doubtful accounts based on historical experience and customer-specific identification and believes thatcollections of receivables, net of the allowance for doubtful accounts, are reasonably assured. The allowance for doubtful accounts was approximately$0.3 million and $0.9 million as of February 2, 2019, and February 3, 2018, respectively.Cost of SalesCost of sales includes material and labor costs, freight, inventory shrinkage, operating lease costs, duty, and other operating expenses, includingdepreciation of the Company’s distribution center and equipment. Costs and related expenses to purchase and distribute the products are recorded as costof sales when the related revenues are recognized.Operating Leases and Tenant-Improvement AllowancesThe Company has leases that contain rent holidays and predetermined, fixed escalations of minimum rentals. For each of these leases, the Companyrecognizes the related rent expense on a straight-line basis commencing on the date of initial possession of the leased property. The Company records thedifference between the recognized rent expense and the amount payable under the lease as a deferred rent liability. As of February 2, 2019 andFebruary 3, 2018, deferred rent liability was $12.9 million and is included within long-term liabilities on the Consolidated Balance Sheets.The Company receives tenant-improvement allowances from some of the landlords of its leased properties. These allowances generally are in the form ofcash received by the Company from its landlords as part of the negotiated lease terms. The Company records each tenant-improvement allowance as adeferred credit and amortizes the allowance on a straight-line basis as a reduction to rent expense over the term of the lease, commencing on thepossession date. As of February 2, 2019 and February 3, 2018, the deferred lease credit liability was $13.5 million and $14.6 million, respectively. Ofthis, $2.6 million and $2.4 million is included within other accrued liabilities as of February 2, 2019 and February 3, 2018, respectively and $10.9million and $12.2 million is included within long-term liabilities on the Consolidated Balance Sheets as of February 2, 2019 and February 3, 2018,respectively.Store Pre-Opening, Occupancy, and Operating CostsThe Company charges costs associated with the opening of new stores to selling, general, and administrative expenses as incurred. Selling, general, andadministrative expenses also include store operating costs, store employee compensation, and store occupancy and supply costs.Stock-Based CompensationThe Company accounts for stock-based compensation using the fair-value recognition provisions of Accounting Standards Codification 718, StockCompensation. Under these provisions, for its awards of restricted stock and restricted-stock units, the Company recognizes stock-based compensationexpense in an amount equal to the fair market value of the underlying stock on the grant date of the respective award. The Company recognizes thisexpense, net of estimated forfeitures, on a straight-line basis over the requisite service period.60Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsOther Income and Advertising CostsThe Company expenses advertising costs at the time the promotion first appears in media, in stores, or on the website, and includes those costs in selling,general, and administrative expenses in the Consolidated Statements of Income. The Company classifies the related recovery of a portion of such costsfrom Indirect retailers as other income in the Consolidated Statements of Income.Total advertising expense was as follows (in thousands): Fiscal year ended February 2, 2019$27,488Fiscal year ended February 3, 201826,953Fiscal year ended January 28, 201732,222Total recovery from Indirect retailers was as follows (in thousands): Fiscal year ended February 2, 2019$80Fiscal year ended February 3, 2018367Fiscal year ended January 28, 20171,000Debt-Issuance CostsUnamortized debt-issuance costs totaled $0.4 million as of February 2, 2019, and $0.5 million as of February 3, 2018, and are included in other assets onthe Consolidated Balance Sheets. The Company entered into an asset-based credit agreement on September 7, 2018 and recorded an immaterial amountof expense and debt-issuance costs related to the agreement. Refer to Note 5 herein for additional information. Amortization expense of $0.3 million,including the $0.2 million write-off of certain fees from the Company’s prior credit agreement, $0.2 million, and $0.2 million is included in interest(income) expense, net in the Consolidated Statements of Income for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017,respectively.Fair Value of Financial InstrumentsFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparencyof inputs to the valuation as of the measurement date:•Level 1 – Quoted prices in active markets for identical assets or liabilities;•Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;•Level 3 – Unobservable inputs based on the Company’s own assumptions.The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.The carrying amounts reflected on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, other current assets, and accountspayable as of February 2, 2019 and February 3, 2018, approximated their fair values.61Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsThe following table details the fair value measurements of the Company's investments as of February 2, 2019 and February 3, 2018 (in thousands): Level 1 Level 2 Level 3 February 2,2019 February 3,2018 February 2,2019 February 3,2018 February 2, 2019 February 3, 2018Cash equivalents (1)$2,169 $1,889 $6,493 $4,058 $— $—Short-term investments: Non-U.S. corporate debt securities— — 5,808 6,451 — — U.S. corporate debt securities— — 5,769 8,727 — — Municipal securities— — 4,190 12,942 — — U.S. treasury securities3,116 — — — Commercial paper— — 498 998 — — Certificate of deposit— — — 25,032 — —Long-term investments: U.S. corporate debt securities— — 9,499 4,543 — — U.S. asset-backed securities 7,169 — Non-U.S. corporate debt securities— — 4,675 2,775 — — Municipal securities— — 1,265 5,098 — — Non-U.S. asset-backed securities 1,127 — U.S. treasury securities— 3,099 — — — — (1) Cash equivalents as of February 2, 2019 include commercial paper and a money market fund. Cash equivalents as of February 3, 2018 alsoincluded municipal securities. These securities have a maturity of three months or less at the date of purchase. Due to their short maturity, theCompany believes the carrying value approximates fair value.The Company has certain assets that are measured on a non-recurring basis under circumstances and events described in Note 4 herein. Thecategorization of the framework to price these assets are within Level 3 due to the subjective nature of unobservable inputs.Income TaxesThe Company accrues income taxes payable or refundable and recognizes deferred tax assets and liabilities based on differences between the book andtax bases of assets and liabilities. The Company measures deferred tax assets and liabilities using enacted rates in effect for the years in which thedifferences are expected to reverse, and recognizes the effect of a change in enacted rates in the period of enactment. As such, the Company recognizedadditional income tax expense of $2.1 million during fiscal 2018 upon the enactment of the Tax Cuts and Jobs Act. Refer to Note 6 herein for additionalinformation.The Company establishes liabilities for uncertain positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognitionthreshold. The Company includes in income tax expense any interest and penalties related to uncertain tax positions.Recently Issued Accounting PronouncementsRecently Adopted Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts withCustomers. This guidance requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers inamounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The standard also requiresenhanced disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standardallows for either a full retrospective or a modified retrospective transition method. In August 2015, the FASB issued ASU 2015-14 to defer the effectivedate of ASU 2014-09 for all entities by one year to annual periods beginning after December 15, 2017, including interim periods within that reportingperiod, which for the Company was February 4, 2018 (the beginning of the Company’s fiscal 2019).62Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsThe Company adopted this standard in the first quarter of fiscal 2019 using the modified retrospective method with a $0.5 million cumulativeadjustment to beginning retained earnings. As a result of this adoption method, the prior-year period presented in the Company’s Consolidated FinancialStatements was not recast.The Company no longer adjusts revenue for shipments not yet received at each reporting period as it recognizes revenue as control is passed to thecustomer. It was determined that control is passed to the customer upon shipment, consistent with when legal title is passed. This accelerates therecognition of revenue at each reporting period compared to the Company’s historical practice.Revenue for unredeemed gift cards is estimated and recognized based on the historical patterns of gift card redemption. Historically, the Companyrecognized revenue for gift card breakage when the likelihood of the customer exercising their remaining rights became remote. The new revenuestandard results in accelerated recognition of gift card breakage revenue at each reporting period compared to the Company’s historical practice.Revenue associated with contractually guaranteed minimum royalties in sales-based royalty arrangements is recognized straight-line over the remaininglicense period once determined that the minimum sales level will not be achieved. Historically, the Company recognized any excess of the guaranteedminimum royalty over the actual royalties earned at the end of the license period.Certain liabilities for estimated product returns have been re-classified to other accrued liabilities from a contra-asset within accounts receivable, net, asof the adoption date.Refer to Note 3 herein for additional information regarding the adoption of ASC 606.Recently Issued Accounting Pronouncements Not Yet AdoptedIn February 2016, the FASB issued ASU 2016-02, Leases, which increases transparency and comparability among organizations by requiring lessees torecognize assets and liabilities on the balance sheet for the rights and obligations created by leases and disclosing key information about leasingarrangements. This guidance is effective for interim and annual periods beginning on or after December 15, 2018. In July 2018, the FASB issued ASU2018-11 for targeted improvements, including the option of allowing entities to initially apply the new leases standard at the adoption date (February 3,2019 for the Company) and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company plans to adopt thestandard using this adoption method and is on track to adopt the standard on February 3, 2019. In addition, the Company anticipates electing certainpractical expedients and transition reliefs, including the short-term lease recognition exemption, which excludes leases with a term of 12 months or lessfrom recognition on the balance sheet, recognizing lease components and nonlease components together as a single lease component, and the transitionrelief package which, among other things, includes not reassessing the lease classification or whether a contract is or contains a lease.The Company has operating leases at all of its retail stores; therefore, the adoption of this standard will result in a material increase of assets andliabilities on the Company’s Consolidated Balance Sheets. The Company is still assessing the potential impact that the adoption of this standard withhave on its financial statements and disclosures, but estimates the opening balance of its operating lease liabilities to be approximately $130 million to$160 million at transition on February 3, 2019. The Company expects to record corresponding operating right-of-use assets based upon the operatinglease liabilities adjusted for prepaid and deferred rent, unamortized tenant allowances, and the impairment of right-of-use assets at the transition date, ifany. The Company is continuing to evaluate the impact on its Consolidated Statements of Income and Consolidated Statements of Cash Flows, but doesnot expect the result to be material.In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements. Theamendments in this update remove, modify, and add certain disclosure requirements to ASC 820, Fair Value Measurement. This guidance is effective forinterim and annual periods beginning on or after December 15, 2019 (fiscal 2021). Early adoption is permitted, and certain amendments are to beadopted prospectively for only the most recent annual or interim period presented in the initial year of adoption or retrospectively. The Company iscurrently evaluating the impact of the guidance on its consolidated financial statements.In August 2018, the FASB issued ASU 2018-15, Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is aService Contract, which aligns the requirements for capitalizing or expensing implementation costs in hosting arrangements (regardless of whether theyconvey a license to the hosted software) with capitalizing or expensing implementation costs incurred to develop or obtain internal-use software. Thisguidance is effective for interim and annual periods beginning on or after December 15, 2019 (fiscal 2021). Early adoption is63Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statementspermitted, and the amendments can be adopted either retrospectively or prospectively. The Company is currently evaluating the impact of the guidanceon its consolidated financial statements.3.Revenue from Contracts with CustomersThe Company adopted ASC Topic 606 beginning in the first quarter of fiscal 2019 using the modified retrospective adoption method. Accordingly,disclosures herein required by the standard were excluded for the prior-year periods.The following tables illustrate the financial statement line items that were impacted as a result of the adoption of ASC Topic 606 as of and for the fifty-two weeks ended February 2, 2019. These adjustments are a result of adjusting for shipments not yet received by customers, gift card breakage revenue,and the re-classification of certain liabilities for estimated product returns, which are further described in Note 2 herein (in thousands). February 2, 2019 As Reported Adjustments Balances Under Prior U.S. GAAPConsolidated Balance Sheet Accounts receivable, net $15,604 $(2,497) $13,107Inventories 91,581 906 92,487Income taxes receivable 809 265 1,074Total current assets 252,468 (1,326) 251,142Deferred income taxes 6,724 106 6,830Total assets 362,148 (1,220) 360,928Other accrued liabilities 13,482 (156) 13,326Total current liabilities 43,556 (156) 43,400Total liabilities 67,445 (156) 67,289Retained earnings 291,994 (1,064) 290,930Total shareholders’ equity 294,703 (1,064) 293,639Total liabilities and shareholders’ equity 362,148 (1,220) 360,928 Fifty-Two Weeks Ended February 2, 2019 As Reported Adjustments Amounts Under Prior U.S. GAAPConsolidated Statement of Income Net revenues $416,097 $(1,478) $414,619Cost of sales 177,510 (655) 176,855Gross profit (loss) 238,587 (823) 237,764Operating income (loss) 27,101 (823) 26,278Income (loss) before income taxes 28,226 (823) 27,403Income tax expense (benefit) 7,469 (213) 7,256Net income (loss) 20,757 (610) 20,14764Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statements Fifty-Two Weeks Ended February 2, 2019 As Reported Adjustments Amounts Under Prior U.S. GAAPConsolidated Statement of Cash Flows Cash flows from operating activities Net income (loss) $20,757 $(610) $20,147Adjustments to reconcile net income (loss) to net cashprovided by operating activities: Deferred income taxes (1,497) 52 (1,445)Changes in assets and liabilities: Accounts receivable 438 1,837 2,275Inventories (3,994) (655) (4,649)Income taxes 4,933 (265) 4,668Accrued and other liabilities 94 (359) (265)Disaggregation of RevenueThe following presents the Company's net revenues disaggregated by product category for the fifty-two weeks ended February 2, 2019 (in thousands): Fifty-Two Weeks Ended February 2, 2019 Direct Segment Indirect Segment TotalProduct categories Bags $128,255 $42,626 $170,881Travel 87,746 19,767 107,513Accessories 75,751 17,043 92,794Home 26,846 2,757 29,603Other 9,436(1) 5,870(2) 15,306Total net revenues $328,034(3) $88,063(4) $416,097 (1) Primarily includes net revenues from stationery, apparel/footwear, freight, and gift card breakage.(2) Primarily includes net revenues from licensing agreements, freight, apparel/footwear, and merchandising.(3) Net revenues were related to product sales recognized at a point in time.