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Will BEBE's Restructuring Plans Reinstate Profit?

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After thoroughly reviewing its current cost structure, the women’s fashion retailer, bebe stores, inc. last week announced its key strategic initiatives which are expected to save approximately $9–$10 million annually beginning from fiscal 2015. Under its turnaround efforts the company has revealed its plan of exiting from the loss making 2b business and cutting jobs across some departments.

The company intends to fully exit from its 2b business by the end of fourth-quarter fiscal 2014 which will include closure of 16 mall-based and e-commerce services. The women’s fashion retailer believes that exiting from the 2b business will allow it to concentrate on its core brand’s retail and outlet stores, e-commerce and international licensing businesses.

The company anticipates recording a charge of nearly $5–$6 million in relation to asset write-offs, inventory liquidation, lease termination and employee lay off costs in fiscal 2014. Moreover, BEBE expects to book a pre-tax loss of $5–$6 million associated with the 2b business in fiscal 2014.

Going ahead with its cost reduction plan, bebe also announced that it would lay off nearly 1% of its store employees and approximately 9% of non-store employees in the fiscal year ending on Jul 5, 2014. In connection with the job cuts, the company anticipates recording a pre-tax severance cost of approximately $3 million in fiscal 2014. However, this will benefit BEBE by saving costs of about $4 million in fiscal 2015.

Further, looking at the current business trend, the company has lowered its comparable-store sales (comps) guidance for the fourth quarter of fiscal 2014. The company now expects comps to come in the negative low single digit range as against the earlier forecast of flat. Despite this, BEBE has reiterated its bottom-line outlook of loss in the range of mid-teens.

For the past seven quarters, this women’s clothing and accessories designer has been reporting loss due to weak top-line performance and higher operating expenses. To return itself on the growth trajectory, the company has shut down many of its underperforming stores and is in search of a new Chief Executive Officer.

Though the company has taken bold turnaround initiatives but they are still in early stage to give a clear picture. This keeps us cautious about the stock’s future performance.

Therefore, BEBE currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks in the retail apparel and shoe sector include Citi Trends, Inc. with a Zacks Rank #1 (Strong Buy), Foot Locker, Inc. (FL - Free Report) and The Men's Wearhouse, Inc. , both carrying a Zacks Rank #2 (Buy).

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