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Shares of Vera Bradley (NASDAQ:VRA), the designer and retailer of accessories for women, fell over 13% over the past week. The company released its second quarter results on Wednesday.

Second-Quarter Results

Vera Bradley reported second-quarter revenues of $123.0 million, up 18.5% on the year. Sales growth was driven by direct revenues, which were up 37.2%, driven by the opening of 21 new stores. Comparable store sales increased by 5.3% on the year. Indirect net revenues increased by 2.6%. Analysts expected Vera Bradley to report revenues of $122.2 million.

Gross margins fell 170 basis points to 55.8%. Margin compression was the result of increased promotional activity, which could not entirely be offset by a positive channel mix. Selling, general and administrative expenses increased by 120 basis points as a result of higher occupancy costs.

The company reported net income of $13.4 million, down 2% on the year. Diluted earnings per share fell by a penny to $0.33. On average, analysts expected Vera Bradley to report earnings of $0.35 per share.

CEO Michael Ray commented on the results:

"Although there were many accomplishments during the quarter, results fell short of our expectations. The second quarter was challenging in May and June as we managed a product portfolio that underperformed in the midst of an uncertain consumer environment. Sales trends improved in July, which benefited from the strong reception of our fall collections. We are also encouraged by our future product introductions; however, we remain cautious regarding the second half of the year."

Outlook

For the third quarter of 2013, Vera Bradley expects net revenues of $134-$136 million. This compares to $121.1 million in the third quarter last year. Gross margins are expected to increase by 200 basis points. Diluted earnings per share are expected to come in between $0.37 and $0.39, assuming an effective tax rate of 39%. Analysts expected third-quarter earnings per share of $0.39 per share.

For the full year of 2013, the company expects annual revenues of $531-$536 million. Gross margins are expected to increase by 30 basis points. Diluted earnings per share for the full year are expected to come in between $1.60 and $1.63. Analysts expected full-year earnings per share of $1.69 per share.

Valuation

Vera Bradley ended its second quarter with roughly $8 million in cash and equivalents. The company operates with $25 million in long-term debt, for a net debt position of $17 million. For the first six months of its fiscal 2013, Vera Bradley reported revenues of $240 million. Net income came in at $26.0 million, or $0.64 per diluted share.

At the moment, the market values Vera Bradley at $860 million. This values the firm at 1.6 times annual revenues, and 13 times annual earnings.

Currently, Vera Bradley does not pay a dividend.

Investment Thesis

Year to date, shares of Vera Bradley have lost almost 35%. Shares rose to $38 in the first months of 2012, but fell to lows of $20 during the summer months. Shares recovered in recent weeks and trade around $21 after last week's sell-off.

Between 2008 and 2011, the company almost doubled its annual revenues from $239 million to $461 million. Further revenue growth is anticipated in 2012. At the same time, net earnings rose from $24 million in 2008 to an expected $65 million in 2012.

Shareholders in Vera Bradley have seen modest returns since its public offering late in 2010. Shares went public at $16 per share, and ended their first trading day at almost $25. At the moment, shares have fallen back to around $21, after peaking at $50 a little over a year ago.

After shares lost over 60% of their value, it is worthwhile to take a detailed look at the prospects of a company. Valued at an estimated 13 times annual earnings, shares are attractive given the growth trajectory of the company.

Shares of Vera Bradley present an interesting long-term entry point at these levels.

Source: Vera Bradley: After 60% Retreat From Highs, Shares Offer Strong Value As Growth Continues