(4) $84.5 million of net revenues related to product sales recognized at a point in time and $3.6 million of net revenues related to sales-basedroyalties recognized over time.Contract BalancesContract liabilities as of February 2, 2019, consisted of $1.6 million of unearned revenue related to unredeemed gift cards and an immaterial amount ofunearned revenue for pre-payments of royalties in certain of the Company’s licensing arrangements. These contract liabilities are recognized within otheraccrued liabilities on the Company’s Consolidated Balance Sheets. The Company did not have contract assets as of February 2, 2019.The balance for accounts receivable from contracts with customers, net of allowances, as of February 2, 2019 was $14.1 million, which is recognizedwithin accounts receivable, net, on the Company’s Consolidated Balance Sheets. The provision for doubtful accounts was $0.3 million as of February 2,2019. Performance ObligationsThe performance obligations for the Direct and Indirect segments include the promise to transfer distinct goods (or a bundle of distinct goods). TheIndirect segment also includes the right to access the Company’s intellectual property (“IP”).65Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsRemaining Performance ObligationsThe Company does not have remaining performance obligations in excess of one year or contracts that it does not have the right to invoice as ofFebruary 2, 2019.Significant JudgmentsProduct SalesIn the Company’s retail stores (recognized within the Direct segment), control is transferred and net revenue is recognized at the point of sale. Productshipments for the Company’s e-commerce channel (recognized within the Direct segment) and shipments to its Indirect retailers (recognized within theIndirect segment) are generally shipped Free on Board (“FOB”) shipping point typically from its distribution center in Roanoke, Indiana, and netrevenue is recognized upon shipment consistent with when control is transferred to the customer. Upon shipment, the customer has the right to direct theuse of, and obtain substantially all of the benefits from, the product.Licensing RoyaltiesThe Company grants rights to access its IP and accounts for any resulting sales-based royalty revenue over time, as the subsequent sales occur. TheCompany has contractually guaranteed minimum royalties in certain of its sales-based royalty arrangements which are recognized straight-line over theremaining license period once determined that the minimum sales level will not be achieved. Licensing royalties are recognized within Indirect segmentnet revenues.Transaction Price and Amounts Allocated to Performance ObligationsThe transaction price is the amount of consideration the Company expects to be entitled to in a sales transaction. The transaction price is net ofdiscounts, estimated variable consideration (if any), and any customer allowances offered or estimated, including those offered to certain Indirectretailers based on various contract terms. The transaction price also is net of allowances for product returns, which the Company is able to reasonablyestimate based upon historical experience. The transaction price is allocated to each performance obligation in the contract based upon the standaloneselling price.Contract CostsSales commissions are paid to certain employees based upon specific sales achieved during a time period. As the Company’s contracts related to thesesales commissions do not exceed one year, these incentive payments are expensed as incurred.Other Practical ExpedientsRemaining Performance ObligationsThe Company does not disclose the remaining performance obligations for contracts with an original expected duration of one year or less or forcontracts which it has the right to invoice.Significant Financing ComponentsThe Company does not adjust for the time value of money as the majority of its contracts have an original expected duration of one year or less;contracts that are greater than one year are related to net revenues that are constrained until the subsequent sales occur. The net revenues associated withthese contracts are immaterial, and the Company does not adjust for the time value of money.66Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statements4.Property, Plant, and EquipmentProperty, plant, and equipment consisted of the following (in thousands): February 2, 2019 February 3, 2018Land and land improvements $5,981 $5,981Building and building improvements 46,233 46,233Furniture, fixtures, leasehold improvements, computer equipment and software 112,316 108,351Equipment and vehicles 21,002 20,264Construction in progress 1,699 903 187,231 181,732Less: Accumulated depreciation and amortization (109,280) (95,269)Property, plant, and equipment, net $77,951 $86,463Property, plant, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assetsmay not be recoverable. The reviews are conducted at the lowest identifiable level of cash flows. If the estimated undiscounted future cash flows relatedto the property, plant, and equipment are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying valueand the fair value, as further defined in Note 2. Impairment charges of $6.3 million and $12.7 million were recognized, using level 3 inputs, in the fiscalyears ended February 3, 2018 and January 28, 2017, respectively, for assets related to underperforming stores and are included in selling, general, andadministrative expenses in the Consolidated Statements of Income and in impairment charges in the Consolidated Statements of Cash Flows. Theimpairment charges are included in the Direct segment. There were no impairment charges recorded during the fiscal year ended February 2, 2019.Depreciation and amortization expense associated with property, plant, and equipment, excluding impairment charges (in thousands): Fiscal year ended February 2, 2019$16,540Fiscal year ended February 3, 201819,570Fiscal year ended January 28, 201719,516 5.DebtAs of February 2, 2019 and February 3, 2018, the Company had no borrowings outstanding and availability of $75.0 million and $125.0 million underits New Credit Agreement and Prior Credit Agreement, respectively.New Credit Agreement and Prior Credit AgreementOn September 7, 2018, Vera Bradley Designs, Inc. (“VBD”), a wholly-owned subsidiary of the Company, entered into an asset-based revolving CreditAgreement (the “New Credit Agreement”) among VBD, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time partythereto. The New Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of$75.0 million or the amount of borrowing availability determined in accordance with a borrowing base of certain assets. Any proceeds of the creditfacilities will be used to finance general corporate purposes of VBD and its subsidiaries, including but not limited to Vera Bradley International, LLCand Vera Bradley Sales, LLC (collectively, the “Named Subsidiaries”). The New Credit Agreement also contains an option for VBD to arrange withlenders to increase the aggregate principal amount by up to $25.0 million.Amounts outstanding under the New Credit Agreement bear interest at a per annum rate equal to either (i) for CBFR borrowings (including swinglineloans), the CB Floating Rate, where the CB Floating Rate is the prime rate which shall never be less than the adjusted one month LIBOR rate on suchday, plus the Applicable Rate, where the Applicable Rate is a percentage spread ranging from -1.00% to -1.50% or (ii) for each eurodollar borrowing, theAdjusted LIBO Rate, where the Adjusted LIBO Rate is the LIBO rate for such interest period multiplied by the statutory reserve rate, for the interestperiod in effect for such borrowing, plus the Applicable Rate, where the Applicable Rate is a percentage ranging from 1.00% to 1.30%. The applicableCB Floating Rate, Adjusted LIBO Rate, or LIBO Rate shall be determined by the67Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statementsadministrative agent. The New Credit Agreement also requires VBD to pay a commitment fee for the unused portion of the revolving facility of up to0.20% per annum.VBD’s obligations under the New Credit Agreement are guaranteed by the Company and the Named Subsidiaries. The obligations of VBD under the NewCredit Agreement are secured by substantially all of the respective assets of VBD, the Company, and the Named Subsidiaries and are further secured bythe equity interests in VBD and the Named Subsidiaries.The New Credit Agreement contains various affirmative and negative covenants, including restrictions on the Company's ability to incur debt or liens;engage in mergers or consolidations; make certain investments, acquisitions, loans, and advances; sell assets; enter into certain swap agreements; paydividends or make distributions or make other restricted payments; engage in certain transactions with affiliates; and amend, modify, or waive any of itsrights related to subordinated indebtedness and certain charter and other organizational, governing, and material agreements. The Company may avoidcertain of such restrictions by meeting payment conditions defined in the New Credit Agreement.The New Credit Agreement also requires the loan parties, as defined in the New Credit Agreement, to maintain a minimum fixed charge coverage ratio of1.00 to 1.00 during periods when borrowing availability is less than the greater of (A) $7.5 million, and (B) 10% of the lesser of (i) the aggregaterevolving commitment, and (ii) the borrowing base. The fixed charge coverage ratio, availability, aggregate revolving commitment, and the borrowingbase are further defined in the New Credit Agreement.The New Credit Agreement contains customary events of default, including, among other things: (i) the failure to pay any principal, interest, or other feesunder the New Credit Agreement; (ii) the making of any materially incorrect representation or warranty; (iii) the failure to observe or perform anycovenant, condition, or agreement in the New Credit Agreement or related agreements; (iv) a cross default with respect to other material indebtedness; (v)bankruptcy and insolvency events; (vi) unsatisfied material final judgments; (vii) Employee Retirement Income Security Act of 1974 (“ERISA”) eventsthat could reasonably be expected to have a material adverse effect; and (viii) a change in control (as defined in the New Credit Agreement).Any commitments made under the New Credit Agreement mature on September 7, 2023. There were no material fees or expenses associated with the NewCredit Agreement.Prior to September 7, 2018, VBD was party to the Second Amended and Restated Credit Agreement (the “Prior Credit Agreement”), which was enteredinto on July 15, 2015. The Prior Credit Agreement was among VBD, the lenders from time to time party thereto, JPMorgan Chase Bank, NationalAssociation, as administrative agent; Wells Fargo Bank, National Association, as syndication agent; and KeyBank National Association, asdocumentation agent. The Prior Credit Agreement provided for certain credit facilities to VBD in an aggregate principal amount not to initially exceed$125.0 million, the proceeds of which could be used for general corporate purposes of VBD and its subsidiaries, including but not limited to VeraBradley International, LLC and Vera Bradley Sales, LLC. The Prior Credit Agreement was terminated concurrently with entering into the New CreditAgreement.6.Income TaxesThe components of income tax expense were as follows (in thousands): February 2, 2019 February 3, 2018 January 28, 2017Current: Federal $7,020 $488 $8,810Foreign 610 364 526State 1,336 (628) 1,124 8,966 224 10,460Deferred: Federal (1,663) 7,476 (1,623)State 166 678 (553) (1,497) 8,154 (2,176)Total income tax expense $7,469 $8,378 $8,284A breakdown of the Company’s income before income taxes is as follows (in thousands):68Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statements February 2, 2019 February 3, 2018 January 28, 2017Domestic $24,426 $13,666 $24,891Foreign 3,800 1,728 3,151Total income before income taxes $28,226 $15,394 $28,042A reconciliation of income tax expense to the amount computed at the federal statutory rate is as follows (in thousands): February 2, 2019 February 3, 2018 January 28, 2017Federal taxes at statutory rate $5,927 21.0 % $5,067 32.9 % $9,815 35.0 %State and local income taxes, net offederal benefit 1,203 4.3 665 4.3 371 1.3Impact of foreign rate differential (188) (0.7) (247) (1.6) (413) (1.5)Change in uncertain tax positions (17) (0.1) (632) (4.1) (1,426) (5.1)Change in U.S. tax rate — — 2,026 13.2 — —Deemed mandatory repatriation — — 345 2.2 — —Shortfall from stock-basedcompensation 101 0.4 1,111 7.2 17 0.1Other 443 1.6 43 0.3 (80) (0.3)Total income tax expense $7,469 26.5 % $8,378 54.4 % $8,284 29.5 %On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act includes, among other things, a corporate tax ratedecrease from 35% to 21% effective for tax years beginning after December 31, 2017, bonus depreciation that will allow for full expensing for qualifiedproperty, the transition of U.S. international taxation from a worldwide system to a territorial system with a new provision designed to tax globalintangible low-taxed income ("GILTI"), and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. Section 15of the Internal Revenue Code stipulates that the Company's fiscal year ended February 3, 2018, had a blended federal statutory tax rate of approximately32.9%, which is based on the applicable tax rates before and after the effectiveness of the Tax Act and the number of days in the year.The Company recorded $2.1 million in provisional income tax expense during the fourth quarter of fiscal 2018 based upon its understanding of the TaxAct and guidance as of the date of the fiscal 2018 filing. Of the $2.1 million, $2.0 million was related to the remeasurement of net deferred tax assets atrates which they are expected to reverse in the future and $0.3 million was related to the one-time transition tax on mandatory deemed repatriation offoreign earnings, which were partially offset by a $0.2 million income tax benefit related to the blended federal statutory rate. The Tax Act created a newrequirement that certain income earned by foreign subsidiaries, known as GILTI, must be included in the gross income of their U.S. shareholder. TheCompany elected to treat the tax effect of GILTI as a current-period expense when incurred. During the fourth quarter of fiscal 2019, the Companycompleted its accounting for the Tax Act and recorded no material adjustments to its fiscal 2018 provisional estimate.69Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsDeferred income taxes reflect the net tax effects of temporary differences between the book and tax bases of assets and liabilities. Significant componentsof deferred tax assets and liabilities were as follows (in thousands): February 2, 2019 February 3, 2018Deferred tax assets: Compensation and benefits $2,912 $992Inventories 1,753 1,576Deferred credits from landlords 6,922 7,305Other 1,241 2,156Total deferred tax assets 12,828 12,029Deferred tax liabilities: Property, plant, and equipment (3,859) (4,386)Other (2,245) (2,258)Total deferred tax liabilities (6,104) (6,644)Net deferred tax assets $6,724 $5,385Uncertain Tax PositionsA reconciliation of the beginning and ending gross amount of unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands): February 2, 2019 February 3, 2018 January 28, 2017Beginning balance $104 $877 $3,099Net increases in unrecognized tax benefits as a result of current year activity 44 — 15Net increases in unrecognized tax benefits as a result of prior year activity — 210 —Reductions for tax positions of prior years — (877) (1,695)Settlements — — (214)Lapse of statute of limitations (65) (106) (328)Ending balance $83 $104 $877As of February 2, 2019, $0.1 million of total unrecognized tax benefits, net of federal benefit, would, if recognized, favorably affect the effective tax ratein future periods. Total unrecognized tax benefits are currently not expected to decrease by a significant amount in the next twelve months. TheCompany recognized an immaterial amount of interest only, no penalties, related to unrecognized tax benefits in the fiscal years ended February 2, 2019,February 3, 2018, and January 28, 2017. Unrecognized tax benefits are included within long-term liabilities in the Company's Consolidated BalanceSheets.The Company files income tax returns in the U.S. federal jurisdiction and various U.S. state and foreign jurisdictions. The Company is subject to U.S.federal income tax examinations for fiscal years 2016 and forward. With a few exceptions, the Company is subject to audit by various state and foreigntaxing authorities for fiscal 2015 through the current fiscal year.70Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statements7.LeasesThe Company is party to non-cancellable operating leases. Future minimum lease payments under the non-cancellable operating leases throughexpiration are as follows (in thousands and by fiscal year): Fiscal Year Amount2020 $32,6582021 32,0172022 29,7072023 25,9332024 22,250Thereafter 45,099 $187,664Rental expense for all leases was as follows (in thousands): Fiscal year ended February 2, 2019$34,279Fiscal year ended February 3, 201835,663Fiscal year ended January 28, 201733,925 Lease terms generally range from three to ten years, generally ten years in the case of the Company's retail stores, with options to renew for varying terms.Future minimum lease payments relate primarily to the lease of retail space. Additionally, several lease agreements contain a provision for paymentsbased on a percentage of sales in addition to the stated lease payments. Percentage rent expense was $3.4 million, $3.1 million, and $2.8 million forfiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017, respectively. 8.Stock-Based CompensationThe Company’s stock-based compensation consists of awards of restricted stock and restricted stock units. The Company recognized stock-basedcompensation expense of $4.9 million, $3.1 million, and $4.0 million in the fiscal years ended February 2, 2019, February 3, 2018, and January 28,2017, respectively.Awards of Restricted-Stock UnitsThe Company reserved 6,076,001 shares of common stock for issuance or transfer under the 2010 Equity and Incentive Plan, which allows for grants ofrestricted stock units, as well as other equity awards. As of February 2, 2019, there were 4,384,555 shares remaining in that program.During the fiscal year ended February 2, 2019, the Company granted a total of 491,162 time-based and performance-based restricted stock units tocertain employees and non-employee directors under the 2010 Equity and Incentive Plan with an aggregate fair value of $5.5 million. The Companydetermined the fair value of the units based on the closing price of the Company’s common stock on the grant date.The majority of time-based restricted stock units vest and settle in shares of the Company’s common stock, on a one-for-one basis, in equal installmentson each of the first three anniversaries of the grant date. Restricted stock unit awards issued to non-employee directors vest after a one-year period fromthe grant date. The Company is recognizing the expense relating to these awards, net of estimated forfeitures, on a straight-line basis over the vestingperiod.The majority of performance-based restricted stock units vest upon the completion of a three-year period of time (cliff vesting), subject to the employee’scontinuing employment throughout the three-year performance period and the Company’s achievement of annual earnings per share targets, or otherCompany performance targets, during the three-year performance period. The Company is recognizing the expense relating to these units, net ofestimated forfeitures and based on the probable outcome of achievement of the financial targets, on a straight-line basis over the vesting period.71Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsThe following table summarizes information about restricted-stock units as of and for the year ended February 2, 2019 (units in thousands): Time-basedRestricted Stock Units Performance-basedRestricted Stock Units Number ofUnits Weighted-AverageGrantDate FairValue(per unit) Number ofUnits Weighted-AverageGrantDate FairValue(per unit)Nonvested units outstanding at February 3, 2018 401 $12.38 363 $13.83Granted 300 11.23 191 10.94Change due to performance condition achievement — — (9) 13.77Vested (214) 12.26 (20) 16.06Forfeited (14) 10.95 (83) 15.04Nonvested units outstanding at February 2, 2019 473 $11.75 442 $11.38 As of February 2, 2019, there was $4.9 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stockunits. That cost is expected to be recognized over a weighted average period of 1.3 years, subject to meeting performance conditions. The total fair valueof restricted stock units for which restrictions lapsed (vested) during fiscal 2019 was $2.5 million. 