The Gymboree Corporation Reports Third Quarter 2013 Results

SAN FRANCISCO, Dec. 12, 2013 /PRNewswire/ -- The Gymboree Corporation (the "Company") today reported consolidated financial results for its quarter ended November 2, 2013.

Net sales for the quarter were $309.8 million, a decrease of 0.5% compared to $311.5 million in net sales for the same quarter last year. Comparable sales for the quarter decreased 4% versus the same quarter last year.

Gross profit for the quarter was $123.5 million, or 39.8% of net sales, compared to $125.6 million, or 40.3% of net sales, for the same quarter last year. Excluding purchase accounting adjustments of $2.6 million and $3.1 million for the third 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 $126.0 million, or 40.7% of net sales, and $128.7 million, or 41.3% of net sales, for the third quarter of this year and last year, respectively (see Exhibit D).

SG&A expense for the quarter was $111.2 million, or 35.9% of net sales, compared to $99.0 million, or 31.8% of net sales, in the same quarter last year.  Results for the third quarter of this year and last year include $2.1 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 third quarter of this year and last year was $109.1 million, or 35.2% of net sales, and $93.8 million, or 30.1% of net sales, respectively (see Exhibit D).      

Net loss for the quarter was $24.4 million compared to net income of $4.9 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"), decreased 27.7% to $33.9 million for the quarter compared to $46.9 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 $24.0 million in borrowings outstanding under the ABL as of the end of the quarter and approximately $165.9 million of undrawn availability.

Cash at the end of the quarter was $19.1 million compared to $42.6 million at the end of the same quarter last year, reflecting the pay down of approximately $25 million of the term loan and the repurchase of $54.0 million in notes since the end of the third quarter last year.

Capital expenditures for the fiscal year to date were $35.2 million, with the majority of the cash used to fund the opening of 70 new stores during the year.

Inventory balances at the end of the quarter were $222.4 million compared to $255.7 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 20% this quarter, while inventory units on a per square foot basis were down mid teens in the quarter.

Fiscal 2013 Business Outlook

Full Year

For the fiscal year ending February 1, 2014, the Company now expects Adjusted EBITDA to be in the range of $125 million to $130 million. Comparable sales are now expected to be down mid single digits compared to last year. Based on this guidance, the Company still expects to generate sufficient cash flow to service its debt and invest in the business to drive long term growth.

New Stores

The Company 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 third quarter fiscal 2013 results today at 1:00 p.m. Pacific Time/4:00 p.m. Eastern 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, December 19, 2013, at 855-859-2056, passcode 10055574.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of November 2, 2013, the Company operated a total of 1,319 retail stores:  633 Gymboree® stores (583 in the United States, 43 in Canada, 1 in Puerto Rico and 6 in Australia), 164 Gymboree Outlet stores (162 in the United States and 2 in Puerto Rico), 139 Janie and Jack® shops and 383 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 708 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 third fiscal quarter ended November 2, 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 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, holiday spending levels and patterns, 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


39 Weeks Ended






November 2, 2013


October 27, 2012


November 2, 2013


October 27, 2012


















(in thousands)

Net sales:











Retail



$                 297,352


$                 299,965


$                 857,173


$                 847,195


Gymboree Play & Music 



6,821


6,390


19,409


17,981


Retail Franchise



5,665


5,163


16,955


12,845



Total net sales



309,838


311,518


893,537


878,021


Cost of goods sold, including buying and occupancy expenses



(186,370)


(185,915)


(542,010)


(541,406)



Gross profit



123,468


125,603


351,527


336,615


Selling, general and administrative expenses



(111,199)


(99,016)


(317,351)


(286,350)



Operating income



12,269


26,587


34,176


50,265


Interest income



41


42


143


146


Interest expense



(20,483)


(21,312)


(61,352)


(64,163)


Loss on extinguishment of debt



(834)


-


(834)


(1,237)


Other income (expense), net



853


86


751


(4)



(Loss) income before income taxes



(8,154)


5,403


(27,116)


(14,993)


Income tax (expense) benefit 



(16,244)


(493)


(9,455)


10,007



Net (loss) income



(24,398)


4,910


(36,571)


(4,986)


