Byline: Jennifer Weitzman

NEW YORK — The brand and traffic were there, and now Bebe says it has the merchandise.
Despite a 12.2 percent drop in first-quarter same-store sales and a 22.7 percent slide in quarterly earnings, Wall Street said it was bullish about Bebe, the contemporary women’s apparel and accessories retailer.
Shares of Bebe rocketed up more than 36 percent to close at $12.69.
US Bancorp Piper Jaffray senior retail analyst Jeff Klinefelter said he was not surprised.
“The bottom line is stock in the specialty retail apparel sector tends to react to moves in the trend direction,” he said. “Stocks will overreact in a negative sense when comps are slowing and trend lines move down. Likewise, the same is true when comps improve on a sequential basis, indicating favorable customer response to product and improvements in gross margins trends.”
Earnings for the Brisbane, Calif.-based specialty retailer reached $5.8 million for the three months ended Sept. 30, down from $7.5 million in the same period a year ago. Earnings per share were 23 cents versus 30 cents, beating consensus estimates, which were in the range of 18 to 21 cents.
Sales climbed 9.5 percent to $62 million from $56.6 million.
“Although this quarter did not meet my expectations, we did make progress,” Manny Mashouf, president and chief executive, said in a statement. He said prior season markdowns and a narrower assortment in spring-summer season merchandise negatively impacted September sales.
Klinefelter said because Bebe has strong brand awareness, it stands to move ably through a few rough patches when it doesn’t catch trends well. He said the strong name coupled with a management that quickly identifies merchandise mistakes could allow the retailer to quickly rebound, gain traction and drive top-line and margin improvements.
Although sales are growing at a slower rate than inventory, executives say operations are in good shape. Bebe has begun the quarter with clean inventories and 80 percent of its merchandise is selling at full price, up 10 percent over last year. In addition, Bebe is adding units, with 11 new stores opened in September and 25 to 30 planned for the current quarter for a total of 145 to 150 by yearend. Total square footage projected at the end of the fiscal year is 475,000 to 500,000 square feet.
To fill the new stores with merchandise, inventory is up 27.6 percent, to $27.7 million compared to $21.7 million, while stores open for more than a year, inventory is down 1.5 percent and on plan. Inventory on a per-square-foot basis is down 8.9 percent.
Bebe acknowledged in May a degree of fashion uncertainty. It said steep same-store declines were due to a number of factors, including “too much emphasis on core fashion items that didn’t address the work and weekend wear needs of our customers,” said Blair Lambert, chief financial officer. Sales were hampered by a lack of colorful bottoms and “missed opportunities in the denim category that has been trending upward.”
Today, Lambert said, Bebe has “gone back to make sure more of her needs are met,” including those in the evening, weekend and career categories.
The store is capitalizing on women’s renewed interest in suits, a staple of the store in the early Nineties. Mashouf said the outerwear business is performing especially well.
“Based on the assortment now, business could be stabilizing,” Mashouf said, adding Bebe is “back on track with our assortment and providing lifestyle needs of customers.” In particular he said Bebe has recognized some key trends that are doing well — in leather, suede and coats — by taking positions early.
Asked about life in the contemporary market, Mashouf said business has been unpredictable. “Week to week is different,” he said, referring to its customers who demand cutting edge fashion. Still, he hopes Bebe can gain market share in the highly competitive niche.
Kelly Armstrong with First Union Securities, Inc. said she expects Bebe to see the benefits of the broader merchandise mix at the start of the new year.
Lambert said same-store performance is showing signs of improvement from September, currently running negative mid-single-digit comps, but said the firm is planning for negative comps for the quarter due to tough comparisons.
Mashouf presented investors with an upbeat outlook. He said that the product assortment now in stores is much broader than the assortment in spring. He also noted Bebe implemented new “products processes and procedures to allow us to clearly focus on the breadth of customer needs.” This, he said, resulted in greater communication with merchandise and design teams and an improved product assortment.

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