The Gymboree Corporation Reports Third Fiscal Quarter 2011 Results

SAN FRANCISCO, Nov. 22, 2011 // PRNewswire // -- The Gymboree Corporation (the "Company") today reported consolidated financial results for the third fiscal quarter ended October 29, 2011.

For the third fiscal quarter, net sales were $303.1 million, an increase of 7.9% compared to $280.8 million in net sales for the third fiscal quarter of the prior year. Comparable store sales for the quarter increased 2% versus the prior year.

Gross profit for the third fiscal quarter of 2011 was $130.8 million or 43.2% of net sales, compared to $138.8 million or 49.4% of net sales for the third fiscal quarter of 2010. Results for the third quarter of 2011 include approximately $3.4 million of adjustments resulting from the November 2010 acquisition of the Company by Giraffe Holding, Inc., an entity controlled by investment funds sponsored by Bain Capital Partners, LLC (the "Acquisition"), including the effect of purchase accounting adjustments and transaction-related charges recognized during the quarter. Excluding these costs, gross profit for the quarter was $134.2 million or 44.1% of sales.

SG&A expense for the third quarter was $99.4 million or 32.8% of net sales, compared to $82.1 million or 29.2% of net sales in the comparable quarter of the prior year. Current quarter results include $5.4 million in Acquisition-related expenses and a $7.2 million charge resulting from the transition of our Gymboree Play & Music master franchise relationship in China. Excluding these items in the current year, and $3.5 million in Acquisition-related charges incurred in the prior year, SG&A expense for the third fiscal quarter was $86.8 million or 28.6% of net sales, up 60 basis points from the adjusted prior year SG&A expense of $78.6 million or 28.0% of net sales.

Operating income for the third quarter of fiscal 2011 was $31.4 million compared to $56.7 million for the same period last year and includes $12.5 million of incremental expenses resulting from the Acquisition and Gymboree Play & Music franchise transition in the current fiscal quarter versus the same period of the prior year.

Adjusted EBITDA for the third fiscal quarter of 2011 decreased 18.7% to $60.6 million compared to $74.5 million for the comparable quarter of the prior year. Adjusted EBITDA margins decreased from 26.5% to 20.0% due primarily to lower gross profit margins. A reconciliation of net income (loss) to Adjusted EBITDA is included in Exhibit A of this press release.

Balance Sheet Highlights

As part of the Acquisition, the Company incurred a total of $1.2 billion in debt, consisting of an $820 million seven-year term loan and $400 million in high-yield notes maturing in 8 years. An asset-backed loan (ABL) in the amount of $225 million was also established to support working capital needs. There were $40 million of borrowings outstanding under the ABL as of the end of the third fiscal quarter and approximately $119.9 million of undrawn availability.

Cash on the balance sheet at the end of the third fiscal quarter was $45.7 million with an additional $119.9 million available from the undrawn portion of the ABL.

Capital expenditures for the third fiscal quarter were $11.3 million compared to $12.3 million in the prior year. The vast majority of cash used during the quarter was to fund the opening of 27 new stores. Smaller amounts of cash were utilized to support infrastructure investments at the Company's corporate office and distribution center.

Inventory balances at the end of the third quarter were $252.7 million compared to $171.2 million at the end of same period of the prior year. The increase in inventory values primarily reflects higher average unit costs and higher in-transit inventory versus the prior year. Excluding in-transit inventory, unit growth on a per square foot basis increased approximately 9%.

Non-GAAP Financial Measures

Adjusted EBITDA is calculated in substantially the same manner as "EBITDA" under the indenture governing the notes and "Consolidated EBITDA" under the agreement governing the Company's senior secured indebtedness. The Company defines "Adjusted EBITDA" as net income (loss) before interest income, interest expense, income tax expense, and depreciation and amortization ("EBITDA") adjusted for other items, including non-cash share-based compensation, loss on disposal/impairment of assets, one-time charges that are out of the ordinary course of business, sponsor management fees and expenses, and loss on extinguishment of debt, 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 (loss), 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.

