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Bebe Beats Estimate, Declines Y/Y

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Bebe Stores, Inc. recently reported earnings of 4 cents per share for the fourth-quarter ended June 30, 2012, surpassing the Zacks Consensus Estimate by a penny. However, quarterly earnings reflected a year-over-year decline of 33.3% from 6 cents per share reported in the prior-year quarter.

Quarter in Detail

Net sales from continuing operations for the quarter were $131.5 million, beating the Zacks Consensus Estimate of $128.0 million. However, net sales inched down 0.6% from $132.3 million in the prior-year quarter reflecting a decline of 2.5% in comparable-store-sales.

Gross profit in dollar terms crept down 2.9% to $52.9 million from $54.4 million in the year-ago quarter and consequently, gross profit margin contracted 90 basis points year over year at 40.2% from 41.1% in the year-ago quarter. The decrease in gross profit and margin was primarily due to higher cost of goods sold as a percentage of sales because of rise in other costs inclusive of in-house production.

Lower gross profit and a decline in comparable-store-sales led to a year-over-year fall of 31.8% in operating income to $5.4 million compared with $7.8 million in the fourth-quarter of 2011, resulting in contraction of 180 basis points in operating margin to 4.1%.

Fiscal 2012 Review

Bebe reported earnings of 14 cents per share for the fiscal year 2012, which came in line with the Zacks Consensus Estimate and surged 180% from 5 cents reported in the prior year. Net sales for the fiscal were $530.8 million compared with $493.3 million in the prior year, reflecting an increase of 7.6% and also beating the Zacks Consensus Estimate of $528.0 million. Comparable-store-sales for the fiscal showed an improvement of 5.3% compared with 0.6% in fiscal 2011.

Stores Update

The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names, targeting women belonging to the age-group 21–34 years. During the fourth-quarter, the company opened three 2b bebe stores and shut down two bebe stores. For the fiscal 2012, the company opened five bebe stores, eight 2b stores and shut 13 bebe stores (comprising one conversion of bebe to 2B store).

As of June 30, 2012, it operated 247 retail stores including 200 bebe stores and 47 2b bebe stores.

Other Financial Aspects

Bebe, which competes with upper segment apparel retailers, such as Nordstrom Inc. (JWN - Free Report) and Guess’ Inc. (GES - Free Report) , has a debt-free balance sheet. The company ended the fiscal 2012 with cash and equivalents of $104.9 million compared to $95.2 million a year ago. Inventories for the fiscal were $33.3 million. As of June 30, 2012, the company registered a 2% growth in average inventory per square foot compared with 1% increase in fiscal 2011.

Strolling through Guidance

Bebe generated outlook for first quarter of 2013. The company forecasts comparable-store-sales to decrease in the mid to high-single digit, following the weak comps for the fourth quarter 2012. The company anticipates net loss to fall in the range of 1 - 4 cents for the first quarter 2013 compared with earnings of 3 cents in the prior-year quarter. Selling, general and administrative expenses are expected to increase mainly due to increased compensation and promotional expenses.

For the upcoming quarter, the company anticipates inventories per square foot to fall in low to mid-teens, mainly due to expected rise in average per unit costs, investments in wear-to-work and rise in inventory resulting from our localization strategy.

Bebe expects to spend $27 million as capital expenditures for the full fiscal year 2013, which will help in opening new stores, renovations of old ones, store expansions, IT system and office developments.

During the fiscal 2013, Bebe forecasts to open five bebe stores and six 2b stores and expects to shut down 12 bebe stores and one 2b pop-up store. The company further anticipates that such openings and closures will not alter the total square footage compared with the prior-fiscal year.


Bebe’s products include a wide range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company is aggressively focusing on developing multi-channel retail format by enhancing its e-commerce capabilities.

Further, in a drive to expand its international business, Bebe is aggressively increasing its sales points in different countries and forecasts that the company’s international licensees will increase 25 points of sales in the fiscal 2013.

Following the year over year decline in the fourth-quarter revenue and profitability, Bebe carries a Zacks #4 Rank for the next 1-3 months implying short-term Sell rating. However, we maintain our long-term ‘Neutral’ recommendation on the stock.

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