Dive Brief:

• Struggling apparel retailer Bebe Stores Inc. is in the process of shrinking its store base: It closed one store in the second quarter and has plans to close as many 25 bebe and outlet stores in fiscal 2017. That will decrease total store square footage by some 16% in a year, according to a company press release.

• The retailer on Thursday said Q2 same-store sales fell 10.5%, compared to a 2.5% decline a year ago, as store traffic improvements were inconsistent and inadequate over the holiday period. For the six months ended Jan. 2, same-store sales decreased 7.4%.

• Q2 net sales were $101.9 million, a decrease of 16.8% from $122.4 million in the same period last year. Gross margin as a percentage of net sales edged up to 34.4% compared to 34.0% last year, thanks to a reduction in markdowns and promotions. 

Dive Insight:

Bebe, a brand with a solid reputation for chic fashion, hasn’t been the same since the departure of creative director Neda Mashouf, who exited after her 2007 divorce from founder Manny Mashouf, who was president and controlling investor at the time and took over as CEO a year ago.

Facing declining mall traffic and other headwinds in the apparel sector, the retailer has also faced pressure from private equity investor Consac LLC, whose president, Ryan Drexler, in 2014 began leaning on Bebe to consider a sale or go private, expressing criticism of what he called Manny Mashouf's "questionable" financial holdings. Bebe's fortunes seemed to revive somewhat later that year after naming retail veteran and Jackson Hole Group founder Jim Wigget as CEO, but the company struggled to gain traction, and Wigget stepped down early last year.

Last summer the retailer struck a deal with brand management company Bluestar Alliance to develop its wholesale business abroad, where the retailer retains a higher profile than in the U.S. In his second quarter statement, Mashouf said the retailer’s reduction of expenses helped its bottom line.

“While we saw improvement in the week before Thanksgiving and the two weeks before Christmas, the results for those three weeks were not sufficient to offset the overall negative traffic trends in the first three weeks of November,” he said. “We ended the quarter with our inventory and SG&A below the prior year and increased our gross margin 40 bps as a result of fewer markdowns. As a result of the reductions in SG&A, inventory and capital expenditures we generated cash for the six months ended Dec. 31, 2016 for the first time since the fall of 2012.”