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

May 13, 2010 | About:

10qk

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bebe stores inc. (BEBE) filed Quarterly Report for the period ended 2010-04-03.

Bebe Stores Inc. has a market cap of $678.9 million; its shares were traded at around $7.88 with and P/S ratio of 1.1. The dividend yield of Bebe Stores Inc. stocks is 1.3%.BEBE is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
This is the annual revenues and earnings per share of BEBE over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of BEBE.


Highlight of Business Operations:

Net Sales. Net sales decreased to $114.4 million during the three months ended April 3, 2010 from $127.7 million for the comparable period of the prior year, a decrease of $13.3 million, or 10.4%. The decrease in net sales was primarily due to an 11.2% decrease in comparable store sales resulting primarily from lower traffic in stores, a reduced customer acceptance of the merchandise offering and a 7.0% decrease in our on-line sales. These decreases were partially offset by higher conversion in stores, an increase in wholesale sales to international licensees and an increase in royalty revenue.

For the nine months ended April 3, 2010, net sales decreased to $381.6 million from $472.8 million for the comparable period of the prior year, a decrease of $91.2 million, or 19.3%. The decrease in net sales was primarily due to a 20.8% decrease in comparable store sales resulting primarily from lower traffic in stores, a reduced customer acceptance of the merchandise offering and a 12.1% decrease in our on-line sales. These decreases were partially offset by higher conversion in stores, stores not included in the comparable store sales, an increase in wholesale sales to international licensees and an increase in royalty revenue.

Gross Margin. Gross margin decreased to $44.3 million during the three months ended April 3, 2010 from $48.3 million for the comparable period of the prior year, a decrease of $4.0 million, or 8.3%. As a percentage of net sales, gross margin increased to 38.8% for the three months ended April 3, 2010 from 37.8% in the comparable period of the prior year. The increase in gross margin as a percentage of net sales was primarily due to lower markdowns and lower other costs including inventory shrink and damages as well as $1.2 million of income related to the expiration of loyalty points partially offset by lower initial markup, unfavorable occupancy leverage and expense related to our change in return policy from 14 days to 21 days.

For the nine months ended April 3, 2010, gross margin decreased to $145.9 million from $191.7 million for the comparable period of the prior year, a decrease of $45.8 million, or 23.9%. As a percentage of net sales, gross margin decreased to 38.2% for the nine months ended April 3, 2010 from 40.6% in the comparable period of the prior year. The decrease in gross margin as a percentage of net sales was primarily due to lower initial markup, expense related to our change in return policy from 14 days to 21 days and deleveraging of occupancy costs partially offset by lower other costs including inventory shrink and damages as well as $1.2 million of income related to expiration of loyalty points.

For the nine months ended April 3, 2010, selling, general and administrative expenses decreased to $156.4 million from $177.4 million for the comparable period of the prior year, a decrease of $21.0 million, or 11.8%. As a percentage of net sales, selling, general and administrative expenses increased to 41.0% from 37.6% in the comparable period of the prior year as a result of lower sales. The decrease in dollars over the prior year was primarily due to lower compensation, advertising and gift card breakage income recorded for the first time in the second quarter of fiscal 2010 offset by a $4.7 million impairment charge related to under-performing stores, of which $4.0 million related to PH8 and BEBE SPORT stores and $0.7 million related to bebe stores versus $2.9 million in the comparable period of fiscal 2009 and a $3.0 million non-cash stock based compensation adjustment primarily related to prior years that was a result of errors caused by flaws in third party software. We determined that the impact of this error is not material to the previously issued annual and interim unaudited consolidated financial statements using the guidance of SEC Staff Accounting Bulletin No. 99 (“SAB 99”) and SAB 108. We do not believe that the correction of this error is material to the consolidated financial statements for the nine months ended April 3, 2010 and do not believe that it will be material to the 2010 annual financial statements.

We hold a variety of interest bearing ARS consisting of federally insured student loan backed securities and insured municipal authority bonds. As of April 3, 2010, our ARS portfolio totaled approximately $170.7 million, $58.3 million (net of an impairment charge of $9.3 million) classified as trading securities and $112.4 million (net of temporary impairment charge of $14.6 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 42% AAA rated investments, 3% AA rated investments, 35% A rated investments, 14% BBB rated investments and 6% CCC 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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