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bebe’s Turnaround Strategy: Exits 2b Business, Announces Cost-Saving Program

bebe’s Turnaround Strategy: Exits 2b Business, Announces Cost-Saving Program
By: Bob Cramer
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Yesterday, bebe stores, inc. (BEBE) announced that it will let go its 2b business as part of a broad turnaround strategy. The company designs and produces women’s apparel and accessories. Its stock price is down roughly 41.5% year-to-date, due to a fall in revenues and consistent losses. As a result, it is moving away from some of its businesses and implementing cost-saving measures to rejuvenate its business operations.

The company said that it will leave behind its 2b business by the end of the ongoing fiscal year, which will allow it to realign focus on the core brand’s retail outlets, e-commerce, and the international licensing business. The management estimates that pre-tax losses of about $5-6 million in fiscal year ‘14, excluding impairment charges, will be attributable to its sixteen 2b mall-based stores, and the e-commerce business. bebe will post restructuring charges of about $5-6 million from “lease termination, asset write-off, inventory liquidation write downs and employee termination costs,” and the closure of 2b stores, including the e-commerce business.

In addition, bebe also said that it will begin a comprehensive cost-reduction program to minimize both direct and indirect costs. The company plans to decrease corporate and field management positions as a part of its cost-saving strategy. bebe expects cost savings of $4 million in FY15, and plans to provide the additional details related to the program on the earnings call in August.

The company expects its key initiatives to result in annualized pre-tax savings of about $9-10 million, starting from FY15. The management believes that closing down the 2b brand, which is making losses, will bring the company to a better financial and structural position to implement the cost-reduction programs and increase its focus on the core brand. It also plans to reposition its bebe brand by tweaking marketing, operational, and merchandising strategies, and improve expense and inventory management next year for a stronger liquidity position.

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