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The Gymboree Corporation Reports Fourth Quarter and Fiscal Year 2011 Results

By: Gymboree |  15 Shares     138 Reads

SAN FRANCISCO, April 25, 2012 // PRNewswire // -- The Gymboree Corporation (the "Company") today reported consolidated financial results for the fourth fiscal quarter and the fiscal year ended January 28, 2012 ("fiscal 2011"). The results for the fourth fiscal quarter and the fiscal year ended January 29, 2011 ("fiscal 2010") presented herein reflect the Company's performance for the "combined period" consisting of the period (the "predecessor period") prior to 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"), as well as the period after completion of the Acquisition (the "successor period"). The addition of the predecessor and successor period amounts is not consistent with accounting principles generally accepted in the United States ("GAAP") and may yield results that are not strictly comparable on a period-to-period basis due to the changes of accounting basis during these periods. For purposes of comparing results of operations, however, the Company believes that it is the most meaningful way to present the results of operations for fiscal 2010 and the fourth quarter of fiscal 2010.

Fourth Fiscal Quarter Ended January 28, 2012

For the fourth quarter of fiscal 2011, net sales were $355.8 million, an increase of 11.9% compared to $318.0 million in net sales for the fourth fiscal quarter of the prior year. Comparable store sales for the quarter increased 6% versus the fourth quarter of the prior year.

Gross profit for the fourth quarter of fiscal 2011 was $126.2 million, or 35.5% of net sales, compared to $92.4 million, or 29.1% of net sales, for the fourth quarter of fiscal 2010. Results for the fourth quarter of 2010 included $45.5 million of additional product costs resulting from purchase accounting adjustments to inventory balances effective upon closing of the Acquisition. Excluding the impact of the purchase accounting adjustments, gross profit for the fourth quarter of fiscal 2010 was $137.9 million, or 43.4% of net sales (see Exhibit D).

SG&A expense for the fourth quarter of fiscal 2011 was $107.2 million, or 30.1% of net sales, compared to $144.7 million, or 45.5% of net sales, in the fourth quarter of the prior year. Results for the fourth quarter of fiscal 2011 and fiscal 2010 include $6.3 million and $58.7 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments and Acquisition-related charges recognized during the quarters. Excluding these charges, SG&A expense for the fourth quarter of fiscal 2011 and fiscal 2010 was $101.0 million, or 28.4% of net sales, and $86.0 million, or 27.0% of net sales, respectively, which represents an increase of 140 basis points over fiscal 2010 (see Exhibit D).

During the fourth quarter of fiscal 2011, the Company recorded an impairment charge of $28.3 million related to goodwill allocated to the Company's Gymboree Outlet reporting unit. This impairment charge is a preliminary estimate and remains subject to finalization in fiscal 2012.

Net loss for the fourth quarter of fiscal 2011 was $24.9 million compared to a net loss of $47.3 million for the same period last year. The significant decrease in net loss primarily resulted from higher Acquisition-related costs incurred during the prior fiscal year and was partially offset by the goodwill impairment recorded in the fourth quarter of fiscal 2011.

Net loss attributable to The Gymboree Corporation before interest (income) expense, income tax benefit and depreciation and amortization, adjusted for other items ("Adjusted EBITDA"), for the fourth quarter of fiscal 2011 decreased 28.4% to $47.2 million compared to $65.9 million for the fourth quarter of the prior year. Adjusted EBITDA is not a performance measure under GAAP. See "Non-GAAP Financial Measures" below. A reconciliation of net loss attributable to The Gymboree Corporation to Adjusted EBITDA presented herein is included in Exhibit A of this press release.

Fiscal Year Ended January 28, 2012

Net sales for fiscal 2011 were $1.2 billion, a 10.6% increase from the prior fiscal year. Comparable store sales for fiscal 2011 were up 4% compared to the prior year.

Gross profit for fiscal year 2011 was $459.9 million, or 38.7% of net sales, compared to $458.3 million, or 42.7% of net sales, for fiscal 2010. Excluding purchase accounting adjustments of $10.7 million and $45.5 million in fiscal 2011 and fiscal 2010, respectively, gross profit was $470.7 million, or 39.6% of net sales, and $503.8 million, or 46.9% of net sales, for fiscal 2011 and fiscal 2010, respectively (see Exhibit D).

Adjusted EBITDA for fiscal 2011 decreased 18.7% to $192.6 million, compared to $237.0 million for the prior year (see "Non-GAAP Financial Measures" included in Exhibit A of this press release).

