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Category: Stock Market and Vera Bradley
Date: 4 September 2019 Stock Price: $8.14 (Down -16.6% for the day) We take a look at the 2nd quarter earnings for their 2020 fiscal year of Vera Bradley, the handbag and luggage and travel items designer
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About Vera Bradley
Vera Bradley is a leading designer of women’s handbags, luggage and travel items, fashion and home accessories, and unique gifts. Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand’s innovative designs, iconic patterns, and brilliant colors continue to inspire and connect women unlike any other brand in the global marketplace. Vera Bradley offers a multi-channel sales model as well as a focus on service and a high level of customer engagement The Company’s commitment to bringing more beauty into women’s lives includes its dedication to breast cancer research through the Vera Bradley Foundation for Breast Cancer.
Financial overview of Vera Bradley's latest earnings report
The numbers we are interested in (for the quarter):
- Net revenues: $119.785 million ($113.625 million up from the same quarter of the previous year)
- Cost of sales : $52.452 million (up from $47.885 million for the same quarter of the previous year)
- Net income attributable to Vera Bradley, Inc: $5.854 million (down from $ 9.282 million for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 34.380 million (down from 35.735 million for the same quarter of the previous year)
- Diluted net income per share attributable to Vera Bradley, Inc. : $0.17 (down from $0.26 for the same quarter of the previous year)
- So diluted income per share is down -34.6% while the number of shares decreased by -3.8%. So there are almost 4% less shares in issue among which earnings are split yet the earnings per share declined by -34.6%). This is probably part of the reason why the markets reacted to the earnings report.
- So diluted income per share is down -34.6% while the number of shares decreased by -3.8%. So there are almost 4% less shares in issue among which earnings are split yet the earnings per share declined by -34.6%). This is probably part of the reason why the markets reacted to the earnings report.
- Cash and cash equivalents: $46.842million
- Cash and cash equivalents per share: $1.36
- Cash and cash equivalents makes up 16.7% of Vera Bradley's current market capital
- Cash and cash equivalents makes up 8.4% of Vera Bradley's total assets
- Inventories : $130,718 (up from $86.280 million for the same quarter of the previous year)
- Inventories makes up 23.6% of Vera Bradley's total assets. We get worried when inventories makes up more than 20% of a group's total assets
- Inventories grew by 51.5% over the last year (possibly due to acquisitions of other brands)
- Total shareholders' equity of Vera Bradley, Inc. : $294.351 million
- Shareholders' equity per share: $8.56
- Shareholders' equity per share: $8.56
Vera Bradley's management commentary on the results and earnings guidance
FORT WAYNE, Ind., Sept. 04, 2019 (GLOBE NEWSWIRE) -- Vera Bradley, Inc. (Nasdaq: VRA) (“Vera Bradley” or the “Company”) today announced its financial results for the second quarter and six months ended August 3, 2019.
Pura Vida Acquisition and Accounting
On July 16, 2019, Vera Bradley acquired a 75% interest in Creative Genius, Inc., which also operates under the name Pura Vida Bracelets (“Pura Vida”). Pura Vida, based in La Jolla, California, is a rapidly growing, digitally native, and highly engaging lifestyle brand that deeply resonates with its loyal consumer following. The Pura Vida brand has a differentiated and expanding offering of bracelets, jewelry, and other lifestyle accessories.
Financial results for Pura Vida have been consolidated beginning July 17, 2019, the first full day following the acquisition. Prior period numbers have not been restated. Any reference to Vera Bradley results below refer to results of the stand-alone Vera Bradley brand (comprising the Vera Bradley Direct and Indirect segments) and exclude Pura Vida.
Summary of Financial Performance for the Second Quarter
Consolidated net revenues totaled $119.8 million for the current year second quarter, which included $5.4 million of net revenues from Pura Vida. Excluding Pura Vida, Vera Bradley net revenues totaled $114.4 million, a 0.7% increase over $113.6 million in the prior year second quarter. These Vera Bradley revenues were slightly below the Company’s guidance range of $115 to $120 million. Vera Bradley’s comparable sales increased 2.1% for the quarter, in line with the Company’s low-single digit expectations. As planned, the Company reduced year-over-year clearance sales in the quarter by approximately $3 million.
