The road ahead
Although Vera Bradley, Inc. (NASDAQ:VRA)’s fourth quarter earnings came in ahead of analyst expectations, its outlook was extremely soft. For the first quarter of fiscal 2014, the company expects to earn a diluted $0.20 to $0.22 per share, missing the analyst consensus of $0.35 per share, and also lower than the $0.31 per share it earned a year earlier. Revenue is expected to grow roughly 3.2% to a range between $120 to $122 million.
Investors were unimpressed by the retailer’s mediocre outlook, and the stock slid nearly 8% on March 14.
However, panicked investors overlooked the fact that Vera Bradley’s full year outlook was brighter, albeit merely in line with analyst estimates. The company expects earnings to rise 9% to $1.85 per share, while revenue is forecast to rise 8% to 9%. E-commerce sales are expected to accelerate, boosting gross margins by 50 basis points, while SG&A expenses stabilize.
New brands and partners
The company’s new Baby line, which caused the aforementioned surge in expenses in the fourth quarter, offers diaper bags, clothes, blankets, changing pads and tops, which may help it reach a new slice of its target female demographic – mothers who still enjoy a sprinkle of affordable luxury in their domestic lives.
In addition, a new partnership with Disney will also allow Vera Bradley to sell special edition Disney bags at its theme parks and cruise ships, increasing its brand exposure.
The Foolish Bottom Line
Vera Bradley’s main competitors are handbag giant Coach Inc. (NYSE:COH) and Fifth & Pacific Companies Inc (NYSE:FNP), which owns Juicy Couture and Kate Spade. How does Vera measure up fundamentally against these rivals?
| Forward P/E | Price to Sales (ttm) | Price to Book | Return on Equity (ttm) | Debt to Equity | Profit Margin | Qty. Earnings Growth (Y-O-Y) | Qty. Revenue Growth (Y-O-Y) | |
| Vera Bradley | 11.06 | 1.69 | 4.72 | 43.28% | 7.77 | 12.73% | 25.00% | 20.90% |
| Coach | 12.22 | 2.85 | 6.74 | 53.18% | 1.09 | 21.31% | 1.50% | 3.80% |
| Fifth & Pacific | 44.76 | 1.50 | N/A | N/A | N/A (total debt 406.29M) | -4.95% | -75.10% | 8.80% |
| Advantage | Vera Bradley | Fifth & Pacific | Vera Bradley | Coach | Coach | Coach | Vera Bradley | Vera Bradley |
Source: Yahoo Finance, March 15
Right away, we can see Fifth & Pacific Companies Inc (NYSE:FNP) is the weakest of the bunch, with negative margins and terrible declines in bottom line growth. Coach Inc. (NYSE:COH) is hanging in there, but it lacks any fundamental characteristics of a growth stock.
Meanwhile, Vera Bradley, Inc. (NASDAQ:VRA) rises above its competitors with extremely strong revenue and earnings growth, as well as a fairly robust return on equity ratio and decent margins. Better yet, the stock is the cheapest by a simple P/E valuation, despite exhibiting the best top and line growth – that makes it an undervalued growth stock in my book.
Buffett always said, “be greedy when others are fearful” – and right now, investors are plenty fearful of Vera Bradley, simply due to its weak first quarter guidance. Vera’s full-year forecast is intact, as are its long-term prospects – making it an attractive stock for patient investors.
The article Is Vera Bradley a Veritable Value? originally appeared on Fool.com and is written by Leo Sun.
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