This summary is based on the second quarter fiscal 2008 earnings call conducted by Bebe Stores Inc. (BEBE) on January 31, 2008.
Management:
Chief Executive Officer: Greg Scott
Chief Operating Officer: Walter Parks
Key Investors Issues
- EPS were flat at 26 cents per share.
- Profit fell to $23.4 million from $24.3 million last year.
- Revenue rose 3% to $203.3 million from $196.8 million last year.
Second Quarter Highlights
Net sales increased 3% to $203 million compared to sales of $197 million in the second quarter a year ago.
Same store sales decreased 7.9% compared to an increase to 5.5% in the prior year.
Gross margin as a percentage of sales decreased to 46.2% from 47.9% in the prior year.
This decrease of 1.7% was primarily due to higher markdowns and unfavorable occupancy leverage partially offset by a reduction in raw material reserves.
SG&A expenses were 30.9% of net sales compared to 30% in the same period in the prior year.
The increase in SG&A expenses as a percent of sales is primarily due to higher total compensation expense as a result of timing differences associated with stock-based compensation and the recording of a small provision for bonuses in the current year versus a reversal of the bonus accrual in the prior year, partially offset by lower advertising.
- The effective tax rate decreased to 33.8% from 35.9%, primarily due to an increase in tax free interest income as a percent of total pre-tax income, and an increase in allowable domestic manufacturing deduction during the current year.
- Net earnings were $23.4 million compared to $24.3 million in the prior year.
- Earnings per share was flat at 26 cents per share on 90 million weighted average shares outstanding compared to 26 cents per share on 95 million weighted average shares outstanding for the second quarter of fiscal 2007.
- Total cash and investment at January 5th, 2008 was $365 million versus $382 million at December 30th, 2006.
- Inventories at January 5th, 2008 were $46 million compared to $46 million at December 30th, 2006. At the end of the second quarter, finished goods inventory per square foot was approximately 6% less than the prior year.
- The company ended the second quarter with 290 stores, which represent 1,051,000 square feet.
The company experienced a decrease in transactions, average dollar sale, and units per transaction compared to the prior year.
During the month of December, week-over-week sales build for the first three weeks was below the historical level when adjusted for the shift in the Christmas holiday. This was offset by better than a historical sale builds in week four and five. In 80 stores with traffic counters both this year and last year, traffic was down in four of the five weeks, with re-aligned weeks five being positive.
This weakness in traffic was offset by higher conversion when compared to the prior year. In response to the reduced traffic, markdowns were higher than anticipated as the company was forced to clear inventory in December due to lower than anticipated sales on weeks one, two and three, and desire to have a clean conversion in January. Strategy of driving sale with key products offered at great values was not as successful as planned. The company continues to see that price does not drive sales, but great and unique fashion do. The company will focus on offering unique and sexy fashion, while managing inventory levels to reduce markdown risk. Consistent with the current quarter, the company will continue to take markdowns aggressively on slow moving products to assure a clean conversion in future periods as it did in January.
The apparel business in core bebe division struggled as the gains that seen on dresses, denim and sweaters could not offset the decreases seen on sportswear including suiting, outerwear and logo.
November was the only month that had positive comparable store sales. This can be attributed to a strong Black Friday performance.
The company saw that price did not drive business even during a tough macroeconomic environment.
