Shareholder Calls for Executive Changes at bebe, Sell or Take It Private

bebe

Major shareholder claims bebe “has lost its fashion relevance. It has all but disappeared from the ‘radar.”

Los Angeles–A shareholder who holds approximately three 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. (Mashouf owns approximately 53% 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 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 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,” Drexler wrote. “I urge you to explore the possibilities available to the Board in creating sustainable value for all investors.”

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

1. Current return on equity significantly trails that of the specialty retail industry and is lower than ROE from the same quarter the prior year.

2. Reported Q3 gross profit margin of 32.4%, decreased from the same quarter last year, and that the company’s reported net profit margin of almost -26.0% is significantly below that of the industry average.

3. Q3 net operating cash flow has decreased almost 98% compared to the same quarter last year.

4. bebe’s stock price continues to slide dramatically.

Drexler’s letter to the bebe stores Board of Directors says he was rebuffed twice when he tried to meet with Mashouf about bebe’s future.

As the owner of 2.7 million shares of bebe common stock, Drexler said others share his concerns.

‘Lost Fashion Relevance’

Then he took Mashouf to task over “collecting 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% of the annual fee, to provide consulting services to the bebe Board. As a shareholder, I find this questionable.

Drexler also claims that although Mashouf than its being chairman and president,

“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.”

In a skewer to the company, Drexler says bebe “has lost its fashion relevance. It has all but disappeared from the ‘radar.”

The store also has been slow to develop e-commerce to offset expenses of physical stores, Drexler maintains.

“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.” Drexler wrote. “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.”

At press time Mashouf has yet to respond publicly to Drexler’s letter.

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com