This summary is based on the first quarter fiscal 2008 earnings call conducted by The Gymboree Corporation (GYMB) on May 21, 2008.
Management:
President: Kip Garcia
Chairman, Chief Executive Officer: Matthew McCauley
Vice President of Finance: Jeffrey Harris
Chief Operating Officer, Chief Financial Officer: Blair Lambert
Key Investors Issues
- EPS were 86 cents per share compared to 67 cents per share last year.
- Earnings rose to $25 million from $20.9 million in the same period last year.
- Revenue rose 16% to $242.1 million from $209.3 million a year ago.
First Quarter Highlights
Net retail sales were $238.9 million a 16% increase over the $206.7 million in net sales from retail operations reported last year.
- Other revenue attributable to Play and Music operations was $3.2 million compared to $2.6 million in the prior year.
- In total, net sales for the quarter were $242.1 million versus $209.3 million for the prior year, an increase of 16%. As previously reported comparable store sales increased 4%. The company saw increases in the total number of transactions and units per transaction offset by slightly lower average unit retail due to the growth of the outlet and Crazy 8 divisions. These changes were in line with expectations.
The total number of stores open at the end of the quarter was 811 including 574 Gymboree stores in the U.S., 30 Gymboree stores in Canada, 96 Gymboree outlet stores, 95 Janie and Jack shops and 16 Crazy 8 stores.
- For the Gymboree brand the company opened 7 new stores and 14 new Gymboree outlet stores and also opened 2 new Janie and Jack shops and two new Crazy 8 stores.
- Total square footage under management at the end of the quarter was 1,570,000 square feet with average store size at 1,900 square feet.
Gross profit increased 140 basis points to 51% compared to 49.6% for the same quarter of the prior year.
- The improvement was the result of the company’s continuing product cost reduction strategies, leveraging of buying costs partially offset by a lower AUR, increased occupancy costs and relatively lower Crazy 8 gross margin rates.
- SG&A as a percentage of sales increased 30 basis points to 33.8% of sales versus 33.5% in the prior year. The increase is primarily driven by higher stock based and incentive compensation offset by lower professional fees, marketing, repairs and maintenance and store payroll. Net of incremental non-cash stock based compensation expense SG&A fell by 30 basis points versus the first quarter of the prior year. The expense for performance based stock compensation is realized on an accelerated basis this year. Prior year costs were booked on a straight line basis in the first quarter and adjusted in the fourth quarter of 2007.
- Operating income rose 24% to $41.6 million versus $33.6 million in the first quarter of the prior year. As a percent of sales operating income increased by 110 basis points to 17.2% of sales compared to 16.1% of sales in the prior year.
- The tax rate was 40.2% versus 39.9% in the prior year.
- Net income was $25 million versus $20.9 million last year. Earnings per share increased almost 30% to 86 cents per share compared to the 67 cents per share reported in the prior year. These earnings include a loss of 4 cents per share associated with Crazy 8.
Cash, cash equivalents, and investments at the end of the quarter were $58 million with no short or long-term borrowings outstanding.
- Inventories at the end of the quarter increased to $95.6 million versus $85 million in the prior year.
- On a per square foot basis, inventories decreased 2% over the prior year.
- Gross capital expenditures were $14.1 million. Depreciation expense was $8.4 million.
All brands positive comped both retail and gross margin dollars.
- At Gymboree sales increases were first and foremost driven by consistent strong line performance across the quarter.
- Merchandising and design teams have been focused on developing product that emphasizes what makes brand unique in the marketplace. That is outfit driven, mix-n-match, highly detailed and age appropriate and it is paying off. New lines for the spring season resonate with both core customers and new customers just joining family.
- The company is pleased with the success of Easter line which posted strong comparable store sales both across casual and dressy, boy and girl, baby and kid and family dressing. The Neapolitan ice cream theme and color palette for girls was fresh and unique for Easter timing.
- The company launched UV blocking rash guards this spring which were incremental and new to Gymboree. In support of the initiative to grow newborn business the company launched brand new baby layout essentials line in conjunction with baby event in February supported by new packaging, marketing, gift boxes and shopping bags.
- Boy continues to be a key growth initiative for Gymboree and Boy departments posted the highest comparable store sales increases.
- Janie and Jack boy accessories departments were the strongest comparable tore sales performance and as in Gymboree Easter was a strong delivery for Janie and Jack.
Second Quarter 2008 Outlook