Balance Sheet Highlights

As part of the Acquisition, the Company issued a total of $1.2 billion in debt, consisting of an $820 million term loan and $400 million in high-yield bonds 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 no borrowings outstanding under the ABL as of year end and approximately $127.8 million of undrawn availability. Effective March 2012, the ABL facility was refinanced to take advantage of favorable rates and to extend the maturity date.

Cash at the end of fiscal 2011 increased to $77.9 million from $32.1 million at the end of fiscal 2010.

Capital expenditures for fiscal 2011 were $36.6 million.

Inventory balances at the end of fiscal 2011 were $210.2 million compared to $184.3 million at the end of fiscal 2010. The fiscal 2010 inventory balance included a $10.7 million write-up for purchase accounting adjustments.

Fiscal 2012 Business Outlook

Sales Expectations

The Company anticipates comparable store sales growth to be flat to up in the low single digits for the first quarter and for the full year fiscal 2012.

Adjusted EBITDA

The Company expects Adjusted EBITDA for the first quarter of fiscal 2012 to be in the range of $47 million to $51 million. Overall, the Company expects Adjusted EBITDA in fiscal 2012 to increase modestly over fiscal 2011. The Company 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 105 new stores, including 80 Crazy 8 stores.

Capital Expenditures

During fiscal 2012, the Company anticipates spending $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 goodwill impairment, 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 A for a reconciliation of Adjusted EBITDA to net income.

Management Presentation

The live broadcast of the discussion of fourth quarter and fiscal 2011 financial results and fiscal 2012 business outlook will be available to interested parties at 1:00 p.m. PT (4:00 p.m. ET) on Wednesday, April 25, 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, Wednesday, May 9, 2012, at 855-859-2056, passcode 71019106.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of March 31, 2012, the Company operated a total of 1,155 retail stores: 633 Gymboree® stores (588 in the United States, 41 in Canada, 1 in Puerto Rico and 3 in Australia), 153 Gymboree Outlet stores, 126 Janie and Jack® shops and 243 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 711 franchised and Company-operated Gymboree Play & Music® centers in the United States and 39 other countries.

Forward-Looking Statements

The foregoing financial information for the fourth fiscal quarter and the fiscal year ended January 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 comparable store sales growth, 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 Part II, "Item 1A, Risk Factors," of the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 2011, filed with the Securities and Exchange Commission on June 29, 2011. 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.

EXHIBIT A
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
					(Non-GAAP)
			Successor		Combined		Successor		Predecessor
			Year Ended		Year Ended		November 23, 2010 to		January 31, 2010 to
			January 28, 2012		January 29, 2011		January 29, 2011		November 22, 2010
			($ in thousands)
Net sales:
Retail			$   1,164,171		$1,059,150		$         244,287		$          814,863
Gymboree Play & Music			13,885		13,661		2,814		10,847
Retail Franchise			10,232		1,372		447		925
Other			-		248		-		248
Total net sales			1,188,288		1,074,431		247,548		826,883
Cost of goods sold, including buying and occupancy expenses			(728,346)		(616,158)		(184,483)		(431,675)
Gross profit			459,942		458,273		63,065		395,208
Selling, general and administrative expenses			(380,141)		(386,204)		(78,843)		(307,361)
Goodwill impairment			(28,300)		-		-		-
Operating income (loss)			51,501		72,069		(15,778)		87,847
Interest income			168		331		36		295
Interest expense			(89,807)		(17,635)		(17,387)		(248)
Loss on extinguishment of debt			(19,563)		-		-		-
Other (expense) income, net			(109)		172		53		119
(Loss) income before income taxes			(57,810)		54,937		(33,076)		88,013
Income tax benefit (expense)			6,626		(26,417)		10,032		(36,449)
Net (loss) income			(51,184)		28,520		(23,044)		51,564
Net loss attributable to noncontrolling interest			5,839		-		-		-
Net (loss) income attributable to The Gymboree Corporation			$        (45,345)		$        28,520		$           (23,044)		$         51,564
Net (loss) income attributable to The Gymboree Corporation			$           (45,345)		$         28,520		$        (23,044)		$         51,564
Interest expense			89,807		17,635		17,387		248
Interest income			(168)		(331)		(36)		(295)
Income tax (benefit) expense			(6,626)		26,417		(10,032)		36,449
Goodwill impairment			28,300		-		-		-
Depreciation and amortization			57,930		42,800		10,250		32,550
Non-cash share-based compensation expense			5,907		41,524		482		41,042
Loss on disposal/impairment on assets			4,339		2,030		1,150		880
Loss on extinguishment of debt			19,563		-		-		-
Gymboree Play & Music franchise transition			7,200		-		-		-
Acquisition-related adjustments			31,678		78,357		61,755		16,602
Adjusted EBITDA			$        192,585		$        236,952		$          57,912		$        179,040
					(Non-GAAP)
			Successor		Combined		Successor		Predecessor
			Quarter Ended		Quarter Ended		November 23, 2010 to		October 31, 2010 to
			January 28, 2012		January 29, 2011		January 29, 2011		November 22, 2010
			($ in thousands)
Net sales:
Retail			$        348,437		$        314,173		$         244,287		$          69,886
Gymboree Play & Music			4,416		3,310		2,814		496
Retail Franchise			2,995		524		447		77
Total net sales			355,848		318,007		247,548		70,459
Cost of goods sold, including buying and occupancy expenses			(229,643)		(225,609)		(184,483)		(41,126)
Gross profit			126,205		92,398		63,065		29,333
Selling, general and administrative expenses			(107,246)		(144,689)		(78,843)		(65,846)
Goodwill impairment			(28,300)		-		-		-
Operating loss			(9,341)		(52,291)		(15,778)		(36,513)
Interest income			53		54		36		18
Interest expense			(21,826)		(17,423)		(17,387)		(36)
Other (expense) income, net			(67)		58		53		5
Loss before income taxes			(31,181)		(69,602)		(33,076)		(36,526)
Income tax benefit			416		22,286		10,032		12,254
Net loss			(30,765)		(47,316)		(23,044)		(24,272)
Net loss attributable to noncontrolling interest			5,839		-		-		-
Net loss attributable to The Gymboree Corporation			$        (24,926)		$        (47,316)		$         (23,044)		$          (24,272)
Net loss attributable to The Gymboree Corporation			$        (24,926)		$        (47,316)		$          (23,044)		$           (24,272)
Interest expense			21,826		17,423		17,387		36
Interest income			(53)		(54)		(36)		(18)
Income tax benefit			(416)		(22,286)		(10,032)		(12,254)
Goodwill impairment			28,300		-		-		-
Depreciation and amortization			15,227		13,088		10,250		2,838
Non-cash share-based compensation expense			1,577		28,973		482		28,491
Loss on disposal/impairment on assets			838		1,198		1,150		48
Acquisition-related adjustments			4,813		74,878		61,755		13,123
Adjusted EBITDA			$        47,186		$         65,904		$              57,912		$               7,992

