<SUBMISSION>
<ACCESSION-NUMBER>0000950134-06-021101
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>5
<PERIOD>20060930
<FILING-DATE>20061109
<DATE-OF-FILING-DATE-CHANGE>20061109
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>BEBE STORES INC
<CIK>0001059272
<ASSIGNED-SIC>2330
<IRS-NUMBER>942450490
<STATE-OF-INCORPORATION>CA
<FISCAL-YEAR-END>0702
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-24395
<FILM-NUMBER>061202631
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>400 VALLEY DR
<CITY>BRISBANE
<STATE>CA
<ZIP>94005
<PHONE>4157153900
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>400 VALLEY DR
<CITY>BRISBANE
<STATE>CA
<ZIP>94005
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>BABE INC
<DATE-CHANGED>19980407
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>f24660e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>






<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-Q</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the quarterly period ended September&nbsp;30, 2006</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission File Number 0-24395</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>bebe stores, inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>(Exact name of registrant as specified in its charter)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
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    <TD width="47%">&nbsp;</TD>
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<TR valign="bottom">
    <TD align="center" valign="top"><B>California</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>94-2450490</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>(State or Jurisdiction of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>(IRS Employer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>Incorporation or Organization)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Identification Number)</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>400 Valley Drive<BR>
Brisbane, California 94005</B><BR>
(Address of principal executive offices)<BR>
<B>Telephone: (415)&nbsp;715-3900</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
<FONT face="Wingdings">&#254;</FONT> Yes
<FONT face="Wingdings">&#111;</FONT> No
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer (as defined in <BR>Rule&nbsp;12b-2 if the Securities Exchange Act).<BR>
</DIV>

<DIV align="center" style="font-size: 10pt"><FONT face="Wingdings">&#111;</FONT> Large accelerated filer &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#254;</FONT> Accelerated filer &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#111;</FONT> Non-accelerated filer</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Exchange Act). <FONT face="Wingdings">&#111;</FONT> Yes
<FONT face="Wingdings">&#254;</FONT> No
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The number of shares of registrant&#146;s common stock, par value $0.001 per share, outstanding as of
October&nbsp;30, 2006 was 92,737,623
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>







<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">









<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>bebe stores, inc.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>TABLE OF CONTENTS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>PAGE NO.</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101"><B>PART I. FINANCIAL INFORMATION</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#102">ITEM 1. Condensed Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><A href="#103">Condensed Consolidated Balance Sheets as of September&nbsp;30, 2006, July&nbsp;1, 2006 and October&nbsp;1, 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><A href="#104">Condensed Consolidated Statements of Income for the quarters ended
September&nbsp;30, 2006 and October&nbsp;1, 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><A href="#105">Condensed Consolidated Statements of Cash Flows for the quarters ended
September&nbsp;30, 2006 and October&nbsp;1, 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><A href="#106">Notes to Condensed Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#107">ITEM 2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#108">ITEM 3. Quantitative and Qualitative Disclosures about Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#109">ITEM 4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110"><B>PART II. OTHER INFORMATION</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#111">ITEM 1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#112">ITEM 1A. Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#113">ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#114">ITEM 3. Defaults Upon Senior Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#115">ITEM 4. Submission of Matters to a Vote of Security Holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#116">ITEM 5. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#117">ITEM 6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118"><B>SIGNATURE</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119"><B>EXHIBIT INDEX</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f24660exv31w1.htm">EXHIBIT 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f24660exv31w2.htm">EXHIBIT 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f24660exv32w1.htm">EXHIBIT 32.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f24660exv32w2.htm">EXHIBIT 32.2</A></FONT></TD></TR>
</TABLE>
</DIV>


<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="101"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PART I. FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 0pt">ITEM 1. Condensed Consolidated Financial Statements
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>bebe stores, inc.</B>
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED BALANCE SHEETS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(In thousands, except share data)</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>As of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>As of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>As of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>July 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>October 1,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">38,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">253,632</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Receivables
(net of allowance of $935, $897 and $912) </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,029</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,638</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">416,147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,349</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,899</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">530,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">500,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">433,196</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities and Shareholders&#146; Equity:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25,575</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,369</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,112</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long term portion of capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred rent and other lease incentives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,912</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,685</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Preferred
stock-authorized 1,000,000 shares at $0.001 par
value per share; no shares issued
and outstanding </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common
stock-authorized 135,000,000 shares at $0.001 par
value per share; issued and
outstanding 92,621,101, 91,744,090
and 91,206,371 shares </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,606</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated
other comprehensive income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,676</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">261,615</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,988</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">530,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">500,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">433,196</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to condensed consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>bebe stores, inc.</B>
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF INCOME</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(In thousands, except per share data)</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Quarters Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>October 1,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">157,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">126,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales, including production and
occupancy</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,203</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,249</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,954</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest and other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,115</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,069</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,496</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,147</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,159</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to condensed consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>bebe stores, inc.</B>
