VRA

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Buy Recommendation:
Vera Bradley (VRA)
VRA Overview
• Vera 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 items
• Direct segment consists 75 stores in the United
States (which includes 10 outlet stores). There
are seven pop-up stores in Japan, and
VeraBradley.com
• Indirect includes 3,300 independent retailers
Investment Thesis
Purchase a designer brand with good growth
potential at a discounted cost and then sell in 1-2
years.
Key Investment Points
• Unique brand name which is vital in the
crowded consumer retail market
• Solid customer base and distribution platform
• Updated supply chain that can support future
growth
• There is ample room for growth and they have
a good retail strategy to reach their goals
SWOT Analysis
Strengths
•Unique Brand
•Good relationships with indirect
sellers
•Integrated product design team that
deliver consistent products across all
channels
•Direct and E-commerce sales growth.
62 Million visited website last year, a
45% increase yoy
Weaknesses
•Management’s handling of Inventory
•Distribution network already includes
3,300 independent retailers
•Primarily manufacture products in
China
Opportunities
•New Product lines
•Branding rights to other companies,
joint partnerships (DIS)
•E-Commerce
•Small company with plenty of room
to grow
•Japan
Threats
•Manufacturing costs
•Fashion industry is unpredictable
•Consumer confidence and spending
•Small-cap company means increased
volatility
Stock Price History - 12 Month
Earnings Surprise
Why Undervalued?
• Revised guidance for 1st quarter (fiscal 2014)
left something to be desired
• Decline in operating CF’s
• Lower sales growth than peers
• 90 bps Increase in SGA
• Criticism over managements handling of
inventory
How do we know it’s undervalued?
• Many analysts believe fair value is around $30
• P/E is 12.85 while Industry Average is 24.36
• S&P is 17.82
• P/Projected Earnings is 10.45 while Industry is
32.11
• P/B is 4.56 while Industry Average is 5.09
Financial Snapshot
• Between 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% yoy
RETURN ON EQUITY (%)
VRA Ind Avg S&P 500
Q4 2012 35.45 22.39
13.11
Q4 2011 46.70 21.90
14.55
Q4 2010 NA
20.15
13.57
52wk Range:
18.91 - 31.00
Volume:
320,541
Avg Vol (3m): 431,063
Market Cap:
888.37M
P/E (ttm):
12.88
EPS (ttm):
1.70
Beta
1.02
Recommendation
• Purchase 250 shares at limit price of $21.75
Total purchase of $5,437
• 1 yr Target of 28.43
• Buy at 21.75 and sell at 28 yields a %28.7 gain
• Currently 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)
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