EXHIBIT B
THE GYMBOREE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
ASSETS	January 28,				January 29,
	2012				2011
Current Assets:
Cash and cash equivalents	$	77,910			$	32,124
Accounts receivable, net of allowance of $114 and $-		27,277				13,669
Merchandise inventories		210,212				184,268
Prepaid income taxes		3,736				16,116
Prepaid expenses		5,532				4,856
Deferred income taxes		36,115				6,697
Total current assets		360,782				257,730
Property and Equipment:
Land and buildings		22,428				22,397
Leasehold improvements		146,497				125,153
Furniture, fixtures, and equipment		82,606				71,286
		251,531				218,836
Less accumulated depreciation and amortization		(49,379)				(6,345)
		202,152				212,491
Goodwill		899,097				927,397
Other Intangible Assets		599,195				617,810
Deferred Financing Costs		47,915				61,983
Other Assets		4,646				15,072
Total Assets	$	2,113,787			$	2,092,483
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	79,027			$	54,494
Accrued liabilities		94,178				81,100
Current portion of long-term debt		17,698				8,200
Total current liabilities		190,903				143,794
Long-Term Liabilities:
Long-term debt		1,192,171				1,207,791
Lease incentives and other deferred liabilities		28,681				18,352
Unrecognized tax benefits		7,898				7,779
Deferred income taxes		245,495				228,956
Total Liabilities		1,665,148				1,606,672
Commitments and Contingencies		-				-
Stockholders' Equity:
Common stock, including additional paid-in capital
($.001 par value: 1,000 shares authorized, issued and
outstanding)		519,589				508,617
Accumulated deficit		(68,389)				(23,044)
Accumulated other comprehensive (loss) income		(5,825)				238
Total Stockholders' Equity		445,375				485,811
Noncontrolling interest		3,264				-
Total equity		448,639				485,811
Total Liabilities and Stockholders' Equity	$	2,113,787			$	2,092,483

