Bebe Sinks on Wider-than-Expected Q4 Loss & Dismal View

Shares of Bebe Stores Inc. BEBE plunged nearly 9.1% during yesterday's after-hours trading session after the company posted wider-than-expected loss per share for the fourth quarter of fiscal 2015 and provided an uninspiring outlook for the first quarter of fiscal 2016.

The company reported fourth-quarter adjusted loss per share of 5 cents, a penny wider than the Zacks Consensus Estimate of a loss of 4 cents. However, results compared favorably with the year-ago loss of 18 cents. Results were driven by improved comparable-store sales (comps), coupled with higher gross margin and lower SG&A expenses.

On a GAAP basis, the company posted a loss per share of 7 cents compared with loss per share of 43 cents in the prior-year quarter.
 
Net sales of this women's clothing and accessories designer improved by a marginal 0.7% year over year to $104.3 million but fell short of the Zacks Consensus Estimate of $105.5 million. The improvement in sales was driven by 1.1% growth in the company's comps. This marked the company's fourth consecutive quarter of comps growth.

The company's gross profit increased about 13.4% to $36.3 million from the prior-year quarter, while as a percentage of net sales it expanded 390 basis points (bps) to 34.8%. The margin expansion can be attributed to reduced markdowns and promotional activities that helped improve average unit retail. Moreover, margins gained from lower occupancy expenses.

Selling, general and administrative (SG&A) expenses from continuing operations declined 26.4% to nearly $41.3 million, while as a percentage of sales the same contracted 1460 bps to 39.6%. The lower SG&A expenditure was backed by lower compensation expenses due to the company's cost-curtailment initiatives, coupled with lower advertising expenses.     

Store Update

During the reported quarter, this multinational retail clothier introduced one outlet store and shut down three Bebe stores.

In fiscal 2016, the company plans to open up to six Bebe and outlet stores. Meanwhile, the company plans to shut down up to 12 Bebe and outlet stores, which will lower its total floor area by nearly 2% from fiscal 2015. The company also intends to expand its distribution points that are managed by international licensees by up to 12 in fiscal 2016.

Financial Update

The company ended the quarter with cash and cash equivalents of $46.9 million, net inventories of $31.3 million and total shareholders' equity of $151.6 million. Moreover, Bebe allocated about $17.4 million toward capital expenditures in fiscal 2015.

Guidance

Going forward, the company intends to continue implementing its strategic initiatives which include, improving store productivity, undertaking eCommerce development and expanding globally.

The company expects to gain from its new fall collection, that will hit stores shortly, as well as the ramp up of marketing activities in August. However, the company believes sales for the first quarter of fiscal 2016 will continue to be impacted by markdowns on slow moving merchandise.

For first-quarter fiscal 2016, Bebe projects comps decline in the mid-single digit range. Gross margin is expected to contract year over year owing to increased markdowns in the early part of the quarter in order to clear excess inventory related to the failure of the July Bohemian collection.

Further, net loss per share for the first quarter is expected in the high-teens range. This guidance also reflects continued impact from the maintenance of valuation allowance over deferred tax assets, resulting in nearly 0% effective tax rate.

For fiscal 2016, the company plans to incur about $5 million as capital expenditure to be directed toward the opening and renovation of stores, and upgrading information technology systems. Further, the company is still contemplating on whether or not to pay regular quarterly dividends.

Zacks Rank

At present, Bebe carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Express Inc. EXPR with a Zacks Rank #1 (Strong Buy), Citi Trends Inc. CTRN and American Eagle Outfitters Inc. AEO, each carrying a Zacks Rank #2 (Buy).

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