For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. districts and its congressional representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.
That's why this week and every week from here on out, I'll make it a tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.
For this week's round of what I like to call "Better Know a Stock," I'd like to take a closer look at Vera Bradley
What Vera Bradley does
Vera Bradley designs and markets women's accessories, most notably handbags, through stand-alone stores, online, and through a network of 3,300 retailers. Trust me, if you're not familiar with what Vera Bradley makes, ask your wife, mom, sister, girlfriend, or any female you know!
In Vera Bradley's most recent quarter, the company reported a 15.6% increase in total sales as profits rose 11%. The company opened 19 stand-alone stores over the past year and experienced a 34.2% jump in revenue. Comparable-store sales, which excludes stores that opened or closed within the past year, rose 4.3%. Online sales, which are included in its direct sales segment, also rose by 26%. Indirect segment sales, meaning those items sold through its network of retailers, rose 1.3% to $58 million.
Whom it competes against
If you've ever gone shopping, you understand that there's absolutely no end to the amount of competition that exists for women's accessories. From high-end to low-end, Vera Bradley faces constant challenges. However, what's really the concern for Vera Bradley, and other accessory companies, isn't competition from one another, but lackluster consumer spending and rising cotton prices.
Two of Vera Bradley's primary competitors, Coach
However, not all hope is lost. Consumer appetite for Michael Kors
After reviewing Vera Bradley's prospects, I've decided to join the majority of CAPS members and make a CAPScall of outperform on the company.
Vera Bradley won't be without its challenges. Rising labor and cotton prices threaten to eat into margins, and weak consumer spending in Europe and North America could significantly reduce the company's expansion plans. However, why I like Vera Bradley is the exact same reason I've been a bull on True Religion Apparel
Personally, I'd like to see Vera Bradley continue to open stores and remove its reliance on its network of retailers. Also, it wouldn't hurt if the company added some cash to its balance sheet in case of a sharp economic downturn (at the moment, the company has just $6 million in cash on hand). All things considered, Vera Bradley looks like a long-term winner for my CAPS portfolio.
You can follow this selection, as well as all previous CAPScalls I've made, by clicking here to be immediately whisked away to my CAPS portfolio.
Peter Lynch is a strong believer in the "buy what you know" philosophy, and Vera Bradley offers a pretty easy-to-understand business. Our team at Motley Fool Stock Advisor couldn't agree more with this philosophy, and has, in response, picked out three winners for us middle-class investors who aren't already sitting on Warren Buffett-type cash. Find out the identity of these three stocks for free by clicking here to get your copy of this latest special report.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of Coach. Motley Fool newsletter services have recommended buying shares of Coach. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that's always in fashion.