Earlier this morning, handbag, luggage, and accessory designer Vera Bradley (VRA) issued mixed Q3 results, and also provided mixed Q4 guidance. That might not seem all that impressive, but, shares are jumping higher by 9% in pre-market action as its results are actually a significant improvement compared to its recent history -- particularly in relation to its earnings and profitability.
Specifically, VRA generated EPS of $0.23, easily exceeding the $0.14 Capital IQ Consensus. In fact, that $0.09 beat is its best performance in at least 5 years. Also, on a year/year basis, EPS was up 15%. It was its first quarter of EPS growth since 2Q16, when EPS increased 13%.
The main driver to this was a 6% decrease in cost of sales to $50.3 million, and, solid cost containment as SG&A expense increased a modest 3% to $63.5 million. As a percentage of revenue, SG&A expense came in at 48.3%, materially lower than its expectation of 50.8-51.3%, driven by the implementation of expense reductions, combined with its "Vision 20/20" program providing benefits more quickly than anticipated. Vision 20/20 is a turnaround plan, aiming to significantly improve operating results over the next three years, by restoring its brand by decreasing its clearance-driven model. At the same time, management will continue to look for ways to reduce its overall SG&A expenses.
The not-so-rosy news is that VRA continues to struggle on the topline. For Q3, revenue declined 10% year/year to $114.1 million, which was essentially inline with expectations. This marked the sixth straight quarter in which revenue fell on a year/year basis. Comparable sales, including e-commerce declined 7.4% (e-commerce was -8.6%), and continue to be impacted by declines in store traffic and e-commerce sales.
As part of the aforementioned Vision 20/20 program, management is also looking to streamline its product offerings, eliminating in-congruent categories and SKUs from its merchandise, and, it plans to launch new categories, prices, and patterns on its products. So far, the program has paid dividends for VRA in terms of profitability. Whether VRA will see similar results on the topline remains to be seen.
For now, VRA, and its stock, are being rewarded for the improved bottom line results. That said, the stock is still a long ways from where it was trading back in its early days as public company. In early 2011, for instance, shares were trading at around $50. But, this at least is a step in the right direction as the company looks to right the ship.