After a Terrible Week, Will Vera Bradley Come Back into Vogue?

After reporting poor sales metrics for the quarter, shares of Vera Bradley took a beating. Is this a sign that the company is going out of style and that other retailers like Michael Kors or Coach might be attractive plays, or is the business bound to see a comeback?

Jun 10, 2014 at 9:00AM


Source: Vera Bradley

The week of June 2 through June 6, 2014 was not a good time to own shares in Vera Bradley (NASDAQ:VRA). After reporting earnings that exceeded expectations but revenue that fell short of the company's own forecasts, its shares tumbled 12.5% to close at $23.14.

In spite of this decline, the company's stock is still trading 34% above its 52-week low and just 23% from its 52-week high. This suggests that investors still believe in the business. Moving forward, should the Foolish investor consider taking a stake in the retailer, or would shares in Michael Kors (NYSE:KORS) or Coach (NYSE:COH) be more sensible picks?

Vera Bradley's running out of style
For the quarter, Vera Bradley reported revenue of $113.5 million. In addition to coming in lower than the $116 million to $120 million management anticipated, the company's top line was 8% below the $123 million reported the same quarter a year earlier.

According to its earnings release, the main driver behind this decline in revenue was its 9.4% drop in comparable sales. Even the business's e-commerce comparable sales took a beating, falling 3.2%. Meanwhile, comparable store sales plummeted 14.4% as lackluster traffic and underappreciated product offerings were blamed on severe winter weather.


Source: Vera Bradley

While investors were displeased with Vera Bradley's poor revenue metrics, some solace can be had if shareholders take a look at the company's earnings. For the quarter, the retailer reported earnings per share of $0.16, handily outperforming the $0.13 analysts wanted to see. However, this fell short of the $0.23 that management reported for the first quarter of the company's 2014 fiscal year.

Are Michael Kors or Coach better opportunities?
The past few years have been very kind to Vera Bradley. Between 2009 and 2013 (the company's 2010 through 2014 fiscal years), revenue rose nearly 86% from $288.9 million to $536 million.

According to its most recent annual report, the retailer has benefited from a 267% jump in store count; it went from 27 locations five years ago to 99 locations now. An 86% improvement in aggregate comparable store sales has also played a role in the business's success, but it's important to remember that this metric has fallen each year over this timeframe.

VRA Revenue (Annual) Chart

VRA Revenue (Annual) data by YCharts

Yes, Vera Bradley has done well in recent years, but the company's performance has significantly lagged larger rival Michael Kors. During the past five years, revenue at this retailer has soared 552% from $508.1 million to $3.3 billion. This was driven in part by a 282% increase in store count from 106 locations to 405. It's important to know, however, that the company also saw its revenue climb because of the aggregate comparable store sales jump of 335% it experienced over this period.

Fortunately, Vera Bradley wasn't the only player left in Michael Kors' dust. Between 2009 and 2013, Coach saw its sales climb 57% from $3.2 billion to $5.1 billion. Like Vera Bradley and Michael Kors, Coach saw its revenue rise because of a confluence of higher comparable store sales and a greater number of locations in operation. During this five-year period, the retailer increased its store count by 41% from 675 locations to 953 while its aggregate comparable store sales improved as well.

Foolish takeaway
Based on the data provided, it's understandable why Mr. Market isn't happy with Vera Bradley right now. Despite the fact that earnings came in above forecasts, the fact that the company was unable to come even close to predicting its revenue suggests that its situation might be far from pretty.

Moving forward, the Foolish investor will want to tread carefully because of these lackluster results. The fact that revenue has risen at a nice clip over time means that the retailer might make for a logical prospect, however. This is especially true when shareholders pit the company up against Coach, but an even more interesting play might be to consider investing in shares of Michael Kors.

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One way to help protect yourself against downside, like what investors in Vera Bradley saw last week, is to invest in business with big dividends.  By grabbing hold of businesses that reward their shareholders handsomely and that have what it takes to keep their yields coming for years to come, investors can not only mitigate losses, but can also manage to see hefty returns down the road.

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Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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