Fiscal 2007 marked the launch of new strategy around international business.

Beginning this year, the company centralized the merchandising of stores, doubled the size of new stores, and implemented elevated design standards consistent with Rodeo Drive store in Beverly Hills. International retail sales increased 177% with a comparable store increase of 21%.

- Wholesale sales from international licensees are up over 100% year-to-date.

The company ended the quarter with 259 stores and 942,000 square feet of retail space.

Bebe opened six stores, including 5 Bebe and 1 Bebe Sport and expanded or relocated 2 existing Bebe stores and 1 outlet store. These openings were offset by the closing of 5 Bebe stores. Two of the closings were replaced by what the company considers to be locations within the same market, one store was in New Orleans that was decided not to reopen, and the last two closures were under-performing locations.

New stores included Newberry Street in Boston and the Domain in Austin, Texas. Expansion included Jersey Gardens in Elizabeth, New Jersey, and Glendale Galaria in California.

Up-to-Date Financial Highlights

- Net sales were $508 million, compared to $427 million in the prior year, an increase of 19%.
- Comparable store sales increased 5.9%, compared to the 7.1% in the prior year.
- Gross margin decreased to 47.9%, compared to 39.1% net the prior year. This decrease is primarily the result of higher mark downs and unfavorable occupancy leverage.
- SG&A expenses increased to 32.1% of sales, compared to 31.2% of sales in the prior year. The increase in SG&A expenses is primarily due to higher store compensation.
- Net income was $58 million, compared to $52 million in the prior year.
- Earnings per share are 61 cents on 95 million weighted average shares outstanding, compared to 55 cents on 94 million weighted average shares outstanding for the period.

- Total cash and investments were $364 million, versus $328 million at July 1, 2006.
- Inventories were $44 million, compared to $42 million at July 1, 2006. At the end of the third quarter, finished goods inventory per square foot was approximately flat when compared to the prior year.
- Capital expenditures were approximately $30 million, and depreciation expense was approximately $15 million.

Fourth Quarter 2007 Outlook

- Earnings per share should be in the range of 17 to 21 cents per share based on 96 million weighted average shares outstanding in the fourth quarter versus 23 cents per share based on 94 million weighted average shares outstanding in the fourth quarter of fiscal 2006.
- The company is currently anticipating an effective tax rate of 36%.
- Inventory at the end of the quarter will increase on a per square foot bases approximately 10% over the prior year. This increase is due to the addition of a 53rd week which resulted in a fiscal calendar shift in both June and July.
- The company is trending a negative 8% to 10% comparable store sales. The shift in Easter has affected the business.

- Recent handbag collections have been well received and the company expects to see continued strength in handbags offset by reduction in the sales of belts when compared to the prior year.
- The company’s goal is to have assortments corrected in both Bebe and Bebe Sports.
- The company continues to work on improving assortments for the fall season. The company will be revamping marketing campaign in Bebe and Bebe Sport and focusing on proprietary trends and items that it believes will result in a return to positive comparable store sales in the fall season.

- The company believes that the fiscal 2007 advertising expense will be flat or below fiscal 2006 as a percent of sales. For the third quarter the company spent 90 basis points less than the prior year and currently anticipates spending less of a percent of sales compared to the prior year in the fourth quarter.

- In March, Eva Longoria launched the new face of Bebe Sport.
- Beginning in mid-April, supermodel turned actress Rebecca Romaine became the new state to Bebe with her images appearing in outdoor advertising.
- In May, the company will mail 610,000 Bebe catalogs compared to 510,000 last year an increase of 20%.
- The company will feature Mother’s Day gifts in Bebe and Bebe Sport under the moniker “Give Mom What She Really Wants-Bebe”.
- The company plans to open 14 stores including 9 Bebe and 5 Bebe Sport stores. These stores’ openings include 34th Street in New York and in Boston. The company plans to expand Valley Fair in Santa Clara, California and Menlo Park in Edison, New Jersey.
- Internationally, the company plans to open third store in Dubai, bringing total store count internationally to 15 at year end exclusive shop of shop.

Fiscal 2007 Outlook

- The company plans to open 36 stores including 20 Bebe stores, 15 Bebe Sports stores and 1 Bebe accessory story.
- The company currently plans on spending $40 million to $45 million in capital expenditures for the year. The company will spend approximately $30 million on new stores, $12 million on expansions and renewals and the remainder on IS&T and home office.
- Depreciation expense will be approximately $20 million.
- The company fixates total square footage growth at 12% versus original plan of 18%. This equates building 36 new stores including 20 Bebe, 15 Bebe Sport and 1 Bebe accessories store. At the same time, the company plans to expand or relocate 11 existing stores and renovate 11 existing stores.

Key questions from the third quarter earnings call conducted by Bebe Stores, Inc.on May 03, 2007.

Liz Pierce (Ross Capital Partners): Is there something that you are doing differently in terms of where you are getting your fashion inspiration and how are you translating that?

Gregory Scott: The company has not looked for fashion direction in a different way than possibly it has for the last 20 years. The company does not think that it has seen the fashion hiccup for the last four months, and it has taken longer to pull out if it. The customer has responded well to the offering Bebe landed in March and the offering it landed in April. It is in the third quarter the residual of what the company had in the January receipts, early February hurt it and it has tried to continue to focus on the core customers. The customer is not as fashion forward but she is sexy and I if Bebe stays focused on that that it will win.

Lyn Walther (Wachovia): What do you see within the Club Bebe?