By most normal standards, bebe (NASDAQ:BEBE) had the kind of quarter that retailers dream about:
- Sales were up 36% over last year.
- Earnings per share were up 70% to $0.39.
- Gross margins were up 3%.
- Same-store sales were up a whopping 27.3%.
That dream turned into a nightmare for bebe owners Thursday morning, though, as a one-penny earnings miss and cautious guidance sent the shares down over 12% in early trading.
More cynical Fools might recognize this story -- small company begins posting 25%+ earnings growth, stock goes up over 100%, stock trades at four times industry average price-sales ratio, company posts minor earnings miss, stock gets creamed. Rinse and repeat.
Despite today's slide, bebe is clearly still in the center of a hot market -- upper-end retailers that cater largely to women. Peers such as Chico's FAS (NYSE:CHS), Coach (NYSE:COH), and even venerable Liz Claiborne (NYSE:LIZ) have all seen good growth as women have chosen to stay out of the department stores and hit the boutiques. Of course, some day the growth will cool off. Trendy clothiers don't stay hot forever (as Wet Seal (NASDAQ:WTSLA) learned the hard way). Even current darlings such as American Eagle Outfitters (NASDAQ:AEOS) and Urban Outfitters (NASDAQ:URBN) have had nasty down cycles before recovering their fashion sense.
With strong same-store sales, robust inventory turns, and a rational plan to build new stores, bebe doesn't appear to be in danger. Even the low end of the company's guidance for March would represent more than 20% growth over the prior year. Then again, the stock is trading at over 20 times the highest estimate for the year ending in June 2006 -- a bargain-bin stock this is not.
As today illustrates, sporting such a high valuation means that even the suggestion of a slowdown in growth will have investors treating these shares like last season's hand-me-downs. Investors who think bebe can keep the registers ringing fast enough to please Wall Street can hang on, but this stock is still just too fashion-forward for this Fool.
Fool contributor Stephen Simpson is a chartered financial analyst and has no ownership interest in any stocks mentioned.
