Vera Bradley (VRA): A Handbag Maker With a Hole in the Bottom

Shares of handbag and accessories maker Vera Bradley, Inc. (NASDAQ:VRA) are down nearly 16% and into new all-time lows after the company reported earnings, cut forecast and announced plans to close a U.S. manufacturing facility.

marketing textNone of this should be seen as “good” news.

Vera Bradley Earnings: Ugly, Ugly, Ugly!

On the earnings front, Vera missed Wall Street’s forecasts as well as its own, posting profits of $17.3 million, or 43 cents per share, on revenues of $152.6 million — down 10.4% and 2.4%, respectively. Previously, VRA management had forecast earnings in a range of 43 to 47 cents per share on revenues of $158 million to $163 million. Analysts were expecting 45 cents per share and sales of $160.3 million.

Other disappointing stats: Vera Bradley’s same-store sales fell 20.7%, and web sales were off by 7.3%. Gross margins came in at 52.4%, down from 52.8% last year.

Future prospects weren’t any better. Vera Bradley projected current-quarter revenues in a range of $103 million to $109 million, which was sharply lower than the $121 million mark set by analysts. Meanwhile, earnings forecasts of 3 cents per share were dramatically under the 16 cents Wall Street wanted to see.

For the full year, revenue guidance of $510 million to $525 million and earnings of 82 cents to 92 cents was reported. Can you guess what’s coming next? That’s right: Analysts were expecting better on both fronts, at $567 million in revs and $1.19 per share in earnings.

Other Problems With VRA

Vera Bradley’s other piece of bad news came Tuesday, as VRA announced it would be closing its New Haven, Indiana, manufacturing facility on May 9 unless business conditions force the company to close the plant sooner. This location employees 250 people and produces roughly 5% of products sold. Management stated that it cost 90% more to produce its merchandise domestically than it does overseas.

While in general, no one here wants to see American jobs sent overseas, the closure certainly will help Vera Bradley’s margins … but because such a small amount of merchandise comes from the New Haven location, don’t expect a massive windfall.

The main issue the company is facing is not costs of goods sold, it is simply selling product. When same-store sales fall by 20%, there’s either an issue with what you’re selling — Lumber Liquidators Holdings, Inc. (NYSE:LL) might sniff this problem soon enough — or, as McDonald’s Corporation (NYSE:MCD) could attest, customer tastes are changing.

When it comes to fashion — the industry Vera Bradley operates in — it’s very likely the latter. We have seen other handbag makers such as Coach, Inc. (NYSE:COH) find out the hard way what happens when customers all of a sudden start looking the other way.

Vera Bradley is simply the latest to feel that kind of pinch.

Bottom Line

Fashion is constantly changing, making it difficult for companies in the space to consistently notch better and better numbers. Even Michael Kors Holding Ltd (NYSE:KORS), once Wall Street’s fashion darling, has been mired in a yearlong slump.

Based off the numbers, it appears Vera Bradley is coming down off its own wave. And while it is difficult to say whether VRA will survive the fall, it’s plain to see this isn’t a ride worth taking today.

As of this writing, Matt Thalman was long KORS.

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