To much fanfare, women's accessories and handbag purveyor Vera Bradley (Nasdaq:VRA) first went public at the end of 2010. The stock opened at around $27 per share and quickly rose to $50 per share, but has recently fallen close to the IPO price of $20 per share. Fashion is fickle, as are underlying customers, but at the current price investors are arguably overly bearish on Vera Bradley's future prospects.
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Vera recently announced first quarter results and sales growth of 15.6% to $117.2 million. Sales at its own stores jumped 34.2% to $59.2 million, or just over half of total sales. Comparable store sales advanced a very healthy 4.3% and also benefited from the opening of 19 new stores. Vera also sells its purses and related accessories to outside retailers, which it refers to as indirect sales. These include Macy's (NYSE:M), Dillard's (NYSE:DDS) and Sears (Nasdaq:SHLD), as well as Overstock.com (Nasdaq:OSTK) through online sales channels.
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Operating income increased a much more modest 9.2% to $20.8 million. Sales costs rose in sympathy with the top line, but SG&A expenses jumped 18.1% to $47.2 million to offset much of the sales upside. Lower interest expense helped net income grow 12.5% to $12.6 million, or 31 cents per diluted share. This represented a very healthy net margin of 10.8% of sales.
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Outlook and Valuation
Analysts project 17% sales growth for 2012 and total sales of $539.1 million. They expect another solid year of 14.5% top-line growth in 2013 and total sales of $617 million. Earnings projections currently stand at $1.70 per share and $2 per share in each of the next two years. At the current share price of $20.30, the forward earnings multiples stand at 12 and 10.2, respectively.
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The Bottom Line
Vera Bradley's stated long-term goals are 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. If it achieves these goals over the next 3-5 years, investors have a good chance to earn big gains on the stock. At the current valuation, investors are valuing the stock as if Vera is a mature retailer with minimal growth prospects.
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