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bebe stores, Inc. (NASDAQ:BEBE)

Analyst/Investor Day

September 12, 2013 02:00 PM ET

Executives

Liyuan Woo - CFO

Steve Birkhold - CEO

Katrina Glusac - Chief Merchandising Officer

Ben Baum - CDO

Analysts

Liyuan Woo

Good afternoon everyone, welcome. Because this is a webcast we're just going to get started. I know giving the weather there's probably more people going to show up but welcome to our New York office. This is actually brand new and we just completed all the construction couple of days ago. So we're really excited to have our very first Investors and Analyst Day with the new management team with all of you.

I'm Liyuan Woo. I'm the Chief Financial Officer. So we have a very full agenda today to cover. Steve Birkhold, our Chief Executive Officer will give an opening remark. After that we'll show you a video with our EVP Design Brigitte and SVP Marketing, Keith, talk about the bebe girl. After that Katrina, our Chief Merchandising Officer will speak about our merchandising strategy followed by Ben who's our Chief Digital Officer talking about exciting world of digital and omni-channel. I'll come back and give a very high level summary of the numbers.

Just wanted to remind everyone, we are a turnaround story and it's still early in the stage. So this meeting is really meant to be meet and greet, introducing the management team. We're not going to in depth discussion. We have some technical difficulty with music, to really talk about the modeling and the future numbers but really more of a qualitative perspective for a strategy. After that we'll go through our Q&A for an hour. Then we'll have a cocktail reception with hors d'oeuvres. So before I invite Steve up, I just want to remind everyone of the Safe Harbor statement.

With that let's welcome Steve Birkhold.

Steve Birkhold

Good afternoon. Well I apologize for the New York weather. We all know those of us who live in New York a lot that whenever this happens cabs become a little more difficult getting here, but hopefully we'll get the rest of the group in here. So I appreciate you guys attending this afternoon. I really look forward to the music not playing in the middle of the presentation, not really sure why that's happening. We're trying to, we'll dim the lights so everybody can take a nap I guess.

But anyway, so again I just want to welcome you. I really look forward to introducing our team and you'll see that we, and I made the decision to introduce you to certain members of the team. Obviously you know we have a lot more people on the team. So for those of you who don't know who bebe is, this is just a quick review of what we are all about and who we are.

So obviously we're a really strong brand, kind of uniquely positioned as a go to destination for accessible contemporary fashion design for the fashion forward edgy girl. Our girl is a college educated single working woman with no children in her early 20s and 30s. Again this is just our average consumer. We have about 370 stores in our network, including e-commerce. That's a great growth opportunity for us along with an international business with a lot of expansion potential down the road. We have 188 bebe stores including bebe.com, 52 to be, and a 129 stores internationally with more and more stores opening everyday overseas.

We engage our customer in am omni-channel strategy and Ben Baum our Chief Digital Officer will speak in depth about our omni-channel presence, but we're not just talking about omni-channel, we are actually omni-channel and really hitting our consumer everywhere she shops.

And then probably one of the biggest things that we’ve done obviously is reinvigorate the team with our management team that we brought on board, and it's important to emphasize, not only do we have a lot of new people but Liyuan's a great example of somebody that was an existing member of the team that has been able to step up and add tremendous amount of value going forward.

Obviously me, I have been in this business since the day I graduated from college. So I started in the department store segment with May Department Stores at Haxton, Washington, then moved to St. Louise to work for May Merchandizing and had a bunch of different roles in both men's and women's apparel. I left May company to join VF, working on brands like Lee Jeans, Earl Jeans and Nautica, at VF, then left big corporate public companies like Diesel, which is the antecedes [ph] of a public American company but a great product experience; moving onto Lactose where I ran the business for North America and was on the global board and then most recently joined bebe.

One of the question that I always get asked is why bebe. When you look at the brands that I have in my background, one of the main reason is I think bebe legitimately is a brand and one I think I have said to lot of the marketplaces, a lot of our competitors sell lot of products but I really define a brand as something that the consumer will wear on their body and clearly with the penetration that we have in logo and the enthusiasm our customer has as far as both here and the U.S. and also overseas, bebe as clearly a really strong brand. A quick little bio on Liyuan, she will speak a little bit more about herself later but again a very, very valuable member of the team.

So, since I've been with bebe since January we embarked on a journey to really revitalize this great brand, obviously attracting talent, not only to a brand but also in an LA environment is always challenge. I had the fortune of having a lot of great relationships in the marketplace and have really assembled like an amazing team, which we will get into a little bit more later.

Defining the brand, having been a brand that was run by its founder for over 40 years, they have kind of took an outside perspective to really take a look at the brand and somebody who really knew how to run a brand and that was what I brought to the table. So I really put a lot of disciplines in place to grow the brand, protect the brand and handle the brand the way it should be handled going forward, which I'll speak about in a few minutes.

Repositioning our merchandizing offer, we clearly know that the key reason a girl shops at bebe is to find something sexy to go out in. So although we sells lots of other products and she comes to our store for a lot of other reasons, clearly we have to over-index on our greatest strength, which is as you see our campaign, that I will show you in a few minutes, it’s the beginning opening shot in our new campaign but by no means is the only place that we are going to showcase our products.

Improving practices and procedures, everything from the sourcing calendars to internal processes of making sure that we actually have the product that we advertise to making sure that we don’t take the shotgun approach and buy just a huge assortment of products and not commit to driving volume. We have instituted a lot of new process and procedure and with my background at VF and at May Department Stores, obviously process and procedure as what a lot of those companies are about.

And then the rationalization of our store base. This is really critical because I'm coming in without a prospective from a market point of view or from an eagle point of view of having to have certain locations.

Honestly if a store doesn’t make money, my retail team and my finance team really has to convince me of about value does that store add. So, as you see, our store count has come down a little. It’s only come down because we've actually either exited or negotiated our way out of stores that we're losing money on, okay. We haven’t exited any locations that we don’t want to exit.

Again, best in class, just a couple of examples of people that have joined the team. So Ben Baum joined as our Chief Digital Officer. Ben has an extensive background at Target, Google and a great strategic knowledge of what it takes to succeed in the space.

Brigitte, I think we have spoken a lot about Brigitte since she was one of the first people that I was able to convince to come to stay with us full time. Brigitte brings a really unique design prospective to the table and obviously was part of bebe back when bebe was at its best and there is nobody who knows the bebe girl more than Brigitte.

Katrina, again wanting to bring on somebody on board who had not only a great taste level when it came to product but also had the ability to manage a large young, creative team, as well as manage our planning and allocation team. So one of the big changes that we have made when I got there is that I didn’t have a disconnected merchandizing and planning team. The planning team actually reports to Katrina and it’s really helped make sure that we're much more aligned with buying products that we advertise, making sure that we are buying products that work into the merchandising plan.

Keith Keegan, obviously joined us from American Eagle as VP of Marketing. My primary point of view on hiring Keith was I needed somebody who could work as a bookend with Brigitte from a creative prospective and honestly nobody has brought more creativity to the brand in a short period of time than Keith. So, you will meet Keith via video. Actually he is here too. So I'll introduce him in a little bit.

And then one, actually the last piece of the puzzle, actually just joined us a week ago and we created a position based on the need to improve our in store presence. So I hired Mikel Bowman who works with me Lacoste. He worked at New York Company and other fashion retailers in the past in a newly created role as SVP of Visual Merchandizing and in store marketing and I think his title probably says a lot about what our strategy is at the store level to drive traffic and make sure that we convert the consumer when they walk in the store.

So one of the other major initiatives that I undertook very early on was to work with a variety of different research partners to make sure that we understood who our girl is. One of the key things from a process perspective for me is internally whether you are in design, whether you are merchandizing, whether you are in our stores, everybody had to have a very consolidated view on who our customer was, because if we don’t know who our customer is, obviously it’s hard to design for her, it’s hard to do a marketing campaign for her, it’s hard to create an online presence for her.

So these are just a bunch of different statistics, but obviously some of the key things up here is as you can see we have a very substantial multi-ethnic consumer with 50% of our girls being non-white. I don’t have to tell you when you look at demographics going into the future, especially in use what that means. We are going to be a brand that’s going to be very viable for a very long time.

She spends a lot of money on fashion. Our girl is always the fashion leader. She wants to be the first. She wants to be the first in her group and she wants to lay the fashion. Lots of other stuff, all of these statistics actually are in your book. All of these pages that all of us are showing are there. So you can capture them. But there is a lot of data, this is just a small bite.

Again one of the other things that we deiced to do was to partner with some great fashion bloggers. These three girls that you see on the screen here are just an example of actual bloggers that we are working with to really help us craft our message in social media. So you can see from Caucasian to Latin American to Asian, we are a brand that resonates across the whole spectrum of this young fashion consumer.

