Will Fourth-Quarter Earnings Propel Vera Bradley Shares to a New 52-Week High?

Vera Bradley (NASDAQ: VRA  ) , the designer and retailer of women's handbags and accessories, has widely outperformed the overall market so far in 2014, and strong earnings could keep the rally going. Vera Bradley's fourth-quarter report is due out before the market opens on March 19, so let's take a look at the current expectations and decide if we should buy before the release or if we should wait for this highflier to come down a few points.

Source: Vera Bradley.

The last time out
On Dec. 11, Vera Bradley released its third-quarter results for fiscal 2014. The results surpassed the analyst estimates:

Metric Reported Expected
Earnings Per Share $0.37 $0.33
Revenue $130.10 million $129.34 million

Source: Benzinga.

Vera Bradley's earnings per share decreased 15.9% and revenue decreased 5.9% year over year, as comparable-store sales declined 6.5%; e-commerce sales were weak as well, falling 7.8%. Gross profit decreased 10.3% to $71.9 million and the gross margin took a major hit, declining 270 basis points to 55.3%. The company noted that the poor performance was due to slowed customer traffic and underperformance in its product offerings, along with "a persistently challenging retail environment." Overall, it was a pretty terrible quarter for Vera Bradley, but it did surpass expectations, and the stock has rallied more than 12% since then.

Expectations and what to watch for
For Vera Bradley's fourth quarter, analysts expect negative growth once again; here's an overview:

Metric Expected Year-Ago
Earnings Per Share $0.46 $0.62
Revenue $146.78 million

$162.6 million

These estimates would result in earnings per share decreasing 25.8% and revenue declining 9.7% year over year, which is right in line with what Vera Bradley projected in its third-quarter report:

Metric Q4 Guidance
Earnings Per Share $0.44-$0.47
Revenue $145 million-$150 million

Source: Vera Bradley.

The company added that it expects its gross margin to be in the range of 54.1%-54.5%, down significantly from the 57.9% reported in the year-ago quarter. In addition to these key metrics, it will be crucial for the company to provide an outlook on fiscal 2015 that is within analyst expectations; currently, the estimates call for earnings per share in the range of $1.36-$1.67 on revenue of $532 million-$561 million.

Both sets of expectations call for yet another dismal quarter, but if Vera Bradley can meet or exceed them, the stock could continue its rally higher; however, I do not believe that it could rise by as much as it did following the third-quarter report. With this said, the Foolish investor should be cautious because a company can only show so much negative growth before its shares come down to reflect a fair value.

A glance within the industry 
Two of Vera Bradley's largest competitors, Michael Kors (NYSE: KORS  ) and Coach (NYSE: COH  ) , recently reported quarterly results that give investors a sense of the condition of the industry. Here's a breakdown of each report:

Metric Michael Kors Coach
Earnings Per Share $1.11 $1.06
EPS Growth 73.4% (13.8%)
Revenue $1.01 billion $1.42 billion
Revenue Growth 59% (5.3%)
Beat/Missed Expectations? Beat Missed

Source: Michael Kors.

Michael Kors had a great quarter as global comparable-store sales increased 27.8%, which included 24% growth in North America. Gross profit rose 61.6% to $619.5 million and the gross margin expanded 100 basis points to 61.2%; this was very impressive as it shows that the promotional retail environment had no effect on the company's margin. Michael Kors' stock reacted by spiking more than 17% higher on the day of the release, and it has continued its run higher in the weeks since.

Source: Coach.

Coach had a dismal quarter, with comparable-store sales declining 13.6% in North America. Gross profit declined 9.4% to $982.7 million and gross margin decreased 300 basis points to 69.2%.

Coach offered numerous promotions during the holiday season but it did not attract enough customers, which then led to the added negativity of a major gross-margin hit. Coach's stock reacted by falling 6% on the day of the release, and its shares have remained weak since then.

Michael Kors' report shows that the demand for handbags and accessories was there during the holiday quarter, but Coach showed that not all brands were desired. These are both positive and negative indicators for Vera Bradley, but I think the negatives outweigh the positives here; this is because of the weak performance of the company's product offerings in the third quarter and the lack of innovation since its release. For these reasons, I think it would be best for Foolish investors to avoid investing in Vera Bradley for the time being and only consider Michael Kors as an option today.

The Foolish bottom line
Vera Bradley is a great American brand, but I do not believe it can continue to report negative growth and see a rise in its stock price. Its fourth-quarter report is scheduled to be released in a week, and the current analyst estimates seem within reach, but Foolish investors should be cautious and wait to see what the report holds before investing. By being patient, we can then use Vera Bradley's most up-to-date financial information and its outlook on the year ahead to determine if we should put our hard-earned money to work in its stock.

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