Fort Wayne, IN—Vera Bradley Inc. posted Tuesday a jump in its third quarter profit, boosted by a 32% sales increase and lowered costs.
For the quarter ended Oct. 29, the company said net income increased 45% to $13 million, or 32 cents a share, up from $6 million, or 17 cents a share, a year ago. (Third quarter 2010 included stock-based expense and other items. Excluding that, earnings for that period was $9.0 million or 22 cents a share.)
Total sales increased 32% to $121.1 million, compared with $91.6 million a year ago. By division, its Indirect sales, which include about 3,300 specialty stores, as well as Dillard’s and other national chains, grew 16% to $69.1 million “with solid performance across all regions.” Direct sales, including the company’s own 50 full price and 8 outlets and online, increased 63% to $52 million. Comparable store sales increased 7.4%
The results beat analysts’ average forecast expecting earnings of 28 cents a share on sales of $109.9 million. As a result, the company raised its full year forecast.
“We are pleased with the strength of our operating results in the third quarter. Our brand and product assortment continue to resonate with consumers resulting in meaningful sales growth across all of our distribution channels,” said Michael C. Ray, Vera Bradley’s ceo.
During the third quarter, Very Bradley’s margins shrank as it sold off old inventory. Gross margin edged down to 54.2% from 56.4% last year, due mainly to retired inventory. Operating margin increased to 17.8% from 16.9% last year. Selling, general, and administrative expenses declined to $45.4 million from $53.2 million last year.
Looking ahead, the company expects its fourth quarter earnings to be in the range of 44 to 47 cents a share on sales estimated at $125 to $130 million. Analysts’ average estimate expects earnings of 47 cents a share on slightly higher sales of $130.6 million.
‘A Solid Long-term Growth Story’
“Our success is a tribute to the strength of our brand, our distinctive portfolio of products, our talented team and retail partners, and our loyal customers. Looking ahead, we will continue to execute our growth strategies and we remain optimistic about the long term prospects for Vera Bradley,” Ray said.
For its fiscal 2012 year, the company raised its forecast to full year earnings of $1.37 to $1.40 a share, up from its previous estimate of $1.32 to $1.35 a share. The company also raised its sales forecast to $451 million to $456 million, up from $438 million to $443 million.
Analysts’ average estimate for Vera Bradley’s full year earnings is $1.37 a share on sales of $445 million.
Despite the strong results and positive outlook, shares in the handbag and accessories company fell in early trading this morning, primarily due to lower gross margin, analysts said.
“Despite the gross margin hiccup, the company experienced meaningful fixed cost leverage, kept a lid on expenses, and ultimately drove 32 cents a share in earnings, 4 cents above the high end of its range and 3 cents above our estimate,” said Peter Wahlstrom, analysts at Morningstar. “There is plenty to like about the long-term Vera Bradley story, and while there will be a few bumps, we generally like what we’ve seen since the firm went public four quarters ago.”
Randal Konik, analyst at Jefferies & Co., argued that “Vera Bradley is a solid long-term growth story. We see opportunity for the brand to increase its recognition, particularly in underpenetrated regions of the country such as the West.”
While noting the company’s fourth quarter forecast isn’t much different, Konik said he is still upbeat quarter so far because “shoppers have been responding favorably to the company’s winter patterns and expanded range of holiday gifts.”
