Bebe stores, inc. (BEBE, Financial) is a global specialty retailer, which designs, develops and produces a distinctive line of contemporary women’s apparel and accessories under the bebe, BEBE SPORT and bbsp brand names. The company's distinctive product offering includes a range of separates, tops, dresses, active wear, jewelry, sunglasses, fragrance, shoes and handbag assortment. It also designs and develops of its merchandise in-house, which are manufactured to its specifications. Bebe currently operates 166 bebe retail stores, including the on-line store bebe.com, and 35 bebe outlet stores which are located in the United States, U.S. Virgin Islands, Puerto Rico and Canada. The company also distributes and sells bebe branded product through its licensees in approximately 20 countries.
For the last few years bebe has provided weak financial results and negative free cash flows. This is mainly due to lower sales as people are shifting their choices towards "active wear." To strengthen its position, bebe is introducing several strategies such as pricing, reducing the number of promotional sales events and building online sales presence.
Mixed figures posted
On May 7, this women’s clothing and accessories designer reported financial results for the third quarter ended April 4, 2015. Although the company has a strong business model, it reported mixed results due to a few challenged markets. Despite significantly fewer promotions and reduced marketing activities, bebe boasts of increased comparable store sales for the third consecutive quarter.
The company’s net sales from continuing operations increased 4.1% to $92.7 million, as compared to $89.0 million in the third quarter of fiscal 2014. Comparable store sales from continuing operations for the quarter ended April 4, 2015, increased 1.2%. The reasons behind this growth are higher average unit retail in the bebe and outlet businesses, global expansion, and the favorable Easter shift. Gross margin from continuing operations as a percentage of net sales improved to 30.4% or $28.2 million compared to 27.5% or $24.5 million in the third quarter of fiscal 2014. Gross profit increased due to fewer markdowns and promotions during the quarter.
Bebe’s net loss from continuing operations for the third quarter of fiscal 2015 was $10.9 million, or $0.14 per share, based on 79.6 million shares outstanding, compared to a net loss of $22.8 million, or $0.29 per share, based on 79.3 million shares outstanding for the same period of the prior year. Further, the company’s loss from discontinued operations amounted to $0.4 million for the quarter compared to a loss of $1.52 million in the year ago quarter.
The company’s selling, general and administrative (SG&A) expenses from continuing operations were $39.0 million, or 42.1% of net sales, compared to $47.4 million or 53.2% of net sales for the same period in the prior year. The lower SG&A expenditure was backed by store closures as well as cost-cutting initiatives in the areas of compensation, marketing and repairs and maintenance.
Bebe’s cash and investments for the quarter were $76.9 million compared to $139 million in the year ago quarter. The decrease in cash and investments from the third quarter of fiscal 2015 was primarily due to the cash used in operations coupled with the timing of working capital, including payments for inventory as well as lease settlement payments made for discontinued operations. During the first nine months of fiscal 2015, bebe’s capital expenditure was $14.5 million, and depreciation expense was $12.2 million from continuing operations. During the quarter ended April 4, 2015, the company opened two bebe stores and closed nine bebe stores and one outlet store.
Projections
Bebe expects the following:
- Increased comparable store sales in the low to mid-single digit positive range.
- Higher gross margin than the prior year.
- Net loss per share to be in the low single-digit range.
- Increased finished goods inventory per square foot at the end of the fourth quarter of fiscal 2015.
- Total capital expenditures for the year are anticipated to be approximately $18 million for new stores, remodels and information technology systems.
- For 4Q 2015, the company plans to open three bebe stores and one outlet store, and to close up to four more bebe and outlet stores.
Looking ahead
For over 40 years, bebe has been a well-known value-oriented fashion brand and to regain this position, the company has initiated six turnaround strategies which are provided in the following chart.
Further, to increase sales and margin, bebe has introduced the new store concept which includes improved window display, in-store marketing and pre-planned floor sets.
On a concluding note
Bebe has made several efforts such as enhancing its merchandise assortment, disciplined approach to inventory management and improved product flow. These initiatives have enabled the company to achieve a higher full price sell-through, which in turn benefited its gross margin rate. After introducing several turnaround strategies, the company has seen a growth opportunity through increased store productivity. Bebe is also developing its ecommerce strategy and international business. I am therefore pretty bullish that bebe will provide significant positive results in the coming years.
(Source: Company’s Website)
