The Gymboree Corporation Reports First Fiscal Quarter 2013 Results

SAN FRANCISCO - June 5, 2013 // PRNewswire // - The Gymboree Corporation (the "Company") today reported consolidated financial results for the first fiscal quarter ended May 4, 2013.

For the first quarter of the fiscal year ending February 1, 2014 ("fiscal 2013"), net sales were $292.8 million, a decrease of 1.7% compared to $297.8 million in net sales for the first fiscal quarter of the fiscal year ended February 2, 2013 ("fiscal 2012"). Comparable sales for the quarter decreased 5% versus the first quarter of fiscal 2012.

Gross profit for the first quarter of fiscal 2013 was $121.0 million, or 41.3% of net sales, compared to $121.8 million, or 40.9% of net sales, for the first quarter of fiscal 2012. Excluding purchase accounting adjustments of $2.6 million and $3.0 million for the first quarter of fiscal 2013 and the first quarter of fiscal 2012, respectively, relating 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"), gross profit was $123.6 million, or 42.2% of net sales, and $124.8 million, or 41.9% of net sales, for the first quarter of fiscal 2013 and the first quarter of fiscal 2012, respectively (see Exhibit D).

SG&A expense for the first quarter of fiscal 2013 was $104.1 million, or 35.6% of net sales, compared to $91.7 million, or 30.8% of net sales, in the first quarter of fiscal 2012. Results for the first quarter of fiscal 2013 and fiscal 2012 include $3.9 million and $5.2 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments and other adjustments. Excluding these charges, SG&A expense for the first quarter of fiscal 2013 and fiscal 2012 was $100.3 million, or 34.2% of net sales, and $86.5 million, or 29.1% of net sales, respectively, which represents an increase of 510 basis points over fiscal 2012 (see Exhibit D).

Net loss for the first quarter of fiscal 2013 was $2.8 million compared to net income of $4.2 million for the same quarter of fiscal 2012.

Net income (loss) attributable to The Gymboree Corporation before interest (income) expense, income tax (expense) benefit and depreciation and amortization, adjusted for other items ("Adjusted EBITDA"), for the first quarter of fiscal 2013 decreased 29.2% to $36.0 million compared to $50.8 million for the first quarter of fiscal 2012. Adjusted EBITDA is not a performance measure under 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 favorable rates and to extend the maturity date. There were no borrowings outstanding under the ABL as of the end of the first fiscal quarter of fiscal 2013 and approximately $143.1 million of undrawn availability.

Cash at the end of the first quarter of fiscal 2013 was $43.1 million compared to $88.3 million at the end of the first quarter of fiscal 2012, reflecting the pay down of approximately $69.4 million of debt since the end of the first quarter last year.

Capital expenditures for the first quarter of fiscal 2013 were $10.7 million, with the majority of the cash used to fund the opening of 23 new stores during the quarter.

Inventory balances at the end of the first quarter of fiscal 2013 were $180.8 million compared to $185.7 million at the end of the first quarter of fiscal 2012. Inventory cost on a per square foot basis was down 12%, while inventory units on a per square foot basis were down in the low single digits.

Fiscal 2013 Business Outlook

In fiscal 2013, the Company is focused on improving its inventory discipline, strengthening its product assortment and continuing to drive its growth opportunities of real estate, ecommerce and international. The Company's fiscal 2013 outlook is based on the current economic environment and trends, as well as its expectations for the balance of the year.

Full Year

For the full year, the Company continues to expect Adjusted EBITDA to grow modestly over last year and comparable sales to be flat to slightly positive. Based on this guidance, the Company expects to generate sufficient cash flow to service its debt and invest in the business to drive long term growth.

New Stores

During fiscal 2013, the Company plans to open approximately 100 new stores, with the majority being Crazy 8 stores.
Capital Expenditures

During fiscal 2013, the Company anticipates spending approximately $50 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

To listen live over the internet, please log on to www.gymboree.com, click on "Company Information" at the bottom of the page, go to "Investors & Media" and then "Conference Calls & Webcasts." A replay of the call will be available two hours after the broadcast through midnight PT, Tuesday, June 11, 2013, at 855-859-2056, passcode 75524872.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of May 4, 2013, the Company operated a total of 1,280 retail stores: 634 Gymboree® stores (584 in the United States, 43 in Canada, 1 in Puerto Rico and 6 in Australia), 160 Gymboree Outlet stores (158 in the United States, 2 in Puerto Rico), 134 Janie and Jack® shops and 352 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 718 franchised and Company-operated Gymboree Play & Music® centers in the United States and 42 other countries.

