UPDATE 2-Bebe Q2 earns tops mkt; says young shoppers returning

* Q2 EPS $0.03 vs est $0.01

* Q2 sales down 22 pct

* Sees Q3 breakeven to loss 5 cents/shr
(Recasts; adds conference call details, analyst comments)

By Nivedita Bhattacharjee

BANGALORE, Feb 4 (BestGrowthStock) – Women’s apparel retailer Bebe
Stores Inc (BEBE.O: ) posted a second-quarter profit (Read more your timing to make a profit.) that topped
market estimates on lower markdowns and costs, even as it
battles dwindling traffic at its stores and sluggish sales at
its revamped sports line PH8.

However in a conference call with analysts, Chief Executive
Manny Mashouf said the company is seeing some of its younger
customers come back to stores, with comparable sales in January
down 13 percent — much better than the 22.5 percent decline it
saw for the second quarter ended Jan 2.

Total sales at Bebe dropped 22 percent to $141.5 million
during the quarter, but it has been making efforts to ramp up
sales, including bringing in fresh styles, newer colors to its
lines and making changes to store displays.

These efforts will enable the company to go after its core
customer base, Betty Chen, Vice President Equity Research at
Wedbush Securities said.

“It is our strategy that we need to have that ’18-year-old
and up’ age group that is fashion forward (shop at Bebe
stores),” the CEO said on the call.

Earlier in the day, the company announced the launch of its
bebe-Kardashians line starting mid February, in collaboration
with socialite Kim Kardashian and her sisters.

For the financial year ending in June, the company said it
expects to close two bebe stores, one 2b bebe store and up to
11 PH8 stores.

Last year, the company had revamped its Bebe Sport store
concept, renaming it PH8 in the process, in a bid to stem sales
declines and preserve brand equity at the main bebe line.

“Our belief is that PH8 is not within their core
competency, and that it might be in the interest of the company
to focus all their energy on their core bebe business,” analyst
Chen said.

IMPROVING MARGINS

Second-quarter net income at the company, which targets
women in the age group of 18 to 25, came in at $2.4 million, or
3 cents per share, compared with $6.8 million, or 8 cents a
share, a year earlier.

Analysts were looking for earnings of 1 cent a share.

“We are not dragging a bunch of old goods any more. We have
cleaned up our past indiscretions and we really saw improved
margins in the December quarter,” Mashouf said.

Selling, general and administrative expenses fell 17
percent during the quarter, while gross margins came in at 39.2
percent, compared with 38.6 percent last year.

For the current third quarter, the Brisbane,
California-based company expects a loss ranging from slightly
below breakeven to 5 cents a share.

Analysts on average were expecting a loss of 3 cents a
share, according to Thomson Reuters I/B/E/S.

Shares closed at $6.28 Thursday on Nasdaq.

Stock Market Money

(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by
Anne Pallivathuckal, Anthony Kurian)

UPDATE 2-Bebe Q2 earns tops mkt; says young shoppers returning