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Bebe Stores: Just in Time?

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June 28, 2017 – Comments (0) | RELATED TICKERS: BEBE , SHLD , JCP

As the retail crisis spreads, it sweeps away corporations that were once kings of their industry. Sears Holdings (NASDAQ:SHLD) was once America’s largest retailer, but today loses over $2 billion a year and continues to deepen its losses. JCPenney (NYSE:JCP), another retail giant who once operated 2,053 locations has had to shed over 1,000 stores and 40,000 employees in order to cut costs and stay relevant in today’s market.

 

However, amidst this decline, a certain player in the market has stood out for its aggressive restructuring tactics: Bebe Stores (NASDAQ:BEBE). Following a frighteningly steep downfall over the last several years, the women’s apparel retailer’s management announced fresh intentions to restructure its brand. Bebe’s journey over the last few years has been an interesting one, but things may possibly be looking up once more for the ex-billion dollar corporation.

 

The Decline: Falling revenues, diminishing brand

 

It has been almost 8 years since the decline of Bebe Stores began, which came as a result of the global economic crisis in 2008. From 2007 to 2009, the firm’s bottom line began to fall, crossing into a net loss for the first time in 2010. After this, six of the ensuing seven fiscal years for Bebe would be marred with losses (apart from a profitable 2012).

 

During this time, Bebe’s revenues declined steadily, too. At one time, revenues of over $600 million seemed easily achievable for the retailer; however, after both the economic turmoil of 2008 and the general crisis facing the retail industry manifested themselves, the firm’s revenue has dropped to just under $400 million today.

 

To add to the over 37% drop in revenues, the firm’s value on the stock market has declined considerably too. In 2007, just before the financial crisis hit, Bebe’s market capitalization was just over $1.5 billion. However, the corporation’s value has fallen over 97%, to a mere $38.3 million today.

 

The Restructuring: A Digital Push

 

After Bebe’s prolonged financial difficulties, the company had few options to stay relevant in the market. Watching all the other “casualties” in the retail industry taking smaller steps to cut costs, like closing a small part of their stores or cutting corners when it came to hiring, the fashion retailer decided to take on a more aggressive, holistic restructuring strategy.

 

On April 21, 2017, the company released a short statement in a filing with the SEC, in which it proclaimed that it would “close all of its [retail stores] by the end of May 2017.” This undertaking appeared to be the first time in recent history that a retail company would close all of its stores in one go in an effort to restructure its operations.

 

A report by Bloomberg released exactly one month prior to the filing claimed that Bebe would be closing its stores to “seek a turnaround as an online brand.” While the initial report was unconfirmed officially, the filing a month later more or less affirmed the company’s intentions when it came to restructuring: Close all the stores, then invest to establish a larger, renewed online presence.

 

Now, as the end of May 2017 has passed, the question left for the company is whether or not it can replicate its past brick-and-mortar success in its online business. There is no doubt as to whether or not Bebe has the resources to do so. Despite having deep losses, the company’s balance sheets indicate that its indebtedness poses no threat to its financial position. The company has impressively high amounts cash equivalents on hand, allowing it to reserve some for investment into its online business.

 

According to a report by Reuters in early May, the company has also renegotiated and settled lease agreements on its properties, allowing for a smoother restructuring process. This move has also allowed the Bebe Stores to avoid bankruptcy.

 

The Future: Next Steps and Projections

 

While it is still early to see any direct results in the financials of Bebe Stores, the market seems to have supported the company’s restructuring efforts. The company’s value has increased by over 28% since April 21, when the start of the restructuring effort was first made public. Furthermore, following several years of sudden bearish bouts on the stock market for Bebe, the past year has been relatively stable, with the company’s stock price generally increasing if anything.

 

In the coming months, the objective for Bebe Stores should remain simple. The retailer must continue to expand its online presence. In order to do this, it must utilize the likes of Amazon.com (NASDAQ:AMZN) and other online stores, while also continuing to improve its own website.

 

Based on expert projections compiled by CNNMoney, Bebe’s financial should start to improve in the coming fiscal years. The predictions state that by 2018, the company should start to breakeven once more. Due to the sudden shift to digital for Bebe, revenues are projected to decline still, but slow down considerably before stabilizing.

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