Wunderlich Is Waiting On Vera Bradley's Brand Transformation; Reiterates Buy

Wunderlich Securities has maintained its Buy rating on Vera Bradley, Inc.

as it is waiting for the brand transformation of the accessories player, known for its colorful, patterned cotton handbags. "Despite weak traffic trends materially reducing comparable sales YoY (-6.7%), we continue to remain positive on the growth opportunity and brand rebirth," analyst Eric Beder wrote in a note. Beder highlighted that achievement of positive comparable sales by the end of the year is the gauge of success of the company's brand transformation initiatives. The Roanoke, Indiana-based company reported first quarter earnings of $0.06 a share, topping Street view by $0.01. However, the revenue of $105.2 million fell short of consensus estimate of $106.8 million. The company expects full-year earnings to be $0.90 to $0.98 per share, with revenue ranging from $510 million to $520 million. Beder has reaffirmed his FY17 and FY18 EPS estimates of $0.98 and $1.07, respectively. Further, the analyst said the Vera Bradley should benefit from its ability to materially expand operating margin. For the full year, the company expects to generate 100-150bps and 70-90bps in gross margin and operating margin expansion, respectively. Looking forward, Beder noted that the second half of FY17 will be better suited as an indicator of the company's growth capability due to renewed consumer engagement, and impact of the conversion of the e-commerce platform to a full-price channel. The company is also betting on the continued expansion of the store fleet (especially the opening of the brand's flagship location in SoHo). "Given we believe management's goal to produce positive comparable sales by the end of the year is still attainable and exemplary of the growth opportunity at Vera Bradley, we reiterate our Buy rating," Beder added. Beder also reiterated his $24 price target on the stock, which is currently down 5.89 percent to $14.70.