Handbag designer Vera Bradley (VRA) posted a 27 percent drop in profits during the first quarter of fiscal 2014, although still topping expectations, as rising expenses overshadowed sales growth. In a separate statement, the company reported that CEO Mike Ray will be stepping down as top executive at the Fort Wayne, Indiana-based company.
For the quarter ended May 4, Vera Bradley recorded net revenue of $123.0 million, up 5 percent from $117.2 million in the same quarter last year. Net income for the quarter was $9.2 million, or 23 cents per share, compared to $12.6 million, or 31 cents per share, in Q1 fiscal 2013.
Analysts were expecting EPS of 21 cents on revenue of $121.1 million.
Direct sales improved by 24 percent to $73.7 million, attributed to growth in all sales channels. Adding 19 new full-price stores and 4 outlet stores helped in store sales to climb 34 percent. Same-store-sales, comparable sales at stores open more than one year, inched up 0.9 percent.
Indirect revenue was down by 15 percent at $49.3 million.
Gross margin dropped 10 basis points to 55.6 percent as expenses climbed. Selling, General and Administrative costs rose from $47.2 million in last year’s quarter to $55.2 million. SG&A expenses as a percentage of revenue plunged 460 basis points to 44.9 percent. Cost of sales increased to $54.57 million from $51.9 million.
Wall Street probably could have coped with the higher expenses and lower profits, but Vera Bradley cut its outlook and that’s never well received.
“…we have narrowed our focus to ensure that we can execute our strategies as quickly as possible, both to address our challenges and to achieve our longer-term vision for the brand,” said Mike Ray in the earnings release.
In March, the company saw full year earnings in the range of $1.83 and $1.88 per share on revenue between $585 million and $590 million. Now the company expects earnings per share in the range of $1.74 and $1.78 and revenue to fall between $570 million and $575 million.
On average, analysts were expecting EPS of $1.81 and sales of $591.1 million.
As mentioned, Mike Ray is resigning as CEO. Ray will hold the position until a successor is found and help with the transition, which the company has formed a search committee to do. Ray intends to continue to serve as a director. During his 15-year tenure at Vera Bradley, the company has gone public and more than doubled its annual revenues.
It’s been a tough 2013 so far for shares of VRA, sliding about 11 percent through Wednesday’s closing price at $22.46. Early in extended trading following the news, things didn’t get better as shares carved-off another 8 percent to move to the lowest level since last September.