From a process perspective, again I thought it very important that my entire team and the industry is aligned with who we are. So obviously creating some parameters about who we are as a Company, product promises, our brand target, brand positioning, our values and probably the most important thing because it's what we all live for everyday to create advertising products, in-store presence is what our brand essence is.

And you can see that whether you are wearing product to the gym or whether you are wearing product to go out a night in, our brand essence is sexy. Our goal is to make her look her best and separate her from the rest of the marketplace. And it definitely is starting to resonate very strongly with her and our advertising campaigns.

Again I am not going to read all of our advertising campaigns. The idea of this PowerPoint is to give you guys a takeaway. But we also engage a lot of different agencies to bring the brand to life and really came up with some innovation. Those of you who follow bebe have seen parts of our strategy but obviously we are a global brand. Our first campaign we shot in New York. So you can see up on the left. Our holiday campaign that I will show you and nobody else has seen yet, so you guys get a sneak peek was shot in Los Angeles and as we embark on future campaigns we will shoot these campaigns on-location with our girl in a global perspective.

One of the other things that I really wanted to do was to find somebody who could articulate who bebe is, but not to be somebody that basically somebody that is recycled throughout the fashion industry and we all know that the top supermodels, for the right price can go walk in anybody’s runway show or be part of anybody’s campaign. Nina Agdal is a Danish American. Actually she is Danish. She was featured in the Carl Junior’s Super Bowl Ad last year that I think was the number one or two ad on the Super Bowl. And she really hadn’t done any fashion. So she was a blank canvas for us and honestly sometimes bebe has a history of bringing in emerging talent like the Mischa Barton’s and the Rebecca Romijn’s in the past again we got very, I would say fortunate with Nina that after we shot her, those of you know that she has been very much in the public eye from a pop culture perspective recently. And you can see from some of the ads she really is a great poster woman for bebe.

So we launch with a teaser campaign. So wanted to cleanse the palate from our previous campaigns and just go into the market with a blank canvas. So this was an unbranded teaser campaign. It’s kind of funny that the term that we used here that she was a good idea at the time, this actually broke about two weeks after she broke up with Adam Levine, which is kind of funny. That was just a coincidence.

But this was a social media exercise with #be9to5. It morphed into the full campaign. So the upper left you is what’s in September issues right now. 9 PM to 5 AM is kind of our handle. So it’s the new 9to5. We have done events around it, we have done press around it and from a social media, if you go to the #be9to5 there is tens of thousands of girls posting their 9to5 and my digital team has spent a lot of time editing the content but we also have a lot of the content online, but you can only imagine for this girl, this is something that really resonates.

I would say the one thing that really has resonated those of you who saw the graphic t-shirt in the back there that’s on the mannequin, we actually put some of the sayings on t-shirts and they have literally sold out. So we are going after this in a big way in some of these catchy sayings that kind of articulate what her lifestyle is are great.

So the next campaign that you'll see for October will be what's is down here. This montage right here, 9to5 obey all the rules and miss all the fun and then we will launch into our holiday campaign. So this is not, we don’t have the sayings on here yet. This is literally kind of raw footage but in the upper left you will see Nina and friends in a dinner party kind of setting. This will be November issues and it will have the same kind of script that we’re doing. But it’s really unique. It’s fun. It’s what she does. It really articulates how our girl likes to socialize and we’re going to get a great response to this.

And in some of these other assets Nina and her Christmas lights and all that will be utilized online, in social media, et cetera. And you've got all your packets underneath your chairs, have a book that we did for press that has the fall campaign and actually a lot of shots that we shouldn’t or didn’t publish but it will just give you an idea of the depth and the creativity that Keith and our agency put together with Nina and she is just a phenomenal spokesperson. We have her locked up for an extended period of time.

Merchandising; so Katrina is going to be able to really articulate the merchandising strategy. That's been a question from a lot of you. But again this is just some high level statements about our strategy. But obviously making sure that we have the product that we market sounds basic but a lot of fashion brands don’t necessarily do that. What we advertise, we will have in the store and will be featured across our omni-channel.

We’re finding our inventory management process, again aligning across all the functional working groups. One thing I did in our office in L.A. is merchandising was on the main floor, design was on the second floor, production was on the second floor in a different area and technical was separated too. So now actually as of week ago, I think, everybody at sitting cross functionally. So the entire dress team is together, the merchants, the designers, the sourcing team, the tech team. So they are living, breathing the products. And really it’s pretty fundamental but from a cost perspective, the more efficient we can be from a product development perspective the less we -- sorry for the technical issues and scaring everybody. But now you’re awake.

And then obviously within our merchandising strategy is the issue with what we define as legacy product. And just to answer a question before it’s asked, legacy product is product that was designed and merchandised prior to the full team being in place. So when Katrina joined in late March, early April, she was working through a product that the previous merchandising team had worked on. So we still have about 40% of our inventory in that. And then obviously some of the longer lead products in the non-apparel categories like bags and shoes and jewelry, they just take longer to flow through the pipeline.

Elevated space. So again, if you look to your right, some of you who are here early enough probably had a chance to peruse some of the bigger conceptual drawings. I must stress, these are conceptual. So don’t look at them from a capacity, exact merchandising perspective. But my point of view is that our store mix was very generic. It didn’t inspire any kind of unique experience, and I really wanted to work with an architect to create an environment that is very bebe, that is very ownable, that separates us from the competition.

So this is something that our first store will be in Short Hills. We’re doing a relocation in Short Hills. So I am not going to build another store in a major mall. That’s not the new concept. We hope to have that opened mid to early spring. We probably have about five I think more, in the budget for 2004, our fiscal ’14. And the whole idea here is before we do a big rollout, we’re going to kind of rationalize the return on the new store concept. So, we really believe in it. But one of the reasons that a lot of you have invested in, have maintained your relationship with bebe because of our balance sheet, and we’re very aware of not spending capital unless we can really articulate and almost guarantee what the return will be. So we feel really good about this concept, and I think we’re going to get great results from it.

So from a strategic perspective, this is kind of the focus that I’m going to speak to you about. Obviously the rest of the team will articulate other things that we’re doing and then obviously we can close it all at the end in Q&A and when I wrap up. But obviously increasing our product distinction with contemporary accessible fashion offering her design product for the sexy bebe girl. One of the major things that we’re doing to do product, distinct product is reducing the amount of outside buys that we do. So you’re not going to find the same exact trends hop in our store, that the rest of the marketplace has.

Where we were 30% on the outside, our goal is to be around 10%. We still are going to react to the marketplace. We’re still going to work with our outside vendors to give us great unique products but the merchants and the designers will make sure that everything has a bebe take on it so that we don’t just start slugging it out with trend.

Creating an omni-channel strategy to engage our customers on where she shops, again super critical. Retail experience with a new prototype and hopefully those of you who have been online have seen the rescanned, redesigned website. We’re getting great-great results from that and then we’ll spend a lot of time talking about that.

Aligning our marketing campaigns across traditional and new media. Believe it or not, when I joined we literally spent zero of our marketing dollars on digital and we spent about 40% on outdoor. So the dynamic shift and obviously spending our money where our consumer gets her marketing choose across all channels. Right sizing the retail portfolio for bebe and 2b critical, if a store doesn't make money we really have to justify why we have it and we have taken drastic actions on stores that aren't making money.

Growth plan for outlets and international expansion. An obvious question is we're in 32 out of the top 50 outlet stores. We all know that consumer shop outlets to buy brands. One can argue is 2b a brand or not. So going into next spring one, of our strategies that we'll get in more depth with Liyuan is that we will be doing and converting all of our premium outlet locations to bebe outlets and they will have a mix of made for outlet, excess 2b and all the products that we make, but it's a legitimate channel to transaction to do business. There is tens of millions of consumers that shop in outlets and we have to give her the brands that she wants in outlets. And then obviously everything we do from an investment perspective whether it be media, whether it be real estate, we're investing in discipline with a focus on our line.

Okay. So with that we’re going to play about a seven to eight minute video of Keith and Brigitte. Where is Keith? This is Keith, he's in the back. He actually wasn't going to originally make the meeting but he is here, but you will see him speak on video, but just wanted to introduce Keith to you guys. And we will play the video.

[Audio Video Presentation]

Katrina Glusac

Hi, I'm Katrina Glusac. I'm the new Chief Merchandizing Officer at bebe, and I started in April as Steve recently told you and when I think back, since the time I started and just watching that video few things really do attest to my experience that I've had since I've been here. One there's a renewed energy at bebe. It's exciting. There's a lot of collaboration as Keith and Brigitte talked about in the video, the new team is amazing, and this energy is, it's a bit contagious.

