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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 0-24395

bebe stores, inc.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share
(Title of class)

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is an accelerated filer. Yes o    No ý

        The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $65,254,168 as of December 31, 2002, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price per share of $13.40 of the registrant's Common Stock as reported on the Nasdaq National Market on such date. Shares of Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes.

        As of August 29, 2003, 25,759,149 shares of Common Stock, $0.001 per share par value, of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Part III incorporates information by reference from the definitive Proxy Statement for the 2003 Annual Meeting of Shareholders, to be filed with the Commission no later than 120 days after the end of the registrant's fiscal year covered by this Form 10-K.

        The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. This Form 10-K includes forward-looking statements that could differ from actual future results. 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. These statements involve known and unknown risks, uncertainties and other factors, including our ability to respond to changing fashion trends, competition within our industry, our ability to manage our growth and other factors described below, that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. 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-K, 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, current openings in key management positions, miscalculation of the demand for our products, effective management of our growth, decline in comparable store sales performance, ongoing competitive pressures in the apparel industry, changes in the level of consumer spending or preferences in apparel, our ability to attract and retain key management personnel and/or other factors discussed in "Risk Factors" and elsewhere in this Form 10-K.

PART I

ITEM 1. BUSINESS

General

        We design, develop and produce a distinctive line of contemporary women's apparel and accessories. While we attract a broad audience, our target customers are 21 to 35-year-old women who seek current fashion trends interpreted to suit their lifestyle needs. The "bebe look," appeals to a hip, sophisticated, body-conscious woman who takes pride in her appearance. The bebe customer expects value in the form of quality at a competitive price.

        Our broad product offering includes tops, pants, skirts, dresses, suits, logo products, casual sportswear, activewear, outerwear, handbags and other accessories. We design and develop the majority of our merchandise in-house. The merchandise is then manufactured to our specifications, the majority of which is produced domestically. The remainder of our merchandise is selected directly from third party manufacturers' lines.

        Our stores are designed to create a clean, upscale boutique environment, featuring contemporary furnishings and sophisticated details. The open floor design allows customers to readily view the majority of the merchandise on display while store fixtures allow for the efficient display of garments, outfits and accessories.

        We market our products under the bebe and BEBE SPORT brand names through our 180 retail stores, of which 153 are bebe stores, 9 are BEBE SPORT stores, and 18 are bebe outlet stores. These stores are located in 32 states, the District of Columbia and Canada. In addition, we have an on-line store at www.bebe.com and our licensees operate 16 international stores.

        bebe stores.    The Company was founded by Manny Mashouf, our current Chairman of the Board and Chief Executive Officer. We opened our first store in San Francisco, California in 1976, which was also the year we incorporated.

        BEBE SPORT stores.    The Company launched BEBE SPORT in the first half of fiscal 2003 to satisfy the casual lifestyle needs of the bebe customer. The BEBE SPORT product line is active inspired sportswear featuring cotton knits, fleece, casual active bottoms, sweaters, outerwear and

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accessories that are easy, sexy and modern. During fiscal 2003 we opened 6 BEBE SPORT stores and converted 3 bbsp stores (a concept the Company has discontinued). As of June 30, 2003 the Company operated 9 BEBE SPORT stores in 7 states.

        bebe outlet stores.    As of June 30, 2003 the Company operated 18 bebe outlet stores in 10 states. Strategically the company utilizes the outlets as a clearance vehicle for merchandise from our retail stores. Additionally, we round out the inventory of these stores with full price logo merchandise and, to a lesser extent, garments specifically produced for the outlet stores often using excess fabric inventory.

        On-line store.    During fiscal 1999 the Company launched our web based store, bebe.com. The on-line store was created to offer the customer an extension of the bebe store experience and provide a broader merchandise assortment from which the customer can choose. It is also used as a vehicle to communicate with our customers through advertising and direct mail. For the fiscal year ended 2003, bebe.com represented approximately 2% of total revenue.

        We reinforce our brand with a distinctive lifestyle image advertising campaign, using prominent fashion photographers. We believe that our emphasis on non-product specific lifestyle advertising promotes brand awareness and attracts customers. We communicate the images to consumers through a variety of advertising vehicles including fashion magazines, bus shelters, in-store displays, customer mailings and the BEBE SPORT catalog. We further enhance the bebe brand image by designing our on-line and retail stores to create an upscale, inviting, boutique environment.

Operating Strategy

        Our objective is to satisfy the fashion needs of the modern, sexy and sophisticated woman. The principal elements of our operating strategy to achieve this objective are as follows:

1.

Provide distinctive fashion throughout a broad product line.    Fashion from throughout the world inspires our designers and merchandisers. They interpret contemporary ideas for designs, colors and fabrications into products to meet the lifestyle needs of the bebe customer. Our in-house design team allows us to quickly react to fashion trends. While certain styles and products are represented each season, our design and merchandise teams are committed to bringing newness into the merchandise mix in response to emerging trends.



2.

Vertically integrate design, production, merchandising and retail functions.    Our vertical integration enables us to respond quickly to changing fashion trends, reduce our risk of excess inventory, and produce distinctive quality merchandise of exceptional value.



3.

Manage merchandise mix.    Our approach to merchandising and a proactive inventory management program is critical to our success. By actively monitoring sell-through rates and managing the mix of categories and products in our stores, we believe that we are able to respond to emerging trends in a timely manner, minimize our dependence on any particular category, style or fabrication, and preserve a balanced, coordinated presentation of merchandise within each store.



4.