Net loss attributable to noncontrolling interest



413


1,211


700


2,835



Net (loss) income attributable to The Gymboree Corporation



$                  (23,985)


$                     6,121


$                  (35,871)


$                    (2,151)





































EXHIBIT B









THE GYMBOREE CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)















November 2, 2013


February 2, 2013


October 27, 2012






(in thousands)


Current assets










Cash and cash equivalents


$                  19,079


$               33,328


$                42,586




Accounts receivable


32,485


27,542


27,232




Merchandise inventories


222,414


197,935


255,722




Prepaid income taxes


1,815


2,903


5,165




Prepaid expenses


19,986


17,341


6,539




Deferred income taxes


11,721


31,383


38,660




    Total current assets


307,500


310,432


375,904













Property and equipment, net


209,267


205,325


205,486



Goodwill


898,983


898,966


899,097



Other intangible assets


576,744


580,641


585,277



Deferred financing costs


34,067


40,040


43,018



Other assets


12,604


7,809


5,816




    Total assets


$             2,039,165


$          2,043,213


$           2,114,598













Current liabilities










Accounts payable


$                  87,323


$               90,133


$                88,824




Accrued liabilities


113,472


90,443


101,573




Line of credit


24,000


-


-




Current obligation under capital lease


492


-


-




    Total current liabilities


225,287


180,576


190,397













Long-term liabilities










Long-term debt


1,113,668


1,138,455


1,192,383




Long-term obligation under capital lease


3,532


-


-




Lease incentives and other deferred liabilities


49,772


40,104


38,955




Unrecognized tax benefits


12,416


7,848


7,685




Deferred income taxes


217,908


234,593


235,935




    Total liabilities


1,622,583


1,601,576


1,665,355













Stockholders' equity


416,582


441,637


449,243




Total liabilities and stockholders' equity


$             2,039,165


$          2,043,213


$           2,114,598













EXHIBIT C







THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)








39 Weeks Ended




November 2, 2013


October 27, 2012




(in thousands)



CASH FLOWS FROM OPERATING ACTIVITIES:






Net loss

$                 (36,571)


$                (4,986)



Adjustments to reconcile net loss to net cash






  provided by operating activities:







Loss on extinguishment of debt

834


1,237




Depreciation and amortization

34,825


43,776




Amortization of deferred financing costs and accretion of original issue discount

5,112


5,216




Interest rate cap contracts - adjustment to market

742


182




Loss on disposal/impairment of assets

5,662


2,090




Deferred income taxes

2,969


(12,986)




Share-based compensation expense

4,417


3,220




Other

40


1,685




Change in assets and liabilities:







        Accounts receivable

4,382


(2,317)




        Merchandise inventories

(24,264)


(45,850)




        Prepaid income taxes

1,223


(769)




        Prepaid expenses and other assets

(5,144)


(1,021)




        Accounts payable

(2,807)


9,785




        Accrued liabilities

17,344


70




        Lease incentives and other deferred liabilities

14,522


12,547




Net cash provided by operating activities

23,286


11,879










CASH FLOWS FROM INVESTING ACTIVITIES:






Capital expenditures

(35,213)


(31,902)



Other

(235)


(584)




Net cash used in investing activities

(35,448)


(32,486)










CASH FLOWS FROM FINANCING ACTIVITIES:






Payments on Term Loan

-


(17,698)



Proceeds from ABL facility

79,000


-



Payments on ABL facility

(55,000)


-



Repurchase of notes

(24,760)


-



Payments of deferred financing costs

-


(1,347)



Payments on capital lease

(78)


-



Investment by affiliate of Parent

-


2,400



Dividend payment to Parent

(7,475)


-



Capital contribution received by noncontrolling interest

6,506


1,595




Net cash used in financing activities

(1,807)


(15,050)



Effect of exchange rate fluctuations on cash and cash equivalents

(280)


333



Net decrease in cash and cash equivalents

(14,249)


(35,324)



CASH AND CASH EQUIVALENTS:






Beginning of period

33,328


77,910



End of period

$                  19,079


$                42,586










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


39 Weeks Ended



November 2, 2013


October 27, 2012


November 2, 2013


October 27, 2012











Net (loss) income attributable to The Gymboree Corporation

$                 (23,985)


