What happened

Shares of luggage and handbag retailer Vera Bradley (NASDAQ:VRA), which owns both its namesake brand and the smaller Pura Vida bracelet nameplate, fell sharply as trading began on Wednesday, losing as much as 20% of their value in the first few minutes of the day.

The big news was the company's fiscal third-quarter 2022 earnings release. Here's a quick look at why investors were so displeased with the update.

So what

The news on the top line wasn't actually bad for Vera Bradley, with fiscal third-quarter 2022 sales up 7.9% versus the previous year and 5.7% compared to fiscal 2020, a period not affected by the pandemic. Basically, demand is still there for the company's products. It's little wonder that this is what the company put on top of its earnings release. The problem is that lower down, the news starts to get a lot less positive.

For example, while Pura Vida sales continue to expand nicely, larger Vera Bradley's sales were more mixed. Specifically, its own sales increased but sales through third parties fell. That's not shocking given the pandemic, but it wasn't the only negative in the quarter.

Three people with bags shopping in an outdoor retail area.

Image source: Getty Images.

Notably, the company's adjusted earnings came in at $0.18 per share, down from $0.30 in the prior year. Meanwhile, Wall Street analysts had been expecting $0.26 per share. Investors don't like it when companies miss like that. But it could be the reason for Vera Bradley's results falling short that caused the most trouble for the stock.

Management highlighted that supply chain issues were a $0.05-per-share headwind (with tax issues cutting another $0.03 per share off the bottom line). Supply chain disruptions are a major headline grabber right now, and investors have been punishing retailers that are being negatively affected.

The company noted that it is working on price increases to offset the issue, but those actions will likely continue past the fourth quarter. In other words, the final quarter of fiscal 2022 will continue to see these headwinds. 

Now what

The company is currently guiding for earnings to fall between $0.24 per share and $0.29 in the fourth quarter, which would bring the full-year tally to between $0.65 and $0.70 per share. At the end of the fourth quarter, the retailer's full-year guidance was for earnings to fall between $0.80 and $0.95 per share. While this hardly spells the end of the line for Vera Bradley, investors clearly had higher expectations. They are reacting accordingly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.