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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowA long/short equity firm headquartered in Puerto Rico that says it is the largest shareholder for Fort Wayne-based Vera Bradley is calling on the company’s board of directors to consider strategic alternatives to bring the retail brand back to profitability.
Fund 1 Investments LLC said in a letter to Chairman Robert Hall that the board should consider taking the company private or a potential sale, among alternatives.
Fund 1 makes public and private investments primarily focused on the consumer, telecom, media, and technology sectors. The firm says it owns 10% of Vera Bradley’s outstanding shares and has economic exposure of 20% of the outstanding shares, making it the company’s largest shareholder.
The letter, dated Dec. 30, refers to a previous conversation between Fund 1 and the board earlier this month, during which the firm discussed its concern over the financial performance of Vera Bradley.
Fund 1 said the company is experiencing a “perfect storm” as a result of “a history of value destruction and questionable capital allocation, poor recent operational performance, a failed brand turnaround, extremely negative macro sentiment for fashion brands, and less than $60 million of public float.”
Over the last few years, Vera Bradley has been focused on Project Restoration, which was designed to return the luggage, handbag, and fashion accessory designer back to profitability.
Earlier this year, Vera Bradley launched a brand refresh aimed at “reinvigorating the business and restoring brand relevance.”
Despite such efforts, the company reported a fiscal third-quarter loss of $12.8 million earlier this month, compared with a profit of $5.1 million during the same period last year. Revenue fell 30% over the year-ago period, to $80.6 million.
“It is clear to us that the best option for Vera Bradley and its shareholders is to commence a strategic alternatives process and pursue opportunities to fix the company under the umbrella of a larger organization or in the private markets,” Fund 1 said in its letter.
Taking the company private, the firm said, would allow Vera Bradley to focus on its brand revival without quarterly earnings, create cost savings unavailable in the private markets and give management more time to focus on the business.
Fund 1 also said it believes a strategic or financial buyer would be able to acquire the company at an attractive premium for shareholders.
“If a financial buyer provides the best opportunity, the company should consider transaction structures that would enable existing stakeholders to participate in a transaction and maintain or increase their interests in the company, which we would be willing to do,” the firm said.
Fund 1 said it was pleased to hear that the board “believes everything is on the table to maximize shareholder value,” during its previous conversation.
Vera Bradley CEO Jackie Ardrey issued the following statement to Inside INdiana Business on Monday.
“Vera Bradley’s Board of Directors and management team are committed to acting in the best interest of the company and we are open to constructive engagement that supports our goal of enhancing value for all shareholders,” she said. “The Board maintains open communications with shareholders, and regularly review the company’s strategic priorities and assess potential opportunities. We remain highly focused on executing our brand transformation plans, listening to customers, and nurturing the green shoots we’ve seen.”
Vera Bradley stock rose 8.6% on Monday, to $3.91 per share.
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This isn’t surprising because their products are arguably a “fad” that has passed.