Bebe Stores, Inc. (BEBE)
Q2 2010 Earnings Call Transcript
February 4, 2010 4:30 p.m. ET

Executive

Walter J. Parks - Chief Financial Officer and Chief Operating Officer
Manny Mashouf - Chairman and Chief Executive Officer
Kathleen Fong-Lee - Chief Merchandising Officer

Analysts

Christine Chen – Needham & Company
Adrienne Tennant – Friedman, Billings, Ramsey Group, Inc.
Jennifer Black – Black & Associates
Jeff Van Sinderen – B. Riley & Co.
Sam Panella – Raymond James & Associates
Elizabeth Pierce – Roth Capital Partners
Eric Beder – Brean Murray, Carret & Co.
Holly Guthrie – Boenning & Scattergood Inc
Janet Kloppenburg - JJK Research
Stacy Pak - SP Research

Presentation

Operator

Welcome to the bebe''s Stores Second Quarter Fiscal 2010 Earnings Release Conference Call. As a reminder, this call is being recorded. Now, I would like to introduce bebe''s COO, Mr. Walter Parks.

Walter J. Parks

Hello. And thank you for joining Manny Mashouf, Chairman and CEO, Kathy Lee, Chief Merchandising Officer and me today for bebe second quarter fiscal 2010 earnings release update. Our call will be limited in time to one hour. After our prepared remarks, Manny, Kathy and me will take questions and answers for as long as time permits.

Let me start with our disclaimer. During the course of this call, we will make projections and or other forward-looking statements regarding future events and the future financial performance of the company.

We wish to caution you that such statements are just predictions and then actual events or results may differ materially. We refer you to the company''s form 10-K, 10-Q and other filings made with the SEC for additional information on risk factors that could cause actual results to differ material from our current expectations for the quarter.

Net sales decreased 22% to 141 million compared to sales of 182 million in the second quarter a year ago. Same store-sales for the second quarter decreased 22.5% compared to a decrease of 20.1% in the prior year. Gross margin as a percentage of sales increased to 39.2% from 38.6% in the prior year. The increase in gross margin has a percentage of net sales from the prior year of 0.6% was primarily due to lower markdowns and lower other costs including inventory shrink and damages partially offset by lower initial markup and unfavorable occupancy leverage.

SG&A expenses for the second quarter of fiscal 2010 were 51.3 million or 36.3% of net sales compared to 61.5 million or 33.8% of net sales for the same period of the prior year. The decrease in SG&A expense was primarily due to the reduction in spending across all categories and we recorded 1.1 million as a reduction of SG&A related to the initial recognition of gift card breakage income, offset by a 2.5 million impairment charge relating to underperforming stores comprised of 1.9 million related to PH8 stores and 0.6 million related to bebe stores versus 1 million in the second quarter of fiscal 2009.

The effective tax rate of fiscal 2010 increased to 51% from 35% in the second quarter of fiscal 2009 primarily due to deleveraging of incentive stock option compensation expense offset by higher tax exempt interest income as a percent of taxable income. We also recorded an additional of 400,000 in discrete items during the quarter primarily related to fixed asset depreciation.

Net income for the second quarter was 2.4 million compared to net income of 6.8 million in the prior year. Diluted income per share for the second quarter was $0.03 on 86.8 million diluted weighted average shares outstanding compared to diluted income per share of $0.08 on 89.1 million diluted weighted average shares outstanding in the prior year.

Our total cash and investments at January 2, 2010 were 348 million versus 353 million on January 3, 2009. Inventory at January 2, 2010 were 30 million compared to 37 million at January 3, 2009. At the end of the second quarter, finished goods inventory per square foot was approximately 16% lower than the prior year.

Capital expenditures for the fiscal year-to-date period were approximately 7 million and depreciation expense approximately 13 million. We ended the second quarter with 309 stores representing 1,157,000 square feet. I will now turn the call over to Manny.

Manny Mashouf

Thank you, Walter. And I would like to thank everyone joining us today on the call. I''m delighted to have Kathy back with bebe. And while our business has been challenging, I''m pleased with the progress we are making both in the changes we are making to merchandising and design and as well as to the product in our stores.