bebe stores, inc. Announces First Quarter Fiscal 2016 Financial Results

bebe stores, inc. (NASDAQ:BEBE) today announced unaudited financial results for the first quarter ended October 3, 2015.

Jim Wiggett, Chief Executive Officer, said, “Our first quarter performance reflects the continuation of a challenging retail environment in addition to soft sell-through in our Boho Collection. This led to an increase in our promotional activity as well as higher markdowns resulting in reduced gross margin. While sales trends briefly turned positive in September, driven by markdown merchandise and positive response to the fall collection, we saw a downturn in comps as a result of poor product acceptance coupled with inventory cancellations for October deliveries as we shift our product focus. As previously announced, we reorganized the design and merchandising organizations into product teams going forward, which we believe will strengthen our focus on collections. Our Founder/Board Chairman has taken a more active role in the company with a specific focus on product. Looking ahead, we will continue to evolve the merchandise assortment and enhance our marketing programs to accelerate the pace of our turnaround. In addition, as part of our strategic decision to focus on wholesale and international expansion, we plan to reduce the size of our store base in North America, and plan close up to 30 stores in fiscal 2016. We believe we have a significant opportunity to drive growth expansion in the North America wholesale channel and international markets.”

For the first quarter of fiscal 2016:

Net sales were $96.3 million, a decrease of 5.7% from $102.2 million reported for the first quarter of the previous fiscal year. Comparable store sales for the quarter ended October 3, 2015, decreased 4.1% compared to an increase of 0.7% in the comparable period of the prior year.

Gross margin decreased to 28.9% compared to 32.1% in the first quarter of fiscal 2015. The decline in gross margin was primarily the effect of higher markdowns taken during the quarter as compared to the same period last year, coupled with occupancy deleverage.

SG&A expenses were $44.9 million, or 46.6% of net sales, compared to $42.1 million, or 41.2% of net sales, for the same period in the prior year. The increase in SG&A expenses was primarily attributable to certain expenditures listed in the non-GAAP table, including store impairment charges and compensation expense related to severance activities. Excluding these expenses, SG&A expenses were 42.1% of net sales.

Loss from continuing operations for the first quarter of fiscal 2016 was $17.1 million, or $0.22 per share, on 79.7 million shares outstanding, compared to a loss of $8.9 million, or $0.11 per share, on 79.6 million shares outstanding for the same period of the prior year. Excluding the incremental costs described above, loss from continuing operations was $12.8 million, or $0.16 per share, for the first quarter of fiscal 2016 (a reconciliation of GAAP to non GAAP measures is provided in this earnings release).

Net loss for the first quarter of fiscal 2016 was $17.1 million, or $0.22 per share. Including a loss from discontinued operations of $1.8 million, net loss for the first quarter of fiscal 2015 was $10.8 million, or $0.13 per share. Income from discontinued operations during the first quarter of fiscal 2015 reflects the effects of the lease settlements related to the exit of the 2b business, which was shut down on July 5, 2014.

During the quarter ended October 3, 2015, the Company closed one bebe store and opened one outlet store.

Balance sheet summary:

Cash and investments at October 3, 2015, were $47.3 million. The decline in cash was primarily due to loss from operations, capital expenditures and working capital timing.

As of October 3, 2015, average finished goods inventory per square foot increased approximately 12% compared to the prior year period. The increase in inventory was primarily due to a shift in floor set planning beginning in the calendar year 2015, resulting in accelerated receipts, coupled with a cost per unit increase associated with made for outlet products.

Capital expenditures for the period were approximately $1.1 million, and depreciation expense was approximately $4.5 million.

Second quarter and fiscal 2016 guidance:

For the second quarter of fiscal 2016, the Company expects comparable store sales to be in the negative high single digit range due to the current sales trends, recent merchandising process changes and the related product cancellations which began in October 2015. This compares to an 8% comparable stores sales growth in the second quarter of last year. Gross margin is expected to be slightly lower than the prior year due to the anticipated promotional activities to clear the inventory for this period. The net loss per share is expected to be in the $0.06 to $0.12 range. The expected net loss per share range also reflects the continuing impact of maintaining a valuation allowance against deferred tax assets, and thus a close to 0% effective tax rate.

Finished goods inventory per square foot at the end of the second quarter of fiscal 2016 is expected to increase in the high single digit range compared to the second quarter of fiscal 2015. The anticipated increase in inventory is primarily due to planned floor set and promotional strategy shifts in January 2016.

