February 4, 2010 / 9:35 PM / 9 years ago

UPDATE 2-Bebe Q2 earns tops mkt; says young shoppers returning

* Q2 EPS $0.03 vs est $0.01

* Q2 sales down 22 pct

* Sees Q3 breakeven to loss 5 cents/shr (Recasts; adds conference call details, analyst comments)

By Nivedita Bhattacharjee

BANGALORE, Feb 4 (Reuters) - Women’s apparel retailer Bebe Stores Inc BEBE.O posted a second-quarter profit that topped market estimates on lower markdowns and costs, even as it battles dwindling traffic at its stores and sluggish sales at its revamped sports line PH8.

However in a conference call with analysts, Chief Executive Manny Mashouf said the company is seeing some of its younger customers come back to stores, with comparable sales in January down 13 percent — much better than the 22.5 percent decline it saw for the second quarter ended Jan 2.

Total sales at Bebe dropped 22 percent to $141.5 million during the quarter, but it has been making efforts to ramp up sales, including bringing in fresh styles, newer colors to its lines and making changes to store displays.

These efforts will enable the company to go after its core customer base, Betty Chen, Vice President Equity Research at Wedbush Securities said.

“It is our strategy that we need to have that ‘18-year-old and up’ age group that is fashion forward (shop at Bebe stores),” the CEO said on the call.

Earlier in the day, the company announced the launch of its bebe-Kardashians line starting mid February, in collaboration with socialite Kim Kardashian and her sisters.

For the financial year ending in June, the company said it expects to close two bebe stores, one 2b bebe store and up to 11 PH8 stores.

Last year, the company had revamped its Bebe Sport store concept, renaming it PH8 in the process, in a bid to stem sales declines and preserve brand equity at the main bebe line.

“Our belief is that PH8 is not within their core competency, and that it might be in the interest of the company to focus all their energy on their core bebe business,” analyst Chen said.


Second-quarter net income at the company, which targets women in the age group of 18 to 25, came in at $2.4 million, or 3 cents per share, compared with $6.8 million, or 8 cents a share, a year earlier.

Analysts were looking for earnings of 1 cent a share.

“We are not dragging a bunch of old goods any more. We have cleaned up our past indiscretions and we really saw improved margins in the December quarter,” Mashouf said.

Selling, general and administrative expenses fell 17 percent during the quarter, while gross margins came in at 39.2 percent, compared with 38.6 percent last year.

For the current third quarter, the Brisbane, California-based company expects a loss ranging from slightly below breakeven to 5 cents a share.

Analysts on average were expecting a loss of 3 cents a share, according to Thomson Reuters I/B/E/S.

Shares closed at $6.28 Thursday on Nasdaq. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Anne Pallivathuckal, Anthony Kurian)

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