With Christmas past, we're now into the postmortem phase of diagnosing the retailers. Did they cut prices too much in an effort to boost sales? Did they cut too little and wind up stuck with piles of unsold merchandise that are rapidly becoming stale, forcing further cuts down the road? We'll hear from one member of the much-maligned retail sector, bebestores (NASDAQ:BEBE), when it reports fiscal Q2 2006 earnings tomorrow.

Wall Street wisdom:

  • General consensus. Eleven analysts follow bebe, and they're a decidedly morose lot. Only two rate the company a "buy," with everyone else saying "hold" or "sell."
  • Revenues. The analysts believe bebe grew its sales by 12.1% to $171 million in fiscal Q2 -- which is kind of strange, considering that the company itself has already stated that it only managed 11.5% growth.
  • Earnings. bebe's sales report earlier this month didn't say how much it earned (that is, after all, what earnings reports are for). Analysts guess that the company did no better than last year, though, and earned about $0.26 per share.

Margin watch:
I don't know what the analysts are seeing, but when I look at the recent trends in bebe's margins, I see a business on the rise. Don't be surprised if bebe swings to the upside tomorrow.

Margins %

6/04

10/04

1/05

4/05

7/05

10/05

Gross

47.0

47.6

48.8

48.7

49.6

49.8

Op.

14.2

15.6

17.9

18.5

20.0

19.6

Net

9.1

10.0

11.5

11.9

13.0

12.9

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Taking inventory:
The news should be good on this front. bebe has already said that it grew sales by 11.5% year over year in Q2 and that "finished goods inventory per square foot" grew by about 11%. Tomorrow, we'll want to look at two things: 1) How much did overall finished goods inventories grow?, and 2) Did overall inventories grow faster than the subcategory of finished goods? If so, this could be a clue that bebe expects even stronger sales in future quarters.

Competitors:
Take your pick -- there are a lot of clothiers out there. bebe's competitors include the likes of Guess? (NYSE:GES), Wet Seal (NASDAQ:WTSLA), and Gap (NYSE:GPS).

Fool contributor Rich Smith does not own shares of any company named above.