Fort Wayne, IN—Faced with a decline in sales, Vera Bradley Inc. reported Wednesday afternoon that its third quarter profit fell 14%. Noting current holiday sales trends, the handbag and accessories maker also lowered its fourth quarter forecast.
For the quarter ended Nov. 2, Vera Bradley posted earnings of $15.2 million, or 37 cents a share, compared with $17.7 million, or 44 cents a share, a year earlier. Despite the fall in earnings, figures were still ahead of analysts’ estimate for 33 cents a share.
Net revenue was down 6% to $130.1 million but edged past analysts’’ estimate for $129.27 million in sales. Comparable store sales were down 6.5% due to lower traffic and underperforming products.
Direct sales were up 7.1% thanks to growth in the brands own full-price and outlet stores. Store revenue rose 18% helped by the addition of 20 full-price and four outlets in the last year.
To Cut 400 Retailers from Specialty Channel
But indirect revenue, including wholesale to other retailers, dropped 17.3% primarily due to specialty retailers being conservative on orders. E-commerce was down, too, 7.8% due to lower shopper traffic and smaller average transactions.
“As we work towards improving the productivity in our Indirect segment, we are placing greater focus on our key accounts, such as Dillard’s and Disney, and have aligned resources accordingly,” said, Kevin J. Sierks, interim chief financial officer. He added that the company plans to pare down about 400 retailers next year in its specialty gift channel through a combination of “remediation, natural attrition and a more selective approach to opening new specialty gift stores.” The continued sales decline in our specialty gift channel was partly offset by growth in our key accounts, including new business with Disney, Sierks said.
Meanwhile, gross margin during the third quarter narrowed to 55.3% from 58% a year ago due to the product mix and more promotional activity.
“While third quarter sales and earnings results were in line with our expectations, based on recent trends we are lowering our fourth quarter outlook,” said Robert Wallstrom, who was recently named chief executive to replace retiring CEO Michael Ray.
“Although we face a persistently challenging retail environment, we are working diligently to make improvements in our organization that will enable us to stabilize the business and generate more consistent sales and earnings growth over the long term,” Wallstrom added.
As a result, Vera Bradley lowered its full year forecast; it now expects earnings of $1.41 to $1.44 a share and revenue of $523 million to $528 million. That’s down from its previous estimate for $1.47 to $1.52 a share and $535 million to $540 million for the year. Analysts now expect full year earnings of $1.49 a share on revenues of $536.97 million.
For fourth quarter, Vera Bradley expects earnings of 44 cents to 47 cents a share and revenue of $145 million to $150 million. Analysts had forecast 56 cents a share and $159.3 million.