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Bebe Going Private? Not So Fast, Analyst Says

Bebe Stores Inc. is just a year into its turnaround campaign, but media reports indicate that the publicly traded contemporary retailer is investigating a sale and going private.

A Reutersnews story published recently quoted unnamed sources leaking the news that the Brisbane, Calif.–headquartered Bebe hired New York–based financial-services firm Guggenheim Securities to explore a sale. Executives at Bebe and Guggenheim did not comment for the Reuters story, and a Bebe spokesperson declined to comment to the California Apparel News.

Jeffrey Van Sinderen, a B. Riley & Co. analyst covering Bebe, said that talk of a Bebe sale is premature.

“Management will know when they can maximize the value of the company. It could be better done a few quarters out,” he said.

The media reports were published a day after Bebe reported its second-quarter sales for 2014. In a Feb. 7 research note, Van Sinderen said that the second-quarter results came in above B. Riley’s consensus estimates. However, the results reflected a retailer that is still laboring through a turnaround in a tough economy.

The second quarter’s net sales were $130 million, a decrease of 4.1 percent from $135.5 million during the same quarter of the previous year. Same-store sales decreased 1.9 percent compared with a decline of 10.9 percent during the second quarter of 2013. Net loss for the second quarter of 2014 was $5.5 million, compared with a net loss of $4.8 million last year.

Taking Bebe private could help a struggling company, Van Sinderen said. Executives could concentrate on fixing Bebe’s problems without having to deal with pressure from shareholders.A buyer would pick up a fleet of 228 stores, many of which are located in some of America’s best malls—including Beverly Center in Los Angeles; Glendale Galleria in Glendale, Calif.; Fashion Island in Newport Beach, Calif.; and The Mall at Short Hills in Short Hills, N.J.—as well as in high-profile retail neighborhoods such as South Beach in Florida.

A buyer would be acquiring something rarer than coveted real estate. It would be purchasing a time-tested brand.“Brand is key,” Van Sinderen said.“What other real contemporary brands out there have a sexy edge? There’s BCBG.”

If Bebe were sold, it would join a handful of companies that went private recently.New York private-equity firm Sycamore Partners acquired Hot Topic Inc. in March 2013 in a cash deal valued at $600 million. J. Crew went private in a $3 billion deal in 2010. Once a company goes private, if it is successful in a turnaround, eventually it can run an initial public offering and become a public company again.

If Bebe is sold, the buyer would have to contend with company founder Manny Mashouf. He serves as Bebe’s non-executive chairman of the board and also owns 59 percent of the outstanding shares of Bebe’s common stock. In the risk factors section of a Bebe financial document, it noted that Mashouf’s concentration of stock could discourage acquisition bids.

Mashouf started Bebe in San Francisco in 1976, and, after building its reputation as a brand with a contemporary and sexy edge, Bebe became a public company in 1998. The retailer suffered during the Great Recession, and Mashouf, in January, hired Steve Birkhold, formerly president and chief executive officer of LaCoste North America, to bring Bebe back to prominence.

During 2013, Birkhold hired a slate of new executives, including Katrina Glusac, who joined Bebe in April as its chief merchandising officer. In September, Birkhold told investors that Bebe would concentrate on increasing the sex appeal of its merchandise. “Repositioning our merchandising offer, we clearly know that the key reason a girl shops at Bebe is to find something sexy to go out in. So, although we sell lots of other products and she comes to our store for a lot of other reasons, clearly we have to over-index on our greatest strength.”

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