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This Fashion Retailer Looks Like a Good Bet

July 24, 2014 | About:

The fashion attire and accessories retail segment has been confronting intense times generally. As a result, all things considered, most attire retailers are experiencing a tough situation. Thus, it was not surprising to see yet an alternate retailer diminishing its direction.

At the point when Vera Bradley (NASDAQ:VRA) posted its results and issued a frail forecast for the approaching quarter and the full fiscal year, any hopes of a turnaround were burned. Vera is known for its vivid extravagance handbags and is at present exchanging close to its lowest level in two years.

A look at the results

Despite all macro-financial headwinds like frail consumer sentiment and intense jobs and compensation trends, Vera improved figure out how to convey than-anticipated share earnings of $0.37 per share against expectations of $0.32. It also timed revenue of $125.4 million, beating Street expectations of $124.5 million . This, notwithstanding, wasn't sufficient to alleviate the negative sentiments that emulated because of the frail forecast.

Because of a sluggish job scenario, consumers want to skip purchasing "things that are decent to have." In great cases, they just don't postpone, but instead they don't purchase things that aren't necessary to have. Consumers switch to "computed consumption" and once they switch to this mode, they have a tendency to stay in that mode for a more drawn out than-anticipated length of time.

This switch to economy of "computed consumption" as a rule translates to change in spending conduct, which at last translates to a fall in store movement. This, coupled with poor sales of its merchandise, prompted a decline of 3.7% in tantamount stores sales. Vera doesn't see this enhancing in the approaching quarter and thus diminished its fiscal 2014 direction, spooking investors in the process.

Because of the cascading impact of the decline in comps and poor item sales, stock levels increased to the tune of $143 million . This enormous develop of stock for a negligible 1.9% revenue increase didn't run down well with investors. To aggravate things, Vera expects that this will develop to $155 million-$160 million by the year end.

Vera Bradley now plans to open more "outlet stores" to clear the stock. This means that it will need to resort to discounts, which will squeeze margins and lead to lower revenue.

Looking ahead and around

So as to be more successful at overseeing stock that is constantly heaped up, Vera plans to chop down stock keeping units, or Skus, by 20%. The organization has also reported a $26 million investment in its design and distribution centers keeping in mind the end goal to win back customers.

As per Coach (COH), the North American satchel and accessories market has been stretching at a rate of 10% every year. In 2011, Americans spent $8.5 billion on bags, as indicated by Accessories magazine, which is considered an industry biblical canon. In terms of prominence, extravagance handbags remain the second-most desirable accessory after shoes and this has helped Coach do well.

Coach conveyed in-line earnings in its second-quarter results posted in July. Earnings came in at $0.89 per share and were 3.5% more than the earnings in the same quarter a year back. On again of a strong performance in universal markets, its revenue increased 6% from last year to $1.22 billion.

The fashion accessories classification is a very divided industry with stiff rivalry among the players. Michael Kors (KORS) is one such player that also deals in extravagance handbags and is doing really well. Kors is not affected much by the weakness in the retail sector as it caters to the moderately wealthy section of society.

Kors has been stretching at a really brisk rate and has been picking up market share. Expansion in China should help Kors keep its impressive development rate in place furthermore make its business more diversified. The organization is wanting to open 100-125 stores in China going ahead as it looks to test Coach.

In any case, Coach is also making some moves to avoid the opposition and it plans to increase its retail square footage by 9%. Coach is also profoundly dug in China and sales in the nation bounced an impressive 35% in the previous quarter.


The brand strength of Kors and Coach, alongside their universal presence, has helped the two perform well. At the same time Vera is having some major difficulty selling its products and is heaping up stock. Analysts also don't expect much out of the organization as earnings are required to fall 12.40% this year. Shares are down almost 19% year-to-date and absence of interest for Vera's products means that further downside can't be discounted.

Rating: 4.0/5 (1 vote)



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