- The company expects modest improvement in year-over-year merchandize margins, as it continues to focus on its product cost reduction initiatives. The firm anticipates that year-over-year merchandize margins will improve by roughly 100 basis points as a result of these efforts. These product cost reductions will be offset to some degree by higher occupancy costs associated with re-negotiated leases and new store openings.
- In developing its plans, the company santicipate modest year-over-year SG&A leverage before the impact of any incremental direct marketing expense. As a result of the above, the firm has planned for increased year-over-year operating margins for fiscal 2008.

- Capital expenditures for the year are planned at roughly $60 million. These expenditures will support new store openings, re-models and re-locations, along with targeted investments in distribution center, new point of sales system, and other information technology systems and infrastructure investments in support of various initiatives.
- Depreciation for the year is planned at $35 million.

Key questions and answers from the fourth quarter fiscal 2007 earnings call conducted by Gymboree Corporation on March 12, 2008.

Dana Telsey (Telsey Advisory Group): Can you talk about your learnings from Crazy 8 and what’s applicable or not applicable about your plans from Gymboree. What’s the integration of the concepts? What do you benefit from in terms of processes? What will make that new concept ramp quickly for you?

Blair W. Lambert: It’s a great thing to be in a business that we know something about. It’s a lot of fun to come in and look at sales and get reads on things that we have a lot of experience in, and we’ve been very prepared looking at the 20+ year history of Gymboree. We get a good read on what classification contribution should be – boy-to-girl ratios – what the opportunity is there – Baby-to-Kid ratios – all of those things helped us in the beginning to set strong goals, but we’ve had a few surprises in there; for example, the relationship of Baby-to-Kid that we talked about. We’ve also been impressed with the relationship of boy and girl – boy to girl. We planned it aggressively on boy’s side and we’re hitting it. We’re happy with that. Obviously we have a lot of opportunity in the leverage and the infrastructure across the organization. We don’t have a separate president for each division. We have a president that oversees all of merchandizing and design for all brands, the same thing with planning and allocation, as well as production. We have huge opportunities to leverage the entire organization in addition to sourcing. One of the biggest things that has been helpful for us is having Outlet be the forerunner for Crazy 8 because we have a good idea of what we should be paying in average costs by class and by item. We probably learned more from Outlet than we have from anything else to prepare us for Crazy 8.

Marni Shapiro (Merrill Lynch): You talked about selling internationally. Are you selling internationally with Gymboree or is it Janie and Jack as well? How many countries are you shipping and what percentage of your direct sales is international?

Matthew McCauley: Yes we are selling in Janie and Jack internationally. We’re shipping it online, and at this point, we are in about 30 countries with the play and music and certainly see that as creating a lot of brand presence for us and continue to educate ourselves on what the opportunity is to expand international growth.

Marni Shapiro (Merrill Lynch): Is there a more fashion bend to Crazy 8 than there is to Gymboree?

Matthew McCauley: There is a little bit more of a fashion bend because we’re reaching out to a slightly older customer there on the kids’ side, but still the focus is all about “coolsome” – as we call it cool and wholesome.

Margaret Whitfield (Stern Agee): On Crazy 8, what is the cannibalization rate and what are your plans to market the concept? You are opening several additional stores in New Jersey. Are you going to still focus the store openings in select areas, and what marketing will you support the concept with so that the traffic will build and the mark-downs will be fewer?

Matthew McCauley: In terms of cannibalization, we had a number out there that we had planned and it looks like it is going to be right around that, maybe a little bit less at this point. So far, we are pleased with the amount of cannibalization that we have seen. Secondly, we have done several direct mail campaigns around the launch. We’ve done grand openings and doing mall-based marketing as well trying to capitalize on the mall traffic. Certainly, there are opportunities for us to expand that and we are launching some ambassador programs with some of our employees to get the word out and we’ve also done some radio and we’ve learned as we tried several of these things in what is the most productive. We’ve also done some Crazy Cash in the malls which significantly increased conversion. There is still opportunity to reach a whole lot more customers and we’ve also tried to leverage a lot of the list that we already have in-house as well. Going forward we will continue to increase direct mail and try to reach out to an even broader customer base.

Margaret Whitfield (Stern Agee): Baby is at the back of the store in the case of Crazy 8. Are you seeing a better sales there than you planned? How much of the floor is Baby, and what percent of the sales is coming from Baby?

Matthew McCauley: We don’t break out the sales per se, but in terms of the floor, roughly 20% to 25% of the floor is dedicated to Baby.

Margaret Whitfield (Stern Agee): The trend in average selling prices had pressured Q4. Is that something we should consider as a factor in the first half of this year?

Matthew McCauley: It’s hard to say at this point but we’ve been happy with the way that we started off this year. February looks good and hope it continues that way but hard to say at this point.

Linda Tsai (MKM Partners LLC): What gross margin contribution are you working towards for Crazy 8 and how does that compare to Gymboree’s gross margin?

Matthew McCauley: We are not breaking out the margin rate, but in terms of a comparison to Gymboree, there is no reason that we shouldn’t be expecting margins to be very similar in a Gymboree or Janie and Jack for that matter.

John Morris (Wachovia Securities): What is the approximate impact in basis points from the absence of the extra week on gross margin and SG&A?

Blair W. Lambert: The total number is 5 cents from last year. We haven’t broken it out, but a large percentage of that is in the occupancy cost and it is in the gross margin line.

Brian Tunick (J.P Morgan): You talked a lot about direct marketing being the huge customer acquisition opportunity. Can you give dollars, or percentages, of sales that you have spent in 2007 versus the prior years or what we could expect for 2008 and what are you doing there?