Vera Bradley Decline Offers Good Entry Point For Long-Term Growth

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 |  About: Vera Bradley (VRA)
by: Chris Katje

Specialty retailer Vera Bradley (NASDAQ:VRA) is seeing its shares getting crushed today after missing earnings per share estimates during yesterday's second quarter earnings report (Call). The shares trading down over 7% are getting closer to 52-week lows. The company sells affordable luxury items for women in categories like purses, backpacks, luggage, and diaper bags. If you're not familiar with Vera Bradley products, ask your wife, girlfriend, or mother and they can likely give you a scoop on why the products are so popular with women.

I recommended buying shares of Vera Bradley back in June as they fell below $20. Since that article, shares are up 12% and actually briefly touched the $27 mark. Today's falling share price once again represents a nice entry point. Vera Bradley's affordable luxury brand has expansion potential through retail stores in the United States and future international indirect selling.

Vera Bradley reported second quarter revenue of $123 million, a 19% increase from the previous year. Gross margin was slightly lower at 55.9%. The company saw its net income drop $200,000 to $13.4 million. The company reported earnings per share of $0.33. In last year's second quarter, earnings per share were $0.34. Analysts on Yahoo Finance were expecting earnings per share of $0.35 from net revenue of $122.15 million.

In the quarter, indirect revenue increased 2.7%. Indirect revenue comes from the company's numerous retail partnerships to sell Vera Bradley products in stores like Dillards. The company is expanding in Dillard's and will add over 100 additional stores for its September fall launch. Currently, Vera Bradley products are sold in 176 Dillard's stores.

The company's direct sales revenue increased 37%. The increase was due to a larger base of stores and higher sales at stores open more than a year. In the last year, Vera Bradley has opened 17 full price stores along with 4 outlet stores. Stores open more than a year saw sales growth of 5.3%. The company's e-commerce selling saw an increase of 21%. The company has expanded its social media efforts and now has over 1.1 million fans on Facebook. Vera Bradley also spent money on keyword advertising online. Direct sales made up 53% of the company's revenue.

On June 28th, Vera Bradley launched its Back to Campus collection that included new items like bedding and dorm room accessories. The company also expanded its line of backpacks and technology items like cell phone covers. Today, the company launches its fall fashion lineup that will see expanded offerings in the baby bags line. This expansion is hoping to appeal to moms on the go who are looking for stylish diaper bags.

In the second quarter, Vera Bradley opened an additional eight stores. For the rest of the fiscal year, the company plans to open 6 stores. At the end of the second quarter, the company had 60 full size and 10 outlet stores in operation. The company's long term goal is 300 stores in the United States. Company officials gave no guidance for next year's expansion plans, but had previously said it will build 14-20 stores per year.

Along with the United States, Vera Bradley has begun to focus on international expansion through retail deals and one time events. The company has eight locations inside department stores in Japan that sell its products. Vera Bradley also was part of a one day event at a leading retailer in Japan to showcase its products on the main floor of the department store.

The company is forecasting net revenue of $134-$136 million in the third quarter. Earnings per share guidance is $0.37 to $0.39. For the full year, the company lowered its revenue targets. The company sees net revenue of $531-$536 million, from a previous range of $535-$540 million. Earnings per share are expected to be $1.60-$1.63. Analysts are expecting earnings per share of $0.35 on $122.15 million in revenue for the third quarter. Both numbers given by Vera Bradley would easily beat these targets. However, analysts have higher expectations for the full year with targets of $536.97 million in revenue and $1.69 in earnings per share. The following fiscal year, analysts are looking for earnings per share of $1.99.

The growth remains undervalued in Vera Bradley. The company has 70 stores and only began offering retail locations five years ago. The retail expansion is in the beginning stages with the company at 23% of its United States store count goal. With strong growth of 14-20 units per year plus same store sales increases, the company is well positioned for the long run. International deals will come in the near term and will provide bounces for investors who are patient and pick a good entry point now.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VRA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.