$                  6,121


$                 (35,871)


$                 (2,151)


Reconciling items (a):









     Interest expense 

20,483


21,312


61,352


64,163


     Interest income 

(41)


(32)


(114)


(116)


     Income tax expense (benefit)

15,917


(776)


9,202


(11,051)


     Depreciation and amortization (b)

10,874


14,727


34,156


43,467


     Non-cash share-based compensation expense 

1,443


303


4,417


3,220


     Loss on disposal/impairment on assets

3,712


827


5,583


2,090


     Loss on extinguishment of debt

834


-


834


1,237


     Other (c)

775


-


3,238


-


     Acquisition-related adjustments (d)

3,890


4,409


11,882


13,288


Adjusted EBITDA

$                  33,902


$                46,891


$                  94,679


$              114,147











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











(b) Includes the following (in thousands):









Amortization of intangible assets (impacts SG&A)

$                       383


$                  4,340


$                    3,025


$                13,020


Amortization of below and above market leases (impacts COGS)

(348)


(406)


(1,110)


(1,442)



$                         35


$                  3,934


$                    1,915


$                11,578











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











(d) Includes the following (in thousands):









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

$                    2,217


$                  2,293


$                    6,675


$                  6,925











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

974


919


3,069


2,767











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)

699


1,197


2,138


3,596



$                    3,890


$                  4,409


$                  11,882


$                13,288




















OTHER NON-GAAP FINANCIAL MEASURES:



















13 Weeks Ended


39 Weeks Ended



November 2, 2013


October 27, 2012


November 2, 2013


October 27, 2012




















Gross profit as reported

$                123,468


$              125,603


$                351,527


$              336,615


Acquisition-related adjustments

2,568


3,084


7,703


9,079


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

$                126,036


$              128,687


$                359,230


$              345,694





















13 Weeks Ended


39 Weeks Ended



November 2, 2013


October 27, 2012


November 2, 2013


October 27, 2012




















SG&A as reported

$               (111,199)


$               (99,016)


$               (317,351)


$             (286,350)











Acquisition-related adjustments

1,357


5,259


6,094


15,787


Other adjustments

775


-


3,238


-



2,132


5,259


9,332


15,787


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

$               (109,067)


$               (93,757)


$               (308,019)


$             (270,563)











EXHIBIT E









THE GYMBOREE CORPORATION


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


(Unaudited)
















13 Weeks Ended November 2, 2013





Balance Before 











Consolidation of VIEs


VIEs*


Eliminations


As Reported





(in thousands)



Net sales

$                     305,639


$                          5,395


$                    (1,196)


$               309,838



Cost of goods sold, including buying and occupancy expenses

(185,116)


(1,297)


43


(186,370)




Gross profit

120,523


4,098


(1,153)


123,468



Selling, general and administrative expenses

(107,471)


(4,901)


1,173


(111,199)




Operating income (loss)

13,052


(803)


20


12,269



Other non operating (expense) income, net

(21,140)


717


-


(20,423)




Loss before income taxes

(8,088)


(86)


20


(8,154)



Income tax expense

(15,917)


(327)


-


(16,244)




Net loss

(24,005)


(413)


20


(24,398)



Net loss attributable to noncontrolling interest

-


413


-


413




Net loss attributable to The Gymboree Corporation

$                      (24,005)


$                                -


$                          20


$               (23,985)



























39 Weeks Ended Novermber 2, 2013





Balance Before 











Consolidation of VIEs


VIEs*


Eliminations


As Reported





(in thousands)



Net sales

$                     882,264


$                        15,027


$                    (3,754)


$               893,537



Cost of goods sold, including buying and occupancy expenses

(538,591)


(3,868)


449


(542,010)




Gross profit

343,673


11,159


(3,305)


351,527



Selling, general and administrative expenses

(308,233)


(12,477)


3,359


(317,351)




Operating income (loss)

35,440


(1,318)


54


34,176



Other non operating (expense) income, net

(62,163)


871


-


(61,292)




Loss before income taxes

(26,723)


(447)


54


(27,116)



Income tax expense

(9,202)


(253)


-


(9,455)




