Vera Bradley Inc. (VRA) , sagging retailer of handbags, purses, and travel items that was better known in my household years back as "not another one," has given some bottom-fishing investors an early Christmas present this year.
The name had fallen off a cliff and was dwelling in the valley for much of 2017. However, on Wednesday, Vera Bradley put up better-than-expected third-quarter results, beating consensus earnings estimates by nine cents a share (23 cents vs. 14-cent consensus). The company narrowly missed the $114.6 million revenue consensus by about $500,000. This was Vera Bradley's fifth straight earnings beat, but that has been during a period of declining estimates and wasn't necessarily a streak to celebrate.
Still, this was a good quarter, showing signs that the company may be on better footing. The balance sheet remains solid, which was one of the things that led me to the name. The company ended the quarter with $108.1 million, or $3 per share, in cash and investments, and no debt. It now trades at 2.5 times net current asset value.
Shares are up around 30% the past two days, and Wednesday's trading volume of 4.85 million shares was heavy for this name, more than 10 times normal average volume. Nonetheless, I'm not sure where Vera Bradley shares will head the rest of this year. The stock still is down 3.6% year to date, and it is name I held out as potential tax-loss selling candidate in late October, though it is up 57% since that column ran.
This is one of the last names I'd ever imagined owning -- a retailer wrestling with the ever-changing whims and desires of the consumer. To me, Vera Bradley products seemed to be a bit of a fad, judging by their declining popularity in our home. It appeared to be another case where growth investors gave up and moved on.
Indeed, this was a $50 stock back in 2011 that found its way all the way down to the $7 range in October. While the company has not had an unprofitable year since going public in 2010, both revenue and profits have been in decline the last few years. Couple that with the market's overall disdain for retail, especially small specialty retail, and you could add Vera Bradley to the long list of retail companies that have been hammered in an overall positive market environment. For many of those affected, this has been a depression in the midst of a bull market.
But even faddish names can have value. As disappointing as Vera Bradley has been over the years, there is a point at which owning such a name can make sense. When the growth crowd moves on, companies often can be punished well beyond what they deserve. That may be the case with Vera Bradley -- at least that was my premise for doing the unthinkable and taking a position. It may never be a $50 or even $40 stock again, but the punishment did not seem to fit the crime. It is still early in this turnaround story, if that's indeed what this is.