The Gymboree Corporation Reports Second Quarter 2013 Results

SAN FRANCISCO, Sept. 12, 2013 /PRNewswire/ -- The Gymboree Corporation (the "Company") today reported consolidated financial results for its quarter ended August 3, 2013.

Net sales for the quarter were $290.9 million, an increase of 8.2% compared to $268.8 million in net sales for the same quarter last year.  Comparable sales for the quarter decreased 3% versus the same quarter last year.

Gross profit for the quarter was $107.1 million, or 36.8% of net sales, compared to $89.2 million, or 33.2% of net sales, for the same quarter last year. Excluding purchase accounting adjustments of $2.5 million and $3.0 million for the second quarter of this year and last year, respectively, relating to the November 2010 acquisition of the Company by Giraffe Holding, Inc., an entity majority-owned by investment funds sponsored by Bain Capital Partners, LLC (the "Acquisition"), gross profit was $109.6 million, or 37.7% of net sales, and $92.2 million, or 34.3% of net sales, for the second quarter of this year and last year, respectively (see Exhibit D).

SG&A expense for the quarter was $102.0 million, or 35.1% of net sales, compared to $95.6 million, or 35.6% of net sales, in the same quarter last year.  Results for the second quarter of this year and last year include $3.3 million and $5.3 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments, and other adjustments.  Excluding these expenses, SG&A expense for the second quarter of this year and last year was $98.7 million, or 33.9% of net sales, and $90.3 million, or 33.6% of net sales, respectively (see Exhibit D).     

Net loss for the quarter was $9.3 million compared to a net loss of $14.1 million for the same quarter last year. 

Net loss attributable to The Gymboree Corporation before interest, income taxes and depreciation and amortization, adjusted for other items ("Adjusted EBITDA"), increased 50.9% to $24.8 million for the quarter compared to $16.4 million for the same quarter last year.  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

There were no borrowings outstanding under the ABL as of the end of the quarter and approximately $139.4 million of undrawn availability.

Cash at the end of the quarter was $26.8 million compared to $54.6 million at the end of the same quarter last year, reflecting the pay down of approximately $51.6 million of debt since the end of the second quarter last year.

Capital expenditures for the fiscal year to date were $23.2 million, with the majority of the cash used to fund the opening of 26 new stores during the quarter.

Inventory balances at the end of the quarter were $215.0 million compared to $220.2 million at the end of the same quarter last year. Compared to the same quarter last year, inventory cost on a per square foot basis was down 12%, while inventory units on a per square foot basis were down in the mid single digits.

Fiscal 2013 Business Outlook

Full Year

For the fiscal year ending February 1, 2014, the Company continues to expect Adjusted EBITDA to grow modestly over last year and comparable sales are now expected to be down low single digits compared to last year. 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

The Company now plans to open approximately 85 new stores during the fiscal year, with the majority being Crazy 8 stores.

Capital Expenditures

The Company anticipates capital expenditures of approximately $50 million during the fiscal year.

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 frequently used 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 loss attributable to The Gymboree Corporation.

Webcast and Conference Call Information

The Gymboree Corporation will host a conference call to discuss its second quarter fiscal 2013 results today at 1:00p.m. Pacific Time.  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, Thursday, September 19, 2013, at 855-859-2056, passcode 32575799.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of August 3, 2013, the Company operated a total of 1,302 retail stores:  632 Gymboree® stores (582 in the United States, 43 in Canada, 1 in Puerto Rico and 6 in Australia), 163 Gymboree Outlet stores (161 in the United States and  2 in Puerto Rico), 135 Janie and Jack® shops and 372 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 710 franchised and Company-operated Gymboree Play & Music® centers in the United States and 41 other countries.

Forward-Looking Statements

The foregoing financial information for the second fiscal quarter ended August 3, 2013 is unaudited and subject to quarter-end and year-end adjustments. This press release contains forward-looking statements, including those 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.  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)
















13 Weeks Ended


26 Weeks Ended





August 3, 2013


July 28, 2012


August 3, 2013


July 28, 2012
















(in thousands)

Net sales:










Retail


$          278,944


$       259,114


$          559,821


$       547,230


Gymboree Play & Music 


6,260


5,799


12,588


11,591


Retail Franchise


5,712


3,839


11,290


7,682



Total net sales


290,916


268,752


583,699


566,503


Cost of goods sold, including buying and occupancy expenses


(183,830)


