Consac calls for Bebe Stores Chairman Manny Mashouf and Board to sell or take retailer private

LOS ANGELES, Aug. 18, 2014 /PRNewswire/ -- A shareholder who holds approximately three (3) million shares of the common stock of bebe stores, Inc. today called upon Manny Mashouf , the company's chairman and controlling shareholder, and its Board of Directors to either sell the company to a third party or take it private in a transaction sponsored by the Mashouf family.  Mr. Mashouf owns approximately 53 percent of the common stock of the company, whose performance has declined over the past several years.

Ryan Drexler, president of Consac, LLC, questioned the appropriateness of Mr. Mashouf's role as both a paid director of the company and consultant to the Board.  He also pointed to "the absence of the chairman in actively guiding the company to a successful and sustainable recovery," citing the company's lack of:

  • Attention to fashion focus, innovation and design, hallmarks of the company's growth under the creative direction of Neda Mashouf, who left the company after divorcing Mr. Mashouf several years ago.
  • Progress in developing a compelling e-commerce offering.
  • A succession plan and the difficulty of identifying candidates with the "right mix" of merchandising and financial know-how amid dramatically shifting skills for retail fashion executives.
  • Fast fashion retail experience of the Board and management.

"I believe the Board must consider alternatives that are in the best interest of the company's public shareholders," Mr. Drexler wrote.  "I urge you to explore the possibilities available to the Board in creating sustainable value for all investors."

In his letter, Mr. Drexler, referred to a recent analyst report that concluded that bebe's:

  • Current return on equity significantly trails that of the specialty retail industry and is lower than ROE from the same quarter the prior year.
  • Reported Q3 gross profit margin of 32.4 percent, decreased from the same quarter last year, and that the company's reported net profit margin of almost -26.0 percent is significantly below that of the industry average.
  • Q3 net operating cash flow has decreased almost 98 percent compared to the same quarter last year.
  • bebe's stock price continues to slide dramatically.

Mr. Drexler's letter to the bebe stores Board of Directors follows:

August 14, 2014

Board of Directors
bebe stores, Inc.
400 Valley Drive
Brisbane, CA 94005

Gentlemen:

Twice in the past month, I have made attempts to meet with Mr. Mashouf to discuss issues critical to the future of the company; namely, the inability of management and the Board to meaningfully address the company's persistently lagging operating performance and the resulting underperformance of its stock.  Twice I have been rebuffed.

As the owner of 2.7 million shares of bebe common stock, I believe that most stockholders share my concerns.  A 6/30/14 analysis of bebe's most recently reported financial performance (Q3 2014) by TheStreet concludes that:

  • Current return on equity is lower than ROE from the same quarter the prior year and significantly trails that of the specialty retail industry.
  • bebe's reported Q3 gross profit margin of 32.4 percent decreased from the same quarter last year.  In addition, the company's reported net profit margin of almost -26.0 percent is significantly below that of the industry average.
  • The company's Q3 net operating cash flow has decreased almost 98 percent compared to the same quarter last year.
  • bebe's stock price continues to slide.

These facts lead me and others to conclude that the company needs to explore possibilities for maximizing shareholder value, including a sale of the company, whether to a third party or through a going private transaction.  Other issues leading to this conclusion include the following:

Governance

  • I believe Mr. Mashouf continues to collect directors' compensation plus fees payable to the consulting firm of which he president.  SKID Holdings LLC, headquartered in Las Vegas, is paid almost $47,000 a month, or $500,000 a year, plus costs amounting to more than 20 percent of the annual fee, to provide consulting services to the bebe Board.  As a shareholder, I find this questionable.
  • Moreover, other than his role as chairman of bebe and president of the company that provides its Board with consulting services, Mr. Mashouf has seemingly been absent in actively guiding the company to a successful and sustainable recovery.   I believe the inability of management and the Board to implement a workable strategy follows from this.

Product Design and Merchandising

  • The company has been unsuccessful in communicating a convincing strategy that addresses the core issues of declining sales, dwindling customer traffic and lack of fashion focus and imagination. bebe has lost its fashion relevance.  It has all but disappeared from "the radar."
  • The company's financial strategy as discussed in its most recent earnings report seems to have supplanted much-needed attention to fashion focus, innovation and design, hallmarks of the company's growth under the creative direction of Neda Mashouf.
  • bebe's advertising and messaging are confused, unappealing and unmemorable.  Who is the "bebe girl?"

E-Commerce

  • Progress has been slow in developing a compelling e-commerce offering that can offset the increasingly high cost of rent, store personnel and the deleveraging of store infrastructure. The announced closings of the b2 stores and the elimination of concomitant elimination of jobs do little, if anything, to demonstrate to investors positive movement in addressing the company's retail shortcomings.  

Management Experience and Stability

  • The issue of succession planning has, to my knowledge, not been publicly addressed.  Once the company does so, it will find that the skills for retail fashion executives have shifted dramatically and identifying candidates with the right mix of merchandising and financial know-how will be difficult.
  • The Board and management lack adequate fast fashion retail experience.

I have the utmost regard for what Mr. Mashouf and his associates have achieved for shareholders in the past.  At the same time, I see no evidence that such performance can be repeated under the company's current structure.  I believe the Board must consider alternatives that are in the best interest of the company's public shareholders, including a sale of the company to a third party or a going private transaction sponsored by the Mashouf family. 

I urge you to immediately explore the possibilities available to the Board in creating sustainable value for all investors.  I continue to welcome the opportunity to meet with management and the Board.

Very truly yours,

Ryan Drexler
President

About Consac, LLC

Consac, LLC ("Consac") invests in the securities of publicly traded and venture-stage companies. Consac may increase, decrease, dispose of or change the form or substance of its investment in bebe for any or no reason, at any time. Consac also may change its views about bebe at any time. Consac disclaims any obligation to notify the market of any such changes.

The information and opinions contained in this press release and the letter described herein hereto are based on publicly available information about bebe and other companies. Although Consac believes the statements it makes in this press release, including in such letter, are accurate in all material respects and do not omit to state material facts necessary to make those statements not misleading, Consac makes no representation or warranty, express or implied, as to the accuracy or completeness of the statements contained in this press release, including in such letter, and expressly disclaims any liability relating to those statements (or any inaccuracies or omissions therein). Thus, shareholders and others should conduct their own independent investigation and analysis of those statements and of bebe and any other companies to which those statements may be relevant. Furthermore, some of the statements herein, including in such letter, are forward-looking statements, estimates, projections and opinions. Such statements, estimates, projections and opinions may prove to be substantially inaccurate and are inherently subject to significant risks and uncertainties beyond Consac's control.

The statements that Consac makes herein, including in the letter, are not investment advice or a recommendation or solicitation to buy or sell any securities, nor is Consac soliciting any proxy or other action from or by any shareholder. Except where otherwise indicated, those statements speak as of the date made, and Consac undertakes no obligation to correct, update or revise those statements.

Contact:

Sandra Sternberg


Kramer Sternberg


310-579-7408

 

SOURCE Consac, LLC



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