Why bebe's Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of fashion retailer bebe stores (NAS: BEBE) were getting thrown in the dirty-clothes hamper by investors today, falling as much as 24% in intraday trading after the company reported fiscal third-quarter results.

So what: On an absolute basis, there was a lot that looked good about bebe's quarterly report. Sales were up almost 11% from last year while same-store sales increased 7.2%; gross margins increased; and selling, general, and administrative expenses fell as a percentage of revenue. On the bottom line, a $0.2 million net loss -- or roughly break-even on a per-share basis -- reversed a $0.03-per-share loss last year.

However, though sales topped expectations, Wall Street analysts were looking for earnings per share of $0.01.

Now what: But what likely got investors particularly fired up was the fact that bebe's management provided fiscal-fourth-quarter guidance that was short of Wall Street's estimates. For the upcoming quarter, the company sees EPS coming in between $0.02 and $0.04. Analysts had estimated fourth-quarter EPS of $0.09.

So bebe managed to deliver a third quarter that showed definite progress, but considering the soft forward guidance, investors have good reason to be wondering whether the company's recovery is going to continue or sputter out.

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