Zacks Investment Research downgraded
Vera Bradley Inc
) to a Zacks Rank #5 (Strong Sell) on Dec 14. Weak margins and
comps in the third quarter of fiscal 2014 and tempered
expectations for fiscal 2014 led to the downgrade.
Why the Downgrade?
On Dec 11, Vera Bradley, known for its colorful luxury
handbags, reported third quarter of fiscal 2014 (ending Nov 2,
2013) results. The company struggled amid a challenging
macro-economic environment. Though both revenue and earnings beat
the Zacks Consensus Estimates, they declined on a year-over-year
basis. Also, Vera Bradley slashed its outlook for fiscal 2014. In
fact, the company cut its guidance for the third time this fiscal
Comparable store sales decreased 6.5% in the quarter due to
underperformance of the products and less traffic at stores.
Traffic reduced owing to the difficult macroeconomic retail
environment. This also led to cautious ordering from specialty
retailers, which lowered the company's indirect revenues by
17.3%. E-commerce revenues fell 7.8% as a result of lower traffic
and lower average transaction size.
Management believes that the decline in traffic trends has
been taking a toll on the company's results in the last few
quarters. This will eventually impact fiscal 2014 results. Though
the company has taken initiatives to drive performance, these are
expected to reap benefits over the long term.
Gross margin declined 270 basis points to 55.3% in the third
quarter due to sales of lower-margin products as well as
increased promotional activity. Operating margin also declined
130 basis points to 18.6% in the reported quarter.
The uncertain consumer environment forced the company to lower
its outlook for fiscal 2014. Vera Bradley now expects net sales
in the range of $523 million to $528 million for fiscal 2014,
lower than prior expectations of $535 million to $540 million.
The company also slashed its earnings outlook and now expects
earnings per share in the range of $1.41 to $1.44 per share
compared with the prior range of $1.47 to $1.52 per share.
This retailer witnessed sharp downward estimate revisions for
the fourth quarter and fiscal 2014 after announcing its third
quarter fiscal 2014 results. The Zacks Consensus Estimate for the
fourth quarter decreased 19.6% and that for fiscal 2014 went down
4.7% over the last 7 days.
Other Stocks to Consider
Not all stocks are performing as poorly as Vera Bradley. Some
better-ranked retailers worth considering include
Bon-Ton Stores Inc
Citi Trends Inc.
Harris Teeter Supermarkets Inc.
). While Bon-Ton Stores sports a Zacks Rank #1 (Strong Buy), Citi
Trends and Harris Teeter carry a Zacks Rank #2 (Buy).
BON-TON STORES (BONT): Get Free Report
CITI TRENDS INC (CTRN): Free Stock Analysis
HARRIS TEETER (HTSI): Free Stock Analysis
VERA BRADLEY (VRA): Free Stock Analysis
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