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Analysts not buying into Vera’s viability

The analysts who were on the past two quarterly earnings calls with Vera Bradley leaders have expressed doubts about the company’s stock as an investment.

Zacks Equity Research this month made the case for selling Vera Bradley stock. In fact, the independent Chicago research firm labeled shares “a strong sell.”

“Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns,” the firm said in a report, which acknowledges that “selling off losers can be difficult.”

Zacks suggested that investors might be better off buying shares of American Apparel Inc., Foot Locker Inc. or The Men’s Wearhouse Inc., which are all in the retail-wholesale sector with Vera Bradley Inc.

The Motley Fool this month singled out Michael Kors, a rival handbag manufacturer, as a better investment.

The investment services firm in Alexandria, Virginia, said that between 2009 and 2013, Vera Bradley’s revenue increased by 86 percent to $536 million, and same-store sales increased by 86 percent.

Same-store sales rates are a significant indicator of a company’s performance because they don’t include sales growth generated by opening new stores.

Michael Kors revenue during the same years increased by 552 percent to $3.3 billion, the Motley Fool report said. Same-store sales increased by 335 percent.

Vera Bradley revised its guidance downward during the first fiscal quarter but still missed its own sales projections. Revenue was $113.5 million, a figure executives described as modestly below the range of $116 million to $120 million.

The Motley Fool wasn’t amused.

“The fact that the company was unable to come even close to predicting its revenue suggests that its situation might be far from pretty,” it said.

The Motley Fool suggested that investors may insulate themselves from falling stock prices by buying stocks that pay big dividends. Vera Bradley hasn’t paid any dividends since going public in October 2010.

Sterne Agee equity analysts Ike Boruchow and Tom Nikic this month warned investors that Vera Bradley’s strategic turnaround effort will require “a lot of heavy lifting ahead that could take significant time and effort.”

The New York analysts recommended that investors hold off buying Vera Bradley stock.

It’s unlikely that Vera Bradley shares will flood the market soon, however. The founders and their families own almost 44 percent of the company and are likely to hold on to their shares.

Robert Wallstrom, who had been CEO for only about six months when he spoke to analysts in early June, is encouraging folks to keep believing in the Vera Bradley magic.

“There is much to be done,” he said, “but we have made a lot of progress in a few short months.”

sslater@jg.net

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