Struggling to find a new market for its products and saying it needs to contain its costs, Vera Bradley Inc. will close its New Haven plant, its only manufacturing facility in the United States.
The move, announced the evening before the company released an annual earnings report that fell short of analysts’ expectations, will affect about 250 workers. The Fort Wayne-based company, which had once boasted that its handbags and other products were made in the U.S., only manufactured about 5 percent of its products in New Haven. The bulk of its production is done in China.
The company also sent an official Worker Adjustment and Retraining Notification Act notice of the impending plant closing to New Haven Mayor Terry McDonald on March 10.
Charles Hatten, president and CEO of the New Haven Chamber of Commerce, had heard rumors that the plant would be closed even before the official announcement was made. As word spread of the decision, his phone began to ring.
“I got some calls last night from people who said they’d bought their last Vera Bradley bag,” he said March 11.
Many of the employees at the plant are Burmese or Hispanic and have limited English skills. Although CEO Robert Wallstrom said in the company’s written announcement of the closing that the company is “hopeful that several of these associates will be able to transfer to other positions within the company,” Hatten is concerned about the workers’ futures.
“I’ve been calling the temp agencies and other human resources companies to see if they can help,” Hatten said.
Vera Bradley said it would offer severance packages to workers who did not get jobs elsewhere within the company. The plant is expected to close May 9, unless business conditions necessitate earlier action, the company said in a statement.
On March 11, Vera Bradley reported earnings of $17.3 million, or 43 cents per share, for the fourth fiscal quarter, ended Jan. 31. That was below analysts’ estimates of 45 cents per share, according to Zachs Investment Research. Revenue of $152.6 million also was below expectations.
For the year, the company reported profit of $38.4 million, or 95 cents per share. Revenue was $509 million.
The company is taking charges of $3 million, or $1.9 million after tax, in the fiscal year that just ended, related to the plant closing and raw materials inventory write-downs. It expects to incur restructuring and other charges in the first quarter of the current fiscal year, of $6 million to $7 million ($3.8 million to $4.5 million after tax), also related to the facility closing and other cost-saving measures.
The cost of manufacturing goods domestically is about 90 percent more than factories overseas, and Vera Bradley’s domestic manufacturing costs have continued to rise year over year, Wallstrom said in the statement.
The closure of the New Haven plant is expected to save Vera Bradley about $12 million a year. The company also is looking outside of China for manufacturing facilities that could provide additional cost savings, Wallstrom said in a conference call March 11.
Vera Bradley was founded in Fort Wayne in 1982 by friends Barbara Bradley Baekgaard and Patricia Miller. For years, its bags were made at three contract sewing facilities in Fort Wayne, a plant in Rochester and at KAM Manufacturing in Van Wert.
In 2008, Vera Bradley announced it was taking its manufacturing in-house. An estimated 537 workers at Phoenix Sewing, Summit Production Systems and Mercury Manufacturing, the three plants owned by former Vera Bradley employee Bob Hinty, lost their jobs as a result. Hundreds more were displaced in Rochester and Van Wert.
Much of the manufacturing was shipped overseas, but Vera Bradley also opened its own, 125,000 square-foot manufacturing facility in New Haven, in the former Nishikawa Standard building owned by Bill Bean, of Hanning & Bean.
Bean invested about $2 million in improvements to the property on Adams Center Road, and Vera Bradley said it would invest $2.2 million in equipment.
A tax abatement granted by the New Haven City Council in conjunction with the project was expected to save Vera Bradley about $300,000 in taxes. The company said at the time it expected to create about 500 new jobs at the plant over two years, in addition to 70 it already employed in its manufacturing operation.
The company cut a production shift, or about 100 jobs, at the plant in late 2014.
Hatten said his primary concern is for the workers, not for the future prospects for the property.
“That is a nice building there, and Bill Bean is very good at marketing, so I’m not too worried about that,” he said.
But he is worried about the loss of another manufacturer and what that says for the economy.
“If we’re going to be as strong as we were, we need to get our manufacturing back – we need to make things,” Hatten said.
Fiscal 2015 was a year of transition for Vera Bradley, Wallstrom noted in the conference call. Although the company made progress toward its long-term strategies, it will take longer than the five years it originally projected to reach $1 billion in annual sales, he said.
The company has diversified its product mix with new bags offered in faux leather and real leather in addition to its signature cotton-quilted prints and solid-color microfiber bags and accessories. It has reduced the number of specialty retailers that carry its products from about 3,500 to 2,700. During the year, it opened 13 new full-line stores and 14 factory outlet stores.
“While we have made progress on our key initiatives, the overall business trends remain difficult,” said Wallstrom, who joined the company as CEO in November 2013. “By this time, we had expected to regain momentum in the business, but that has not happened. Our core customers are continuing to buy our products. However, our primary issue is that we have not attracted enough new customers to the brand, and therefore, both traffic and sales remain extremely challenging.”
The company employs more than 600 other workers at its southwest Fort Wayne headquarters and distribution facility, in addition to the manufacturing workers. The company went public in 2010.
In the first hour of trading after its March 11 earnings announcement, its stock dropped about 16 percent, to $15.19 per share. Its 52-week high was $30 and its low was $14.81.
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