For the current year second quarter, the Company posted consolidated net income attributable to Vera Bradley, Inc. of $5.9 million, or $0.17 per diluted share. These results included $2.8 million of after tax charges comprised of $2.3 million of Pura Vida acquisition-related expenses (including transaction costs, inventory step-up amortization, and intangible asset amortization) and $0.5 million of expenses related to the re-platforming of Vera Bradley’s information technology systems. On a non-GAAP basis, excluding these charges, the Company’s consolidated second quarter net income attributable to Vera Bradley, Inc. totaled $8.7 million, or $0.25 per diluted share. These non-GAAP results included approximately $0.01 of diluted earnings per share contributed by Pura Vida. Management’s guidance for second quarter earnings was $0.25 to $0.28 per diluted share.
For the prior year second quarter, the Company posted net income of $9.3 million, or $0.26 per diluted share.
Rob Wallstrom, Chief Executive Officer of Vera Bradley, noted, “Vera Bradley’s comparable sales, full-price selling, and customer count were once again up in the quarter, and we successfully managed our expenses. However, retail remains challenging, particularly in the Indirect channel as our partners continue to feel the pressure of a difficult environment, and our total sales fell slightly below our expectations. In addition, gross margins continue to be pressured by increasing tariffs and higher shipping costs.”
“We continued to strengthen Vera Bradley’s position as a unique lifestyle brand with our second quarter acquisition of a majority interest in Pura Vida Bracelets,” Wallstrom added. “We will share resources and knowledge to grow our brands together. Pura Vida is a great strategic fit for us due to their strong expertise in branding and social marketing strategies, as well as robust competencies in e-commerce and subscription-model selling. And, Pura Vida has already started to utilize Vera Bradley’s infrastructure and back office support capabilities to nurture its growth.”
Vision 20/20 Progress – Year Two
“The first stage of Vision 20/20 was to restore brand and Company health, and we continue to build upon the progress we have made thus far. During the first half of this year, we once again improved the quality of sales in our full-line stores and on verabradley.com by increasing comparable full price selling in these two channels by approximately 10%. This is on top of a 20-plus percent increase in the first six months of last year.
“This is Year Two of our three-year journey, and we are steadfastly focused on expanding our customer base and increasing both sales and profitability,” Wallstrom concluded. “As a reminder, our key areas of focus for Fiscal 2020 are:
Pura Vida Acquisition and Accounting
On July 16, 2019, Vera Bradley acquired a 75% interest in Creative Genius, Inc., which also operates under the name Pura Vida Bracelets (“Pura Vida”). Pura Vida, based in La Jolla, California, is a rapidly growing, digitally native, and highly engaging lifestyle brand that deeply resonates with its loyal consumer following. The Pura Vida brand has a differentiated and expanding offering of bracelets, jewelry, and other lifestyle accessories.
Financial results for Pura Vida have been consolidated beginning July 17, 2019, the first full day following the acquisition. Prior period numbers have not been restated. Any reference to Vera Bradley results below refer to results of the stand-alone Vera Bradley brand (comprising the Vera Bradley Direct and Indirect segments) and exclude Pura Vida.
Summary of Financial Performance for the Second Quarter
Consolidated net revenues totaled $119.8 million for the current year second quarter, which included $5.4 million of net revenues from Pura Vida. Excluding Pura Vida, Vera Bradley net revenues totaled $114.4 million, a 0.7% increase over $113.6 million in the prior year second quarter. These Vera Bradley revenues were slightly below the Company’s guidance range of $115 to $120 million. Vera Bradley’s comparable sales increased 2.1% for the quarter, in line with the Company’s low-single digit expectations. As planned, the Company reduced year-over-year clearance sales in the quarter by approximately $3 million.
