Vera Bradley Looking Affordable

By Ryan C. Fuhrmann | March 11, 2012 AAA

Vera Bradley (Nasdaq:VRA) focuses on selling affordable and fashionable handbags, as well as related accessories including totes, luggage and wallets. Investors sent the stock tumbling following disappointing guidance for its next quarter. This could present a buying opportunity for shareholders keen on taking a long-term interest in the company.

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Full Year Recap
Vera's sales jumped 26% and reached $460.8 million. Sales at its own 48 stores and 8 outlet store locations jumped 49% to account for almost 49% of total sales. Comparable store sales increased a very healthy 10.9%. The rest of sales are made to outside retailers such as Macy's (NYSE:M), Dillards (NYSE:DDS), Sears (Nasdaq:SHLD) and online sites, such as Overstock.com (Nasdaq:OSTK). This category experienced more modest but still respectable total growth of 10%.

Modest expense growth meant that operating income shot ahead 80.4% to $96.2 million. This represented a decent operating margin of 20.9% of sales. Higher income tax expenses meant that net income advanced 25.3% to $57.9 million, or $1.43 per diluted share. Before Vera went public, it didn't report taxes at the corporate level because they were paid by the private owners. Free cash flow came in at $32.7 million, or approximately 80 cents per diluted share. To know more about income statements, read Understanding The Income Statement.

Outlook and Valuation
Vera expects 2012 sales to reach as high as $545 million for annual growth of as much as 18.2%. It projects earnings between $1.68 and $1.75 per diluted share.

At the current share price of roughly $31 per share, Vera trades at a forward P/E of 15.

The Bottom Line
Vera Bradley has a long-term goal to grow its revenue in the "mid-high teens" and net income in the high teens annually. To reach these lofty goals, it plans to open between 14 and 20 of its own stores each year and attain annual comps in the mid to high single digits. It also sees cost cutting moves to improve operating margins by roughly 30 basis points a year.

The stock took a tumble after Vera announced weaker than expected first quarter expectations. Given there is much more growth potential in the company, it could end up being a reasonable entry point for investors willing to commit themselves to the stock for three to five years. The valuation is appealing, as long as management delivers on its ambitious long-term goals. It still has work to do to establish a track record as a public company, but the concept has been around for three decades now. For additional reading, check out 5 Must-Have Metrics For Value Investors.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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