If you have a teenage or college-age daughter, niece or relative, chances are you have heard of popular American handbag maker Vera Bradley (NASDAQ:VRA). Despite being known for its pricey accessories, the company drummed up enough interest to go public in October 2010 and has managed to post analyst-trumping sales and earnings growth ever since. However, are good fundamentals enough to keep this stock out of the bargain bin? Let’s find out.
Based in Fort Wayne, Indiana, Vera Bradley is known for its high-end coordinating accessories. Available in a wide range of bright patterns, the company sells everything from handbags to umbrellas to bedding, most commonly made with cotton or microfiber.
Although the company was founded in 1982, Vera Bradley purses and accessories have gained more traction in the past decade, finding particular success with teenage and college women. Vera Bradley employs over 2,000 across North America; there are over 3500 combined retailers of Vera Bradley products and stand alone Vera Bradley stores. In FY 2012, the company made $46.1 million in total sales.
After Thursday’s close, management announced that Vera Bradley’s first-quarter profit jumped 13% compared with the same quarter last year. Adjusted earnings weighed in at 31 cents per share, which topped the 29 cents per share consensus estimate by 7%. Over the same period, net sales climbed 16% to $117.2 million; analysts forecast sales of $116.9 million, so the company posted a modest sales surprise.
Looking ahead to the second quarter, management expects sales in a range of $121 million to $123 million and earnings between 345 cents to 36 cents per share. Meanwhile, the Street view calls for earnings of 38 cents per share on $122.7 million in sales. After this earnings announcement, shares of VRA gapped up 10% after hours, but have since consolidated to near its 52-week low due to today’s overall market volatility.
There are currently 63 companies in the Footwear & Accessories industry; the largest player of which is Nike (NYSE:NKE). Of these companies, Vera Bradley Inc. is 19th in terms of market capitalization. This company stands out the most in terms of its return on equity, which is the best in the industry, as well as its earnings growth and long-term growth rate, which are third-highest in the industry.
Vera Bradley’s sales growth and Price/Earnings to Growth ratio rank ninth and tenth respectively. Vera Bradley’s largest competitors are Coach (NYSE:COH), Fifth & Pacific Companies (NYSE:FNP) and Macy’s (NYSE:M). Of these four companies, Vera Bradley has the highest sales growth, the second-highest gross margin and the second-highest operating margin.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. I’ve had VRA in my Portfolio Grader database since last November. What’s interesting about this stock is that up until March, VRA was a B-rated buy.
However, in April the stock suffered a significant drop in buying pressure, which immediately sent this stock down into sell territory. This was after the company issued a first-quarter guidance that was below the Street view. Since then, the stock hasn’t been able to regain its ground despite the fact that Vera Bradley’s fundamentals are solid.
The company scores high in terms of earnings momentum and return on equity, and its sales growth and earnings growth are strong as well. The only areas of improvement left for Vera Bradley are its operating margin growth and its track record of beating analyst earnings estimates.
However, because buying pressure for this stock remains so low, VRA receives a D for its total grade.
Bottom Line: I would leave VRA alone until its buying pressure firms up; this stock is a D-rated sell.
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