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(In thousands)</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Quarters Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>October 1,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income to cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-cash compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,309</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,769</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss on disposal of property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred rent and other lease incentives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,687</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(621</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(504</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,675</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(915</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,273</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,053</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(803</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,889</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,754</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,628</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,581</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,664</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,950</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69,375</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(82,702</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sales of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,901</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,064</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,751</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net proceeds from issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">551</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Excess tax benefit on options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,216</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,648</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(41</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided (used)&nbsp;by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,882</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase in cash and equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,348</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and equivalents:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">End of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to condensed consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>bebe stores, inc.</B>
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>INTERIM FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying condensed consolidated balance sheets of bebe stores, inc. (&#147;the Company&#148;) as
of September&nbsp;30, 2006, July&nbsp;1, 2006, and October&nbsp;1, 2005, and the condensed consolidated statements
of income and cash flows for the quarters ended September&nbsp;30, 2006 and October&nbsp;1, 2005 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&nbsp;10 of
Regulation&nbsp;S-X without audit. Accordingly, they do not include all of the information and footnotes
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 our Annual Report on Form 10-K for the year ended July&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 earnings for the periods presented have been included. The condensed consolidated
balance sheet at July&nbsp;1, 2006, presented herein, was derived from the audited balance sheet
included in the Form 10-K for the fiscal year ended July&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is affected by the pattern of seasonality common to most retail apparel
businesses. The results for the current and prior periods are not necessarily indicative of future
financial results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>FISCAL YEAR</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fiscal year is a 52 or 53&nbsp;week period, each period ending on the first Saturday after June
30. The quarterly periods ending September&nbsp;30, 2006 and October&nbsp;1, 2005 both include 13&nbsp;weeks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>INVENTORIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s inventories consist of:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>As of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>July 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>October 1,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(In thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Merchandise available for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">42,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">39,638</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>EARNINGS PER SHARE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a reconciliation of the number of shares used in the basic and diluted
earnings per share computations:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Quarters Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>October 1,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(In thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic weighted average number of shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,147</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Incremental shares from the assumed issuance of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted weighted average number of shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of incremental shares from the assumed issuance of stock options is calculated
applying the treasury stock method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Excluded from the computation of the number of diluted weighted average shares outstanding
were antidilutive options of approximately 1,445,000 and 917,000, for the quarters ended September
30, 2006 and October&nbsp;1, 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>COMPREHENSIVE INCOME</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive income consists of net income and other comprehensive income (income, expenses,
gains and losses that bypass the income statement and are reported directly as a separate component
of equity). The Company&#146;s comprehensive income consists of net income and foreign currency
translation adjustments for all periods presented.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Quarters Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>October 1,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(In thousands)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,278</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CREDIT FACILITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has an unsecured commercial line of credit agreement with a bank, which provides
for borrowings and issuance of letters of credit up to a combined total of $25.0&nbsp;million and
expires on March&nbsp;31, 2009. The outstanding balance bears interest at either the bank&#146;s reference
rate (which was 8.25% as of September&nbsp;30, 2006) or the LIBOR rate plus 1.75&nbsp;percentage points. As
of September&nbsp;30, 2006, there were no outstanding cash borrowings, and there was $9.8&nbsp;million
outstanding in letters of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This credit facility requires the Company to comply with certain financial covenants,
including amounts for minimum tangible net worth, unencumbered liquid assets and profitability, and
certain restrictions on making loans and investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>STOCK BASED COMPENSATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 1997 Stock Plan as amended (the &#147;Stock Plan&#148;) provides for the grant of incentive stock
options, non-qualified stock options, stock purchase rights, stock awards and restricted stock
units. Although the Stock Plan allows for stock options and related awards to be granted at prices
below fair market value, the Company has historically granted such options at the fair market value
of the stock on the date of grant. Stock options and related awards have a maximum term of ten
years. Options and restricted stock granted to employees and options granted to Directors
generally vest over four years with 20% of the award vested in each of the first and second years,
and 30% vested in
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">each of the remaining two years. Restricted stock units awarded to Directors generally vest
over a period of one year from the date of grant. As of September&nbsp;30, 2006, the Company has
reserved 19,613,750 shares of common stock for issuance under the Stock Plan and there were
1,063,799 shares available for future grant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective July&nbsp;3, 2005, the Company adopted the fair value recognition provisions of FASB
Statement No.&nbsp;123(R), &#147;Share-Based Payment&#148;, using the modified prospective transition method.
Under this transition method, compensation cost in 2006 includes the portion vesting in the period
for (1)&nbsp;all share-based payments granted prior to, but not vested as of July&nbsp;2, 2005, based on the
grant date fair value estimated in accordance with the original provisions of FASB Statement No.
123 and (2)&nbsp;all share-based payments granted subsequent to July&nbsp;2, 2005, based on the grant date
fair value estimated in accordance with the provisions of FASB Statement No.&nbsp;123(R).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recognized share-based compensation expense of $2.4&nbsp;million ($0.02 per diluted
share, after related tax benefit of $0.9&nbsp;million) and
$2.3&nbsp;million ($0.02 per diluted share, after
related tax benefit of $0.9&nbsp;million) in the quarters ended September&nbsp;30, 2006 and October&nbsp;1, 2005,
respectively, as a component of selling, general and administrative expenses. As of September&nbsp;30,
2006, there was $17.6&nbsp;million (before any related tax benefit) of total unrecognized compensation
cost related to nonvested share-based compensation that is expected to be recognized over a
weighted-average period of 2.3&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fair value of each option grant was estimated on the date of the grant using the
Black-Scholes valuation model. The expected life of the options represents the period of
time the options are expected to be outstanding and is based on historical trends. The expected
stock price volatility is based on an average of the historical volatility of the Company&#146;s stock
for a period approximating the expected life and the implied volatility based on traded options of
the Company&#146;s stock. The expected dividend yield is based on the Company&#146;s most recent annual
dividend payout. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant and has a term that approximates the expected life.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents the weighted-average assumptions used in the option pricing model
for the first quarter 2007 and 2006 stock option grants.