Control distribution of merchandise.    We control the distribution of our product through Company owned retail stores and an on-line store. This distribution strategy enables us to display the full assortment of our products, control the pricing, control the visual presentation and flow of goods, test new products and reinforce the brands' identity in the eyes of our customers.



5.

Enhance brand image.    We attract customers through edgy, high-impact, visual advertising campaigns using print, outdoor, in-store, electronic, and direct mail communication vehicles. We also offer a line of merchandise branded with the distinctive bebe logo to increase brand

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awareness. We seek to create an upscale, inviting environment that further enhances the bebe brand and builds customer loyalty and demand for bebe merchandise.

Stores and Expansion Opportunities

        We believe that there is a significant opportunity to expand the number of bebe and BEBE SPORT stores in new and existing domestic markets. In selecting a specific site, we look for high traffic locations primarily in regional shopping centers and in freestanding street locations. We evaluate proposed sites based on the traffic pattern, co-tenancies, average sales per square foot achieved by neighboring stores, lease economics, demographic characteristics and other factors considered important within the specific location.

        For fiscal 2004, we plan to grow our operations in a controlled manner, primarily through the opening of new stores. We have been conservative in our growth plans while we continue to evaluate the new BEBE SPORT concept. In addition, we are focused on recruiting key management personnel in order to ensure the infrastructure can support a more aggressive growth plan.

        Our stores typically have achieved profitability at the store operating level within the first full quarter of operation; however, we cannot assure you that our stores will do so in the future. Actual store growth and future store profitability and rates of return will depend on a number of factors that include, but are not limited to, individual store economics and suitability of available sites.

        During fiscal 2003, we opened 20 stores and closed 5 stores and in fiscal 2004 we plan to open approximately 12 to 16 stores and close approximately 2 stores. The majority of the new stores will be BEBE SPORT.

        bebe stores.    During fiscal 2003, we opened 14 and closed 3 stores. In addition to opening new stores, we expanded or relocated 3 existing stores to larger spaces during fiscal 2003. Our stores average approximately 3,650 square feet in size and are primarily located in regional shopping malls and freestanding street locations. Future bebe stores will average 3,500 square feet. In fiscal 2004, we plan on opening approximately 4 to 6 bebe stores.

        BEBE SPORT stores.    During fiscal 2003, we opened 6 BEBE SPORT stores and converted 3 bbsp stores. Our stores average approximately 2,200 square feet in size and are primarily located in regional shopping malls. Future BEBE SPORT stores will average 1,800 to 2,000 square feet. In fiscal 2004, we plan on opening approximately 8 to 10 BEBE SPORT stores.

        bebe outlet stores.    During fiscal 2003, we closed 2 stores. Our stores average approximately 3,700 square feet in size and are primarily located in outlet malls. Current growth plans do not include additional outlet stores.

        Our ability to expand will depend on a number of factors, including the availability of desirable locations, the negotiation of acceptable leases and our ability to manage expansion and to source adequate inventory. We cannot assure you that we will be able to achieve our planned expansion on a timely and profitable basis. Furthermore, we cannot assure you that store openings in existing markets will not result in reduced net sales volumes and profitability of existing stores in those markets.

        Store Closures.    During fiscal 2003, we closed 5 stores. We monitor the financial performance of our stores and have closed and will continue to close stores that we do not consider to be viable. Many of the store leases contain early termination options that allow us to close the stores in certain specified years of the leases if certain minimum sales levels are not achieved.

        On-line store.    During fiscal 2004, we plan on upgrading our on-line store to simplify and enhance our customers' on-line shopping experience and may continue to invest in such upgrades to further capitalize on the encouraging sales performance of our store.

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Merchandising

        Our merchandising strategy is to provide current, timely fashions in a broad selection of categories to suit the lifestyle needs of our customers. We market all of our merchandise under the "bebe" and "BEBE SPORT" brand names. In some cases, we select merchandise directly from third-party apparel manufacturers' lines and market it under our "bebe" or "BEBE SPORT" labels. We do not have long-term contracts with any third party apparel manufacturers and purchase all of the merchandise from such manufacturers by purchase order.

        Product Categories.    After building a strong women's suiting business in the early 1990s, and we have since diversified our product line. We significantly increased the breadth of our product offerings by expanding categories such as sweaters, tops, related separates, leather, dresses, lingerie, shoes, swimwear, eyewear, logo merchandise and accessories. While each category's contribution as a percentage of total net sales varies seasonally, each of the product classifications is represented throughout the year. We regularly evaluate new categories that may be appropriate for introduction. We also plan to grow by introducing new product categories. These categories can be internally developed or developed in conjunction with licensees. As of June 30, 2003, our product licensee business represented less than 1% of total revenue. We currently license rights for footwear, eyewear and swimwear. Under the terms of these agreements, the licensees will manufacture and distribute products branded with the bebe logo to be sold at bebe stores and selected retailers.

        Product Development.    Our approach to the product development process allows our merchants to gain as much information as possible concerning current fashion trends before making fabric or product purchase commitments. We control the process by focusing on key color selection, fabric order, pattern development and production order deadlines. We establish the deadlines to ensure an adequate flow of inventory into the stores. While product development is seasonal, we make commitments monthly based on current sales and fashion trends. This enhances our ability to react promptly to customer demand.

        A detailed merchandising plan supports the product development process. This merchandising plan includes sales, inventory and profitability targets for each product classification. We use the plan to adjust production orders as needed to meet inventory and sales targets. If we miscalculate consumer demand for our products, we may be faced with significant excess inventory and fabric for some products and missed sales opportunities for others. Weak sales and resulting markdowns could cause our profitability to be impaired.

