Author Topic: BEBE - bebe stores  (Read 2416 times)

Foreign Tuffett

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BEBE - bebe stores
« on: December 28, 2017, 02:29:23 PM »
BEBE is a special situation that stems from the closure of all company-owned bebe retail stores. The Seeking Alpha article by Vince Martin linked to below presents the basics of the situation extremely well. Hopefully Vince and Seeking Alpha won't mind me driving a little more traffic their way.

https://seekingalpha.com/article/4111814-bebe-stores-intriguing-story-terribly-attractive-price

The stock has sold off (from ~$5.50 to ~$3.75) in the wake of the company's 12/8 announcement that it would be voluntarily delisting from the NASDAQ to save costs. See link immediately below, as well as the attached screenshot.

https://www.sec.gov/Archives/edgar/data/1059272/000119312517364989/d504825dex991.htm

My thesis here is that the regardless of the exchange the company trades on, it's currently undervalued based on a simple sum-of-the-parts (SOTP) type model. Note that the #s below are in millions and are my own calculations/estimates.

Assets
Current assets: $20.78
Estimated sale value of Los Angeles Design Center: $30
10X multiple on TTM earnings from equity method investment: $44 (4.4 x 10)

Liabilities
Total Liabilities: $39.21
Estimated cash burn as they finish shrinking down: $5
10X multiple on annual corporate costs: $12 ($1.2 x 10)
 
SOTP: 38.57
Basic shares outstanding: 8,115,754
SOTP per share: ~$4.76
Premium / (Discount) to SOTP: ~21%

Obviously this is a very bare-bones sort of write up. It's meant to be a jumping off point for further research, nothing more. Please do your own due diligence, etc. Disclosure: I am long BEBE.


 



 

« Last Edit: December 28, 2017, 03:28:41 PM by Foreign Tuffett »


roark33

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Re: BEBE - bebe stores
« Reply #1 on: December 29, 2017, 05:29:41 PM »
I am not sure where you are getting the TTM earnings from the equity method investment.  I think the online store of BEBE will earn next to nothing in the future.  I was short this for a bit. 

Foreign Tuffett

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Re: BEBE - bebe stores
« Reply #2 on: December 29, 2017, 06:08:09 PM »
I am not sure where you are getting the TTM earnings from the equity method investment.  I think the online store of BEBE will earn next to nothing in the future.  I was short this for a bit.

Pull up the most recent 10-Q and find the "earnings in equity method investment" line on the income statement.

I don't think the equity method earnings are primarily from the online store. If you go to the bebe store locator page there's a long list of international stores. I suspect the primary value lies with them, but I don't think the disclosure is sufficient to be sure.

Based on the 8K that came out after hours today, they're well on their way to right-sizing (aka downsizing) the corporate structure.

 


DTEJD1997

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Re: BEBE - bebe stores
« Reply #3 on: December 29, 2017, 10:24:04 PM »
I used to own BEBE years ago...made just a little bit.  In retrospect, I was lucky to make even that.

BEBE might do OK with this new plan....but I don't think the margin of safety is wide enough to make it an appealing investment.  Too many things could go wrong.  Expenses could be higher than anticipated (almost always)...it could take too long...and on and on.

Worth watching, but I would need a wider margin.

roark33

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Re: BEBE - bebe stores
« Reply #4 on: December 30, 2017, 09:10:01 AM »
From the 10-k:
Investments. We use the equity method to account for our investment in the Joint Venture because we have the ability to exercise significant influence but not control. We record our share of earnings as reported by the Joint Venture as earnings in equity-method investment on the consolidated statement of operations and comprehensive loss. The total of our investments in the Joint Venture are recorded in Other Assets on the consolidated balance sheets.


The equity method investment earnings is the JV.  Let's say they make 4m in revenue from the JV.  They had 2.2m in SGA expenses in the last quarter.  Sure that may decline some, but maybe they get it down to 3m a year, do you think the online store/international of BEBE is going to increase or decrease? 

The entire business of BEBE is in the JV now, the public company is just a shell for the JV equity investment.  Best route is the Founder/CEO buys out the other 45% or so he doesn't own, so he can take it private. 
« Last Edit: December 30, 2017, 09:16:16 AM by roark33 »

Foreign Tuffett

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Re: BEBE - bebe stores
« Reply #5 on: December 30, 2017, 12:52:33 PM »
From the 10-k:
Investments. We use the equity method to account for our investment in the Joint Venture because we have the ability to exercise significant influence but not control. We record our share of earnings as reported by the Joint Venture as earnings in equity-method investment on the consolidated statement of operations and comprehensive loss. The total of our investments in the Joint Venture are recorded in Other Assets on the consolidated balance sheets.


