6-10        297         -3.4%                    

3-10        300         -11.2%                 

12-09     309         -22.5%                 

9-09        307         -25.7%                 

6-09        308         -29%                     

3-09        308         -23.5%

12-08                     -12.7%

9-08                        -10.8% 

5) New merchandising direction.  To be blunt, I don't spend much time on merchandising and really have no clue why some chains go in and out of favor, especially when it comes to niche brands like this one.  However, a change in merchandising direction usually happens for the most pedestrian of reasons - things aren't working out - and often times new management teams recharge the business.  Emilia Fabricant is the new Chief Merchandising Officer and you can read about her background in the 10K.  The only point here is that usually when things get better, they don't fall apart the next quarter - they keep getting better for a while.  Thus, any sort of merchandising change in a dormat retailer is a good thing.

6) Strong Near-term Sales Results and Hopeful Management commentary.  bebe just reported earnings and the market initially reacted badly to the report and near term forecast for lower profits before reversing itself yesterday on an upgrade.  A low public float in these shares exaggerates the volatility in these shares which of course is compounded by the deranged monkey behavior which characterizes speciality retail as a rule.  The conference call mentioned a couple hopeful signs:  a) Oct comps are mid single positive, and the past two weeks have been high singles.  The CFO specifically noted that "...I do think after four tough years that we found the bottom of the river. October actually had positive West Coast comps and I think it has been four years, so we think we found the bottom."  As far as the grim forecast, the company noted - prudently - that they were being conservative with guidance. 

7) Satisfactory Capital Allocation.  bebe does pay a regular dividend, recently paid a special $1 dividend, and has purchased shares from time to time (some in relation to a divorce).  Since 2005, option issuances have been very reasonable (1.5% of the share count, with high cancellations). 

1) Commodity business.  In the end, they just sell clothes.  As a commodity business, bebe goes through significant cyclical fluctuations and the stock price's roller coaster action reflects emotional extremes that are usually out of proportion to operating results.  If massive one day moves up and down bother you, bebe is not the sort of stock you should look at.  If anything, there is no reason to view anything other than 20% moves as meaning anything. 

2)  Poor recent sales history and lack of profits.  Obviously the company lost its mojo for quite a while and trailing income is negative. 

3) Grim near term sales forecast.  Company forecasted 2 to 6c in Q2 (84.5m shares) vs. 9c (86.8m shares).  However, note that this includes higher SGA projection due to one time 1.1m gift card breakage from last year (but excludes any costs associated with discontinued operations)

4) China cost pressures.  As most who follow retail know, cost pressures are going to hit margins next year and bebe is no exception.  Of course, higher comps can conquer any pricing issues and bebe did note that Oct sales had come with reduced markdowns.

5) One month does not make a trend (yet).  Of course, the CFO's comment that this is the bottom might turn into a mirage.  Sales trends can turn on a dime, and there is no assurance that things are really getting better (at least, I can't tell from looking at my local store).  Of course, if employment is picking up however so slowly, if there is an improvement in the overall environment (and many retailers appear like they may actually survive 2010) and if merchandising issues are resolved, then bebe could march a lot higher, but nothing is guaranteed.

6) Little store growth.  The bebe sport concept was supposed to be the new growth vehicle but that was a failure.  Sans closures, bebe is opening 7 stores this year and saturation is probably around 300.  Of course, this isn't such a horrible thing - bebe will be less likely to develop secondary concepts until the core is doing better (something a lot of companies realized in the past couple years).

In the end, I think bebe might be hitting an inflection point with good news possible from here which is usually rewarded well by the market, esp. for a cash rich company like this one.  However, as with most retailers I would recommend this as one position in an otherwise diversified portfolio.