Forward-Looking Statements

The foregoing financial information for the first fiscal quarter ended May 4, 2013 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, capital expenditures, cash flows and new store openings in fiscal 2013. 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 February 2, 2013 filed with the Securities and Exchange Commission ("SEC") on May 2, 2013, and its subsequent SEC filings. 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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

                   
             

Quarter Ended

 

Quarter Ended

             

May 4, 2013

 

April 28, 2012

             

13 Weeks

 

13 Weeks

             

(in thousands)

Net sales:

             
 

Retail

       

$          280,877

 

$          288,116

 

Gymboree Play & Music 

       

6,328

 

5,792

 

Retail Franchise

       

5,578

 

3,843

   

Total net sales

       

292,783

 

297,751

 

Cost of goods sold, including buying and occupancy expenses

       

(171,810)

 

(175,927)

   

Gross profit

       

120,973

 

121,824

 

Selling, general and administrative expenses

       

(104,129)

 

(91,739)

   

Operating income 

       

16,844

 

30,085

 

Interest income

       

41

 

59

 

Interest expense

       

(20,402)

 

(21,658)

 

Loss on extinguishment of debt

       

-

 

(1,237)

 

Other income (expense), net

       

9

 

(66)

   

Income (loss) before income taxes

       

(3,508)

 

7,183

 

Income tax (expense) benefit 

       

660

 

(3,013)

                   
   

Net income (loss)

       

(2,848)

 

4,170

 

Net loss attributable to noncontrolling interest

       

312

 

826

   

Net (loss) income attributable to The Gymboree Corporation

       

$            (2,536)

 

$              4,996

 

EXHIBIT B

             

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

                 
     

May 4, 2013

 

February 2, 2013

 

April 28, 2012

 
     

(in thousands)

Current assets

             
 

Cash and cash equivalents

 

$       43,146

 

$               33,328

 

$          88,268

 
 

Accounts receivable

 

22,124

 

27,542

 

25,264

 
 

Merchandise inventories

 

180,796

 

197,935

 

185,691

 
 

Prepaid income taxes

 

3,076

 

2,903

 

3,220

 
 

Prepaid expenses

 

16,809

 

17,341

 

3,573

 
 

Deferred income taxes

 

30,647

 

31,383

 

30,800

 
 

    Total current assets

 

296,598

 

310,432

 

336,816

 
                 

Property and equipment, net

 

205,985

 

205,325

 

202,419

 

Goodwill

 

898,983

 

898,966

 

899,097

 

Other intangible assets

 

578,456

 

580,641

 

594,574

 

Deferred financing costs

 

38,419

 

40,040

 

46,220

 

Other assets

 

7,443

 

7,809

 

5,504

 
                 
 

    Total assets

 

$  2,025,884

 

$          2,043,213

 

$     2,084,630

 
                 

Current liabilities

             
 

Accounts payable

 

$       57,753

 

$               90,133

 

$          48,954

 
 

Accrued liabilities

 

107,095

 

90,443

 

91,772

 
 

Current portion of long-term debt

 

-

 

-

 

15,648

 
 

    Total current liabilities

 

164,848

 

180,576

 

156,374

 
                 

Long-term liabilities

             
 

Long-term debt

 

1,138,524

 

1,138,455

 

1,192,241

 
 

Lease incentives and other deferred liabilities

 

43,432

 

40,104

 

31,082

 
 

Unrecognized tax benefits

 

8,135

 

7,848

 

8,172

 
 

Deferred income taxes

 

231,540

 

234,593

 

242,244

 
 

    Total liabilities

 

1,586,479

 

1,601,576

 

1,630,113

 
                 

Stockholders' equity

 

439,405

 

441,637

 

454,517

 
                 
 

Total liabilities and stockholders' equity

 

$  2,025,884

 

$          2,043,213

 

$     2,084,630

 

 

EXHIBIT C

       

THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

           
     

Quarter Ended

 

Quarter Ended

     

May 4, 2013

 

April 28, 2012

     

13 Weeks

 

13 Weeks

     

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

     

Net income (loss)

$            (2,848)

 

$              4,170

Adjustments to reconcile net income (loss) to net cash

     

  provided by operating activities:

     
 

Loss on extinguishment of debt

-

 

1,237

 

Depreciation and amortization

12,822

 

14,248

 

Amortization of deferred financing costs and accretion of original issue discount

1,690

 

1,802

 

Interest rate cap contracts - adjustment to market

183

 

53

 

Provision (benefit) for deferred income taxes

(2,210)

 

2,098

 

Share-based compensation expense

1,497

 

1,407

 

Other

314

 

848

 

Change in assets and liabilities:

     

            Accounts receivable

5,443

 

(380)

            Merchandise inventories

17,244

 

24,046

            Prepaid expenses and other assets

409

 

1,902

            Prepaid income taxes

(179)

 

525

            Accounts payable

(32,377)

 

(30,078)

            Accrued liabilities

13,395

 

(5,378)

            Lease incentives and other deferred liabilities

4,335

 

