Despite posting a 10% jump in fourth quarter profit, children's clothing retailer The Gymboree Corporation has warned that new product safety laws relating to children's apparel and accessories will drag down sales and margins in the first half of 2009.

The Consumer Product Safety Improvement Act (CPSIA), which came into force on 10 February, has already led to a $6.0m write-off of non-compliant merchandise in the fourth quarter, the company said yesterday (4 March).

It now believes same-store sales in the first quarter of its current year will be down by 20-25%, due to the difficult retail environment and the "temporary impact of the regulations on current product assortments."

The law sets out new limits on lead and phthalates for children's products.

Gymboree also said it expects net income for the first quarter to be in the range of $0.18 to $0.25 per share.

The warning comes as the retailer, which operates 890 Gymboree, Gymboree Outlet, Janie and Jack  and Crazy 8 shops, posted better than expected fourth quarter results.

For the three months to 31 January, net income at the San Francisco based firm rose to $29.5m or $1.00 per share, from $26.8m or $0.93 per share a year earlier.

Quarterly sales were up 4% to $288.7m from $278.4m last time, but same- store sales fell 2%.

Gross profit dropped to $124.3m or 43.0% of sales, down from $134.1m or 48.2% of sales last time, which is blamed on lower selling prices and the write-off of unsalable inventories.

For the fiscal year, net income was up 16.4% to $93.5m or $3.21 per share, from $80.3m or $2.67 per share in the prior year.

Net sales climbed 9% to $1.0bn from $920.8m, and comparable store sales were flat with the previous year.