Bebe Stores Inc. decided to go big rather than go home.
The women’s specialty chain found a way to leverage its brand equity through a twist in a business model that has it keeping the reins on the operating component of the business — its stores and e-commerce site – and at the same time partner with brand management firm Bluestar Alliance for licensing opportunities for its Bebe and Bebe Sport brands.The publicly traded firm has a joint venture with Bluestar, with the joint venture owning the Bebe trademarks and related intellectual property assets. Bebe has a majority stake in the venture. Bluestar contributed $35 million to the venture, which has since been transferred to Bebe’s coffers. Under the terms of the agreement, Bluestar will leverage its brand management infrastructure to develop a global wholesale lifestyle licensing business for the brand. Fifty percent of the royalties will go to the joint venture, which will be disbursed to Bebe on a quarterly basis. That income stream will give Bebe some breathing room and liquidity to fund its operating model.
Since Bebe will remain a public firm, the expectation is that shareholders will be able to share in the upside as licensing opportunities expand the brand base and build up the chain’s balance sheet.
Peter Comisar, an investment banker and vice chairman of Guggenheim Securities advised Bebe on the transaction.
Manny Mashouf, Bebe’s founder, chairman and chief executive officer, said after a thorough evaluation of the business, the board unanimously agreed that the transaction was in the best interests of the company and its shareholders. He explained: “Over decades we built one of the great global brands in the women’s fashion world. However, the value of the brand, its reach and potential is clearly not reflected in investors’ current perception of the company and its valuation.”
Joseph Gabbay, cofounder and ceo of Bluestar, said, “Bebe is an iconic contemporary women’s brand with a loyal customer base and growing international presence. We believe the company has significant long-term growth potential given its distinct market position, multiple channels of distribution and growing international awareness.”
The company last month reported a third-quarter loss and said it was evaluating options in connection with the sale of assets. The net loss for the quarter ended April 2 dropped 37.5 percent to $30 million, or 30 cents a diluted share, on a net sales decline of 13.7 percent to $79.9 million.
While the company was evaluating its options in the quarter, it was also taking steps to restructure its business from headcount reductions to the closure of nonproductive stores. Liquidity has become an issue for the company. Cash and investments were down to $27.9 million from the $48.4 million in January at the end of the prior quarter. That’s a substantial decline from the $113 million in July of 2014.
Walter J. Parks is president, chief operating officer and interim chief financial officer of Bebe, noted that “business has been tough for several years,” adding that the transaction “provides an expertise [in licensing] that Bebe does not have.” He said Bebe will operate the retail, online and international wholesale, while Bluestar will work on distribution in North America, the Middle East and Asia. Bebe in August inked a deal with Longgoal LLC, a Shanghai-based agency, for the opening of 60 to 150 stores in Greater China, Hong Kong, Macau and Taiwan over a period of five years. That license is now part of the joint venture assets.
Parks said the transaction will help the company “improve our financial performance.”
Ralph Gindi, Bluestar’s chief operating officer, called the deal a “really special opportunity” given its history over 30-plus years. He said, “There’s been tremendous response from our testing out there to see who would be the core customer we would be going after.” Gindi said the modern contemporary customer is looking for apparel that has a point of view that’s not available everywhere.
He also said Bebe currently has “over $500 million in sales,” and projected that “with the addition of its wholesale strategy, sales could reach $1 billion in five years.”
One banker said the business model is a “creative” way to leverage the brand globally without completely selling the company, a hallmark of most brand management deals.