10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 29, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-24395

bebe stores, inc.

(Exact name of registrant as specified in its charter)

California	94-2450490
(State or Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

400 Valley Drive

Brisbane, California 94005

(Address of principal executive offices)

Telephone: (415) 715-3900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of January 31, 2013 was 82,854,420.

bebe stores, inc.

TABLE OF CONTENTS

			Page No.
PART I.		FINANCIAL INFORMATION
	ITEM 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets as of December 29, 2012, June 30, 2012 and December 31, 2011		3
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended December 29, 2012 and December 31, 2011		4
		Condensed Consolidated Statements of Cash Flows for the six months ended December 29, 2012 and December 31, 2011		5
		Notes to Condensed Consolidated Financial Statements		6
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		15
	ITEM 4.	Controls and Procedures		16
PART II.		OTHER INFORMATION
	ITEM 1.	Legal Proceedings		17
	ITEM 1A.	Risk Factors		17
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		20
	ITEM 3.	Defaults Upon Senior Securities		20
	ITEM 4.	Mine Safety Disclosures		20
	ITEM 5.	Other Information		20
	ITEM 6.	Exhibits		20
SIGNATURE				21
EXHIBIT INDEX				22

2

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

bebe stores, inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(unaudited)

	As of December 29, 2012		As of June 30, 2012		As of December 31, 2011
Assets:
Current assets:
Cash and equivalents	$	92,653	$	104,982	$	119,897
Available for sale securities		64,086		76,428		87,582
Receivables (net of allowance of $1,356, $1,255 and $1,259)		8,436		9,190		6,143
Inventories, net		37,421		33,292		30,756
Deferred income taxes, net		4,609		4,609		4,930
Prepaid and other		21,694		17,135		10,374
Total current assets		228,899		245,636		259,682
Available for sale securities		59,240		60,002		64,047
Property and equipment, net		112,595		114,707		90,127
Deferred income taxes, net		24,486		24,675		29,453
Intangible asset		912		912		912
Other assets		4,009		4,488		3,985
Total assets	$	430,141	$	450,420	$	448,206
Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable	$	13,076	$	16,520	$	15,856
Accrued liabilities		30,028		31,668		32,186
Total current liabilities		43,104		48,188		48,042
Deferred rent and other lease incentives		37,531		37,876		37,306
Uncertain tax positions		2,280		2,236		2,226
Total liabilities		82,915		88,300		87,574
Commitments and contingencies
Shareholders’ equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par value per share; no shares issued and outstanding		—		—		—
Common stock-authorized 135,000,000 shares at $0.001 par value per share; issued and outstanding 82,622,158, 84,360,349 and 84,226,366 shares		83		84		84
Additional paid-in capital		142,368		144,180		143,332
Accumulated other comprehensive income (loss)		2,439		152		(1,899	)
Retained earnings		202,336		217,704		219,115
Total shareholders’ equity		347,226		362,120		360,632
Total liabilities and shareholders’ equity	$	430,141	$	450,420	$	448,206

See accompanying notes to condensed consolidated financial statements.

3

bebe stores, inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	December 29, 2012			December 31, 2011			December 29, 2012			December 31, 2011
Net sales	$	135,535		$	151,987		$	252,626		$	278,259
Cost of sales, including production and occupancy		89,607			91,067			164,423			166,853
Gross margin		45,928			60,920			88,203			111,406
Selling, general and administrative expenses		53,393			49,927			99,588			96,969
Operating income (loss)		(7,465	)		10,993			(11,385	)		14,437
Interest and other income, net		219			107			452			410
Income (loss) before income taxes		(7,246	)		11,100			(10,933	)		14,847
Income tax provision (benefit)		(2,427	)		4,539			(3,533	)		5,932
Net income (loss)	$	(4,819	)	$	6,561		$	(7,400	)	$	8,915
Basic per share amounts:
Net income (loss)	$	(0.06	)	$	0.08		$	(0.09	)	$	0.11
Diluted per share amounts:
Net income (loss)	$	(0.06	)	$	0.08		$	(0.09	)	$	0.11
Basic weighted average shares outstanding		84,054			84,190			84,216			84,156
Diluted weighted average shares outstanding		84,054			84,323			84,216			84,284
Other comprehensive income (loss)
Gain on available for sale securities, net of tax	$	467		$	105		$	1,638		$	83
Foreign currency translation adjustments		(633	)		(743	)		649			(1,977	)
Other comprehensive income (loss)		(166	)		(638	)		2,287			(1,894	)
Comprehensive income (loss)	$	(4,985	)	$	5,923		$	(5,113	)	$	7,021

See accompanying notes to condensed consolidated financial statements.

4

bebe stores, inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Six Months Ended
	December 29, 2012			December 31, 2011
Cash flows from operating activities:
Net income (loss)	$	(7,400	)	$	8,915
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
Non-cash compensation expense		1,206			1,089
Depreciation and amortization		10,404			10,309
Non-cash charge for asset impairment		1,817			391
Net loss (gain) on disposal of property		994			(418	)
Tax benefit from exercise of stock options and awards		84			166
Excess tax benefit from exercise of stock options and awards		(1	)		(32	)
Deferred rent and other lease incentives		(47	)		(67	)
Deferred income taxes		13			(366	)
Changes in operating assets and liabilities:
Receivables		761			1,108
Inventories		(4,129	)		2,668
Prepaid expenses and other		(4,117	)		3,562
Accounts payable		(1,664	)		(1,565	)
Accrued liabilities		(984	)		6,137
Long term income taxes payable		44			167
Net cash provided (used) by operating activities		(3,019	)		32,064
Cash flows from investing activities:
Purchase of property and equipment		(14,994	)		(10,957	)
Insurance proceeds from property and equipment		—			650
Purchase of marketable securities		(44,080	)		(31,772	)
Proceeds from sales of investment securities		59,423			40,817
Net cash provided (used) by investing activities		349			(1,262	)
Cash flows from financing activities:
Proceeds from issuance of common stock		113			567
Excess tax benefit from exercise of stock options and awards		1			32
Cash dividends paid		(4,219	)		(4,209	)
Purchase of common stock		(5,438	)		—
Net cash used by financing activities		(9,543	)		(3,610	)
Net increase (decrease) in cash and equivalents		(12,213	)		27,192
Effect of exchange rate changes on cash		(116	)		(2,472	)
Cash and equivalents:
Beginning of period		104,982			95,177
End of period	$	92,653		$	119,897

See accompanying notes to condensed consolidated financial statements.

5

bebe stores, inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated balance sheets of bebe stores, inc. (the “Company”) as of December 29, 2012, June 30, 2012 and December 31, 2011, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended December 29, 2012 and December 31, 2011 and the condensed consolidated statements of cash flows for the six months ended December 29, 2012 and December 31, 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, without audit. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position at the balance sheet dates and the results of operations for the periods presented have been included. The condensed consolidated balance sheet at June 30, 2012, presented herein, was derived from the audited balance sheet included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the periods presented are not necessarily indicative of future financial results.

FISCAL YEAR

The Company’s fiscal year is a 52 or 53 week period, each period ending on the first Saturday after June 30. Fiscal year 2013 includes 53 weeks and 2012 includes 52 weeks.

The three month periods ended December 29, 2012 and December 31, 2011 each include 13 weeks. The six month periods ended December 29, 2012 and December 31, 2011 each include 26 weeks.

RECENT ACCOUNTING PRONOUNCEMENTS

Fair Value

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured on a net basis and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance was effective for the Company beginning in fiscal 2013, which is July 1, 2012. The disclosure guidance adopted July 1, 2012 did not have a material impact on the Company’s consolidated financial statements.

Other Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, which requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the consolidated statements of shareholders’ equity. For public entities, the amendments in ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. This guidance became effective for the Company’s fiscal year and interim periods beginning July 1, 2012. The adoption did not have a material effect on the Company’s consolidated financial statements.

6

INVESTMENTS

The Company’s investment portfolio consists of treasury bills, certificates of deposit and auction rate securities. The Company held short term available for sale securities totaling $64.1 million as of December 29, 2012, that consisted of $36.9 million in treasury bills and $27.1 million in certificates of deposit at cost which approximates fair value. The Company also holds long term available for sale securities at fair value totaling $59.2 million as of December 29, 2012, that consisted of $19.9 million in treasury bills and $39.3 million of interest bearing auction rate securities (“ARS”).

The Company holds a variety of interest ARS consisting of federally insured student loan backed securities and insured municipal authority bonds. As of December 29, 2012, the Company’s ARS portfolio totaled approximately $45.6 million classified as available for sale securities, net of a temporary impairment charge of $6.3 million. As of that date, the Company’s ARS portfolio included approximately 92% federally insured student loan backed securities and 8% municipal authority bonds and consisted of approximately 20% AAA rated investments, 7% AA rated investments, 40% A rated investments, 18% BBB rated investments and 15% CCC rated investments. As of June 30, 2012, the Company’s ARS consisted of 27% AAA rated investments, 23% AA rated investments, 28% A rated investments, 12% BBB rated investments and 10% CCC rated investments. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The uncertainties in the credit markets that began in February 2008 have affected the Company’s holdings in ARS investments and auctions for the Company’s investments in these securities have failed to settle on their respective settlement dates. Historically the fair value of ARS investments had approximated par value due to the frequent resets through the auction process. While the Company continues to earn interest on its ARS investments at the maximum contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer approximates par value. Consequently, the investments are not currently liquid, and the Company will not be able to access these funds until a future auction of these investments is successful, the issuer redeems the securities or at maturity. Maturity dates for these ARS investments range from 2018 to 2042 with principal distributions occurring on certain securities prior to maturity. To date, principal distributions and maturities of the securities held by the Company have all been at par value. During the three and six months ended December 29, 2012, $2.6 million and $22.4 million, respectively, of ARS were settled at par.

The Company reviews its impairments in accordance with guidance issued by the FASB and SEC in order to determine the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results in an unrealized loss being recorded in the accumulated other comprehensive income component of shareholders’ equity. Such an unrealized loss does not affect net income for the applicable accounting period. An other-than-temporary impairment charge is recorded as a loss in the condensed consolidated statements of operations for the applicable accounting period. When evaluating the investments for other-than-temporary impairment, the Company estimates the expected cash flows of the underlying collateral by reviewing factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. The Company has not recorded any impairment loss from its available for sale investments as other-than-temporary based on such analysis.

The valuation of the Company’s investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates and ongoing strength and quality of market credit and liquidity.

7

The following is a summary of our available for sale securities:

	As of December 29, 2012
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	36,941	$	—	$	—		$	36,941
Short term certificates of deposit		27,145		—		—			27,145
	$	64,086	$	—	$	—		$	64,086
Long term treasury bills	$	19,950	$	—	$	—		$	19,950
Long term auction rate securities		45,550		—		(6,260	)		39,290
	$	65,500	$	—	$	(6,260	)	$	59,240
	As of June 30, 2012
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	49,960	$	—	$	—		$	49,960
Short term certificates of deposit		26,468		—		—			26,468
	$	76,428	$	—	$	—		$	76,428
Long term auction rate securities	$	67,900	$	—	$	(7,898	)	$	60,002
	As of December 31, 2011
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	71,951	$	—	$	—		$	71,951
Short term certificates of deposit		15,631		—		—			15,631
	$	87,582	$	—	$	—		$	87,582
Long term auction rate securities	$	74,000	$	—	$	(9,953	)	$	64,047

FAIR VALUE MEASUREMENTS

The FASB has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 29, 2012, the Company held financial instruments that are measured at fair value on a recurring basis. These included cash equivalents and available for sale securities. Cash equivalents consist of money market funds. Short term available for sale securities consist of government treasury bills and certificates of deposit. Long term available for sale securities consist of government treasury bills and ARS. These ARS consist of federally insured student loan backed securities and insured municipal authority bonds.

The Company determined the estimated fair value of its investment in ARS as of December 29, 2012 using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for liquidity (range from 0.93%—5.0%), interest rates (average of 0.4%), timing (average 3 years), credit ratings (range from 0.75%—2.75%), credit wrap and amount of cash flows and expected holding periods of the ARS.

