Seeking Alpha
Research analyst, growth, value, IPOs
Profile| Send Message|
( followers)  

Vera Bradley (NASDAQ:VRA) shares got hammered after the announcement that its CEO was stepping down. That announcement came on the same day the affordable luxury brand reported first quarter earnings. Shares were unjustly punished by the announcement of its CEO departure and now offer a great entry point.

Chief executive officer Michael C. Ray has announced that he will be stepping down from his role with the company. However, Ray will stay on as CEO while the company searches for a new candidate. I think the most important thing from the announcement was Ray's comment about his successor, "I believe it is the right time for the company to pursue a new leader who has the extensive retail and brand management experience that Vera Bradley needs to advance into its next phase of growth and success."

Ray has worked with Vera Bradley for the last 15 years and helped take the business public and grow sales since his start with the company. Ray acted as the CEO since 2007. I think the fact that Ray recognizes the company needs a new leader is a positive. Ray started as Chief of Finance for the company. Vera Bradley could benefit from bringing in someone who has grown a company from 10 stores to 100s of stores. Sales are growing in the direct sales segment and declining in indirect sales segments. Vera needs a leader who can recognize this trend and rapidly open locations around the country and in international markets.

In the first quarter, Vera Bradley increased revenue 5.0% to $123.0 million. Direct sales increased 24% to $73.7 million. The strength of the direct sales increase was led by Vera Bradley stores, which increased revenue by 34%. The company opened 19 full price stores and four factory outlets. Same store sales at locations previously opened increased 0.9%. E-commerce sales increased 23% during the first quarter. The blemish on the first quarter was indirect revenue. This segment dropped 15% to $49.3 million. The company blamed "cautious ordering from specialty retailers" as the reason for the drop.

Analysts on Yahoo Finance expect Vera Bradley to post earnings per share of $1.73 for fiscal 2013. Estimates call for sales to increase 5.9% to $573.0 million. In fiscal 2014, analysts see the company posting earnings per share of $1.92 from revenue of $627.7 million. With shares trading just over $20, the company trades at around 11 times next year's earnings. With sales expected to increase 9.5% in fiscal 2014, this is a company that should trade with a higher valuation.

Vera's own guidance calls for full year revenue in a range of $570 to $575 million. The company also sees earnings per share for the full year in a range of $1.74 to $1.78. Both of these numbers are close to the estimates on Yahoo Finance. In the first quarter, Vera posted earnings per share of $0.23, which was $0.02 higher than estimates from analysts.

I recommended shares of Vera Bradley in June and August of 2012 after similar drops provided buying opportunities. In March of 2013, I pointed out two new business segments that could boost sales for the fiscal year. The company has a new partnership with Disney (NYSE:DIS) and is also expanding into baby totes, a huge segment for all of the moms out there.

I expect shares of Vera Bradley to rebound and trade back closer to the $25 level. The company has an in demand product with several new lines coming out in 2013. International expansion is coming and will likely ramp up with a new CEO. Enjoy the drop in price when you can and buy shares of Vera Bradley.

Source: Vera Bradley Shares Unfairly Punished For CEO Departure