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Value Line has initiated coverage of Vera Bradley, Inc. (VRA) in its flagship product, The Value Line Investment Survey. Vera is a designer, producer, marketer, and retailer of a broad range of accessories for women. Products include: handbags, including totes, backpacks, laptop bags, and baby bags; accessories, such as wallets, wristlets, eyeglass cases, and cosmetic cases; and travel and leisure goods, including garment bags, duffel bags, rolling luggage, and travel cosmetic cases. The company was founded in 1982 in Fort Wayne, Indiana by Barbara Bradley Baekgaard and Patricia Miller after they recognized a lack of stylish travel accessories in the market. The company completed its IPO in October of 2010. As of February 1, 2014, Vera had roughly 2,900 employees.

The company’s brand emphasizes high quality, distinct and vibrant styling, and functional design of its products. Vera has two reportable segments: Direct and Indirect. The Direct division consists of sales made through its 84 full-price and 15 outlet stores in the United States, 13 department store locations in Japan, its website, verabradley.com, and its annual outlet sale in Fort Wayne, Indiana. The Indirect group sells its products through roughly 3,100 specialty retailers, the majority of which are in the United States, as well as select department stores and third-party e-commerce sites.

Vera Bradley has three primary product categories. As of the fiscal year ended February 1, 2014, handbags represented 40% of total revenues, accessories accounted for 30%, and travel and leisure items were 15%. The remaining 15% of sales include home, merchandising, freight, and licensing revenue. Sales are typically seasonal, since the company’s products are generally given as gifts during the holiday season. As a result, revenues and earnings are usually highest in the fourth quarter.

The majority of the company’s products are manufactured in China by several different manufacturers. This has allowed Vera to keep its capital and labor costs low. It maintains a warehouse and shipping distribution center in Roanoke, Indiana.

Vera faces significant competition in each product line that is sells. Competitors include those who make similar branded goods and private label producers. Independent retailers, department stores, catalog and gift retailers, and internet businesses all sell similar items. Since there are low barriers to entry, new entrants come into the market fairly often with new styles. The market for handbags and accessories is particularly fierce, with Vera facing off against competitors like Coach (COH), Nine West, Liz Claiborne, Kate Spade (KATE), and Michael Kors (KORS), to name a few. Many of these firms have significantly greater financial, marketing, and distribution resources than Vera.

Overall business prospects for Vera Bradley remain mixed. The company finished fiscal 2013 (ended February 1, 2014) with sales of $536 million, which was 1% lower than the prior year. Part of the reason for the decline was that last year contained an additional 7 days of results. However, same-store sales in the Direct segment decreased 6%, and overall demand was soft. Earnings also fell for the year, owing to higher promotional expenses and an unfavorable mix toward lower-margined products.

More concerning was management’s guidance for fiscal 2014. While it looks for a rise in revenues, to between $545 million and $565 million, driven by new store openings, share net is expected to fall to between $1.20 and $1.30, more than $0.15 below last year’s tally. Management noted external headwinds and certain challenges within the business for the soft outlook.

Subscribers interested in learning more about this women’s accessories company are advised to consult Value Line’s quarterly reports for Vera Bradley, as well as any supplemental reports and relevant articles that may arise as important news comes to light.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.