8

The following items are measured at fair value on a recurring basis as of December 29, 2012:

Description	December 29, 2012		Using Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
	Fair value measurements at reporting date
	(In thousands)
Cash equivalents	$	46,393	$	46,393	$	—	$	—
Current available for sale securities		64,086		36,941		27,145		—
Non-current available for sale securities		59,240		19,950		—		39,290
Total	$	169,719	$	103,284	$	27,145	$	39,290

The following items are measured at fair value on a recurring basis as of December 31, 2011:

Description	December 31, 2011		Using Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
	Fair value measurements at reporting date
	(In thousands)
Cash equivalents	$	54,655	$	54,655	$	—	$	—
Current available for sale securities		87,582		87,582		—		—
Non-current available for sale securities		64,047		—		—		64,047
Total	$	206,284	$	142,237	$	—	$	64,047

Beginning in the quarter ended March 31, 2012, certificates of deposit previously classified as Level 1 are now classified as Level 2. During the quarter ended December 29, 2012, there were no transfers of assets and liabilities between Level 1 (quoted prices in active markets for identical assets) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy. An impairment charge has been recorded in accumulated other comprehensive income that reduces the carrying amount of the applicable non-current assets of $45.6 million to their fair value of $39.3 million as of December 29, 2012. The following table presents the Company’s activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended December 29, 2012:

	Three Months Ended December  29, 2012			Six Months Ended December 29, 2012
	(In thousands)
Balance at beginning of period	$	41,373		$	60,002
Total gains or (losses) (realized or unrealized)
Included in net loss		—			—
Included in accumulated other comprehensive income (loss)		467			1,638
Settlements		(2,550	)		(22,350	)
Balance at December 29, 2012	$	39,290		$	39,290

Non-Financial Assets:

The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. During the three months ended December 29, 2012 and December 31, 2011, the Company recorded impairment charges of approximately $1.7 million and $0.4 million, respectively, related to under-performing stores. During the six months ended December 29, 2012 and December 31, 2011, the Company recorded impairment charges of approximately $1.8 million and $0.4 million, respectively, related to under-performing stores. The fair market value of these assets was determined using the income approach and level 3 inputs, which required management to make significant estimates about future operating plans and projected cash flows. Management estimates the amount and timing of future cash flows based on its experience and knowledge of the retail market in which each store operates. This impairment charge is included in selling, general and administrative expenses (“SG&A”) in the accompanying condensed consolidated statements of operations and comprehensive income (loss). The Company was not required to measure any other significant non-financial assets and liabilities at fair value.

9

INVENTORIES

The Company’s inventories consisted of:

	As of
	December 29, 2012		June 30, 2012		December 31, 2011
	(In thousands)
Raw materials	$	999	$	1,193	$	654
Merchandise available for sale		36,422		32,099		30,102
Inventories, net	$	37,421	$	33,292	$	30,756

CREDIT FACILITIES

The Company has an unsecured commercial line of credit agreement which provides for borrowings and issuance of letters of credit of up to a combined total of $25.0 million. This agreement was amended on February 1, 2013 to shorten the term and to eliminate the profitability requirement from the financial covenants, and expires on January 31, 2014. The outstanding balance bears interest at either the bank’s reference rate (which was 3.25% as of December 29, 2012) or the LIBOR rate (which was 0.21% as of December 29, 2012) plus 1.75 percentage points. As of December 29, 2012, there were no outstanding cash borrowings or trade letters of credit outstanding and $3.0 million of an outstanding stand-by letter of credit. To date, no beneficiary has drawn upon the stand-by letter of credit.

As amended, this credit facility requires the Company to comply with certain financial covenants, including minimum tangible net worth and unencumbered liquid assets, and contains certain restrictions on making loans and investments. The Company is in compliance with all covenants in the credit agreement.

EARNINGS PER SHARE

Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through the exercise of dilutive stock options.

The following is a reconciliation of the number of shares used in the basic and diluted earnings per share computations:

	Three Months Ended				Six Months Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011
	(In thousands)
Basic weighted average number of shares outstanding		84,054		84,190		84,216		84,156
Incremental shares from the assumed issuance of stock options		—		133		—		128
Diluted weighted average number of shares outstanding		84,054		84,323		84,216		84,284

Excluded from the computation of the number of diluted weighted average shares outstanding were options to purchase 5,201,743 and 4,282,954 shares of common stock for the three months ended December 29, 2012 and December 31, 2011, respectively, and 5,047,859 and 4,171,436 for the six months ended December 29, 2012 and December 31, 2011, respectively, which would have been anti-dilutive.

10

COMMON STOCK PURCHASES

In November 2012, the board of directors authorized a program to repurchase up to $30 million of the Company’s common stock. The Company intends, from time to time, as business conditions warrant, to purchase stock in the open market or through private transactions. Purchases may be increased, decreased or discontinued at any time without prior notice. The plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at the Company’s discretion. During the three and the six months ended December 29, 2012, the Company repurchased approximately 1.8 million shares at an average price per share of $3.81 for an aggregate purchase price of approximately $6.8 million. As of December 29, 2012, all except approximately $1.4 million of these share repurchases were paid for. No shares were repurchased during the three or the six months ended December 31, 2011.

STOCK BASED COMPENSATION

The following table summarizes the stock based compensation expense recognized under the Company’s stock plan during the three and the six months ended December 29, 2012 and December 31, 2011:

	Three Months Ended				Six Months Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011
	(In thousands)
Stock options	$	342	$	425	$	968	$	981
Nonvested stock awards/units		112		59		238		108
Total stock based compensation expense	$	454	$	484	$	1,206	$	1,089

Unrecognized compensation cost related to nonvested stock options and nonvested stock awards/units totaled approximately $2.5 million and $0.5 million, respectively, as of December 29, 2012. This cost is expected to be recognized over a weighted average period of 2.8 years. The weighted average fair value of stock options at their grant date during the three months ended December 29, 2012 and December 31, 2011 was $1.23 and $2.78, respectively. For the six month periods ended December 29, 2012 and December 31, 2011, the weighted average fair value of stock options at their grant date was $1.39 and $2.78, respectively.

LEGAL MATTERS

As of the date of this filing, the Company is involved in ongoing legal proceedings as described below.

A former employee sued the Company in a complaint filed July 27, 2006 in the Superior Court of California, San Mateo County (Case No. CIV 456550) alleging a failure to pay all wages, failure to pay overtime wages, failure to pay minimum wages, failure to provide meal periods, violation of Labor Code §450, violation of Labor Code §2802 and California Code of Regulations §11040(9)(A), statutory wage violations (late payment of wages), unlawful business practices under Business and Professions Code §16720 and §17200, conversion of wages and violation of Civil Code §52.1. The plaintiff purports to bring the action also on behalf of current and former California bebe employees who are similarly situated. In September 2011, the Court certified a class of store managers who allege they were required to buy and wear our product as a condition of employment and denied certification relating to claims of missed meal periods and rest breaks. The parties wait to see if a verbal arrangement reached by the parties in principal, wherein neither party makes any admission and all of the plaintiff’s claims would be resolved, can be fully developed, written in a mutually acceptable agreement and ultimately approved by the court.

A former employee sued the Company in a complaint filed November 2, 2010 in the Superior Court of California, San Bernardino County (Case No. CIV-RS-10-11823), on her own and purportedly on behalf of other employees similarly situated, alleging violations based on wage and hour laws, missed meal and rest breaks, late payment of wages, failure to pay expense reimbursement and failing to provide adequate seating. The case remains at an early stage, with only modest discovery begun.

A former employee sued the Company in a complaint filed a second amended complaint on or about September 7, 2010 in the Superior Court of California, Los Angeles County (Case No. BC429140) alleging the Company failed to provide adequate disclosure of its commission policy and wrongfully reduced and delayed commission payments. The plaintiff purported to bring the action also on behalf of current and former California bebe employees who are similarly situated. The lawsuit sought compensatory, statutory, punitive, restitution and injunctive relief. The case was settled for a nominal amount and was dismissed with prejudice.

The Company is also involved in various other legal proceedings arising in the normal course of business. For such legal proceedings, and including the matters discussed in the paragraphs above, the Company has accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material, individually or in the aggregate, to have a material adverse effect on its business, financial condition or results of operations. Because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the inconsistent treatment of claims made in many of these proceedings and the difficulty of predicting the settlement value of many of these proceedings, the Company is unable to estimate an amount or range of any reasonably possible additional losses. However, based on the Company’s historical experience, the resolution of these proceedings is not expected to have a material effect on its business, financial condition or results of operations.

The Company intends to defend itself vigorously against each of these claims. However, the results of any litigation are inherently uncertain. The Company cannot assure you that it will be able to successfully defend itself in these lawsuits. Where required, and/or otherwise appropriate and determinable, the Company has recorded an estimate of potential liabilities that it believes is reasonable. Any estimates are revised as further information becomes available.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “thinks” and similar expressions are forward-looking statements. Forward-looking statements include statements about our expected results of operations, capital expenditures and store openings. Although we believe that these statements are based upon reasonable assumptions, we cannot assure you that our goals will be achieved. These forward-looking statements are made as of the date of this Form 10-Q, and we assume no obligation to update or revise them or provide reasons why actual results may differ. Factors that might cause such a difference include, but are not limited to, our ability to respond to changing fashion trends, obtain raw materials and find manufacturing facilities, attract and retain key management personnel, develop new concepts, successfully open future stores, successfully manage our online business, maintain and protect information technology, respond effectively to competitive pressures in the apparel industry and adverse economic conditions and protect our intellectual property as well as declines in comparable store sales performance, changes in the level of consumer spending or preferences in apparel and/or other factors discussed in “Risk Factors” and elsewhere in this Form 10-Q.

OVERVIEW

We are a global specialty retailer who designs, develops and produces a distinctive line of contemporary women’s apparel and accessories. The “bebe look” appeals to a chic, sexy, sophisticated, body-conscious woman who takes pride in her appearance and seeks current fashion trends to suit her lifestyle. The bebe customer expects value in the form of current fashion and high quality at a competitive price.

Our distinctive product offering includes a full range of separates, tops, sweaters, dresses, active wear and accessories to satisfy her wear-to-work, weekend and party lifestyles. We design and develop the majority of our merchandise in-house, which is manufactured to our specifications. The remainder of our merchandise is sourced directly from third-party manufacturers.

We market our products under the bebe, BEBE SPORT, bbsp and 2b bebe brand names through our 250 retail stores, of which 197 are bebe stores, including an on-line store at www.bebe.com, and 53 are 2b bebe stores, including an on-line store at www.2bstores.com, as of December 29, 2012. These stores are located in 36 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Japan. In addition, our licensees operate 129 international point-of-sale locations in 24 countries as of December 29, 2012. During the six months ended December 29, 2012, we opened 6 2b bebe stores and successfully migrated our bebe.com product offerings to a company-managed platform.

bebe stores. We were founded by Manny Mashouf, our Chairman of the Board. We opened our first store in San Francisco, California in 1976, which was also the year we incorporated. bebe.com is our bebe on-line retail store and an extension of the bebe store experience that provides a complete assortment of bebe and BEBE SPORT merchandise and is used as a vehicle to communicate with our customers.

2b bebe stores. Our 2b bebe (“2b”) stores were originally structured as bebe outlets and were later expanded into the 2b concept stores. We focus on fun and playful everyday lifestyle offerings for our aspirational buyers. As of December 29, 2012, we operated a total of 53 2b stores, including an on-line store at www.2bstores.com. Of these, 19 are mall based stores that sell 2b merchandise only, 14 are hybrid 2b stores that sell a combination of 2b merchandise and bebe logo merchandise and 19 are outlet concept 2b stores that sell a mix of 2b, bebe logo and bebe retail markdown merchandise. www.2bstores.com is our 2b bebe on-line retail store and an extension of the 2b bebe store experience that provides a complete assortment of 2b bebe merchandise and is also used as a vehicle to communicate with our customers.

