The Gymboree Corporation Reports Second Fiscal Quarter 2012 Results

SAN FRANCISCO, Sept. 5, 2012 /PRNewswire/ -- The Gymboree Corporation (the "Company") today reported consolidated financial results for the second fiscal quarter ended July 28, 2012.

For the second quarter of the fiscal year ending February 2, 2013 ("fiscal 2012"), net sales were $268.8 million, an increase of 3.8% compared to $259.0 million in net sales for the second quarter of the fiscal year ended January 28, 2012 ("fiscal 2011").  Comparable store sales for the second quarter of fiscal 2012 decreased 1% compared to the second quarter of fiscal 2011.

Gross profit for the second quarter of fiscal 2012 was $89.2 million, or 33.2% of net sales, compared to $92.0 million, or 35.5% of net sales, for the second quarter of fiscal 2011. Excluding purchase accounting adjustments of $3.0 million and $3.4 million for the second quarter of fiscal 2012 and the second quarter of fiscal 2011, respectively, relating to the November 2010 acquisition of the Company by investment funds sponsored by Bain Capital Partners, LLC (the "Acquisition"), adjusted gross profit was $92.2 million, or 34.3% of net sales, and $95.4 million, or 36.8% of net sales, for the second quarter of fiscal 2012 and the second quarter of fiscal 2011, respectively (see Exhibit D).

SG&A expense for the second quarter of fiscal 2012 was $95.6 million, or 35.6% of net sales, compared to $88.9 million, or 34.3% of net sales, in the second quarter of the prior year.  Results for the second quarter of fiscal 2012 and fiscal 2011 include $5.3 million and $5.3 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments.  Excluding these charges, adjusted SG&A expense for the second quarter of fiscal 2012 and fiscal 2011 was $90.3 million, or 33.6% of net sales, and $83.5 million, or 32.3% of net sales, respectively, which represents an increase of 130 basis points over fiscal 2011 (see Exhibit D).     

Net loss for the second quarter of fiscal 2012 was $14.1 million compared to a net loss of $6.9 million for the same period last year.  The increase in net loss primarily resulted from higher average unit costs resulting from higher commodity prices and from slight SG&A deleverage due to the comparable store sales decrease of 1%.

Net income attributable to The Gymboree Corporation before interest (income) expense, income tax benefit and depreciation and amortization, adjusted for other items ("Adjusted EBITDA"), for the second quarter of fiscal 2012 decreased 35.5% to$16.4 million, compared to $25.5 million for the second quarter of the prior year.  Adjusted EBITDA is not a performance measure under U.S. generally accepted accounting principles ("GAAP").  See "Non-GAAP Financial Measures" below.  A reconciliation of net income/(loss) attributable to The Gymboree Corporation to Adjusted EBITDA presented herein is included in Exhibit D of this press release.  

Balance Sheet Highlights

Effective March 2012, the Company's $225 million asset-backed loan ("ABL") facility was refinanced to take advantage of improved rates and to extend the maturity date.  There were no borrowings outstanding under the ABL as of the end of the second fiscal quarter and approximately $176.7 million of undrawn availability.     

Cash at the end of the second quarter of fiscal 2012 decreased to $54.6 million from $54.8 million at the end of the second quarter of fiscal 2011.  During the quarter, the Company made a $15.6 million prepayment on its senior secured term loan facility. 

Capital expenditures for the second quarter of fiscal 2012 were $9.9 million, with the majority of the cash used to fund the opening of 27 new stores during the quarter.

Inventory balances at the end of the second quarter of fiscal 2012 were $220.2 million compared to $215.9 million at the end of the second quarter of fiscal 2011. Inventory cost on a per square foot basis was down 6% and inventory units on a per square foot basis were also down in the low single-digits.

Fiscal 2012 Business Outlook

Adjusted EBITDA

The Company expects Adjusted EBITDA for fiscal 2012 to increase modestly over fiscal 2011. The Company also anticipates generating sufficient cash flow to service its debt and fund its growth in fiscal 2012.

New Stores

During fiscal 2012, the Company plans to open approximately 115 new stores, including approximately 90 Crazy 8 stores.

Capital Expenditures

During fiscal 2012, the Company anticipates spending approximately $45 million for capital expenditures.

Non-GAAP Financial Measures

The Company defines "Adjusted EBITDA" as net income (loss) attributable to The Gymboree Corporation before interest (income) expense, income tax expense (benefit), and depreciation and amortization ("EBITDA") adjusted for other items, including loss on extinguishment of debt, non-cash share-based compensation, loss on disposal/impairment of assets and sponsor management fees and expenses, as well as the impact of purchase accounting adjustments resulting from the Acquisition.

Adjusted EBITDA is a non-GAAP measure but is considered an important supplemental measure of the Company's performance and is believed to be used frequently by securities analysts, investors and other interested parties in the evaluation of similar retail companies. Adjusted EBITDA is not a presentation made in accordance with GAAP and the Company's computation of Adjusted EBITDA may vary from others in the industry. Adjusted EBITDA should not be considered an alternative to operating income or net income, as a measure of operating performance or cash flow, or as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. See Exhibit D for a reconciliation of Adjusted EBITDA to net income/(loss).

Management Presentation

The live broadcast of the discussion of second quarter fiscal 2012 financial results will be available to interested parties at 1:00 p.m. PT (4:00 p.m. ET) on Wednesday, September 5, 2012.  To listen to the live broadcast over the internet, please log on to www.gymboree.com, click on "Company Information" at the bottom of the page, go to "Investor and Media Relations" and then "Conference Calls & Webcasts."  A replay of the call will be available two hours after the broadcast through midnight PT, Tuesday, September 11, 2012, at 855-859-2056, passcode 12416891.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of July 28, 2012, the Company operated a total of 1,191 retail stores, as follows: 631 Gymboree® stores (including 586 in the United States, 41 in Canada, 1in Puerto Rico and 3 in Australia), 155 Gymboree Outlet stores, 127 Janie and Jack® shops, and 278 Crazy 8® stores in the United States. The Company also operates online stores atwww.gymboree.com, www.janieandjack.com and www.crazy8.com, and offers directed parent-child developmental play programs at 712 franchised and Company-operated Gymboree Play & Music® centers in the United States and 40 other countries.

Forward-Looking Statements

The foregoing financial information for the second fiscal quarter ended July 28, 2012 is unaudited and subject to quarter-end and year-end adjustments.  The foregoing paragraphs contain forward-looking statements relating to The Gymboree Corporation's anticipated future financial performance, such as those relating to its Adjusted EBITDA, cash flows and new store openings in fiscal 2012.  Actual results could vary materially as a result of a number of factors, including the ongoing volatility in the commodities market for cotton, uncertainties relating to high levels of unemployment and consumer debt, volatility in the financial markets, general economic conditions, the Company's ability to anticipate and timely respond to changes in trends and consumer preferences and customer reactions to new merchandise, service levels and new concepts, competitive market conditions, success in meeting the Company's delivery targets, the Company's promotional activity, gross margin achievement, the Company's ability to appropriately manage inventory, effects of future embargos from countries used to source product, the Company's ability to attract and retain key personnel and other qualified team members, and other factors, including those discussed under "Risk Factors" in  "Item 1A, Risk Factors," of the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2012,  filed with the Securities and Exchange Commission on April 26, 2012. The forward-looking statements contained in this press release reflect the Company's expectations as of the date hereof, and the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by the Company that its plans or objectives will be achieved. The Company undertakes no obligation to update the information provided herein. 

Gymboree, Janie and Jack, Crazy 8, and Gymboree Play & Music are registered trademarks of The Gymboree Corporation. 

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