9.Commitments and ContingenciesPayment Card IncidentDescription of EventOn September 15, 2016, the Company received information from law enforcement regarding a potential data security issue related to its retail storenetwork. Findings from the investigation showed unauthorized access to the Company's payment processing system and the installation of a programthat looked for payment card data. The program was specifically designed to find track data in the magnetic stripe of a payment card that may contain thecard number, cardholder name, expiration date, and internal verification code as the data was being routed through the affected payment system. There isno indication that other customer information was at risk. Payment cards used at Vera Bradley store locations between July 25, 2016 and September 23,2016 may have been affected. Not all cards used in stores during this time frame were affected. Cards used on verabradley.com were not affected.The Company timely resolved this incident and continues to work with a computer security firm to further strengthen the security of its systems to helpprevent events of this nature from happening in the future. The Company promptly notified the payment card networks so that the banks that issuepayment cards could initiate heightened monitoring on the affected cards. As of the date of this filing, the Company has resolved all claims associatedwith this incident and does not expect any material changes to its exposure.Expenses Incurred and Amounts AccruedDuring the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017, the Company recorded an immaterial amount of expenserelating to the Payment Card Incident. Expenses included remediation activities during fiscals 2019 and 2018 and costs to investigate the Payment CardIncident and obtain legal and other professional services during fiscal 2017. There were no incremental expenses associated with the claims received infiscals 2019 or 2018 as they were reimbursed under the Company's insurance coverage. The insurance deductible was accrued during fiscal 2017.Future CostsThe Company believes there are no outstanding amounts due with respect to this matter.Insurance CoverageThe Company maintains $15.0 million of cyber security insurance coverage above a $0.1 million deductible.72Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsOther Commitments and ContingenciesThe Company is also subject to various claims and contingencies arising in the normal course of business, including those relating to product liability,legal claims, employee benefits, environmental, and other matters. Management believes that at this time it is not probable that any of these claims willhave a material adverse effect on the Company’s financial condition, results of operations, or cash flows. However, the outcomes of legal proceedingsand claims brought against the Company are subject to uncertainty and future developments could cause these actions or claims, individually or in theaggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.10.401(k) Profit Sharing Plan and TrustThe Company has a 401(k) profit sharing plan and trust for all qualified employees and provides a 100% match for the first 3% of employeecontributions and a 50% match for the next 2% of employee contributions, for a maximum Company match of 4% of employee contributions, limited tothe annual legal allowable limit. Additionally, the Company has the option of making discretionary profit sharing payments to the plan as approved bythe board of directors. As of February 2, 2019, February 3, 2018, and January 28, 2017, no discretionary profit sharing payments had been approved. TheCompany recognizes 401(k) Company contributions within cost of sales for employees related to distribution center, sourcing, and other relatedfunctions and selling, general, and administrative expenses for all other employees. Total Company contributions to the plan were as follows(in thousands): Fiscal year ended February 2, 2019$1,661Fiscal year ended February 3, 20181,533Fiscal year ended January 28, 20171,624 11.Related-Party TransactionsCharitable Contributions. During each of the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017 the Company made charitablecontributions of approximately $0.1 million to the Vera Bradley Foundation for Breast Cancer (the “Foundation”). The Foundation was founded by twoof the Company’s directors, who are also on the board of directors of the Foundation. The liability associated with commitments to the Foundation wasapproximately $0.3 million and $0.4 million as of February 2, 2019 and February 3, 2018, respectively. The liability consisted of pass-throughdonations from customers and is included in other accrued liabilities in the Consolidated Balance Sheets.The associated expense for contributions to the Foundation, which is included in selling, general, and administrative expenses, was as follows (inthousands): Fiscal year ended February 2, 2019$144Fiscal year ended February 3, 2018140Fiscal year ended January 28, 201753Share Repurchases. During the fiscal year ended February 2, 2019, the Company repurchased a total of 400,000 common shares from related-parties asdescribed below. Each transaction was approved by the Company's Audit Committee and effected as part of the 2015 Share Repurchase Program. Refer toNote 13 herein for details regarding the Company's current and prior share repurchase programs.On June 26, 2018, the Company agreed to repurchase 200,000 common shares from the Barbara B Baekgaard 2009 Grantor Retained Annuity Trust (the“Baekgaard Trust”) at a price of $14.43 per share, representing an approximate four percent (4%) discount from the closing price of $15.03 on June 25,2018. The Baekgaard Trust was established by the Company’s co-founder, Barbara Bradley Baekgaard, and is managed by two of Ms. Baekgaard’schildren, Joan Byrne Hall (who is also the spouse of the Company’s chairman) and James Bradley Byrne.On September 27, 2018, the Company agreed to repurchase 200,000 common shares from the Patricia R. Miller 2007 Family Trust (the “Miller Trust”) ata price of $15.04 per share, representing an approximate three and one half percent (3.5%) discount from the closing price of $15.58 on September 26,2018. P. Michael Miller is the trustee of the Miller Trust73Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statementsand is a director of the Company. P. Michael Miller and Patricia Miller, the Company's co-founder and a director, are husband and wife.12.Earnings Per ShareBasic net income per share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net income pershare is computed based on the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstandingduring the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock and restricted-stock units. Thecomponents of basic and diluted net income per share are as follows (in thousands, except per share data): Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Numerator: Net income $20,757 $7,016 $19,758Denominator: Weighted-average number of common shares (basic) 35,222 35,925 36,838Dilutive effect of stock-based awards 245 101 132Weighted-average number of common shares (diluted) 35,467 36,026 36,970Earnings per share: Basic $0.59 $0.20 $0.54Diluted $0.59 $0.19 $0.53As of February 2, 2019, February 3, 2018, and January 28, 2017, there were an immaterial number of additional shares issuable upon the vesting ofrestricted stock units that were excluded from the diluted share calculations because they were anti-dilutive. The diluted share calculations includeperformance-based restricted stock units for completed performance periods. 13.Common StockOn December 8, 2015, the Company's board of directors approved a share repurchase program (the “2015 Share Repurchase Program”) authorizing up to$50.0 million of repurchases of shares of the Company's common stock. On November 30, 2017, the board of directors authorized the Company toextend the 2015 Share Repurchase Plan to December 31, 2018. The 2015 Share Repurchase program was completed on November 27, 2018. OnNovember 29, 2018, the Company's board of directors approved a new share repurchase plan (the “2018 Share Repurchase Program”) authorizing up to$50.0 million of repurchases of shares of the Company's common stock. The 2018 Share Repurchase Program expires December 14, 2020.During the fiscal year ended February 2, 2019, the Company purchased and held 1,293,138 shares at an average price of $12.58 per share, excludingcommissions, for an aggregate amount of $16.3 million. Of these purchases, 320,296 shares at an average price of $8.86 per share, for an aggregateamount of $2.8 million, were purchased under the 2018 Share Repurchase Plan.During the fiscal year ended February 3, 2018, the Company purchased and held 934,031 shares at an average price of $8.47 per share, excludingcommissions, for an aggregate amount of $7.9 million, under the 2015 Share Repurchase Program.During the fiscal year ended January 28, 2017, the Company purchased and held 1,606,102 shares at an average price of $15.27 per share, excludingcommissions, for an aggregate amount of $24.5 million, under the 2015 Share Repurchase Program.As of February 2, 2019, there was $47.2 million remaining available to repurchase shares of the Company's common stock under the 2018 ShareRepurchase Program.As of February 2, 2019, the Company held as treasury shares 6,935,623 shares of its common stock at an average price of $13.39 per share, excludingcommissions, for an aggregate carrying amount of $92.8 million. The Company’s treasury shares may be issued under the 2010 Equity and IncentivePlan or for other corporate purposes.74Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statements14.Vision 20/20 Restructuring and Other ChargesFifty-Three Weeks Ended February 3, 2018Vision 20/20 Initiatives and Charges. During fiscal 2018, the Company launched its Vision 20/20 strategic plan, which involves an aggressive approachto turn around its business over the period ending in fiscal 2021. The plan is primarily focused on product and pricing initiatives, as well as selling,general, and administrative (“SG&A”) expense reduction initiatives. The product and pricing initiatives include restoring the Company's full-pricebusiness by significantly reducing the amount of clearance merchandise offered on verabradley.com and in its full-line stores, streamlining currentproduct offerings by eliminating unproductive or incongruent categories and SKUs from its assortment, and introducing tighter guardrails around newproduct categories, patterns, and pricing.The SG&A expense reductions include right-sizing the Company’s corporate infrastructure to better align with the size of the business, optimizingmarketing spending by focusing on efficiencies, and taking a more aggressive stance on closing underperforming full-line stores. These SG&A expensereductions began in the third quarter of fiscal 2018, largely aimed at right-sizing the corporate infrastructure. The majority of the product and pricinginitiatives were completed during fiscal 2019. There have been $16.7 million of pre-tax Vision 20/20-related charges ($10.6 million after the associatedtax benefit) since inception, all of which were recognized during fiscal 2018. There were no Vision 20/20-related charges during the fiscal years endedFebruary 2, 2019 and January 28, 2017.The Company has incurred the following Vision 20/20-related charges during the fiscal year ended February 3, 2018 (in thousands): Fiscal 2018 Statements of Income Line Item Total Expense Reportable Segment UnallocatedCorporateExpensesSG&A Cost of Sales Direct Indirect Asset impairment charges (1)$6,298 $— $6,298 $6,298 $— $—Strategic consulting charges (2)4,649 — 4,649 — — 4,649Severance charges3,867 199 4,066 826 1,184 2,056Inventory-related charges (3)— 935 935 — 935 —Other charges (4)751 — 751 466 230 55Total$15,565 $1,134 $16,699(5) $7,590 $2,349 $6,760 (1) Refer to Note 4 herein for additional details(2) Consulting charges for the identification and implementation of Vision 20/20 initiatives(3) Inventory adjustments for the discontinuation of certain inventory categories(4) Includes a net lease termination charge ($399 recognized within the Direct segment) and accelerated depreciation charges and other charges($67 recognized within the Direct segment, $230 recognized within the Indirect segment, and $55 recognized within corporate unallocatedexpenses)(5) After the associated tax benefit, the charges totaled $10.6 millionA summary of charges and related liabilities associated with the Vision 20/20 initiatives are as follows (in thousands): AssetImpairmentCharges StrategicConsultingCharges SeveranceCharges Inventory-RelatedCharges Other Charges TotalFiscal 2018 charges$6,298 $4,649 $4,066 $935 $751 $16,699Cash payments— (4,649) (2,508) — (411) (7,568)Non-cash charges(6,298) — — (935) (340) (7,573)Liability as of February 3, 2018 (1)$— $— $1,558 $— $— $1,558 (1) The remaining liability as of fiscal 2018 was associated with severance charges and is included within accrued employment costs in theConsolidated Balance Sheets. The remaining liability as of fiscal 2018 was paid during fiscal 2019 and there were no additional charges duringfiscal 2019.75Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsOther Charges. Other charges recognized in selling, general, and administrative expenses during fiscal 2018, before the implementation of Vision 20/20,totaled $2.8 million ($1.7 million after the associated tax benefit). These pre-tax charges consisted of $2.5 million in severance charges (recognizedwithin corporate unallocated expenses) and $0.3 million for a net lease termination charge (recognized within the Direct segment).Other charges recognized in tax expense during fiscal 2018 totaled $2.1 million related to the Tax Cuts and Jobs Act further described in Note 6 herein.Fifty-Two Weeks Ended January 28, 2017Other charges recognized in selling, general, and administrative expenses during fiscal 2017 totaled $13.6 million ($8.6 million after the associated taxbenefit) and consisted of store impairment charges of $12.7 million (recognized within the Direct segment) and a severance charge of $0.9 million(recognized within corporate unallocated expenses). Refer to Note 4 herein for additional details regarding the store impairment charges. Fiscal 2017also included a $1.6 million tax benefit (reflected in income tax expense) related to the release of certain income tax reserves.15.InvestmentsThe Company held $19.4 million and $54.2 million in short-term investments as of February 2, 2019 and February 3, 2018, respectively. The followingtable summarizes the Company's short-term investments (in thousands): February 2, 2019 February 3, 2018Non-U.S. corporate debt securities$5,808 $6,451U.S. corporate debt securities5,769 8,727Municipal securities4,190 12,942U.S. treasury securities3,116 —Commercial paper498 998Certificate of deposit— 25,032Total short-term investments$19,381 $54,150The Company held $23.7 million and $15.5 million in long-term investments as of February 2, 2019 and February 3, 2018, respectively. The followingtable summarizes the Company's long-term investments (in thousands): February 2, 2019 February 3, 2018U.S. corporate debt securities$9,499 $4,543U.S. asset-back securities7,169 —Non-U.S. corporate debt securities4,675 2,775Municipal securities1,265 5,098Non-U.S. asset-backed securities1,127 —U.S. treasury securities— 3,099Total long-term investments$23,735 $15,515There were no material gross unrealized gains or losses on available-for-sale debt securities as of February 2, 2019 and February 3, 2018.16.Segment ReportingThe Company has two operating segments, which are also its reportable segments: Direct and Indirect. These operating segments are components of theCompany for which separate financial information is available and for which operating results are evaluated on a regular basis by the chief operatingdecision maker in deciding how to allocate resources and in assessing the performance of the segments.The Direct segment includes the Company’s full-line and factory outlet stores, the Company’s website, verabradley.com, the Company’s online outletsite, and the annual outlet sale. Revenues generated through this segment are driven through the sale of Company-branded products from Vera Bradleyto end consumers.76Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsThe Indirect segment represents revenues generated through the distribution of Company-branded products to specialty retailers representingapproximately 2,300 locations, substantially all of which are located in the United States, as well as select department stores, national accounts, thirdparty e-commerce sites, third-party inventory liquidators, and licensing agreements. No customer accounted for 10% or more of the Company’s netrevenues during fiscal years 2019, 2018, and 2017.Corporate costs represent the Company’s administrative expenses, which include, but are not limited to: human resources, legal, finance, informationtechnology, and various other corporate-level-activity-related expenses. All intercompany-related activities are eliminated in consolidation and areexcluded from the segment reporting.Company management evaluates segment operating results based on several indicators. The primary or key performance indicators for each segment arenet revenues and operating income. The table below represents key financial information for each of the Company’s operating and reportable segments:Direct and Indirect.The accounting policies of the segments are the same as those described in Note 2. The Company does not report depreciation or amortization expense,total assets, or capital expenditures by segment as such information is neither used by management nor accounted for at the segment level.Net revenues and operating income information for the Company’s reportable segments consisted of the following (in thousands): Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Segment net revenues: Direct $328,034 $351,786 $355,175Indirect 88,063 102,862 130,762Total $416,097 $454,648 $485,937Segment operating income: Direct $67,862 $60,979 $62,577Indirect 34,500 34,763 50,955Total $102,362 $95,742 $113,532Reconciliation: Segment operating income $102,362 $95,742 $113,532Less: Unallocated corporate expenses (75,261) (80,761) (85,312)Operating income $27,101 $14,981 $28,220Sales outside of the United States were immaterial for all periods presented.77Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial StatementsRevenues from external customers for Vera Bradley brand products are attributable to sales of bags, travel, accessories, and home items. Other revenuesfrom external customers primarily include revenues associated with our apparel/footwear, stationery, freight, licensing, merchandising, and gift cardbreakage. Refer to Note 3 herein for disaggregation of net revenues by reportable segment for fiscal 2019.Net revenues by product categories are as follows (in thousands): Fiscal Year Ended February 2, 2019 February 3, 2018 January 28, 2017Net revenues: Bags $170,881 $184,773 $207,765Travel 107,513 118,655 119,082Accessories 92,794 100,246 106,223Home 29,603 30,819 27,574Other 15,306 20,155 25,293Total $416,097 $454,648 $485,937As of February 2, 2019 and February 3, 2018, substantially all of the Company’s long-lived assets were located in the United States. 