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Quarters Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">October 1,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">54.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected lives (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fair value per option granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.35</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes stock option activity during the quarter ended September&nbsp;30,
2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Aggregate</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Options (In</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Contractual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Intrinsic Value</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Per Share</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Term</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">(In thousands)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding, July&nbsp;1, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(873</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(112</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding, September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">97,036</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable, September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,855</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48,114</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intrinsic value for stock options is defined as the difference between the current market
value and the grant price. During the quarter ended September&nbsp;30, 2006, the total intrinsic value
of stock options exercised was $13.2&nbsp;million.
Cash received from stock options exercised during the quarter was $5.8&nbsp;million and the actual
tax benefit realized for tax deductions from stock options exercised totaled $4.8&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes restricted stock unit activity during the quarter ended
September&nbsp;30, 2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average Grant</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares (In</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Date Fair Value</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Per Share</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nonvested, July&nbsp;1, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20.60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nonvested, September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>LEGAL MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this filing, the Company is involved in ongoing legal proceedings as
described below<B>.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A former employee sued the Company in a complaint filed on April&nbsp;28, 2005 in the United States
District Court for the Northern District of California (case No.&nbsp;C050177) alleging violations under
the Fair Labor Standards Act, specifically that the Company obligated her to buy and wear its brand
clothing as a uniform, without reimbursement or credit, and the net effect of deducting the value
of such required purchases from her wages would often result in her not being paid minimum wages.
The plaintiff purports to bring the action also on behalf of a class of hourly, non-managerial
employees who are similarly situated. The lawsuit seeks compensatory, statutory and injunctive
relief. The Company has negotiated a confidential settlement in this case and has accrued an
amount that management believes reasonably estimates the potential liability, which did not have a
material impact on the Company&#146;s financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A former employee sued the company in a complaint filed July&nbsp;27, 2006 in the Superior Court of
California, San Mateo County (case No.&nbsp;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 &#167;450, violation of Labor Code &#167;2802 and California Code of Regulations &#167;11040(9)(A),
statutory wage violations (late payment of wages), unlawful business practices under Business and
Professions Code &#167;16720 and &#167;17200, conversion of wages and violation of Civil Code &#167;52.1. The
plaintiff purports to bring the action also on behalf of current and former California bebe
employees who are similarly situated. The lawsuit seeks compensatory, statutory, punitive,
restitution and injunctive relief. The Company believes that the claims are without merit, however
it is reviewing the allegations at this early stage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the above, the Company is also involved in various other legal proceedings
arising in the normal course of business. None of these matters are expected, individually or in
the aggregate, to have a material adverse effect on the Company&#146;s business, financial condition or
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company intends to defend itself vigorously against 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, the
Company has recorded an estimate of potential liabilities that management believes are reasonable. Any
estimates are revised as further information becomes available.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>RECENT ACCOUNTING PRONOUNCEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB issued Interpretation No.&nbsp;48 (&#147;FIN 48&#148;), &#147;Accounting for Uncertainty in
Income Taxes &#150; an interpretation of FASB Statement No.&nbsp;109&#148;. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise&#146;s financial statements in accordance with
FASB Statement No.&nbsp;109, <I>Accounting for Income Taxes. </I>FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
FIN 48 is
effective for fiscal years beginning after December&nbsp;15, 2006. The Company is in the process
of determining the impact that the adoption of FIN 48 will have on its financial position and
results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB ratified the consensuses reached by the Emerging Issues Task Force in Issue
No.&nbsp;06-3, &#147;How Taxes Collected from Customers and Remitted to Governmental Authorities Should be
Presented in the Income Statement (That is, Gross Versus Net Presentation).&#148; Issue No.&nbsp;06-3
requires disclosure of an entity&#146;s accounting policy regarding the presentation of taxes assessed
by a governmental authority that are directly imposed on a revenue-producing transaction between a
seller and a customer, including sales, use, value added and some excise taxes. We present such
taxes on a net basis (excluded from revenues and costs). The adoption of Issue No.&nbsp;06-3, which is
effective for interim and annual reporting periods beginning after December&nbsp;15, 2006, will have no
impact on the Company&#146;s consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following Management&#146;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 &#147;expects,&#148; &#147;anticipates,&#148; &#147;intends,&#148; &#147;plans,&#148; &#147;believes,&#148;
&#147;estimates,&#148; &#147;thinks,&#148; 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, 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 &#147;Risks That May Affect Results&#148; and elsewhere in this Form 10-Q.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>OVERVIEW</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We design, develop and produce a distinctive line of contemporary women&#146;s apparel and
accessories. While we attract a broad audience, our target customer is a 21 to 35-year-old woman
who seeks current fashion trends to suit her lifestyle. The &#147;bebe look,&#148; appeals to a hip, sexy,
sophisticated, body-conscious woman who takes pride in her appearance. The bebe customer expects
value in the form of current fashion and high quality at a competitive price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our distinctive product offering includes a full range of separates, tops, dresses, active
wear and accessories in the following lifestyle categories: career, evening, casual, and active.