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CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America.

The preparation of these financial statements requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements. We believe our application of accounting policies, and the estimates inherently required therein, are reasonable. Our most critical accounting policies are those related to revenue recognition, stock based compensation, inventories, marketable securities, impairment of long lived assets and uncertain tax positions. We continually evaluate these accounting policies and estimates, and we make adjustments when facts and circumstances dictate a change. Our accounting policies are described in Note 1 to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended June 30, 2012. This discussion and analysis should be read in conjunction with such discussion and with our condensed consolidated financial statements and related notes included in Part 1, Item 1 of this quarterly report.

RESULTS OF OPERATIONS

Our fiscal year is a 52 or 53 week period, each period ending on the first Saturday after June 30. Fiscal year 2013 includes 53 weeks and fiscal year 2012 includes 52 weeks. The three months ended December 29, 2012 and December 31, 2011 each include 13 weeks. The six months ended December 29, 2012 and December 31, 2011 each include 26 weeks.

The following table sets forth certain financial data as a percentage of net sales for the periods indicated:

	Three Months Ended						Six Months Ended
	December 29, 2012			December 31, 2011			December 29, 2012			December 31, 2011
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales, including production and occupancy (1)		66.1			59.9			65.1			60.0
Gross margin		33.9			40.1			34.9			40.0
Selling, general and administrative expenses (2)		39.4			32.8			39.4			34.8
Operating income (loss)		(5.5	)		7.2			(4.5	)		5.2
Interest and other income, net		0.2			0.1			0.2			0.1
Income (loss) before income taxes		(5.3	)		7.3			(4.3	)		5.3
Income tax provision (benefit)		(1.8	)		3.0			(1.4	)		2.1
Net income (loss)		(3.5	)%		4.3	%		(2.9	)%		3.2	%

(1) Cost of sales includes the cost of merchandise, occupancy costs, distribution center costs and production costs.

(2) Selling, general and administrative expenses primarily consist of non-occupancy store costs, corporate overhead and advertising costs.

Net Sales. Net sales decreased to $135.5 million during the three months ended December 29, 2012 from $152.0 million for the comparable period of the prior year, a decrease of $16.5 million, or 10.9%. The decrease in net sales was primarily due to a decrease in comparable store traffic during the quarter. Comparable store sales for the fiscal quarter ended December 29, 2012 decreased 10.5% compared to an increase of 9.6% in the second fiscal quarter of the prior year.

For the six months ended December 29, 2012, net sales decreased to $252.6 million from $278.3 million for the comparable period of the prior year, a decrease of $25.7 million, or 9.2%. The decrease in net sales was primarily due to a 9.7% decrease in comparable store sales driven by the deceleration in store traffic.

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	Three Months Ended						Six Months Ended
	December 29, 2012			December 31, 2011			December 29, 2012			December 31, 2011
Net sales (In thousands)	$	135,535		$	151,987		$	252,626		$	278,259
Total net sales increase (decrease) percentage		(10.9	)%		11.6	%		(9.2	)%		10.7	%
Comparable store increase (decrease) percentage (1)		(10.5	)%		9.6	%		(9.7	)%		8.4	%
Net sales per average square foot (2)	$	108		$	125		$	202		$	227
Square footage at end of period (In thousands)		1,002			1,018			1,002			1,018
Number of store locations:
Beginning of period		250			251			252			253
New store locations		1			5			6			5
Closed store locations		1			—			8			2
Number of stores open at end of period		250			256			250			256

(1) We calculate comparable store sales by including the net sales of stores that have been open at least one year. Therefore, a store is included in the comparable store sales base beginning with its thirteenth month. Our on-line stores are included as stores in our comparable store sales base. Stores that have been expanded or remodeled by 15 percent or more or have been permanently relocated are excluded from the comparable store sales base. In addition, we calculate comparable store sales using a same day sales comparison.

(2) We calculate net sales per average square foot using net store sales less on-line net sales and monthly average store square footage.

Gross Margin. Gross margin decreased to $45.9 million during the three months ended December 29, 2012 from $60.9 million for the comparable period of the prior year, a decrease of $15.0 million, or 24.6%. As a percentage of net sales, gross margin decreased to 33.9% for the three months ended December 29, 2012 from 40.1% in the comparable period of the prior year. The decrease in gross margin as a percentage of net sales was primarily due to increased markdowns coupled with unfavorable occupancy leverage.

For the six months ended December 29, 2012, gross margin decreased to $88.2 million from $111.4 million for the comparable period of the prior year, a decrease of $23.2 million, or 20.8%. As a percentage of net sales, gross margin from continuing operations decreased to 34.9% for the six months ended December 29, 2012 from 40.0% in the comparable period of the prior year. The decrease in gross margin as a percentage of net sales was primarily due to an increase in markdowns, coupled with increased inventory reserves and unfavorable occupancy leverage.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $53.4 million during the three months ended December 29, 2012 from $49.9 million for the comparable period of the prior year, an increase of $3.5 million, or 7.0 %. As a percentage of net sales, selling, general and administrative expenses increased to 39.4% during the three months ended December 29, 2012 from 32.8% in the comparable period of the prior year. The increase over the prior year was primarily due to increases in certain costs including impairment and store closure costs, as well as recruiting costs.

For the six months ended December 29, 2012, selling, general and administrative expenses increased to $99.6 million from $97.0 million for the comparable period of the prior year, an increase of $2.6 million, or 2.7%. As a percentage of net sales, selling, general and administrative expenses increased to 39.4% from 34.8% in the comparable period of the prior year. The increase over the prior year primarily related to higher impairment and store closure costs combined with lower insurance proceeds and was partially offset by lower compensation expenses.

Provision for Income Taxes. The tax rate for the second quarter of fiscal 2013 was 33.5% compared to the rate for the comparable period of the prior year of 40.9%. The lower tax benefit in the current quarter compared to the tax expense in the prior year period was primarily due to the impact of permanent adjustments.

For the six months ended December 29, 2012, our effective tax rate was 32.3% compared to 40.0% for the comparable period for the prior year. The lower tax benefit in the current year compared to the tax expense in the prior year was primarily due to various discrete items including a valuation allowance against a foreign NOL recorded during the year.

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SEASONALITY OF BUSINESS AND QUARTERLY RESULTS

Our business varies with general seasonal trends that are characteristic of the retail and apparel industries. As a result, our typical store generates a higher percentage of our annual net sales and profitability in the second quarter of our fiscal year, which includes the holiday selling season, compared to the other quarters of our fiscal year. If for any reason our sales were below seasonal norms during the second quarter of our fiscal year, our annual operating results would be negatively impacted. Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved for a full fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital requirements vary widely throughout the year and generally peak during the first and second fiscal quarters. As of December 29, 2012, we had approximately $216.0 million of cash and equivalents and investments on hand of which $92.7 million were cash and equivalents, approximately $56.9 million were invested in government treasury bills, approximately $27.1 million were invested in certificates of deposit and approximately $39.3 million, net of temporary impairment charges of $6.3 million, were invested in auction rate securities (“ARS”). We do not anticipate the lack of liquidity in the ARS to impact our ability to fund our operations in the foreseeable future and believe we have sufficient cash and equivalents to fund ongoing operations. In addition, we have a revolving line of credit, under which we may borrow or issue letters of credit up to a combined total of $25 million. As of December 29, 2012, there were no cash borrowings outstanding under the line of credit, no trade letters of credit outstanding and $3.0 million in a stand-by letter of credit outstanding. This credit facility requires us to comply with certain financial covenants, including minimum tangible net worth and unencumbered liquid assets, and certain restrictions on making loans and investments. We are in compliance with all covenants.

As of December 29, 2012, we had cash and equivalents of $92.7 million held in accounts managed by third-party financial institutions consisting of invested cash and cash in our operating accounts. The invested cash is invested in interest bearing funds managed by third-party financial institutions. These funds invest in direct obligations of the government of the United States. To date, we have experienced no loss or lack of access to our invested cash or equivalents; however, we can provide no assurances that access to our invested cash and equivalents will not be impacted by adverse conditions in the financial markets.

We hold our operating and invested cash in accounts that are with third-party financial institutions. These balances exceed the Federal Deposit Insurance Corporation insurance limits. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to invested cash or cash in our operating accounts.

Net cash used by operating activities for the six months ended December 29, 2012 was $3.0 million compared to net cash provided by operating activities of $32.1 million for the six months ended December 31, 2011. The decrease of $35.1 million from the comparable period was due to lower overall net income and a change in working capital decrease of $22.0 million, primarily related to changes in accrued expenses caused by the payout of incentive compensation earned in the prior year, changes in prepaid expenses and other related to income tax as well as increased inventory expenditures related to our initiatives to expand our wear-to-work collection, focused localization initiatives and higher average unit costs related to elevated product offerings.

Net cash provided by investing activities for the six months ended December 29, 2012 was $0.3 million versus $1.3 million used by investing activities for the six months ended December 31, 2011. The increase of $1.6 million versus the prior year comparable period was primarily due to proceeds from sale of investment securities partially offset by increased investments in property and equipment. We expect that total capital expenditures will be approximately $27 million in fiscal 2013, which will include capital expenditures for new stores, remodels, store expansions, information technology systems and office improvements.

Net cash used by financing activities was $9.5 million for the six months ended December 29, 2012 versus $3.6 million used by financing activities for the six months ended December 31, 2011. The increase of $5.9 million from the prior year comparable period was primarily due to purchases of our common stock.

We hold a variety of interest bearing ARS consisting of federally insured student loan backed securities and insured municipal authority bonds. As of December 29, 2012, our ARS portfolio totaled approximately $45.6 million classified as available for sale securities. As of that date, our ARS portfolio included approximately 92% federally insured student loan backed securities and 8% municipal authority bonds and consisted of approximately 20% AAA rated investments, 7% AA rated investments, 40% A rated investments, 18% BBB rated investments and 15% CCC rated investments. As of June 30, 2012, the Company’s ARS consisted of 27% AAA rated investments, 23% AA rated investments, 28% A rated investments, 12% BBB rated investments and 10% CCC rated investments. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The uncertainties in the credit markets that began in February 2008 have affected our holdings in ARS investments and auctions for our investments in these securities have failed to settle on their respective settlement dates. Historically the fair value of ARS investments had approximated par value due to the frequent resets through the auction process. While we continue to earn interest on our ARS investments at the maximum contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer approximates par value. Consequently, the investments are not currently liquid, and we will not be able to access these funds until a future auction of these investments is successful, the issuer redeems the securities, or at maturity. Maturity dates for these ARS investments range from 2018 to 2042 with principal distributions occurring on certain securities prior to maturity. During the three and six months ended December 29, 2012, $2.6 million and $22.4 million, respectively, of ARS were settled at par.

We also hold short-term available for sale securities totaling $64.1 million at December 29, 2012 that consist of treasury bills and certificates of deposit as well as long-term available for sale securities totaling $59.2 million that consist of ARS and treasury bills.

In November 2012, our board of directors authorized a program to repurchase up to $30 million of our common stock. During the three and the six months ended December 29, 2012, the Company repurchased approximately 1.8 million shares at an average price per share of $3.81 for an aggregate purchase price of approximately $6.8 million. As of December 29, 2012, all except approximately $1.4 million of these share repurchases were paid for. No shares were repurchased during the three or the six months ended December 31, 2011.

We believe that our cash and cash equivalents on hand will be sufficient to meet our capital and operating requirements for at least the next twelve months. Our future capital requirements, however, will depend on numerous factors, including without limitation, liquidity of our auction rate securities, the size and number of new and expanded stores and/or store concepts, investment costs for management information systems, potential acquisitions and/or joint ventures, repurchase of stock and future results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks, which include changes in U.S. interest rates and, to a lesser extent, foreign exchange rates. We do not engage in financial transactions for trading or speculative purposes.