(179,564)


(355,640)


(355,491)



Gross profit


107,086


89,188


228,059


211,012


Selling, general and administrative expenses


(102,023)


(95,595)


(206,152)


(187,334)



Operating income (loss)


5,063


(6,407)


21,907


23,678


Interest income


61


45


102


104


Interest expense


(20,467)


(21,193)


(40,869)


(42,851)


Loss on extinguishment of debt


-


-


-


(1,237)


Other income (expense), net


(111)


(24)


(102)


(90)



Loss before income taxes


(15,454)


(27,579)


(18,962)


(20,396)


Income tax benefit 


6,129


13,513


6,789


10,500














Net loss


(9,325)


(14,066)


(12,173)


(9,896)


Net (income) loss attributable to noncontrolling interest


(25)


798


287


1,624



Net loss attributable to The Gymboree Corporation


$             (9,350)


$       (13,268)


$           (11,886)


$         (8,272)

 

 

 

EXHIBIT B







THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)












August 3, 2013


February 2, 2013


July 28, 2012




(in thousands)

Current assets








Cash and cash equivalents


$            26,831


$               33,328


$         54,555


Accounts receivable


26,916


27,542


25,173


Merchandise inventories


214,981


197,935


220,209


Prepaid income taxes


4,037


2,903


5,295


Prepaid expenses


18,081


17,341


4,498


Deferred income taxes


36,378


31,383


41,328


    Total current assets


327,224


310,432


351,058









Property and equipment, net


206,460


205,325


202,635

Goodwill


898,983


898,966


899,097

Other intangible assets


577,782


580,641


589,943

Deferred financing costs


36,819


40,040


44,695

Other assets


8,293


7,809


5,006










    Total assets


$       2,055,561


$          2,043,213


$    2,092,434









Current liabilities








Accounts payable


$          100,794


$               90,133


$         84,964


Accrued liabilities


93,947


90,443


89,906


    Total current liabilities


194,741


180,576


174,870









Long-term liabilities








Long-term debt


1,138,595


1,138,455


1,192,312


Lease incentives and other deferred liabilities


45,529


40,104


34,045


Unrecognized tax benefits


8,894


7,848


7,407


Deferred income taxes


229,548


234,593


239,985


    Total liabilities


1,617,307


1,601,576


1,648,619









Stockholders' equity


438,254


441,637


443,815










Total liabilities and stockholders' equity


$       2,055,561


$          2,043,213


$    2,092,434

 

 

 

EXHIBIT C





THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)










26 Weeks Ended




August 3, 2013


July 28, 2012




(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:




Net loss


$           (12,173)


$         (9,896)

Adjustments to reconcile net loss to net cash




  provided by operating activities:





Loss on extinguishment of debt

-


1,237


Depreciation and amortization

23,684


28,923


Amortization of deferred financing costs and accretion of original issue discount

3,362


3,471


Interest rate cap contracts - adjustment to market

432


114


Deferred income taxes

(9,498)


(10,880)


Share-based compensation expense

2,974


2,917


Loss on disposal/impairment of assets

1,949


1,264


Other

-


1,430


Change in assets and liabilities:






Accounts receivable

645


(312)



Merchandise inventories

(16,803)


(10,084)



Prepaid income taxes

(1,166)


(1,557)



Prepaid expenses and other assets

(1,083)


933



Accounts payable

10,661


5,944



Accrued liabilities

(456)


(9,680)



Lease incentives and other deferred liabilities

8,062


6,612


Net cash provided by operating activities

10,590


10,436






CASH FLOWS FROM INVESTING ACTIVITIES:




Capital expenditures

(23,228)


(18,516)

Other

(162)


(231)


Net cash used in investing activities

(23,390)


(18,747)






CASH FLOWS FROM FINANCING ACTIVITIES:




Payments on Term Loan

-


(17,698)

Payments of deferred financing costs

-


(1,347)

Investment by affiliate of Parent

-


2,400

Dividend payment to Parent

(201)


-

Capital contribution received by noncontrolling interest

6,506


1,595


Net cash provided by (used in) financing activities

6,305


(15,050)

Effect of exchange rate fluctuations on cash and cash equivalents

(2)


6

Net decrease in cash and cash equivalents

(6,497)


(23,355)

CASH AND CASH EQUIVALENTS:




Beginning of period

33,328


77,910

End of period

$            26,831


$         54,555

 

