Given the problems that have beset Vera Bradley, Inc. (NASDAQ:VRA) in recent quarters, this would appear to be a risky stock. Nevertheless, the stock trades at less than 11 times forward earnings estimates and the company does have a very impressive history of revenue growth and stable profit margins. Consider, for example, that sales at Vera Bradley have gone from just $289 million in fiscal 2010 to $541 million in its most recent fiscal year.
Disappointing Results at rue21 Not an Issue for Investors as Buyout Deal Struck in May
Although rue21, inc. (NASDAQ:RUE)‘s weak first-quarter results had nearly no effect on the stock price since the company will soon be taken private at $42.00 per share, the report did not engender much confidence in the retail sector. Not only did rue21, inc. (NASDAQ:RUE) miss both consensus earnings and revenue estimates, it also slashed its earnings outlook for fiscal 2013 — an unwelcome trend it would seem.
In Q1, the company reported net income of $0.44 per share versus consensus EPS estimates of $0.46. Sales were also light with the company reporting net revenue of $224.38 million versus Wall Street expectations of $229.83 million.
Interestingly, while rue21, inc. (NASDAQ:RUE) cut its full-year outlook, its second-quarter earnings guidance was ahead of current estimates. For Q2, the company sees EPS of $0.51 to $0.53 versus current consensus of $0.40. For the full-year, however, the retailer guided for EPS of $1.98 to $2.03 versus its previous outlook calling for earnings of $2.00 to $2.05 per share. Currently, Wall Street is modeling full-year earnings per share of $2.02 at rue21.
Although rue21, inc. (NASDAQ:RUE) has agreed to be acquired by Apax Partners, the terms of the deal provided for a 40-day “go shop” period under which the company can solicit superior offers. Since the transaction was announced on May 23, this so-called “go shop” period is still in effect and there is the possibility that a higher bid could emerge. With the stock holding slightly under the $42 deal price, investors could purchase the shares on the hope that another buyer does materialize, while assuming relatively little risk.
Retail Warning?
So far in 2013, retail stocks have ridden the broader market momentum to nice gains. Improving consumer confidence and a strengthening economy should help retailers, but this is clearly not the case across the board. The recent earnings reports from Ascena Retail, Vera Bradley, and rue21, along with Francesca’s less than inspiring report, suggest that the consumer environment may be deteriorating once again. For this reason, traders and investors may want to re-consider being overexposed to the retail sector heading into the Summer and adopt a modestly more conservative position.
Ryan Glosier has no position in any stocks mentioned. The Motley Fool recommends Ascena Retail Group. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Trio of Retailers Report Disappointing Quarterly Results originally appeared on Fool.com is written by Ryan Glosier.
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