Bebe Stores, Inc. (BEBE)
Q1 2009 Earnings Call Transcript
November 18, 2008 1:30 p.m. PT

Executives

Walter Parks - Chief Financial Officer, Chief Operating Officer
Gregory Scott - Chief Executive Officer, Director

Analysts

Betty Chen - Wedbush Morgan Securities
Jeffrey Van Sinderen - B. Riley & Co.
Christine Chen - Needham & Co.
Eric Beder - Brean Murray & Co.
Samantha Panella - Raymond James & Associates
Janet Kloppenburg - JJK Research
Amy Noblin - Pali Capital

Presentation

Operator

Welcome to bebe stores 2009 first quarter 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 Parks – Chief Operating Officer and Chief Financial Officer

Hello and thank you for joining Greg and me today for bebe’s first quarter 2009 earnings release update. Our call will be limited in time to one hour. After our prepared comments we will take questions 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 that, actual events or results may differ materially. We refer you to the company’s Forms 10K, 10Q and other filings made with the SEC for additional information on risk factors that could cause actual results to differ materially from our current expectations.

I will now turn it over to Greg.

Gregory Scott – Chief Executive Officer

Thank you Walter and good afternoon everyone. For the first quarter of 2009 bebe’s actual comp store sales were below the initial guidance we provided in our last call and therefore we updated our earnings per share guidance to $0.08 to $0.12 per share. Our actual results were $0.12 per share which is at the high end of our revised guidance and was in the range of the guidance provided in our fourth quarter earnings release. These results were primarily due to inventory and expense management during the quarter. We are not satisfied with our results this quarter and will be continuing to take steps to manage the business through this difficult retail and economic environment.

Total net sales for the quarter ending October 4, 2008 increased to $163 million versus $161 million reported for the corresponding quarter of the prior year. As reported previously comp store sales decreased 10.8% compared to a decrease in comp store sales of 9.3% in the prior year. Comp store sales were the best in July and were the lowest at the end of September. During the quarter in the study of stores with traffic counters both this year and last, our traffic was down 8.2%, conversion decreased 3.2% and average unit retail increased 2.2%. With negative comp store sales lower than planned, we were still able to control total compensation and advertising as a percent of sales when compared to last year which contributed to our ability to earn $0.12 in the quarter. We continue to manage expenses and inventory as shown by inventory of -13.5% per square foot at the end of the quarter.

Walter will take you through the details of the first quarter. I’ll review the highlights of our business. We will then discuss our plans for the upcoming quarter. After that we will take your questions.

Walter Parks

Thank you, Greg. Net sales for the first quarter increased 1% to $163 million compared to sales of $161 million in the first quarter a year ago. Same-store sales for the first quarter decreased 10.8% compared to a decrease of 9.3% in the prior year. Gross margin as a percentage of sales decreased to 40.5% from 47.5% in the prior year. This decrease of 2.5% was primarily due to higher markdowns and unfavorable occupancy leverage. SG&A expenses were 36.2% of net sales for the quarter compared to 34.9% in the same period of the prior year. The increase in SG&A expenses as a percent of sales is due primarily to higher depreciation expense. The effective tax rate for the first quarter of fiscal 2009 decreased to 35% from 36%.

Net earnings for the first quarter were $11 million compared to $15 million in the prior year and diluted earnings per share for the first quarter of fiscal 2009 was $0.12 on 90 million diluted weighted average shares outstanding compared to $0.16 per share on 94 million diluted weighted average shares outstanding for the first quarter of fiscal 2008. Our total cash and investments at October 4, 2008 were $348 million versus $325 million at October 6, 2007. Of the approximately $348 million in cash and investments approximately $228 million were invested in auction rate securities. Due to the recent failure of these auctions we recorded an additional impairment charge during the quarter of approximately $5.4 million bringing the total impairment charge as of October 4, 2008 to $13.2 million. Subsequent to the end of the quarter approximately $10.7 million of our auction rate securities were called. Because our auction rate securities are comprised of federally insured student loan backed securities and insured municipal authority bonds, we believe the impairment to be temporary and therefore the impairment charges will be recorded as other comprehensive income, a component of shareholder equity as opposed to the income statement.

Inventories at October 4, 2008 were $49 million compared to $52 million at October 6, 2007. At the end of the first quarter finished goods inventory per square foot was approximately 13.5% less than the prior year. Capital expenditures for the fiscal year-to-date period were approximately $9 million and depreciation expense was approximately $6 million. We ended the first quarter with 307 stores representing 1,143,000 square feet.

Now I’ll turn it back over to Greg.