 





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 loss attributable to The Gymboree Corporation to Adjusted EBITDA (in thousands):





















13 Weeks Ended


26 Weeks Ended



August 3, 2013


July 28, 2012


August 3, 2013


July 28, 2012










Net loss attributable to The Gymboree Corporation


$             (9,350)


$       (13,268)


$           (11,886)


$         (8,272)

Reconciling items (a):









   Interest expense 


20,467


21,193


40,869


42,851

   Interest income 


(47)


(36)


(73)


(84)

   Income tax benefit


(5,854)


(13,229)


(6,715)


(10,275)

   Depreciation and amortization (b)


10,662


14,578


23,282


28,740

   Non-cash share-based compensation expense 


1,477


1,510


2,974


2,917

   Loss on disposal/impairment on assets


1,571


1,202


1,871


1,264

   Loss on extinguishment of debt


-


-


-


1,237

   Other (c)


1,974


-


2,463


-

   Acquisition-related adjustments (d)


3,899


4,481


7,992


8,879

Adjusted EBITDA


$            24,799


$         16,431


$            60,777


$         67,257


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










(b) Includes the following (in thousands):









     Amortization of intangible assets (impacts SG&A)


$                 384


$           4,340


$              2,642


$           8,680

     Amortization of below and above market leases (impacts COGS)


(376)


(487)


(762)


(1,035)



$                     8


$           3,853


$              1,880


$           7,645


(c) Other is comprised of a non-recurring change in reserves, restructuring charges, and executive-related hiring expenses.










(d) Include the following (in thousands):









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


$              2,226


$           2,308


$              4,458


$           4,632

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


975


976


2,095


1,848

     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)


698


1,197


1,439


2,399



$              3,899


$           4,481


$              7,992


$           8,879



















OTHER NON-GAAP FINANCIAL MEASURES:




















13 Weeks Ended


26 Weeks Ended



August 3, 2013


July 28, 2012


August 3, 2013


July 28, 2012



















Gross profit as reported


$          107,086


$         89,188


$          228,059


$       211,012

Acquisition-related adjustments


2,548


3,018


5,135


5,996

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


$          109,634


$         92,206


$          233,194


$       217,008





















13 Weeks Ended


26 Weeks Ended



August 3, 2013


July 28, 2012


August 3, 2013


July 28, 2012



















SG&A as reported


$         (102,023)


$       (95,595)


$         (206,152)


$     (187,334)










Acquisition-related adjustments


1,359


5,316


4,737


10,528

Other adjustments


1,974


-


2,463


-



3,333


5,316


7,200


10,528

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


$           (98,690)


$       (90,279)


$         (198,952)


$     (176,806)










 

 

 

EXHIBIT E








THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Unaudited)














13 Weeks Ended August 3, 2013




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported




(in thousands)


Net sales

$                      287,145


$  4,998


$        (1,227)


$     290,916


Cost of goods sold, including buying and occupancy expenses

(182,693)


(1,341)


204


(183,830)



Gross profit

104,452


3,657


(1,023)


107,086


Selling, general and administrative expenses

(99,131)


(3,930)


1,038


(102,023)



Operating income (loss)

5,321


(273)


15


5,063


Other non operating (expense) income, net

(20,540)


23


-


(20,517)



Loss before income taxes

(15,219)


(250)


15


(15,454)


Income tax benefit

5,854


275


-


6,129



Net (loss) income

(9,365)


25


15


(9,325)


Net income attributable to noncontrolling interest

-


(25)


-


(25)



Net loss attributable to The Gymboree Corporation

$                        (9,365)


$        -


$              15


$        (9,350)
























26 Weeks Ended August 3, 2013




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported




(in thousands)


Net sales

$                      576,625


$  9,632


$        (2,558)


$     583,699


Cost of goods sold, including buying and occupancy expenses

(353,475)


(2,571)


406


(355,640)



Gross profit

223,150


7,061


(2,152)


228,059


Selling, general and administrative expenses

(200,762)


(7,576)


2,186


(206,152)



Operating income (loss)

22,388


(515)


34


21,907


Other non operating (expense) income, net

(41,023)


154


-


(40,869)



Loss before income taxes

(18,635)


(361)


34


(18,962)


Income tax benefit

6,715


74


-


6,789



Net loss

(11,920)


(287)


34


(12,173)