My background is in contemporary retail. I've always worked for large public sector companies that wanted a piece of that contemporary space pie, rampage, R&B[ph]. I created the Marc Gianno brand, the first brand extension for Guess in its 25 year history. Those were all very exciting projects but honestly nothing at this level. At that time and continuing, bebe was the known leader in this sector and space and even me in leading some of the companies that I was at was always looking to bebe and I know the rest of the industry was looking to bebe as a true leader in that space.

So actually kind of that nostalgia that I think back to of knowing bebe back in the day through the 90s and early 2000s up till now was very inspiring to me as I met Keith and learned about his vision for the brand, his dedication to brand, what I could learn from him, the team that he assembled and the opportunity that we had in front of us and that's where I started.

So in a minute I'm going to show you a little bit about some of the product, processes and the team that we've assembled, but again I'm just excited to be part of this new reigniting of quite a known brand.

And I think something else that was very important for me is that I'm kind of addicted to this customer. I can't seem to get away from her. She's who I've always worked with and I spent some time abroad, internationally and I most recently came from the dotcom sector as well.

So, I came from the dotcom sector at ShoeDazzle. So I was able to take kind of all of that experience and mix that together under the charge of leading all products for the company, as well as planning allocation and your in store experience in term in store visual.

Okay, talent team, some of the processes we have refined and our product strategy. So one of the first things that I did and discussed with Steve when I came in is really restructuring the merchandizing department. I'm a product person. I wanted to make sure that I could stay as close to the product as possible. There were a lot of layers when I came in, putting upper management at a little bit of a distance from the product.

So Steve and I strategized, came up with a plan to really still take care of those businesses and make sure that they are managed appropriately and yet keep me as close to that product as I possibly could. So we put three DMMs place, one in non-apparel which was a very important category for us that we really want to strengthen, the other in our core business which is dresses and some of those finishing and layering pieces and then obviously sportswear, tops and bottoms.

The other thing we did as Steve mentioned is introduced Mikel, our SVP of Visual and In-Store Marketing and Experience and then again back to a key that Steve also mentioned is creating a really strong synergy between production, design and merchandizing. Lucky for me and something I was really excited about was that Brigitte and I worked together 13/14 years ago, dating myself a bit back now but we had a great collaboration. She was actually my outerwear designer and we had this amazing business together at that time. So when Steve told me that I was going to have the opportunity to work with Brigitte again, that was truly an exciting experience because I really respect her and looked forward to working with her.

Steve talked about our seating arrangement. That has been something really exciting, something I always wanted to do because when you have a risk between merchandizing or production or you have heads butting or they are in another state or they are in the another building, it make things difficult. So actually sitting right next to each other in pods that really concentrate on those key businesses have been something that has been really helpful to propelling our business forward.

I think we are very aligned with marketing, both in store and external marketing as I will show in a bit and Steve brushed on that as well. And then I think I also went over the fact that I am charged with leading web international stores, planning allocation and all product. Obviously they are business leaders for international and web. You are going to meet them in a minute, but at least having a one vision or clarity overall product to make sure that its brand consistent and cohesive.

And processes, it’s really or I will just call it may be a rebalancing or refining of the processes. It's not a complete change. bebe obviously had some core processes in place that made it very successful over the years and so we wanted to go back and do is just rebalance some of those processes.

Price points for example, the core price point is actually bebe's best price point, it’s what drives the business. At the same time, maybe we have gone through extremes over the last year or two, a lot higher pricing, maybe ignoring lower pricing. So what we wanted to do is make sure we still had an entry level price point, that we really concentrated on that core and balanced it appropriately and then said our stores, we have some fabulous store location as you all know and make sure we are feeding those stores with the proper price balancing and inventory balancing.

We did increase our speed-to-market. We are a design driven company but we would didn’t want to be too far from the pulse and yet at the same time we don’t want to be too staffed, Si we just refine that process so that we are able to react to what’s going on in the marketplace and then at the same time and keeping us proprietary to our special bebe touch, look and feel.

We test, measure and move as others have spoken it about before. I'm going to give you an example of that. There is some logo product in the back here, those of which, all bebe logo had really kind of been taken off the table in the last year or two. And what we did is said, you know what, that's always been iconic to the customer, let’s test that out again.

We tested it in a few ways, always proved successful and now that bebe logo product is back in all stores and it’s not just in stores with logo t-shirt, it’s working in dresses, it’s working in denim, it’s working in the script writing that you saw from the campaign in the back. So that’s really a testament again to test, measure and move.

Definitely we are concentrating on outfitting, full head to toe looks, not just a dress but it could be in sportswear, going back into key categories such as tops, outerwear, accessories, finishing pieces and in the meantime we are moving through legacy products with aggressive markdowns. Obviously there was an inheritance of legacy products. We want to make sure that we are moving that now so that we are very clean for the holiday season going forward.

One future strategy that our allocations department, planning department, myself have really been concentrating on is the fact that we do have special products to feed to special stores and we have certain layers of stores and regional stores that we need to feed.

Northeast for example, West Coast versus East Coast, the South, we have big potential in the Miami area to carry some year round products and we have some stores that are just amazing at dresses and maybe need a dress section that's a little wider in breadth than some other stores may need as well.

And one of my favorite things that we've re-introduced is some excitement in proprietary bebe prints. Brigitte used to have the bebe logo actually embedded in all of our prints. So it’s something that we are going back into as making sure that our prints are really proprietary to us, that color which has always been important to this customer and embellishment and details that we are paying attention to all of those and bebe used to be known for carrying some really core fabrics. We are reintroducing those obviously in what's applicable to today’s times, so that when a customer does come back, she finds some consistency in the stores and some fabrics that she loves and some fits that she loves.

And those were all just introduced in the fall winter assortment, which I'm going to show you in a minute. Speaking of products, this is very easy for me to talk about, being a merchant, probably my favorite topic.

What we did was rather simple; just realigning the product to be back on target with our girl, or in other words giving her what she wants. This girl is very vocal. She will tell you in surveys, in sales, in anything that you look at exactly what she wants. And if she doesn’t like it she really tells you that as well. So we need to listen to her, we need to give her that sexy confident sophisticated product that she is looking for, at the right price at the right time and in the right amounts.

What we have done through marketing is if you can see by the photo up here, we are enticing her back with a very sexy and detailed and trimmed 9to5 look but then once she is in the store we are keeping her with the ability to purchase amazing outfits, tops, bottoms, things that bebe has been known for in the past, bebe sport, logo and head to toe accessories, especially in accessories concentrating on the key categories, shoes, bags, jewelry and watches.

And probably most importantly, we definitely are a design driven pipeline that starts with Brigitte in design and is constantly collaborating with merchandizing and production and planning and visual to assure that we are remaining on target with the fashion pulse and what is going on in the industry and what that customer wants.

So what I would like to show you now is some product and talk about kind of the different categories of product that we have and that we are going into. Obviously this one speaks for itself. This is the sexy 9to5 girl. Nina looks great here. But if you go in the store, she can still look sexy in everyday sportswear, weekend sportswear. She throw on a pair of heels and wear that to dinner out with her friends, really kind of completing her whole lifestyle and look. Some of these items I will show you in a video in a minute, came from our August and recent September collections of which we have had nice positive reads on as well and showing print here which she definitely is attracted to.

Going into casuals, this can be one casual or dressy, however she wants to wear it. We still have to give her what she wants, the little open shoulder detail, the zipper or the tapping, some hints or metallic or quilting, a bling-bling watch, just all those little finishing details that she is looking for.

Collection pieces, this is something kind of inherent in the bebe DNA sportswear look, iconic prints, silhouettes. Some of these looks up here can be worn to work, they can be worn out, they can be worn cocktail, throw on a blazer and you look really polished and finished. What we have done here with print is we have the placement print on the side and then you have the full all over print here shown as well. So kind of showing a cohesion in how we are supporting our collection business.

And then not just a regular trend. So I mean, I think if you saw this girl walking down the street outside today in the rain, you would stop and notice her, which is what she wants. She has studs on the front of her jacket and she has corseting on the back of her jacket and color blocking extra detailed for her.

Woven blouses, this was a huge bebe basic business, something that we have had recent strong reaction to in key bodies and silhouettes of sleeveless, with sleeves and then taking that collection into the jumpsuit, which we believe is just one more of her going out looks.

And then to complete the look head-to-toe non-apparel, we’ve got to offer her again her detailed fringe, hardware, buckles, zippers, stones, ruffles, the bebe logo, chain details, texture, color, and to show you a denim and t-shirt worn sexy, again the bebe logo tees, the jean, sexy pair of stilettoes and even logo again worn sexy in denim.

