Is Vera Bradley a Buy Near Its 2-Year Low?

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Trading around its two year low -- down 55% from its October 2011 highs -- fashion retailer Vera Bradley delivered estimate-beating results on Wednesday on both the top and bottom lines, but the stock still sank by double digits based on management's very cautious outlook for the remainder of the year -- a line that has been on the tongue of nearly every retail manager over the past couple of months. The thing is, Vera Bradley is a distinguished brand that consumers recognize well, and, in a better macro-spending environment, store traffic should normalize. Does this mean Vera Bradley shares are undervalued on this week's sell-off? Let's take a closer look to find out.

Earnings recap
Despite what is now well known as a horrible quarter for retailers, Vera Bradley managed to bump up its adjusted earnings per share by a respectable 12%, hitting $0.37. The number comes in four cents higher than the year-ago quarter, and ahead of Wall Street's average expectations of $0.32 per share. Sequentially, earnings grew more than 60%.

The top line grew modestly, but (again) ahead of analyst estimates. The company had sales of $125.4 million -- a 4% gain, and roughly $1 million ahead of estimates. E-commerce accounted for 22% of sales, a gain of 1% from the prior year. Management cited the usual factors -- weather conditions and economic tepidity -- as the cause for weaker store traffic. The company is also struggling with some of its indirect retailers and is expecting 500 fewer selling points in the coming months as part of a remediation effort.

Looking ahead, the company has revised guidance down for the remainder of the year. In the coming third quarter, sales are projected to be in the range of $128 million to $130 million, down from $138 million in the year-ago quarter. For the full year, sales are to be anywhere form $535 million to $540 million. Previously, the company had guided for $570 million to $575 million. Same-store sales should be down somewhere in the single digits, though likely on the lower end.

What it means
As mentioned, Vera Bradley is one of the iconic fashion lines today. Management is very conscious of how the brand is perceived, through direct and indirect channels, and is making focused efforts to make sure the right message is being delivered.

Sales are weak this year, which is no different from nearly every other retailer on the face of the earth, but things will improve. At less than 11 times forward earnings, the stock is cheaper than many fashion-peddlers. The company has nearly $200 million in current assets, which handily covers total liabilities and should alleviate any concerns of short-term liquidity in the face of weak sales.

As the consumer-spending environment recovers, sales will tick back up for Vera Bradley. For now, consider shares on sale.

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