Gathering New Information about Stocks, Health, and Sports

         The retail apparel industry is a great choice for investors during the fall season. The holidays are only months and weeks away, and consumers are already getting ready for these events. During this time retail stores like Macy's and JC Penney are expected to see strong sales and profit. While this trend is true for most companies in this industry, some corporations have better sales potential. These corporations have a strong business model, excellent growth potential, and solid valuations to look enticing to investors. One company that has these characteristics in the retail apparel industry is bebe stores (BEBE).

         Before looking at the financial statements, it is important to look at this company's business strategy. According to Reuters, bebe is "engaged in the designing, development and production of a line of contemporary women's apparel and accessories." Unlike other retailers who only buy inventory from other suppliers, bebe controls its manufacturing and sells its product through one of its own stores. In addition, bebe offers apparel suitable for career, evening, casual, and active wear. The diversified set of clothing helps bebe collect consistent sales, regardless of current apparel trends. Bebe is further divided into three main stores. Its regular bebe stores, BEBE SPORT stores, and bebe outlet stores are found through 273 locations in 38 states and a few international countries. International exposure aids sales, especially with a low dollar, to increase consumer demand.

         With regards to how bebe's strategy has work for its share price, only one year, out of the past five years has been bad for bebe. In 2006, the company saw 21% share price appreciation, and while 2007 is not as positive, the upcoming holiday season is more than likely to boost share prices to higher levels.

         A lot of the optimism for a higher share price comes from bebe's financial statements. According to Reuters, bebe saw revenue of $670 million over the past year. Compared to the previous fiscal year, this figure is 15.86% higher. The growth rate is also higher than the industry average at 12.68% and is higher than market-cap competitors Buckle and Carter. Moreover, earnings growth for bebe at 3.23%, while not as high as the industry's average, is quite higher than Carter's earnings growth which saw a decline in EPS of over 250% over the past fiscal year. What is really important to understand however, is bebe's excellent cost controls. Gross margins over the past fiscal year at 47.97% and operating margins during the same time at 15.69% are both quite above the industry's average at 38.77% and 10.34% respectively. In addition, bebe's gross margins easily beat out market-cap competitors Buckle, Carter, and Zumiez, and bebe's operating margins edges out Carter and Zumiez. More importantly, net profit margins, or how many cents bebe makes per dollar of revenue, is at 11.52%. This figure is above the previous fiscal years margin at 11.02%, and this figure is also above the industry's average of only 6.87%. None of Buckle, Carter, or Zumiez beats this figure.

         The high margins illustrate bebe's great ability to control its internal costs and inventory. Subsequently, bebe's inventory turnover of 8.10 is nearly 2.5 times higher than the industry's average at 3.68. Producing and selling goods this quickly is great for future sales and profitability. In addition, an extraordinary high receivables turnover at 108.19 is superb for future cash flow. If every three days cash is paid for accounts receivable, bebe can use the extra cash to pay off debt and establish good credit or help shareholders through purchasing back stock or paying dividends. Moreover, capital spending at 14.53% is above the industry average of 2.20%. Further innovated products and structure now will mean greater economies of scale in the future, even better margins, and more cash for shareholder benefit. The growth strategy and management structure is excellent for a solid future.

         What is also strong about bebe is its valuation. According to Reuters, the industry's P/E ratio currently sits at 18.39. Forward looking, bebe looks to see its multiple sit at 17.05, a bit below the industry. In addition, bebe's earnings multiple is also below competitors forward ratio including Buckle (18.73) and Zumiez (49.86). Price to sales of 1.86, while a bit higher than the industry's average at 1.30 is still below Buckles sales ratio at 2.18 and Zumiez's ratio at 3.71. Therefore, while bebe's valuation is not completely oversold, there is a strong argument that investors are missing some of the growth potential this company has. Interestingly, combining growth with valuation, according to Yahoo! Finance, bebe's PEG ratio of 0.99 is not only below 1.00 (which indicates a strong bullish factor), but is even below many of its industry components such as Zumiez which tailors an incredible 2.27 PEG ratio. The combination of growth and value is the main reason why this company will perform so well in the future.

         Other factors that might help investors think about buying this stock include ROE. According to Reuters, bebe's ROE of 16.93% is above competitors like Carter's, who only support a -18.88% figure. Bebe's ROA of 13.95% and ROI of 15.67% are also quite strong when compared to market-cap rivals. Bebe is very liquid with a 7.48 current ratio, which comes from an extraordinary receivable turnover. The company has no debt, which may indicate lack of growth desire, but bebe is playing it safe with equity only capital structure to assure investors of risk-adverse production. The company also supports a dividend yield of 1.36% which is rare in this industry, and has good future cash flow to increase this amount even more.

         Therefore, there are many reasons why investors should pay attention to bebe stores. In addition to strong fundamental reasons to purchase shares right now, there are also strong technical reasons. Parbolic SAR recently moved above the share price which is a bullish signal. The 50 day SMA also seems to have leveled out and is on the incline ready to cross over the 50 day EMA to signal a possible further increase. RSI is about 50 which is too ambiguous to make any predictions, and volume has seemed to pick up a bit over the past few weeks. Combining this information with the aforementioned fundamental and business strategy motives, there is strong support that investors will benefit from owning shares of bebe stores.

-Dennis Biray
October 12th, 2007