3,476

 

Net cash provided by operating activities

19,718

 

19,976

           

CASH FLOWS FROM INVESTING ACTIVITIES:

     

Capital expenditures

(10,658)

 

(8,625)

Other

 

(93)

 

(176)

 

Net cash used in investing activities

(10,751)

 

(8,801)

           

CASH FLOWS FROM FINANCING ACTIVITIES:

     

Payments on Term Loan

-

 

(2,050)

Deferred financing costs paid

-

 

(1,274)

Investment by affiliate of Parent

-

 

2,400

Dividend payment to Parent

(201)

 

-

Capital contribution to noncontrolling interest

1,007

 

-

 

Net cash provided by (used in) financing activities

806

 

(924)

Effect of exchange rate fluctuations on cash

45

 

107

Net increase in cash and cash equivalents

9,818

 

10,358

CASH AND CASH EQUIVALENTS:

     

Beginning of period

33,328

 

77,910

End of period

 

$            43,146

 

$            88,268

 

EXHIBIT D

                 

THE GYMBOREE CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

                   

ADJUSTED EBITDA:

                 

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 gain or loss on extinguishment of debt, non-cash share-based compensation, loss on disposal/impairment of assets, sponsor management fees and expenses, as well as the impact of purchase accounting adjustments resulting from the acquisition of the Company by investment funds sponsored by Bain Capital Partners, LLC (the "Acquisition"), non-recurring and unusual items. 

Adjusted EBITDA is not a performance measure under U.S. generally accepted accounting principles ("GAAP"), 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. 

The table below provides a reconciliation of net income (loss) attributable to The Gymboree Corporation to Adjusted EBITDA (in thousands):

 

           

Quarter Ended

 

Quarter Ended

           

May 4, 2013

 

April 28, 2012

           

13 Weeks

 

13 Weeks

Net (loss) income attributable to The Gymboree Corporation

         

$            (2,536)

 

$              4,996

Reconciling items (a):

               

Interest expense 

         

20,402

 

21,658

Interest income 

         

(26)

 

(48)

Income tax expense (benefit)

         

(861)

 

2,954

Depreciation and amortization (b)

         

12,620

 

14,162

Non-cash share-based compensation expense 

         

1,497

 

1,407

Loss on disposal/impairment on assets

         

300

 

62

Loss (gain) on extinguishment of debt

         

-

 

1,237

Restructuring charges

         

489

 

-

Acquisition-related adjustments (c)

         

4,093

 

4,398

Adjusted EBITDA

         

$            35,978

 

$            50,826

                 

(a) Exclude amounts related to noncontrolling interest, which are already excluded from net income (loss) attributable to The Gymboree Corporation.

                 

(b) Includes the following (in thousands):

               

Amortization of intangible assets (impacts SG&A)

         

$              2,258

 

$              4,340

Amortization of below and above market leases (impacts COGS)

         

(386)

 

(548)

           

$              1,872

 

$              3,792

                 

(c) Include the following (in thousands):

               

Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)

         

$              2,232

 

$              2,324

Sponsor fees, legal and  accounting,  as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)

         

1,120

 

872

Decrease in net sales due to the elimination of deferred revenue related to the Company's co-branded credit card program in purchase accounting (impacts net sales)

         

741

 

1,202

           

$              4,093

 

$              4,398

                 
                 

OTHER NON-GAAP FINANCIAL MEASURES:

               
                 
           

Quarter Ended

 

Quarter Ended

           

May 4, 2013

 

April 28, 2012

           

13 Weeks

 

13 Weeks

                 

Gross profit as reported

         

$          120,973

 

$          121,824

Acquisition-related adjustments

         

2,587

 

2,978

Adjusted gross profit excluding Acquisition-related adjustments (non-GAAP measure)

         

$          123,560

 

$          124,802

                 
                 
           

Quarter Ended

 

Quarter Ended

           

May 4, 2013

 

April 28, 2012

           

13 Weeks

 

13 Weeks

                 

SG&A as reported

         

$        (104,129)

 

$          (91,739)

                 

Acquisition-related adjustments

         

3,378

 

5,212

Other adjustments

         

489

 

-

           

3,867

 

5,212

Adjusted SG&A excluding Acquisition-related and other adjustments (non-GAAP measure)

         

$        (100,262)

 

$          (86,527)

 

EXHIBIT E

             

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Unaudited)

                   
     

For the quarter ended May 4, 2013

     

Balance Before 

           
     

Consolidation of VIEs

 

VIEs*

 

Eliminations

 

As Reported

     

(in thousands)

 

Net sales

$                      289,480

 

$  4,634

 

$        (1,331)

 

$     292,783

 

Cost of goods sold, including buying and occupancy expenses

(170,782)

 

(1,230)

 

202

 

(171,810)

   

Gross profit

118,698

 

