On Jul 9, 2014, Zacks Investment Research downgraded women's
bebe stores inc.
) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Fiscal 2015 loss estimates for bebe stores have widened
significantly over the last 30 days based on the company's recently
announced strategic plans that focus on exiting the loss making 2b
business and cutting jobs across some departments. Meanwhile, the
estimated loss for fiscal 2014 widened slightly as the company
retained its guidance for the fiscal year.
Moreover, the stock which has been trading close to its 52-week low
for quite some time steeped further to reach a new low of $2.99
yesterday. The primary reason behind this is the women's clothing
and accessories designer's disappointing performance for the past
seven quarters. Of late, the company has been reporting loss due to
weak top-line performance and higher operating expenses.
Under its strategic initiatives announced last month, bebe stores
revealed that it intends to fully exit from its 2b business by the
end of fourth-quarter fiscal 2014 which will include closure of 16
mall-based and e-commerce services. The company anticipates
recording a charge of nearly $5-$6 million in relation to asset
write-offs, inventory liquidation, lease termination and employee
lay off costs in fiscal 2014. Moreover, BEBE expects to book a
pre-tax loss of $5-$6 million associated with the 2b business in
Additionally, bebe announced that it would lay off nearly 1% of its
store employees and approximately 9% of non-store employees in the
fiscal year ending on Jul 5, 2014. In connection with the job cuts,
the company anticipates recording a pre-tax severance cost of
approximately $3 million in fiscal 2014. However, this will benefit
BEBE by saving costs of about $4 million in fiscal 2015.
Further, looking at the current business trend, the company has
lowered its comparable-store sales (comps) guidance for the fourth
quarter of fiscal 2014. The company now expects comps to come in
the negative low single digit range as against the earlier forecast
of flat. Despite this, BEBE has reiterated its bottom-line outlook
of loss in the range of mid-teens.
Though the company has taken some bold steps to turnaround its
operating performance, we believe that they are still in their
early stages and will take time to fetch lucrative results for the
company. This keeps us on the sidelines about the stock's future
Other Stocks That Warrant a Look
Not all apparel stocks are performing as disappointingly as bebe
stores. Better-ranked stocks in the sector include
Christopher & Banks Corp.
Citi Trends Inc.
The Men's Wearhouse Inc.
), all carrying a Zacks Rank #1 (Strong Buy).
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BEBE STORES INC (BEBE): Free Stock Analysis
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