BEBE filed its 10-K today, reporting FY17 results, right at the deadline for the SEC’s 90-day shot clock. Despite the wait (thanks, BEBE), everything came in as expected.
How’s BEBE’s Balance Sheet?
As of July 1st, BEBE reported $53mn in assets and $64mn in liabilities, implying a net liability of $11mn. That’s bad, right?
Not really. Say what you want about BEBE as a business, but you can’t deny they always do a great job obfuscating numbers in its filings. Included in the $53mn in assets is $27mn of assets of discontinued operations, both held for sale and not held for sale. This includes the properties they are in the process of selling. However, these properties are currently valued well below market values, so it doesn’t make sense to use that $27mn estimate.
If we exclude these estimated property values, BEBE has $26mn in assets, vs. $64mn in liabilities. This leaves a net liability of $38mn.
In the 10-K, BEBE noted that after July 1st, it sold its Benicia distribution center for $22mn and two condos in LA for $2mn, or $24mn total. Subtracting the $24mn from the net liability of $38mn leads to a revised net liability of $14mn.
|Assets of Disco Ops||$27mn|
|Prepaid and Other||$2mn|
|Total Current Assets||$51mn|
Source: BEBE 10-K
Substantial Tax Assets
BEBE also noted that it was able to reduce its bridge loan to $16.9mn, from the original $35mn, using 75% of proceeds from the asset sales. That’s a reduction of $18mn, or 75% of $24mn. I bring this up because it confirms that BEBE’s substantial tax assets mean that BEBE will not pay taxes on asset sales.
As of July, BEBE has $324mn in NOLs. Less than $24mn will be used for the asset sales. It’s less than $24mn because they didn’t get the properties for free. This means over $300mn in NOLs will still be available for the profits from the sale of the LA design studio and future profits from its royalty business.
What About the LA Design Studio?
With the sale of the distribution center and condos, the last big asset remaining is the LA design studio. Previously, it was announced that BEBE would sell the LA design studio for $35mn to Monday Properties. The deal was expected to close in mid-August. Obviously, it’s well past August and we have no additional details, so what happened?
In the 10-K, BEBE included the following statement. “The company is considering several offers for its LA studio in a range of prices that are sufficient to enable the company to meet is current obligations and meet is cash flow needs. However, if the LA studio does not sell in the next twelve months the Company will be unable to repay the bridge loan at its maturity (May 30, 2018).”
There’s not a whole lot of detail about what happened, but it clearly sounds like the deal fell through. Unfortunately we have no idea why it fell through. If we assume BEBE sells the property for $31mn, a 10% discount, that means BEBE will move from a net liability of $14mn to a net cash position of $17mn. Why am I assuming a 10% discount? Because lowering the price fixes all issues. Also, I previously estimated BEBE would have a net cash position of $17mn in my prior article and I would like to be right for once.
What’s BEBE’s Valuation?
BEBE currently has a market cap of $43mn. Subtracting the $17mn in net cash means the business is currently estimated to be worth $26mn. We have no idea how much revenue BEBE will generate and how much it’ll collect in royalties going forward, but this much is clear: BEBE is not going bankrupt anytime soon.
Disclosure: I own BEBE stock. The opinions expressed are my own. Investing is risky, especially stocks with less than $100mn market cap. Please do your own research before making your own investments!