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Prentice Capital Puts Bebe in the Corner, Criticizes CEO’s Salary

Bebe Stores

One of Bebe’s biggest shareholders has put the womenswear retailer on blast.

Michael Zimmerman’s Prentice Capital Management, which recently revealed a 5.6% stake in Bebe, has called on the company to consider all options, including a merger or sale, and has criticized founder and CEO Manny Mashouf’s “wildly off-market and utterly inappropriate” compensation package.

In a letter sent to Bebe’s board of directors on Mar. 4, Prentice Capital expressed its frustration with the retailer’s poor performance and said that if Mashouf—who returned to the role of chief executive in February—was “truly invested in turning the company around he would have foregone a salary altogether, as is the case with many founders who return to manage their eroding businesses years after their founding.”

Prentice Capital has also filed a 13D with the Securities and Exchange Commission (SEC).

“We are writing to express our extreme dissatisfaction with the board’s continuing and blatant disregard for the interests of Bebe shareholders—other than those of the controlling shareholder, Mr. Mashouf—while its stock has cratered 87 percent over the past year,” the filing said, pointing out that as of Mar. 2, Bebe stock traded at $0.47 per share with a market capitalization of $37 million, no debt and $53 million of cash and securities, while the company’s balance sheet included an estimated $30 million of real estate value. “All told, the company’s total assets stand at approximately $83 million, or $1.05 per share—a 123 percent premium to its current stock price.”

The filing continued, “Given the destruction of shareholder value over the recent past, the board’s utter lack of consideration for and communication with its broader investor base is unconscionable. Immediate action must be taken to create (and salvage) shareholder value. We have waited patiently but have been consistently ignored; thus, we are left with no alternative but to express our views in the public domain.”

Last month, Bebe announced it would cut around 45 positions across design, merchandising, production and IT as part of a restructuring plan designed to save the company close to $6 million. It was the second set of layoffs in those departments in four months, following the 50-plus positions that were slashed in October.

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The retailer reported a 2.5% decline in comparable store sales in the most recent quarter, ended Jan. 2, while net sales decreased 5 percent from $128.9 million to $122.4 million as traffic and conversion fell. Net loss from continuing operations was $5.5 million and loss per share was $0.07.