Analyst says interest in Vera Bradley IPO could drive shares higher

Vera Bradley’s initial public offering — expected to occur Wednesday, Bloomberg News reported — could bring an even bigger payday than expected for the company’s founders and principals. In a note dated Sunday, Morningstar analyst Pete Wahlstrom predicted the “high-interest” IPO could bring $18 a share, $2 per share above the company’s projected $14 to $16 range. That would push the total value of the IPO from an estimated $165 million to $198 million. The company is selling 4 million shares, and the selling shareholders — most notably founders Barbara Bradley Baekgaard and Patricia Miller, along with Miller’s husband, P. Michael Miller — are selling 7 million shares, with a 30-day optional overallotment of another 1.65 million shares. At the midrange of the company’s estimated price, or $15 per share, Baekgaard would get $33.18 million to $41 million for the sale of her shares, depending on the overallotment; and the Millers would get $42 million to $51.9 million for theirs. At $18 million per share, Baekgaard would get $39.8 million to $49.2 million, and the Millers would get $50.4 million to $62.3 million. The company will get no proceeds from the sale of shares by the selling shareholders. In addition, the company said in its most recent Securities and Exchange Commission filing on Tuesday that it expects to use an estimated net of $53.3 million from the shares it is selling, along with about $52.7 million in funds borrowed through a credit agreement, to pay in full the undistributed earnings held as notes by its existing shareholders. Prior to an Oct. 3 reorganization, completed in preparation for the IPO, Vera Bradley was taxed as an “S” corporation. The $106 million from the share sales and borrowings will be paid to shareholders, in proportion to their ownership, as the final “S” corporation distribution. Under that distribution, which does not include what they would make from selling their shares, Baekgaard would receive $42.4 million; Patricia Miller, $42.4 million; P. Michael Miller, $34,553; CEO Michael Ray, $5.3 million; executive vice president Kimberly Colby, $5.3 million; and EVP Jill Nichols, $10.6 million. Any remaining funds will be used for working capital or other general corporate purposes. The company also said in its prospectus that it did not anticipate paying dividends on its common stock after the completion of the IPO, but would retain all available funds and any future earnings for use in the operation and expansion of the business. In his note, Wahlstrom cited Vera Bradley’s strong brand, grassroots following and potential for sales growth, particularly through its rising number of company stores, which are expected to grow from 33 this year to 220 in another 10 years. Same-store sales rose 36 percent in 2009 and were up 26 percent through the first six months of 2010, Wahlstrom noted. Average revenue per square foot for the trailing 12-month period exceeded $600, which is in line with non-jewelry accessory retails, and the company expects an initial payback period of less than 18 months on new stores.