Shares in Vera Bradley jumped more than 22 percent to $12.82 in early trading after the accessories company beat its earnings forecast, even though it reported a 25 percent drop in profits.
Vera Bradley delivered net income of $5.7 million, or 15 cents a share, which was much lower than last year’s $7.9 million, or 19 cents a share. Analysts had even lower expectations of 10 cents a share.
Revenue came in at $120.7 million, which topped the consensus forecast from FactSet of $115 million. The company is in a major transition away from its traditional cotton bags and, while it’s getting a nice response for the new product, has a long way to go.
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Sue Fuller, chief merchandising officer, said on the earnings conference call, “Cotton performance declined faster than overall business trends and the new product is not enough to offset declines at this time.”
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Comparable sales decreased 15 percent for the quarter, offset by new store growth. Vera Bradley opened 19 full-line and 17 factory outlet stores in the quarter. Second-quarter comp sales were negatively impacted by year-over-year declines in store and e-commerce traffic as a result of reduced promotional activity.
The problem with Vera Bradley is that consumers are tired of the cotton bag that made it famous and the transition to new styles and fabrics is taking time. New fabrications in bags accounted for only 20 percent of the stockkeeping units in the first quarter, and that has increased to 35 percent. By yearend, the selection of cotton bags is expected to drop to 50 percent of the sku’s. Fuller commented that, “Consumers not walking away from patterns and colors, just cotton.”
Even though the company guided down on revenues, there were signs that the transition is having a positive response. Fuller said the collegiate collection is small but being well received and many colleges are asking to get more of the selection. Vera Bradley is also increasing its square footage in Macy’s and the company has seen improvements in traffic across all channels toward the end of the quarter.
Net revenues were guided down for the third quarter to $120 million to $123 million; in the same period last year they were $125.2 million. Earnings per share for the third quarter were guided to 19 cents to 21 cents a share versus last year’s 21 cents a share.
Chief executive officer Robert Wallstrom said, “We have made meaningful progress, but know our turnaround will take time. We remain confident in our long-term strategic plan and believe that continuing to innovate and modernize our product offerings, prudently grow our distribution points, and elevate and target our marketing efforts will, over time, bring new customers to Vera Bradley and drive traffic and sales.”
Even with today’s jump in the stock price, Vera Bradley stock is down 39 percent for the past year.