Marketing

        We have an extensive image advertising program, which addresses the lifestyle needs and aspirations of our target customers. Through edgy, high-impact, visual advertising campaigns, we attract customers who are intrigued by the playfully sensual and evocative imagery. We believe that our emphasis on non-product specific lifestyle advertising promotes brand awareness and supports numerous product line expansion opportunities. An outside advertising agency works with our internal Marketing Department to create a lifestyle advertising campaign. This campaign, which emphasizes a forward-looking view of fashion, is communicated to consumers through a variety of means including fashion magazines, bus shelters, in-store displays, customer mailings and the BEBE SPORT catalog. In addition, our Public Relations Department communicates directly with fashion editors and supplies them with a continuous flow of product information. We are often featured in fashion magazine editorials. On occasion, we have co-sponsored promotional events with fashion magazines, such as Elle, Glamour, Marie Claire, Vogue, InStyle and Vanity Fair.

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Store Operations

        Store operations are organized into four regions and twenty-eight districts. Each region is managed by a regional manager, and each district is managed by a district manager. Each regional manager is typically responsible for five to eight districts, and each district manager is typically responsible for five to nine stores. Each store is typically staffed with two to four managers in addition to sales associates.

        We seek to instill enthusiasm and dedication in our store management personnel and our sales associates through incentive programs and regular communication with the stores. Sales associates, excluding associates in outlet stores, receive commissions on sales with a guaranteed minimum hourly compensation. Store managers receive base compensation plus incentive compensation based on sales and inventory control. Our regional and district managers receive base compensation plus incentive compensation based on meeting profitability benchmarks.

Sourcing, Quality Control and Distribution

        All of our merchandise is marketed under the "bebe" and "BEBE SPORT" brand names. The majority of our merchandise is designed and developed in-house and manufactured to our specifications. The balance is developed primarily in conjunction with third-party apparel manufacturers. In some cases, we select merchandise directly from these manufacturers' lines. When we contract for merchandise production, we use facilities primarily in the United States and some foreign manufacturers. These facilities produce garments based on designs, patterns and detailed specifications produced by us.

        We use computer aided design systems to develop patterns and production markers as part of our product development process. We fit test sample garments before production to make sure patterns are accurate. We maintain a formalized quality control program. Garments that do not pass inspection are returned to the manufacturer for rework or accepted at reduced prices for sale in our outlet stores.

        The majority of our merchandise is received, inspected, processed, warehoused and distributed through our distribution center. Details about each receipt are supplied to merchandise planners who determine how the product should be distributed among the stores based on current inventory levels, sales trends and specific product characteristics. Advance shipping notices are electronically communicated to the stores and any goods not shipped are stored for replenishment purposes. Merchandise typically is shipped to the stores three times per week using common carriers.

        We do not have any long-term contracts with any manufacturer or supplier and place all of our orders by purchase order. If we fail to obtain sufficient quantities of manufacturing capacity or raw materials, it would have a harmful effect on our business, financial condition and results of operations. 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 which could harm our operating results.

Competition

        The retail and apparel industries are highly competitive and are characterized by low barriers to entry. Key competitors include, but are not limited to Arden B, BCBG, Express, Guess, Forever 21, and the Savvy Department within Nordstrom. We expect competition in our markets to increase. The primary competitive factors in our markets are: brand name recognition, product styling, product quality, product presentation, product pricing, store ambiance, customer service, and convenience.

        We also compete with traditional department stores, specialty store retailers, on-line retailers, off-price retailers and direct marketers for, among other things, raw materials, market share, retail space, finished goods, sourcing and personnel. Because many of our competitors are larger and have substantially greater financial, distribution and marketing resources than we do, we may lack the

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resources to adequately compete with them. If we fail to compete in any way, it may have a harmful effect on our business, financial condition and results of operations.

Intellectual Property and Proprietary Rights

        "bebe", "BEBE SPORT" and certain other trademarks either have been registered or applications are pending with United States Patent and Trademark Office and with certain foreign registries.

Information Services and Technology

        We are committed to utilizing technology to enhance our competitive position. Our information systems provide integration of the store, merchandising, distribution and financial systems. The core business systems, which consist of both purchased and internally developed software, are accessed over a Company-wide network providing corporate employees with access to all key business applications.

        Our investments in information systems have focused on our production, merchandise, store and financial accounting systems. We made investments to improve existing management information systems and implemented new systems during fiscal 2003. During fiscal 2003, we wrote-off approximately $800,000 in IT investments as the company direction changed from developing new software applications to leveraging and upgrading our existing systems.

        Currently, our focus is on better utilizing our production, planning and point of sale system. In fiscal 2004, we plan to make additional investments of approximately $2.9 million. We cannot assure you that we will be successful with the implementation of these new systems or plans. Failure to implement and integrate such systems or plans could have a harmful effect on our business, financial condition and results of operations.

Employees

        As of June 30, 2003, we had approximately 2,400 employees, of whom approximately 300 were employed at the corporate offices and distribution center. The remaining 2,100 employees were employed in store operations. Approximately 940 were full-time employees and 1,460 were employed on a part-time basis. This is comparable to last fiscal year. In addition, our employees are not represented by any labor union, and we believe our relationship with our employees is good.

EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

Executive Officers, Directors, and Key Personnel

        The following table sets forth certain information with respect to the executive officers, directors, and key personnel as of September 1, 2003:

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(1)

Executive Officer.

(2)

Member, Audit Committee.

(3)

Member, Compensation and Management Development Committee.

