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Stock Strategist Industry Reports

Vera Bradley Has Fashion in the Bag

This quiet Midwestern firm would need to do something pretty extreme to impair its brand image, and we're optimistic about the company's growth potential.

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 Vera Bradley (VRA), a Fort Wayne, Ind.-based producer, marketer, and retailer of accessories for women, benefits from a solid brand image among a fiercely loyal customer base, and it has steadily invested in initiatives that improve its competitive positioning and profit outlook. Although we don't think the company has an economic moat yet, we do think it's headed in the right direction.

Vera Bradley has been able to maintain double-digit margins and high returns on invested capital while increasing revenue at a 25% compound annual rate over the past six years--to $460 million in 2011 from $120 million in 2005. The firm has been able to reinvest its profits at consistent value-creating levels. This, in our view, supports the existence of a competitive advantage. The company's portfolio of products and patterns is clearly recognizable, often described as "distinctly Vera," and over its 30-year operating history, the firm has developed a very loyal customer base that continues to expand. As Vera Bradley increases scale advantages and continues to build brand equity as retail locations increase, we see it as capable of building a moat.

Peter Wahlstrom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.