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Bebe Stores
Matt's Fundamental Stock Analysis
Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.

Bebe Stores Inc. (BEBE) Company Business Bebe Stores is a women's apparel and accessories retailer with 3 business segments, excluding their ecommerce website. They target 21 to 34 year old women and sell apparel for work, evening, casual, and active. They also have 60 international stores operated by licensees. Brands Bebe: y As of July 2011, there was 213 bebe stores in 36 states, Puerto Rico, the U.S. Virgin Islands, Canada, and Japan PH8: y y

Decided to discontinue operations in fourth quarter of fiscal 2010 Closed all stores during Q1 and Q2 of fiscal 2011

2b bebe: y As of July 2011, there were 21 2b bebe stores and 18 stores operating in the outlet store design under the 2b bebe name y Retail stores sell 2b bebe merchandise and a small % of bebe retail markdowns y Outlet stores sell 2b bebe merchandise and a large % of bebe retail markdowns Discontinued Operations: Loss for discontinued operations with PH8 stores include:

All brands have had positive net sales growth over the past 2 years with dressbarn only having a small amount of growth in fiscal 2011

Additional Notes: y y CEO owns 55% of the outstanding common shares Share buybacks: o Fiscal 2011 - repurchased 2.1 million shares at an average price per share of $5.84 o As of August 31, 2010 the maximum amount of shares to be repurchased has been completed

y Quarterly dividends were $0.025 per common share during fiscal 2011 Future Outlook - Expectations y Fiscal 2012 - expected to open 11 new stores, including 4 bebe stores, 5 2b stores and 2 2b conversions o also expect to close up to 10 bebe stores y Plan to further expand in the international markets with new international licensees up to 60 in fiscal 2012 Potential Risks: y They do not hedge their foreign exchange risk

Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red

Profitability Ratios
ROE ROA ROIC CROIC

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

14.7% 12.4% 15.2% 7.7%

2002

9.6% 8.0% 3.7% 8.0%

2003

13.8% 11.4% 4.6% 9.1%

2004

19.9% 16.3% 16.7% 15.6%

2005

18.1% 14.7% 14.3% 13.2%

2006

15.3% 12.7% 13.3% 9.9%

2007

13.0% 10.6% 14.1% 8.2%

2008

2.7% 2.2% 1.7% 2.0%

2009

-1.4% -0.9% -3.3% 1.7%

2010

-0.5% -0.4% 0.8% 1.4%

2011

Solvency Ratios
Quick Ratio Current Ratio Total Debt/Equity Ratio Long Term Debt/Equity Ratio Short Term Debt/Equity Ratio

5.90 6.93 0.18 0.00 0.00

2002

5.61 6.55 0.20 0.00 0.00

2003

5.77 6.51 0.21 0.00 0.00

2004

6.56 7.28 0.22 0.00 0.00

2005

5.88 6.59 0.23 0.00 0.00

2006

6.78 7.48 0.20 0.00 0.00

2007

2.52 3.21 0.23 0.00 0.00

2008

4.08 4.70 0.24 0.00 0.00

2009

2.06 2.31 0.50 0.00 0.00

2010

4.83 5.58 0.24 0.00 0.00

2011

Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue

1.48 39.0% 0.7% 32.2% 0.0%

2002

1.34 41.1% 0.5% 35.8% 0.0%

2003

1.25 48.7% 0.8% 32.8% 0.0%

2004

1.25 5.3% 1.3% 29.7% 0.0%

2005

1.16 6.7% 1.0% 31.4% 0.0%

2006

1.11 9.8% 1.0% 32.3% 0.0%

2007

1.15 17.9% 1.2% 34.3% 0.0%

2008

1.06 15.2% 0.9% 38.7% 0.0%

2009

0.92 38.3% 1.1% 41.1% 0.0%

2010

1.12 19.3% 1.1% 37.7% 0.0%

2011

Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue
2008

11.78 2.6 27.0 7.02 51.99 0.0% 7.4%

9.64 2.0 33.6 6.82 53.54 0.0% 7.9%

14.49 2.9 28.6 7.26 50.29 0.0% 6.9%

14.03 4.7 31.1 8.47 43.09 0.0% 6.2%

12.07 3.6 30.2 7.49 48.73 0.0% 7.3%

12.46 3.7 31.1 7.64 47.77 0.0% 6.6%

8.60 4.2 24.3 8.05 45.37 0.0% 6.2%

1.93 3.1 29.2 8.12 44.96 0.0% 6.5%

-0.96 4.1 28.5 7.84 46.56 0.0% 6.6%

-0.33 3.9 23.1 8.35 43.70 0.2% 6.8%

2009

2010

2011

P/E P/S P/BV P/CF P/FCF

10.71 0.98 1.39 8.57 15.36

52.14 - 92.83 - 325.50 1.09 0.94 1.17 1.43 1.30 1.63 21.68 14.01 30.28 65.37 68.86 103.96

y y

Profitability ratios currently look horrific Multiples also look horrific since they have has a net loss over the past 2 years o Overall, either looks over-valued or just plain ugly and not an attractive stock to be in o Some light shown due to the fact that ROE and ROA were good prior to '08 recession