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market our products under the bebe, COLLECTION bebe, Neda by bebe, Neda, BEBE SPORT and
bebe O brand names through our 248 retail stores, of which 184 are bebe stores, 43 are BEBE SPORT
stores, 20 are bebe outlet stores and 1 is a Neda by bebe store. These stores are located in 32
states, the District of Columbia, Puerto Rico and Canada. In addition, we have an on-line store at
<U>www.bebe.com</U> and our licensees operate 14 international stores. During the first quarter of fiscal
2007, we opened 6 stores, including 1 bebe store, 4 BEBE SPORT stores and 1 Neda by bebe store and
we did not close any stores. We expect to open approximately 50 stores, including approximately 28
bebe stores, 21 BEBE SPORT stores and 1 Neda by bebe store during the year. We also plan to
renovate 12 existing stores, relocate or expand 9 existing stores and close approximately 3 stores,
resulting in square footage growth of approximately 18%.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>bebe. </I>The Company was founded by Manny Mashouf, Chairman of the Board. We opened our first store
in San Francisco, California in 1976, which was also the year we incorporated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>BEBE SPORT. </I>The Company launched BEBE SPORT during fiscal 2003 to address the performance and
active lifestyle needs of the bebe customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>bebe outlets. </I>The Company utilizes the outlets as a clearance vehicle for merchandise from our
retail stores. In addition, the inventory includes a strong presentation of bebe logo merchandise
and special cuts produced under the bebe O label exclusively for the outlet stores.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>On-line. </I>bebe.com is an extension of the bebe store experience and provides a complete assortment
of bebe and BEBE SPORT merchandise. It is also used as an advertising vehicle to communicate with
our customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Neda by bebe</I>. In September&nbsp;2006, the Company opened its first Neda by bebe store, a new
accessory concept featuring shoes and a unique selection of fine leather goods and gift items.
This boutique concept features shoes imported primarily from Italy including both branded and
private label. Additionally, products manufactured under the Neda by bebe label will be carried in
select bebe stores.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>COLLECTION bebe. </I>In March&nbsp;2006, bebe introduced COLLECTION bebe, the exclusive runway collection
of better priced contemporary women&#146;s apparel. We launched our first assortment of COLLECTION bebe
in 20 stores in September&nbsp;2006 and plan to make the second collection available in select stores in
March&nbsp;2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CRITICAL ACCOUNTING POLICIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 consolidated financial statements in our annual report on Form 10-K for
the year ended July&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have identified certain critical accounting policies, which are described below:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Revenue recognition. </I>We recognize revenue at the time the products are received by the customers
in accordance with the provisions of Staff Accounting Bulletin (&#147;SAB&#148;) No.&nbsp;101, &#147;Revenue
Recognition in Financial Statements&#148; as amended by SAB No.&nbsp;104, &#147;Revenue Recognition&#148;. Revenue is
recognized for store sales at the point at which the customer receives and pays for the merchandise
at the register with either cash or credit card. For online sales, revenue is recognized at the
time the customer receives the product. We estimate and defer revenue and the related product costs
for shipments that are in transit to the customer. Customers typically receive goods within one
week of shipment. Amounts related to shipping billed to customers are reflected in net sales and
the related costs are reflected in cost of goods sold.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We record a reserve for estimated product returns based on historical return trends. As of
September&nbsp;30, 2006 and October&nbsp;1, 2005, the reserve was $1,148,000 and $868,000, respectively. If
actual returns are greater than those projected, additional sales returns may be recorded in the
future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Discounts offered to customers consist primarily of point of sale markdowns and are recorded
at the time of the related sale as a reduction of revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The value of points and rewards earned by our loyalty program members is included as a
liability and a reduction of revenue at the time the points and rewards are earned based on
historical conversion and redemption rates. The associated revenue is recognized when the rewards
are redeemed or expire.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gift certificates sold are carried as a liability and revenue is recognized when the gift
certificate is redeemed. Similarly, customers may receive a store credit in exchange for returned
goods. Store credits are carried as a liability until redeemed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Royalty revenue from product licensees is recorded as earned, which is based on the licensees&#146;
sales.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Stock Based Compensation. </I>We account for stock options and awards issued to employees in
accordance with the fair value recognition provisions of Financial Accounting Standards Board
(&#147;FASB&#148;) Statement No.&nbsp;123(R) (&#147;SFAS No.&nbsp;123(R)&#148;), &#147;Share-Based Payment,&#148; using the modified
prospective transition method. Under SFAS No.&nbsp;123(R), stock-based awards to employees are required
to be recognized as compensation expense, based on the calculated fair value on the date of grant.
We determine the fair value using the Black Scholes option pricing model. This model requires
subjective assumptions, including future stock price volatility and expected term, which affect the
calculated values.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Inventories. </I>Our inventories are stated at the lower of weighted average cost or market. Market is
determined based on the estimated net realizable value, which is generally the merchandise selling
price. To ensure that our raw material is properly valued we age the fabric inventory and record a
reserve in accordance with our established policy, which is based on historical experience. To
ensure our finished goods inventory is properly valued we review the age and turnover of our
inventory and record a reserve if the selling price is marked down below cost. These assumptions
can have an impact on current and future operating results and financial position. We estimate
shrinkage for the period between the last physical count and balance sheet date based on historic
shrinkage trends.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Long-lived assets. </I>We review long-lived assets for impairment whenever events or changes in
circumstances, such as store closures or poor performing stores, 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&#146;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 of the asset. Historically, our impairment charges have been immaterial. During the
quarters ended September&nbsp;30, 2006 and October&nbsp;1, 2005 we recorded $0 and $73,000, respectively, of
impairment charges. We believe at this time that the long-lived assets&#146; carrying values and useful
lives continue to be appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Accrued Litigation. </I>We accrue estimates of probable liabilities associated with lawsuits and
claims. The results of any litigation are inherently uncertain. As information becomes available,
we assess the potential liabilities related to pending litigation and may revise our estimates as
necessary. Such revisions of estimates could materially impact the results of operations and
financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Self-Insurance</I>. We use a combination of insurance and self insurance for employee related health
care benefits. We record self insurance liabilities based on claims filed and an estimate of those
claims incurred but not reported. Any projection of losses concerning our liability is subject to a
high degree of variability. Among the causes of this variability are unpredictable external factors