So what I’d like to leave you with, one more finishing to the lifestyle before I show you the video. bebe Sport is back, again similar to ready to wear. She needs her details, open cut back, leopard prints, she wants to look just as sexy as at the gym and confident as she does in her every day wear and we’ve had again in these, a recent nice reaction to some of this product as well.

So what the video is going to show you is some recent products that we brought in. It has a great energy to it. It had the nice reaction in the stores. And what we’ve done from this product is she takes that and carry that forward into the holiday season with some of the read and react that we got there. So you’ll see that appearing in holiday in new ways, updates, prints. And most importantly, hopefully you’ll go in and purchase some of our product and visit our stores very soon. Thank you.

[Audio-Video Presentation]

Ben Baum

I’m Ben Baum, the VP and Chief Digital Officer for bebe. Steve and Katrina are a tough act to follow and I’ve only got 10 minutes. So I’ll keep it very brief. Although I can’t resist the plug that the weather in New York today is in excellent time to shop bebe.com when the sweat, rain and heat makes it’s unlikely that you may visit a store today.

I want to take you through three things. I’ll talk very briefly about my background and why I joined bebe. I’ll talk at some more length about the customer experience, my team’s number one job in digital and then I’ll close with checking in on the path forward and how we’re doing four weeks out from our re-launch of the brand and the website.

So about me; my career background has basically been composed of three distinct areas that I'm very passionate about; merchandising, strategy and digital. I started my career at Boston Consulting Group as a management consultant at the height of the dotcom era and then I transitioned to Target as a merchant mostly in soft lines and apparel for seven years, active wear, outerwear, ready to wear, women’s intimates and also merchandised segmentation for the company. And then lastly I was most recently at Google where I was Head of Business Development for multichannel retailers, the CDO’s like I am now of the leading multichannel retailers in the U.S., where we’re partnered on some of Google’s Vanguard shopping initiatives, which you may be familiar with.

And then on the question Steve discussed of why I was attracted to bebe; really two things. One for me personally, was the opportunity to put those three disciplines together in one role, the CDO role, which is what I am doing now. And then professionally was really the commitment the Board made to me when they were recruiting to really lean into digital and to make sure we had the people and resources and investment and technology to take digital to a new place for the company.

I like to think of bebe from my approach as a 37 year old startup where everything is on the table and we’re reinventing the brand and we’re doing new things in digital, yet we’re under the auspices of a very enduring brand, which Steve has talked about, and also where we have a proven background of the ability to deliver exceptional product, which Katrina is doing now.

Side note, the latest evidence of that support for digital is our newest Board member, Narry Singh, who is a very noted technology entrepreneur in Silicon Valley figure on Central Road and has been a driving force and helping to shape our ’14 digital strategies. So I’ve really enjoyed working with him and looking forward to doing that in the future. So we are definitely leaning in on digital.

So that’s enough about me. I’d rather talk about customer experience, my team’s number one job, which is to deliver a consistently reliable, highly differentiated, high quality customer experience from end to end, both as it impacts online and offline in the path to purchase.

To borrow a phrase often said in the halls of Google, focus on the user and all else will follow. That is the path to revenue and growth and I believe that at bebe as much as I believed it at Google. So for us it really is about reinvesting the customer experience and in the interest of time, I'm going to focus on three main areas if I leave with nothing else today from the digital presentation, it's these three things. It's how we're committed to on omni-channel, it's content and not just commerce which you'll see and hear a lot about with the re-launch and then also our prospects and our current work in mobile and tablet. So we're very excited about those three things. To take omni-channel, that's a pretty well-worn cliché right now, that doesn't have a lot behind it for a lot of retailers and we certainly have opportunities too, but I want to peel that back and talk a little bit about what that means to us.

From the user perspective from my Google days, that means reaching her anytime anywhere on any device and making sure we really keep up with her lifestyle. And we know from all the research Steve has funded that we indeed have a very digital forward customer, a very smartphone customer, very tablet customer. So that's very important.

On the retailer side what I think is often missed, which really is about content is making sure that content is synchronous across all of the channels and that when she looks at the window and that when she goes on her mobile phone it's the same experience telling the same story behind the same brand. So lot of the changes you've heard about it in terms of bring Keith in, bringing Mikel in, our new processes from Steve are all geared towards making sure we speak with one voice across the channels, and that's especially important between stores and digital. We all know what's going on with her mobile phone, we want to make sure that the message is the same, whether she is in store or using her phone in store, yet recognizing the different possibility that the different devices can offer. So as a simple example that we maybe highlighting our web exclusive products on a desktop experience but on mobile we may be offering an offer or talking about an in store event because she is probably in the mall and she's about to go in. So really putting our money where our mouth is on the omni-channel experience.

The second thing, content, not commerce you are going to hear a lot about from everybody because our re-launch is the big story this year. We have made very significant investment in our studio and making sure we can upgrade video, lifestyle photography, catalogs. For those of you who have been tracing bebe, you may have been on the way in we have our animated videos, looks we love. We have been using a lot of catalog inventory to great success on digital instead of just flat shots like we used to do in a very transactional nature, and our customer has definitely responded to that.

The biggest story of course in content, not just commerce is re-launch, which I'll get into in a minute. We've been quite pleased with the results of the re-launch and the elevation that's been provided by bringing Steve and Keith in and then Jay Walk has been our creative agency. And then lastly mobile and tablet which I will get into just in a second.

So probably a common visual display of that omni-channel vision, but I want to focus on three call outs for you here of which two of them are somewhat unique to bebe. One, before we jump into digital is the traditional box, catalogs, media, outdoor et cetera. I'd be remiss as the digital guy if I didn't tell you we have been thrilled to find through our research the connection between our very strong catalog performance as an example and driving traffic to the website.

So we're in no way even at the digital team now understanding the importance of the traditional media and we're actually doing exiting things looking at how to optimize and streamline things like catalog, if you think about cadence, frequency recipients of the catalog, how we treat it to actually maximize online sales and we have seen that work very strongly.

So a key theme is definitely the interplay between traditional media and digital media. Steve mentioned that before he arrived, before I arrived there was no digital media. So we're starting to get into it but we're not leaving behind our successes in traditional and we're understanding the links to our research between the two.

The second thing I'll say, which was really impressive to me looking at bebe and like Katrina when I was at Target, I used to comp shop bebe and I knew bebe as an iconic brand. Despite everything, the ups and downs that bebe has had in its 37 year history, our research today proves and we knew this intuitively that we have one and of most engaged enthusiastic hardcore group of customers with us that I think any brand has ever had and I could throw out many examples of those who have stuck with us through the years and who are very active on social, on web, on mobile.

A couple of examples that come to mind is I recently asked my team to look at our review content because I think that's a very underleveraged piece of user generated content that we have, and upwards of 50% of all of our SKUs have some form of review and we think about our SKU range and how dynamic we are, that's pretty exceptional. We actually have a very high degree of customers who posted two or three reviews in the same year and over 80% of our reviews are four or five stars. So just as one example of the way that our hardcore fanatic user base is engaged.

Another which I may get into briefly for the re-launch and Steve referenced it, with our new function of wearing bebe and being the bebe girl and submitting your Instagram pictures, we've actually had thousands of submissions just in the three weeks since re-launch. So it's creating for my social team quite a challenge in moderating that content to make sure it's brand appropriate before it hits the web, but it's been really overwhelming.

And then lastly in mobile and tablets and we'll take different approaches for those too. We all see what's happening. We know that right now mobile commerce is 10% of overall e-commerce. We know that for top retailers like Nordstrom, a third of all their visits are from mobile only customers. So we know that's super important and although I can't share very specific detail with you, our results since re-launch in mobile have exceeded our expectations and I'll get into that in a little bit more detail. Our customer is not surprisingly voting with mobile, whether it be the app, mobile web or tablet.

And then the same is true of tablets, 50 million tablets in the United States. 30% of all Smartphone users have tablets, and we know our girl is almost completely Smartphone, and if you believe what you read, at least 50% of those users are making apparel purchases online. The amazing thing for us, which I'll just mention is a brief detail for tablet, is that we have a significant percentage of our desktop sales on tablet and we don’t even have a tablet optimized experience yet. We will. So we know our customer is voting to have that layback browse experience on tablet and to use her mobile phone, whether she's in a bebe store or at home or at work. So that's very exciting for us when we think about growth opportunities.

Could you advance the slide please? Now let's talk a little bit about the third piece, the re-launch. My two caveats, which I'd be remiss in not saying is first of all I'd be the first to tell you as I tell the board that four weeks out of re-launch is not the time to gauge whether the rebranding has been successful. A typical re-launch effort of this kind of scope is about four to six months and you actually expect to see some intermittent negative impacts around conversion and other places as customers accept all the changes and we've made a lot of changes.

