2VRA OverviewVera Bradley, Inc. is a designer, producer, marketer, and retailer of functional accessories for women. The Company’s products include a range of offering of handbags, accessories, and travel and leisure itemsDirect segment consists 75 stores in the United States (which includes 10 outlet stores). There are seven pop-up stores in Japan, and VeraBradley.comIndirect includes 3,300 independent retailers
3Investment ThesisPurchase a designer brand with good growth potential at a discounted cost and then sell in 1-2 years.
4Key Investment PointsUnique brand name which is vital in the crowded consumer retail marketSolid customer base and distribution platformUpdated supply chain that can support future growthThere is ample room for growth and they have a good retail strategy to reach their goals
5SWOT Analysis Strengths Unique Brand Good relationships with indirect sellersIntegrated product design team that deliver consistent products across all channelsDirect and E-commerce sales growth.62 Million visited website last year, a % increase yoyWeaknessesManagement’s handling of InventoryDistribution network already includes 3,300 independent retailersPrimarily manufacture products in ChinaOpportunitiesNew Product linesBranding rights to other companies, joint partnerships (DIS)E-CommerceSmall company with plenty of room to growJapanThreatsManufacturing costsFashion industry is unpredictableConsumer confidence and spendingSmall-cap company means increased volatilityIndirect sellers (new venture with Dillards)Direct sales up %30
8Decline in operating CF’s Lower sales growth than peers Why Undervalued?Revised guidance for 1st quarter (fiscal 2014) left something to be desiredDecline in operating CF’sLower sales growth than peers90 bps Increase in SGACriticism over managements handling of inventory(SGA can be attributed to starting new baby line, so should level off)CF’s because taking on debt recently to aid in expansion plansSales growth is vs can be partially attributed to lower in-store sales
9How do we know it’s undervalued? Many analysts believe fair value is around $30P/E is while Industry Average is 24.36S&P is 17.82P/Projected Earnings is while Industry is 32.11P/B is 4.56 while Industry Average is 5.09
10Financial SnapshotBetween the calendar year of 2008 and 2012, Vera Bradley more than doubled its annual revenues from $239 million to $541 million.Net earnings almost tripled, expanding from $24 million to $69 million over the same time period.Revenues are up 21% yoy52wk Range:Volume:320,541Avg Vol (3m):431,063Market Cap:888.37MP/E (ttm):12.88EPS (ttm):1.70Beta1.02RETURN ON EQUITY (%)VRA Ind Avg S&P 500QQQ NA
11Purchase 250 shares at limit price of $21.75 Total purchase of $5,437 RecommendationPurchase 250 shares at limit price of $21.75Total purchase of $5,4371 yr Target of 28.43Buy at and sell at 28 yields a %28.7 gainCurrently our Sector is underweight by 4% ($22,298). If CarMax purchase goes through for $4,968 then we will still be %3.1 underweight.This purchase would drop us to %2.16 ($11,893)