I'm Flirting With the Idea of Going With Vera Bradley Again

The maker of women’s handbags and accessories has fallen to a tempting price after a recent post-earnings tumble.

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Back in late December as a year-end move, I parted ways with Vera Bradley (VRA) , a well-known brand name but an under-the-radar stock that I had owned since mid-2017. I thought the 2019 acquisition of a 75% interest in Pura Vida bracelet maker Creative Genius might be a catalyst for Vera Bradley. However, it got creamed during the onset of the pandemic, falling all the way into the low $3 range intraday in March 2020 before rebounding to $8 by December. As it turned out, the stock did little while I owned it; the story never played out as I had suspected it would and I got bored and moved on.

But I could not help but notice the action in VRA this past Wednesday, when the company announced second-quarter results. More specifically, the stock took about a 10% hit after missing the 28-cent consensus per-share earnings estimate by five cents. While revenue was up 11.6% year over year it also missed estimates, by $6.6 million. Vera Bradley also updated full-year revenue guidance to a range of $550 million to $565 million, which is below the previous consensus of $570.3 million, and full-year earnings per share to a range of 80 cents to 95 cents versus the previous 95-cent consensus. Neither helped matters.

The balance sheet, however, remains fairly solid. Vera Bradley ended the quarter with $76.5 million, or $2.25 a share, in cash and short-term investments and no debt. The company did not buy back any stock during the quarter, but still has $32.9 million left under a $50 million stock repurchase authorization that expires Dec. 11. VRA currently trades at about 10x nest year’s consensus EPS estimates of $1.03. 

I typically have avoided going back names I’ve previously owned, but then came the crazy environment we’ve seen in retail the past few years. I’m on round two with both Cato Corp. (CATO) and Fossil Group (FOSL) and both of those plays are working out well the second time around, too. I now have VRA back on my radar. It’s not the bargain that CATO was but is somewhat intriguing nonetheless. It’s a bit surprising that this brand has a current enterprise value (market cap plus debt minus cash) of just $276 million. I had similar thoughts when I first took a position in VRA and also thought it might make a nice acquisition for a bigger fish, but hope springs eternal.

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Roy Walsh

Roy Walsh

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