The second thing is, for obvious reasons I can't share the specific hardcore detail data of our re-launch but I do want to give you a flavor, a specific flavor for what we're seeing because it has exceeded our expectations in a number of places. We're not without challenges, however a couple of places relating to what we just talked about.

So one, mobile traffic, we've seen very pleasing shift to mobile traffic and expansion in the mobile traffic since the re-launch and I think that's reflective of a dramatically improved mobile experience from what we had before where the management focus of the company was really not around mobile before Steve got here and I got here and Narry came on the board. That’s in one.

Number two, we’ve also seen a very significant spike in mobile app download. Mobile app had historically actually been a real strength for us. If you've ever used it, it's actually beautiful. It works very well. It showcases a lot of features and functions for bebe, but adoption was not the same as what we're seeing now. So that's been good.

The third point which relates to re-launch in general as I spoke off is we're not seeing deterioration, short term deterioration in conversion, which is usually a hallmark of making a change this big. That's not to say that if you go on social sites you won't find bebe customers who are mad as hell and want their old bebe back. That happens whenever you have a change this dramatic. However she votes with her feet and she votes with the sales and based on what we're seeing, the yays outnumber the nays in terms of making this change where we would see it in conversion and we're not seeing it. That's something that I was actually quite pleased with, because based on past experience I was cautioning the company that we might see a three to six month deterioration that we would want to stick to the re-launch, but as I said it's still very early.

Social engagement has also been very strong. I mentioned we've had thousands of submissions in just three weeks for wearing bebe product. That's a huge underleveraged area of customer engagement for us and then lastly we've seen the engagement time on the site in all channels up and we're pleased to see that because obviously the more time she spends with us, we know that the more she's going to buy.

So I won't read this but this is essentially the architecture of what we did from the re-launch and it's really exceptional thing is this really only started three or four months ago. I joined basically at Christmas which was a crazy thing to do and then Steve joined in January, brought Jay Walk in who had done a lot of great work for him at Lacoste and we just got down to it and said we have to make it before holiday, then we have to make refinements and get set, and that's exactly what we've done, and hopefully that gives you a little detail, three or four weeks out as to the successes we're seeing from the re-launch. You couple that to what I mentioned we’re doing in the studio with videos, with casting, with lifestyle imagery, it's a brand new day for look and feel with bebe and we’re very excited about that.

These are just some examples of some the themes I talked about. We go at both ends, the lifestyle end of a celebrity, Nina Agdal, Charlie Atkins with Soul Cycle, making sure we've got the aspirational celebrity content. We're very close on who our customers' favorite celebrities are and who the directional lifestyle ambassadors are for us. That's a key piece.

Can you advance the slide please? One back. Then at the same time we're also doing her style. So that's the user generated content that the Instagram pictures, it’s the B9to5. I think it’s still up there if you look at the coming out party, the launch party we had in New York a couple of weeks ago. We got tremendous response. We maximized that content online because we had the models, we had the celebrity. We hit the break when Lenny DiCaprio showed up at the party and we were able to get mileage off of that. In the same week we had some placements in the daily news with some of our dresses and so there's a lot we've been doing with that.

And then lastly influencers, which Steve spoke a lot about, bloggers are very key to our social strategy in making sure we've got the right talent as brand ambassadors for us. Obviously one of the interesting things is you talk about the interplay between commerce and content, at least I did and how far to lean in on brand, versus how far to lean in in commerce. We're certainly about commerce on our site and we're here to drive our P&L, but what we can do in social and with our influencers is really tell the brand story and that's what we're doing and we're very excited about that.

Can you advance one more please? So I'll just close why I'm really excited about the path forward, even about the re-launch. There is a lot of detail behind this I won’t get into but if I think about five levers, which my team is really focused on, acquisition for us, aiding myself like Katrina did, those of us who knew bebe 20 years ago, how many customers do you know who say oh I used to love bebe 20 years, 10 years, 5 years ago, I bought them for shooting et cetera. Lots of people I know have that reaction and it’s not negative to bebe now. They just haven’t been back for a very long time.

So we believe there is an opportunity to reactivate all of those customers for whom the brand is still strong, but who haven’t been back in a long time in sort of the have you seeing forward lately and actually our customer research, which we were I think all very excited to see reinforce the fact that they are non-negative brand attributes for those left customers. They are kind of just waiting to see what bebe's next act will be and we are now into that for starts.

Then on conversion, this is somewhat similar to other retailers but there are opportunities to improve our conversion, specifically around mobile and tablet as we start to rollout more experienced tablet optimized experience, work on our mobile site. We anticipate seeing improvement in conversion and that’s obviously key to driving revenue for us.

Then retention, this is more about a preview of coming attractions. I think there is uniformed alignment on Steve's team seen which he is driving that we need to start look into reigniting the loyalty program because we have those super hardcore fan, because we have terrific stores associates that covert in store and we have folks that are worth several times what the average customer is as all do but who account for a disproportionate number of our sales. We actually want to lean into the loyalty program. There are some interesting things we're doing I won’t get into now, just looking at what an updated version of that loyalty program will look like.

Globalization is not tomorrow. Today we do ship. We are worldwide with our third party capability, but obviously as many other retailers we face the problem of shipping fees, et cetera. So we know that given the weakness of the bebe brand globally and in concert with our Head of International who is also planning store openings globally, there is a role for us to play in upping our game in international and making the right third party partnerships to make sure we have that reach to the places that bebe brand is beloved but they are not currently close to stores.

And then lastly, there has actually been a whole suite of low hanging fruit in the optimization area and what’s interesting for me is that sounds sort of boring and technical but it’s actually a customer experience issue. We drive sales, we drive efficiency but we actually complete customer satisfaction. One random example I will give you that I've been very excited about is inventory virtualization.

So when I joined the company, we actually had our inventory sitting in different pools for stores, for e-com et cetera. We have our own very large and very effective well run distribution center in Benicia in California, very close to our head of business. We took a number of cross-functional trips out to the DC. We saw all the space that was there for e-com growth and we have said this is crazy based on the inventory we hold for e-com and the customer disappointment and lost sales when we're out and so within a matter of about 30 days we were able to bring all of that inventory together as one pool and we are already seeing results which I can’t share but results that we're excited about indicating a lot more completed purchases online and increased customer satisfaction where we used to run out, when we actually had the inventory but not virtual, just one example.

So these are the reasons I am very excited. bebe is definitely paying off on what I was interested in joining as far as leaning forward on digital. Steve has built a terrific management team. You will hear from many of us today and for us, this is really chapter one of the reinvention and thank you for your time.

Liyuan Woo

Hi, everyone again. So you heard all these exciting strategies. I'm just going to try to tie them together from a numbers prospective. As you heard, I have been with bebe for three years. So I was actually coming from consulting and advisory world. I was spending 13 years with Deloitte and six of which doing merger and acquisition, mostly servicing private equity firms like CBG, HNS and Clara Capital of the world. So when I heard that opportunity to join bebe, I was very excited because I've been a customer since 90s. So I'm actually very loyal to the brand.

What I really want to focus on, I think many of you heard this from me before, where we really are laser focused on, our long-term sustainable growth. So we are looking for short-term turnarounds and we're still early from a turnarounds prospective. We definitely hold ourselves accountable from a sequential improvement perspective but we are definitely looking towards the long term and very much focused on ROI analysis on how we invest the money to support the growth.

High level, if we look at numbers, the purpose of showing this is really to see how high was high. We have always been experiencing higher comp sales and net sales and this chart starting 2007 to date are on a continuing basis, meaning it's without PHA [ph]. Some of you probably remember we used to have bebe sport, PHA [ph], there is about 52 stores that we closed back in 2011. Actually it was time when I first joined bebe. So this is really showing continuing basis.

But the focus here is really to say we have done it. We used to be at $750 per square foot for bebe, $800 for 2b or outlet fresh cut product. So we definitely have the room to go back to what we have done before. Another interesting to share, looking at the history a little bit, when I first joined back in August 2010 that is actually the time when an Amelia and team joined and Amelia was really serving in the capacity of president but she did bring the whole group with her from marketing to design to merchandizing.

But the reason I am mentioning is really twofold. One is, as you can see the number, it really took her whole team about a year for us to get to a flat comp to 2011. Now we have experience 13 months, month after month positive comp with that team. So really the point there is, it takes time for the merchants and designers and everybody to work together to turn the ship around. But also it was very positive for me to live through that, to see how excited the customer can be and to be engaged with us as a brand, we bring her the right product.