For the current year second quarter, the Company posted consolidated net income attributable to Vera Bradley, Inc. of $5.9 million, or $0.17 per diluted share. These results included $2.8 million of after tax charges comprised of $2.3 million of Pura Vida acquisition-related expenses (including transaction costs, inventory step-up amortization, and intangible asset amortization) and $0.5 million of expenses related to the re-platforming of Vera Bradley’s information technology systems. On a non-GAAP basis, excluding these charges, the Company’s consolidated second quarter net income attributable to Vera Bradley, Inc. totaled $8.7 million, or $0.25 per diluted share. These non-GAAP results included approximately $0.01 of diluted earnings per share contributed by Pura Vida. Management’s guidance for second quarter earnings was $0.25 to $0.28 per diluted share.
For the prior year second quarter, the Company posted net income of $9.3 million, or $0.26 per diluted share.
Rob Wallstrom, Chief Executive Officer of Vera Bradley, noted, “Vera Bradley’s comparable sales, full-price selling, and customer count were once again up in the quarter, and we successfully managed our expenses. However, retail remains challenging, particularly in the Indirect channel as our partners continue to feel the pressure of a difficult environment, and our total sales fell slightly below our expectations. In addition, gross margins continue to be pressured by increasing tariffs and higher shipping costs.”
“We continued to strengthen Vera Bradley’s position as a unique lifestyle brand with our second quarter acquisition of a majority interest in Pura Vida Bracelets,” Wallstrom added. “We will share resources and knowledge to grow our brands together. Pura Vida is a great strategic fit for us due to their strong expertise in branding and social marketing strategies, as well as robust competencies in e-commerce and subscription-model selling. And, Pura Vida has already started to utilize Vera Bradley’s infrastructure and back office support capabilities to nurture its growth.”
Vision 20/20 Progress – Year Two
“The first stage of Vision 20/20 was to restore brand and Company health, and we continue to build upon the progress we have made thus far. During the first half of this year, we once again improved the quality of sales in our full-line stores and on verabradley.com by increasing comparable full price selling in these two channels by approximately 10%. This is on top of a 20-plus percent increase in the first six months of last year.
“This is Year Two of our three-year journey, and we are steadfastly focused on expanding our customer base and increasing both sales and profitability,” Wallstrom concluded. “As a reminder, our key areas of focus for Fiscal 2020 are:
- Growth: Our goal is to return to positive comparable sales growth this year, and we are off to a solid start in the first half, with comparable sales up 3.3%, in line with our expectations and despite a challenging North American handbag market. This improvement is being driven by compelling, innovative product supported by targeted marketing and customer engagement. Customer count is up year-over-year.
- Operational Excellence: During the second quarter, we began a two-year process of re-platforming our ERP (enterprise resource planning) and other key information systems to become more streamlined, nimble, and efficient in our technology and business processes.
- Ownership: We will continue to reinforce our culture as an ownership-based model, where every Associate can drive significant value creation through their individual and team efforts.”
Vera Bradley (NASDAQ: VRA) stock price history
The image below shows the stock price history over the last 5 years of Vera Bradley (NASDAQ:VRA). And as the image shows its not been a very good time for stockholders over the last 5 years. With the group's stock trading at around $23 a stock towards the end of 2014 and its currently trading at $8.14. Thats a loss -64% for the stock price of Vera Bradley over the last 5 years. Little happiness to be found for the group's investors. Its is currently trading at very close to its 52 week low of $7.941 and is a far cry away from its 52 week high of $17.38 which to us is a signal that the short term trend and sentiment towards Vera Bradley shares is still very negative.
Vera Bradley (NASDAQ: VRA) latest stock valuation
So based on the group's latest earnings results which showed a decline in the earnings per share compared to a year ago, and their outlook provided, we have a target price on Vera Bradley shares of $13.88. We therefore believe the the stock of Vera Bradley is undervalued at its current price and we expect it to trend upwards towards our target price in coming weeks and months. The valuation is based on the assumption that earnings growth will match revenue growth and this is pegged at around 3,3% according to the group's comments on the earnings