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Interest Rate Risk

We currently maintain a portfolio of variable interest rate investments consisting of cash equivalents, government treasury bills, guaranteed investment certificates and both short term and long term investments consisting of ARS. According to our investment policy, we may invest in taxable and tax-exempt instruments. In addition, the policy establishes limits on credit quality, maturity, issuer and type of instrument. Marketable securities are classified as “trading” or “available for sale”. We do not use derivative financial instruments in our investment portfolio.

All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents. Investments are considered short-term available for sale securities if the original maturity is between three months and twelve months, or long term investments if the original maturity is greater than twelve months. Historically the fair value of ARS investments had approximated par value due to the frequent resets through the auction process. While we continue to earn interest on our ARS investments at the maximum contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer approximates par value. We determined the estimated fair value of our investment in ARS as of December 29, 2012 using a discounted cash flow model to estimate the fair value of our investments in ARS. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. We have modified our investment strategy and increased our investments in more liquid money market investments.

The following table lists our cash, cash equivalents and investments as of December 29, 2012:

	Fair Value
	(Dollars in thousands)
Cash	$	46,260
Weighted average interest rate		0.00	%
Cash equivalents	$	46,393
Weighted average interest rate		0.10	%
Current available for sale securities	$	64,086
Weighted average interest rate		0.76	%
Non-current available for sale securities	$	59,240
Weighted average interest rate		0.24	%
Total	$	215,979

The interest payable on outstanding cash borrowings under our bank line of credit is based on variable interest rates and is therefore affected by changes in market interest rates. If interest rates rose significantly, our results from operations and cash flows would not be materially affected since we have no outstanding borrowings.

Foreign Currency Risks

We enter into a significant amount of purchase obligations outside of the United States, substantially all of which are negotiated and settled in U.S. Dollars and, therefore, have only minimal exposure to foreign currency exchange risks. We also operate a subsidiary for which the functional currency is the Canadian Dollar. We translate assets and liabilities of Canada’s operations into U.S. dollars at month-end rates, while we translate income and expenses at the weighted average exchange rates for the month. We record the related translation adjustments in accumulated other comprehensive income as a separate component of shareholders’ equity. Fluctuations in exchange rates therefore impact our financial condition and results of operations, as reported in U.S. Dollars. We do not hedge against foreign currency risks and believe that foreign currency exchange risk is immaterial.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report at the reasonable assurance level.

There has been no change in our internal control over financial reporting during the quarter ended December 29, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the Legal Matters section of the Notes to the Condensed Consolidated Financial Statements for a discussion of legal proceedings.

ITEM 1A. RISK FACTORS

Our past performance may not be a reliable indicator of future performance because actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed below. In addition, historical trends should not be used to anticipate results or trends in future periods.

Factors that might cause our actual results to differ materially from the forward looking statements discussed elsewhere in this report, as well as affect our ability to achieve our financial and other goals, include, but are not limited to, those set forth below. Except for the addition of the security risk factor, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

1. The success of our business depends in large part on our ability to identify fashion trends as well as to react to changing customer demand in a timely manner. Consequently, we depend in part upon the customer response to the creative efforts of our merchandising, design and marketing teams and their ability to anticipate trends and fashions that will appeal to our consumer base. If we miscalculate our customers’ product preferences or the demand for our products, we may be faced with excess inventory. Historically, this type of occurrence has resulted in excess fabric for some products and markdowns and/or write-offs, which has impaired our profitability, and may do so in the future. Similarly, any failure on our part to anticipate, identify and respond effectively to changing customer demands and fashion trends will adversely affect our sales. In addition, from time to time, we may pursue new concepts, and if the new concepts are not successful, our financial condition may be harmed.

2. We face increasing product costs from our manufacturing partners, which could result in significant margin erosion. Worldwide prices for raw materials have increased significantly year-over-year. We currently estimate that these increasing product costs could result in significant margin erosion. Additionally, a significant percentage of our apparel products are manufactured in China. Manufacturers in that country are currently experiencing increased costs due to shortages of labor and the fluctuation of the Chinese Yuan in relation to the U.S. dollar. In addition, our business and operating results may be affected by changes in the political, social or economic environment in China. If we are unable to successfully mitigate a significant portion of such product costs, our results of operations may be materially adversely affected.

3. If we are unable to obtain raw materials or unable to find manufacturing facilities or our manufacturers perform unacceptably, our sales may be negatively affected and our financial condition may be harmed. We do not own any manufacturing facilities and therefore depend on contractors and third parties to manufacture our products. We place all of our orders for production of merchandise and raw materials by purchase order and do not have any long-term contracts with any manufacturer or supplier. If we fail to maintain favorable relationships with our manufacturers and suppliers or are unable to obtain sufficient quantities of quality raw materials on commercially reasonable terms, it could harm our business and results of operations.

We cannot assure you that contractors and third-party manufacturers (1) will not supply similar products to our competitors, (2) will not stop supplying products to us completely or (3) will supply products in a timely manner. Untimely receipt of products may result in lower than anticipated sales and markdowns which would have a negative impact on earnings. Furthermore, we have received in the past, and may receive in the future, shipments of products from manufacturers that fail to conform to our quality control standards. In such event, unless we are able to obtain replacement products in a timely manner, we may lose sales. Certain of our third-party manufacturers store our raw materials. In the event our inventory was damaged or destroyed and we were unable to obtain replacement raw materials, our earnings could be negatively impacted.

4. We face significant competition in the retail and apparel industry, which could harm our sales and profitability. The retail and apparel industries are highly competitive and are characterized by low barriers to entry. We expect competition in our markets to increase. The primary competitive factors in our markets are: brand name recognition, sourcing, product styling, quality, presentation and pricing, timeliness of product development and delivery, store ambiance, customer service and convenience. We compete with traditional department stores, specialty store retailers, lower price point retailers, business to consumer websites, off-price retailers and direct marketers for, among other things, raw materials, market share, retail space, finished goods, sourcing and personnel. Because many of these competitors are larger and have substantially greater financial, distribution and marketing resources than we do or maintain comparatively lower cost of operations, we may lack the resources to adequately compete with them. If we fail to remain competitive in any way, it could harm our business, financial condition and results of operations.

5. General economic conditions, including increases in energy and commodity prices, that are largely out of our control may adversely affect our financial condition and results of operations. We are sensitive to changes in general economic conditions, both nationally and locally. Recessionary economic cycles, higher interest rates, higher fuel and other energy costs, inflation, deflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending or buying habits could adversely affect the demand for products we sell in our stores. In addition, the recent turmoil in the financial markets may have an adverse effect on the U.S. and world economy, which could negatively impact consumer spending patterns. We cannot assure you that government responses to the disruptions in the financial markets will restore consumer confidence.

Furthermore, we could experience reduced traffic in our stores or limitations on the prices we can charge for our products, either of which could reduce our sales and profit margins and have a material adverse effect on our financial condition and results of operations. Also, economic factors such as those listed above and increased transportation costs, inflation, higher costs of labor, insurance and healthcare, and changes in other laws and regulations may increase our cost of sales and our operating, selling, general and administrative expenses, and otherwise adversely affect our financial condition and results of operations.

6. We cannot assure that future store openings will be successful and new store openings may impact existing stores. We expect to open approximately 11 stores for bebe and 2b bebe in fiscal 2013 as well as up to 25 international licensee operated point-of-sale locations. In the past, we have closed stores as a result of poor performance, and we cannot assure that the stores that we plan to open in fiscal 2013, or any other stores that we might open in the future, will be successful or that our overall operating profit will increase as a result of opening these stores. During fiscal 2012, we closed 13 stores, and during fiscal 2013, we anticipate closing approximately 14 bebe stores, one 2b store and one 2b bebe pop-up location. Most of our domestic new store openings in fiscal 2013 will be in existing markets. These openings may affect the existing stores’ net sales and profitability. Our failure to predict accurately the demographic or retail environment at any future store location could have a material adverse effect on our business, financial condition and results of operations.

Our ability to effectively obtain real estate to open new stores depends upon the availability of real estate that meets our criteria, including traffic, square footage, co-tenancies, average sales per square foot, lease economics, demographics, and other factors, and our ability to negotiate terms that meet our financial targets. In addition, we must be able to effectively renew our existing store leases. Failure to secure real estate locations adequate to meet annual targets as well as effectively managing the profitability of our existing fleet of stores could have a material adverse effect on our business, financial condition and results of operations.

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7. Our sales, margins and operating results are subject to seasonal and quarterly fluctuations. Our business varies with general seasonal trends that are characteristic of the retail and apparel industries, such as the timing of seasonal wholesale shipments and other events affecting retail sales. As a result, our stores typically generate a higher percentage of our annual net sales and profitability in the second quarter of our fiscal year (which includes the holiday selling season) compared to other quarters.

In addition, our comparable store sales have fluctuated significantly in the past, and we expect that they will continue to fluctuate in the future. A variety of factors affect comparable store sales, including fashion trends, competition, current economic conditions, the timing of release of new merchandise and promotional events, changes in our merchandise mix, the success of marketing programs and weather conditions. Our ability to deliver strong comparable store sales results and margins depends in large part on accurately forecasting demand and fashion trends, selecting effective marketing techniques, providing an appropriate mix of merchandise for our customer base, managing inventory effectively, and optimizing store performance by closing under-performing stores. Such fluctuations may adversely affect the market price of our common stock.

8. Our success depends on our ability to attract and retain key employees in order to support our existing businesses and future expansion. From time to time we actively recruit qualified candidates to fill key executive positions from within our company. There is substantial competition for experienced personnel, which we expect will continue. We compete for experienced personnel with companies who have greater financial resources than we do. In the past, we have experienced significant turnover of our executive management team and retail store personnel. We are also exposed to employment practice litigation due to the large number of employees and high turnover of our sales associates. If we fail to attract, motivate and retain qualified personnel, it could harm our business and limit our ability to expand.

In addition, we depend upon the expertise and execution of our key employees, particularly: Steve Birkhold, our Chief Executive Officer and member of the Board of Directors. If we lose the services of Mr. Birkhold or any key officers or employees, it could harm our business and results of operations.

9. Because Manny Mashouf beneficially owns a substantial portion of the outstanding shares, other shareholders may not be able to influence the direction the company takes. As of January 31, 2013, Manny Mashouf, our founder and Chairman of the Board, beneficially owned approximately 55% of the outstanding shares of our common stock. As a result, he can control the election of directors and the outcome of all issues submitted to the shareholders. This may make it more difficult for a third party to acquire shares, may discourage acquisition bids, and could limit the price that certain investors might be willing to pay for shares of common stock. This concentration of stock ownership may have the effect of delaying, deferring or preventing a change in control of our company.

10. We rely on information technology, the disruption of which could adversely impact our business. We rely on various information systems to help manage our operations and regularly assess the cost-benefit analysis associated with making additional investments to upgrade, enhance or replace such systems. If at any time we do not have adequate systems in place, or should we experience any delays or difficulties in transitioning to these or other new systems, or in integrating these systems with our current systems, or we experience any other disruptions affecting our information systems, we could experience a material adverse impact on our business. Should we experience unauthorized access, disclosure or use of any of our systems, or if our security controls, computer assets and sensitive data, including client data, are breached, this could also damage our reputation with our clients. Further, with increased technology and other patent litigation hitting the industry, and especially given our reliance on our vendor’s purported ownership of third party software we license, we face the potential of receiving claims that the technology we use or license infringes on another’s proprietary rights. Should this occur, and while we may secure indemnification rights in certain transactions, we may be subject to having to defend ourselves from such claims and/or be subject to unanticipated license fees or the necessity to transition away from technology we are using or abandon such use altogether.

11. Any serious disruption at our major facilities could have a harmful effect on our business. We currently operate a corporate office in Brisbane, California, a distribution facility in Benicia, California, and a design studio in Los Angeles, California. During the fourth quarter of fiscal 2012 we purchased our distribution facility in part to facilitate the migration of bebe.com in-house that occurred in the first quarter of 2013. Any serious disruption at these facilities whether due to construction, relocation, fire, earthquake, terrorist acts or otherwise could harm our operations and could negatively affect our business and results of operations. Furthermore, we have little experience operating essential functions away from our main corporate offices and are uncertain what effect operating such satellite facilities might have on business, personnel and results of operations.