such as future inflation rates, changes in severity, benefit level changes, medical costs and claim
settlement patterns. Should a different amount of claims occur compared to what was estimated or
costs of the claims increase or decrease beyond what was anticipated, reserves may need to be
adjusted in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Income Taxes</I>. We accrue liabilities 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 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. We also record a valuation
allowance against a portion of our deferred tax assets arising from foreign tax credit
carryforwards as the utilization of these credits is not assured.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>RECENT ACCOUNTING PRONOUNCEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB issued Interpretation No.&nbsp;48 (&#147;FIN 48&#148;), &#147;Accounting for Uncertainty in
Income Taxes &#150; an interpretation of FASB Statement No.&nbsp;109&#148;. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise&#146;s financial statements in accordance with
FASB Statement No.&nbsp;109, <I>Accounting for Income Taxes. </I>FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
FIN 48 is effective for fiscal years beginning after December&nbsp;15, 2006. The Company is in the
process of determining the impact that the adoption of FIN 48 will have on its financial position
and results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB ratified the consensuses reached by the Emerging Issues Task Force in
Issue No.&nbsp;06-3, &#147;How Taxes Collected from Customers and Remitted to Governmental Authorities Should
be Presented in the Income Statement (That is, Gross Versus Net Presentation).&#148; Issue No.&nbsp;06-3
requires disclosure of an entity&#146;s accounting policy regarding the presentation of taxes assessed
by a governmental authority that are directly imposed on a revenue-producing transaction between a
seller and a customer, including sales, use, value added and some excise taxes. We present such
taxes on a net basis (excluded from revenues and costs). The adoption of Issue No.&nbsp;06-3, which is
effective for interim and annual reporting periods beginning after December&nbsp;15, 2006, will have no
impact on the Company&#146;s consolidated financial statements.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>RESULTS OF OPERATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fiscal year is a 52 or 53&nbsp;week period, each period ending on the first Saturday after June
30. The quarterly periods ending September&nbsp;30, 2006 and October&nbsp;1, 2005 both include 13&nbsp;weeks.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain financial data as a percentage of net sales for the
periods indicated:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Quarters Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>October 1,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Statements of Operations Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales, including production and
occupancy (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses
(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest and other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Cost of sales includes the cost of merchandise, occupancy costs, distribution center and
production costs.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Selling, general and administrative expenses primarily consist of non-occupancy store costs,
corporate overhead and advertising costs.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Sales. </I>Net sales increased to $157.1&nbsp;million during the quarter ended September&nbsp;30, 2006
from $126.2&nbsp;million for the quarter ended October&nbsp;1, 2005, an increase of $30.9&nbsp;million, or 24.5%.
During the quarter an increase in comparable store sales of 12.8% versus the prior year contributed
$14.5&nbsp;million to the increase in sales. The remaining increase in sales of $16.4&nbsp;million was
generated by stores not included in the comparable store sales base and increases over the same
period of the prior year in on-line sales and wholesale sales to international licensees.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Quarter Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>October 1,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales (In thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">157,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">126,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales increase percentage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">24.5         </TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">22.4       </TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comparable store sales increase percentage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12.8         </TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">17.3       </TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales per average square foot (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">162</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Square footage at end of period (In thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">784</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of store locations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">New store locations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Closed store locations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of stores open at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Net sales per average square foot is calculated using net store sales and a monthly
average store square footage.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross Margin. </I>Gross margin increased to $79.3&nbsp;million during the quarter ended September&nbsp;30,
2006 from $62.2&nbsp;million for the quarter ended October&nbsp;1, 2005, an increase of $17.1&nbsp;million, or
27.5%. As a percentage of net sales, gross margin increased to 50.5% for the quarter ended
September&nbsp;30, 2006 from 49.3% in the quarter ended October&nbsp;1, 2005. The increase in gross margin as
a percentage of net sales resulted primarily from higher merchandise margins due to a higher
initial mark up and lower markdowns sold.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling, General and Administrative Expenses. </I>Selling, general and administrative expenses,
which primarily consist of non-occupancy store costs, corporate overhead and advertising costs,
increased to $50.3&nbsp;million during the quarter ended September&nbsp;30, 2006 from $42.2&nbsp;million in the
quarter ended October&nbsp;1, 2005, an increase of $8.1&nbsp;million, or 19.2%. As a percentage of net sales,
these expenses decreased to 32.0% during the quarter from 33.5% in the comparable period of the
prior year. The decrease as a percent of net sales is primarily due to a decrease in advertising
expenses and lower variable expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest and Other Income, Net. </I>We generated approximately $3.2&nbsp;million of interest and other
income (net of other expenses) during the quarter ended September&nbsp;30, 2006 as compared to
approximately $2.1&nbsp;million in the quarter ended October&nbsp;1, 2005. The increase in interest income is
primarily a result of higher average cash balances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Provision for Income Taxes. </I>The effective tax rate decreased to 36.5% for the quarter ended
September&nbsp;30, 2006 from 38.5% for the quarter ended October&nbsp;1, 2005, primarily due to an increase
in tax exempt interest income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Seasonality of Business and Quarterly Results</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 its 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>LIQUIDITY AND CAPITAL RESOURCES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our working capital requirements vary widely throughout the year and generally peak in the
first and second fiscal quarters. At September&nbsp;30, 2006, we had approximately $342.8&nbsp;million of
cash and equivalents and short-term marketable securities 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
$25.0&nbsp;million. As of September&nbsp;30, 2006, there were no cash borrowings outstanding under the line
of credit and letters of credit outstanding totaled $9.8&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities for the quarter ended September&nbsp;30, 2006 was $23.0
million. Cash provided by operating activities for the period was primarily generated by earnings
