bebe stores ($BEBE) — 2Q22 Update (2/25/2022)

Price: $7.86

Market Cap: $101m

Valuation: 7.8x earnings / 7.6% dividend yield

Category: Core

Q2 Review

  • JV Brands — The most notable event here is that JV distributions from the bebe and Brookstone brands continue to perform well — BEBE received $2.9m in dividends from brands vs. $2.6m last Q — YTD distributions of $5.5m are +23% from $4.4m last year. Trailing 12-month cash distributions to BEBE were ~$11m.
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  • Buddy’s — Remember that BEBE acquired another set of 6 locations for $5.5m in 1Q22. Revenue continues to grow from the acquisitions but earnings have faded since 3Q21... My calculations for this segment include ALL corporate overhead costs for BEBE. Trailing EBITA for Buddy’s was ~$4m (but this drops to $1.5-1.9m if we annualize Q2 or 1H).
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  • Pro-Forma — BEBE looks to be generating $11-13m FCF per year and pays a $0.15/share dividend quarterly; this leaves $5m or so in retained cash flow annually for acquisitions or debt paydown.
  • Outlook — It’s still a bit murky to me what the long-game is for BEBE; they have a huge $308m NOL position with a fully reserved balance sheet value of $6.40/share. B Riley is now somewhat a competitor with a small brand portfolio itself. BEBE has shifted its attention to the Buddy’s franchises and it looks like they’re going to continue expanding that segment to try and utilize the NOLs. I’d expect them to continue paying out a big portion of cash flow as dividends while retained earnings get used for additional acquisitions to grow cash flow.
I’m valuing the stock at 12x EPS of $1 per share = $12 price target.