Like the year the House of Windsor so famously had a while back, this is shaping up to be an

annus horribilis

for

Bebe

(BEBE)

.

Blaming increased returns, bad winter storms and a shortage of top-selling merchandise, the retailer targeting ladies who don't lunch -- ever -- said Tuesday that January same-store sales fell 2.5%, following an increase of almost 33% last year. Its shares fell nearly 10% to a 52-week low of 16 1/4. Bebe's shares now trade 68% below their 52-week high.

But two longtime shorts say they aren't covering yet. Both say Bebe's woes -- and there's already quite a laundry list -- aren't over.

Limited Appeal

Since going public in 1998, the company has consistently posted double-digit same-store sales increases and has just as consistently tromped all over earnings expectations. But its focus on suits cut up to there for women who save their size 4s for fat days had limited appeal from the beginning. (Last year,

TheStreet.com

questioned how long the

Ally McBeal

effect could bolster Bebe's shares.)

Hush Little Bebe
Shareholders may indeed be crying as the stock retreats

Source: BigCharts

The Dockerization of America wasn't just for men; women, too, could chuck their suits for more casual fare. That meant suits weren't a growth industry. In an effort to expand its appeal, Bebe ventured into trendier items like fake fur-trimmed sweaters and leather. It also capitalized on its popularity by offering a line of logo gear. In October, the company said it would open a store in Minneapolis'

Mall of America

devoted to

bbsp

, its line of active and streetwear, hoping it would be a beachhead for future growth.

But bbsp didn't meet expectations. "The jury is still out" on the concept, says Kelly Armstrong, an analyst with

First Union Securities

who recently downgraded Bebe from a strong buy to a buy, her second-highest rating. (Her firm hasn't done underwriting for the company.)

Hit Parade

Bebe's merchandising took another hit when Greg Scott, vice president of merchandising, left the company in early January. Heather Vandenberghe, the director of marketing who spearheaded the company's efforts to raise its profile with product placements on shows like

Ally

,

Friends

and

Party of Five

, has also left recently. (The company wasn't immediately available for comment on Vandenberghe's departure or on its sales.)

Meantime, Bebe had built its success not only on small suits, but on small stores. That strategy is changing, too; revamped stores are larger. Yet sales per square foot aren't growing as fast as inventory per square foot, indicating declining productivity, says a short. And higher rent on new stores is dinging gross margins.

Last month, on a conference call with analysts to discuss its stronger-than-expected second-quarter earnings, Bebe warned that increased markdowns dragged down operating margins, and that margins aren't likely to improve in the near future. Armstrong says she expects margin pressure for "at least a year." January's weak sales won't do anything to improve the margin situation.

Armstrong says, however, that Bebe can continue to grow through additional sales, and notes that revenue per store is increasing. Bebe now operates 110 stores and plans an additional 15 this year. Any risk of that expansion is reflected in the stock price, says Armstrong.

Bad Mix

The shorts think the year will get worse for Bebe. Investors don't care about how well Bebe's done in the past, they say, and the combination of margin pressure, slowing same-store sales growth and merchandising woes won't be kind to its shares.

"They'll be fine as long as the novelty is there," says Candace Corlett, partner with

WSL Marketing

, which hasn't consulted for Bebe.

If you believe the shorts, the novelty of the fashion -- and of the stock -- is over.