bebe stores, inc. (BEBE)
Q4 2010 Earnings Call Transcript
August 26, 2010 4:30 p.m. ET

Executives

Walter J. Parks – Chief Operating Officer and Chief Financial Officer
Manny Mashouf – Chairman and Chief Executive Officer
Emilia Fabricant – President

Analysts

Elizabeth Pierce - Roth Capital Partners
Jeff Van Sinderen – B. Riley & Company
Eric Beder – Brean Murray, Carret & Co.
Paula Torch – Needham & Company
Elizabeth Hovel – Raymond James
Carla White – Jennifer Black & Associates
Janet Kloppenberg – JJK Research

Presentation

Operator

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

Walter J. Parks

Thank you. Good afternoon, everyone and welcome to bebe''s fourth quarter and full year fiscal 2010 earnings call. With me on the call today are Manny Mashouf, Chairman and CEO, and Emilia Fabricant, President of bebe stores, inc.

We are glad to have the opportunity today to discuss our results with you. I will begin with the details of the fourth quarter and fiscal year results, Manny will then review some of the business highlights during the fourth quarter as well as our plans for the upcoming quarter. As our call will be limited in time to one hour, we will be happy to take your questions after we have completed our prepared remarks.

Before we get started, I would like to remind you of the company''s Safe Harbor language, which I am sure you''re all familiar with. 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 the actual results -- or the actual events or results may differ materially. We refer you to the company''s Forms 10-K, 10-Q 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. Now on to the financial results.

Net sales for the fourth quarter decreased 2.1% to $127.4 million compared to sales of $130.2 million in the fourth quarter last year. As previously reported, comparable store sales for fourth quarter decreased 3.4% compared to a decrease of 29.6% in the prior year.

During the quarter, our metrics improved over the incoming trend, with traffic moderating to a negative four comp and average transaction value decreasing 9%, which were offset by a plus 10% conversion comp in the 76 bebe and 2b stores where we have traffic counters.

Gross margin as a percentage of net sales increased to 40.8% in the fourth quarter of fiscal 2010 compared to 39.5% in the year-ago period. The 130 basis point improvement in gross margin as a percentage of net sales was driven by a 260 basis point improvement in merchandise margins as a result of lower markdowns and higher initial mark-up, partially offset by unfavorable occupancy leverage and an increase in inventory write-offs of $1 million over the prior year primarily relates to PH8.

SG&A expenses for the fourth quarter of fiscal 2010 decreased 6% to $52.6 million or 41.6% of net sales, resulting in 150 basis points of leverage over the prior year''s SG&A expense of $55.9 million or 42.9% of sales. The dollar and percentage decrease in SG&A expense was primarily due to lower compensation, offset by increases in advertising due to an incremental direct mailer compared to the prior year.

Also, the store impairment charges of $3.2 million, primarily associated with discontinuation of PH8 operations, impacted diluted earnings per share for the quarter, net of tax, by approximately $0.02. For the prior year, we recorded $4.1 million in store impairment charges or $0.03 per share, net of tax.

While the effective tax rate is expected to fluctuate from quarter to quarter due to discreet items, the tax benefit in the fourth quarter of fiscal 2010 is due to adjustments of temporary and permanent items, including a benefit in deferred stock compensation expense.

Operating loss for the fourth quarter of fiscal 2010 was $600,000 or 0.4% of net sales, compared to an operating loss of $4.5 million or 3.4% of net sales for the same period of the prior year.