Buy Recommendation:Vera Bradley (VRA)

VRA Overview

• Vera Bradley, Inc. is a designer, producer, marketer, and retailer of functional accessories for women. The Company’s products include a range of offering of handbags, accessories, and travel and leisure items

• Direct segment consists 75 stores in the United States (which includes 10 outlet stores). There are seven pop-up stores in Japan, and VeraBradley.com

• Indirect includes 3,300 independent retailers

Investment Thesis

Purchase a designer brand with good growth potential at a discounted cost and then sell in 1-2 years.

• Unique brand name which is vital in the crowded consumer retail market

• Solid customer base and distribution platform• Updated supply chain that can support future

growth• There is ample room for growth and they have

a good retail strategy to reach their goals

Key Investment Points

Strengths•Unique Brand •Good relationships with indirect sellers•Integrated product design team that deliver consistent products across all channels•Direct and E-commerce sales growth.62 Million visited website last year, a 45% increase yoy

Weaknesses•Management’s handling of Inventory•Distribution network already includes 3,300 independent retailers•Primarily manufacture products in China

Opportunities•New Product lines•Branding rights to other companies, joint partnerships (DIS)•E-Commerce•Small company with plenty of room to grow•Japan

Threats•Manufacturing costs•Fashion industry is unpredictable•Consumer confidence and spending •Small-cap company means increased volatility

SWOT Analysis

Stock Price History - 12 Month

Earnings Surprise

• Revised guidance for 1st quarter (fiscal 2014) left something to be desired

• Decline in operating CF’s• Lower sales growth than peers• 90 bps Increase in SGA• Criticism over managements handling of

inventory

Why Undervalued?

• Many analysts believe fair value is around $30

• P/E is 12.85 while Industry Average is 24.36• S&P is 17.82

• P/Projected Earnings is 10.45 while Industry is 32.11

• P/B is 4.56 while Industry Average is 5.09

How do we know it’s undervalued?

• Between the calendar year of 2008 and 2012, Vera Bradley more than doubled its annual revenues from $239 million to $541 million.

• Net earnings almost tripled, expanding from $24 million to $69 million over the same time period.

• Revenues are up 21% yoy

Financial Snapshot

52wk Range: 18.91 - 31.00

Volume: 320,541

Avg Vol (3m): 431,063

Market Cap: 888.37M

P/E (ttm): 12.88

EPS (ttm): 1.70

Beta 1.02

RETURN ON EQUITY (%) VRA Ind Avg S&P 500Q4 2012 35.45 22.39 13.11Q4 2011 46.70 21.90 14.55Q4 2010 NA 20.15 13.57

• Purchase 250 shares at limit price of $21.75 Total purchase of $5,437

• 1 yr Target of 28.43• Buy at 21.75 and sell at 28 yields a %28.7 gain

• Currently our Sector is underweight by 4% ($22,298). If CarMax purchase goes through for $4,968 then we will still be %3.1 underweight.This purchase would drop us to %2.16 ($11,893)

Recommendation