Net loss

(35,925)


(700)


54


(36,571)



Net loss attributable to noncontrolling interest

-


700


-


700




Net loss attributable to The Gymboree Corporation

$                      (35,925)


$                                -


$                          54


$               (35,871)



























13 Weeks Ended October 27, 2012





Balance Before 











Consolidation of VIEs


VIEs*


Eliminations


As Reported





(in thousands)



Net sales

$                     311,008


$                          3,123


$                    (2,613)


$               311,518



Cost of goods sold, including buying and occupancy expenses

(185,529)


(818)


432


(185,915)




Gross profit

125,479


2,305


(2,181)


125,603



Selling, general and administrative expenses

(98,785)


(2,328)


2,097


(99,016)




Operating income (loss)

26,694


(23)


(84)


26,587



Other non operating (expense) income, net

(21,265)


81


-


(21,184)




Income before income taxes

5,429


58


(84)


5,403



Income tax benefit (expense)

776


(1,269)


-


(493)




Net income (loss)

6,205


(1,211)


(84)


4,910



Net loss attributable to noncontrolling interest

-


1,211


-


1,211




Net income attributable to The Gymboree Corporation

$                         6,205


$                                -


$                         (84)


$                   6,121



























39 Weeks Ended October 27, 2012





Balance Before 











Consolidation of VIEs


VIEs*


Eliminations


As Reported





(in thousands)



Net sales

$                     876,430


$                          8,322


$                    (6,731)


$               878,021



Cost of goods sold, including buying and occupancy expenses

(540,091)


(2,262)


947


(541,406)




Gross profit

336,339


6,060


(5,784)


336,615



Selling, general and administrative expenses

(283,987)


(7,949)


5,586


(286,350)




Operating income (loss)

52,352


(1,889)


(198)


50,265



Other non operating (expense) income, net

(65,356)


98


-


(65,258)




Loss before income taxes

(13,004)


(1,791)


(198)


(14,993)



Income tax benefit (expense)

11,051


(1,044)


-


10,007




Net loss

(1,953)


(2,835)


(198)


(4,986)



Net loss attributable to noncontrolling interest

-


2,835


-


2,835




Net loss attributable to The Gymboree Corporation

$                        (1,953)


$                                -


$                       (198)


$                 (2,151)


EXHIBIT E (continued)









THE GYMBOREE CORPORATION


CONDENSED CONSOLIDATING BALANCE SHEETS


(Unaudited)





November 2, 2013





Balance Before 











Consolidation of VIEs


VIEs*


Eliminations


As Reported





(in thousands)


Current assets

$                     287,541


$                        21,429


$                    (1,470)


$               307,500


Non-current assets

1,727,065


4,599


1


1,731,665


Total assets

$                  2,014,606


$                        26,028


$                    (1,469)


$            2,039,165













Current liabilities

$                     218,665


$                          7,916


$                    (1,294)


$               225,287


Non-current liabilities

1,397,034


262


-


1,397,296


Total liabilities

$                  1,615,699


$                          8,178


$                    (1,294)


$            1,622,583


Total stockholders' equity

398,907


-


(175)


398,732


Noncontrolling interest

-


17,850


-


17,850


Total liabilities and stockholders' equity

$                  2,014,606


$                        26,028


$                    (1,469)


$            2,039,165
















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
















October 27, 2012





Balance Before 











Consolidation of VIEs


VIEs*


Eliminations


As Reported





(in thousands)


Current assets

$                     366,563


$                        13,270


$                    (3,929)


$               375,904


Non-current assets

1,737,460


1,234


-


1,738,694


Total assets

$                  2,104,023


$                        14,504


$                    (3,929)


$            2,114,598













Current liabilities

$                     183,479


$                        10,658


$                    (3,740)


$               190,397


Non-current liabilities

1,474,878


80


-


1,474,958


Total liabilities

$                  1,658,357


$                        10,738


$                    (3,740)


$            1,665,355


Total stockholders' equity

445,666


-


(189)


445,477


Noncontrolling interest

-


3,766


-


3,766


Total liabilities and stockholders' equity

$                  2,104,023


$                        14,504


$                    (3,929)


$            2,114,598













*  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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