This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Gymboree Corporation (GYMB) on March 12, 2008.
Chairman and CEO: Matthew K. McCauley
President: Kip Garcia
COO and CFO: Blair W. Lambert
Vice President of Finance: Jeffrey P. Harris
Key Investors Issues
- The earnings per share rose to 93 cents versus 75 cents in the prior year.
- Quarterly income rose from $241 million in prior year to $278.4 million.
- For fiscal 2007, net sales were $920.8 million, up 16% versus the prior year, on same store sales growth of 7%.
- The Q1 EPS is projected in the range of 73 cents to 75 cents, on low single digit same store sales growth.
Fourth Quarter Fiscal 2007 Financial Highlights
Net sales for the quarter were $278.4 million versus $241 million for the prior year, an increase of 16%.
- Net sales from retail operations for the 13 weeks ended February 2, 2008, were $275.3 million, a 15% increase over the $238.5 million in net sales from retail operations for the 14-week fiscal quarter last year.
- Other revenue for the quarter attributable to our Play & Music operations was $3.2 million compared to $2.5 million in the prior year.
- Comparable store sales for the fourth quarter increased 10%.
- During the quarter, the firm saw an increase in the total number of transactions and a decrease in the average transaction value. Units per transaction were flat to the prior year.
As anticipated, gross profit for the fourth fiscal quarter of 2007 decreased 170 basis points to 48.2% compared to 49.9% for the same quarter the prior year.
The reduction was due to lower average unit retail prices, the absence of an additional selling week in the current year, and lower margins from Crazy 8 offset by lower product costs and buying and occupancy expense leverage. In addition, in the prior year, favorable year-end inventory shrink results provided $2.1 million or 4 cents per share of incremental gross margin. Based on the success of the past few years, the firm has been accruing for shrinkage at a lower rate in the current year. Nonetheless, favorable year-end inventory shrink results provided approximately $1 million or 2 cents per share of incremental gross margin this year.
SG&A, as a percentage of sales, decreased roughly 170 basis points to 32.4% of sales compared to 34.1% in the prior year.
SG&A includes a non-cash catch-up charge related to performance based stock grants. During the first three quarters of fiscal 2007, the company expensed the 2007 performance based stock grants on a straight-line basis in a manner consistent with how the grants will vest to employees. The company has determined that under generally accepted accounting principals, these grants are to be amortized on an accelerated basis. Since the charge is not material to any individual quarter, the firm recorded the additional expense in the fourth quarter. The net impact to the fourth quarter is to increase SG&A by approximately $3 million.
Net of this catch-up charge for the first three quarters, SG&A for the fourth quarter fell by 280 basis points to 31.3%. These SG&A expense decreases were driven by leveraging store compensation, lower in-store marketing costs, reduced travel expenses, and numerous smaller savings throughout the organization. In addition, the prior year SG&A included a $1.3 million charge arising from the settlement of a wage an hour class action suit.
For the quarter, operating income rose to $43.8 million or 15.7% of sales, including the net impact of the stock-based compensation charge.
Excluding the catch-up charge for the first three quarters, operating income would have been $46.8 million or 16.8% of sales compared to 15.8% in the prior year.
Income from continuing operations after tax was $26.8 million or 93 cents per diluted share compared to 82 cents per diluted share in the prior year.
Excluding the 6-cent charge – a stock-based compensation adjustment – and the 2-cent benefit resulting from the company’s year-end inventory shrink results, income from continuing operations increased to 97 cents per diluted share. The prior year earnings included the following:
- A 5-cent benefit associated with the 53rd week of fiscal 2006.
- A 4-cent benefit arising from a favorable inventory shrink result compared to the 2-cent benefit as a result of fiscal count this year.
- The prior year fourth quarter earnings included a 5-cent benefit associated with the recognition of various state net operating loss carry-forwards. The fourth quarter tax rate in fiscal 2006 was 34.1% due to this item versus this year’s more typical tax rate of 39.8%.
Cash, cash equivalents, and investments at the end of the quarter were roughly $33 million with no short or long-term borrowings outstanding.
The company does not currently hold any auction rate securities in its investment portfolio.
- Inventories at the end of the quarter increased to $119.5 million from $104.3 million in the prior year. On a per square foot basis, inventories decreased roughly 1% due to lower product cost.
- Gross capital expenditures for the quarter were $11 million. For the full year, gross capital expenditures were $68.8 million.
- Depreciation expense for the quarter was roughly $8.5 million. For the full year, depreciation was $31.2 million.
The total number of stores open at the end of the quarter was 786.