3,404

 

(1,129)

 

120,973

 

Selling, general and administrative expenses

(101,631)

 

(3,646)

 

1,148

 

(104,129)

   

Operating income (loss)

17,067

 

(242)

 

19

 

16,844

 

Interest income

27

 

14

 

-

 

41

 

Interest expense

(20,402)

 

-

 

-

 

(20,402)

 

Other income (expense), net

(108)

 

117

 

-

 

9

   

Loss before income taxes

(3,416)

 

(111)

 

19

 

(3,508)

 

Income tax benefit (expense)

861

 

(201)

 

-

 

660

   

Net loss

(2,555)

 

(312)

 

19

 

(2,848)

 

Net loss attributable to noncontrolling interest

-

 

312

 

-

 

312

   

Net loss attributable to The Gymboree Corporation

$                        (2,555)

 

$        -

 

$              19

 

$        (2,536)

                   
                   
     

For the quarter ended April 28, 2012

     

Balance Before 

           
     

Consolidation of VIEs

 

VIEs*

 

Eliminations

 

As Reported

     

(in thousands)

 

Net sales

$                      297,931

 

$  2,143

 

$        (2,323)

 

$     297,751

 

Cost of goods sold, including buying and occupancy expenses

(176,049)

 

(242)

 

364

 

(175,927)

   

Gross profit

121,882

 

1,901

 

(1,959)

 

121,824

 

Selling, general and administrative expenses

(90,894)

 

(2,655)

 

1,810

 

(91,739)

   

Operating income (loss)

30,988

 

(754)

 

(149)

 

30,085

 

Interest income

48

 

11

 

-

 

59

 

Interest expense

(21,658)

 

-

 

-

 

(21,658)

 

Loss on extinguishment of debt

(1,237)

 

-

 

-

 

(1,237)

 

Other expense, net

(42)

 

(24)

 

-

 

(66)

   

Income (loss) before income taxes

8,099

 

(767)

 

(149)

 

7,183

 

Income tax expense

(2,954)

 

(59)

 

-

 

(3,013)

   

Net income (loss)

5,145

 

(826)

 

(149)

 

4,170

 

Net loss attributable to noncontrolling interest

-

 

826

 

-

 

826

   

Net income attributable to The Gymboree Corporation

$                          5,145

 

$        -

 

$           (149)

 

$         4,996

 

 

EXHIBIT E (continued)

             

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(Unaudited)

     

May 4, 2013

     

Balance Before 

           
     

Consolidation of VIEs

 

VIEs*

 

Eliminations

 

As Reported

     

(in thousands)

Current assets

$                      288,822

 

$  13,131

 

$        (5,355)

 

$     296,598

Non-current assets

1,726,636

 

2,650

 

-

 

1,729,286

Total assets

$                   2,015,458

 

$  15,781

 

$        (5,355)

 

$  2,025,884

                   

Current liabilities

$                      157,669

 

$  12,321

 

$        (5,142)

 

$     164,848

Non-current liabilities

1,421,443

 

188

 

-

 

1,421,631

Total liabilities

$                   1,579,112

 

$  12,509

 

$        (5,142)

 

$  1,586,479

                   

Total stockholders' equity

436,346

 

-

 

(213)

 

436,133

Noncontrolling interest

-

 

3,272

 

-

 

3,272

Total liabilities and stockholders' equity

$                   2,015,458

 

$  15,781

 

$        (5,355)

 

$  2,025,884

                   
     

April 28, 2012

     

Balance Before 

           
     

Consolidation of VIEs

 

VIEs*

 

Eliminations

 

As Reported

     

(in thousands)

Current assets

$                      327,746

 

$  11,536

 

$        (2,466)

 

$     336,816

Non-current assets

1,746,957

 

857

 

-

 

1,747,814

Total assets

$                   2,074,703

 

$  12,393

 

$        (2,466)

 

$  2,084,630

                   

Current liabilities

$                      149,593

 

$    9,098

 

$        (2,317)

 

$     156,374

Non-current liabilities

1,473,680

 

59

 

-

 

1,473,739

Total liabilities

$                   1,623,273

 

$    9,157

 

$        (2,317)

 

$  1,630,113

                   

Total stockholders' equity

451,430

 

-

 

(149)

 

451,281

Noncontrolling interest

-

 

3,236

 

-

 

3,236

Total liabilities and stockholders' equity

$                   2,074,703

 

$  12,393

 

$        (2,466)

 

$  2,084,630

 

*  The Variable Interest Entities ("VIEs") includes the results of Gymboree (China) Commercial and Trading Co. Ltd. and Gymboree (Tianjin) Educational Information Consultation Co. Ltd.  While the Company does not control these two entities, they have been determined to be variable interest entities and their results have been consolidated by the Company. 

SOURCE The Gymboree Corporation

###

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