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bebe stores Reports Second Quarter Fiscal Year 2014 Financial Results

February 12, 2014

bebe stores, inc. announced unaudited financial results for the fiscal second quarter ended January 4.

In a release on February 6, the Company noted that net sales were $130.0 million, a decrease of 4.1 percent from $135.5 million reported for the second quarter a year ago. Comparable store sales for the quarter ended January 4, decreased 1.9 percent compared to a decrease of 2.8 percent in the first quarter of fiscal 2014. The sequential improvement in sales was driven by improvement in both traffic and conversion.

Gross margin decreased to 33.6 percent compared to 33.9 percent in the second quarter of fiscal 2013. The decrease in gross margin was primarily due to an increase in markdowns to clear through legacy products as well as heightened promotional activities throughout the holiday season.

SG&A expenses were $49.3 million, or 37.9 percent of net sales, compared to $53.4 million, or 39.4 percent of net sales, for the same period in the prior year. The SG&A expenses in the second quarter of fiscal 2014 reflect planned increases in advertising expenses, decreases in contractor and professional fees costs, as well as benefited from a $0.5 million legal settlement. Net loss for the second quarter of fiscal 2014 was $5.5 million, or $0.07 per share, on 79.1 million shares outstanding compared to net loss of $4.8 million, or $0.06 per share, on 84.1 million shares outstanding for the same period of the prior year. Note that the fiscal 2014 net loss also reflects the continuing impact of maintaining a valuation allowance against deferred tax assets and thus our effective tax rate approximates 0 percent.

During the quarter ended January 4, the Company closed two bebe stores and one 2b bebe store.

Steve Birkhold, Chief Executive Officer, noted, "We are encouraged by the sequential improvement we experienced in the second quarter, especially during Black Friday weekend and the month of December. December continued the sequential improvement with positive comparable store sales, as we saw a favorable response to the new merchandise and an increase in traffic, despite declining mall traffic and an aggressive promotional environment across the industry. We believe that the strong messaging in our marketing campaigns connected with our customer and contributed to the improvement in traffic. We also successfully cleared through the vast majority of legacy merchandise, ending the quarter with inventory per square foot down nearly 7 percent. That said, the retail environment remains challenging, and we will continue to operate with disciplined inventory management and cost controls. Overall, we believe we are entering the spring season with an enhanced merchandise assortment supported by a lean inventory position. Looking ahead, we remain focused on executing our Six Strategic initiatives to move our business forward and anticipate continued improvement in comparable store sales and margin performance. Again, I would like to thank our shareholders for their support as we continue our work to transform the business and focus on sustainable growth for the long term."

Net sales for the year-to-date period ended January 4, were $244.1 million, a decrease of 3.4 percent from $252.6 million for the year-to-date period ended December 29, 2012. Comparable store sales for the year-to-date period ended January 4, decreased 2.3 percent.

Net loss for the year-to-date period ended January 4, was $14.6 million compared to net loss of $7.4 million in the prior year. Loss per share for the year-to-date period ended January 4, was $0.18 per share on 79.1 million shares outstanding, compared to a net loss of $0.09 per share on 84.2 million shares outstanding in the prior year. Note that the fiscal 2014 net loss also reflects the continuing impact of maintaining a valuation allowance against deferred tax assets and thus our effective tax rate approximates 0 percent.

Cash and investments at January 4, were $164 million.

As of January 4, average finished goods inventory per square foot decreased approximately 6.8 percent compared to the prior year.

Capital expenditures for the fiscal year-to-date period were $6.9 million.

For the third quarter of fiscal 2014, the Company expects comparable store sales to be flat. Gross margin is expected to be higher than the prior year. We expect net loss per share for the third quarter to be in the mid-teens range, which is outperforming the third quarter of the prior year. The expected loss per share range also reflects the continuing impact of maintaining a valuation allowance against deferred tax assets or a close to 0 percent effective tax rate.

Finished goods inventory per square foot as of the end of fiscal third quarter 2014 is anticipated to decrease in a low single digit range.

Total capital expenditures for the year are anticipated to be approximately $25 million for new stores, remodels, store expansions, information technology systems and office improvements.

For the remainder of fiscal year 2014, the Company plans to close up to six bebe stores and one 2b bebe store, which will result in approximately an 8 percent decrease in total store square footage from the end of fiscal year 2013.

bebe stores, inc. is a global specialty retailer, which designs, develops and produces a distinctive line of contemporary women's apparel and accessories under the bebe, BEBE SPORT, bbsp and 2b bebe brand names.

Company Information:

http://www.bebe.com

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