EXHIBIT C
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
	Successor				(Non-GAAP)
	Year Ended				Combined		Successor			Predecessor
	January 28,				Year Ended		November 23, 2010 to			January 31, 2010 to
	2012				January 29, 2011		January 29, 2011			November 22, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(51,184)		$	28,520		$	(23,044)		$	51,564
Adjustments to reconcile consolidated 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		57,930			42,800			10,250			32,550
Goodwill impairment		28,300			-			-			-
Amortization of deferred financing costs and accretion of original issue discount		6,830			1,357			1,357			-
Interest rate cap contracts - adjustment to market		51			-			-			-
(Benefit) provision for deferred income taxes		(8,946)			(7,118)			(11,246)			4,128
Share-based compensation expense		5,907			41,524			482			41,042
Loss on disposal/impairment of assets		4,339			2,030			1,150			880
Other non-cash expense		4,608			-			-			-
Excess tax benefits from exercise and vesting of share-based awards		-			(12,584)			-			(12,584)
Tax benefit from exercise of stock options and vesting of restricted
stock awards and units		-			12,254			-			12,254
Change in assets and liabilities:					-
Accounts receivable		(11,209)			(3,756)			7,035			(10,791)
Merchandise inventories		(25,646)			(6,905)			48,607			(55,512)
Prepaid income taxes		12,385			(27,657)			(345)			(27,312)
Prepaid expenses and other assets		(743)			(51)			1,295			(1,346)
Accounts payable		24,533			7,967			(11,782)			19,749
Accrued liabilities		14,515			28,139			(4,820)			32,959
Lease incentives and other deferred liabilities		14,015			5,511			2,141			3,370
Net cash provided by operating activities		91,545			112,031			21,080			90,951
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(36,565)			(47,268)			(5,054)			(42,214)
Acquisition of business, net of cash acquired		(1,352)			(1,828,308)			(1,828,308)			-
Other		(295)			(1,284)			(46)			(1,238)
Net cash used in investing activities		(38,212)			(1,876,860)			(1,833,408)			(43,452)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Term Loan		820,000			815,900			815,900			-
Payments on Term Loan		(828,200)			-			-			-
Proceeds from senior notes		-			400,000			400,000			-
Proceeds from ABL facility		60,656			30,000			30,000			-
Payments on ABL facility		(60,656)			(30,000)			(30,000)			-
Deferred financing costs		(6,665)			(63,266)			(63,266)			-
Investment by Parent		14,865			-			-			-
Dividend payment to Parent		(12,200)			-			-			-
Purchase of interest rate cap contracts		-			(12,079)			(12,079)			-
Proceeds from issuance of common stock		-			509,506			508,135			1,371
Excess tax benefits from exercise and vesting of share-based awards		-			12,584			-			12,584
Repurchases of common stock		-			(124,610)			-			(124,610)
Capital contribution to noncontrolling interest		4,477			-			-			-
Net cash (used in) provided by financing activities		(7,723)			1,538,035			1,648,690			(110,655)
Net increase (decrease) in cash and cash equivalents		45,610			(226,794)			(163,638)			(63,156)
Effect of exchange rate fluctuations on cash		176			1,246			852			394
CASH AND CASH EQUIVALENTS:
Beginning of Period		32,124			257,672			194,910			257,672
End of Period	$	77,910		$	32,124		$	32,124		$	194,910

EXHIBIT D
THE GYMBOREE CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
						as a % of Total Net Sales
				(Non-GAAP)				(Non-GAAP)
		Successor		Combined		Successor		Combined
		Quarter Ended		Quarter Ended		Quarter Ended		Quarter Ended
		January 28, 2012		January 29, 2011		January 28, 2012		January 29, 2011
		($ in thousands)
Gross profit as reported		$        126,205		$          92,398		35.5%		29.1%
Purchase accounting adjustments		-		45,508		-		14.3%
Gross profit excluding purchase accounting adjustments (non-GAAP measure)		$           126,205		$           137,906		35.5%		43.4%
						as a % of Total Net Sales
				(Non-GAAP)				(Non-GAAP)
		Successor		Combined		Successor		Combined
		Quarter Ended		Quarter Ended		Quarter Ended		Quarter Ended
		January 28, 2012		January 29, 2011		January 28, 2012		January 29, 2011
		($ in thousands)
SG&A as reported		$      (107,246)		$      (144,689)		-30.1%		-45.5%
Purchase accounting adjustments		6,259		58,679		1.8%		18.5%
SG&A excluding purchase accounting adjustments (non-GAAP measure)		$         (100,987)		$           (86,010)		-28.4%		-27.0%
						as a % of Total Net Sales
				(Non-GAAP)				(Non-GAAP)
		Successor		Combined		Successor		Combined
		Year Ended		Year Ended		Year Ended		Year Ended
		January 28, 2012		January 29, 2011		January 28, 2012		January 29, 2011
		($ in thousands)
Gross profit as reported		$           459,942		$           458,273		38.7%		42.7%
Purchase accounting adjustments		10,731		45,508		0.9%		4.2%
Gross profit excluding purchase accounting adjustments (non-GAAP measure)		$        470,673		$        503,781		39.6%		46.9%

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