Bebe Stock Hits High on Upgrade
Bebe Stores Inc.’s shares hit a 52-week high Monday after the fourth analyst in five weeks upgraded the company’s stock.
The Brisbane, Calif.-based retailer of clothes for fashion-conscious young women gained as much as 10% before closing at $22.41, up $1.50, after Harry Ikenson of First Albany Corp. predicted that Bebe’s production problems -- which had led to a shortage of inventory that hurt sales -- were “largely resolved.”
He lifted his rating to “buy” from “neutral” and boosted his earnings-per-share projections for this year and next.
Ikenson was the fourth analyst to upgrade the stock since June 1. On June 30, independent research firm Northeast Securities Inc. initiated coverage of the company, rating the stock a “buy” in a report titled “Is Bebe Ready for Its Close-Up?” that featured a photo of a model wearing a slinky Bebe dress. Bebe shares, which trade on Nasdaq, have gained 67% this year.
The company has battled a variety of problems since it relocated its design and production divisions to Los Angeles over the last couple of years.
The move was particularly disruptive because many employees chose to forfeit their jobs rather than leave Northern California, Ikenson said. Only three of 40 workers in the production department were willing to transfer south, he said.
Ultimately, however, analysts predict that Bebe will benefit from the move to Los Angeles, where there is more design talent available and where West Coast fashion trends tend to be launched, often with a little help from the entertainment industry. Bebe’s profile was elevated in the 1990s when the prime-time soap opera “Melrose Place” was on television and star Heather Locklear and other actors on the show wore its suits.
“The big markets are New York and L.A., so it definitely helps to be closer to the pulse, since they are a very fashion-driven company,” said Amy Noblin, an analyst with Banc of America Securities, which has a “neutral” rating on the stock. “They are much more in the flow.”
Retail experts note that Bebe, which caters to females from about 18 to 35 years of age, benefits from a strong brand and a nimble fashion sense. This helps the company attract customers who prefer “the cutting edge of fashion,” said Adrienne Tennant, an analyst with Wedbush Morgan Securities.
“They’re usually a little earlier with fashion trends and willing to take a little more risk on the fashion side,” she said.
But the retailer, whose executives declined to be interviewed for this story, has made some blunders in recent years, industry experts contend.
In addition to what one analyst called inadequate planning for the move to Southern California, the company also fumbled the previous year when it stocked stores with more casual clothes, a move that attracted younger customers -- who spent less money -- but annoyed consumers who preferred Bebe’s jazzier club apparel and snappy suits.
Recently, the retailer has reemphasized suits and launched a Bebe Sport chain to sell the more casual fare. But when Bebe tried to reconnect with the manufacturers who previously had made its suits, some had gone out of business, Ikenson said, creating another headache for the chain. The company operates about 180 Bebe and Bebe Sport stores in the U.S. and Canada.
“It’s a company that definitely has had more than its fair share of trouble the last couple of years,” Noblin said.
And there is little room for error in this fiercely competitive market niche, which includes such rivals as Rampage, owned by San Diego-based Charlotte Russe Inc., and Arden B, a division of Wet Seal Inc. of Foothill Ranch.
In attempting to resolve its production problems this year, Bebe -- which produces about 70% of its clothes in the U.S. -- conducted a capacity study of its vendors that revealed they were unable to meet the company’s merchandise demands, Ikenson’s report noted. The retailer has since enlisted new vendors, who have kept the pipeline of products moving more smoothly into stores each month since April, the report said.
This should help the company deliver positive comparable-store sales, which are a key barometer of a retailer’s health, Ikenson said.
“Our recent store checks lead us to believe that both merchandise assortment and product flow have continued to improve,” his report said.
Ikenson estimated that sales at stores open at least a year would rise 3% for June and increase 2.8% for the fourth quarter.
The company had predicted flat same-store sales for the quarter.
The analyst also boosted his earnings-per-share estimate to 12 cents, from 8 cents, for the quarter, and to 74 cents, from 70 cents, for 2003.
The company last month raised its fourth-quarter earnings-per-share estimate to 6 cents to 9 cents, from 3 cents to 6 cents.
In its fiscal third quarter, Bebe’s profit plunged 96% while overall sales fell 3% to $68.8 million and same-store sales fell 11%.
For fiscal 2004, Ikenson increased his earnings-per-share projection to 97 cents, from 90 cents.
