CEO Is Credited for Bebe’s Gains
A year has passed since Gregory Scott ditched Wet Seal Inc.’s Arden B. and ran off with Bebe Stores Inc. The breakup was nasty, but the honeymoon has been very nice.
Bebe, which sells body-clinging clothes for young women, has been wowing Wall Street. Its profit shot up 75% to $24.3 million in its fiscal second quarter and its same-store sales climbed 29.3% in January, the 22nd consecutive monthly gain and the seventh straight month of double-digit advances. What’s more, its stock has more than doubled in the last year.
Retail analysts give much of the credit to the chief executive, whose resignation as president of the Arden B. clothing chain spurred Wet Seal to file suit against its rival.
“He’s made a huge difference for this organization,” said Eric Beder, an analyst with J.B. Hanauer & Co.
Bebe, which is based in Brisbane, Calif., was on an upswing before Scott returned to the company, where he had been vice president of merchandise from 1996 to 2000. But he pushed Bebe in new directions that analysts said had put the chain of 204 Bebe, Bebe Sport and Bebe Outlet stores on stronger footing.
Under Scott, the stores’ selection of handbags, scarfs and jewelry -- items that typically come with higher profit margins than Bebe’s trademark silky camisoles, slinky skirts or rhinestone-studded jeans -- has been broadened. A new catalog was launched last fall, kicking up Internet sales and pulling more shoppers into stores. Bebe has been moving fresh merchandise onto racks at such speed that markdowns have been at a minimum.
“They’re constantly testing the response to different products,” said Holly Guthrie, an analyst with Morgan Keegan & Co., who described Bebe’s management team as among the strongest in the industry. “From my perspective, it’s important to be in the stores every week to monitor what’s new.”
Now that he has scored so well, Scott, who declined to be interviewed for this story, really has his work cut out.
Bebe is maintaining its momentum as the important spring selling season approaches, but its impressive gains in same-store sales -- key indicator of a retailer’s health because they include only stores open for at least a year -- will become more and more difficult to maintain.
“The cautionary note is, ‘What is the next rabbit Greg’s going to pull out of his hat?’ ” Beder said. “The risk is going to get higher and higher in terms of expectations on the street.”
The competition isn’t likely to ease up. For example, Guess Inc. is ratcheting up the stakes with its budding Marciano boutiques, head-on competitors to Bebe stores. The Los Angeles-based chain expects to have opened about 10 Marciano’s, which will sell more higher-end clothes than the namesake stores, within the next few months.
“I do think they will be a formidable competitor,” said David Yamamoto, an analyst with WR Hambrecht & Co.
Other rivals include Express, BCBG Max Azria and Nordstrom stores.
After Scott left the Arden B. chain in January 2004, a throng of key design workers also made their exits -- and some went to Bebe. (Wet Seal’s former Chief Administrative Officer Walter Parks bolted earlier, reappearing at Bebe as its chief financial officer, a position he still holds.)
The jilted retailer responded by filing a lawsuit in Orange County Superior Court. The suit accused Scott of taking trade secrets with him when he quit and claimed Scott and Bebe had unlawfully wooed employees from the Arden B. division, whose stores, selling more sophisticated fashions for young women, were bright spots in Wet Seal’s otherwise dismal portfolio.
After a judge denied Wet Seal’s request for a preliminary injunction, the company dropped the suit. Since, Wet Seal’s in-house attorney has moved to Bebe.
Wet Seal is in the process of closing 150 of its namesake stores. In January, it logged its first rise in same-store sales in 2 1/2 years, an 8.2% increase.
Bebe has been shaped over the years by its founder and chairman, Manny Mashouf, 66, who opened the first store in San Francisco in 1976 and was CEO until Scott took that role. Mashouf and his wife, Neda, 41, who is vice chairwoman, owned about 79% of company voting power as of the last proxy filing.
The company said recently that Mashouf had adopted a prearranged plan to sell as many as 1.8 million shares overabout 11 months as part of his long-term strategy to diversify assets. If he sold all the shares, Mashouf would still be beneficial owner of nearly 43.5 million shares, about 73% of the stock outstanding.
Bebe shares rose 52 cents Thursday to $27.22 on Nasdaq.
