Vera Bradley Could Swing Up With Spending Habits

Apparel retailers have had a tough few weeks, with many getting roughed up on the markets after releasing sometimes dismal (and other times, just bad) earnings and guidance. For women's fashion brand Vera Bradley , things were mixed. The recently ended quarter showed some resilience amid a very difficult consumer-spending environment (for everything but high-end goods), though management was unable to deliver positive enough guidance to excite Wall Street. Vera Bradley stock has drifted down slightly since, but things don't look all that bad for the easily distinguishable brand.

Earnings recap
Top-line sales took a relatively large hit -- down 6% to $130 million for the company's fiscal 2014 third quarter. Bottom-line earnings shrank as well -- down to $0.37 per share from $0.44 in the year-ago quarter. While the numbers don't look that great in isolation, both came in above analyst estimates and suggest that the company is coping with the macroeconomic tepidity.

CEO Robert Wallstrom was, as is so often said in financial journalism, cautiously optimistic. Acknowledging the challenges that the company faces along with the industry at large, Wallstrom ultimately came off bullish, as he believes the unique brand can be leveraged into new markets, broadening the company's customer base.

Direct-to-consumer sales bumped up slightly more than 7%, while year-over-year net sales at the stores grew 18% -- driven mainly by 20 new store openings. Vera Bradley looks to be pursuing omnichannel retailing, though both same-store sales and e-commerce sales were pretty poor-looking. Comparable-store sales are down 6.5% due to lower traffic, while e-commerce -- often the last bastion of growth for brick-and-mortar retailers -- shrank by 7.8%.

Looking ahead, management lowered guidance based on the existing market conditions. Investors can now expect fourth-quarter sales of $145 million to $150 million and diluted earnings of $0.44 to $0.47 per share. The market wanted more, and sent the stock down slightly as a result.

Long-term outlook
Retail industry investors, especially in the past few years, are accustomed to seeing cautious outlooks for coming quarters as the shopper hasn't quite gotten his or her legs back since the depths of the financial crisis. Things are certainly improving, but it's a painfully slow process.

The silver lining here is that these conditions are of a (somewhat) short-term nature. As the market frets over quarter-to-quarter conditions, investors can pick up great long-term businesses at attractive multiples.

Vera Bradley trades at around 14 times its forward-earnings guidance. Though not firmly in the high end inhabited by brands like Coach (14.5 times earnings) or the high-flying Michael Kors (23.7 times earnings), Vera Bradley still caters to a higher-market individual and has a specific look to its products that is easily licensed and can apply to a wide array of products. It's a marketer's dream brand.

Investors should look at how same-store sales improve in the next quarter or two in hopes of confirming that the company's store expansion is achieving an appealing ROI. And given the number of shoppers on the Internet these days, there is little reason that Vera Bradley's e-commerce numbers should be anything but growing.

All in all, there are solid fundamentals at play here along with a comfortable valuation. In the long term, Vera Bradley may end up a good deal today -- as long as management is able to break out of the pack once the economy excuse is no longer valid.

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