Elle Investments Research Report: VRA
Company: Vera Bradley, Inc.
Analysis Date: 7/16/20
Analysis Price: $4.53
Price Target (PT): $10.00
Recommendation: Strong Buy
VRA: 5-Year Chart
Source: Seeking Alpha
Vera Bradley (VRA) is a retailer that sells women's handbags, luggage and travel items, fashion and home accessories, and gifts. Prior to the COVID-19 sell-off, the stock traded consistently around $10.00/share for the past five years. We think the adequate balance sheet, the positive organic growth seen in the prior year, and the attractive valuation (based on withdrawn FY21 EPS guidance) all serve to separate this company from other high-risk retail stocks. A return to the $10.00/share level is a reasonable expectation, and we think VRA is a Strong Buy.
LIQUIDITY POSITION: Adequate
As of 1QFY21, VRA had cash and cash equivalents of $82M and long-term debt of only $60M (this amount was recently drawn from a previously unused $75M revolving credit agreement just as a precaution). Net cash used from operating activities during the first quarter was $25M, and if the economic slowdown continues for much longer, then VRA would be forced to draw additional funds from its revolvers and/or raise more capital. But this is a risk that applies to all clothing retailers. Should shopping habits return to normal fairly quickly, then VRA would be able to repay all of its debt with current cash on hand. This separates it from many other retailers that are already in negative net cash positions.
COMMERCIAL PROSPECTS: Very Good
Results for 4QFY20 and full-year FY20 showed positive comparable sales of +2.4% and +3.4%, respectively. This certainly bucks the growing “death of retail” narrative. Prior to being withdrawn, management had guided for FY21 EPS of about $1.00/share. With the stock back down under $5/share levels, this gives a forward P/E of under 5x. We think assigning a P/E of 10x is reasonable given the strengths of the business, which gives us a PT of $10.00/share.
After trading consistently around $10.00/share, VRA sold off to under $5.00/share from the COVID-19 panic and has yet to recover much of that drop. While there is a heightened sense of risk directed towards brick-and-mortar clothing retail stocks right now, we feel that the adequate balance sheet, positive organic growth seen during the prior year, and the attractive valuation multiple using previous guidance all provide a reason why this company is not nearly as risky as other retail names. We think VRA is a Strong Buy.
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Published By: Elle Investments Research Team
Phone: (914) 715-8066
Disclaimer: The Elle Investments portfolio is managed utilizing a “quantamental” approach where each position, while based on Fundamental Analysis, is sized as part of a larger quantitative portfolio. The commentary presented here is for research purposes only and is not to be taken as investment advice. Readers are expected to perform their own due diligence and/or hire an investment professional prior to entering/exiting positions. Published research ideas are related to the specific market price and publicly available information at the time of research submission/publication. Elle Investments will enter/exit positions without notice.