What happened

Shares of Vera Bradley (NASDAQ:VRA) slumped on Wednesday after the handbag, luggage, and accessory designer reported its third-quarter results. The company missed analyst estimates on all fronts, reporting a steep double-digit revenue decline. The stock was down about 9.7% at 12:35 p.m. EST.

So what

Vera Bradley reported third-quarter revenue of $97.7 million, down 14.4% year over year and about $4 million below the average analyst estimate. The company reduced its clearance selling by more than 70% during the quarter, and its full-price business grew at a double-digit rate. But the shift away from clearances hurt comparable sales, particularly on verabradley.com.

A Vera Bradley bag.

Image source: Vera Bradley.

Non-GAAP earnings per share came in at $0.12, down from $0.23 in the prior-year period and $0.03 lower than analysts were expecting. Gross margin was 58.5%, up from 55.9% in the prior-year period. The increase was driven by the reduction in clearance selling. Shipping costs were higher than expected, which offset the gross margin expansion.

"While softer than expected October sales affected third quarter performance, we were pleased to see strong performance over Black Friday weekend and on Cyber Monday, particularly as we focused more on full-price selling and less on clearance. Customers responded to our simplified and more impactful promotional messaging and our focus on key items over the holiday weekend," said Vera Bradley CEO Robert Wallstrom.

Now what

Vera Bradley expects to report fourth-quarter revenue between $114 million and $119 million, down from $132 million in the prior-year period. Reduced clearance selling will be the main driver of the decline. Fourth-quarter non-GAAP EPS is expected between $0.22 and $0.25, down from $0.33 in the prior-year period.

For the full year, Vera Bradley sees revenue between $412 million and $417 million and non-GAAP EPS between $0.57 and $0.60. Those compare to revenue of $454.6 million and EPS of $0.60 last year.

The move away from clearance sales is proving painful for Vera Bradley, but it's likely the right move in the long run.