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Vera Bradley Inc.’s largest shareholder wants profits, not cash burn.
Fund 1 Investments on Monday sent a letter to the company’s chairman Robert J. Hall and the specialty retailer’s Board of Directors indicating that it wasn’t happy with the brand’s turnaround efforts.
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“We, as your largest shareholder, simply want Vera Bradley to return to its winning ways,” the letter said. In its first year of being public, 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.”
The letter went on to note that the same $360 million plus in revenue is “expected to burn cash,” and that the $1.5 billion enterprise value has an implied “negative value today, adjusted for the acquisition of Pura Vida.”
The accessories firm completed its initial public offering on Oct. 21, 2010. It paid $75 million in 2019 for a 75 percent majority stake in the direct-to-consumer jewelry brand Pura Vida. Vera Bradley subsequently acquired the remaining 25 percent in January 2023 for $10 million.
Fund 1, which beneficially owns 10 percent of the outstanding common stock of the accessories brand, said Vera Bradley not only has a history of value destruction and questionable capital allocation, but that it is also operating in a backdrop of “extremely negative macro sentiment for fashion brands.” Moreover, it also charged that the public float is now less than $60 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,” the letter said, adding that it has already had a conversation with the board indicating an openness to maximizing shareholder value. It also cited several benefits to operating outside of the proverbial “glass fishbowl” of Wall Street where management can focus on the business without having to deal with shareholder meetings or quarter earnings reports.
Fund 1 also said it believes that either a strategic or financial buyer would be able to acquire the brand at an attractive premium for shareholders. It also said if the company is sold to a financial buyer, the board should consider a transaction where existing stakeholders could partake in the transaction to maintain or increase their interests, which Fund 1 said it “would be willing to do.”