Relative Ratio Comparison BEBE does not classifies its direct competitors on their latest's annual statement. However, I believe there competitors to consist of The Wet Seal (WTSLA), Guess (GES), Express (EXPR), Nordstrom (JWN), and Ann Taylor Stores (ANN).
BEBE Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low $ $ $ $ $ 9.21 775.73 568.25 9.38 5.41 70.2% 70.5 1.5 2.2 24.5 81.2 14.6 1.1% 3.9% -14.0% 61.1% 11.6% 1.5% -3.2% 302.1% 114.8% -42.8% 4.8 5.4 0.00 0.00 39.6% 43.3% 3.4% 7.7% 2.1% 5.9% 2.5% 6.1% 3.1% 7.8% 98.4 10.3 1.2 WTSLA $ 3.28 $ 297.29 $ 166.02 $ 5.23 $ 3.03 8.3% 16.8 0.5 1.2 7.9 16.2 3.1 0.0% 0.0% 0.0% 0.0% 3.9% 0.5% 3.0% 63.6% -75.7% 0.0% 2.9 3.6 0.00 0.00 31.8% 32.1% 4.9% 3.9% 3.1% 4.7% 5.4% 10.5% 7.3% 15.2% 238.4 10.1 1.8 $ $ $ $ $ EXPR 25.56 2,330.00 2,310.00 25.92 16.12 58.6% 16.2 1.1 27.9 11.1 17.2 6.8 0.0% 0.0% 0.0% 0.0% 8.3% 1.1% 0.0% 24.2% 6.7% 0.0% 0.7 1.4 0.71 0.71 36.4% 0.0% 13.0% 0.0% 6.8% 0.0% 16.3% 0.0% 68.4% 0.0% 219.0 6.7 2.4 JWN $ 54.08 $ 11,230.00 $ 13,000.00 $ 54.68 $ 37.28 45.1% 17.2 1.0 6.3 10.7 23.9 8.0 2.0% 0.0% 17.0% 28.7% 12.0% 1.0% 4.7% 6.8% 14.3% 4.2% 1.7 2.2 1.61 1.86 39.4% 38.6% 11.5% 11.2% 6.3% 6.1% 8.6% 8.9% 34.4% 35.8% 5.5 6.2 1.4 $ $ $ $ $ GES 35.94 3,330.00 2,920.00 45.73 25.99 38.3% 12.2 1.3 2.8 9.4 0.0 5.7 2.2% 0.0% 0.0% 96.6% 4.7% 1.3% 21.6% -4.7% 0.5% 36.7% 2.1 3.0 0.01 0.01 43.6% 0.0% 15.2% 0.0% 10.4% 0.0% 15.3% 0.0% 22.8% 0.0% 7.1 4.1 1.5 $ $ $ $ $ ANN 27.41 1,440.00 1,220.00 32.49 19.00 44.3% 16.9 0.7 3.9 0.0 0.0 5.0 0.0% 0.0% 0.0% 0.0% 10.0% 0.7% -1.1% -71.1% 31.4% -3.8% 0.9 1.7 0.00 0.00 54.6% 52.9% 6.6% 0.2% 3.9% -0.9% 9.5% -1.7% 21.6% -3.5% 119.3 4.9 2.4

Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)

Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)

Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth

Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)

Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg

Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg

Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)

y y y y y

On a relative basis, BEBE looks to be overvalued in relation to the multiples It does offer a dividend, although the dividend yield is only 1% and has been decreasing over time Long term EPS growth is extremely bad ROE and ROA is not as attractive as its competitors ROE Overall, it is clearly an over-valued stock in relation to its competitors

Investment Valuations Reverse DCF Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced BEBE based on fundamentals. Based on my assumptions the market has currently priced BEBE to have a owners earnings FCF growth rate of around a 41% - 44% year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is massively below its 5 year and 10 year historical averages. In fact over time, BABE has failed to deliver a good FCF growth over time to shareholders. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 0% for the next 10 years with it slowing down in the later years. It has over the years not been able to successfully deliver owners earnings FCF growth to the shareholders. Under my assumptions, I believe the intrinsic value to be around $3.20 on the safe side and on the more optimistic side I believe that a FCFE valuation will be more appropriate (see next page) since FCF earnings has been largely affected due to BEBE not being able to recover from the 2008 recession.

bebe stores inc (bebe)

12/03/2012
Help

Shares Out. 84.23

Select input w ith each lis t or enter your ow n value

M.O.S 50%

Growth 0.0% 0.0%

Discount % 12.0%

Terminal % 2.5%

Select FCF Adjust 2011 FCF Owner Earnings $8.1

84.23

Enter Ticker
Refresh CLEAR

Current Price Fair Value Buy Under Actual M.O.S 52 Wk High 52 Wk Low

$9.30

$3.20

$1.60

0%

$9.38

$5.41

5 Yr Price vs Intrinsic Value

30 25 20 15 10 5 0 27/06/2005 27/06/2007
Historical Price

27/06/2009
Intrinsic Value

27/06/2011
Buy Price

FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of 13.12%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. According to this model, the intrinsic value is roughly around $2.52 to $2.76, which is in line with our actual owner's earnings DCF. Technical Analysis Looking at the chart below, the stock has clearly shot massively down since 2007 and even though many might think it is oversold, at this point in time I would beg to differ. Keep in mind the CEO does own 55% of the shares which can be a reason the price has not retracting as much as it should have.

Overview BEBE has unappealing fundamentals ever since the recession and as costs continue to rise this may continue in the future. It is to my believe that they are also very over-valued and would all together stay away from this stock. I do not see myself purchasing this stock. Best Regards, Matthew

Matt's Fundamental Stock Analysis

Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.