17.Quarterly Financial Information (Unaudited)The tables below set forth selected quarterly financial data for each of the last two fiscal years (in thousands, except per share data). The fourth quarter offiscal 2018 was fourteen weeks in duration. Each of the other quarters presented was thirteen weeks in duration. Fiscal Year Ended February 2, 2019 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (unaudited) (unaudited) (unaudited) (unaudited)Net revenues $86,591 $113,625 $97,688 $118,193Gross profit 48,616 65,740 57,152 67,079Operating (loss) income (1,912) 12,016 5,343 11,654Net (loss) income (1,370) 9,282 4,226 8,619Basic net (loss) income per share (0.04) 0.26 0.12 0.25Diluted net (loss) income per share (0.04) 0.26 0.12 0.2578Table of ContentsVera Bradley, Inc.Notes to Consolidated Financial Statements Fiscal Year Ended February 3, 2018 FirstQuarter (1) SecondQuarter (2) ThirdQuarter (3) FourthQuarter (4)(5)(6) (unaudited) (unaudited) (unaudited) (unaudited)Net revenues $96,135 $112,418 $114,095 $132,000Gross profit 52,700 63,293 63,829 74,187Operating (loss) income (4,804) 3,709 462 15,614Net (loss) income (4,049) 2,193 359 8,513Basic net (loss) income per share (0.11) 0.06 0.01 0.24Diluted net (loss) income per share (0.11) 0.06 0.01 0.24(1)Includes $1.3 million ($0.8 million after the associated tax benefit) for severance charges. Refer to Note 14 herein for additional information.(2)Includes charges of $2.3 million for strategic consulting related to Vision 20/20, $1.2 million for severance, and $0.3 million for lease termination($2.4 million collectively after the associated tax benefit). Refer to Note 14 herein for additional information.(3)Includes Vision 20/20-related charges of $5.9 million for store impairment, $2.9 million for severance, $2.3 million for strategic consulting, $0.9million for inventory adjustments, and $0.6 million for other Vision 20/20. Collectively, after the associated tax benefit, the charges were $7.9million. Refer to Note 4 and Note 14 herein for additional information.(4)Includes Vision 20/20-related charges of $1.2 million for severance, $0.4 million for store impairment, and $0.2 million for other Vision 20/20 ($1.2million collectively after the associated tax benefit). Refer to Note 4 and Note 14 herein for additional information.(5)Includes a $2.1 million net tax charge related to the enactment of the Tax Act. Refer to Note 6 herein for additional information.(6)Includes an extra week which contributed approximately $4.1 million in net revenues and added an estimated $0.01 to diluted net income per share.Information in any one Quarterly period should not be considered indicative of annual results due to the effect of seasonality of the business.79Table of ContentsItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureNone. Item 9A. Controls and ProceduresDisclosure Controls and ProceduresBased on the evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of1934, as amended (the “Exchange Act”), each of Robert Wallstrom, the Chief Executive Officer of the Company, and John Enwright, the Chief FinancialOfficer of the Company, has concluded that the Company’s disclosure controls and procedures are effective as of February 2, 2019.Management’s Report on Internal Control over Financial ReportingThe Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f)and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accountingprinciples. Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, hasevaluated the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of SponsoringOrganizations (COSO) of the Treadway Commission (2013 framework) in Internal Control-Integrated Framework. Based on the results of that evaluation,management has concluded that such internal control over financial reporting was effective as of February 2, 2019.The effectiveness of the Company’s internal control over financial reporting as of February 2, 2019, has been audited by Deloitte and Touche LLP, anindependent registered public accounting firm, as stated in their report which appears in Item 8. of this Annual Report on Form 10-K.Changes in Internal Control over Financial ReportingThere were no changes in internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or arereasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other InformationNone.80Table of ContentsPART III Item 10. Directors, Executive Officers and Corporate GovernanceThe information set forth in the Proxy Statement for the 2019 Annual Meeting of Shareholders under the headings “Board of Directors Information,” “FamilyRelationships,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Guidelines, Committee Charters and Code of Ethics,”and “Committees – Audit Committee” is incorporated herein by reference. The Proxy Statement will be filed with the Commission within 120 days after theend of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. In addition, theinformation set forth under the heading “Item 1: Business – Executive Officers of the Company” in this Form 10-K is incorporated herein by reference. Item 11. Executive CompensationThe information set forth in the Proxy Statement for the 2019 Annual Meeting of Shareholders under the headings “Executive Compensation Discussion andAnalysis,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” is incorporated herein by reference. TheProxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14Aunder the Securities Exchange Act of 1934, as amended. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information set forth in the Proxy Statement for the 2019 Annual Meeting of Shareholders under the heading “Share Ownership by Certain BeneficialOwners and Management” is incorporated herein by reference. The Proxy Statement will be filed with the Commission within 120 days after the end of thefiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.Securities Authorized for Issuance Under Equity Compensation PlansThe following table sets forth information regarding equity securities authorized for issuance under our equity compensation plans as of February 2, 2019:Plan Category Number ofSecurities to BeIssued uponExercise ofOutstandingOptions, Warrantsand Rights (a) (2) Weighted-AverageExercise Price ofOutstandingOptions, Warrantsand Rights (b) ($) Number of SecuritiesRemaining Available forFuture Issuance Underthe EquityCompensation Plans(Excluding SecuritiesReflected in Column(a)) (c)Equity compensation plans approved by security holders (1) 1,691,446 — 4,384,555Equity compensation plans not approved by security holders — — —Total 1,691,446 — 4,384,555(1)Approved before our initial public offering.(2)Assumes that target performance requirements will be achieved for performance shares with incomplete performance periods.81Table of ContentsItem 13. Certain Relationships and Related Transactions, and Director IndependenceThe information set forth in the Proxy Statement for the 2019 Annual Meeting of Shareholders under the headings “Certain Relationships and Related PartyTransactions” and “Board Independence” is incorporated herein by reference. The Proxy Statement will be filed with the Commission within 120 days afterthe end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Item 14. Principal Accounting Fees and ServicesThe information required by this item is incorporated herein by reference to our 2019 Proxy Statement under the caption “Principal Accounting Fees andServices.” The Proxy Statement will be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K pursuant toRegulation 14A under the Securities Exchange Act of 1934, as amended.82Table of ContentsPART IV Item 15. Exhibits, Financial Statement Schedules(1) Consolidated Financial StatementsThe following consolidated financial statements of Vera Bradley, Inc. are filed as part of this report under Item 8. Financial Statements and SupplementaryData: Reports of Independent Registered Public Accounting Firm51Consolidated Balance Sheets as of February 2, 2019, and February 3, 201853Consolidated Statements of Income for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201754Consolidated Statements of Comprehensive Income for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201755Consolidated Statements of Shareholders’ Equity for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201756Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 201757Notes to Consolidated Financial Statements58(2) Financial Statement SchedulesFinancial statement schedules have been omitted because they are not required or are not applicable or because the information required in those scheduleseither is not material or is included in the consolidated financial statements or the accompanying notes.(3) List of ExhibitsThe exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.Item 16. Form 10-K SummaryNot Applicable83Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized, on April 2, 2019. Vera Bradley, Inc. /s/ John Enwright John Enwright Chief Financial Officer POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John Enwright and RobertWallstrom, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and inhis or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with allexhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agentsand each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fullyto all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them,or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant andin the capacities indicated on April 2, 2019. Signature Title /s/ Robert Wallstrom Director and Chief Executive Officer (principal executive officer)Robert Wallstrom /s/ John Enwright Chief Financial Officer (principal accounting officer)John Enwright /s/ Barbara Bradley Baekgaard DirectorBarbara Bradley Baekgaard /s/ Richard Baum DirectorRichard Baum /s/ Robert J. Hall DirectorRobert J. Hall /s/ Mary Lou Kelley DirectorMary Lou Kelley /s/ John E. Kyees DirectorJohn E. Kyees 84Table of ContentsSignature Title /s/ Matthew McEvoy DirectorMatthew McEvoy /s/ P. Michael Miller DirectorP. Michael Miller /s/ Patricia R. Miller DirectorPatricia R. Miller /s/ Frances P. Philip DirectorFrances P. Philip /s/ Edward M. Schmults DirectorEdward M. Schmults 85Table of ContentsEXHIBIT INDEX Exhibit No. Description 3.1 Second Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, Registration No. 333-167934) 3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed March 6, 2019) 4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1, Registration No.333-167934) 10.1 Vera Bradley, Inc. 2010 Equity and Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1,Registration No. 333-167934) 10.2 Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1, Registration No.333-167934) 10.3 Form of Outside Director Restricted Stock Unit Terms and Conditions (Incorporated by reference to Exhibit 10.2 to the Quarterly Report onForm 10-Q for the quarter ended May 3, 2014) 10.4* Vera Bradley, Inc. 2014 Executive Severance Plan (Amended May 30, 2018) 10.5 Credit Agreement dated as of September 7, 2018 among Vera Bradley Designs, Inc., JPMorgan Chase Bank, N.A., and the lenders partythereto (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended August 4, 2018) 10.6 Pledge and Security Agreement dated as of September 7, 2018 among Vera Bradley Designs, Inc., Vera Bradley, Inc., Vera BradleyInternational, LLC, Vera Bradley Sales, LLC, and JP Morgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.2 to the QuarterlyReport on Form 10-Q for the quarter ended August 4, 2018) 10.7 Fiscal 2017 Annual Incentive Compensation Plan (Executives) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form10-Q for the quarter ended April 30, 2016) 10.8 Employment Agreement for Robert Wallstrom dated November 11, 2013 (Incorporated by reference to Exhibit 10.1 to the Current Reporton Form 8-K filed November 5, 2013) 10.9 Second Amendment of Employment Agreement for Robert Wallstrom dated June 17, 2016 (Incorporated by reference to Exhibit 10.1 to theCurrent Report on Form 8-K filed June 22, 2016) 10.10 Fiscal 2018 Annual Incentive Compensation Plan (Executives) (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form10-Q for the quarter ended April 29, 2017) 10.11 Form of Performance-Based Award Agreement under the 2010 Equity and Incentive Plan (Incorporated by reference to Exhibit 10.3 to theQuarterly Report on Form 10-Q for the quarter ended April 29, 2017) 10.12 Form of Restricted Stock Unit/Performance Unit Terms and Conditions (Revised Fiscal 2019) (Incorporated by reference to Exhibit 10.2 tothe Quarterly Report on Form 10-Q for the quarter ended May 5, 2018) 10.13 Fiscal 2019 Annual Incentive Compensation Plan (Executives) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form10-Q for the quarter ended May 5, 2018)86Table of ContentsExhibit No. Description 21.1* Subsidiaries of Vera Bradley, Inc. 23.1* Consent of Deloitte & Touche LLP 31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32.1* Section 1350 Certifications 101 The following materials from Vera Bradley, Inc.’s Annual Report on Form 10-K for the year ended February 2, 2019 formatted in ExtensibleBusiness Reporting Language (XBRL): (i) Consolidated Statements of Income and Comprehensive Income for the fiscal years endedFebruary 2, 2019, February 3, 2018, and January 28, 2017; (ii) Consolidated Balance Sheets as of February 2, 2019, and February 3, 2018;(iii) Consolidated Statements of Shareholders’ Equity for the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017;(iv) Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017; and (v)related notes. ** * Filed herewith ** Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files included as Exhibit 101 hereto are deemed not filed or part of aregistration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these Sections.87Exhibit 10.4Vera Bradley, Inc.2014 Executive Severance PlanAmended May 30, 2018(Executive Officer)The purpose of this Vera Bradley, Inc. 2014 Executive Severance Plan (the “Plan”) is to better provide for the retention of key employees through providingthem with a higher degree of financial security, on the terms and conditions hereinafter stated. The Plan is intended to be a severance pay plan governed byTitle I of ERISA primarily for the purpose of providing benefits for a select group of management or highly compensated employees.The Plan, as set forth herein, is an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, and the Company intends that the Plan beadministered in accordance with the applicable requirements of ERISA. This Plan document, including Appendix A, is also the summary plan description ofthe Plan.1.Definitions. Capitalized terms in the Plan shall have the meaning set forth below, except as otherwise provided in the text of the Plan.a.“Accrued Amounts” has the meaning set forth in Section 3(a) hereof.b.“Affiliate” means any corporation that is a parent or subsidiary corporation (as Code Sections 424(e) and (f) define those terms) with respectto the Company.c.“Base Incentive Amount” has the meaning set forth in Section 3(b)(iii) hereof.d.“Base Salary” means a Participant's gross base salary (before taxes and deductions) paid by the Company to the Participant during therelevant fiscal year. Base Salary does not include any incentive, non-cash, equity or similar compensation or award, or any contributions toany employee benefit plan made on behalf of a Participant by the Company (other than contributions elected by the Participant under CodeSections 401(k) or 125).e.“Board” means the Board of Directors of Vera Bradley, Inc.f.“Cause” means: (i) an intentional act of fraud, embezzlement or theft by a Participant in connection with a Participant’s duties or in thecourse of a Participant’s employment with the Company or an Affiliate; (ii) a Participant’s intentional wrongful material damage to theproperty of the Company or its Affiliates; (iii) a Participant’s intentional material breach of Section 7 hereof while such Participant remainsin the employ of the Company or an Affiliate; (iv) an act of Gross Misconduct (as defined below); or (v) a conviction for a misdemeanorinvolving moral turpitude or a charge of a felony; and, in each case, the reasonable, good faith determination by the Board that any such actor omission may be harmful to the Company or an Affiliate. For purposes of this Plan, “Gross Misconduct” shall mean a willful or grosslynegligent act or omission that has or will have a material and adverse impact on the business or reputation of the Company or its Affiliates,or on the business of the customers or suppliers of the Company or its Affiliates as such relate to the Company. In addition, a Participant’semployment shall be deemed to have terminated for Cause if, based on facts and circumstances discovered after the Participant’semployment has terminated, the Board determines in reasonable good faith, within one (1) year after the Participant’s employmentterminated, and after appropriate investigation and an opportunity for the Participant to be interviewed (with or without counsel as theParticipant may determine) by a subcommittee of the independent Board members or its representative, that the Participant committed anact that would have justified a termination for Cause.g.