12. We are subject to risks associated with our on-line sales. We operate on-line stores at www.bebe.com and www.2bstores.com to sell our merchandise. Our on-line operations are subject to numerous risks, including unanticipated operating problems, reliance on third-party computer hardware and software providers and system failures. The on-line operations also involve other risks that could have an impact on our results of operations including but not limited to diversion of sales from our other stores, rapid technological change, liability for on-line content, credit card fraud and loss of sensitive data. In addition, with the migration to a third-party platform for our bebe.com store, we no longer have direct control of certain aspects of our on-line business. We cannot assure that our on-line stores will continue to achieve sales and profitability growth or even remain at their current level.

13. We are subject to cyber-security risks and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents. There is an increased dependence on digital technologies by public companies and an increasing frequency and severity of cyber incidents. Our business involves the storage and transmission of customers’ personal information, consumer preferences and credit card information. We also use mobile devices, social networking and other online activities to connect with our customers. While we have implemented measures to prevent security breaches and cyber incidents, given the ever increasing abilities of those intent on breaching cyber-security measures and given our reliance on the security and other efforts of third-party vendors, the total security effort at any point in time may not be completely effective and any such security breaches and cyber incidents could adversely affect our business.

14. Our business could be adversely impacted by unfavorable international political conditions. Due to our international operations, our sales and operating results are, and will continue to be, affected by international social, political, legal and economic conditions. In particular, our business could be adversely impacted by instability or changes resulting in the disruption of trade with the countries in which our contractors, suppliers or customers are located, significant fluctuations in the value of the dollar against foreign currencies or restrictions on the transfer of funds, or additional trade restrictions imposed by the United States and other foreign governments. Trade restrictions, including increased tariffs or quotas, embargoes and customs restrictions could increase the cost or reduce the supply of merchandise available to us and adversely affect our financial condition and results of operations. In addition, we purchase a substantial amount of our raw materials from China and our business and operating results may be affected by changes in the political, social or economic environment in China.

15. If we are not able to protect our intellectual property our ability to capitalize on the value of our brand name may be impaired. Even though we take actions to establish, register and protect our trademarks and other proprietary rights, we cannot assure you that we will be successful or that others will not imitate our products or infringe upon our intellectual property rights. In addition, we cannot assure that others will not resist or seek to block the sale of our products as infringements of their trademark and proprietary rights.

We are seeking to register our trademarks domestically and internationally. Obstacles may exist that may prevent us from obtaining a trademark for the bebe, BEBE SPORT, bbsp and 2b bebe names or related names. We may not be able to register certain trademarks, purchase the right or obtain a license to use these names or related names on commercially reasonable terms. If we fail to obtain trademark, ownership or license the requisite rights, it would limit our ability to expand. In some

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jurisdictions, despite successful registration of our trademarks, third parties may allege infringement and bring actions against us. In addition, if our licensees fail to use our intellectual property correctly, the reputation and value associated with our trademarks may be diluted. Furthermore, if we do not demonstrate use of our trademarks, our trademark rights may lapse over time.

16. If an independent manufacturer violates labor or other laws, or is accused of violating any such laws, or if their labor practices diverge from those generally accepted as ethical, it could harm our business and brand image. While we maintain a policy to monitor the operations of our independent manufacturers by having an independent firm inspect these manufacturing sites, and all manufacturers are contractually required to comply with such labor practices, we cannot control the actions or the public’s perceptions of such manufacturers, nor can we assure that these manufacturers will conduct their businesses using ethical or legal labor practices. Apparel companies, in certain conditions, may be held jointly liable for the wrongdoings of the manufacturers of their products. While we do not control our manufacturers’ employment conditions or business practices, and the manufacturers act in their own interest, they may act in a manner that results in negative public perceptions of us and/or employee allegations or court determinations that we are jointly liable.

17. We may be required to record losses in future quarters as a result of the decline in value of our investments in auction rates securities or as a result of a change in our ability to hold our investments in auction rate securities. We hold a variety of interest bearing ARS comprised of federally insured student loan backed securities and insured municipal authority bonds. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The recent uncertainties in the credit markets that began in February 2008 have affected our holdings in ARS investments and the majority of auctions for our investments in these securities have failed to settle on their respective settlement dates. Consequently, $39.3 million of our ARS are not currently liquid and we will not be able to access these funds until a future auction of these investments is successful or securities are purchased or redeemed outside of the auction process. Maturity dates for these ARS investments range from 2018 to 2042, with principal distributions occurring on certain securities prior to maturity.

The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates and ongoing strength and quality of market credit and liquidity. If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may be required to record additional losses in other comprehensive income or losses in net income in future quarters.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents information with respect to purchases of our common stock made during the quarter ended December 29, 2012 by bebe Stores, inc. or any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act.

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part  of Publicly Announced Plans or Programs		Maximum Number (or approximate dollar amount) of Shares that  May Yet be Purchased Under the Plans or Programs (1)
	(in thousands, except per share amounts)
Month #1 (September 30 – October 27)		—	$	—		—	$	30,000
Month #2 (October 28 – November 24)		108	$	3.73		108	$	29,595
Month #3 (November 25 – December 29)		1,683	$	3.81		1,683	$	23,174
Total		1,791	$	3.81		1,791

(1) In November 2012, our Board of Directors approved $30 million for share repurchases, which we announced on November 19, 2012. This authorization has no expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

(a) Exhibits. The following is a list of exhibits filed as part of this Report on Form 10-Q.

Exhibit	Description
10.26	Third Amendment to Credit Agreement and Revolving Line of Credit Note between Registrant and Wells Fargo dated as of February 1, 2013
31.1	Section 302 Certification of Chief Executive Officer.
31.2	Section 302 Certification of Chief Financial Officer.
32.1	Section 906 Certification of Chief Executive Officer.
32.2	Section 906 Certification of Chief Financial Officer.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Presentation Linkbase

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated February 7, 2013

bebe stores, inc.

/s/ Walter Parks

Walter Parks, Chief Operating Officer and Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description
10.26	Third Amendment to Credit Agreement and Revolving Line of Credit Note between Registrant and Wells Fargo dated as of February 1, 2013
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification of Chief Executive Officer
32.2	Section 906 Certification of Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Presentation Linkbase

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EX-10.26

Exhibit 10.26

THIRD AMENDMENT TO CREDIT AGREEMENT

THIS AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of February 1, 2013, by and between BEBE STORES, INC., a California corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

RECITALS

WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 15, 2009, as amended from time to time (“Credit Agreement”).

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

1. Section 1.1 (a) is hereby amended by deleting “May 15, 2015” as the last day on which Bank will make advances under the Line of Credit, and by substituting for said date “January 31, 2014,” with such change to be effective upon the execution and delivery to Bank of a promissory note dated as of February 1, 2013 (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change.

2. Section 4.9 is hereby deleted in its entirety, and the following substituted therefor:

“SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower’s consolidated financial condition as follows using GAAP, consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein) and with GAAP defined as generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

(a) Tangible Net Worth not at any time less than the Required Amount, with the “Required Amount” defined initially as $310,000,000.00, with such initial Required Amount to increase on a cumulative basis at and as of each fiscal year end of Borrower

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to an amount equal to the sum of the then Required Amount plus an amount equal to fifty percent (50%) of Borrower’s consolidated net income for the fiscal year then ended, provided however; that in no event shall any net loss suffered by Borrower at any time reduce the Required Amount. “Tangible Net Worth” shall be defined as the aggregate of total stockholders’ equity plus subordinated debt acceptable to Bank less any intangible assets and less any loans or advances to, or investments in, any related entities or individuals.

(b) Liquid Assets (with “Liquid Assets” defined as the aggregate of unencumbered and unrestricted cash and readily marketable securities acceptable to Bank (and in no event to include “auction rate securities”)) not less than $50,000,000.00 at any time thereafter.”

3. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.

4. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.

		WELLS FARGO BANK,
BEBE STORES, INC.		NATIONAL ASSOCIATION
By:	/s/ Walter Parks	By:	/s/ Rachelle Cayanan
	Walter Parks,		Rachelle Cayanan,
	Chief Financial Officer,		Relationship Manager
	Chief Operating Officer

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REVOLVING LINE OF CREDIT NOTE

$25,000,000.00	San Francisco, California
	February 1, 2013

FOR VALUE RECEIVED, the undersigned BEBE STORES, INC. (“Borrower”) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office at 420 Montgomery Street, 9^th Floor, San Francisco, California, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Twenty Five Million Dollars ($25,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.

DEFINITIONS:

As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:

(a) “Business Day” means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close.

(b) “Daily One Month LIBOR” means, for any day, the rate of interest equal to LIBOR then in effect for delivery for a one (1) month period.

(c) “Fixed Rate Term” means a period commencing on a Business Day and continuing for one (1) or three (3) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than Two Hundred Fifty Thousand Dollars ($250,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day.

(d) “LIBOR” means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

LIBOR =	Base LIBOR
	100% - LIBOR Reserve Percentage

(i) “Base LIBOR” means the rate per annum for United States dollar deposits quoted by Bank (A) for the purpose of calculating effective rates of interest for loans making reference to LIBOR, as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an

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amount approximately equal to the principal amount to which such Fixed Rate Term applies, or (B) for the purpose of calculating effective rates of interest for loans making reference to the Daily One Month LIBOR Rate, as the Inter-Bank Market Offered Rate in effect from time to time for delivery of funds for one (1) month in amounts approximately equal to the principal amount of such loans. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

(ii) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable term of this Note.

INTEREST:

(a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum determined by Bank to be one and three quarters percent (1.75%) above the Daily One Month LIBOR Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be one and three quarters percent (1.75%) above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Daily One Month LIBOR Rate, each change in the interest rate shall become effective each Business Day that the Bank determines that the Daily One Month LIBOR Rate has changed. Bank is hereby authorized to note the date, principal amount and interest rate applicable thereto and any payments made thereon on Bank’s books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.

(b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR for a Fixed Rate Term, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Daily One Month LIBOR Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Daily One Month LIBOR Rate, Borrower may at any time convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select an interest rate determined in relation to the Daily One Month LIBOR Rate or a Fixed Rate Term for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection for a Fixed Rate Term, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection for a Fixed Rate Term, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m. on the first day of the

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Fixed Rate Term, or at a later time during any Business Day if Bank, at its sole option but without obligation to do so, accepts Borrower’s notice and quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Daily One Month LIBOR Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied.

(c) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

(d) Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing February 1, 2013.

(e) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, or at Bank’s option upon the occurrence, and during the continuance of an Event of Default, the outstanding principal balance of this Note shall bear interest at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to two percent (2.00%) above the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

(a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on January 31, 2014.

(b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) Walter Parks (or his

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successor as Chief Financial Officer, as evidenced by a certificate of incumbency delivered, and in form and content acceptable, to Bank) acting alone, who is authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above. The holder shall have no obligation to verify the identity of any person requesting an advance, provided such person is believed in good faith by Bank to be the Chief Financial Officer of Borrower.

(c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Daily One Month LIBOR Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

(a) Daily One Month LIBOR Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Daily One Month LIBOR Rate at any time, in any amount and without penalty.

(b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month:

(i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto.

(ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid.

(iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above.

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Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum two percent (2.00%) above the Daily One Month LIBOR Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed).

EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 15, 2009, as amended from time to time (the “Credit Agreement”). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an “Event of Default” under this Note.

MISCELLANEOUS:

(a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder’s option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees and all allocated costs of the holder’s in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder’s rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity.

(b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several.

(c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California.

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IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.

