Score another small victory for specialty retail, a hated sector that has been on the comeback trail over the past several months as Real Money Sweet Sixteen pick Vera Bradley (VRA) put up decent first quarter results, and upped guidance. Through yesterday, shares were up 28% since RMs Sweet Sixteen feature ran in March.
VRA beat consensus earnings estimates by 6 cents, posting a 4 cent loss (versus 10 cent loss consensus). Revenue came in at $86.6 million, slightly below the $88.25 million consensus. The company increased full year 2019 revenue guidance to $405- $422 million, versus the $411 consensus estimate. It also increased 2019 earnings guidance to 40-50 cents, versus a prior range of 35-45 cents, and the 42 cent consensus estimate.
What's more, the balance sheet remained solid, which was a major reason I took a position in this much-disliked company in the $8.80 range last June. The company ended the quarter with $132.3 million or $3.72 per share in cash and investments, up from $101.4 million or $2.80 per share when I took my initial position. VRA also remains debt free. The stock currently trades at less than 2.6 X net current asset value (current assets minus total liabilities), a cheap valuation which shows the disdain that markets have for the name.
Like many of the small specialty retailers, VRA has been a major disappointment to investors, especially those who bought shares early in the company's history as a publicly traded company. After its $16/share IPO in October 2010, shares eclipsed $50 the following May, but it's been mostly downhill ever since. Shares closed yesterday at $13.07, 18% below the IPO price.
Specialty retail is indeed a tough area, but in classic form, markets have overly punished (in my view) a number of them, especially since last summer. This does not include the old time, big box retailers such as Sears (SHLD) and J.C. Penney's (JCP) of the world, which sadly, continue to die slow and painful deaths. The presumed deaths of some of the smaller names, however, such as Hibbett Sports (HIBB) , Cato (CATO) , Big Five Sporting Goods (BGFV) , Fossil (FOSL) , and VRA, however, were a bit premature. Will they be around in 10 or 15 years? That's hard to say. However, over the past year or so, they have been rare opportunities, a deep value investor's dream; a significant market inefficiency.
As for VRA, it may not appear exactly cheap at 27 X next year's earnings, but better days may be ahead. In addition, still a solid well-known brand name despite its stumbles over the years with a current enterprise value (market cap plus debt minus cash) of just $277 million, it might make an interesting acquisition candidate for a bigger fish looking to build out its brand portfolio. In this case, however, insiders, which own nearly 40% of the company would have to be on board.