“CEO Direct Report” means a Participant who is designated to be a CEO Direct Report by the Plan Administrator.h.“Change in Control” means the occurrence of any one or more of the following: (a) the acquisition of ownership, directly or indirectly,beneficially or of record, by any Person or group (within the meaning of the Exchange Act and the rules of the Securities and ExchangeCommission as in effect on the date of this Award), other than (i) Barbara Baekgaard, Patricia Miller, Mike Ray and Kim Colby and theirrespective heirs and descendants and any trust established for the benefit of such Persons, (ii) the Company or a company owned directly orindirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (iii) anyemployee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, of securities of the Companyrepresenting more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities; (b) theoccupation of a majority of the seats (other than vacant seats) on the Board by Persons who were neither (i) nominated by the Board nor (ii)appointed by directors so nominated; or (c) the consummation of (i) an agreement for the sale or disposition of all or substantially all of theCompany's assets, or (ii) a merger, consolidation or reorganization of the Company with or involving anyother company, other than a merger, consolidation or reorganization that results in the voting securities of the Company outstandingimmediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of thesurviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such survivingentity) outstanding immediately after such merger, consolidation or reorganization. Notwithstanding the foregoing, any amount payableunder this Plan is nonqualified deferred compensation for purposes of Code Section 409A, and if a payment of such amount would beaccelerated or otherwise triggered upon a “Change in Control,” then the foregoing definition is modified, only to the extent necessary toavoid the imposition of an excise tax under Code Section 409A, to mean a “change in control event” as such term is defined for purposes ofCode Section 409A.i.“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985 and the interpretive and regulatory guidance issuedthereunder, as amended from time to time.j.“COBRA Benefits” has the meaning given in Section 3(b)(iv) of the Plan.k.“Code” means the Internal Revenue Code of 1986, as amended from time to time.l.“Code Section 409A” means Section 409A of the Code and all interpretive and regulatory guidance provided thereunder, as amended fromtime to time.m.“Company” means Vera Bradley, Inc.n.“Competitor” has the meaning given in Section 7(a)(i) of the Plan.o.“Confidential Information” has the meaning given Section 7(b) of the Plan.p.“Denial Notice” has the meaning given in Section 5(c)(i) of the Plan.q.“Disability” shall mean that the Participant is unable to perform substantially, by reason of physical or mental incapacity, the Participant’sduties or obligations, with or without reasonable accommodation as defined in the Americans with Disabilities Act and implementingregulations, for a period of one hundred and eighty (180) consecutive calendar days in any 360-calendar day period.r.“Effective Date” means June 1, 2014.s.“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.t.“Exchange Act” means the Securities Exchange Act of 1934 and the regulations thereunder, as amended from time to time.u.“Good Reason” means the occurrence of any of the following events without the Participant’s express written consent, which event has notbeen (or is not able to be) cured by the Company within thirty (30) days following the Participant’s notice to the Company thereof:i.A material reduction by the Company of the Participant’s Base Salary, other than a reduction approved by the CompensationCommittee that similarly applies to all executive employees of the Company holding the same title as the Participant, providedthat such a reduction in Base Salary shall not exceed more than ten percent (10%) from the Participant’s highest Base Salary;ii.A material reduction by the Company of the annual bonus opportunity of a Participant, other than a reduction approved by theCompensation Committee that similarly applies to all executive employees of the Company holding the same title as the EVPParticipant or SVP Participant, provided that such a reduction in annual target bonus opportunity shall not exceed more than tenpercent (10%) from such EVP Participant or SVP Participant’s highest target bonus opportunity (as expressed in dollars);iii.A relocation of the offices of the Participant to a place greater than fifty (50) miles in distance from the current executive offices ofthe Company in Fort Wayne, Indiana; oriv.Only in the case of a Change in Control and only in the case of CEO Direct Reports, the material reduction of the Participant’sauthorities, duties, or responsibilities with the Company.A Participant must comply with the procedure set forth in Section 3(h) of this Plan in order to effect a termination for Good Reason.v.“Participant” means any eligible employee who is and executive officer of the Company and made a participant in the Plan by action of thePlan Administrator as specified herein.w.“Person” has the meaning given to such term in Sections 13(d) and 14(d)(2) of the Exchange Act.x.“Plan Administrator” means the Compensation Committee of the Board, or, if the Board so determines, another committee of the Board orthe Board itself.y.“Prorated Bonus” has the meaning given in Section 3(b)(iii) of the Plan.z.“Separation from Service” means a Participant’s termination of employment that qualifies as a separation from service determined inaccordance with Code Section 409A.2.Participation in the Plan. The Plan Administrator may designate any employee of the Company who is an executive officer to be a Participant.Promptly following such designation, each Participant shall be notified of his or her participation in a formal communication from the PlanAdministrator or the Company. Participation in the Plan shall be determinedin the Plan Administrator’s sole discretion. Once participation in the Plan has commenced, a Participant shall remain a Participant until the first tooccur of (i) the termination of the Participant’s employment under circumstances not giving rise to a right to severance benefits under the Plan, (ii)the completion of the delivery of all severance benefits under the Plan following the termination of the Participant’s employment undercircumstances giving rise to a right to such benefits, (iii) the Participant’s ceasing to occupy the position of Senior Vice President or higher with theCompany, or (iv) the termination or expiration of the Plan pursuant to Sections 6(a) or 6(b) before termination of the Participant’s employment.3.Certain Obligations of the Company Following Termination of Participant's Employment.Following termination of a Participant's employment under the circumstances described below, the Company will pay to such Participant thefollowing compensation and provide the following benefits in addition to any benefits to which such Participant may be entitled by law in fullsatisfaction and final settlement of any and all claims and demands that the Participant or the Company may have against the other under this Plan.a.Termination of Employment for Any Reason. In the event of a Participant's termination of employment for any reason, the Company shallpay or provide such Participant (a) any unpaid Base Salary through the date of termination, (b) any benefits (including, without limitation,any unused vacation accrued) accrued and vested under the terms of the Company’s employee benefit plans, and (c) any unreimbursedexpenses incurred, up to and including the effective date of such termination, to which the Participant may be entitled under the terms ofany applicable policy, arrangement, plan or program, other than the Company’s annual cash bonus plan (collectively, the "AccruedAmounts").b.Termination Without Cause by the Company. In the event that the Company terminates a Participant's employment without Cause, otherthan in anticipation of, upon, or during the twenty-four (24) months after a Change in Control, such Participant shall be entitled to thefollowing payments and benefits, subject to Sections 7 and 8 hereof:i.The Accrued Amounts, payable as soon as reasonably practicable following the date of termination;ii.Any annual bonus that has been earned in the fiscal year prior to the employment termination that has not yet been paid, payableat the time payment is made to other similarly situated executives of the Company, but in no event later than two and one-half(2½) months after the close of the year in which the Participant becomes vested in such bonus;iii.Provided that the Participant’s employment is terminated on a date that is later than the last day of the first fiscal quarter of theapplicable fiscal year, a pro rata portion of the amount of the annual bonus, if any, the Participant would have received under theCompany’s annual cash bonus plan for the year in which the Participant's employment terminated (hereinafter, the "ProratedBonus"). The Company shall determine the annual bonus, if any, the Participant would have earned under the Company’s annualcash bonus plan had the Participant been employed through the end of the applicable period (the "Base Incentive Amount"), inaccordance with the methods used to calculate the annual bonus for the Company's other similarly situated executives in theapplicable annual bonus plan. The Prorated Bonus to be paid pursuant to this Section shall be determined by multiplying the BaseIncentive Amount by a fraction, the numerator of which is the number of calendar days from the beginning of the applicable fiscalyear in which the termination occurred through the date of termination and the denominator of which is 365. Any Prorated Bonuspayment due under this Section shall be paid at the time payment is made to other similarly situated executives in the applicableannual bonus plan, but in no event later than two and one-half (2½) months after the close of the fiscal year in which theParticipant ‘s employment terminated;iv.Payment of the Participant's COBRA premiums (sufficient to cover full family health care, if the Participant has elected familycoverage) for a period of up to twelve (12) months following the termination of the Participant's employment if the Participantelects such COBRA coverage. The foregoing notwithstanding, the Company's obligation to provide the payment described in thepreceding sentence shall cease on the date the Participant becomes eligible for coverage under another group health plan offeredby a new employer of the Participant or covered under a group health plan of the employer of the Participant's spouse, in eithercase, which does not impose pre-existing condition limitations on the Participant's coverage. Nothing herein shall be construed toextend the period of time over which COBRA continuation coverage shall be provided to a Participant or the Participant’sdependents beyond that mandated by law. (The foregoing benefits are hereinafter referred to as the "COBRA Benefits");v.A lump sum payment equal to one and one-quarter (1.25) times the sum of (A) Base Salary, plus (B) the target annual bonus for thefiscal year of termination, payable within ten (10) calendar days afterthe Participant's delivery to the Company and non-revocation of an executed and enforceable Release, in accordance with andsubject to Section 8.c.Termination for Good Reason by a Participant. In the event that a Participant terminates employment for Good Reason, other than inanticipation of, upon, or during the twenty-four (24) months after a Change in Control, such Participant shall be entitled to the followingpayments and benefits, subject to Sections 7 and 8:i.The Accrued Amounts, as soon as reasonably practicable following the date of termination;ii.Any annual bonus that has been earned in the fiscal year prior to the employment termination that has not yet been paid, payableat the time payment is made to other similarly situated executives of the Company, but in no event later than two and one-half(2½) months after the close of the year in which the Participant becomes vested in such bonus;iii.The Prorated Bonus, if any, the Participant would have received for the year in which the Participant's employment terminated,payable at the time payment is made to other similarly situated executives of the Company, but in no event later than two andone-half (2½) months after the close of the fiscal year in which the Participant's employment terminated;iv.The Cobra Benefits;v.A lump sum payment equal to one and one-quarter (1.25) times the sum of (A) Base Salary, plus (B) the target annual bonus for thefiscal year of termination, payable within ten (10) calendar days after the Participant's delivery to the Company and non-revocation of an executed and enforceable Release, in accordance with and subject to Section 8.d.Termination by the Company for Cause, or by a Participant without Good Reason. In the event that the Company terminates anyParticipant's employment for Cause, or a Participant terminates such Participant’s employment without Good Reason, the Participant shallbe entitled to no further compensation or other benefits under this Plan except for the Accrued Amounts, payable in a single lump sum assoon as reasonably practicable following the date of termination.e.Death; Disability. In the event that a Participant's employment is terminated by reason of the Participant's death or for Disability, theParticipant or the Participant's estate, as the case may be, shall be entitled to the following payments and benefits:i.The Accrued Amounts, as soon as reasonably practicable following the date of termination;ii.Any annual bonus that has been earned in the fiscal year prior to the employment termination that has not yet been paid, payableat the time payment is made to other similarly situated executives of the Company, but in no event later than two and one-half(2½) months after the close of the year in which the Participant becomes vested in such bonus;iii.The Prorated Bonus, if any, the Participant would have received for the year in which the Participant's employment terminated,payable at the time payment is made to other similarly situated executives of the Company, but in no event later than two and one-half (2½) months after the close of the fiscal year in which the Participant's employment terminated; andiv.The COBRA Benefits.f.Termination in Connection With a Change in Control. In the event that a Participant's employment is terminated in anticipation of, uponor within twenty-four (24) months following a Change in Control, by the Company without Cause or by the Participant for Good Reason,the Participant shall be entitled to the following payments, subject to Sections 7 and 8 hereof;i.The Accrued Amounts, as soon as reasonably practicable following the date of termination;ii.Any annual bonus that has been earned in the fiscal year prior to the employment termination that has not yet been paid, payableat the time payment is made to other similarly situated executives of the Company, but in no event later than two and one-half(2½) months after the close of the year in which the Participant becomes vested in such Bonus;iii.A payment equal to the Participant’s target bonus under the Company’s annual cash bonus plan prorated for the number of weeksthe Participant was actually employed during the fiscal year in which the Participant's employment terminated, payable within ten(10) calendar days after the Participant's delivery to the Company and non-revocation of an executed and enforceable Release, inaccordance with and subject to Section 8;iv.The COBRA Benefits;v.Reimbursement for outplacement assistance up to a maximum amount of $30,000, for a period of up to one year;vi.a lump sum payment equal to the sum of (A) Base Salary, plus (B) target annual bonus for the fiscal year of termination, payablewithin ten (10) calendar days after the Participant's delivery to the Company and non-revocation of an executed and enforceableRelease, in accordance with and subject to Section 8; plusIn exchange for the Participant's continued compliance with theRestrictive Covenants in Section 7 after the date of the Change in Control, a lump sum payment equal to seventy-five (75) percentof the sum of (A) Base Salary, plus (B) target annual bonus for the fiscal year of termination, payable after the date of terminationand within ten (10) calendar days after the Participant's delivery to the Company and non-revocation of an executed andenforceable Release, in accordance with and subject to Section 8, or, if the termination was in anticipation of a Change in Control,payable after the date of the Change in Control and within ten (10) calendar days after the Participant's delivery to the Companyand non-revocation of an executed and enforceable Release, in accordance with and subject to Section 8; provided that, if theParticipant previously has delivered and not revoked an executed an enforceable Release in connection with his termination ofemployment before the Change in Control, the additional Release required by this clause shall only apply to the period betweenthe execution and delivery of an enforceable Release upon the Participant's termination of employment and the date of the Changein Control (the “CIC Severance Payment”);g.Section 280Gi.If a Change in Control occurs and payments are made under Section 3(f), and a final determination is made by legislation,regulation, or ruling directed to a Participant or the Company, by court decision, or by independent tax counsel, that the aggregateamount of any payments made to a Participant under this Plan and any other agreement, plan, program or policy of the Companyin connection with, on account of, or as a result of, such Change in Control ("Total Payments") will be subject to an excise taxunder the provisions of Code Section 4999, or any successor section thereof ("Excise Tax"), the Total Payments shall be reduced(beginning with those that are exempt from Code Section 409A) so that the maximum amount of the Total Payments (afterreduction) shall be one dollar ($1.00) less than the amount that would cause the Total Payments to be subject to the Excise Tax;provided, however, that the Total Payments shall only be reduced to the extent that the after-tax value of amounts received by theParticipant after application of the above reduction would exceed the after-tax value of the Total Payments received withoutapplication of