BEBE STORES, INC.
By:	/s/ Walter Parks
	Walter Parks,
	Chief Financial Officer, Chief Operating Officer

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EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Steve Birkhold, certify that:

1. I have reviewed this quarterly report on Form 10-Q of bebe stores, inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 7, 2013	/s/ Steve Birkhold
	Steve Birkhold
	Chief Executive Officer

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Walter Parks, certify that:

1. I have reviewed this quarterly report on Form 10-Q of bebe stores, inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 7, 2013	/s/ Walter Parks
	Walter Parks
	Chief Operating Officer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of bebe stores, inc. (the “Company”) on Form 10-Q for the quarter ended December 29, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Birkhold, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 7, 2013	/s/ Steve Birkhold
	Steve Birkhold
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of bebe stores, inc. (the “Company”) on Form 10-Q for the quarter ended December 29, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Walter Parks, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 7, 2013	/s/ Walter Parks
	Walter Parks
	Chief Operating Officer and Chief Financial Officer

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Fair Value Measurements - Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Dec. 29, 2012	Dec. 29, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at beginning of period	$ 41,373	$ 60,002
Total gains or (losses) (realized or unrealized)
Included in net loss
Included in accumulated other comprehensive income (loss)	467	1,638
Settlements	(2,550)	(22,350)
Balance at December 29, 2012	$ 39,290	$ 39,290

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Inventories

6 Months Ended

Dec. 29, 2012

Inventories

INVENTORIES

The Company’s inventories consisted of:

	As of
	December 29, 2012		June 30, 2012		December 31, 2011
	(In thousands)
Raw materials	$	999	$	1,193	$	654
Merchandise available for sale		36,422		32,099		30,102
Inventories, net	$	37,421	$	33,292	$	30,756

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Earning Per Share - Additional Information (Detail)	3 Months Ended		6 Months Ended
	Dec. 29, 2012	Dec. 31, 2011	Dec. 29, 2012	Dec. 31, 2011
Diluted weighted average shares outstanding were options to purchase	84,054,000	84,323,000	84,216,000	84,284,000
Common stock [Member]
Diluted weighted average shares outstanding were options to purchase	5,201,743	4,282,954	5,047,859	4,171,436

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Earning Per Share - Reconciliation of Number of Shares Used in Basic and Diluted Earnings Per Share Computations (Detail) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 29, 2012	Dec. 31, 2011	Dec. 29, 2012	Dec. 31, 2011
Class of Stock [Line Items]
Basic weighted average number of shares outstanding	84,054	84,190	84,216	84,156
Incremental shares from the assumed issuance of stock options		133		128
Diluted weighted average number of shares outstanding	84,054	84,323	84,216	84,284

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Common Stock Purchases - Additional Information (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended
	Nov. 30, 2012	Dec. 29, 2012	Dec. 31, 2011	Dec. 29, 2012	Dec. 31, 2011
Common stock repurchase program, authorized amount	$ 30
Number of shares repurchased during the period		1.8	0	1.8	0
Common stock repurchased, average price per share		$ 3.81		$ 3.81
Common stock repurchased, aggregate purchase price		6.8		6.8
Amount of remaining shares repurchased		$ 1.4		$ 1.4

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Stock Based Compensation - Summary of Stock Based Compensation Expense Recognized Under Stock Plan (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 29, 2012	Dec. 31, 2011	Dec. 29, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation expense	$ 454	$ 484	$ 1,206	$ 1,089
Stock options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation expense	342	425	968	981
Nonvested stock awards/units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation expense	$ 112	$ 59	$ 238	$ 108

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Fair Value Measurements

6 Months Ended

Dec. 29, 2012

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The FASB has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 29, 2012, the Company held financial instruments that are measured at fair value on a recurring basis. These included cash equivalents and available for sale securities. Cash equivalents consist of money market funds. Short term available for sale securities consist of government treasury bills and certificates of deposit. Long term available for sale securities consist of government treasury bills and ARS. These ARS consist of federally insured student loan backed securities and insured municipal authority bonds.

The Company determined the estimated fair value of its investment in ARS as of December 29, 2012 using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for liquidity (range from 0.93%—5.0%), interest rates (average of 0.4%), timing (average 3 years), credit ratings (range from 0.75%—2.75%), credit wrap and amount of cash flows and expected holding periods of the ARS.

The following items are measured at fair value on a recurring basis as of December 29, 2012:

Description	December 29, 2012		Using Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
	Fair value measurements at reporting date
	(In thousands)
Cash equivalents	$	46,393	$	46,393	$	—	$	—
Current available for sale securities		64,086		36,941		27,145		—
Non-current available for sale securities		59,240		19,950		—		39,290
Total	$	169,719	$	103,284	$	27,145	$	39,290

The following items are measured at fair value on a recurring basis as of December 31, 2011:

Description	December 31, 2011		Using Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
	Fair value measurements at reporting date
	(In thousands)
Cash equivalents	$	54,655	$	54,655	$	—	$	—
Current available for sale securities		87,582		87,582		—		—
Non-current available for sale securities		64,047		—		—		64,047
Total	$	206,284	$	142,237	$	—	$	64,047

Beginning in the quarter ended March 31, 2012, certificates of deposit previously classified as Level 1 are now classified as Level 2. During the quarter ended December 29, 2012, there were no transfers of assets and liabilities between Level 1 (quoted prices in active markets for identical assets) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy. An impairment charge has been recorded in accumulated other comprehensive income that reduces the carrying amount of the applicable non-current assets of $45.6 million to their fair value of $39.3 million as of December 29, 2012. The following table presents the Company’s activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended December 29, 2012:

	Three Months Ended December  29, 2012			Six Months Ended December 29, 2012
	(In thousands)
Balance at beginning of period	$	41,373		$	60,002
Total gains or (losses) (realized or unrealized)
Included in net loss		—			—
Included in accumulated other comprehensive income (loss)		467			1,638
Settlements		(2,550	)		(22,350	)
Balance at December 29, 2012	$	39,290		$	39,290

Non-Financial Assets:

The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. During the three months ended December 29, 2012 and December 31, 2011, the Company recorded impairment charges of approximately $1.7 million and $0.4 million, respectively, related to under-performing stores. During the six months ended December 29, 2012 and December 31, 2011, the Company recorded impairment charges of approximately $1.8 million and $0.4 million, respectively, related to under-performing stores. The fair market value of these assets was determined using the income approach and level 3 inputs, which required management to make significant estimates about future operating plans and projected cash flows. Management estimates the amount and timing of future cash flows based on its experience and knowledge of the retail market in which each store operates. This impairment charge is included in selling, general and administrative expenses (“SG&A”) in the accompanying condensed consolidated statements of operations and comprehensive income (loss). The Company was not required to measure any other significant non-financial assets and liabilities at fair value.

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Stock Based Compensation - Additional Information (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 29, 2012	Dec. 31, 2011	Dec. 29, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost, nonvested stock options	$ 2.5		$ 2.5
Unrecognized compensation cost, nonvested stock awards/units	$ 0.5		$ 0.5
Expected to be recognized over a weighted average period	2 years 9 months 18 days		2 years 9 months 18 days
Weighted average fair value of stock options	$ 1.23	$ 2.78	$ 1.39	$ 2.78

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 29, 2012	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Cash and equivalents	$ 92,653	$ 104,982	$ 119,897
Available for sale securities	64,086	76,428	87,582
Receivables (net of allowance of $1,356, $1,255 and $1,259)	8,436	9,190	6,143
Inventories, net	37,421	33,292	30,756
Deferred income taxes, net	4,609	4,609	4,930
Prepaid and other	21,694	17,135	10,374
Total current assets	228,899	245,636	259,682
Available for sale securities	59,240	60,002	64,047
Property and equipment, net	112,595	114,707	90,127
Deferred income taxes, net	24,486	24,675	29,453
Intangible asset	912	912	912
Other assets	4,009	4,488	3,985
Total assets	430,141	450,420	448,206
Current liabilities:
Accounts payable	13,076	16,520	15,856
Accrued liabilities	30,028	31,668	32,186
Total current liabilities	43,104	48,188	48,042
Deferred rent and other lease incentives	37,531	37,876	37,306
Uncertain tax positions	2,280	2,236	2,226
Total liabilities	82,915	88,300	87,574
Commitments and contingencies
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par value per share; no shares issued and outstanding
Common stock-authorized 135,000,000 shares at $0.001 par value per share; issued and outstanding 82,622,158, 84,360,349 and 84,226,366 shares	83	84	84
Additional paid-in capital	142,368	144,180	143,332
Accumulated other comprehensive income (loss)	2,439	152	(1,899)
Retained earnings	202,336	217,704	219,115
Total shareholders' equity	347,226	362,120	360,632
Total liabilities and shareholders' equity	$ 430,141	$ 450,420	$ 448,206

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Interim Financial Statements

6 Months Ended

Dec. 29, 2012

Interim Financial Statements

INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated balance sheets of bebe stores, inc. (the “Company”) as of December 29, 2012, June 30, 2012 and December 31, 2011, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended December 29, 2012 and December 31, 2011 and the condensed consolidated statements of cash flows for the six months ended December 29, 2012 and December 31, 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, without audit. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position at the balance sheet dates and the results of operations for the periods presented have been included. The condensed consolidated balance sheet at June 30, 2012, presented herein, was derived from the audited balance sheet included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the periods presented are not necessarily indicative of future financial results.

FISCAL YEAR

The Company’s fiscal year is a 52 or 53 week period, each period ending on the first Saturday after June 30. Fiscal year 2013 includes 53 weeks and 2012 includes 52 weeks.

The three month periods ended December 29, 2012 and December 31, 2011 each include 13 weeks. The six month periods ended December 29, 2012 and December 31, 2011 each include 26 weeks.

RECENT ACCOUNTING PRONOUNCEMENTS

Fair Value

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured on a net basis and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance was effective for the Company beginning in fiscal 2013, which is July 1, 2012. The disclosure guidance adopted July 1, 2012 did not have a material impact on the Company’s consolidated financial statements.

Other Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, which requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the consolidated statements of shareholders’ equity. For public entities, the amendments in ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. This guidance became effective for the Company’s fiscal year and interim periods beginning July 1, 2012. The adoption did not have a material effect on the Company’s consolidated financial statements.

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Investments - Summary of Company's Available for Sale Securities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 29, 2012	Jun. 30, 2012	Dec. 31, 2011
Short term Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	$ 64,086	$ 76,428	$ 87,582
Unrealized Losses Less Than 12 Months
Unrealized Losses 12 Months or Greater
Estimated Fair Value	64,086	76,428	87,582
Short term Investments [Member] | Treasury bills [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	36,941	49,960	71,951
Unrealized Losses Less Than 12 Months
Unrealized Losses 12 Months or Greater
Estimated Fair Value	36,941	49,960	71,951
Short term Investments [Member] | Short term certificates of deposit [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	27,145	26,468	15,631
Unrealized Losses Less Than 12 Months
Unrealized Losses 12 Months or Greater
Estimated Fair Value	27,145	26,468	15,631
Long term Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	65,500
Unrealized Losses Less Than 12 Months
Unrealized Losses 12 Months or Greater	(6,260)
Estimated Fair Value	59,240
Long term Investments [Member] | Treasury bills [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	19,950
Unrealized Losses Less Than 12 Months
Unrealized Losses 12 Months or Greater
Estimated Fair Value	19,950
Long term Investments [Member] | Long term auction rate securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Cost	45,550	67,900	74,000
Unrealized Losses Less Than 12 Months
Unrealized Losses 12 Months or Greater	(6,260)	(7,898)	(9,953)
Estimated Fair Value	$ 39,290	$ 60,002	$ 64,047

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Fair Value Measurements - Items are Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 29, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-current available for sale securities	$ 39,290
Fair value, measurements, recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	46,393	54,655
Current available for sale securities	64,086	87,582
Non-current available for sale securities	59,240	64,047
Total	169,719	206,284
Fair value, measurements, recurring [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	46,393	54,655
Current available for sale securities	36,941	87,582
Non-current available for sale securities	19,950
Total	103,284	142,237
Fair value, measurements, recurring [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Current available for sale securities	27,145
Non-current available for sale securities
Total	27,145
Fair value, measurements, recurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Current available for sale securities
Non-current available for sale securities	39,290	64,047
Total	$ 39,290	$ 64,047

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Investments

6 Months Ended

Dec. 29, 2012

Investments

INVESTMENTS

The Company’s investment portfolio consists of treasury bills, certificates of deposit and auction rate securities. The Company held short term available for sale securities totaling $64.1 million as of December 29, 2012, that consisted of $36.9 million in treasury bills and $27.1 million in certificates of deposit at cost which approximates fair value. The Company also holds long term available for sale securities at fair value totaling $59.2 million as of December 29, 2012, that consisted of $19.9 million in treasury bills and $39.3 million of interest bearing auction rate securities (“ARS”).

