Vera Bradley Reports Loss, Cuts Guidance

Vera Bradley Inc. swung to a loss in its first quarter and again issued dismal guidance, as the handbag retailer struggles to turn itself around amid falling sales and low brand awareness.

"We are not attracting enough new customers to the brand, and traffic and sales are still very challenging," Chief Executive Robert Wallstrom said. "Until we begin to see recovery in the business, we cannot predict the timing of or provide additional updates on achieving long-term financial targets."

Vera Bradley, which has traditionally relied on its cotton-quilted products to drive business, has been struggling to sell customers on a revamped assortment of laser-cut, leather and microfiber handbags.

On a call with analysts, Mr. Wallstrom said he is frustrated that the progress the company has made isn't showing up in its financials. He added that results of customer surveys and focus groups show that many customers associate Vera Bradley with the quilted cotton bags for which demand isn't as strong as it used to be. Once customers are shown new offerings, they generally have a favorable reaction, he said, concluding Vera Bradley needs more exposure and brand awareness.

His comments come a day after Vera announced it had hired Fossil Group Inc.'s global marketing and public relations vice president as its chief marketing officer in a move to grow brand awareness and spur sales.

In its latest quarter, sales at stores open at least a year plunged 22%, while online sales dropped 9.7%, amid lower traffic and lower levels of online promotions.

Mr. Wallstrom said specialty-store partners that sell Vera Bradley products are asking his company to cut promotional activity. The company has taken aggressive steps, he said, eliminating its "hyper promotional" sales of 60% to 70% off and paring back its promotional base by about 15% during the first quarter.

The retailer again slashed its outlook for the year, now expecting to report 64 cents to 74 cents in earnings per share, down from earlier guidance of 82 cents to 92 cents and far below the 84 cents analysts have expected. Vera said it would report $480 million to $495 million in full-year revenue, down from its earlier projection of $510 million to $525 million and under the $512.7 million analyst estimate. The guidance reflects a continued reduction in promotional activity, Vera said.

Gross margin, which improved during the quarter in part thanks to lower promotions, will improve to around 56% from 52.9% in 2014, Chief Financial Officer Kevin Sierks said during the call.

For the current quarter, Vera said it expects to earn 10 cents to 13 cents a share on $116 million to $120 million in revenues, below the 17 cents in per-share profit and $121.2 million in sales analysts have predicted. Comparable-store sales, including e-commerce, will decline in the mid-to-high teen percentage range, according to Mr. Sierks.

In all for the April quarter, Vera reported a loss of $4.1 million, or 10 cents a share, down from a year-earlier profit of $6.6 million, or 16 cents a share.

Excluding certain items like charges stemming from a manufacturing-facility closing and severance costs, the company broke even on a per-share basis. A year earlier, Vera earned an adjusted 17 cents.

Revenue slid 9.9% to $101.1 million.

The company had said it expected to report per-share earnings that were flat to up 3 cents on $103 million to $109 million in revenue.

Write to Lisa Beilfuss at [e-mail]

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