The Gymboree Corporation Reports Third Fiscal Quarter 2012 Results

News provided by

The Gymboree Corporation

Dec 05, 2012, 02:55 ET

SAN FRANCISCO, Dec. 5, 2012 /PRNewswire/ -- The Gymboree Corporation (the "Company") today reported consolidated financial results for the third fiscal quarter ended October 27, 2012.

For the third quarter of the fiscal year ending February 2, 2013 ("fiscal 2012"), net sales were $311.5 million, an increase of 2.8% compared to $303.1 million in net sales for the third quarter of the fiscal year ended January 28, 2012 ("fiscal 2011").  Comparable store sales for the third quarter of fiscal 2012 decreased 4% compared to the third quarter of fiscal 2011.

Gross profit for the third quarter of fiscal 2012 was $125.6 million, or 40.3% of net sales, compared to $130.8 million, or 43.2% of net sales, for the third quarter of fiscal 2011. Excluding purchase accounting adjustments of $3.1 million and $3.4 million for the third quarter of fiscal 2012 and the third quarter of fiscal 2011, respectively, relating to the November 2010 acquisition of the Company by investment funds sponsored by Bain Capital Partners, LLC (the "Acquisition"), adjusted gross profit was $128.7 million, or 41.3% of net sales, and $134.2 million, or 44.3% of net sales, for the third quarter of fiscal 2012 and the third quarter of fiscal 2011, respectively (see Exhibit D for relevant reconciliation information).

SG&A expense for the third quarter of fiscal 2012 was $99.0 million, or 31.8% of net sales, compared to $99.4 million, or 32.8% of net sales, in the third quarter of the prior year.  Results for the third quarter of fiscal 2012 and fiscal 2011 include $5.3 million and $5.4 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments.  Also included in the third quarter of fiscal 2011 was a $7.2 million charge resulting from a termination fee incurred to terminate a master franchisee in China. Excluding these charges, adjusted SG&A expense for the third quarter of fiscal 2012 and fiscal 2011 was $93.8 million, or 30.1% of net sales, and $86.8 million, or 28.6% of net sales, respectively, which represents an increase of 150 basis points over fiscal 2011 (see Exhibit D for relevant reconciliation information).      

Operating income for the third quarter of fiscal 2012 was $26.6 million compared to $31.4 million for the same period last year.  The decrease in operating income primarily resulted from lower gross profit margins and, to a lesser extent, from SG&A deleveraging due to the comparable store sales decrease of 4%.

Net income attributable to the Company before interest (income) expense, income tax benefit and depreciation and amortization, adjusted for other items ("Adjusted EBITDA"), for the third quarter of fiscal 2012 decreased 22.6% to $46.9 million, compared to $60.6 million for the third quarter of the prior year.  Adjusted EBITDA is not a performance measure under U.S. generally accepted accounting principles ("GAAP").  See "Non-GAAP Financial Measures" below.  A reconciliation of net income/(loss) attributable to the Company to Adjusted EBITDA presented herein is included in Exhibit D of this press release.  

Balance Sheet Highlights

There were no borrowings outstanding under the Company's $225 million asset-backed loan as of the end of the third fiscal quarter and approximately $189.2 million of availability.     

Cash at the end of the third quarter of fiscal 2012 decreased to $42.6 million from $45.7 million at the end of the third quarter of fiscal 2011.  

Capital expenditures for the third quarter of fiscal 2012 were $13.4 million, with the majority of the cash used to fund the opening of 38 new stores during the quarter.

Inventory balances at the end of the third quarter of fiscal 2012 were $255.7 million compared to $252.7 million at the end of the third quarter of fiscal 2011. Inventory cost on a per square foot basis was down 8% and inventory units on a per square foot basis were also down in the low single-digits.

In November 2012, the Company made a voluntary prepayment of $25 million on the outstanding principal of its senior secured term loan facility.

