Vera Bradley - Finding Value in Retail

Originally Published July 25th, 2022

Welcome to the first edition of the Weekly Value Finder with 2kHedgeFund. As many of you know, the site has continued to evolve, and Substack is the latest edition to the information overload that will continue to be available.

The Weekly Value Finder is a wake up call of sorts, sent out each Monday morning, highlighting one company that is worth researching over the next week. Remember, 2kHedgeFund isn’t some pay to follow purchases site, but instead one whose goal is to give YOU the tools to research and make your own decisions!

Now onto the value!

What if I told you that there is a company that has zero debt, a trailing PE of 11.77, a forward PE of ~7, and a book value of over 2x its current price? Would that interest you in doing more research this week?

Well there is a company that fits that profile and currently it is trading just 7% above its 52 week low.

That company is Vera Bradley, Inc. (VRA).

Yes, that Vera Bradley that many of you have seen your mother wearing, or that colorful fabric handbag that you have seen being carried all over the United States. This company is known for its colorful designs and playful bags, but it also is a cash cow.

Over the last 4 years, the free cash flow has been growing, but at an annualized rate of 1.98%. That is tiny! But considering that the debt low is zero, the roughly $31 million dollars per year has been being reinvested into its brands and ecommerce. The company also has been buying back shares, something that I expect them to continue to do at their current low price point.

The company also noted in their last earnings call that their current cost reduction plan is going well and should soon realize in $15-25 million dollars in annual savings. This, if realized, should continue to push up the free cash flow and help the company continue to grow its sales.

Now it’s not all sunshine and rainbows though. A potential incoming recession could continue to cause a downturn in revenue, and inflation is bringing up costs at a rate that has to be passed on to consumers. This is a two headed monster that could cause major issues, not only with Vera Bradley, but in any retailers.

One last note before I let you go. Vera Bradley is currently holding over $64 million dollars in cash & equivalents. That is over $2 per share, while the stock currently sits at $4.32. It’s a solid value in my opinion, but that is just mine!

Your assignment for the week:

Use free sites such as Seeking Alpha, Roic.ai, and Gurufocus.com to research Vera Bradley, Inc. During this week find three reasons to purchase VRA and three reasons to not to purchase VRA. After doing this, write a one paragraph summary of whether you would buy or sell the company and why. After doing this, feel free to share it with me on Twitter at @TheProfitPI

Thanks for Reading and Happy Investing!

The Profit Investigator