Vera Bradley (VRA 16.33, +2.04, +14.3%) advances to two-year
highs on Wednesday in reaction to the second quarter earnings beat and upbeat
Simply put, Vera Bradley’s Q2 earnings per share beat market expectations at $0.26 while revenues narrowly edged out market views on growth of 1.1% to $113.6 mln. Additionally, full-price selling in the company’s full-line stores and on verabradley.com increased by over 30% in the quarter.
Comparable sales (including e-commerce and the event shift) decreased 4.9% for the quarter (reflecting a 1.7% increase in comparable store sales and a 23.1% decrease in e-commerce sales), which was more than offset by new store growth. As expected, Q2 comparable sales (particularly those of verabradley.com) were negatively impacted by reduction in clearance activity.
Q2 Direct segment revenues were up 1.9% to $91.0 mln while indirect segment revenues declined 2.0% to $22.6 mln.
Gross profit for the quarter totaled $65.7 mln, or 57.9% of net revenues, compared to $63.3 mln, or 56.3% of net revenues, in the prior year second quarter. The year/year 160 basis point gross profit percentage improvement primarily related to reduced clearance activity and increased full-price selling on verabradley.com and in the company’s full-line stores, freight and shipping savings, channel mix changes, and a reduction in product cost.
Quarter-end inventory was $86.3 mln compared to $104.1 mln at the end of last year’s second quarter and at the low end of guidance of $85-95 mln.
As to the guidance, Vera Bradley sees third quarter net revenues between $98-103 mln compared to prior year third quarter revenues of $114.1 mln. This estimate reflects the movement of approximately $6 mln in revenues from the third quarter last year to the second quarter this year, related to promotional event timing shifts. Q3 gross profit percentage is expected between 59.0-59.2% compared to adjusted gross profit percentage of 56.8% (excluding charges) in the prior year third quarter. The company expected Q3 EPS in the range of $0.14-0.16, based on diluted weighted-average shares outstanding of 35.7 mln and an effective tax rate of 25.0%. Lastly, the company expects Q3 inventory of $90-100 mln at the end of the quarter, compared to $100.1 mln at the end of last year’s third quarter.
For fiscal 2019, Vera Bradley now sees net revenues of $410-420 mln, narrowed from the previous $405-422 mln. The company expects FY19 EPS between $0.55-0.62, based on diluted weighted-average shares outstanding of 35.7 mln and an effective tax rate of 25.0%, up from the previous guidance of $0.40-0.50.
Vera Bradley also highlighted that its guidance does not include any impact from increased tariffs. Management estimates that an incremental 10% tariff on specified goods produced in China would negatively affect the company’s diluted earnings per share by approximately $0.02 and that an incremental 25% tariff would negatively affect diluted earnings per share by $0.04-0.05 for the second half of fiscal 2019.
Vera Bradley also announced this morning two new agreements. Vera Bradley first announced a licensing agreement with Sunham Home Fashions for a Bath Collection launching in fall 2019; Vera Bradley management sees the partnership as an excellent complement to the company’s Bedding Collection, which launched last year, allowing the company to broaden its home décor offerings. Vera Bradley also announced a partnership with Disney’s (DIS) DISNEY Theme Park Merchandise to create a limited-edition novelty pattern called Mickey’s Paisley Celebration, which will launch on September 6, 2018.
All told, shares of VRA post a nice advance on Wednesday, outperforming a generally lower broader market. The stock finished off lows after bumping up against support in its 50-day simple moving average yesterday (14.07). Shares now post a nearly 33% advance YTD, and about +40% since the start of June.
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