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Bear of the Day: Bebe Stores (BEBE)

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About the company

Bebe Stores designs, develops and produces a distinctive line of contemporary women's apparel and accessories. They market their products under the bebe, BEBE SPORT, bbsp and 2b brand names through their retail stores located in the United States, Canada and internationally licensed stores.

Disappointing Results

Bebe reported its results for the second quarter ended December 29, 2012 on January 31, 2012. The quarter resulted in a loss of $4.8 million, or $0.06 per share compared with a profit of $6.5 million, or $0.08 per share in the second quarter of prior fiscal.

Gross margin also declined from 33.9% of net sales compared with 40.1% from the year-ago quarter, as a result of increase in mark downs and unfavorable occupancy leverage. The consensus expectation was for a loss of $0.01 per share.

The company expects the finished goods inventory to increase, which coupled with rising SG&A expenses (39.4% for the reported quarter compared with 32.8% for the prior-year quarter) will put further pressure on margins.

The guidance for the current quarter (third quarter of fiscal 2013) was also worse than market expectations. The company expects comparable store sales in the negative mid-single digit range. Depending on actual sales and markdowns, the net loss is expected to be in the range of mid-teens per share compared to $0.00 per share in the prior year.

Estimates Being Revised Downwards

As a result of the miss and weak guidance, the analysts have been revising their estimates downwards in the last few days. Zacks consensus estimate now calls for a loss of $0.14 in the current quarter.

The Bottom Line

The shares have taken a beating as a result of poor results over the past quarters—down about 55% in one year. Operating with a weak product line in a highly competitive industry implies that the company is unlikely to see better days anytime soon. This comes at a time when many of the competitors have been reporting better results. Further, consumer spending is likely to be hurt in the coming months due to the increase in payroll tax and higher gas prices.

Overall, this fashion retailer appears to be going out of fashion. Bebe is a Zacks Rank #5 (Strong Sell) stock. Further, the industry has a rather unimpressive Zacks Industry rank of 214 out of 265 currently.

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