Vera Bradley Inc.'s shares plunged in trading Thursday after the accessories maker issued a weak forecast for its fourth quarter.
THE SPARK: Vera Bradley reported after the market closed Wednesday that it beat market expectations in its fiscal third quarter, earning 44 cents per share on revenue of $138.3 million. That exceeded the average analyst forecast of 38 cents per share on revenue of $135.2 million, according to a poll by FactSet.
However, the company forecast earnings of 55 to 57 cents per share for its fourth quarter on revenue of $147 million to $152 million. That falls short of the 60 cents per share on revenue of $159 million that analysts were anticipating.
THE BIG PICTURE: Vera Bradley, based in Fort Wayne, Ind., makes bags and totes that are most recognized for their distinctive pattern and stitching. The latest announcement follows a profit warning in August, when Vera Bradley trimmed its full-year guidance after posting a 2 percent decline in second-quarter net income. Vera Bradley blamed the lower profit on weak demand for its summer merchandise and higher expenses.
THE ANALYSIS: Jefferies analyst Randal Konik said he was pleased with the solid third quarter, but the outlook is a little lighter than anticipated. While he believes the company is in early stages of growth because it only runs about 75 stores, it appears there is still some choppiness in the business and he reiterated a "Hold" rating on its shares. However, he raised his price target by $2 to $22.
Other analysts, such as Oliver Chen at Citi, expressed concerns about $15 million in excess inventory. The inventory increase was due to a planning error that left the company with extra supply of its top-selling patterns.
Chen also said he has concerns about the company's ability to improve its sales and margins due to some volatility in its sales at other retailers, an evolving supply chain issue and mixed performance of some of its products. He reiterated a "Neutral" rating and a $24 price target, given the company's soft guidance and his assessment of its other issues.
SHARE ACTION: Shares fell nearly 13 percent to $22.84 in afternoon trading. Its stock has lost nearly 30 percent of its value in the year to date.
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