(4)

Member, Nominating and Corporate Governance Committee.

*

Chairman of the Committee

        Manny Mashouf founded bebe stores, inc. and has served as Chairman of the Board and Chief Executive Officer since our incorporation in 1976. Mr. Mashouf is the husband of Neda Mashouf, Director and General Merchandising Manager of Design—BEBE SPORT.

        Robert Jaffe has served as a Director since November 2002. Mr. Jaffe is a Co-Founder, and has served as President and Chief Executive Officer of Sorrento Associates, Inc., a venture capital firm, since 1985. He currently serves as Chairman of the Board of A-Life Medical, Inc., a transcription and medical billing code company. He is also a Director of Digirad Corporation, Perlan Therapeutics, and IP Mobilenet Corporation. From 1992 to 2002, Mr. Jaffe was Chairman of the Board of Hot Topic, Inc. Mr. Jaffe was previously an investment banker with Merrill Lynch Capital Markets, Salomon Brothers and Goldman, Sachs & Company.

        Barbara Bass has served as a Director since February 1997. Since 1993, Ms. Bass has served as the President of the Gerson Bakar Foundation. From 1989 to 1992, Ms. Bass served as President and Chief Executive Officer of the Emporium Weinstock Division of Carter Hawley Hale Stores, Inc., a department store chain. Ms. Bass also serves on the Board of Directors of Starbucks Corporation and DFS Group Limited.

        Corrado Federico has served as a Director since November 1996. Mr. Federico is President of Solaris Properties and has served as the President of Corado, Inc., a land development firm, since 1991. From 1986 to 1991, Mr. Federico held the position of President and Chief Executive Officer of Esprit de Corp, Inc., a wholesaler and retailer of junior and children's apparel, footwear and accessories ("Esprit"). Mr. Federico also serves on the Board of Directors of Hot Topic, Inc.

        Neda Mashouf has served as Director since June 1985, General Merchandising Manager of Design—BEBE SPORT since August 2003, and has been with the Company since 1984. Ms. Mashouf is the wife of Manny Mashouf, Chairman of the Board and Chief Executive Officer.

        Daniel Wardlow has served as a Director since November 2002. Dr. Wardlow is a Professor of Marketing at San Francisco State University, and from 1995 to 1998 served as the chairman of SFSU's Marketing Department. He completed his MBA and PhD studies in 1991 at the Broad Graduate School of Management at Michigan State University. He is the author and a co-author of a number of books and articles in the fields of logistics management and consumer behavior. Dr. Wardlow's work experience includes broadcasting, ownership of two retail stores and a small independent music label. Until joining the bebe Board of Directors, he was a frequent industry consultant.

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        John Kyees has served as Chief Financial Officer and Chief Administrative Officer since March 2002. From 1997 to 2002, Mr. Kyees held various executive positions at HC Holdings and Skinmarket, Inc., both specialty retailers. From 1984 to 1996, Mr. Kyees was the Chief Financial Officer of Express, a division of the Limited, Inc.

        Renee Bell has served as Acting General Merchandise Manager of Design since June 2003. From 1997 to 2003, Ms. Bell served as Vice President of Merchandising for Rampage, a division of Charlotte Russe. From 1987 to 1996, Ms. Bell held various positions at bebe stores, inc. and other specialty retailers.

        Tom Curtis has served as General Merchandise Manager of BEBE SPORT since June 2002. From 1998 to 2002, Mr. Curtis served as a Senior Merchandising Manager. From 1986 to 1998, Mr. Curtis held various positions at the following specialty retailers: The Walt Disney Co., Rampage Clothing Co. and R.H. Macy & Co., Inc.

        Paul Mashouf has served as a Vice President of Sourcing since March 2003 and has been with the Company since 1990. Prior to his role as Vice President of Sourcing, Mr. Mashouf held various positions within the Company, including Director of IS&T for Production, Production Manager and Store Manager.

        Ferrell Ostrow has served as Vice President of Stores since April 2003 and Vice President of Loss Prevention since March 1999. From 1998 to 1999, Mr. Ostrow served as the Director of Loss Prevention for The Wet Seal Inc. From 1988 to 1998, Mr. Ostrow served as Director of Loss Prevention with Pacific Sunwear of California Inc.

        Michelle Perna has served as Vice President of Human Resources since November 2000. From 1997 to 2000, Ms. Perna was President of HR1, an HR consulting company. From 1989 to 1997, Ms. Perna was Vice President of Human Resources at Merv Griffin's Resorts Casino.

ITEM 2. PROPERTIES

        As of June 30, 2003, our 180 stores, all of which are leased, encompassed approximately 654,000 total square feet. The typical store lease is for a 10-year term and requires us to pay a base rent and a percentage rent if certain minimum sales levels are achieved. Many of the leases provide a lease termination option in certain specified years of the lease if certain minimum sales levels are not achieved. In addition, leases for locations typically require us to pay property taxes, utilities and repairs and common area maintenance fees.

        Our main corporate headquarters are currently located in a facility in Brisbane, California. The facility located at 400 Valley Drive is approximately 35,000 square feet and houses administrative offices, store support services, and our on-line store. The lease for 400 Valley Drive expires in April 2014. We also lease a 144,000 square foot distribution center in Benicia, California and a 22,500 square foot design studio and production facility in Los Angeles, California. The leases expire in April 2013 and February 2005, respectively.

ITEM 3. LEGAL PROCEEDINGS

        From time to time, we may be involved in litigation relating to claims arising out of our operations. As of the date of this filing, we are currently involved in several ongoing legal proceedings; however, none of these proceedings are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or results of operations.