Management Presentation

The live broadcast of the discussion of third fiscal quarter 2011 financial results will be available to interested parties at 1:00 p.m. PT (4:00 p.m. ET) on Tuesday, November 22, 2011. To listen to the live broadcast over the internet, please log on to www.gymboree.com, click on "Our Company" at the bottom of the page, go to "Investor and Media Relations" and then "Conference Calls, Webcasts & Presentations." A replay of the call will be available two hours after the broadcast through midnight PT, Monday, November 28, 2011, at 855-859-2056, passcode 26055525.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of October 29, 2011, the Company operated a total of 1,137 retail stores: 638 Gymboree® stores (593 in the United States, 41 in Canada, 3 in Australia and 1 in Puerto Rico), 153 Gymboree Outlet stores, 127 Janie and Jack® shops and 219 Crazy 8® stores in the United States. The Company also operates online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com, and offers directed parent-child developmental play programs at 697 franchised and Company-operated Gymboree Play & Music® centers in the United States and 36 other countries.

Forward-Looking Statements

The foregoing financial information for the third fiscal quarter ended October 29, 2011, 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. These are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. 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 the Company's Registration Statement on Form S-4 filed by the Company with the Securities and Exchange Commission on May 16, 2011. The forward-looking statements contained in this press release reflect the Company's expectations as of the date hereof. 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.

EXHIBIT A

 

THE GYMBOREE CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

($ in thousands)

 
                     
     

Successor

 

Predecessor

 

Successor

 

Predecessor

 
     

13 Weeks

Ended October

29, 2011

 

13 Weeks

Ended October

30, 2010

 

39 Weeks

Ended October

29, 2011

 

39 Weeks

Ended October

30, 2010

 

Net sales:

               
 

Retail

$          296,445

 

$           275,693

 

$           815,735

 

$           744,977

 
 

Play & Music and Other

6,703

 

5,157

 

16,706

 

11,447

 
 

Total net sales

 

303,148

 

280,850

 

832,441

 

756,424

 

Cost of goods sold, including

               

  buying and occupancy expenses

(172,303)

 

(142,046)

 

(498,704)

 

(390,549)

 
 

Gross profit

130,845

 

138,804

 

333,737

 

365,875

 

Selling, general and administrative expenses

(99,448)

 

(82,102)

 

(272,896)

 

(241,515)

 
 

Operating income

31,397

 

56,702

 

60,841

 

124,360

 

Interest income

28

 

77

 

115

 

277

 

Interest expense

(22,051)

 

(58)

 

(67,981)

 

(212)

 

Loss on extinguishment of debt

-

 

-

 

(19,563)

 

-

 

Other income (expense), net

8

 

28

 

(44)

 

114

 
 

Income (loss) before income taxes

9,382

 

56,749

 

(26,632)

 

124,539

 

Income tax (expense) benefit

(12,430)

 

(22,353)

 

6,210

 

(48,703)

 
 

Net (loss) income

$              (3,048)

 

$             34,396

 

$            (20,422)

 

$             75,836

 
                     
                     

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (Non-GAAP Measure):

 
                     

Net (loss) income

$              (3,048)

 

$             34,396

 

$            (20,422)

 

$             75,836

 

Interest expense

22,051

 

58

 

67,981

 

212

 

Interest income

(28)

 

(77)

 

(115)

 

(277)

 

Income tax expense (benefit)

12,430

 

22,353

 

(6,210)

 

48,703

 

Depreciation and amortization

14,086

 

10,169

 

42,703

 

29,712

 

Non-cash share-based compensation expense

1,458

 

4,013

 

4,330

 

12,551

 

Loss on disposal/impairment of assets

1,241

 

72

 

3,501

 

832

 

Loss on extinguishment of debt

-

 

-

 

19,563

 

-

 

Gymboree Play & Music franchise transition

7,200

 

-

 

7,200

 

-

 

Acquisition-related adjustments

5,174

 

3,479

 

26,865

 

3,479

 

Adjusted EBITDA

$             60,564

 

$             74,463

 

$           145,396

 

$           171,048

 
                   



EXHIBIT B

 

THE GYMBOREE CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

($ in thousands)

 
                 
     

Successor

 

Predecessor

 
     

October 29,

 

January 29,

 

October 30,

 
     

2011

 

2011

 

2010

 

Assets

           

Current Assets

           
 

Cash and cash equivalents

$      45,721

 

$      32,124

 

$       176,835

 
 

Accounts receivable

21,948

 

13,669

 

18,777

 
 

Merchandise inventories

252,685

 

184,268

 

171,191

 
 

Prepaid income taxes

17,049

 

16,116

 

-

 
 

Prepaid expenses and deferred income taxes

37,704

 

11,553

 

19,697

 
   

Total current assets

375,107

 

257,730

 

386,500

 

Property and Equipment, net

207,312

 

212,491

 

218,274

 

Deferred Income Taxes

-

 

-

 

15,467

 