adjusted for stock compensation, depreciation and deferred rent, as well as changes in working
capital. The changes in working capital are primarily an increase in accounts payable and a
decrease in prepaid expenses, primarily due to the timing of payments, offset by an increase in
inventory due in preparation for the fall and holiday selling seasons and a decrease in accrued
liabilities, also due to the timing of payments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used by investing activities for the quarter ended September&nbsp;30, 2006 was $11.1
million due to the purchase of marketable securities and capital expenditures, primarily related to
the opening of new stores. We opened six new stores in the first quarter of fiscal 2007 and expect
to open a total of approximately 50 stores during fiscal 2007. We estimate that total capital
expenditures will be approximately $50&nbsp;million in fiscal 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities was $1.1&nbsp;million for the quarter ended September&nbsp;30,
2006 and resulting from proceeds received from stock option exercises and the resulting tax
benefit, partially offset by the payment of two (for the fourth quarter of fiscal 2006 and for the
first quarter of fiscal 2007) cash dividends on our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our cash on hand, together with our cash flows from operations, 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, the size and number of new and expanded stores and/or store concepts,
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">investment costs
for management information systems, potential acquisitions and/or joint ventures, dividend
payments, repurchase of stock and future results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Inflation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Interest Rate Risk</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently maintain a portfolio of variable interest rate investments consisting of cash
equivalents and short-term marketable securities. Marketable securities are comprised of
closed-end variable interest rate funds that invest primarily in tax-exempt municipal bonds. Due
to the variable nature of these investments, their value is typically not subject to market rate
changes. 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 &#147;available for sale&#148;. We do not use
derivative financial instruments in our investment portfolio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 marketable securities
if the original maturity is between three months and twelve months, or long-term marketable
securities if the original maturity is greater than twelve months. Auction rate securities have
stated maturities beyond one year but are priced and traded as short-term instruments due to the
liquidity provided through the interest rate reset mechanism and are classified as short-term when
they represent investments of cash that are intended for use in current operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table lists our cash equivalents and short-term marketable securities at
September&nbsp;30, 2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Book</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Value</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Fair Value</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">(Dollars in thousands)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,490</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average interest rate (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.38</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292,414</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average interest rate (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.69</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">322,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">322,904</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Represents the weighted average interest rates for tax exempt municipal bonds, municipal
preferreds, corporate preferreds and taxable and tax exempt institutional money market instruments.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The interest payable on outstanding cash borrowings under our bank line of credit is based on
variable interest rates and therefore affected by changes in market interest rates. As we have no
outstanding cash borrowings, if interest rates rose significantly, our results from operations and
cash flows would not be affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Foreign Currency Risks</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We enter into a significant amount of purchase obligations outside of the United States,
substantially all of which are settled in U.S. Dollars and, therefore, have only minimal exposure
to foreign currency exchange risks. We also operate a
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">subsidiary for which the functional currency
is the Canadian Dollar. Fluctuations in exchange rates therefore impact our financial condition and
results of operations, as reported in U.S. Dollars. To date, we have not experienced any
significant
negative impact as a result of fluctuations in foreign currency markets. We do not hedge
against foreign currency risks and believe that foreign currency exchange risk is immaterial.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. CONTROLS AND PROCEDURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;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&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;There has been no change in our internal control over financial reporting during the
quarter ended September&nbsp;30, 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
</DIV>

<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART II OTHER INFORMATION</B>
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 1. LEGAL PROCEEDINGS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this filing, the Company is involved in ongoing legal proceedings as
described below<B>.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A former employee sued the Company in a complaint filed on April&nbsp;28, 2005 in the United States
District Court for the Northern District of California (case No.&nbsp;C050177) alleging violations under
the Fair Labor Standards Act, specifically that the Company obligated her to buy and wear its brand
clothing as a uniform, without reimbursement or credit, and the net effect of deducting the value
of such required purchases from her wages would often result in her not being paid minimum wages.
The plaintiff purports to bring the action also on behalf of a class of hourly, non-managerial
employees who are similarly situated. The lawsuit seeks compensatory, statutory and injunctive
relief. The Company has negotiated a confidential settlement in this case and has accrued an
amount that management believes reasonably estimates the potential liability, which did not have a
material impact on the Company&#146;s financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
former employee sued the Company in a complaint filed July&nbsp;27, 2006 in the Superior Court of
California, San Mateo County (case No.&nbsp;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 &#167;450, violation of Labor Code &#167;2802 and California Code of Regulations &#167;11040(9)(A),
statutory wage violations (late payment of wages), unlawful business practices under Business and
Professions Code &#167;16720 and &#167;17200, conversion of wages and violation of Civil Code &#167;52.1. The
plaintiff purports to bring the action also on behalf of current and former California bebe
employees who are similarly situated. The lawsuit seeks compensatory, statutory, punitive,
restitution and injunctive relief. The Company believes that the claims are without merit, however
it is reviewing the allegations at this early stage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the above, the Company is also involved in various other legal proceedings
arising in the normal course of business. None of these matters are expected, individually or in
the aggregate, to have a material adverse effect on the Company&#146;s business, financial condition or
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company intends to defend itself vigorously against 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, the
Company has recorded an estimate of potential liabilities that management believes are reasonable. Any
estimates are revised as further information becomes available.
