Offshore

Clark Square Capital
RT @InvestSpecial: @ClarkSquareCap shared interesting thoughts on $VRA, check his write-up for more details.

In short: VRA got even cheaper since Fund 1 filed a 13D in January.

They’re now exploring a $30M sale-leaseback on one facility vs. a $54M EV. Could be getting interesting now.



A potential sale of $VRA could be around the corner due to activist pressure.

Fund 1 Investments, an activist with a 10% stake, filed a 13D at the start of January urging VRA, a women’s handbag maker, to explore strategic alternatives, including an outright sale.

Fund 1 is an experienced player specializing in the apparel and consumer discretionary sectors, with stakes in several other retailers. They have a clear understanding of the brand’s value and its turnaround potential.

FYI, Fund 1 is also currently attempting to buy out another retailer, $DXLG, which is covered on SSI.

A few months prior, the prominent small-cap value fund Royce & Associates established a 5.6% stake. Notably, Royce & Associates increased its stake to 6.8% just weeks after Fund 1 Investments disclosed its 13D.

The activist believes the company could be sold for a meaningful premium.

“Vera Bradley generated $366 million of revenue and nearly $50 million of free cash flow, translating into a $1.5 billion enterprise value company. Today, analysts expect $380 million of revenue – essentially the same topline as when the Company IPO’d. Except, that same $360+ million of revenue is expected to burn cash and that $1.5 billion enterprise value implies negative value today, adjusted for the acquisition of Pura Vida.”

“We believe Vera Bradley can be a much more valuable company and has a timely opportunity to return to its winning ways. If the Company were out of the public spotlight, there are many advantages for Vera Bradley: i) ability to focus on the brand revival without quarterly earnings, ii) cost savings opportunities unavailable in the public markets, and iii) more time for management to focus on the business as opposed to frequent meetings with shareholders.”

The company does look cheap, trading at around 0.4x EV/historically low sales. Gross margins aren’t terrible at 52% on an LTM basis either. So with some cost-cutting, the company could actually become profitable again. If they can reach about 5% EBIT margins on LTM sales, they could generate around $50M in EBITDA, valuing the company at 5x EV/EBITDA. Historical margins are significantly higher than 5%, so it’s not totally unimaginable for them to return to those levels. Management has already announced a $20m cost cut so clealy there is a way to improve earnings here.

In this context, the activist interest isn’t surprising. The question is whether the founders—who own about 20% of the company, with at least one still actively involved—are willing to sell at this point.

I’m staying on the sidelines, mainly due to my limited understanding of the brand and its competitive positioning. However, the setup certainly looks interesting, especially with Fund 1 Investments involved—they’re clearly better equipped to evaluate VRA’s potential in a sale scenario. Also, if any of you have looked into this, I’d love to hear your thoughts as always.

- Dalius - Special Sits
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A potential sale of $VRA could be around the corner due to activist pressure.

Fund 1 Investments, an activist with a 10% stake, filed a 13D at the start of January urging VRA, a women’s handbag maker, to explore strategic alternatives, including an outright…

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