Fiscal 2012 Business Outlook

Sales Expectations

The Company anticipates comparable store sales to be flat to slightly down for the full year fiscal 2012.

Adjusted EBITDA

The Company expects Adjusted EBITDA for the fourth quarter to be comparable to slightly higher than the prior year. The Company continues to anticipate 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 approximately 124 new stores, including approximately 98 Crazy 8 stores.

Capital Expenditures

During the fourth quarter of fiscal 2012, the Company anticipates spending approximately $15 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

The live broadcast of the discussion of third quarter fiscal 2012 financial results will be available to interested parties at 1:00 p.m. PT (4:00 p.m. ET) on Wednesday, December 5, 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, December 12, 2012, at 855-859-2056, passcode 73454037.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of October 27, 2012, the Company operated a total of 1,228 retail stores, as follows: 634 Gymboree® stores (consisting of 586 in the United States, 41 in Canada, 1 in Puerto Rico and 6 in Australia), 156 Gymboree Outlet stores, 130 Janie and Jack® shops and 308 Crazy 8® stores in the United States. The Company also operates three online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com, and offers directed parent-child developmental play programs at 714 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 third fiscal quarter ended October 27, 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 Adjusted EBITDA, cash flows, capital expenditures 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  "Item 1A, Risk Factors," of the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2012,  filed with the Securities and Exchange Commission on April 26, 2012. 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

13 Weeks Ended

39 Weeks Ended

39 Weeks Ended

October 27, 2012

October 29, 2011

October 27, 2012

October 29, 2011

(in thousands)

(in thousands)

Net sales:







Retail

$              299,965

$              296,445

$              847,195

$              815,735

Gymboree Play & Music 

6,390

3,195

17,981

9,469

Retail Franchise

5,163

3,508

12,845

7,237

Total net sales

311,518

303,148

878,021

832,441

Cost of goods sold, including buying and occupancy expenses

(185,915)

(172,303)

(541,406)

(498,704)










Gross profit

125,603

130,845

336,615

333,737

Selling, general and administrative expenses

(99,016)

(99,448)

(286,350)

(272,896)










Operating income

26,587

31,397

50,265

60,841

Interest income

42

28

146

115

Interest expense

(21,312)

(22,051)

(64,163)

(67,981)

Loss on extinguishment of debt

-

-

(1,237)

(19,563)

Other income (expense), net

86

8

(4)

(44)










Income (loss) before income taxes

5,403

9,382

(14,993)

(26,632)

Income tax (expense) benefit 

(493)

(12,430)

10,007

6,210










Net income (loss)

4,910

(3,048)

(4,986)

(20,422)

Net loss attributable to noncontrolling interest

1,211

-

2,835

-

Net income (loss) attributable to The Gymboree Corporation

$                  6,121

$                 (3,048)

$                 (2,151)

$               (20,422)

EXHIBIT B





THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)









October 27,

January 28,

October 29,

2012

2012

2011

(in thousands)

Current Assets






Cash and cash equivalents

$      42,586

$      77,910

$      45,721

Accounts receivable

27,232

27,277

21,948

Merchandise inventories

255,722

210,212

252,685

Prepaid income taxes

5,165

3,736

17,049

Prepaid expenses and deferred income taxes

45,199

41,647

37,704

   Total current assets

375,904

360,782

375,107






Property and Equipment, net

205,486

202,152

207,312

Goodwill

899,097

899,097

927,397

Other Intangible Assets

585,277

599,195

604,563

Deferred Financing Costs

43,018

47,915

49,549

Other Assets

5,816

4,646

7,605







Total Assets

$ 2,114,598

$ 2,113,787

$ 2,171,533






Current Liabilities






Accounts payable

$      88,824

$      79,027

$      68,674

Accrued liabilities

101,573

94,178

90,835

Line of credit

-

-

40,000

Current portion of long-term debt

-

17,698

8,200

   Total current liabilities

190,397

190,903

207,709






Long-Term Liabilities






Long-term debt

1,192,383

1,192,171

1,203,650

Lease incentives and other deferred liabilities

46,640

36,579

36,411

Deferred income taxes

235,935

245,495

243,287

Total Liabilities

1,665,355

1,665,148

1,691,057






Stockholders' Equity

449,243

448,639

480,476







Total Liabilities and Stockholders' Equity

$ 2,114,598

$ 2,113,787

$ 2,171,533

EXHIBIT C

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)