        The lawsuit we filed on August 16, 2002 in the Federal District Court for the Eastern District of Missouri (the "Court") against May Department Stores Company ("May Company") has been settled to our satisfaction. This was a civil action for preliminary and permanent injunctive relief and damages

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sought against May Company for trademark infringement, trademark dilution, unfair competition and false designation of origin, arising, in part under the Lanham Act. This action also arose under the statutes and common law of the State of Missouri involving trademark infringement and dilution. We were seeking (i) a permanent injunction prohibiting May Company from using or permitting the use of the name "be" and all other names which are confusingly similar to the bebe marks; (ii) an accounting and disgorgement of May Company's profits; (iii) an award of punitive damages; and (iv) any other relief including prejudgment interest, post-judgment interest and costs that the Court deems just and proper.

        Along with approximately one hundred and seven other parties, we were named in a class action suit filed in Los Angeles Superior Court (case No. BC294155) concerning the substance of one of the questions on our employment application.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of our shareholders since June 30, 2003.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The common stock trades on the Nasdaq National Market under the symbol "BEBE". The following table sets forth the high and low sales of our common stock for the two years ended June 30, 2003, as reported by Nasdaq:

        As of August 29, 2003, the number of holders of record of our common stock was 60 and the number of beneficial holders of our common stock was approximately 2,140.

        We have never declared or paid any dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future. In addition, our current line of credit arrangements prohibit the payment of cash dividends on our capital stock.

        Information with respect to equity plan compensation is incorporated by reference from our definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of our fiscal year.

ITEM 6. SELECTED FINANCIAL DATA

Selected Financial and Operating Data

        The following selected financial data is qualified by reference to, and should be read in conjunction with, the Financial Statements and Notes thereto and the other financial information

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appearing elsewhere in this filing. These historical results are not necessarily indicative of results to be expected in the future.

(1)

Based on the sum of average monthly sales for the period.

(2)

Based on net sales; stores are considered comparable beginning on the first day of the first month following the first anniversary of their opening.

        Comparable store sales.    Comparable store sales are calculated 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. 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, comparable store sales are calculated on a calendar month basis using a same day sales comparison. On-line store sales are not included in the comparable store sales calculation.

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ITEM 7. 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 should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Form 10-K. 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 could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risks That May Affect Results" in this section. Our fiscal year ends on June 30 of each calendar year.

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. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Our accounting policies are more fully described in Note 1 to the financial statements.

        We have identified certain critical accounting policies, which are described below.

        Inventories.    Our inventories are stated at the lower of weighted average cost or market. We estimate shortage for the period between the last physical count and balance sheet date. Our estimate can be affected by shortage trends. In order to assess that raw material is recorded properly we age the fabric inventory and record a reserve to reduce the cost in accordance with our established policy, which is based on historical experience. To ensure that finished goods inventory is recorded properly; we review our inventory and reduce the cost if the selling price is marked down below cost. These assumptions can have an impact on current and future operating results and financial position.

        Long-lived assets.    We review long-lived assets for impairment whenever events or changes in circumstances, such as store closures, indicate that the carrying value of an asset may not be recoverable. If the undiscounted cash flows from the long-lived assets are less than the carrying value we record an impairment charge equal to the difference between the carrying value and the asset's fair value. In addition, at the time a decision is made to close a store, we record an impairment charge, if appropriate, or accelerate depreciation over the revised useful life. For fiscal 2003, we recorded a charge for the impairment of store assets of $265,000.We believe at this time that the long-lived assets' carrying values and useful lives continue to be appropriate.

        Sales Return Reserve.    We record a reserve for estimated product returns based on historical return trends. For fiscal 2003, the reserve was $498,000 compared to $470,000 in fiscal 2002. If actual returns are greater than those projected, additional sales returns may be recorded in the future.

        Income Taxes.    We record reserves for estimates of probable settlements of domestic and foreign tax audits. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of

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these issues. Our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings.

Recent Accounting Pronouncements

        In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and establishes standards for the recognition and measurement of asset impairment and disposal cost. SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. The Company adopted this Statement on July 1, 2002. Adoption of this Statement did not have a significant impact on our financial position or results of operations.

        In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities", which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of the company's commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing any future restructuring costs as well as the amounts recognized. The Company adopted this Statement on December 31, 2002. Adoption of this Statement did not have a significant impact on our financial position or results of operations.

Results of Operations

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

(1)

Cost of sales includes the cost of merchandise, occupancy costs and buying costs.

(2)

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

14

Years Ended June 30, 2003 and 2002

        Net Sales.    Net sales increased to $323.5 million during the year ended June 30, 2003 from $316.4 million in fiscal 2002, an increase of $7.1 million, or 2.2%. Of this increase, new, expanded or remodeled stores not included in the comparable store sales base added $27.3 million to sales, while a decrease in comparable store sales of 6.8% reduced sales by $20.2 million. The decrease in comparable store sales performance was attributed to the following: marketplace conditions which impacted customer traffic to our stores, missed opportunities in key product categories and production delays which resulted in missed sales opportunities and increased promotional activities.