Goodwill

934,639

 

934,639

 

239

 

Other Intangible Assets

592,963

 

606,210

 

2,203

 

Deferred Financing Costs

49,549

 

61,983

 

-

 

Other Assets

7,605

 

15,072

 

3,142

 
 

Total Assets

$ 2,167,175

 

$ 2,088,125

 

$       625,825

 
                 

Liabilities and Stockholders' Equity

           

Current Liabilities

           
 

Accounts payable

$      68,674

 

$      54,494

 

$         55,775

 
 

Income tax payable

-

 

-

 

624

 
 

Accrued liabilities

90,835

 

81,100

 

70,776

 
 

Line of credit

40,000

 

-

 

-

 
 

Current portion of long-term debt

8,200

 

8,200

 

-

 
   

Total current liabilities

207,709

 

143,794

 

127,175

 
                 

Long-Term Liabilities

           
 

Long-term debt

1,203,650

 

1,207,791

 

-

 
 

Lease incentives and other deferred liabilities

36,411

 

26,131

 

80,630

 
 

Deferred income taxes

238,929

 

224,598

 

-

 
 

Total Liabilities

1,686,699

 

1,602,314

 

207,805

 
                 

Stockholders' Equity

480,476

 

485,811

 

418,020

 
 

Total Liabilities and Stockholders' Equity

$ 2,167,175

 

$ 2,088,125

 

$       625,825

 
               



EXHIBIT C

 

THE GYMBOREE CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

($ in thousands)

 
             
     

Successor

 

Predecessor

 
     

39 Weeks

Ended October

29, 2011

 

39 Weeks

Ended October

30, 2010

 

CASH FLOWS FROM OPERATING ACTIVITIES:

         

Net (loss) income

 

$              (20,422)

 

$               75,836

 

Adjustments to reconcile net (loss) income to net cash

         

 provided by operating activities:

         
 

Write-off of deferred financing costs and original issue discount

 

15,860

 

-

 
 

Depreciation and amortization

 

42,703

 

29,712

 
 

Amortization of deferred financing costs and accretion of original issue discount

 

5,126

 

-

 
 

Interest rate cap contracts - adjustment to market

 

15

 

-

 
 

Loss on disposal/impairment of assets

 

3,501

 

832

 
 

(Benefit) provision for deferred income taxes

 

(6,269)

 

1,102

 
 

Excess tax benefits from exercise and vesting of share-based awards

 

-

 

(4,237)

 
 

Tax benefit from exercise of stock options and vesting of restricted

       
 

 stock awards and units

-

 

4,278

 
 

Share-based compensation expense

 

4,330

 

12,551

 
 

Change in assets and liabilities:

         

       Accounts receivable

 

(8,278)

 

(8,860)

 

       Merchandise inventories

 

(68,106)

 

(50,104)

 

       Prepaid expenses and other assets

 

(1,097)

 

521

 

       Prepaid income taxes / income taxes payable

 

(2,314)

 

(4,372)

 

       Accounts payable

 

14,178

 

9,242

 

       Accrued liabilities

 

9,066

 

8,005

 

       Lease incentives and other deferred liabilities

 

12,778

 

3,149

 
 

Net cash provided by operating activities

 

1,071

 

77,655

 
             

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Capital expenditures

 

(28,080)

 

(38,808)

 

Acquisition of business, net of cash acquired

 

(1,352)

 

-

 

Other

 

(296)

 

(1,074)

 
 

Net cash used in investing activities

 

(29,728)

 

(39,882)

 
             

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Proceeds from Term Loan

 

820,000

 

-

 

Payments on Term Loan

 

(826,150)

 

-

 

Proceeds from ABL facility

 

60,656

 

-

 

Payments on ABL facility

 

(20,656)

 

-

 

Deferred financing costs

 

(6,665)

 

-

 

Investment by Parent

 

14,865

 

-

 

Exercise of stock options

 

-

 

1,362

 

Repurchases of common stock

 

-

 

(124,610)

 

Excess tax benefits from exercise and vesting of share-based awards

 

-

 

4,237

 
 

Net cash provided by (used in) financing activities

 

42,050

 

(119,011)

 
             

Effect of exchange rate fluctuations on cash

 

204

 

401

 
             

Net increase (decrease) in cash and cash equivalents

 

13,597

 

(80,837)

 
             

CASH AND CASH EQUIVALENTS:

         

Beginning of period

 

32,124

 

257,672

 

End of period

 

$               45,721

 

$             176,835

 
           

###

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