Why Vera Bradley Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Vera Bradley (NASDAQ: VRA  ) were getting torn up today, falling as much as 11% after posting disappointing guidance in its earnings report.

So what: The maker of handbags and other accessories actually beat earnings estimates with a per-share profit of $0.37 against expectations of $0.32. Revenue increased 1.9% to $125.4 million, also topping the Street's view of $124.5 million. However, same-store sales decreased by 3.7%, indicating organic weakness in the brand, but that decline was offset by the opening of 20 stores and four outlet locations in the quarter. CEO Michael Ray cited "considerable headwinds" and an "uncertain consumer environment" for the company's weak comps and disappointing outlook. The fashion label said it expects an EPS of $0.33 to $0.35 in the current quarter, and $1.47 to $1.52 for the full year. Both figures are well below the analyst consensus at $0.45 for this quarter and $1.66 for the year.

Now what: Despite the disappointing outlook, shares spiked briefly after opening, and were trading just 2% down by midday trading as investors apparently saw the early drop as a buying opportunity. With a P/E under 12, Vera Bradley is trading at a discount relative to its retail peers, but a low price isn't enough to compensate for declining profits. I'd like to see management growing organic sales, both in its own stores and through its retail partners before getting on board.

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