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What Investors Need to Know After the Vera Bradley Security Breach

By Nicholas Rossolillo – Oct 24, 2016 at 10:01PM

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The handbag company is the latest victim of hackers. Investors should brace for fallout.

Image source: Vera Bradley.

Vera Bradley (VRA -0.12%) announced on Oct. 12 that its payment system was breached. Payment cards used at Vera Bradley store locations between July 25 and Sept. 23 may have been affected. Besides the potential theft of customer information, the company expects some of its business plans to be delayed as a result.

Law enforcement notified the women's fashion designer on Sept. 15 that credit and debit cards used at Vera Bradley stores were affected. The company advised customers to be alert to unauthorized transactions on the cards they used at Vera Bradley stores. Upon further investigation, it was concluded that online sales transactions were not affected.

How the incident could hurt the business

The hack into the payment system is a blow to Vera Bradley as the company's new online store was set to be launched this month. The company was betting on the new format, which features new payment options, an easier-to-navigate and customizable layout, and international sales scalability.

As a result of the hack, the company will have to delay the online store launch until 2017. Even though the online payment system wasn't hit, efforts that would have gone into launching the website are instead being focused on increasing security measures. Management said that comparable sales numbers could be negatively impacted as a result of the newly designed web store missing the important holiday shopping season this fall.

A business makeover postponed

Vera Bradley has been in the midst of a brand transformation in the past year. The company has redesigned the look and feel of its logo and store layout and has also launched new fashion lines, including leather handbags, accessories, and a line of stationery.

To complement all of the new changes and revamping, a new ad campaign with extra emphasis on a social-media presence and outreach is under way. Along with that, the company's flagship store in the SoHo neighborhood of New York City recently opened its doors, featuring the new logo and fashion lines. Refreshing other full-line stores is also under way, with an emphasis on bringing them up to speed with the new design elements in the flagship New York location.

All of these company redesigns are aimed at showing off the new Vera Bradley styles. So far, these offerings have failed to boost comparable sales, with the figure coming in at negative 6.1% during the last reported quarter.

The final part of the makeover, and the one expected to drive a return to comparable sales growth, was supposed to be the relaunch of the online store, just in time for the big end-of-year shopping rush. With the security breach now making customer privacy a bigger issue and the website getting put on the back burner, it looks as if investors may have to cope with struggling sales a bit longer.

Takeaways for investors

Also not known yet is how knowledge of the hack itself will affect customers' shopping habits. Over the past few years, retail companies that have lost customer information have gotten beaten up.

Before the news, Vera Bradley had been figuring on 2% to 8% full-year sales growth. Between the delay of the new site and possible short-term loss of trust from customers, it would be best to assume Vera Bradley will miss expectations for the fourth quarter of this year.

Nicholas Rossolillo owns shares of Target. The Motley Fool has no position in any of the stocks mentioned. 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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