Net loss attributable to noncontrolling interest

-


287


-


287



Net loss attributable to The Gymboree Corporation

$                      (11,920)


$        -


$              34


$      (11,886)
























13 Weeks Ended July 28, 2012




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported




(in thousands)


Net sales

$                      267,491


$  3,056


$        (1,795)


$     268,752


Cost of goods sold, including buying and occupancy expenses

(178,513)


(1,202)


151


(179,564)



Gross profit

88,978


1,854


(1,644)


89,188


Selling, general and administrative expenses

(94,308)


(2,965)


1,678


(95,595)



Operating loss

(5,330)


(1,111)


34


(6,407)


Other non operating (expense) income, net

(21,201)


29


-


(21,172)



Loss before income taxes

(26,531)


(1,082)


34


(27,579)


Income tax benefit

13,229


284


-


13,513



Net loss

(13,302)


(798)


34


(14,066)


Net loss attributable to noncontrolling interest

-


798


-


798



Net loss attributable to The Gymboree Corporation

$                      (13,302)


$        -


$              34


$      (13,268)
























26 Weeks Ended July 28, 2012




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported




(in thousands)


Net sales

$                      565,422


$  5,199


$        (4,118)


$     566,503


Cost of goods sold, including buying and occupancy expenses

(354,562)


(1,444)


515


(355,491)



Gross profit

210,860


3,755


(3,603)


211,012


Selling, general and administrative expenses

(185,202)


(5,620)


3,488


(187,334)



Operating income (loss)

25,658


(1,865)


(115)


23,678


Other non operating (expense) income, net

(44,090)


16


-


(44,074)



Loss before income taxes

(18,432)


(1,849)


(115)


(20,396)


Income tax benefit

10,275


225


-


10,500



Net loss

(8,157)


(1,624)


(115)


(9,896)


Net loss attributable to noncontrolling interest

-


1,624


-


1,624



Net loss attributable to The Gymboree Corporation

$                        (8,157)


$        -


$           (115)


$        (8,272)

 

 

 


EXHIBIT E (continued)








THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(Unaudited)




August 3, 2013




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported




(in thousands)

Current assets

$                      316,457


$  12,708


$        (1,941)


$     327,224

Non-current assets

1,725,168


3,169


-


1,728,337

Total assets

$                   2,041,625


$  15,877


$        (1,941)


$  2,055,561











Current liabilities

$                      189,637


$    6,850


$        (1,746)


$     194,741

Non-current liabilities

1,422,337


229


-


1,422,566

Total liabilities

$                   1,611,974


$    7,079


$        (1,746)


$  1,617,307











Total stockholders' equity

429,651


-


(195)


429,456

Noncontrolling interest

-


8,798


-


8,798

Total liabilities and stockholders' equity

$                   2,041,625


$  15,877


$        (1,941)


$  2,055,561














February 2, 2013




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported




(in thousands)

Current assets

$                      303,344


$  11,553


$        (4,465)


$     310,432

Non-current assets

1,730,865


1,916


-


1,732,781

Total assets

$                   2,034,209


$  13,469


$        (4,465)


$  2,043,213











Current liabilities

$                      175,555


$    9,244


$        (4,223)


$     180,576

Non-current liabilities

1,420,870


130


-


1,421,000

Total liabilities

$                   1,596,425


$    9,374


$        (4,223)


$  1,601,576











Total stockholders' equity

437,784


-


(242)


437,542

Noncontrolling interest

-


4,095


-


4,095

Total liabilities and stockholders' equity

$                   2,034,209


$  13,469


$        (4,465)


$  2,043,213














July 28, 2012




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported




(in thousands)

Current assets

$                      342,064


$  11,594


$        (2,600)


$     351,058

Non-current assets

1,740,298


1,078


-


1,741,376

Total assets

$                   2,082,362


$  12,672


$        (2,600)


$  2,092,434











Current liabilities

$                      169,413


$    7,950


$        (2,493)


$     174,870

Non-current liabilities

1,473,671


78


-


1,473,749

Total liabilities

$                   1,643,084


$    8,028


$        (2,493)


$  1,648,619











Total stockholders' equity

439,278


-


(107)


439,171

Noncontrolling interest

-


4,644


-


4,644

Total liabilities and stockholders' equity

$                   2,082,362


$  12,672


$        (2,600)


$  2,092,434


*  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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http://www.gymboree.com

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