Shares of Bebe Stores Inc. (BEBE) grew 2.7% in the after-hours trading session yesterday, following the company’s announcement of better-than-expected second-quarter fiscal 2015 results.
Quarterly earnings per share from continuing operations came in at 2 cents, in contrast to the prior-year loss of 6 cents as well as the Zacks Consensus Estimate of a loss of 2 cents. Including one-time charges, the company reported breakeven bottom-line results in the quarter.
Net sales of this women’s clothing and accessories designer jumped 4.6% to $128.9 million and came slightly ahead of the Zacks Consensus Estimate of $127 million. The improvement was the result of an 8% increase in the company’s comparable-store sales (comps) versus a 2.6% decline reported in the prior-year quarter.
Comps growth can be primarily attributed to higher average unit retail that came on the back of increased full-price sales of the company’s fall and holiday merchandise in both bebe and outlet businesses. Comps also rose sequentially from a 0.7% increase reported in the first quarter, marking the second consecutive quarter of comps growth for the company.
The company’s gross profit increased 14% to roughly $47.9 million from the comparable prior-year quarter, while as a percentage of net sales it expanded 310 basis points (bps) to 37.2%. The margin expansion is attributed to lesser markdowns during the quarter at its bebe stores, offset by greater promotional activities in order to clear aged inventory at bebe outlets as well as on flash sale site.
Selling, general and administrative (SG&A) expenses rose 2.8% to $47.8 million due to increase in expenses related to severance, cyber breach and store impairment and closures. However, as a percentage of sales, it contracted 60 bps to 37.1%.
Store Update
During the quarter, this multinational retail clothier introduced 3 bebe stores and 1 outlet store.
Financial Update
The company ended the quarter with cash and cash equivalents of $75.2 million, down 42.6% from the prior-year period. Inventories fell 5.6% to $30.1 million, while average finished goods inventory per square foot increased nearly 6.3%. Total shareholders’ equity was $169.6 million, down 30.6% from the prior-year period.
During the first six months of fiscal 2015, Bebe’s capital expenditure was $9.3 million.
Guidance
For third-quarter fiscal 2015, Bebe forecasts comps to increase in the low to mid-single digit range. Gross margin is expected to expand year over year owing to higher effort in margin optimization and lower planned promotional activities. Net loss per share for the quarter is expected to be in the mid-teens range as volumes are usually the lowest in the third-quarter and this could deleverage on fixed costs. The guidance also reflects continued impact from the maintenance of valuation allowance over deferred tax assets, resulting in nearly 0% effective tax rate.
For fiscal 2015, the company plans to incur about $18 million as capital expenditure, to be directed toward the opening and renovation of stores, and upgrade of information technology systems. The company anticipates a mid-teens improvement in the finished goods inventory per square foot as at the end of third-quarter fiscal 2015.
Further, this clothing brand is likely to open 3 Bebe and 1 outlet stores in the second half of fiscal 2015. Meanwhile, the company plans to shut down up to 6 bebe and outlet stores, which will decrease its total floor area by nearly 3% from fiscal 2014.
Other Stocks to Consider
At present, Bebe Stores carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the same industry include Stage Stores Inc. (SSI), Pacific Sunwear of California Inc. (PSUN) and Tilly’s Inc. (TLYS), all carrying a Zacks Rank #1 (Strong Buy).
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