The equity method investment earnings is the JV.  Let's say they make 4m in revenue from the JV.  They had 2.2m in SGA expenses in the last quarter.  Sure that may decline some, but maybe they get it down to 3m a year, do you think the online store/international of BEBE is going to increase or decrease? 

The entire business of BEBE is in the JV now, the public company is just a shell for the JV equity investment.  Best route is the Founder/CEO buys out the other 45% or so he doesn't own, so he can take it private.

Yes, the public company is almost at the point where it will be merely a "shell" for its interest in the JV. Once they sell the LA design center building and complete the G&A rightsizing they'll be there. It should only be a matter of months.

I think G&A is going to end up being much lower than a $3M annual run rate. Again, this is a company that will have no operations whatsoever. Have you seen the two most recent 8Ks? I think they provide some evidence to support what I'm trying to say.

On 12/8 they gave notice of their intention to voluntarily de-list from the NASDAQ to save on costs.
 
https://www.sec.gov/Archives/edgar/data/1059272/000119312517364989/d504825dex991.htm

Yesterday they announced that Joe Scirocco, an independent consultant, will be paid $12.5K a month + expenses to be their new principal accounting officer. Scirocco's professional history is impressive. In fact it's impressive enough that a $150K run rate annual salary seems laughably low. The best explanation I can think of is that the low pay is due to the position being the equivalent of a part time job.

Even more significantly, the CEO will no longer be paid a salary or housing allowance.

https://www.sec.gov/Archives/edgar/data/1059272/000119312517383478/d489013d8k.htm


I doubt the 79 year old founder/CEO is going to buyout the portion of the company he doesn't already own. I actually think the opposite is much more likely, as he seems to be stepping away from what's left of the company (no salary, etc). Also, he filed in 2015 to sell off his entire stake in the company, so he's clearly not a "never sell, no matter what" founder type. 

I think if you read between the lines here it's relatively clear that once the situation has stabilized and the company has completed it's transition to a holding company for the JV interest, it will be sold.

Foreign Tuffett

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Re: BEBE - bebe stores
« Reply #6 on: January 16, 2018, 09:48:16 AM »
BEBE is up over 30% today on the below news.

https://www.sec.gov/Archives/edgar/data/1059272/000119312518010698/d464904d8k.htm

This idea worked both better and more quickly than had I anticipated.

valuedontlie

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Re: BEBE - bebe stores
« Reply #7 on: January 16, 2018, 10:46:16 AM »
It is potentially a better bet with B Riley in charge of utilizing the tax assets...

As of 9/30/17, they have ~$11m in cash (though potentially lower today), $8.6m BV in real estate, $8.1m receivables, $22.6m liabilities. Works out to slightly positive BV. The tax assets were last marked at $144m (fully reserved) though may be worth slightly less under new tax code.

Their share of JV earnings looks like ~$1m per quarter right now and management indicated that operating costs headed toward zero:

"During fiscal 2017 as a result of continued operating losses, we shut down our retail operations. We have entered into an agreement to provide transition services to a third party that has taken over bebe's online and international licensee businesses. The agreement is scheduled to end October 31, 2017 and we are being paid a fee which we expect to cover substantially all of the costs of providing these services. Once this agreement ends, we will transition to a holding company for our investment in the Joint Venture and we expect to receive a quarterly cash dividend from this investment. In addition, we expect our operating costs to reduce to an insignificant amount once we have completed the transition which we expect to occur by the end of the second quarter of fiscal 2018."

They are not loaded with cash, even after the sale of the LA design studio, so it will be interesting to see what B Riley does from here...

JayGatsby

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Re: BEBE - bebe stores
« Reply #8 on: January 16, 2018, 01:27:55 PM »
I don't think $22.6M of liabilities is correct. Does that include the RILY bridge loan? Excluding the RILY bridge loan and the real estate, current assets and current liabilities seem to be fairly equal (liabilities are slightly higher).

So 8.1M shares + 2.8M (converted debt) + .25M = 11.15 x $6.1 = $68M. So that gets you a building worth $30M and 50% of a cash flow stream of $3M of revenue per quarter (annualized). So $38M for $6M of cash flow. Pretty good, but not incredible. I don't know a lot about the joint venture. Maybe more is possible.

RILY is one of my bigger holdings, so curious to see what they do with this. Probably will just ride along with it that way based on the above. They're doing a lot of interesting deals, but there's so much sausage in the grinder it's hard to see exactly what comes out the other end.