Now obviously 2013, I think we just went too far in terms of the pendulum. The clothes got more conservative. We really walked away from sexy because our paradigm shift actually believed in higher price point and we were trying to reengage our customer from a schooling perspective. But it certainly went far and you can see that from the numbers. Our gross margin back in the days were in the 50% and clearly 2013, we were at 33% because of some of these strategies really moving away from core bebe DNA being sexy and who wears everything.

So here really I just want to emphasize how high is high. Again as I mentioned in the beginning, we are in the beginning of a turnaround. It is not the right time to really talk about from a quantitative perspective where we are headed in the near future but we have the history to prove there is certainly room and potential for us.

So our strategic focus, I think everybody mentioned it already. Certainly we want to drive comparable store sales growth via traffic and AUR. It is not just average initial retail. FY13 we had high ARI but the key is, if we don’t manage the margin the AUR is really going to show that.

So you have heard from Keith, from Katrina, from Brigitte, we are going to get our customer excited to drive that sales and Steve also mentioned, yes we are going to right size our store, not only from a size perspective but also from a profitability perspective for both bebe and 2b and when we look at 2b, we really are seeing that from both the outlet channel as well as some of the mall based stores. So we are going to examine that very carefully.

And we have a lot of room for international expansion. We continue to drive our omni-channel with ecommerce and have potential with bebe outlet store growth perspective. Now gross margin, not only we are looking at product improvement. That is going to be naturally improving our margins, but also have production working closely with merchandizing. Our production, now it’s in charge of both in-house production and outside buy across bebe 2b outlets. So we going to be looking at leverage and looking at IMU potential which will benefit our margins going forward.

Everything from talent to marketing, you heard from Katrina we are looking at products, our inventory. We are going to attack, we are going to react. So everything is going to be examined carefully and we are going to invest wisely. As you can see our CapEx investment is about $25 million for ’14. Historically we have always been above $20 million range. So we are not necessarily spending a lot more. It is really using that dollar wisely, putting the right bucket and category.

Real estate, we talked about already. Steve had shown a prototype. We are only doing five. We really wanted to see what is the incremental sale that is going to show us before a rollout and we will we are also continue to value engineer just to make sure we are investing wisely. We are going to rollout major four product with bebe label in our outlet stores. Right now we have about 32 in the premium outlet malls. So there is certainly room for growth. I really want to emphasize we are in a transition mode and this is what we are going to be focused on currently. Once we come out of that turnaround mode, there is a lot of potential for the future.

International expansion, we are continuing to look at the core international areas we have. You can see the purple ones. We are in Middle East. We are in Southeast Asia. We are in Eastern European countries, North America, Mexico. But there is a lot of white space as you can see from a long-term perspective we haven’t explored yet. There is Europe. There is South America. There is China. There is other areas that we can look into the future.

So again very much ROI focused investments. We have a PUI system already but we can fine-tune our merchandizing management as Katrina had mentioned to really look at our regional level of allocation of products, really optimizing sales and margin that way and we are investing in our omni-channel. We are going to continue to enhance our platform for efficiency and functionality.

So with the turnaround strategy, in the long-term we are really looking for self-productivity improvement. We want to see margin expansion. We will be leveraging our occupancy cost as mentioned to people before. With the rightsizing of the stores you will see the top line decreasing initially while we’re going through the turnaround. But as recapture the customer via online other geographies, we’ll continue to build that up.

And we work very closely with Katrina’s team on inventory efficiency. We wanted to make sure it’s a balancing act. So we are buying new fresh products. At the same time we wanted to have key items and key outfitting supported by marketing. So we’re working very closely on how to passively act, make sure we have enough open to buy for us to chase into.

All this is really to try to see continuous improvement in free cash flow. So my leave behind is really, I wanted to emphasize we still have product we’re trying to markdown. So if you go visit store today it’s not all of the products from Katrina’s team. So we have at least 40% lag as the inventory still in a sore place and that will give us margin pressure as I mentioned in earnings call. But we hold ourselves accountable for sequential improvement and a key takeaway here is really long term sustainable growth.

So with that, I’ll invite Steve back for closing remarks.

Steve Birkhold

Thank you. So obviously you got to hear from a lot of the team and we tried to structure this presentation to give you as much information as we could in a relatively short amount of time. The one area that we obviously didn’t dive very deep into is probably one of our biggest competitive advantages, which is our retail presence and our retail ops team.

And I would say from an industry perspective, we’re close to the gold standard when it comes to conversion rates. Susan Powers, who is our Head of Retail has probably a retail management team that has the most longevity. We have 95% plus field positions at the store manager, district and regional manager level. So behind that obviously comes an HR team, and other aspects to maintain that consistency. But our stylus in the stores, those of you who experienced our stores, it’s a very big competitive advantage.

The one other part of retail that we didn’t really cover too much is, as much as Ben and the digital team are focused on online, the offline traffic driving initiatives are a very substantial part of his responsibility also. So working with our marketing teams, our retail teams and making sure that we’re driving footsteps into the store.

When you guys walked in, I don’t know if you noticed on the left there is three flat screens that are together and in our new retail concept we will create live streaming content so that the girl that wants to shop bebe and goes online and sees a new message on a daily basis, she can get a similar kind of feeling when she walks into our store.

So you’re not going to walk into the stores and just see a static image and the same image for months and months at a time, that this new strategy and technology that we will be testing will help us implement either individual store or regional messaging that we can focus on additional products, we can send messages to the consumer, et cetera.

So even though we didn’t spend a lot of time speaking about our retail and our retail ops and our store experience, there is a substantial amount of our strategy we were just trying to focus on where we could go.

The one thing I wanted to also layer into where Liyuan ended is although we have significant international upside and opportunity, I'm a firm believer in we have to be successful in our home country and our focus has to be in creating that brand equity and desirability here, prior to doing additional major rollouts.

So obviously we have a store base internationally with great partners that we have to make sure they are productive and up and running and obviously some of these deals take a substantial period of time. So we are engaged and we are moving forward from an international perspective but we’re not going to make a huge push until we can really substantially change the run rates here domestically first.

So again I won’t read this statement to you, but again I think it was very important for all of us to have a rallying cry. We have a mission statement that’s very much aligned to who our customer is and is something that around the offices both in Brisbane and the Design Studio at L.A, this is something that everybody is very, very well aware of.

Again the whole reason a lot of you are here is to really understand why bebe? Why should we invest and support and follow bebe? And I think one thing that we really believe is that we’re a highly recognized global brand, uniquely positioned to equip today’s confidence as you (Audio Gap) girl, get our competitive set out there. We do have a very unique brand position. We will continue to really drive that.

Our retail portfolio is another category that I really believe that we have a great strength. I think the quality of our leases, what we’re paying in rent in our store locations is a competitive advantage. We have multiple avenues of growth including increased productivity. The productivity per square foot in the stores is substantially below historical levels. We’re rationalizing our stores. We have e-commerce growth and we have international expansion.

There is a significant opportunity for operating margin expansion through gross margin improvement and disciplined cost control, process and procedure are working with international suppliers, not being over assorted by more debt these are all things that can add to the bottom line.

Strong focus on the balance sheet and very strategic use of capital with a focus on ROI, so you are not going to see myself and my team out there spending like crazy to drive the business. We are going to do a little cart before the horse; we'll some testing some rationalization and make sure that as we start spending bigger chunks in the future that we have a reason to do it in a ROI focus.

Then hopefully you have seen from today we have a very strategically smart and engaged senior management team. My team works really well together, we have a certain personality that we're establishing for the brand both in Brisbane and in LA we have traditionally always been ranked as one of the best places for women to work in the state of California and we're now creating an environment that we can improve our retention and obviously we all know in any industry when you can keep people and people are happy they are more productive. I am a big believer and we have to believe in ourselves in order to get the market to believe in us.

And I will leave you with this comment which is kind of a rallying cry that we make women sexy. And that's kind of our goal and like I said whether it's product that she wears in the gym or products that she wears out at night that's really what we strive to do.

So we'd originally had a break built in, but what I would say is since we might be a little time constraint, if somebody needs to take a break please take the break but I would recommend that we get right into the Q&A. Liyuan and I will probably handle the majority of the Q&A and if we need to reference some of our team members we will. Terrance has a microphone, so we'd appreciate is that you guys ask your questions speak into microphone because obviously this is a webcast and we will do our best to answer your questions as much as we can.

Question-and-Answer Session

Ben Baum

And also please limit it to one question and if we have time we're definitely go back for a second.

Unidentified Analyst

Thanks for the comprehensive update. I will only ask a financial question. When you showed the 50% gross margins, I am just kind of curious what was the AUR and average transaction like back then and what it is like today?

