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bebe Q1 Loss Widens Y/Y, Revs Fall

Zacks Equity Research

bebe stores inc. (BEBE) announced first-quarter fiscal 2014 results wherein net loss of 12 cents per share rose 300% from the year-ago period loss of 3 cents a share.

However, this was narrower than the Zacks Consensus Estimate of a loss at 16 cents per share. The loss for the first-quarter is attributable to the effects of a valuation account being maintained against deferred tax assets, leading the effective tax rate to approach 0%.

Net sales of this women’s clothing and accessories designer slipped 2.6% to $114.1million, compared with $117.1 million last year. However, it came ahead of the Zacks Consensus Estimate of $108 million.

Same store sales dipped 2.8% during the quarter, compared to an 8.7% fall in the comparable year-ago period and a 7.1% fall in the final quarter of fiscal 2013. This improvement in revenues came on the back of better consumer foot fall and conversion.

bebe’s gross profit contracted 3.9% to $40,620 million from the comparable prior-year quarter. Stemming from a decline in gross profit and sales, gross margin fell 50 basis points to 35.6%.

Selling, general and administrative (SG&A) expenses escalated 8.4% to $50.1 million. The upside reflects the shifting ahead of marketing events and expenses related to sales conferences. Operating loss more than doubled to $9,456 million.

Store update

This international specialty retail owner opened one new store and shuttered six bebe outlets and two 2b outlets during the reported quarter, taking the total store count to 235.

Financial update

The company ended the quarter with cash and cash equivalents of $78,010 million, down 19.3% from last year. Inventories fell 7.5% to $38,381 million. Total shareholders’ equity stood at $251,808 million, down 30.2% from the comparable quarter last year.

During the quarter, bebe spent $3.4 million toward capital expenditure. Additionally, the company declared a quarterly cash dividend of 2.5 cents, to be paid on Dec 18, 2013 to stockholders with record as of Dec 4, 2013.


Going forward, we expect the company’s new merchandising strategy along with its practice of lowering inventories to direct it on growth trajectory.

In the upcoming quarter, bebe forecasts same store sales to decline in the mid-single digit range, owing to the challenging retail environment. The company expects gross margin to fall below its current level on the back of increased promotional activities, significant markdown in inventories and a rise in fixed expenses.

Net loss in the second quarter is expected to be in the low to mid-teens per share range due to the continued impact from the maintenance of valuation accounts as discussed above.

Finished goods inventory at the end of second-quarter fiscal 2014, measured on a per square foot basis, is projected to remain in line with the comparable prior-year quarter level.

In fiscal 2014, the company plans to spend about $25 million toward capital expenditures. Capital spends will be directed toward the opening of new outlets, renovations, office enhancements, outlet expansions and developing information technology systems.

Further, this apparel designer is likely to open 1 and shut down up to 5 bebe outlets and 3 2b bebe outlets in fiscal 2014, decreasing its total floor area by 5% from fiscal 2013.

Additionally, in fiscal 2014, the company plans to streamline its international licenses with the closing of unproductive distribution units, including 32 shop-in-shop stores in Israel, while opening about 20 new units.

Other Stocks to Consider

bebe stores, inc. carries a Zacks Rank #4 (Sell). However, some other companies in the retail apparel and shoe sector that warrant a look include DSW Inc. (DSW), Fifth & Pacific Companies, Inc. (FNP) and Fossil Group, Inc. (FOSL) all carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on BEBE
Read the Full Research Report on DSW
Read the Full Research Report on FOSL
Read the Full Research Report on FNP

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