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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. Other than revisions to risk factors numbered three and four under the heading &#147;Risks
Relating to our Business&#148;, which have been updated to reflect
recent developments, there have been no material changes in our risk factors from those
disclosed in Part&nbsp;I, Item&nbsp;1A of our Annual Report on Form 10-K for the fiscal year ended July&nbsp;1,
2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">RISKS RELATING TO OUR BUSINESS:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>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. </B>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&#146; 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 consumer demands and fashion trends will adversely affect our sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. If we are unable to obtain raw materials, unable to find manufacturing facilities or our
manufacturers perform unacceptably, our sales may be negatively affected and our financial
condition may be harmed</B>. 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)&nbsp;will not supply similar
products to our competitors, (2)&nbsp;will not stop supplying products to us completely, or (3)&nbsp;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 may be negatively impacted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>3. Our success depends on our ability to attract and retain key employees in order to support our
existing business and future expansion. </B>From time to time we actively recruit qualified
candidates to fill key executive positions from within the 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, we depend on the expertise and execution of our key employees, particularly Manny
Mashouf, our founder and Chairman of the Board, and Gregory Scott, our Chief Executive Officer and
member of the Board of Directors. If we lose the services of Mr.&nbsp;Mashouf or Mr.&nbsp;Scott, or any key
officers or employees, it could harm our business and results of operations. Proceedings have been commenced for dissolution of the
marriage of Manny and Neda Mashouf and on November&nbsp;8, 2006, Neda Mashouf resigned from the Company
and from our Board of Directors. We previously identified Neda
Mashouf as a key employee. The loss of Ms.&nbsp;Mashouf could have an adverse effect on our
operations and as a result, our business could suffer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>4. If we are not able to successfully develop new concepts, including BEBE SPORT, our revenue base
and earnings may be impaired</B>. We believe that there is opportunity to expand the number of BEBE
SPORT stores in new and existing markets while we continue to address the product assortment. If
these stores are not successful, our financial condition may be harmed. In addition, from time to
time, we may pursue other new concepts. For example, we opened the first Neda by bebe store, our
boutique accessory concept, in the first quarter of fiscal 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>5. There can be no assurance that future store openings will be successful and new store openings
may impact existing stores. </B>We expect to open approximately 50 stores in fiscal 2007, of which
approximately 28 will be bebe stores,
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">approximately 21 will be BEBE SPORT stores and 1 will be a
Neda by bebe store. In the past, we have closed stores as a result of poor performance, and there
can be no assurance that the stores that we plan to open in fiscal 2007, 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 2006 we closed three stores and during fiscal
2007, we anticipate closing three stores.


For fiscal 2007, we plan to grow our operations primarily through the opening of new stores. Most
of our new store openings in fiscal 2007 will be in existing markets. These openings may affect the
existing stores&#146; 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>6. We are subject to risks associated with our online sales. </B>We operate an on-line store at
<U>www.bebe.com</U> to sell our merchandise. Although our online sales encompass a relatively small
percentage of our total sales, our on-line operations are subject to numerous risks, including
unanticipated operating problems, reliance on third-party computer hardware and software providers,
system failures and the need to invest in additional computer systems. 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
online content, credit card fraud, risks related to the failure of the computer systems that
operate the website and its related support systems. In addition, given our use of a third party
platform, we do not have direct control of certain aspects of our on-line business. There can be
no assurance that our on-line store will continue to achieve sales and profitability growth or even
remain at its current level.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>7. Any serious disruption at our major facilities could have a harmful effect on our business. </B>We
currently operate a 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>8. We rely on information technology, the disruption of which could adversely impact our business.</B>
We rely on various information systems to manage our operations and regularly make investments to
upgrade, enhance or replace such systems. To support our growth we initiated a three year IS&#038;T
strategic plan and we are currently in year two of this plan. In year one we completed the upgrade
of our infrastructure, began the implementation of our new production management system,
implemented Arthur planning, completed the conversion of our web site to a third party platform and
the roll out of clubbebe. We went live with the first phase of our production management system in
October&nbsp;2006 and plan to be fully operational within 12&nbsp;months. In addition to improving the
preproduction and design processes, we should significantly improve our ability to manage the flow
of paper and streamline the process. For years two and three, we have begun the process of
identifying partners to replace our current point of sale system and implement a new human
resources system. After both of these systems have been chosen and the implementation process has
begun we will begin to evaluate our merchandising system needs. Any delays or difficulties in
transitioning to new systems, or in integrating them with our current systems, or any other
disruptions affecting any of our information systems, could have a material adverse impact on our
business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>9. We face significant competition in the retail and apparel industry, which could harm our sales
and profitability. </B>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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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, 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
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> than we do,
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>10. Purchases of the merchandise we sell are generally discretionary and are therefore
particularly susceptible to economic conditions. </B>The outlook for the United States economy is
uncertain and is directly affected by global factors that are beyond our control. Such factors
include disposable consumer income, oil prices, recession and fears of recession, war
and fears of war, terrorist attacks, inclement weather, consumer debt, interest rates, sales tax
rates, consumer confidence in future economic conditions and political conditions, and consumer
perceptions of personal well-being and security. Consumers are generally more willing to make
discretionary purchases, including purchases of fashion products, during periods in which favorable
economic conditions prevail. If economic conditions change, our business, financial condition and
results of operations could be adversely affected. We cannot predict the indirect effects such as
rising oil and freight prices, consumer spending or other economic factors that natural disasters
will have on our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>11. Our business could be adversely impacted by unfavorable international political conditions.</B>
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 the company
and adversely affect its 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>12. 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</B>. 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, there is no assurance that others will not resist or seek to block the sale of
our products as infringements of their trademark and proprietary rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are seeking to register our trademarks domestically and internationally. Obstacles may exist
that may prevent us from obtaining a trademark for the bebe name or related names. We may not be
able to register certain trademarks, purchase the right or obtain a license to use the bebe name 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 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Furthermore, if we do not demonstrate use of our trademarks, our trademark rights may lapse over
time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>13. 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</B>. 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&#146;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&#146; employment conditions or the manufacturers&#146; 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">RISKS RELATING TO OUR COMMON STOCK:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. Our