Liyuan Woo

The EUR is surprisingly consistent. As Katrina has mentioned our core customers really the money driving machine. It doesn't really matter what the AIR is, the initial retail. At the end of the day the AUR has been consistent, obviously with exception of '13 being anomaly, mark down.

Unidentified Analyst

You obviously have short production runs and timing is critical from a sourcing perspective. Have you changed any sourcing from yesterday to tomorrow to accomplish it better?

Steve Birkhold

So the one thing that bebe has always been is a machine that generates and ships in a significant amount of product. We ship on average 1,000 new skews and a million units a month. So the machine is in place to generate tremendous velocity when it comes to design and speak to market. My evaluation was in some cases when I first got there we were actually a little bit too fast, the merchants were making decisions of fabric, swatches and sketches versus fully vetted samples. So depending on the category what we have done is just simply rationalized so that we maintain our position as being amazingly fast, but we're making better decisions based on real samples and the real fabrics for the right trends and the right fit, so that we don't have that issue at the store level when you are trying to move too fast.

And we also have a combination of obviously made an Asia production even shorter lead times on some LA based domestic kind of production, so it's a balance.

Unidentified Analyst

[Indiscernible] being dramatically different.

Steve Birkhold

Again depending on how the consumer has shifted, so there is some dramatic differences because some of the bodycon, knitwear, knit driven products that are more U.S. based allow us to be a little faster based on current trends. The skirt business for us is really strong right now we're chasing that very effectively, domestically. So I would say that other than just market dynamics that drive, that shift we have strategically shifted other than the fact that the quality of what we we're doing and that the finished products that's hitting the store is definitely better than it has been in the past.

Unidentified Analyst

I want a follow up on the answer about gross margins. What percentage of your business was marked down historically and where is it trending now?

Steve Birkhold

So in 2013 I think we ended around 51%, 52% mark downs, and historically we have been around 32% to 33%. So again I think part of this Liyuan and that initial part of her answer about the average retail going in versus the average out the door regardless of how high we have taken the upside the outdoor to remain consistent. So obviously more expensive product doesn't always necessarily mean that our consumer and you saw some of the economics that I showed in the research, I mean she has, this is still acceptable fashion, this isn't couture, she wants those couture looks at a price point that she can do so, I think the team has done an amazing job and the categories that we've been able to push a little more of the percentage of the buy towards opening price, we've seen a real benefit and that's one of the major initiatives that we've embarked as a company.

Unidentified Analyst

I was curious to know why you launched the ad campaign which I think is great, but for you, you launched it and you still have 40% legacy product and I was just curious as to why you did that and you didn't wait until the legacy product was gone.

Steve Birkhold

Well again you know, I think we all know in this industry the importance of the back half of the year I think that even though we have a substantial amount of legacy products, you know when the consumer is ready to jump into the next season and move on to the next product there're certain windows where the spend is greater and we just thought it was time to really kind of reengage with her on these products that we know, you know when we get into November, December when we want every girl to buy her New Year's Eve dress with bebe, it’s a process that has to start in media and investments and marketing, they take a certain amount of time.

So to get back on her consideration set is critical and I think when you see the way we've merchandized our stores it even goes down to where, even though we have a lot of legacy products when you walk into certain A+ stores you're going to see mostly new products, so we’ve actually come up with an internal process that in our highly visible stores, those markdowns kind of go out to some of our secondary locations little bit faster so that in our big visible markets you'll see a higher presence of non-legacy products.

Unidentified Analyst

I was just curious the main issues of the legacy product. I mean what direction had it taken that was wrong, I mean it just got not sexy enough or what was the kind of main issues that you're now finding.

Steve Birkhold

It's really -- that's -- it's a tough question because there's a lot of different reasons depending on the product category, but kind of overall I would say that we started targeting a slightly older consumer and again I didn't show a graphic but if you were to look at the last rolling six or seven months of catalogues up until like April, May, when we really started changing the view what the consumer saw, you'll see the models and the necklines and the silhouettes for a little longer, I think if I remember you know we had an average dress in scene that was two inches longer than our historical, so those are the kind of things that I would just say that go in a little higher price point with better fabrications and a little bit older clearly was not resonating with our core girl, so that works its way through apparel to non-apparel across the board.

Unidentified Analyst

Questions about e-commerce, it was mentioned that you have the ability to ship from your distributions that are either towards the stores or the internet, can you take that a step further and actually ship from the stores to an e-commerce customer or will you have the ability in the future to do that?

Steve Birkhold

We will, we actually have the systems in place to implement that, I actually kind of pulled back on that slightly because what happens is we're so efficient with our inventory right now and we still focused on creating a positive customer experience, what I didn't want to have is for us to acknowledge something on e-commerce that we have something in the store and if those goods aren't pulled off the floor because we have very little in our backrooms, all of our inventories on the store then we could have a negative situation for the customer, so we're still trying to refine the inventory positioning so that if we acknowledge to a customer that we have those goods in a store, and we can do a ship from store that we actually can achieve that, we're just running very efficient with our inventories. Again, our inventories are starting to come down to last year and so we'd rather control that and ship directly from our warehouse. But Ben didn't get into the exact numbers and make sure that everybody understands that when I first got to bebe we had our e-com team doing a forecast on inventory and what they needed at a style level and if we ran out, we ran out. So now basically we have a first in mentality, if customer wants something online and that's in our virtual retail bucket of inventory we still ship the e-com inventories and we reengineered the warehouse so that we can do that efficiently and it's really, it's added some substantial volumes to our base and we'll continue to work through that.

Unidentified Analyst

Just as a follow up, is that one of the reasons why you wanted to pull back and not allow ship from store or to show the inventory from the store, because your systems can't yet handle that or do your systems now that are at the store level show you in more real time, you know, may be 15 minutes delay or what not, that you do have that inventory at this time.

Steve Birkhold

We have fully the capability to do it, the only reason we're holding off on announced we just have to refine our processes, so when the store gets an acknowledgement that we need to ship something from the store to the customer, if they're ringing up the register and another customer buys that piece of merchandize there are just some logistics that I want to make sure that we refine and not interrupt the customer experience, and obviously Ben has been so focused on a positive customer experience that you know we’re just refining that. So it’s just, it's on our list it's just not at the top of the list of priorities right now.

Unidentified Analyst

Just a follow up on opening price point, I'm just wondering how you're thinking about that in terms of driving traffic, do you see her coming in, buying the opening price, well I know it’s still early but buying the opening price point and then may be trading up and additionally buying the higher price point merchandize, or do you just see it as being a volume driver of lower price point.

Steve Birkhold

Again, it really depends by category. What we are seeing is in a historical categories that she buys a lot of product in. We can still sell the special piece all day long, we can sell that $200-$300 dress, great leather jacket I think to cover actually on the cover of your analyst review is that leather jacket that will retail I believe for around $495, we will sale out of that jacket for sure. So for me it’s more about in certain categories like bandage dresses and those price points, there is just prices that make sense competitively and we just have to make sure that we are not 30% higher than our competition for something that she can get competitively at a different price point. So what we have seen is we have actually seen an increase, a little bit of an increase in our units per transaction by having some additional opening price points.

Unidentified Analyst

You have talked a lot about process today and what I am wondering is in light of the fact that I think in the past the company has done some mis-pricing that lead to less than favorable results, how do you do the trade-off within this process of whether a design is attractive or whether it’s mis-priced, how do you know how the consumers really feeling about it?

Steve Birkhold

You know ultimately, we really measure our success by the question that was asked earlier. We have to dramatically reduce our markdown rate. You know obviously no matter what price you put on there, the consumer is going to tell you the value of that product with what they ultimately will spend. Okay, so I think that -- so that’s kind of at the end of the final.

At the beginning of the final I think by having the teams working together, there is more dialogues so even though my philosophy is we want to be a company that people copy not a company that copies everybody else so really design lead. It’s really important for the designers and the merchants to understand that where is volume, what are the volume price points, even working back to how much can we spend on fabric in trends and make in order to hit something at price. So I think by having them work a little more collaboratively and literally sitting next to each other across from each other, it’s going to really improve that process.

Unidentified Analyst

Can you elaborate on what you said about 2b, are you going to turn all of those into bebe, just the outlet portion or any of them full price?

Steve Birkhold

No, so we really believe in the 2b concept, we have 50 2b stores right now, 32 of them are outlet but 32 outlets will change to bebe outlets. So there will be a percentage of made for outlet and percentage of 2b access and a percentage of bebe access in there, the other 18 or so 2b stores which are in these kind of the original malls basically have to, basically from a P&L prospective support themselves. So we've got a great new person that joined us from the corporation Mikel Bowman who is basically running our 2b business, working on sourcing activities, marketing all those things to really make 2b profitable but my philosophy is that it was a little bit masked because the outlet channel I think you guys follow a lot of businesses, the outlet channel has been a very profitable, substantial part of people’s returns and I think just kind of masking whether 2b can actually be a sustainable concept. So my philosophy is we are going to advance in those 18 stores, we are going to fix it and once we fix it, if it makes sense then we will still after it.

