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bebe stores inc. Reports Operating Results (10-Q)

February 11, 2010 | About:
10qk

10qk

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bebe stores inc. (BEBE) filed Quarterly Report for the period ended 2010-01-02.

Bebe Stores Inc. has a market cap of $651.7 million; its shares were traded at around $7.51 with and P/S ratio of 1. The dividend yield of Bebe Stores Inc. stocks is 1.4%. Bebe Stores Inc. had an annual average earning growth of 5.1% over the past 10 years.BEBE is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC, Kenneth Fisher of Fisher Asset Management, LLC, Chuck Royce of ROYCE & ASSOCIATES.

Highlight of Business Operations:

Selling, General and Administrative Expenses. Selling, general and administrative expenses, which primarily consist of non-occupancy store costs, corporate overhead and advertising costs, decreased to $51.3 million during the three months ended January 2, 2010 from $61.5 million for the comparable period of the prior year, a decrease of $10.2 million, or 16.6 %. As a percentage of net sales, selling, general and administrative expenses increased to 36.3% during the three months ended January 2, 2010 from 33.8% in the comparable period of the prior year. The decrease in dollars over the prior year was primarily due to a reduction in spending across all categories and a $1.1 million reduction of expense related to the initial recognition of gift card breakage income offset by a $2.5 million impairment charge related to under-performing stores, comprised of $1.9 million related to PH8 stores and $0.6 million related to bebe stores versus $1.0 million in the second quarter of fiscal 2009.

For the six months ended January 2, 2010, selling, general and administrative expenses decreased to $104.3 million from $120.6 million for the comparable period of the prior year, a decrease of $16.3 million, or 13.5%. As a percentage of net sales, selling, general and administrative expenses increased to 39.0% from 34.9% in the comparable period of the prior year. The decrease in dollars over the prior year was primarily due to a reduction in spending across all categories and a $1.1 million reduction of expense related to the initial recognition of gift card breakage income offset by a $4.2 million impairment charge related to under-performing stores, of which $3.6 million related to PH8 and BEBE SPORT stores and $0.6 million related to bebe stores versus $1.0 million in the comparable period of fiscal 2009.

Our working capital requirements vary widely throughout the year and generally peak during the first and second fiscal quarters. As of January 2, 2010, we had approximately $339.2 million of cash and equivalents and investments on hand of which approximately $40.0 million were invested in government treasury bills, approximately $10.7 million were invested in certificates of deposit, and approximately $185.6 million, net of impairment charges of $24.1 million, were invested in auction rate securities (ARS). We do not anticipate the lack of liquidity in the ARS to impact our ability to fund our operations in the foreseeable future and believe we have sufficient cash and equivalents to fund ongoing operations. In addition, we have a revolving line of credit, under which we may borrow or issue letters of credit up to a combined total of $25 million. As of January 2, 2010, there were no cash borrowings outstanding under the line of credit, and letters of credit outstanding totaled $1.7 million. This credit facility requires us to maintain a $2.5 million compensating balance and to comply with certain financial covenants, including amounts for minimum tangible net worth, unencumbered liquid assets and profitability, and certain restrictions on making loans and investments. As of January 2, 2010, we were in compliance with all covenants under the credit facility.

Net cash provided by operating activities for the six months ended January 2, 2010 was $26.0 million versus cash provided by operating activities of $32.5 million for the six months ended January 3, 2009. The decrease of $6.5 million from the comparable period was primarily due to a decrease in net earnings of $19.7 million offset by increased changes in working capital of $12.1 million primarily related to lower prepaid taxes as a result of a federal tax refund received during the second quarter and lower estimated tax payments made this year versus the prior due to an anticipated decrease in projected income as well as lower accounts payable related to lower inventory balances.

Net cash used by financing activities was $12.2 million for the six months ended January 2, 2010 versus $15.9 million for the six months ended January 3, 2009. The decrease in cash used of $3.7 million from the prior year comparable period was primarily due to lower dividends paid related to a lower rate declared for the first and second quarters of fiscal 2010 ($0.025 per share versus $0.05 per share in the prior year).

We hold a variety of interest bearing ARS consisting of federally insured student loan backed securities and insured municipal authority bonds. As of January 2, 2010, our ARS portfolio totaled approximately $185.6 million, $72.2 million (net of an impairment charge of $9.6 million) classified as trading securities and $113.4 million (net of temporary impairment charge of $14.4 million) classified as long term available for sale securities. Our ARS portfolio includes approximately 98% federally insured student loan backed securities and 2% municipal authority bonds. Our ARS portfolio consists of approximately 39% AAA rated investments, 7% AA rated investments, 35% A rated investments and 19% BBB rated investments. This is a change from our fiscal 2009 portfolio, which consisted of 46% AAA rates investments, 14% AA rated investments, 30% A rated investments and 10% BBB related investments. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The uncertainties in the credit markets that began in February 2008 have affected our holdings in ARS investments and auctions for our investments in these securities have failed to settle on their respective settlement dates. Historically the fair value of ARS investments had approximated par value due to the frequent resets through the auction process. While we continue to earn interest on our ARS investments at the maximum contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer approximates par value. Consequently, the investments are not currently liquid, and we will not be able to access these funds until a future auction of these investments is successful, the issuer redeems the securities or at maturity. Maturity dates for these ARS investments range from 2010 to 2044 with principal distributions occurring on certain securities prior to maturity.

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