Bebe Stores Inc. continues to refashion itself — this time with home furnishings.
“This is a transformational acquisition that will not only be materially accretive to Bebe’s cash flow over time, but also provides a platform for future growth through the development agreement,” Manny Mashouf, Bebe’s chief executive officer, said in a statement. “The acquired Buddy’s stores have a strong and consistent record of free cash flow generation across multiple market cycles. This acquisition diversifies Bebe’s profit stream and better utilizes existing net operating loss carryforwards.”
Bebe Stores, which enjoyed its heyday in the late Nineties and early Aughts, has been under pressure in recent years as e-commerce becomes a bigger contender in the retail landscape and malls across America struggle with reduced traffic. The fast-fashion brand for young women has also wrestled with growing competition from Amazon, as well as Millennial-focused brands like H&M, Revolve and Zara.
The company filed for bankruptcy twice between 2014 and 2018. It also closed all of its stores in 2017 to focus on its online business. Today, Bebe branded products can be found through its licensees in roughly 100 international stores and on its web site.
In 2018, Bebe entered into an agreement with Bluestar Alliance, a private equity firm that manages a variety of brands, to acquire the Brookstone brand and all of its assets for an undisclosed amount. (Brookstone sells gadgets, such as massage chairs, golf accessories, luggage tags, lawn chairs, phone chargers and sound machines.) Brand acquisitions of brick-and-mortar companies are an increasingly common way for companies to stay afloat while expanding their portfolios into other product categories.
Even so, the dwindling need for ready-to-wear options as consumers resume their work-from-home routines and large-scale gatherings are postponed or all together canceled indefinitely, has not helped many apparel companies, much less Bebe.
But the agreement with Buddy’s Home Furnishings allows Bebe to tap into the lucrative home furnishings market, which continues to grow as a second round of lockdowns takes effect in Europe and the potential for similar mandates lingers Stateside.
The deal also gives Bebe the right to expand its infrastructure with further franchises throughout the Southeastern part of the U.S., something Mashouf said will support additional acquisitions “of high free cash flow entities in the future.”
The transaction is financed with a mix of cash on hand, a $22 million secured loan led by investment management group Milfam and a 1.5 million primary share purchase by B. Riley Finance for $5 a share.
Bebe Stores’ stock, which closed up 4.86 percent Tuesday to $3.67 a share, is down 38.8 percent year-over-year. Shares shot up more than 22 percent at the start of Wednesday’s trading session. Still, it’s a drastic difference from the company’s 2005 peak, when shares were trading around $285 apiece.