I'm Ready to Offload My Vera Bradley Bag
Shares in this handbag retailer are at a stubborn level and here is where I'd like to exit my position.
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A little more than a month ago, I wrote to my "Stocks Under $10" readers in the wake of the bomb of a quarter that Vera Bradley VRA had just dropped.
Readers, especially those in this name with me, very likely recall that for the period ended November 2, Vera Bradley saw a revenue contraction of 29.9% to $80.578 million. The firm was left with a gross profit of $43.609 million (-30.8%) on a gross margin of 54.1%, down from 54.8% a year earlier.
GAAP operating income/loss printed at $-10.474 million for the quarter, down from the year-ago comp of $6.786 million. GAAP net income/loss hit the tape at $-12.8 million, down from $5.118 million. This worked out to a fully diluted GAAP EPS of $-0.46, which was down from $0.16 for the year-earlier period.
After adjusting for impairment charges, income tax adjustments, "Project Restoration" expenses, severance and consulting fees, adjusted EPS printed at $-0.27, down from $0.19 for the year-ago period. Yuck.
On That Project...
CEO Jackie Ardrey commented at the time, "The third quarter was extremely challenging as we remained in the early stages of ‘Project Restoration,’ our strategic initiative to transform our business model and transition Vera Bradley’s brand positioning. With the current consumer mindset focused on value, we have more work ahead of us on our repositioning journey. Importantly, we've made meaningful adjustments to our assortment and value proposition in response to results and customer feedback. I'm pleased to report that we are seeing steady progress with several green shoots that have continued in the fourth quarter to date.”
The Guidance Was Awful
For the full year, the firm projected revenue of roughly $385 million. That would be down from $470.8 million for the year prior. The full-year gross profit margin was predicted to land at 52.5%, down from 54.5%. Full-year operating income/loss was seen at $-9 million versus $22.6 million for the fiscal year prior, leaving a projected EPS for the full year of $-0.25, which does not measure up well against $0.55 for last year.
At That Time...
I acknowledged that I had given you this name when it was trading at $5.80 with a pivot of $6.30 and a $7.90 target price. I wrote to you then that I had downgraded this position from an investment to an exercise in risk management. What that meant is that I was going to get out of these shares as best I could.
The stock came in hard. I more than doubled my long position in terms of size, not as I had said, as an investment, but in an attempt to get out of this position with as small a loss as possible or maybe avoid taking a loss altogether. My net basis is down to $4.10. I am at a special point in my extraction from this name as is the stock.
At this level, I am down 7.6% on this position. The shares have come up off of the late December low and been stopped at a rough 23.6% Fibonacci retracement of the entire December sell-off several times. The shares are back at that stubborn Fib level again today (Wednesday), but there is a difference.
This time, the stock's 21-day EMA is now running close to even with that Fibonacci level, relative strength is improving, and within the daily MACD, the histogram of the nine-day EMA is in positive territory. Not that Vera Bradley is heavily traded by swing trades, but this is the kind of set-up that some swing traders look for.
My Plan?
I am looking for a move that takes down the 21-day EMA. Should that happen, I would like to get out as close to the 50-day SMA as possible, but honestly, it won't take much to make my trigger finger twitch once the shares trade above $4.10.
Should the shares fail here? No more games. That's why I have my 8% rule. I don't always enforce it with low-priced stocks, but I am ready to offload this one.
At the time of publication, Guifoyle was long VRA equity.