        Gross Profit.    Gross profit increased to $144.5 million for the year ended June 30, 2003 from $142.4 million in fiscal 2002, an increase of $2.1 million, or 1.5%. As a percentage of net sales, gross profit decreased to 44.7% for the year from 45.0% during fiscal 2002. The decrease in gross profit as a percentage of net sales resulted from negative occupancy leverage offset by slightly higher net merchandise margins. Negative occupancy expense leverage was the result of lower sales productivity.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses, which primarily consist of non-occupancy store costs, corporate overhead and advertising costs, increased to $115.9 million during the year ended June 30, 2003 from $101.8 million in fiscal 2002, an increase of $14.1 million, or 13.9%. As a percentage of net sales, these expenses increased to 35.8% during the year ended June 30, 2003 from 32.2% in fiscal 2002. This increase as a percentage of net sales was primarily due to higher compensation associated with the store commission structure, higher depreciation due to negative leverage and investments in the Company's infrastructure, and store closure expenses and reserves which amounted to $557,000 related to 5 store closures and an impairment reserve for 2 stores. Expenses were also impacted by charges related to abandoned information technology projects which were offset by a favorable legal settlement.

        Interest and Other Expense (Income), Net.    We generated $2.2 million of interest and other income (net of other expenses) during the year ended June 30, 2003 as compared to $2.1 million in fiscal 2002. Average cash balances continued to increase arising from operating results offset by lower interest rates.

        Provision for Income Taxes.    The effective tax rate for the year ended June 30, 2003 was 37.5% as compared to 37.9% in fiscal 2002. The lower effective tax rate for fiscal 2003 was primarily attributable to a lower effective state tax rate due to the benefits of the corporate legal entity restructuring.

Years Ended June 30, 2002 and 2001

        Net Sales.    Net sales increased to $316.4 million during the year ended June 30, 2002 from $290.8 million in fiscal 2001, an increase of $25.6 million, or 8.8%. Of this increase, new, expanded or remodeled stores not included in the comparable store sales base added $41.0 million to sales, while a decrease in comparable store sales of 5.7% reduced sales by $15.4 million. Comparable store sales for the first half of fiscal 2002 decreased 3.7%. Comparable store sales for the second half of fiscal 2002 decreased 8.1%. Comparable store sales were positive from July 1, 2001 through September 10, 2001. Following the September 11, 2001 terrorist attack, the decrease in comparable store sales was attributed to the following: marketplace conditions, missed opportunities in key product categories, a product assortment heavily skewed toward the casual lifestyle, and the move of the production operation from Brisbane, California to Los Angeles, California.

        Gross Profit.    Gross profit, which includes the cost of merchandise, buying and occupancy, increased to $142.4 million for the year ended June 30, 2002 from $139.6 million in fiscal 2001, an increase of $2.8 million, or 2.0%. As a percentage of net sales, gross profit decreased to 45.0% for the year from 48.0% during fiscal 2001. The decrease in gross profit as a percentage of net sales resulted from negative occupancy expense leverage and reduced merchandise margins. Negative occupancy

15

expense leverage was attributed to the lower sales productivity. Reduced merchandise margins were due to increased production costs related to the move of the production facility to Los Angeles, California, production delays and charges associated with the write-off of fabric of approximately $1.5 million. Merchandise margins were also reduced by a weaker product sell-through, primarily in the first six months of the fiscal year, resulting in an increased level of markdowns and a change in the mix of sales between full price and outlet stores.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses, which primarily consist of non-occupancy store costs, corporate overhead and advertising costs, increased to $101.8 million during the year ended June 30, 2002 from $97.8 million in fiscal 2001, an increase of $4.0 million, or 4.1%. As a percentage of net sales, these expenses decreased to 32.2% during the year ended June 30, 2002 from 33.6% in fiscal 2001. This decrease as a percentage of net sales was primarily due to lower compensation resulting from a change in our incentive plan, and a favorable settlement on a lawsuit. In fiscal 2001, we recorded $890,000 of expenses related to the tentative resolution of a lawsuit. The decrease in expenses was offset by negative leverage associated with the decrease in comparable store sales and $1.2 million of charges related to abandoned information technology projects.

        Interest and Other Expense (Income), Net.    We generated $2.1 million of interest and other income (net of other expenses) during the year ended June 30, 2002 as compared to $3.4 million in fiscal 2001. Average cash balances continued to increase, however lower interest rates during fiscal 2002 resulted in a reduction in interest income.

        Provision for Income Taxes.    The effective tax rate for the year ended June 30, 2002 was 37.9% as compared to 38.5% in fiscal 2001. The lower effective tax rate for fiscal 2002 was primarily attributable to the benefits of converting United Kingdom operations into a disregarded entity for U.S. federal income tax purposes.

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 disproportionate amount of our annual net sales and profitability in the second quarter of our fiscal year (which includes the fall and holiday selling seasons) compared to 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 in the first and second fiscal quarters. At June 30, 2003, we had approximately $151.3 million of cash, cash equivalents and marketable securities (short-term and long-term) on hand. In addition, we had a revolving line of credit, under which we could borrow or issue letters of credit up to a combined total of $10.0 million. As of June 30, 2003, there were no borrowings under the line of credit and letters of credit outstanding totaled $4.4 million.

        Net cash provided by operating activities in fiscal 2003, 2002 and 2001 was $41.6 million, $49.9 million and $33.7 million, respectively. The decrease in cash provided by operating activities in fiscal 2003 compared to 2002 was primarily the result of a decrease in net income, increase in inventories, and other changes in working capital.

        Net cash used by investing activities was $33.2 million, $21.9 million and $18.0 million in fiscal 2003, 2002 and 2001, respectively. The primary use of these funds was for capital expenditures and for

16

2003, to purchase marketable securities of $23.4 million. Capital expenditures in 2003 relate to the opening of new stores, investments in management information systems and the expansion of our corporate offices. We opened 20 new stores in fiscal 2003, 20 new stores in fiscal 2002 and 26 new stores in fiscal 2001. We expect to open approximately 12 to 16 stores in fiscal 2004.