such reduction. For this purpose, the after-tax value of an amount shall be determined taking into account allfederal, state, and local income, employment, and excise taxes applicable to such amount. In making any determination as towhether the Total Payments would be subject to an Excise Tax, consideration shall be given to whether any portion of the TotalPayments could reasonably be considered, based on the relevant facts and circumstances, to be reasonable compensation forservices rendered (whether before or after the consummation of the applicable Change in Control). To the extent Total Paymentsmust be reduced pursuant to this Section, the Company, without consulting the Participant, will reduce the Total Payments toachieve the best economic benefit, and to the extent economically equivalent, on a pro-rata basis.ii.In the event that upon any audit by the Internal Revenue Service, or by a state or local taxing authority, of the Total Payments, achange is determined to be required in the amount of taxes paid by, or Total Payments made to, Participant, appropriateadjustments will be made under this Plan such that the net amount that is payable to the Participant after taking into account theprovisions of Code Section 4999 will reflect the intent of the parties as expressed in this Section 3(g). The Participant shall notifythe Company in writing of any claim by the Internal Revenue Service that, if successful, would require payment of an Excise Taxor an additional Excise Tax on the Total Payments (a "Claim"). Such notification shall be given as soon as practicable but no laterthan ten (10) business days after the Participant is informed in writing of such Claim and shall apprise the Company of the natureof such Claim and the date on which such Claim is requested to be paid. The Participant shall not pay such Claim prior to theexpiration of the thirty (30) calendar day period following the date on which the Participant gives such notice to the Company (orsuch shorter period ending on the date that any payment of taxes with respect to such Claim is due). If the Company notifies theParticipant in writing prior to the expiration of such period that it desires to contest such Claim, the Participant shall: (1) give theCompany any information reasonably requested by the Company relating to such Claim, (2) take such action in connection withcontesting such Claim as the Company shall reasonably request in writing from time to time, including, without limitation,accepting legal representation with respect to such Claim by an attorney reasonably selected by the Company, (3) cooperate withthe Company in good faith in order to contest effectively such Claim, and (4) permit the Company to participate in anyproceedings relating to such Claim; provided, however, that the Company shall bear and pay directly all costs and expenses(including additional interest and penalties) incurred in connection with suchcontest and shall indemnify and hold the Participant harmless for any Excise Tax, additional Excise Tax, or income tax (includinginterest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Withoutlimitation on the foregoing provisions of this Section 3(g), the Company, at its sole option, may pursue or forgo any and alladministrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such Claim and may, at itssole option, either direct the Participant to pay the tax claimed and sue for a refund or contest the Claim in any permissible manner,and the Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initialjurisdiction and in one (1) or more appellate courts, as the Company shall determine, provided, however, that if the Companydirects the Participant to pay such Claim and sue for a refund, the Company shall advance the amount of such payment to theParticipant on an interest-free basis or, if such an advance is not permissible under applicable law, pay the amount of such paymentto the Participant as additional compensation, and shall indemnify and hold the Participant harmless from any Excise Tax,additional Excise Tax, or income tax (including interest or penalties with respect thereto) imposed with respect to such advance oradditional compensation; and further provided that any extension of the statute of limitations relating to payment of taxes for thetaxable year of the Participant with respect to which such contested amount is claimed to be due is limited solely to such contestedamount. The Company shall reimburse any fees and expenses provided for under this Section 3(f)(ii) on or before the last day ofthe Participant's taxable year following the taxable year in which the fee or expense was incurred, and in accordance with the otherrequirements of Code Section 409A.iii.If, after the receipt by the Participant of an amount advanced or paid by the Company pursuant to Section 3(f) above, theParticipant becomes entitled to receive any refund with respect to such Claim, the Participant shall (subject to the Company'scomplying with the requirements of Section 3(f) promptly pay to the Company the amount of such refund (together with anyinterest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Participant of an amount advanced by theCompany pursuant to Section 3(f), a determination is made that the Participant shall not be entitled to any refund with respect tosuch Claim and the Company does not notify the Participant in writing of its intent to contest such denial of refund prior to theexpiration of sixty (60) calendar days after such determination, then such advance shall be forgiven and shall not be required to berepaid.h.Process for Termination for Good Reason. Where applicable (including, for the avoidance of doubt, whether or not in anticipation of,upon or in the twenty-four (24) months following a Change in Control), a Participant may terminate employment for Good Reason bygiving the Company thirty (30) calendar days’ prior written notice; provided that, if Participant purports to terminate employment for GoodReason, the Participant must give the Company written notice of the Participant’s intent to terminate for Good Reason within sixty (60)calendar days of the occurrence of the event that allegedly constitutes Good Reason. The Company shall have a right to cure the event(s) oromission(s) alleged to constitute Good Reason for a period of thirty (30) calendar days after notice from the Participant of the Participant’sintention to terminate for Good Reason and, if not cured, the Participant may terminate employment within one hundred twenty (120)calendar days of the occurrence of the event that allegedly constitutes Good Reason. The Company in its discretion may elect a terminationdate that is earlier than the conclusion of the sixty (60) calendar day notice period, but the termination shall still be deemed a voluntarytermination by the Participant with Good Reason under this Section.i.Effect on Equity Grants. Unless otherwise expressly set forth elsewhere in this Plan, the treatment of any equity compensation awards heldby a Participant shall be governed by the terms of the plan or agreement under which such awards were granted and this Plan shall not beinterpreted in any way to revise or amend the terms of any such grant.4.Mitigation; Offset. Participants shall not be required to mitigate the amount of any payment or benefit provided for in the Plan by seeking otheremployment or otherwise and no such payment or benefit shall be offset or reduced by the amount of any compensation or benefits provided to aParticipant in any subsequent employment. Except as otherwise provided in connection with the vesting of equity grants, which shall be governedin accordance with their corresponding grant documents, the severance payments and benefits under the Plan to a Participant are intended toconstitute the exclusive payments and benefits in the nature of severance or termination pay that shall be due to a Participant upon termination ofhis or her employment and shall be in lieu of (or offset by) any other such payments or benefits under any agreement, plan, practice or policy of theCompany or any of its affiliates. The severance payments and benefits to which a Participant is otherwise entitled shall be further reduced (but notbelow zero) by any payments or benefits to which the Participant may be entitled under any federal, state or local plant-closing (or similar oranalogous) law (including, without limitation, the U.S. Worker Adjustment and Retraining Notification Act).5.Administration of the Plan.a.Plan Administrator; Notice. The general administration of the Plan and the responsibility for carrying out the provisions of the Plan willbe placed with the Plan Administrator. Any and all notices, requests, demands, and other communications provided for herein shall besufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail, returnreceipt requested. Notice shall be deemed to have been given when notice is received by the party on whom the notice was served. Noticeto the Plan Administrator shall be sent to the following address, with attention to the Plan Administrator:Vera Bradley, Inc.12420 Stonebridge RoadRoanoke, IN 46783Attention: General CounselNotice to the Participant shall be addressed to the Participant at the Participant’s last mailing or electronic mailing address as shown on therecords of the Company.b.Duties and Powers. The Plan Administrator is the named fiduciary of the Plan and will have all powers necessary and or helpful toadministering the Plan in all its details. This authority includes, but is not limited to, determining eligibility for participation and, whereclearly stated in the designation of Plan participation and subsequently in the notice to a Participant of Plan participation, varying theterms of the Plan with respect to a particular Participant; making rules and regulations for the administration of the Plan that are consistentwith the terms and provisions of the Plan; construing all terms, provisions, conditions and limitations of the Plan, and resolvingambiguities, correcting deficiencies and supplying omissions; determining all questions arising out of, or in connection with, cases inwhich the Plan Administrator deems such a determination advisable; and amending the Plan. The Plan Administrator shall have the fulldiscretion to exercise the powers conferred by the Plan, and all such acts and determinations will be final, binding and conclusive upon allinterested parties. The Plan Administrator shall also have the authority to designate other individuals to exercise the powers of the PlanAdministrator on its behalf.c.Claims. The Company will pay benefits under this Plan to the Participant without requiring a formal written claim filed by the Participant.However, if any Participant believes he or she is being denied any rights or benefits under the Plan, such Participant may file a claim inwriting with the Plan Administrator, as described below.i.The Plan Administrator shall determine whether or not to approve a claim for severance benefits within ninety (90) calendar daysafter receiving it. If the Plan Administrator wholly or partially denies a Participant’s claim for benefits, the Plan Administrator shallgive the claimant written notice of such denial (a “Denial Notice”) within such ninety (90) day period, setting forth:1.The specific reason(s) for the denial;2.Specific reference to pertinent Plan provisions on which the denial is based;3.A description of any additional material or information which must be submitted to perfect the claim, and an explanationof why such material or information is necessary; and4.An explanation of the Plan’s review procedure as set forth in Section 5(c)(ii) below.ii.If a Participant wishes to appeal the denial or partial denial of a claim for benefits under the Plan, the Participant shall so notify thePlan Administrator in writing within sixty (60) calendar days after receiving the Denial Notice, during which period the Participantshall have the right to submit to the Plan Administrator written materials or information in support of his or her claim (which shallinclude any materials or information requested in the Denial Notice). If the Participant so requests, the Plan Administrator shallafford the Participant the opportunity, before the end of such sixty-day period, to meet with the Plan Administrator to discuss his orher claim. In addition, upon request, the Participant shall be provided, free of charge, reasonable access to, and copies of, alldocuments, records, and other information relevant to the Participant’s claim for benefits. The Plan Administrator shall make afinal determination with respect to such claim, and shall notify the Participant of the determination, within sixty (60) calendar daysfollowing the end of the sixty (60) day appeal period. The Plan Administrator’s decision on review shall be final and binding upona Participant. If a Participant fails to request an appeal within this timeframe, it shall be conclusively determined for all purposesthat the denial of the claim is correct.iii.If a claim involves a Disability determination, the claims and review procedures described above will apply but the time limits willdiffer. The Plan Administrator will have forty-five (45) calendar days to respond to the initial claim, and the Participant will haveone hundred eighty (180) calendar days after receiving a Denial Notice for a claim involving a Disability determination in whichto submit a request for review of the Denial Notice. The Plan Administrator shall reach a final decision and notify the Participant inwriting of the decision within forty-five (45) calendar days after the date it receives the Participant's request for review.iv.The claim and review procedures described above must be utilized before a legal action may be brought against the Company orthe Plan. Any legal action must be filed within one (1) year of receiving final notice of a denied claim. 6.Plan Amendment and Termination; Successorsa.Amendment and Termination. The Plan, and any part thereof, is subject to amendment, waiver or individual adjustment by the PlanAdministrator at any time and from time to time, for any reason, provided that no such amendment, waiver, adjustment or termination shalldecrease or otherwise adversely affect the rights or entitlements possessed by a Participant, whether prior to or after such Participant’stermination of employment, and whether with respect to benefits under the Plan to which a Participant is then entitled or with respect towhich such Participant may become entitled upon a termination for Good Reason or without Cause, without such Participant’s writtenconsent; provided, however, that no amendment of this plan shall be effective until twelve (12) months following written notice to allParticipants.b.Plan Expiration. The Plan shall automatically renew on December 31 of each year, unless the Plan Administrator provides advancedwritten notice to Participants at least six (6) months prior to the end of the then current term; provided, however, that this Plan may in noevent be terminated in the twenty-four (24) months following a Change in Control. No termination of employment of an individualoccurring after such expiration shall give rise to any rights to severance benefits under the Plan, but such expiration shall have no effect onthe severance benefits to which any Participant whose termination of employment occurs on or prior to such date is entitled. For theavoidance of doubt, following the termination of the Plan, the Company or its successor shall remain obligated to discharge any paymentobligations under the Plan that arose prior to such termination.c.Successors. The Company shall cause the Plan to be assumed by any successor of the Company, whether such succession occurs by merger,asset acquisition or otherwise, unless such assumption would occur by operation of law.7.Restrictive Covenants.a.Non-Competition. The Participant understands the global nature of the Company's businesses and the effort the Company undertakes todevelop and protect its business, goodwill, confidential information and competitive advantage. Accordingly, the Participant recognizesand agrees that the scope and duration of the restrictions described in this Section 7 are reasonable and necessary to protect the legitimatebusiness interests of the Company. All payments and benefits to the Participant under this Plan are conditioned expressly on theParticipant's compliance with each of the provisions of this Section 7. During the period of the Participant's employment and for a period ofone (1) year following Participant's termination of employment for any reason, the Participant shall not:i.Associate, directly or indirectly, as an employee, officer, director, agent, partner, owner, stockholder, representative, consultant, orvendor with, for, or on behalf of any Competitor (as defined below) (as an “Association”), unless the Plan Administrator in theexercise of its reasonable discretion has approved each Association in accordance with the following sentence. The PlanAdministrator’s approval for an Association will be evidenced exclusively by a written agreement that has been executed anddelivered by, and is legally binding on, the Company and the Participant, that includes terms and conditions that the PlanAdministrator deems reasonably necessary to preserve its goodwill and the confidentiality of the Confidential Information (asdefined below) in accordance with this Plan, and that includes all other terms and conditions that the Plan Administratordetermines in its sole discretion are reasonably necessary under the circumstances. The restrictions in the foregoing sentences ofthis Section 7(a)(i) apply to the Participant’s direct and indirect performance of the same or similar activities the Participant hasperformed for the Company or any of its Affiliates and to all other activities that reasonably could lead to the use or the disclosureof Confidential Information. The Participant will not have violated this Section 7(a)(i) solely as a result of the Participant’sinvestment in capital stockor other securities of a Competitor or any of its Affiliates listed on a national securities exchange or actively traded in the over-the-counter market if the Participant and the members of the Participant’s immediate family do not, directly or indirectly, hold morethan one percent of all such shares of capital stock or securities issued and outstanding. For purposes of this Plan, the term“Competitor” means each entity, company, enterprise or group, including any newly started one, which is engaged in the sale ofthe following product categories: duffel bags, backpacks, totes, or handbags and whose annual sales revenue is less than threehundred million dollars ($300,000,000) or an entity, company enterprise or group set forth on Appendix C hereto, which the PlanAdministrator shall amend and update not later than March 31 of each year, or at any other time it deems necessary or desirable, inits sole and absolute discretion.ii.solicit or accept if offered to the Participant, with or without solicitation, on the Participant’s own behalf or on behalf of any otherperson, the services of any person who is a then-current employee of the Company (or was an employee of the Company during theyear preceding such solicitation), (B) solicit any of the Company's then-current employees (or an individual who was employed byor engaged by the Company during the year preceding such solicitation) to terminate employment or an engagement with theCompany, not including any general, non-targeted advertising, or (C) agree to hire any then-current employee (or an individualwho was an employee of the Company during the year preceding such hire) of the Company into employment with the Participantor any company, individual or other entity; provided that the foregoing shall not be violated by a hiring with respect to which theParticipant had no personal involvement in any manner or by the Participant serving as a reference upon request; oriii.On behalf of a Competitor, directly or indirectly divert or attempt to divert from the Company any business in which the Companyhas been actively engaged during the Participant's employment, nor interfere with the relationships of the Company or with theirsources of business.b.Confidentiality. The Participant recognizes that the Company will disclose Confidential Information to the Participant during the period ofthe Participant's employment to enable the Participant to perform his duties. Subject to the following sentence, the Participant shall notduring the Participant’s employment (except in connection with the proper performance of the Participant’s duties) and thereafter, withoutthe prior written consent of the Board, disclose to any person or entity, or use for any reason or purpose, any material or significantConfidential Information concerning the business of the Company that Participant obtained in the course of Participant's employment. ThisSection shall not be applicable if and to the extent Participant is required to testify in a legislative, judicial or regulatory proceedingpursuant to an order of Congress, any state or local legislature, a judge, or an administrative law judge, or if such Confidential Informationis required to be disclosed by the Participant by any law, regulation or order of any court or regulatory commission, department or agency;provided, however, that the Participant shall provide the Company with prompt notice thereof so that the Company may seek anappropriate protective order and/or waive compliance with this Section with respect to such requirement. In the absence of a protectiveorder or the receipt of waiver hereunder, if the Participant is nonetheless, in the opinion of the Participant's counsel, compelled to furnishthe Company's confidential information to any third party or else stand liable for contempt or suffer other censure or penalty, such partymay furnish such information without liability under this Section or otherwise. The Participant further agrees that if the Participant'semployment is terminated for any reason, the Participant will not take, but will leave with the Company, all records and papers and allmatter of whatever nature that bears Confidential Information of the Company. For purposes of this Plan, the term "ConfidentialInformation" shall include, but not be limited to, product assortment, product design, prints, any and all records, notes, memoranda, data,writings, research, personnel information, customer information, pricing, sales and marketing information, product information or designs,supplier lists, the Company's financial information and plans, processes, methods, techniques, systems, formulas, patents, models, devices,compilations or any other information of whatever nature in the possession or control of the Company, that has not been published ordisclosed to the general public, the fashion industry or the design industry. For purposes of this Plan, the term "Confidential Information"shall not include the Participant's personal address book.c.Non-disparagement. The Participant agrees not to make, repeat, authorize, or permit any person under the Participant’s control to make,directly or indirectly, any public statements (whether oral or written), comments, remarks, or publications of any type or of any nature, toanyone, including but not limited to the news media, investors, potential investors, industry analysts, competitors, strategic partners,vendors, employees (past and present), and customers, which would defame or disparage the business reputation, practices, or conduct ofthe Company or its Affiliates (including its products, services or its business decisions), or their employees, directors or officers, or any ofthem, at any time now or in the future. The Company agrees that its Board of Directors,Executive Vice Presidents and Chief Executive Officer will not, directly or indirectly, make, repeat, authorize or permit any person underits, his or her control to make any public statements (whether oral or written), comments, remarks, or publications of any type or of anynature to anyone, including but not limited to the news media, industry analysts, competitors, strategic partners, vendors, employees (pastand present), and customers, which would defame or disparage the reputation of the Participant at any time now or in the future. Nothing setforth in this Section 7(c) shall be interpreted to prohibit the Participant, the Company, the Company's Affiliates, or the directors, partners,officers and employees of the Company and its Affiliates from making truthful statements (i) in the good faith normal performance of his,her or their duties, (ii) when required by law, subpoena or court order and/or from responding to any inquiry by any regulatory orinvestigatory organization, (iii) of a normal competitive nature, or (iv) in direct rebuttal to a disparaging statement made by another.d.Remedies. If the Participant violates or threatens to violate any provision of this Section 7, the Company or its successors in interest shallbe entitled, in addition to any other remedies that they may have, including money damages, to (i) an injunction to be issued by a court ofcompetent jurisdiction restraining the Participant from committing or continuing any violation of this Section 7 and, in the event of amaterial violation, (ii) cessation of the severance payments and benefits provided under Section 3. In the event that the Participant is foundto have breached any provision set forth in this Section 7, the time period provided for in that provision shall be deemed tolled (i.e., it willnot begin to run) for so long as the Participant was in violation of that provision.e.Judicial Modification. If a court of competent jurisdiction declares that any term or provision of this Section 7 is invalid or unenforceable,the Company and the Participant intend that (i) the court making the determination of invalidity or unenforceability shall have the powerto reduce the scope, duration, or geographic area of the term or provision, to delete specific words or phrases, or to replace any invalid orunenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention ofthe invalid or unenforceable term or provision, (ii) the Company and the Participant shall request that the court exercise that power, and (iii)the Plan shall be enforceable as so modified after the expiration of the time within which the judgment or decision may be appealed. 8.Severance Agreement and Release. Any and all amounts payable and benefits or additional rights provided pursuant to this Plan beyond AccruedAmounts shall only be payable if the Participant delivers to the Company an original, signed release of claims of the Participant occurring up to therelease date, in a form substantially the same as attached hereto as Appendix B (the "Release"). The Company shall deliver the Release to theParticipant within ten (10) calendar days of the date the Participant's employment terminates and Participant must deliver to the Company and notrevoke an executed and enforceable Release no later than thirty (30) calendar days after the date the Participant's employment terminates (the"Release Deadline"). Payment of the amounts described in Section 3 shall commence no earlier than the date on which the Participant delivers to theCompany and does not revoke an executed and enforceable release as described herein. Payment of any severance or benefits that are not exemptfrom Code Section 409A shall be delayed until the Release Deadline, irrespective of when the Participant executes the Release; provided, however,that where the Participant's termination of employment and the Release Deadline occur within the same fiscal year, the payment may be made up tothirty (30) calendar days prior to the Release Deadline, and provided further that where the Participant's termination of employment and the ReleaseDeadline occur in two separate fiscal years, payment may not be made before the later of January 1 of the second year or the date that is thirty (30)calendar days prior to the Release Deadline. As part of the Release, the Participant shall affirm that the Participant (a) has advised the Company, inwriting, of any facts that the Participant is aware of that constitute or might constitute a violation of any ethical, legal or contractual standards orobligations of the Company or any Affiliate, and (b) is not aware of any existing or threatened claims, charges, or lawsuits that the Participant hasnot disclosed to the Company. If the Release is not delivered to the Company in accordance with this Section 8, the Participant shall not be entitledto receive any benefits payable under this Plan. By accepting benefits under this Plan, the Participant acknowledges and agrees that if the Participantfiles a lawsuit or accepts recoveries, payments, or benefits based on any claims that the Participant has released under the Release, as a conditionprecedent for maintaining or participating in any lawsuit or claim, or accepting any recoveries, payments, or benefits, the Participant shall forfeitimmediately such benefits paid under this Plan and promptly reimburse the Company for any such benefits already provided.9.Miscellaneousa.Compensation Recovery Policy. Notwithstanding any provision in this Plan to the contrary, payments under this Plan will be subject toany Compensation Recovery Policy established by the Company and amended from time to time.b.Employment Status. The Plan does not constitute a contract of employment or impose on the Company any obligation to retain any theParticipant as an employee or to change any employment policies of the Company. A Participant’s receipt of benefits does not constituteany sort of extension or perpetuation of employment beyond such Participant’s actual date of employment termination.c.Withholding of Taxes. The Company shall withhold from any amounts payable under the Plan all federal, state, local or other taxes that arelegally required to be withheld, as well as any other amounts authorized or required by policy, including, but not limited to, withholdingfor garnishments and judgments or other court orders.d.No Effect on Other Benefits. Severance benefits shall not be counted as compensation for purposes of determining benefits under otherbenefit plans, programs, policies and agreements, except to the extent expressly provided therein.e.Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability ofany other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shallnot invalidate or render unenforceable such provision in any other jurisdiction.f.Settlement of Claims. The Company’s obligation to make the payments provided for in the Plan and otherwise to perform its obligationshereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, defense, recoupment or otherright which the Company may have against a Participant or others.g.Assignment. The Plan shall inure to the benefit of and shall be enforceable by a Participant’s personal or legal representatives, executors,administrators, successors, heirs, distributees, devisees and legatees. If a Participant should die while any amount is still payable to theParticipant under the Plan had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid inaccordance with the terms of the Plan to the Participant’s estate. A Participant’s rights under the Plan shall not otherwise be transferable orsubject to lien or attachment.h.Governing Law. The Plan shall be governed by ERISA and, to the extent not preempted thereby, by the substantive laws of the State ofIndiana, without regard to its internal conflicts of laws provisions.i.Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity will not affectthe remaining parts of the Plan, and the Plan must be construed and enforced as if the illegal or invalid provision had not been included.Further, the captions of the Plan are not part of the provisions herein and will have no force or effect. Notwithstanding anything in the Planto the contrary, the Company shall have no obligation to provide any severance benefits to the Participant hereunder to the extent, but onlyto the extent, that such provision is prohibited by the terms of any final order of a federal, state, or local court or regulatory agency ofcompetent jurisdiction, provided that such an order shall not affect, impair, or invalidate any provision of the Plan not expressly subject tosuch order.j.Plan Funding. The Company will provide all severance benefits due and owing directly out of its general assets. To the extent that aParticipant acquires a right to receive benefits under the Plan, such right shall be no greater than the right of an unsecured general creditorof the Company. Nothing herein contained may require or be deemed to require, or prohibit or be deemed to prohibit, the Company tosegregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any severance benefits. k.Gender and Number. Except where otherwise indicated by the context, any masculine term used herein includes the feminine, anyfeminine term used herein includes the masculine, the plural includes the singular, and the singular includes the plural.l.State Unemployment Benefits. Severance is expressly allocated over the severance pay period for purposes of state unemployment benefits,even if paid in a lump sum. The "severance pay period" is the period of time beginning on the effective date of the Participant's terminationof employment and extending for the number of weeks for which the terminated Participant would otherwise receive a week's pay under thePlan.m.Code Section 409A. Notwithstanding anything in the Plan to the contrary, to the extent a Participant is considered a "specified employee"(as defined in Code Section 409A) and would be entitled to a payment during the six (6) month period beginning on Participant's date oftermination that is not otherwise excluded under Code Section 409A, the payment will not be made to the Participant until the earlier of thesix (6) month anniversary of Participant's Separation from Service or Participant's death and will be accumulated and paid on the first day ofthe seventh (7th) month following the date of termination. To the extent any benefit payable under this Plan constitutes nonqualifieddeferred compensation under Code Section 409A, such benefit will not be paid unless the Participant's termination of employment qualifiesas a Separation from Service. The Company may amend the Plan to the minimum extent necessary to satisfy the applicable provisions ofCode Section 409A. The Company cannot guarantee that any payments and benefits provided to a Participant under the Plan will satisfy allapplicable provisions of Code Section 409A.APPENDIX AAdditional Information for Summary Plan DescriptionThis Appendix A, together with the Plan document, constitutes the summary plan description of the Plan. References in this Appendix A to “you” or “your”are references to the Participant. Any term capitalized but not defined in this Appendix A will have the meaning set forth in the Plan.Your Rights Under ERISAAs a participant in the Plan, you are entitled to certain rights and protections under ERISA. ERISA provides that all Plan participants shall be entitled to:•Receive information about the Plan and benefits offered under the Plan.•Examine, without charge, at the Plan Administrator’s office and at other specified locations, all documents governing the Plan, and a copy of thelatest annual report filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee BenefitSecurity Administration.•Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, and copies of the latest annualreport and updated summary plan description. The Plan Administrator may make a reasonable charge for the copies.Prudent Action by Plan FiduciariesIn addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people whooperate your Plan, called fiduciaries of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. Noone, including the Company, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from exercising your rightsunder ERISA.Enforce Your RightsIf your claim for a benefit is denied or ignored in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to thedecision without charge, and to appeal any denial, all within certain time schedules.Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the latest annual report fromthe Plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to providethe materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of thePlan Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or Federal court. If you arediscriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The courtwill decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If youlose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.Assistance With Your QuestionsIf you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rightsunder ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee BenefitsSecurity Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, EmployeeBenefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You also may obtain certainpublications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.General Plan InformationPlan Sponsor:Vera Bradley, Inc.12420 Stonebridge RoadRoanoke, IN 46783Attention: General CounselTelephone: [omitted]Plan Name:Vera Bradley, Inc. 2014 Executive Severance PlanType of Plan:ERISA welfare benefit planSource of Funds:The Company will pay all benefits due and owing under the Plan directly outof its general assets. To the extent that a Participant acquires a right to receivebenefits under the Plan, such right shall be no greater than the right of anunsecured general creditor of the Company.Plan Number:Not applicableEmployer Identification Number:27-2935063Plan Administrator:Compensation Committee of the Board of Directors of Vera Bradley, Inc.Vera Bradley, Inc.12420 Stonebridge RoadRoanoke, IN 46783Attention: General CounselTelephone: [omitted]Agent for Service of Legal Process:Plan AdministratorPlan Year:The Company’s fiscal yearSuccessors:The Company shall cause the Plan to be assumed by any successor of theCompany, whether such succession occurs by merger, asset acquisition orotherwise, unless such assumption would occur by operation of law.Binding Legal Contract:This Plan shall be a binding legal contract between the Company and theParticipant.Appendix BRELEASE AND WAIVER AGREEMENTThis Release and Waiver Agreement (“Agreement”) is entered into this ___ day of ________________, 20__ by and between Vera Bradley, Inc., anIndiana corporation (the “Corporation”) and (hereinafter “Executive”).WHEREAS, Executive’s employment with the Corporation is terminated effective __________________, 20__ (“Termination Date”) and theCorporation and Executive have voluntarily agreed to the terms of this Agreement in exchange for severance benefits under the Vera Bradley, Inc. 2014Executive Severance Plan (the “Plan”), to which Executive otherwise would not be entitled;WHEREAS, accordingly the Corporation has determined that Executive will receive certain severance benefits if Executive executes and complieswith the terms of this Agreement; andWHEREAS, Executive acknowledges that the consideration received by Executive under the terms of this Agreement and the Plan for the releaseand waiver contained herein is in addition to any consideration the Corporation is otherwise required to provide Executive.NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements set forth below, the parties hereby acknowledgeand agree as follows:1.Severance. In consideration for Executive’s agreements contained herein and Executive’s compliance with Executive’s continuing obligationsunder the Plan, including his obligations under Section 7, the Corporation will pay Executive the applicable severance provided in Section 3 [Note-actual agreement to specify the applicable subsections of Section 3] of the Plan. Except as specifically provided in this Agreement, the Plan and anyapplicable plans, programs or arrangements of the Corporation including, without limitation, the Corporation’s Certificate of Incorporation or By-laws, as either may be amended from time to time, the Vera Bradley, Inc. 2010 Equity and Incentive Plan, as amended from time to time or anysuccessor thereto (the “Equity Plan”) and any agreements thereunder, Executive shall not be entitled to any other payment, benefits or otherconsideration from the Corporation.2.Waiver and Release.a.In consideration for the payments and benefits to be provided to Executive as set forth herein and the Plan, Executive, himself and for anyperson or entity that may claim by Executive or through Executive, including Executive’s heirs, executors, administrators, successors andassigns, hereby knowingly, irrevocably, unconditionally and voluntarily waives, releases and forever discharges the Corporation, itsAffiliates, and each of its individual or collective past, present and future parent, subsidiaries, divisions and affiliates, its and their jointventures and its and their respective directors, officers, associates, employees, representatives, partners, consultants insurers, attorneys,administrators, accountants, executors, heirs, successors, and agents, and each of its and their respective predecessors, successors andassigns and all persons acting by, through or in concert with any of them (hereinafter collectively referred to as “Releasees”), from any andall claims, causes of action or liabilities relating to Executive’s employment with the Corporation or the termination thereof, known orunknown, suspected or unsuspected, arising from any omissions, acts or facts that have occurred up until and including the date Executiveexecutes this Agreement which have been or could be asserted against the Releasees, including but not limited to:i.causes of action or liabilities relating to Executive’s employment with the Corporation or the termination thereof arising underTitle VII of the Civil Rights Act, the Age Discrimination in Employment Act (the “ADEA”), the Employee Retirement IncomeSecurity Act, the Worker Adjustment and Retraining Notification Act, the American with Disabilities Act, the Equal Pay Act, theFamily and Medical Leave Act, and the Delaware General Corporations Act as such Acts have been amended, and/or any otherforeign, federal, state, municipal, or local employment discrimination statutes (including, but not limited to, claims based on age,sex, attainment of benefit plan rights, race, religion, national origin, marital status, sexual orientation, ancestry, harassment,parental status, handicap, disability, retaliation, and veteran status); and/orii.causes of action or liabilities related to Executive’s employment with the Corporation or the termination thereof arising under anyother federal, state, municipal, or local statute, law, ordinance or regulation; and/oriii.causes of action or liabilities relating to rights to or claims for pension, profit-sharing, wages, bonuses or othercompensation or benefits; and/oriv.any other cause of action relating to Executive’s employment with the Corporation or the termination thereof including,but not limited to, actions seeking severance pay, except as provided herein, actions based upon breach of contract,wrongful termination, defamation, intentional infliction of emotional distress, tort, personal injury, invasion of privacy,defamation, discrimination, retaliation, promissory estoppel, fraud, violation of public policy, negligence and/or anyother common law, or other cause of action whatsoever arising out of or relating to employment with and/or separationfrom employment with the Corporation and/or any of the other Releasees.b.Nothing herein shall limit or impede Executive’s right to file or pursue an administrative charge with, or participate in, any investigationbefore the Equal Employment Opportunity Commission, or any other local, state or federal agency, and/or any causes of action which bylaw Executive may not legally waive. Executive agrees, however, that if Executive or anyone acting on Executive’s behalf, brings anyaction concerning or related to any cause of action or liability released in this Agreement, Executive waives any right to, and will notaccept, any payments, monies, damages, or other relief, awarded in connection therewith.c.Nothing herein shall constitute a waiver or release of any of Executive’s rights under this Agreement or the Plan, any other applicable plans,programs or arrangements of the Corporation including, without limitation, the Corporation’s Certificate of Incorporation or By-laws, aseither may be amended from time to time, the Equity Plan and any agreements thereunder, or under the Indemnification Agreement.d.Executive expressly waives the benefits of any statute or rule of law that, if applied to this Agreement, would otherwise exclude from itsbinding effect any claims against the Corporation not now known by Executive to exist.3.Cause of Action. As used in this Agreement, the phrase “cause of action” includes all claims, covenants, warranties, promises, agreements,undertakings, actions, suits, counterclaims, causes of action, complaints, charges, obligations, duties, demands, debts, accounts, judgments, costs,expenses, losses, damages and liabilities, of whatsoever kind or nature, in law, equity or otherwise.4.No Assignment of Causes of Action. Executive represents and warrants that he has not filed or caused to be filed against the Releasees any claims,actions or lawsuits. Executive further represents and warrants that he has not sold, assigned, transferred, conveyed or otherwise disposed of to anythird party, by operation of law or otherwise, any claim of any nature whatsoever relating to any matter covered by this Agreement.5.Representations of the Corporation. The Corporation represents that it is not presently aware of any cause of action that it or any of the otherReleasees have against Executive as of the date hereof. The Corporation acknowledges that the release granted by Executive in Section 2 above willbe null and void in the event the Corporation subsequently seeks to treat Executive’s termination of employment as “for Cause” under the Plan.6.Representations of Executive. Executive represents that Executive has been given an adequate opportunity to advise the Corporation’s humanresources, legal, or other relevant management division, and has so advised such division in writing, of any facts that Executive is aware of thatconstitute or might constitute a violation of any ethical, legal or contractual standards or obligations of the Corporation or any Affiliate. Executivefurther represents that Executive is not aware of any existing or threatened claims, charges, or lawsuits that he/she has not disclosed to theCorporation.7.Notice to Seek Counsel, Consideration Period, Revocation Period. Executive acknowledges that Executive has been advised in writing hereby toconsult with an attorney before signing this document and that Executive has had at least twenty-one (21) calendar days after receipt of thisdocument to consider whether to accept or reject this Agreement. Executive understands that Executive may sign this Agreement prior to the end ofsuch twenty-one (21) calendar day period, but is not required to do so. Under ADEA, Executive has seven (7) calendar days after Executive signs thisAgreement to revoke it. Such revocation must be in writing and delivered either by hand or mailed and postmarked within the seven (7) calendar dayperiod. If sent by mail, it is requested that it be sent by certified mail, return receipt requested to the Corporation’s General Counsel Office at 5620Industrial Road, Fort Wayne, Indiana 46825. If Executive revokes this Agreement as provided herein, it shall be null and void and Executive shallnot be entitled to receive the payments as described in the first sentence of Section 1 herein. If Executive does not revoke this Agreement withinseven (7) calendar days of signing it, this Agreement shall become enforceable and effective on the seventh (7th) day after Executive signs thisAgreement (“Effective Date”).8.Governing Law; Disputes. Jurisdiction and venue over disputes with regard to this Agreement shall be exclusively in the courts of the State ofIndiana or the United States District Court for the Northern District of Indiana. This Agreement shall be construed and interpreted in accordance withand governed by the laws of the State of Indiana, without regard to the choice of laws provisions of such laws. The parties agree that any actionbrought by a party to enforce or interpretthis Agreement shall be brought in a State or Federal Court sitting in Indiana; except that an action by the Corporation to enforce its rights underSection 7 of the Plan may also be brought in Executive’s state of residency or any other forum in which Executive is subject to personal jurisdiction.In addition, Executive and the Corporation specifically consent to personal jurisdiction in the State of Indiana for purposes of this Agreement.9.Amendment; Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge isagreed to in writing signed by Executive and the Corporation. This Agreement shall be enforced in accordance with its terms and shall not beconstrued against either party.10.Severability. The parties agree that if any provision, section, subsection or other portion of this Agreement shall be determined by any court ofcompetent jurisdiction to be invalid, illegal or unenforceable in whole or in part and such determination shall become final, such provision orportion shall be deemed to be severed or limited, but only to the extent required to render the remaining provisions and portion of this Agreementenforceable. This Agreement as thus amended will remain in full force and effect and will be binding on the parties and will be enforced so as to giveeffect to the intention of the parties insofar as that is possible. In addition, the parties hereby expressly empower a court of competent jurisdiction tomodify any term or provision of this Agreement to the extent necessary to comply with existing law and to enforce this Agreement as modified.11.Enforcement. This Agreement may be pleaded as a full and complete defense and may be used as the basis for an injunction against any action atlaw or proceeding at equity, or any private or public judicial or non-judicial proceeding instituted, prosecuted, maintained or continued in breachhereof.12.No Enlargement of Employee Rights. Executive acknowledges that, except as expressly provided in this Agreement, any employment orcontractual relationship between him and the Corporation is terminated, and that he has no future employment or contractual relationship with theCorporation other than the contractual relationship created by this Agreement, the Plan, any other applicable plans, programs or arrangements of theCorporation including, without limitation, the Corporation’s Certificate of Incorporation or By-laws, as either may be amended from time to time,the Equity Plan and any agreements thereunder, and the Indemnification Agreement. The Corporation has no obligation, contractual or otherwise, toemploy or reemploy, hire or rehire, or recall or reinstate Executive in the future with the Corporation.13.No Representations. Executive represents that he has carefully read and understands the scope and effect of the provisions of this Agreement.Executive has not relied upon any representations or statements made by the Corporation that are not specifically set forth in this Agreement.14.Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original but both of which together willconstitute one and the same instrument.15.Withholding. The Corporation shall withhold from any amounts payable under the Plan all federal, state, local or other taxes that are legallyrequired to be withheld, as well as any other amounts authorized or required by policy, including, but not limited to, withholding for garnishmentsand judgments or other court orders.16.Successors and Assigns. This Agreement binds and inures to the benefit of Executive’s heirs, administrators, representatives, executors, successorsand assigns, and the Corporation’s successors and assigns.17.Entire Agreement - Termination of Prior Agreements. This Agreement contains the entire agreement between the parties hereto with respect to thesubject matter hereof and supersedes any previous oral and written agreements or representations relating to the subject matters herein, except for theEmployment Agreement, any other applicable plans, programs or arrangements of the Corporation including, without limitation, the Corporation’sCertificate of Incorporation or By-laws, as either may be amended from time to time, the Equity Plan and any agreements thereunder, and theIndemnification Agreement.The undersigned hereby acknowledge and agree that Executive has carefully read and fully understands all the provisions of this Agreement, has hadan opportunity to seek counsel regarding it and has voluntarily entered into this Agreement by signing below as of the date(s) set forth above.IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated above.VERA BRADLEY, INC.By:Its:EXECUTIVEAppendix CCompetitors effective as of March 1, 2018:•Matilda Jane Clothing•Brighton Collectibles LLC•Alex and Ani•Spartina 449•Cinda B.•Dooney & Bourke•Brahmin USA•LeSportsac•KiplingPlan ParticipantsAs of February 28, 2018Participants:John Enwright*Daren Hull*Mark C. Dely*Beatrice Mac Cabe*Kevin Korney*Mary Beth TrypusStephanie Scheele* Indicates a CEO Direct ReportExhibit 21.1Vera Bradley, Inc.SubsidiariesSubsidiary State of IncorporationVera Bradley Designs, Inc IndianaVera Bradley International, LLC IndianaVera Bradley Sales, LLC IndianaVera Bradley Handbag Design (Dongguan) Co., Ltd. The People's Republic of ChinaVera Bradley Hong Kong Co., Limited Hong KongExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-170062 on Form S-8 of our reports dated April 2, 2019, relating to theconsolidated financial statements of Vera Bradley, Inc. and subsidiaries, and the effectiveness of Vera Bradley, Inc. and subsidiaries’ internal control overfinancial reporting, appearing in this Annual Report on Form 10-K of Vera Bradley, Inc. for the year ended February 2, 2019./s/ Deloitte & Touche LLPIndianapolis, IndianaApril 2, 2019Exhibit 31.1CERTIFICATIONSI, Robert Wallstrom, certify that:1.I have reviewed this Annual Report on Form 10-K of Vera Bradley, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: April 2, 2019 /s/ Robert Wallstrom Robert Wallstrom Chief Executive OfficerExhibit 31.2CERTIFICATIONSI, John Enwright, certify that:1.I have reviewed this Annual Report on Form 10-K of Vera Bradley, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: April 2, 2019 /s/ John Enwright John Enwright Chief Financial OfficerExhibit 32.1Certifications Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002I, Robert Wallstrom, the Chief Executive Officer of Vera Bradley, Inc., certify that (i) the annual report on Form 10-K for the fiscal year endedFebruary 2, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) theinformation contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Vera Bradley, Inc. as of thedates and for the periods set forth therein. /s/ Robert Wallstrom Robert Wallstrom Chief Executive Officer April 2, 2019 DateI, John Enwright, the Chief Financial Officer of Vera Bradley, Inc., certify that (i) the annual report on Form 10-K for the fiscal year ended February 2,2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information containedin the Report fairly presents, in all material respects, the financial condition and results of operations of Vera Bradley, Inc. as of the dates and for the periodsset forth therein. /s/ John Enwright John Enwright Chief Financial Officer April 2, 2019 Date

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