39 Weeks Ended

39 Weeks Ended

October 27, 2012

October 29, 2011

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:


Net loss

$                (4,986)

$              (20,422)

Adjustments to reconcile net loss to net cash


  provided by operating activities:



Write-off of deferred financing costs and original issue discount

1,237

15,860

Depreciation and amortization

43,776

42,703

Amortization of deferred financing costs and accretion of original issue discount

5,216

5,126

Interest rate cap contracts - adjustment to market

182

15

Loss on disposal/impairment of assets

2,090

3,501

Benefit for deferred income taxes

(12,986)

(6,269)

Share-based compensation expense

3,220

4,330

Other non-cash expense

1,685

-

Change in assets and liabilities:


        Accounts receivable

(2,317)

(8,278)

        Merchandise inventories

(45,850)

(68,106)

        Prepaid expenses and other assets

(1,021)

(1,097)

        Prepaid income taxes

(769)

(2,314)

        Accounts payable

9,785

14,178

        Accrued liabilities

70

9,066

        Lease incentives and other deferred liabilities

12,547

12,778

Net cash provided by operating activities

11,879

1,071



CASH FLOWS FROM INVESTING ACTIVITIES:


Capital expenditures

(31,902)

(28,080)

Acquisition of business, net of cash acquired

-

(1,352)

Other

(584)

(296)

Net cash used in investing activities

(32,486)

(29,728)



CASH FLOWS FROM FINANCING ACTIVITIES:


Proceeds from Term Loan

-

820,000

Payments on Term Loan

(17,698)

(826,150)

Proceeds from ABL facility

-

60,656

Payments on ABL facility

-

(20,656)

Deferred financing costs

(1,347)

(6,665)

Capital contribution

2,400

14,865

Capital contribution to noncontrolling interest

1,595

-

Net cash (used in) provided by financing activities

(15,050)

42,050



Effect of exchange rate fluctuations on cash

333

204



Net (decrease) increase in cash and cash equivalents

(35,324)

13,597




CASH AND CASH EQUIVALENTS:


Beginning of period

77,910

32,124

End of period

$               42,586

$               45,721

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 taxes, 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 of the Company by investment funds sponsored by Bain Capital Partners, LLC (the "Acquisition").

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):









13 Weeks Ended

13 Weeks Ended

39 Weeks Ended

39 Weeks Ended

October 27, 2012

October 29, 2011

October 27, 2012

October 29, 2011

Net income (loss) attributable to The Gymboree Corporation

$                 6,121

$                (3,048)

$                (2,151)

$              (20,422)

Reconciling items (a):







Interest expense 

21,312

22,051

64,163

67,981

Interest income 

(32)

(28)

(116)

(115)

Income tax (benefit) expense

(776)

12,430

(11,051)

(6,210)

Depreciation and amortization (b)

14,727

14,086

43,467

42,703

Non-cash share-based compensation expense 

303

1,458

3,220

4,330

Loss on disposal/impairment on assets

827

1,241

2,090

3,501

Loss on extinguishment of debt

-

-

1,237

19,563

Gymboree Play & Music franchise transition

-

7,200

-

7,200

Acquisition-related adjustments (c)

4,409

5,174

13,288

26,865

Adjusted EBITDA

$               46,891

$               60,564

$             114,147

$             145,396







(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)

$                 4,340

$                 4,144

$               13,020

$               12,433

Amortization of below and above market leases (impacts COGS)

