Buy Recommendation: Vera Bradley (VRA)
VRA Overview • Vera Bradley, Inc. is a designer, producer, marketer, and retailer of functional accessories for women. The Company’s products include a range of offering of handbags, accessories, and travel and leisure items • Direct segment consists 75 stores in the United States (which includes 10 outlet stores). There are seven pop-up stores in Japan, and Vera. Bradley. com • Indirect includes 3, 300 independent retailers
Investment Thesis Purchase a designer brand with good growth potential at a discounted cost and then sell in 1 -2 years.
Key Investment Points • Unique brand name which is vital in the crowded consumer retail market • Solid customer base and distribution platform • Updated supply chain that can support future growth • There is ample room for growth and they have a good retail strategy to reach their goals
SWOT Analysis Strengths • Unique Brand • Good relationships with indirect sellers • Integrated product design team that deliver consistent products across all channels • Direct and E-commerce sales growth. 62 Million visited website last year, a 45% increase yoy Weaknesses • Management’s handling of Inventory • Distribution network already includes 3, 300 independent retailers • Primarily manufacture products in China Opportunities • New Product lines • Branding rights to other companies, joint partnerships (DIS) • E-Commerce • Small company with plenty of room to grow • Japan Threats • Manufacturing costs • Fashion industry is unpredictable • Consumer confidence and spending • Small-cap company means increased volatility
Stock Price History - 12 Month
Earnings Surprise
Why Undervalued? • Revised guidance for 1 st quarter (fiscal 2014) left something to be desired • Decline in operating CF’s • Lower sales growth than peers • 90 bps Increase in SGA • Criticism over managements handling of inventory
How do we know it’s undervalued? • Many analysts believe fair value is around $30 • P/E is 12. 85 while Industry Average is 24. 36 • S&P is 17. 82 • P/Projected Earnings is 10. 45 while Industry is 32. 11 • P/B is 4. 56 while Industry Average is 5. 09
Financial Snapshot • Between the calendar year of 2008 and 2012, Vera Bradley more than doubled its annual revenues from $239 million to $541 million. • Net earnings almost tripled, expanding from $24 million to $69 million over the same time period. • Revenues are up 21% yoy RETURN ON EQUITY (%) VRA Ind Avg Q 4 2012 35. 45 22. 39 Q 4 2011 46. 70 21. 90 Q 4 2010 NA 20. 15 52 wk Range: 18. 91 - 31. 00 Volume: 320, 541 Avg Vol (3 m): 431, 063 888. 37 M P/E (ttm): 12. 88 EPS (ttm): S&P 500 13. 11 14. 55 13. 57 Market Cap: 1. 70 Beta 1. 02
Recommendation • Purchase 250 shares at limit price of $21. 75 Total purchase of $5, 437 • 1 yr Target of 28. 43 • Buy at 21. 75 and sell at 28 yields a %28. 7 gain • Currently our Sector is underweight by 4% ($22, 298). If Car. Max purchase goes through for $4, 968 then we will still be %3. 1 underweight. This purchase would drop us to %2. 16 ($11, 893)
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