        During fiscal 2003, new store construction costs (before tenant allowances) averaged $475,000. The average gross inventory investment was $70,000.

        Net cash provided by financing activities was $0.7 million, $4.2 million and $2.9 million in fiscal 2003, fiscal 2002 and fiscal 2001, respectively, and was derived from proceeds from the issuance of common stock arising from stock option exercises.

        We believe that our cash on hand, together with our cash flow from operations, will be sufficient to meet our capital and operating requirements through fiscal 2004. We expect to renew our line of credit which expires in the second quarter of fiscal year 2004 to one with similar terms. Our future capital requirements, however, will depend on numerous factors, including without limitation, the size and number of new and expanded stores, investment costs for management information systems, potential acquisitions and/or joint ventures, repurchase of stock and future results of operations.

Summary Disclosures about Contractual Obligations and Commercial Commitments:

        The following table summarizes significant contractual obligations as of June 30, 2003:

        As of June 30, 2003, there were no borrowings outstanding under the line of credit.

Inflation

        We do not believe that inflation has had a material effect on the results of operations in the recent past. However, we cannot assure that our business will not be affected by inflation in the future.

17

RISKS THAT MAY AFFECT RESULTS

        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, the following:

RISKS RELATING TO OUR BUSINESS:

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 continuing favorable market response to the creative efforts of our purchasing, design and marketing teams' 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 significant excess inventory or lack of inventory. Historically, this type of occurrence has resulted in excess fabric for some products, missed sales opportunities 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 consumer demands and fashion trends will adversely affect our sales.



2.

If we are unable to obtain raw materials or find manufacturing facilities, our financial condition may be harmed.    We do not own any manufacturing facilities and therefore depend on a limited number of 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 obtain sufficient quantities of raw materials, it could have a harmful effect on our results of operations. 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. If we fail to maintain favorable relationships with these production facilities and to obtain an adequate supply of quality raw materials on commercially reasonable terms, it could harm our business and results of operations..



3.

We depend on third party apparel manufacturers for production and storage, and our sales may be negatively affected if the manufacturers do not perform acceptably, or if design changes are communicated after the production has begun.    We develop a significant portion of our merchandise in conjunction with third party apparel manufacturers. In some cases, we select merchandise directly from these manufacturers' lines. We do not have long-term contracts with any third party apparel manufacturers and purchase all of the merchandise from such manufacturers by purchase order. Furthermore, we have received in the past, and may receive in the future, shipments of products from third party apparel 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. We cannot assure you that 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 that satisfy our quality control standards. In addition, 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 may be negatively impacted.

In addition, if we decide to change a key element of the design after the manufacturing process has begun we may negatively impact the manufacturer's ability to deliver the products on a timely basis which could impact earnings.

18

4.

Our success depends on our ability to attract and retain key employees in order to support our existing business and future expansion.    We are actively recruiting qualified candidates to fill key executive positions (CEO and CMO) within the company. There is substantial competition for experienced personnel, which we expect to 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 Manny Mashouf, the founder, Chairman of the Board, Chief Executive Officer and majority shareholder. We do not carry "key person" life insurance policies on any of our employees. If we lose the services of Mr. Mashouf or any key officers or employees, it could harm our business and results of operations.

5.

If we are not able to successfully develop and expand our new BEBE SPORT store concept our revenue base and earnings may be impaired.    During fiscal 2003, we launched a new store concept, BEBE SPORT, in which our product offering is focused on active inspired sportswear branded with "BEBE SPORT". We have committed significant financial and human resources to developing and expanding this concept. The failure of this new store concept might result in a negative impact to earnings.



6.

There can be no assurance that future store openings will be successful.    We expect to open approximately 12 to 16 stores in fiscal 2004, of which approximately 8 to 10 will be BEBE SPORT stores. There can be no assurance that these stores, or any other stores that we might open in the future, will be successful or that our overall gross profit will increase as a result of opening these stores. In addition, most of our new store openings in fiscal 2004 will be in existing markets. These openings may affect the existing stores' net sales volumes 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.



7.

Any serious disruption at our major facilities could have a harmful effect on our business.    We currently operate our corporate office in Brisbane, California, a distribution facility in Benicia, California, and a design studio and production facility in Los Angeles, California. Any serious disruption at these facilities whether due to construction, relocation, fire, earthquake, terrorist acts or otherwise would harm our operations and could have a harmful effect on 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.



8.

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. Key competitors include, but are not limited to Arden B, BCBG, Express, Guess, Forever 21, and the Savvy Department within Nordstrom. We expect competition in our markets to increase. The primary competitive factors in our markets are: brand name recognition, sourcing strategies, 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, business to consumer websites, off-price retailers and direct marketers for, among other things, raw materials,

19

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, we may lack the resources to adequately compete with them. If we fail to compete in any way, it could harm our business, financial condition and results of operations.

9.

Purchases of the merchandise we sell are generally discretionary and are therefore particularly susceptible to economic slowdowns.    If current economic conditions do not improve, our business, financial condition and results of operations could be adversely affected. Consumers are generally more willing to make discretionary purchases, including purchases of fashion products, during periods in which favorable economic conditions prevail. Currently, there is a general slowdown in the United States economy, which has adversely affected consumer confidence and spending habits, as well as our sales.

The outlook for the United States economy is uncertain and is directly affected by global political factors that are beyond our control. Any escalation of military action involving the United States could cause increased volatility in financial markets, further adversely affecting consumer confidence and spending habits. If current economic conditions do not improve, our business, financial condition and results of operations could be adversely affected.

