Wall Street Pounds Vera Bradley on Dismal Forecast, Lower Sales

In What's New, Industry News by Jeff Prine

veraFort Wayne, IN—Wall Street pounded shares of Vera Bradley Inc. after the handbag and accessories company gave a dismal forecast Wednesday on top of a 20% drop in comparable sales.

CEO Robert Wallstrom also warned that the company planned turnaround is taking longer than expected. Vera Bradley shares dropped as $14.81, about 14% below its previous record low of $17.27 in 2013.

For the quarter ended Jan. 31, Vera Bradley posted a 13% decrease in net income to $17.3 million, or 43 cents a share, down from $19.5 million, or 48 cents a share a year ago.

Net revenue fell 3% to $152.6 million. Comparable store sales sank 10.7% as store traffic fell. Internet sales also fell 7.3%.

“By this time, we had expected to regain momentum in the business, but that has not happened, Wallstrom said. “Our core customers are continuing to buy our products. However, our primary issue is that we have not attracted enough new customers to the brand, and therefore, both traffic and sales remain extremely challenging.”

Failed to Meet Goals

He added that Vera Bradley plans to “aggressively” ramp up its marketing spending, open more outlets and get its products into more department stores through partnerships such as the one it has with Macy’s Inc.

Still, Wallstrom acknowledged on a call with analysts that “it is taking time, more time and investments than expected to turn this business around.”

Gross margin narrowed to 52.4% from 52.8% a year earlier, weighed by higher promotional activity and charges related to the closing of its Indiana manufacturing facility, where it makes about 5% of its products. Vera announced Tuesday it planned to shutter the plant which employs 250 workers, saying it has become too expensive to manufacture products in the United States.

“It costs approximately 90% more to manufacture goods domestically than in overseas factories, and our domestic manufacturing costs have continued to rise year over year,” Wallstrom said. “We have been working hard to figure out how to run our operations more efficiently. After careful analysis and consideration, we concluded that closing this facility is the right long-term financial decision.”

For its first quarter of 2015, Vera Bradley is expecting its per share earnings to be flat to up three cents, well below the 16 cents a share in earnings that analysts had projected. The company said it expects revenue to be between $103 million and $109 million, while analysts had forecasted $121.9 million.

For the full 2015 fiscal year, the company forecasted earnings of 82 cents to 92 cents on revenue of $510 million to $525 million. Analysts still expected more, forecasting  per share earnings of $1.19 and revenue of $567.4 million.

The company also added that it wouldn’t meet its goal of delivering $1 billion in sales in five years.



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