stock price may fluctuate because of the relatively low number of shares that can be publicly traded. </B>The vast majority of our outstanding shares of our
common stock are subject to trading restrictions. As of September&nbsp;30, 2006, approximately
26,000,000 shares, of the total outstanding 93,000,000 shares, of our
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">common stock were available
to be publicly traded, and as a result, our stock price is vulnerable to market swings due to large purchases, sales and short sales of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. Our sales, margins and operating results are subject to seasonal and quarterly fluctuations.</B>
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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Such fluctuations may adversely affect the market price of our commons stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>3. Because Manny Mashouf and Neda Mashouf beneficially own 72% of the outstanding shares, other
shareholders may not be able to influence the direction the company takes. </B>As of October&nbsp;5, 2006,
Manny Mashouf, the Chairman of the Board, and Neda Mashouf beneficially owned approximately 72% of the outstanding shares of our common stock. As a result,
they 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>4. Failure to comply with Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 could negatively impact
investor confidence. </B>In order to meet the requirements of the Sarbanes-Oxley Act of 2002 in future
periods, we must continuously document, test, monitor and enhance our internal control over
financial reporting. There can be no assurance that the periodic evaluation of our internal
controls required by Section&nbsp;404 of the Sarbanes-Oxley Act will not result in the identification of
significant control deficiencies and/or material weaknesses or that our auditors will be able to
attest to the effectiveness of our internal control over financial reporting. Failure to maintain
the effectiveness of our internal control over financial reporting or to comply with the
requirements of this Act could have a material adverse effect on our reputation, financial
condition and market price of our common stock.
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. DEFAULTS UPON SENIOR SECURITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 5. OTHER INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;8, 2006,
Neda Mashouf resigned from our Board of Directors and has declined to stand for re-election at the 2006 annual meeting of shareholders. Ms.&nbsp;Mashouf had served as
the Vice Chairman of our Board. Ms.&nbsp;Mashouf advised the Company that her resignation was not the
result of a disagreement with the Company on any matter relating to the Company&#146;s operations,
policies or practices. The Board of Directors has not substituted another candidate for election as director at the 2006 annual meeting.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>




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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. EXHIBITS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;Exhibits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is a list of exhibits filed as part of this Report on Form 10-Q.
</DIV>



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chief Executive Officer.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chief Financial Officer.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chief Executive Officer.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chief Financial Officer.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dated November&nbsp;9, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">bebe stores, inc.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Walter Parks</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size:1pt">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Walter Parks, Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>









<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT INDEX</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chief Executive Officer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;302 Certification of Chief Financial Officer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chief Executive Officer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;906 Certification of Chief Financial Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>f24660exv31w1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">EXHIBIT 31.1
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Gregory Scott, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q of bebe stores, inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;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:</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(a)&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(b)&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(c)&nbsp;Evaluated the effectiveness of the registrant&#146;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
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(d)&nbsp;Disclosed in this report any change to the registrant&#146;s internal control over financial
reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant&#146;s internal control over financial
reporting; and
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(a)&nbsp;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&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(b)&nbsp;Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: November 9, 2006&nbsp;</TD>

<TD colspan="3" style="border-bottom: 0px solid #000000" align="left"><u>/s/ Gregory Scott
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Gregory Scott&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><I>Chief Executive Officer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>f24660exv31w2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">EXHIBIT 31.2
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Walter Parks, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q of bebe stores, inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;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:</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(a)&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(b)&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(c)&nbsp;Evaluated the effectiveness of the registrant&#146;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
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(d)&nbsp;Disclosed in this report any change to the registrant&#146;s internal control over financial
reporting that occurred during the registrant&#146;s most recent fiscal quarter (the registrant&#146;s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant&#146;s internal control over financial
reporting; and
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(a)&nbsp;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&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(b)&nbsp;Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: November 9, 2006&nbsp;</TD>

<TD colspan="3" style="border-bottom: 0px solid #000000" align="left"><u>/s/ Walter Parks
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Walter Parks&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><I>Chief Financial Officer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>f24660exv32w1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
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<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">EXHIBIT 32.1
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the quarterly report of bebe stores, inc. (the &#147;Company&#148;) on Form 10-Q for
the quarter ended September&nbsp;30, 2006, as filed with the Securities and Exchange Commission on the
date hereof (the &#147;Report&#148;), I, Gregory Scott, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of
2002, that, based on my knowledge:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Dated: November 9, 2006&nbsp;</TD>

<TD colspan="3" style="border-bottom: 0px solid #000000" align="left"><u>/s/  Gregory Scott
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Gregory Scott&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><i>Chief Executive Officer&nbsp;</i></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>f24660exv32w2.htm
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt">EXHIBIT 32.2
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt">CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the quarterly report of bebe stores, inc. (the &#147;Company&#148;) on Form 10-Q for
the quarter ended September&nbsp;30, 2006, as filed with the Securities and Exchange Commission on the
date hereof (the &#147;Report&#148;), I, Walter Parks, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of
2002, that, based on my knowledge:
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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    <TD align="left">Dated: November 9, 2006&nbsp;</TD>

<TD colspan="3" style="border-bottom: 0px solid #000000" align="left"><u>/s/  Walter Parks
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></TD>
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    <TD colspan="3" align="left">Walter Parks&nbsp;</TD>
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    <TD colspan="3" align="left"><i>Chief Financial Officer&nbsp;</i></TD>
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