10.

If we are not able to successfully 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 you 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 in targeted international markets. In some of these markets, obstacles exist that may prevent us from obtaining a trademark for the bebe name or related names. In such countries, we may not be able to register trademarks in these international markets, purchase the right or obtain a license to use the bebe name on commercially reasonable terms. If we fail to obtain trademark, ownership or license rights, it would limit our ability to expand into certain international markets. Furthermore, in some 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 goodwill associated with our trademarks may be diluted.

Both domestically and internationally, if we do not show use of our trademarks, our trademark rights may lapse over time.

11.

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 can be held jointly liable for the wrongdoings of the manufacturers of their products. While we do not control their employees' employment conditions or the manufacturer's business practices, and the manufacturers act in their own interest, they may act in a manner that result in negative public perceptions of us and/or employee allegations or court determinations that we are jointly liable. Currently, there are two litigation matters pending that involve labor disputes. Although the amount of liability

20

with respect to these actions cannot be accurately predicted, in the opinion of Management, any such liability will not individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.

RISKS RELATING TO OUR COMMON STOCK:

1.

Our stock price may fluctuate because of the small number of shares that can be publicly traded and the low average daily trading volumes.    The vast majority of our outstanding shares of our common stock are not registered and are subject to trading restrictions. As of June 30, 2003, only 4,911,324 shares of our common stock were available to be publicly traded, and as a result, our average daily trading volumes are relatively low, and our stock price is vulnerable to market swings due to large purchases, sales and short sales of our common stock.



2.

Because a principal shareholder controls the company, other shareholders may not be able to influence the direction the company takes.    As of June 30, 2003, Manny Mashouf, the Chairman of the Board and Chief Executive Officer, beneficially owned approximately 80.9% of the outstanding shares of our common stock. As a result, he alone 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.

ITEM 7A. 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.

Interest Rate Risk.

        We currently maintain a portfolio of fixed and variable investments consisting of cash equivalents, short-term marketable securities and long-term marketable securities, which can be affected by changes in market interest rates. 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 "available for sale". Marketable securities are comprised of tax-exempt municipal bonds. 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. The remaining investments are considered short-term marketable securities if maturities range between four and twelve months or long term marketable securities if maturities are over twelve months.

21

        The following table lists our cash equivalents, short-term marketable securities and long-term marketable securities at June 30, 2003:

        The interest payable on our bank line of credit is based on variable interest rates and therefore affected by changes in market interest rates. If interest rates rose .4 basis points (a 10% change from the bank's reference rate as of June 30, 2003), our results from operations and cash flows would not be significantly affected.

Foreign Currency Risks.

        We enter into a significant amount of purchase obligations outside of the U.S. which are settled in U.S. Dollars and, therefore, we have only minimal exposure to foreign currency exchange risks. We also operate a subsidiary with a functional currency other than the U.S. Dollar. This subsidiary represented less than two percent of total revenues for fiscal year 2003 and, therefore, presents only minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks and believe that foreign currency exchange risk is immaterial.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Information with respect to this item is set forth in "Index to Financial Statements."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A. 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 in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this 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 annual report.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Information with respect to this item is incorporated by reference from the Registrant's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the registrant's fiscal year.

22

ITEM 11. EXECUTIVE COMPENSATION

        Information with respect to this item is incorporated by reference from the Registrant's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the registrant's fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Information with respect to this item is incorporated by reference from the Registrant's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the Registrant's fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Information with respect to this item is incorporated by reference from the Registrant's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the Registrant's fiscal year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Information with respect to this item is incorporated by reference from the Registrant's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the Registrant's fiscal year.

23

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)





1.

The financial statements listed in the "Index to Financial Statements" at page F-1 are filed as a part of this report.



2.

Financial statement schedules are included on page S-1 or are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.



3.

Exhibits included or incorporated herein: See Index to Exhibits.



(b)

Reports on Form 8-K.

(c)

Exhibits

24

*

Incorporated by reference from exhibits of the same number in Registrant's Registration Statement on Form S-1 (Reg. No. 333-50333), effective June 16, 1998.

**

Incorporated by reference from exhibits of the same number in Registrant's Quarterly Report on Form 10-Q filed on February 16, 1999.

***

Incorporated by reference from exhibits of the same number in Registrant's Annual Report on Form 10-K filed on September 28, 1999.

****

Incorporated by reference from exhibits of the same number in Registrant's Annual Report on Form 10-K filed on September 28, 2000.

25

SIGNATURES

        Pursuant to the requirements of the Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brisbane, State of California, on the 29th day of September 2003.

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Manny Mashouf and John Kyees, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Exchange Act, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated:

S-1

bebe stores, inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2003, 2002 AND 2001:

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
bebe stores, inc.:

        We have audited the accompanying consolidated balance sheets of bebe stores, inc. as of June 30, 2003 and 2002 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three fiscal years in the period ended June 30, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of bebe stores, inc. as of June 30, 2003 and 2002 and the results of its operations and its cash flows for each of the three fiscal years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/  DELOITTE & TOUCHE LLP      

San Francisco, California
September 15, 2003

F-2

bebe stores, inc.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

See accompanying notes to consolidated financial statements.

F-3

bebe stores, inc.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except share data)

See accompanying notes to consolidated financial statements.

F-4

bebe stores, inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Amounts in thousands)

See accompanying notes to consolidated financial statements.

F-5

bebe stores, inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amount in thousands)