Longer Term Growth Strategies:

- Top line sales growth will come from new stores in Outlet, Janie and Jack and Crazy 8 as well as Boy market share in Gymboree.
- Operating margin expansion will come from store payroll efficiencies and cost of goods reductions in all brands.
- There will also be a small amount of store growth in Gymboree US and Canada during 2009.
- Moving onto store efficiencies, last year the firm started rolling out a new payroll tool for stores which better aligns sales staff and transaction patterns and more accurately allocates hours for tasks and events.
- As a result, it is seeing improvements in the already stellar customer feedback scores and decrease in overall hours used to operate stores.

The firm will expand the accessories business as the order sizes increase and will compete more effectively in seasonal sales as the IMU increases.

- The company can significantly reduce proprietary expenses with increased order sizes and with the growing store count and payroll efficiencies rolling out in other brands will greatly improve the payroll leverage in Crazy 8.
- Other long term initiatives include elevating the customer experience at Gymboree Retail and Play and Music.
- Remodels will be in Stonestown San Francisco, South Shore Plaza in Boston, Burlington Mall in Boston and Cherry Hill in South New Jersey.

Fiscal 2008 Outlook:

- The firm is planning for diluted per share earnings in the range of $3.15 to $3.20 on 29.4 million diluted shares outstanding.
- These earnings targets anticipate a full year net loss from Crazy 8 of roughly 10 cents per diluted share.
- It is planning third quarter earnings to be in the range of $1.02 to $1.04 per diluted share on 29.4 million diluted shares outstanding, inclusive of a cent loss per diluted share related to Crazy 8.
- In terms of real estate, it plans to open 43 new stores during the third quarter consisting of nine new Gymboree stores, 12 new Gymboree Outlets, 8 new Janie and Jack shops and 14 new Crazy 8 stores.
- Third quarter year-over-year gross margins is expected to increase versus prior year due to lower products costs, higher average unit retails and buying cost leverage.

Key questions and answers from the second quarter earnings call conducted by The Gymboree Corp. (GYMB) on August 20, 2008.

Betty Chen (Wedbush Morgan): Could you talk a little bit about the growth category?

Kip M.Garcia: We actually had a really good summer in Girl and what happened to us is we had a rough transition going into back-to-school so our early transition line which was the Paris line which is very traditional.

It was based in navy which we normally do really well with and then our really traditional Apple line which also was based in navy and very traditional which we normally do well with.

Because as we are seeing our Apple line, it’s actually picking up as we are getting closer into August towards back-to-school. When that Kitty line and it was fashion forward and great colors and new and different, the customers responded immediately.

Betty Chen (Wedbush Morgan): On inventory levels, could you remind us what is your plan for the third quarter and the back half?

Matthew K. McCauley: We plan on ending the quarter up slightly so it could be in the low single digits. We are investing in holiday. If you go back even a couple of years ago, we said that the two biggest areas that we wanted to buy into in and invest was back-to-school and holiday.

Those were two areas that we felt we had not really maximized in our seasonality and last year we bought up quite aggressively for back-to-school and not quite as aggressively going into the fourth quarter.

Dana Telsey (Telsey Advisory Group): How are you evaluating your investment opportunities?

Matthew K. McCauley: That really speaks to our philosophy of dividing the teams into offense and defense and some of the changes that we have made going forward obviously to be honest it does not feel that much different for us.

We have been operating under the assumption that we have been under a recession for the last three years. Our approach of being prepared has always been to not get aggressive and get ahead of our sales on the sales plans and budget accordingly.

On the defense side, really it’s moving forward on strategies that we had already put in place and rolling out really around the store efficiencies, making sure that we are really cutting down on the time that it takes for us to do tasks, spend more time with the customer and make sure that we manage our average hourly rates appropriately so we can leverage payroll more efficiently than we have in the past.

Margaret Whitfield (Stern Agee): You said you had increased the transactions, could you give us that number?

Matthew K. McCauley: We are happy with the strategies that we are driving around getting new customers and more customers in the stores. The fact that the average unit retailer and the average trend is down a little bit speaks to the customer spending less from everything that we can gather.