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Recently, Bebe Stores Inc. (BEBE - Snapshot Report) reported weak same store sales and overall retail sales results for the first quarter of fiscal 2013 ended September 29, 2012. The company will announce further details with the first-quarter earnings release on 1st November, which will include wholesale as well as other sales.

The company stated that total retail sales of $105.1 million for the reported quarter declined 9.4% from $116.0 million in the prior-year quarter. Comps declined 8.7% year over year for the quarter compared with an increase of 7.0% in the year-ago period.

The decline in retail sales and comps were primarily due to lower traffic at the company’s stores. We believe the company’s fusty discounting tactics remained ineffective to lure customers at its stores.

As of September 29, 2012, the company registered a 12.5% growth in average inventory per square foot compared with 1% increase in the year-ago quarter. The year-over-year increase was mainly due to rise in average per unit costs and investments in wear-to-work.

In an effort to fight the situation of falling retail sales, Bebe is focusing on the development of a multi-channel retail format by enhancing its e-commerce capabilities. Moreover, the company believes that its new distribution facility in Benicia, California, has the capability of serving both, its online and offline sales.

Further, in order to expand its international business, Bebe is aggressively increasing its sales points in different countries. At the end of fiscal 2012, the company had 110 sales points in 19 countries, with plans to add 25 more sales points in fiscal 2013. We believe these expansion strategies will help drive sales.

Bebe competes with other upper segment apparel retailers, such as Nordstrom Inc. (JWN - Analyst Report) and Guess’ Inc. (GES - Analyst Report). Currently, the company has a Zacks #4 Rank, which translates to a short-term Sell rating. However, we are maintaining a long-term ‘Neutral’ recommendation on the stock.

Bebe Stores is engaged in the design, development and production of women's apparel and accessories. The company’s products include a wide range of separates, tops, dresses, active wear and accessories in career, evening, casual and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp and 2b bebe brand names targeting 21 to 34-year-old women. As of September 29, 2012, it operated 250 retail stores including 198 bebe stores and 52 2b bebe stores.

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