(406)

(508)

(1,442)

(1,528)

$                 3,934

$                 3,636

$               11,578

$               10,905







(c) Include the following (in thousands):



Adjustment to cost of goods sold from an increase in the net book value of inventory as a result of purchase accounting (impacts COGS)

$                       -

$                       -

$                       -

$               10,731

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

2,293

2,437

6,925

7,274

Legal, accounting and sponsor fees, as well as other costs incurred as a result of the Acquisition (impacts SG&A)

919

1,276

2,767

4,436

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)

1,197

1,461

3,596

4,424

$                 4,409

$                 5,174

$               13,288

$               26,865







OTHER NON-GAAP FINANCIAL MEASURES:












as a % of Total Net Sales

13 Weeks Ended

13 Weeks Ended

13 Weeks Ended

13 Weeks Ended

October 27, 2012

October 29, 2011

October 27, 2012

October 29, 2011

(in thousands)



Gross profit as reported

$             125,603

$             130,845

40.3%

43.2%

Acquisition-related adjustments

3,084

3,390

1.0%

1.1%

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

$             128,687

$             134,235

41.3%

44.3%













as a % of Total Net Sales

39 Weeks Ended

39 Weeks Ended

39 Weeks Ended

39 Weeks Ended

October 27, 2012

October 29, 2011

October 27, 2012

October 29, 2011

(in thousands)



Gross profit as reported

$             336,615

$             333,737

38.3%

40.1%

Acquisition-related adjustments

9,079

20,901

1.0%

2.5%

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

$             345,694

$             354,638

39.4%

42.6%






















as a % of Total Net Sales

13 Weeks Ended

13 Weeks Ended

13 Weeks Ended

13 Weeks Ended

October 27, 2012

October 29, 2011

October 27, 2012

October 29, 2011

(in thousands)



SG&A as reported

$              (99,016)

$              (99,448)

-31.8%

-32.8%

Acquisition-related adjustments

5,259

5,420

1.7%

1.8%

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

$              (93,757)

$              (94,028)

-30.1%

-31.0%






















as a % of Total Net Sales

39 Weeks Ended

39 Weeks Ended

39 Weeks Ended

39 Weeks Ended

October 27, 2012

October 29, 2011

October 27, 2012

October 29, 2011

(in thousands)



SG&A as reported

$            (286,350)

$            (272,896)

-32.6%

-32.8%

Acquisition-related adjustments

15,787

16,869

1.8%

2.0%

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

$            (270,563)

$            (256,027)

-30.8%

-30.8%







EXHIBIT E






THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Unaudited)











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

Interest income

32

10

-

42

Interest expense

(21,312)

-

-

(21,312)

Loss on extinguishment of debt

-

-

-

-

Other income (expense), net

15

71

-

86










Income (loss) 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

Interest income

116

30

-

146

Interest expense

(64,163)

-

-

(64,163)

Loss on extinguishment of debt

(1,237)

-

-

(1,237)

Other (expense) income, net

(72)

68

-

(4)










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)


















THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(Unaudited)

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











January 28, 2012

Balance Before 








Consolidation of VIEs

VIEs*

Eliminations

As Reported

(in thousands)

Current assets

$                      355,073

$   6,692

$          (983)

$     360,782

Non-current assets

1,752,303

702

-

1,753,005

Total assets

$                   2,107,376

$   7,394

$          (983)

$  2,113,787








Current liabilities

$                      187,812

$   4,074

$          (983)

$     190,903

Non-current liabilities

1,474,189

56

-

1,474,245

Total liabilities

$                   1,662,001

$   4,130

$          (983)

$  1,665,148








Total stockholders' equity

445,375

-

-

445,375

Noncontrolling interest

-

3,264

-

3,264

Total liabilities and stockholders' equity

$                   2,107,376

$   7,394

$          (983)

$  2,113,787








*  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