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The Gymboree Corporation Reports Third Fiscal Quarter 2011 Results

By: Gymboree |  7 Shares     115 Reads

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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