The Company holds a variety of interest ARS consisting of federally insured student loan backed securities and insured municipal authority bonds. As of December 29, 2012, the Company’s ARS portfolio totaled approximately $45.6 million classified as available for sale securities, net of a temporary impairment charge of $6.3 million. As of that date, the Company’s ARS portfolio included approximately 92% federally insured student loan backed securities and 8% municipal authority bonds and consisted of approximately 20% AAA rated investments, 7% AA rated investments, 40% A rated investments, 18% BBB rated investments and 15% CCC rated investments. As of June 30, 2012, the Company’s ARS consisted of 27% AAA rated investments, 23% AA rated investments, 28% A rated investments, 12% BBB rated investments and 10% CCC rated investments. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. The uncertainties in the credit markets that began in February 2008 have affected the Company’s holdings in ARS investments and auctions for the Company’s investments in these securities have failed to settle on their respective settlement dates. Historically the fair value of ARS investments had approximated par value due to the frequent resets through the auction process. While the Company continues to earn interest on its ARS investments at the maximum contractual rate, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of ARS no longer approximates par value. Consequently, the investments are not currently liquid, and the Company will not be able to access these funds until a future auction of these investments is successful, the issuer redeems the securities or at maturity. Maturity dates for these ARS investments range from 2018 to 2042 with principal distributions occurring on certain securities prior to maturity. To date, principal distributions and maturities of the securities held by the Company have all been at par value. During the three and six months ended December 29, 2012, $2.6 million and $22.4 million, respectively, of ARS were settled at par.

The Company reviews its impairments in accordance with guidance issued by the FASB and SEC in order to determine the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results in an unrealized loss being recorded in the accumulated other comprehensive income component of shareholders’ equity. Such an unrealized loss does not affect net income for the applicable accounting period. An other-than-temporary impairment charge is recorded as a loss in the condensed consolidated statements of operations for the applicable accounting period. When evaluating the investments for other-than-temporary impairment, the Company estimates the expected cash flows of the underlying collateral by reviewing factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. The Company has not recorded any impairment loss from its available for sale investments as other-than-temporary based on such analysis.

The valuation of the Company’s investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates and ongoing strength and quality of market credit and liquidity.

The following is a summary of our available for sale securities:

	As of December 29, 2012
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	36,941	$	—	$	—		$	36,941
Short term certificates of deposit		27,145		—		—			27,145
	$	64,086	$	—	$	—		$	64,086
Long term treasury bills	$	19,950	$	—	$	—		$	19,950
Long term auction rate securities		45,550		—		(6,260	)		39,290
	$	65,500	$	—	$	(6,260	)	$	59,240
	As of June 30, 2012
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	49,960	$	—	$	—		$	49,960
Short term certificates of deposit		26,468		—		—			26,468
	$	76,428	$	—	$	—		$	76,428
Long term auction rate securities	$	67,900	$	—	$	(7,898	)	$	60,002
	As of December 31, 2011
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	71,951	$	—	$	—		$	71,951
Short term certificates of deposit		15,631		—		—			15,631
	$	87,582	$	—	$	—		$	87,582
Long term auction rate securities	$	74,000	$	—	$	(9,953	)	$	64,047

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 29, 2012	Jun. 30, 2012	Dec. 31, 2011
Receivables allowance	$ 1,356	$ 1,255	$ 1,259
Preferred stock, shares authorized	1,000,000	1,000,000	1,000,000
Preferred stock, par value	$ 0.001	$ 0.001	$ 0.001
Preferred stock, shares issued	0	0	0
Preferred stock, shares outstanding	0	0	0
Common stock, shares authorized	135,000,000	135,000,000	135,000,000
Common stock, par value	$ 0.001	$ 0.001	$ 0.001
Common stock, shares issued	82,622,158	84,360,349	84,226,366
Common stock, shares outstanding	82,622,158	84,360,349	84,226,366

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Fair Value Measurements (Tables)

6 Months Ended

Dec. 29, 2012

Items are Measured at Fair Value on Recurring Basis

The following items are measured at fair value on a recurring basis as of December 29, 2012:

Description	December 29, 2012		Using Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
	Fair value measurements at reporting date
	(In thousands)
Cash equivalents	$	46,393	$	46,393	$	—	$	—
Current available for sale securities		64,086		36,941		27,145		—
Non-current available for sale securities		59,240		19,950		—		39,290
Total	$	169,719	$	103,284	$	27,145	$	39,290

The following items are measured at fair value on a recurring basis as of December 31, 2011:

Description	December 31, 2011		Using Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
	Fair value measurements at reporting date
	(In thousands)
Cash equivalents	$	54,655	$	54,655	$	—	$	—
Current available for sale securities		87,582		87,582		—		—
Non-current available for sale securities		64,047		—		—		64,047
Total	$	206,284	$	142,237	$	—	$	64,047

Assets Measured at Fair Value on a Recurring Basis

The following table presents the Company’s activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended December 29, 2012:

	Three Months Ended December  29, 2012			Six Months Ended December 29, 2012
	(In thousands)
Balance at beginning of period	$	41,373		$	60,002
Total gains or (losses) (realized or unrealized)
Included in net loss		—			—
Included in accumulated other comprehensive income (loss)		467			1,638
Settlements		(2,550	)		(22,350	)
Balance at December 29, 2012	$	39,290		$	39,290

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Document and Entity Information	6 Months Ended
	Dec. 29, 2012	Jan. 31, 2013
Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 29, 2012
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Trading Symbol	BEBE
Entity Registrant Name	bebe stores, inc.
Entity Central Index Key	0001059272
Current Fiscal Year End Date	--07-06
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		82,854,420

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Inventories (Tables)

6 Months Ended

Dec. 29, 2012

Summary of Inventories

The Company’s inventories consisted of:

	As of
	December 29, 2012		June 30, 2012		December 31, 2011
	(In thousands)
Raw materials	$	999	$	1,193	$	654
Merchandise available for sale		36,422		32,099		30,102
Inventories, net	$	37,421	$	33,292	$	30,756

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 29, 2012	Dec. 31, 2011	Dec. 29, 2012	Dec. 31, 2011
Net sales	$ 135,535	$ 151,987	$ 252,626	$ 278,259
Cost of sales, including production and occupancy	89,607	91,067	164,423	166,853
Gross margin	45,928	60,920	88,203	111,406
Selling, general and administrative expenses	53,393	49,927	99,588	96,969
Operating income (loss)	(7,465)	10,993	(11,385)	14,437
Interest and other income, net	219	107	452	410
Income (loss) before income taxes	(7,246)	11,100	(10,933)	14,847
Income tax provision (benefit)	(2,427)	4,539	(3,533)	5,932
Net income (loss)	(4,819)	6,561	(7,400)	8,915
Basic per share amounts:
Net income (loss)	$ (0.06)	$ 0.08	$ (0.09)	$ 0.11
Diluted per share amounts:
Net income (loss)	$ (0.06)	$ 0.08	$ (0.09)	$ 0.11
Basic weighted average shares outstanding	84,054	84,190	84,216	84,156
Diluted weighted average shares outstanding	84,054	84,323	84,216	84,284
Other comprehensive income (loss)
Gain on available for sale securities, net of tax	467	105	1,638	83
Foreign currency translation adjustments	(633)	(743)	649	(1,977)
Other comprehensive income (loss)	(166)	(638)	2,287	(1,894)
Comprehensive income (loss)	$ (4,985)	$ 5,923	$ (5,113)	$ 7,021

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Common Stock Purchases

6 Months Ended

Dec. 29, 2012

Common Stock Purchases

COMMON STOCK PURCHASES

In November 2012, the board of directors authorized a program to repurchase up to $30 million of the Company’s common stock. The Company intends, from time to time, as business conditions warrant, to purchase stock in the open market or through private transactions. Purchases may be increased, decreased or discontinued at any time without prior notice. The plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at the Company’s discretion. During the three and the six months ended December 29, 2012, the Company repurchased approximately 1.8 million shares at an average price per share of $3.81 for an aggregate purchase price of approximately $6.8 million. As of December 29, 2012, all except approximately $1.4 million of these share repurchases were paid for. No shares were repurchased during the three or the six months ended December 31, 2011.

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Earnings Per Share

6 Months Ended

Dec. 29, 2012

Earnings Per Share

EARNINGS PER SHARE

Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through the exercise of dilutive stock options.

The following is a reconciliation of the number of shares used in the basic and diluted earnings per share computations:

	Three Months Ended				Six Months Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011
	(In thousands)
Basic weighted average number of shares outstanding		84,054		84,190		84,216		84,156
Incremental shares from the assumed issuance of stock options		—		133		—		128
Diluted weighted average number of shares outstanding		84,054		84,323		84,216		84,284

Excluded from the computation of the number of diluted weighted average shares outstanding were options to purchase 5,201,743 and 4,282,954 shares of common stock for the three months ended December 29, 2012 and December 31, 2011, respectively, and 5,047,859 and 4,171,436 for the six months ended December 29, 2012 and December 31, 2011, respectively, which would have been anti-dilutive.

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Fair Value Measurements - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 29, 2012	Dec. 31, 2011	Dec. 29, 2012	Dec. 31, 2011	Jun. 30, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discounted cash flow model for estimating interest rate			0.40%
Discounted cash flow model for estimating timing			3 years
Carrying amount of the non-current available for sale securities	$ 59,240,000	$ 64,047,000	$ 59,240,000	$ 64,047,000	$ 60,002,000
Estimated fair value of non-current available for sale securities	39,290,000		39,290,000
Charges for impairment of long lived assets	$ 1,700,000	$ 400,000	$ 1,800,000	$ 400,000
Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discounted cash flow model for estimating liquidity model range	0.93%		0.93%
Discounted cash flow model for estimating credit rating	0.75%		0.75%
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discounted cash flow model for estimating liquidity model range	5.00%		5.00%
Discounted cash flow model for estimating credit rating	2.75%		2.75%

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Earnings Per Share (Tables)

6 Months Ended

Dec. 29, 2012

Reconciliation of Number of Shares Used in Basic and Diluted Earnings Per Share Computations

The following is a reconciliation of the number of shares used in the basic and diluted earnings per share computations:

	Three Months Ended				Six Months Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011
	(In thousands)
Basic weighted average number of shares outstanding		84,054		84,190		84,216		84,156
Incremental shares from the assumed issuance of stock options		—		133		—		128
Diluted weighted average number of shares outstanding		84,054		84,323		84,216		84,284

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Interim Financial Statements (Policies)

6 Months Ended

Dec. 29, 2012

Interim Financial Statements

INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated balance sheets of bebe stores, inc. (the “Company”) as of December 29, 2012, June 30, 2012 and December 31, 2011, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended December 29, 2012 and December 31, 2011 and the condensed consolidated statements of cash flows for the six months ended December 29, 2012 and December 31, 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, without audit. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for annual financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position at the balance sheet dates and the results of operations for the periods presented have been included. The condensed consolidated balance sheet at June 30, 2012, presented herein, was derived from the audited balance sheet included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the periods presented are not necessarily indicative of future financial results.

Fiscal Year

FISCAL YEAR

The Company’s fiscal year is a 52 or 53 week period, each period ending on the first Saturday after June 30. Fiscal year 2013 includes 53 weeks and 2012 includes 52 weeks.

