One of the more interesting pieces of news last week from land of the small value stocks was courtesy of Vera Bradley (VRA) , which is best known (at least in my household) for its line of handbags, purses and travel items. The struggling retailer's first-quarter earnings report was all in all a bit better than expected. While revenue was essentially in line with guidance, bottom-line results were better than expected (a loss of nine cents a share versus the 13-cent consensus).
A quarterly loss is still a loss; also, revenue in the period was down nearly 9% from the same quarter last year and has fallen four consecutive years on an annual basis. However, the bigger question is whether the punishment Vera Bradley has taken -- its shares are down nearly 70% over the past three years and recently hit an all-time low -- fits the crime. That's the question I am always asking when bottom-fishing for stocks that have hit the skids.
In this case, Vera Bradley operates in a difficult retail environment with ever-changing consumer tastes, and one that is experiencing the effects of growing consumer preferences for online shopping. While that's a potentially high hurdle, and there are likely a number of retailers in death spirals, Vera Bradley has a few things going for it.
First, the balance sheet is solid. As of the latest quarter, Vera Bradley had a small war chest of cash, with short- and long -term investments totaling $101.4 million, or $2.80 per share, and no debt, which provides some breathing room for the company to get its act together.
Second, Vera Bradley remains free-cash-flow positive on a trailing 12-month basis and has been buying back shares. VRA purchased 132,000 shares during the first quarter at an average cost of $9.11 and still has $20 million left on its current repurchase authorization. Since year-end 2015, it has reduced shares outstanding by nearly 11%. While many would take issue with that strategy because the company bought back stock at much higher prices over the past several years, the fact that it still is using cash in this manner displays some confidence in the business. (That may be putting lipstick on a pig, but it's the now that I care most about, not past missteps).
Lastly, despite the company's struggles, Vera Bradley is still a well-known brand, and one that has a rather small current enterprise value of less than $240 million. It might make for an interesting acquisition at some point for a bigger player looking to build its brand portfolio. With insider/founding owners holding a rather large stake, a sale of the business may be easier said than done, but it remains a possibility, and everyone has a price.
In other notable metrics, VRA currently trades at just 2.2x net current asset value and 1.15x tangible book value per share. Consensus earnings estimates put next year's forward price/earnings ratio at about 17.
I crossed a line last week, one that I may never be able to live down. Within my family, I now have the greatest interest in Vera Bradley, having taken an initial position late last week. Wonders will never cease.