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.

Key Investment Points 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

SWOT Analysis 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 Indirect sellers (new venture with Dillards) Direct sales up %30

Stock Price History - 12 Month

Earnings Surprise 1 week price change

Decline in operating CF’s Lower sales growth than peers Why Undervalued? 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 (SGA can be attributed to starting new baby line, so should level off) CF’s because taking on debt recently to aid in expansion plans Sales growth is 17.42 vs 36.54 -can be partially attributed to lower in-store sales

How do we know it’s 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

Financial Snapshot 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 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 500 Q4 2012 35.45 22.39 13.11 Q4 2011 46.70 21.90 14.55 Q4 2010 NA 20.15 13.57

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