Total capital expenditures for the fiscal year are anticipated to be approximately $5 million for new stores, remodels and information technology systems net of tenant allowance.

For fiscal year 2016, the Company plans to open four bebe stores and four outlet stores, and to close up to 30 bebe and outlet stores, which will result in an approximately 8% decrease in total store square footage from the end of fiscal year 2015. The planned store closures are the result of the Company’s strategic decision to downsize its domestic retail footprint while growing its international and domestic wholesale channels. The Company anticipates it may close up to 50 stores in the next two years primarily as store leases expire or kick out clauses are triggered.

Webcast and Conference call information:

A live audio webcast of bebe stores, inc. first quarter 2016 earnings release call will be available November 12, 2015 at https://event.webcasts.com/starthere.jsp?ei=1080671. The call begins at 1:30 P.M. (PT) / 4:30 P.M. (ET). The webcast will be hosted by Jim Wiggett, Chief Executive Officer, and Liyuan Woo, Chief Financial Officer.

The financial results and live webcast will be accessible through the Investor Relations section of the Company’s website at www.bebe.com.

To access the call through a conference line, dial 1-866-516-9758. A replay of the call will be available for approximately one week by calling 1-855-859-2056 and entering in conference ID number 97505497. A link to the audio replay will be available on our web site at www.bebe.com following the conference call.

SEC Regulation G – Non-GAAP Information

This press release includes non-GAAP adjusted net income (loss) and adjusted diluted earnings (loss) per share, each a non-GAAP financial measure. We have reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures both in the text above and the table that refers to such in this release. We believe that these non-GAAP financial measures not only provide our management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of our business and facilitate a meaningful evaluation of our quarterly and fiscal year 2015 diluted earnings per share and actual results on a comparable basis with our quarterly and fiscal year 2014 results. These non-GAAP measures should be considered a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

Forward-Looking Statements

Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected. The statements in this news release, other than the historical financial information, contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ from anticipated results. Wherever used, the words “expect,” “plan,” “anticipate,” “believe” and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties and the company's future results of operations could differ materially from historical results or current expectations. Some of these risks include, without limitation, miscalculation of the demand for our products, effective management of our growth, decline in comparable store sales performance, ongoing competitive pressures in the apparel industry, changes in the level of consumer spending or preferences in apparel, loss of key personnel, difficulties in manufacturing, disruption of supply, adverse economic conditions, and/or other factors that may be described in the Company's annual report on Form 10-K and/or other filings with the Securities and Exchange Commission. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict. We undertake no obligation to publicly update or revise any forward-looking statement. Financial schedules are attached to this release. Additionally, we cannot provide any assurances as to if, or when, Mr. Mashouf or his affiliates may choose to sell shares of the Company’s common stock.

About bebe

bebe stores, inc. is a global specialty retailer, which designs, develops and produces a distinctive line of contemporary women’s apparel and accessories under the bebe and BEBE SPORT brand names. bebe currently operates 162 bebe retail stores, the on-line store, www.bebe.com, and 39 bebe outlet stores. These stores are located in the United States, Puerto Rico and Canada. bebe also distributes and sells bebe branded product in approximately 100 doors through its licensees in 20 plus countries.

bebe stores, inc.
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(Amounts in millions except per share data)

Included within this press release are references to non-GAAP financial measures ("non-GAAP" or "adjusted"), including operating (loss) income, net (loss) income and net (loss) income per diluted share excluding the effect of certain charges. These financial measures are not in compliance with U.S. generally accepted accounting principles ("GAAP") and are not necessarily comparable to similar measures presented by other companies. The Company believes that this non-GAAP information is useful as an additional means for investors to evaluate the Company's operating performance, when reviewed in conjunction with its GAAP financial statements. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by excluding expenses that the Company believes are not indicative of the Company’s core operating performance, as well as assists with the comparison of past financial performance to the Company’s future financial results. These amounts are not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the Company's business and operations and are not viewed as being superior to GAAP financial measures. For further information, see "Company Statement on Disclosure of Non-GAAP Financial Measures" within the Investor Relations section of the Company's corporate web site, www.bebe.com.

The following is a reconciliation of the applicable GAAP financial measures to the non-GAAP financial measures (in millions, except for net income (loss) per diluted share) (Note: certain amounts have been rounded):

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