Unidentified Analyst

When you talk about test, measure, move can you elaborate on that a little bit, how much are you able to test, what are you able to test for, how early you are able to test it and then how much open to buy are able to wait to say how late the cycle and then how is it different than what they were doing a year or two years ago?

Steve Birkhold

Sure. So the whole idea again across all the businesses is we are a little more focused in our assortments. So we're cutting back and not being so over-assorted. So we are talking some bets from merchants and the designers on what’s going to be the right products but we are also not going to shut down the pipeline, innovation in newness.

So the idea would be if a merchant and design team believes in a certain fabrication or certain style, we may cut it and relatively smaller economic units where we have the fabric position tested and then determine is it the right fabric, is it the right silhouette, do we have the right price you know be able to move. I would say that it’s -- I was say that 15% of our business range that we need to be able to reserve and open to buy in order to react to what happens in season and I think the graphic t-shirts are great example that we shift in a percentage and that happens to be a great category because it's something we can do domestically and its fast turn but we have had the open to buy very quickly go back after once we got here.

Unidentified Analyst

[Indiscernible]

Steve Birkhold

I would say 15% of our total open to buy. So we are holding on to open to buy not spending it during our normal lead times, we might buy some trend, we might buy some fabric but we are not cutting everything upfront so that we have the ability that, if we are testing a new silhouette or a new fabrication, we are not going to go and take a huge fabric position and then just ship it all in one time.

Unidentified Analyst

Can you estimate how much of, what’s on the floor, what given the time they have been tested? Are you testing 30% of assortment, 20% of assortment?

Steve Birkhold

Actually don’t. I honestly hate to quote a number because I don’t know the exact number we are still kind of getting into that but its part of our philosophy going forward

Unidentified Analyst

And then how much has it changed? It was is it 15% last year. Was it 5% was it 40% [indiscernible]?

Steve Birkhold

Again I don’t know the exact percent.

Liyuan Woo

The percent is definitely increasing.

Steve Birkhold

It’s increasing I don’t know what the percent was but it was pretty low, I mean when I got here we had fabric commitments and we had -- we were pretty constrained based on some of the big commitments that were made.

Unidentified Analyst

On your remodels what is the cost per square foot?

Steve Birkhold

We are still in the process of working through the final cost but it will be something that works into our typical modeling.

Unidentified Analyst

Can you give us a range as to what it might be?

Steve Birkhold

That is just not a number I am comfortable quoting right now.

Unidentified Analyst

Who do you perceive are competitors in the mall?

Steve Birkhold

Well it’s a consumer cross shops as we all know I think we compete from our research our consumer shops at all the verticals so, Express, Victoria’s Secrets honestly one of the biggest names that always came up with Massey’s she shops in the department stores so she really cross shops everywhere.

Unidentified Analyst

At what point do you expect to have your design team have fully kind of touched the full product coming into the store obviously you are still working through a lot of legacy product but at what point do you really expect to have full control of the product in your store?

Steve Birkhold

Yes I mean well just to be clear I think we are pretty close to the actual design team being fully ownership of everything that’s coming out. Okay like starting with fall, so but as far as what Katrina’s merchant team has been able to tweak that is where the kind of lag time is so Brigitte was on board I think in February Katrina joined in April so there is that lag time between when Katrina joined and when Brigitte joined. As far as if the question is when are we going to be work through in the legacy product and what percentage are we going to be by the time we get to, I would say we would be hopefully 80% new products by the time we get to the October-November time period. I think that is probably what the question is right?

Unidentified Analyst

You mentioned reacquiring Lab’s customers I am just wondering from your perspective what happened to that customer did they just reduce their frequency did the style change away from where you were did they go somewhere else?

Steve Birkhold

All of the above I think the one thing that we have always had is we had great systems but really haven’t mind the systems so we have kind of a CRM focus now where we are in the initial stages of understanding the database on frequency when is the last time they shopped what product categories are they shopping. And so we are kind of putting them in all the different buckets but last customers for all the reasons actually the majority of what we hear with our last customer is quite honestly once she gets to a certain stage in her life and her body she just can’t wear our product.

When she has kids and gets into her 30s she kind of gets out of bebe so.

Liyuan Woo

But she can go to 2b.

Steve Birkhold

Right.

Unidentified Analyst

With all the markdowns you are using to clear the legacy inventory any concern that it will be difficult to regain pricing?

Steve Birkhold

Well again that is why I spoke earlier about our strategy and our key doors and key markets are pushing some of that product either into the outlets or into more sure markets. So yes we are very cautious about that I mean if you have noticed over Labor Day weekend we weren’t as deep as our percentages are with some of our competitors so that all is of course that’s a huge concern. But we are finding that our full price percentage sellthroughs on some of the new products that we have delivered are starting to really show some great signs.

Unidentified Analyst

Obviously you have made a lot of changes over the last year, at what point do you think that kind of the goal or the type of changes that you want to make at what point do you think that you are going to have fully implemented a lot of the changes that you’ve kind of -- have kind of set forth?

Steve Birkhold

I think we have implemented a lot in eight or nine months. I think that bringing in Michael Berman from a visual merchandizing perspective and an in-store marketing perspective those are things that are as people join obviously it takes time for them to kind of rebuild their internal teams and get going up right in. The senior team and the senior is not rationalizing the more junior team so I think as Liyuan said these transitions take time.

A unrealistic expectation is something that we are just not going to do we are not going to say we are going to be done on this day it’s an evolution but I think comfortably as we get into 2014 calendar year we are going to start to get some momentum in think in our second/third quarter all of the team working together new processes procedure but it does take time so.

Unidentified Analyst

What is your capacity on a dollar basis for the online channel as its set up today?

Steve Birkhold

Again, we really haven’t talked about our volumes by channel, so we’re not going to talk about that. But I’ll just use the word that it is a substantial capacity. We have a higher percentage of online business in most of our competitors as a percentage of total sales today, and I think it will continue to accelerate. And I think some of the initiatives and Ben spoke to highly optimized mobile site, which has been re-skinned, our desktop site re-skin, we’re working on tablet, we’re working on social media. We have a lot of things and we have great expertise. And Ben then speak much about his team but we have social media, and the team below then is very-very senior. So we’re equipped for some great growth.

And the other thing that we haven’t talked much about but all of our online aspects from a management perspective on technology platform, et cetera, are under Ben, so 2b.com and bebe, which is a change to viewers. 2b.com was kind of a separate internal entity now. We have the support on the backend that’s more consolidated. So we’re going to start to see that move forward.

Liyuan Woo

And from a logistics perspective you know we own the DC and have great capacity.

Unidentified Analyst

Okay, I wanted to ask just in terms of the, obviously your apparel is moving in the right direction in terms of content. But how are you approaching evolving the footwear and handbag business?

Steve Birkhold

Yes, that’s a great question, and I think non-apparel is a huge upside for bebe. I think by bringing Katrina in one of the reasons that we and I really like Katrina was her strengths on the non-apparel side, we brought in a very senior experienced divisional level. What I would say is that we need to find the right balance between the lead times that our traditional non-apparel lead times were aligned the product. And just not to over simplify it but non-apparel might have to look at what color of metal and colors two and three months, four months before we make those decisions on apparel.

So what Katrina has been able to bring to the table is supply base having come from ShoeDazzle, which I am not going to explain to you their business model, but they’re very fast and really bringing that mentality to the non-apparel side of it. So we’ve really closed the gap, I would say, from a lead time perspective and there will be a lot more alignment in the products. And in theory, you could have -- we’re so fast in the apparel side we just don’t want to have that complete disconnect. And that’s been kind of obviously in the last 18 months has been a real legitimate issue in non-apparel that we’re using vendors that had much longer lead times, so I think speed to market in non-apparel is very-very critical.

Liyuan Woo

Thank you all.

Steve Birkhold

What’s coming up now so I guess the thunderstorm is kind of blue through. So you guys can stay and have a cocktail that would be great, and I’ll be available for other questions. But obviously one of the big goals for Liyuan and I is to improve our relationship with the investment community and I think that those of you who’ve contacted us and has wanted to meet with us and have a conversations, we’ve been open to that. So if there is any follow-ups offline with any of you, feel free to reach out to us. But we definitely are going to be a little more open than we have been in the past to working with you guys and answering the questions the best that we can. So thank you very much.

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