The three month periods ended December 29, 2012 and December 31, 2011 each include 13 weeks. The six month periods ended December 29, 2012 and December 31, 2011 each include 26 weeks.

Recent Accounting Pronouncements

RECENT ACCOUNTING PRONOUNCEMENTS

Fair Value

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured on a net basis and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance was effective for the Company beginning in fiscal 2013, which is July 1, 2012. The disclosure guidance adopted July 1, 2012 did not have a material impact on the Company’s consolidated financial statements.

Other Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, which requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the consolidated statements of shareholders’ equity. For public entities, the amendments in ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. This guidance became effective for the Company’s fiscal year and interim periods beginning July 1, 2012. The adoption did not have a material effect on the Company’s consolidated financial statements.

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Stock Based Compensation

6 Months Ended

Dec. 29, 2012

Stock Based Compensation

STOCK BASED COMPENSATION

The following table summarizes the stock based compensation expense recognized under the Company’s stock plan during the three and the six months ended December 29, 2012 and December 31, 2011:

	Three Months Ended				Six Months Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011
	(In thousands)
Stock options	$	342	$	425	$	968	$	981
Nonvested stock awards/units		112		59		238		108
Total stock based compensation expense	$	454	$	484	$	1,206	$	1,089

Unrecognized compensation cost related to nonvested stock options and nonvested stock awards/units totaled approximately $2.5 million and $0.5 million, respectively, as of December 29, 2012. This cost is expected to be recognized over a weighted average period of 2.8 years. The weighted average fair value of stock options at their grant date during the three months ended December 29, 2012 and December 31, 2011 was $1.23 and $2.78, respectively. For the six month periods ended December 29, 2012 and December 31, 2011, the weighted average fair value of stock options at their grant date was $1.39 and $2.78, respectively.

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Legal Matters

6 Months Ended

Dec. 29, 2012

Legal Matters

LEGAL MATTERS

As of the date of this filing, the Company is involved in ongoing legal proceedings as described below.

A former employee sued the Company in a complaint filed July 27, 2006 in the Superior Court of California, San Mateo County (Case No. CIV 456550) alleging a failure to pay all wages, failure to pay overtime wages, failure to pay minimum wages, failure to provide meal periods, violation of Labor Code §450, violation of Labor Code §2802 and California Code of Regulations §11040(9)(A), statutory wage violations (late payment of wages), unlawful business practices under Business and Professions Code §16720 and §17200, conversion of wages and violation of Civil Code §52.1. The plaintiff purports to bring the action also on behalf of current and former California bebe employees who are similarly situated. In September 2011, the Court certified a class of store managers who allege they were required to buy and wear our product as a condition of employment and denied certification relating to claims of missed meal periods and rest breaks. The parties wait to see if a verbal arrangement reached by the parties in principal, wherein neither party makes any admission and all of the plaintiff’s claims would be resolved, can be fully developed, written in a mutually acceptable agreement and ultimately approved by the court.

A former employee sued the Company in a complaint filed November 2, 2010 in the Superior Court of California, San Bernardino County (Case No. CIV-RS-10-11823), on her own and purportedly on behalf of other employees similarly situated, alleging violations based on wage and hour laws, missed meal and rest breaks, late payment of wages, failure to pay expense reimbursement and failing to provide adequate seating. The case remains at an early stage, with only modest discovery begun.

A former employee sued the Company in a complaint filed a second amended complaint on or about September 7, 2010 in the Superior Court of California, Los Angeles County (Case No. BC429140) alleging the Company failed to provide adequate disclosure of its commission policy and wrongfully reduced and delayed commission payments. The plaintiff purported to bring the action also on behalf of current and former California bebe employees who are similarly situated. The lawsuit sought compensatory, statutory, punitive, restitution and injunctive relief. The case was settled for a nominal amount and was dismissed with prejudice.

The Company is also involved in various other legal proceedings arising in the normal course of business. For such legal proceedings, and including the matters discussed in the paragraphs above, the Company has accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material, individually or in the aggregate, to have a material adverse effect on its business, financial condition or results of operations. Because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the inconsistent treatment of claims made in many of these proceedings and the difficulty of predicting the settlement value of many of these proceedings, the Company is unable to estimate an amount or range of any reasonably possible additional losses. However, based on the Company’s historical experience, the resolution of these proceedings is not expected to have a material effect on its business, financial condition or results of operations.

The Company intends to defend itself vigorously against each of these claims. However, the results of any litigation are inherently uncertain. The Company cannot assure you that it will be able to successfully defend itself in these lawsuits. Where required, and/or otherwise appropriate and determinable, the Company has recorded an estimate of potential liabilities that it believes is reasonable. Any estimates are revised as further information becomes available.

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Investments (Tables)

6 Months Ended

Dec. 29, 2012

Summary of Company's Available for Sale Securities

The following is a summary of our available for sale securities:

	As of December 29, 2012
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	36,941	$	—	$	—		$	36,941
Short term certificates of deposit		27,145		—		—			27,145
	$	64,086	$	—	$	—		$	64,086
Long term treasury bills	$	19,950	$	—	$	—		$	19,950
Long term auction rate securities		45,550		—		(6,260	)		39,290
	$	65,500	$	—	$	(6,260	)	$	59,240
	As of June 30, 2012
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	49,960	$	—	$	—		$	49,960
Short term certificates of deposit		26,468		—		—			26,468
	$	76,428	$	—	$	—		$	76,428
Long term auction rate securities	$	67,900	$	—	$	(7,898	)	$	60,002
	As of December 31, 2011
	Cost		Unrealized Losses Less Than 12 Months		Unrealized Losses 12 Months or Greater			Estimated Fair Value
	(In thousands)
Short term treasury bills	$	71,951	$	—	$	—		$	71,951
Short term certificates of deposit		15,631		—		—			15,631
	$	87,582	$	—	$	—		$	87,582
Long term auction rate securities	$	74,000	$	—	$	(9,953	)	$	64,047

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Investments - Additional Information (Detail) (USD $)	3 Months Ended	6 Months Ended
	Dec. 29, 2012	Dec. 29, 2012	Jun. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Short term available for Sale securities	$ 64,100,000	$ 64,100,000
Available for sale securities	59,240,000	59,240,000	60,002,000	64,047,000
Temporary impairment charge		6,300,000
Percentage of Company's ARS portfolio	92.00%	92.00%
Investment maturity date range year start	2018	2018
Investments maturity date range year end	2042	2042
Par value of action rate securities	2,600,000	22,400,000
Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Percentage of Company's ARS portfolio	8.00%	8.00%
Standard & Poor's, AAA Rating [Member]
Schedule of Available-for-sale Securities [Line Items]
Company's ARS Percentage consist	20.00%	20.00%	27.00%
Standard & Poor's, AA Rating [Member]
Schedule of Available-for-sale Securities [Line Items]
Company's ARS Percentage consist	7.00%	7.00%	23.00%
Standard & Poor's, A Rating [Member]
Schedule of Available-for-sale Securities [Line Items]
Company's ARS Percentage consist	40.00%	40.00%	28.00%
Standard & Poor's, BBB Rating [Member]
Schedule of Available-for-sale Securities [Line Items]
Company's ARS Percentage consist	18.00%	18.00%	12.00%
Standard & Poor's, CCC Rating [Member]
Schedule of Available-for-sale Securities [Line Items]
Company's ARS Percentage consist	15.00%	15.00%	10.00%
Treasury bills [Member]
Schedule of Available-for-sale Securities [Line Items]
Short term available for Sale securities	36,900,000	36,900,000
Available for sale securities	19,900,000	19,900,000
Certificates of deposit [Member]
Schedule of Available-for-sale Securities [Line Items]
Short term available for Sale securities	27,100,000	27,100,000
Long term auction rate securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available for sale securities	$ 39,300,000	$ 39,300,000

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Inventories - Summary of Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 29, 2012	Jun. 30, 2012	Dec. 31, 2011
Inventories [Line Items]
Raw materials	$ 999	$ 1,193	$ 654
Merchandise available for sale	36,422	32,099	30,102
Inventories, net	$ 37,421	$ 33,292	$ 30,756

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 29, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net income (loss)	$ (7,400)	$ 8,915
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
Non-cash compensation expense	1,206	1,089
Depreciation and amortization	10,404	10,309
Non-cash charge for asset impairment	1,817	391
Net loss (gain) on disposal of property	994	(418)
Tax benefit from exercise of stock options and awards	84	166
Excess tax benefit from exercise of stock options and awards	(1)	(32)
Deferred rent and other lease incentives	(47)	(67)
Deferred income taxes	13	(366)
Changes in operating assets and liabilities:
Receivables	761	1,108
Inventories	(4,129)	2,668
Prepaid expenses and other	(4,117)	3,562
Accounts payable	(1,664)	(1,565)
Accrued liabilities	(984)	6,137
Long term income taxes payable	44	167
Net cash provided (used) by operating activities	(3,019)	32,064
Cash flows from investing activities:
Purchase of property and equipment	(14,994)	(10,957)
Insurance proceeds from property and equipment		650
Purchase of marketable securities	(44,080)	(31,772)
Proceeds from sales of investment securities	59,423	40,817
Net cash provided (used) by investing activities	349	(1,262)
Cash flows from financing activities:
Proceeds from issuance of common stock	113	567
Excess tax benefit from exercise of stock options and awards	1	32
Cash dividends paid	(4,219)	(4,209)
Purchase of common stock	(5,438)
Net cash used by financing activities	(9,543)	(3,610)
Net increase (decrease) in cash and equivalents	(12,213)	27,192
Effect of exchange rate changes on cash	(116)	(2,472)
Cash and equivalents:
Beginning of period	104,982	95,177
End of period	$ 92,653	$ 119,897

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Credit Facilities

6 Months Ended

Dec. 29, 2012

Credit Facilities

CREDIT FACILITIES

The Company has an unsecured commercial line of credit agreement which provides for borrowings and issuance of letters of credit of up to a combined total of $25.0 million. This agreement was amended on February 1, 2013 to shorten the term and to eliminate the profitability requirement from the financial covenants, and expires on January 31, 2014. The outstanding balance bears interest at either the bank’s reference rate (which was 3.25% as of December 29, 2012) or the LIBOR rate (which was 0.21% as of December 29, 2012) plus 1.75 percentage points. As of December 29, 2012, there were no outstanding cash borrowings or trade letters of credit outstanding and $3.0 million of an outstanding stand-by letter of credit. To date, no beneficiary has drawn upon the stand-by letter of credit.

As amended, this credit facility requires the Company to comply with certain financial covenants, including minimum tangible net worth and unencumbered liquid assets, and contains certain restrictions on making loans and investments. The Company is in compliance with all covenants in the credit agreement.

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Credit Facilities - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Dec. 29, 2012
Line Of Credit Facility Covenant Compliance [Line Items]
Letters of credit, amount	$ 25.0
Letters of credit, expiration date	Jan. 31, 2014
Outstanding letters of credit interest rate	3.25%
Percentage on LIBOR rate	0.21%
Percentage on LIBOR rate plus	1.75%
Letters of credit [Member]
Line Of Credit Facility Covenant Compliance [Line Items]
Line of Credit Facility, Amount Outstanding	0
Stand-by letter of credit [Member]
Line Of Credit Facility Covenant Compliance [Line Items]
Line of Credit Facility, Amount Outstanding	3.0
Credit facility [Member]
Line Of Credit Facility Covenant Compliance [Line Items]
Line of Credit Facility, Amount Outstanding	$ 0

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Stock Based Compensation (Tables)

6 Months Ended

Dec. 29, 2012

Summary of Stock Based Compensation Expense Recognized Under Stock Plan

The following table summarizes the stock based compensation expense recognized under the Company’s stock plan during the three and the six months ended December 29, 2012 and December 31, 2011:

	Three Months Ended				Six Months Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011
	(In thousands)
Stock options	$	342	$	425	$	968	$	981
Nonvested stock awards/units		112		59		238		108
Total stock based compensation expense	$	454	$	484	$	1,206	$	1,089