On a recent visit to some shops in Maryland, I spotted a pile of Vera Bradley (VRA) merchandise in the half-off section. Thinking that it would excite my wife, who used to be a fan (along with others in my family), the reaction was quite different. "Too expensive" she said, and had no interest in combing through the discounted items. I guess tastes really do change.
Now, Vera Bradley, the stock, has found itself in the discount bin, along with several other "double-nets" (companies trading at between 1x and 2x net current asset value). The stock, which fetched nearly $50/share briefly in 2011, has lost nearly all of its luster with investors, and now trades in the $8.50 area. Over the past year, the shares have been cut in half, and they are also down around 30% year to date.
While the company beat fourth-quarter earnings estimates, with adjusted EPS of $0.28 topping consensus by $0.05, revenue was off the mark, and same-store sales fell 9.5%. Revenue guidance issued by management for this year is in the $460 million-$480 million range, another disappointment, and below last year's revenue. Certainly not a whole lot of good news here, and we are seeing more of the same within retail.
In VRA's case, it at least has the current luxury of a strong balance sheet. The company ended the year with $116.6 million, or $3.22 per share, in cash and short-term investments, and no debt. That gives it some time to try and figure out how to get sales heading upward, although that's certainly not easy with fickle consumers whose tastes are always changing. But at least the company is not leveraged to the hilt, lacking liquidity.
The shares currently trade for 1.86x net current asset value, and 1.09x tangible book value per share. Consensus EPS estimates of $0.44 for this year put the forward price/earnings ratio at about 19.5. Certainly not cheap on that measure, but with 38% of its market cap in cash, it's not terrible either.
The question now is whether the stock's punishment has fit the crime. VRA certainly has much to prove from here, in order to entice investors back into the stock. Will there be that new line of merchandise that gets my wife, and others back on the Vera bandwagon?
I also wonder about the value of the brand itself, and whether at some point, a bigger fish, looking to expand its brand footprint, will make a play, with the company's current enterprise value below $200 million. One hurdle here is that insiders/founders own a significant amount of shares (41%), but everyone has a price.
This is a risky one, for the radar.
