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Bebe Declares Prelim Results, Outlook Revised

Zacks Equity Research

On the basis of its preliminary results, Bebe Stores, Inc. (BEBE) declared its decision to revise its third quarter fiscal 2014 net loss per share guidance.

Bebe’s comparable store sales (comps) for the quarter ended Apr 5, 2014, descended nearly 5.7%. Also, net sales during the same period plunged 17.2% to roughly $93 million. Sales were disappointing owing to the loss of a retail week in January 2014, along with the shut down of 19 non-performing stores, since the same period last year.

Notably, excluding weather impact in the western region, the company estimates that the comps for the quarter would have been flat compared to last year.

Results were also greatly impacted by adverse weather, which strongly hit the company's fiscal third quarter. The extreme winter led to nearly 136 transitory store closures, triggering soft sales. Moreover, the shift of Easter into late April had a significant impact on the company’s third quarter sales.

Although merchandise margins during the quarter climbed nearly 50 basis points from the comparable previous-year quarter, it came below expectations owing to the intense promotional headwinds prevailing in the retail environment. Further, the company anticipates gross margins to be lower than what it was last year, due to deleveraging of sales.

Apart from this, inventory per square at the end of the quarter also dropped 2% from last year. Taking into account all the aforementioned factors and a non cash impairment expense of up to 4 cents a share, related to 2b, bebe and other outlet stores, Bebe now expects to post a loss of 29 – 32 cents per share in the third quarter.

The revised loss estimate is wider than what management had predicted earlier as in the previously reported quarter, Bebe had forecasted net loss per share for the third quarter to be in the mid-teens range due to the continued impact from the maintenance of valuation accounts.

However, management seems impressed with its post Easter week performance, as the company witnessed sustained progress in margins and sales across all its networks after Easter. Most recently, Bebe received positive response to its latest product offerings, from its consumers. Also, during the third quarter, comps rose and margins were in the high teens across the company’s e-Commerce channels.

Taking cue from this encouragement, management retains its focus on implementing its long-term plans in order to drive growth. Alongside, it envisions enhancement in margins and comps in the future. This Zacks Rank #2 (Buy) company is slated to post its third quarter fiscal 2014 earnings on May 8, 2014.

Other players in the retail industry, which look attractive at current levels, include Barnes & Noble Inc. (BKS), American Apparel Inc. (APP) and Foot Locker Inc. (FL). While Barnes & Noble holds a Zacks Rank #1 (Strong Buy), American Apparel and Foot Locker carry the same rank as Bebe.

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