The Gymboree Corporation Reports First Fiscal Quarter 2014 Results - Tucson News Now

The Gymboree Corporation Reports First Fiscal Quarter 2014 Results

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SOURCE The Gymboree Corporation

SAN FRANCISCO, June 12, 2014 /PRNewswire/ -- The Gymboree Corporation (the "Company") today reported consolidated financial results for the first fiscal quarter ended May 3, 2014.

First Quarter Results (13-weeks ended May 3, 2014 versus 13-weeks ended May 4, 2013)

  • Net sales were $272.0 million, compared to $292.8 million in the first quarter of fiscal 2013.
  • Comparable sales (including online stores) declined 10%.
  • Gross profit was $108.4 million, or 39.8% of net sales, compared to $121.0 million, or 41.3% of net sales, for the first quarter of fiscal 2013.
  • Adjusted gross profit was $110.2 million, or 40.5% of net sales, compared to $123.6 million, or 42.2% of net sales, for the first quarter of fiscal 2013. Adjusted gross profit excludes purchase accounting adjustments of $1.8 million and $2.6 million for the first quarter of fiscal 2014 and the first quarter of fiscal 2013, respectively, relating to the November 2010 acquisition of the Company by investment funds sponsored by Bain Capital Partners, LLC (the "Acquisition") (see Exhibit D for relevant reconciliation information).
  • SG&A expense was $102.3 million, or 37.6% of net sales, compared to $104.1 million, or 35.6% of net sales, for the first quarter of fiscal 2013.
  • Adjusted SG&A expense was $101.8 million, or 37.4% of net sales, compared to $100.3 million, or 34.2% of net sales, in the first quarter of fiscal 2013. Adjusted SG&A excludes $0.5 million and $3.9 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments and non-recurring adjustments (see Exhibit D for relevant reconciliation information).
  • Net loss attributable to The Gymboree Corporation was $13.4 million compared to a net loss of $2.5 million for the first quarter of fiscal 2013.
  • Adjusted EBITDA, defined as net loss attributable to The Gymboree Corporation before interest income/expense, income taxes and depreciation and amortization, adjusted for other items described above, was $22.0 million compared to $36.0 million for the first quarter of fiscal 2013.
  • Adjusted EBITDA is not a financial measure under U.S. generally accepted accounting principles ("GAAP"). For a description of these measures, see "Non-GAAP Financial Measures" below. A reconciliation of net loss attributable to The Gymboree Corporation to Adjusted EBITDA presented herein is included in Exhibit D of this press release.

Balance Sheet Highlights

  • There were $10.0 million in borrowings outstanding under the Company's $225 million asset-backed loan facility and approximately $118 million of undrawn availability after deducting for Letters of Credit and outstanding borrowings at the end of the first quarter of fiscal 2014.
  • Cash balances were at $24.8 million at the end of the first quarter of fiscal 2014, a decrease of $14.6 million from $39.4 million at the end of fiscal 2013.
  • Capital expenditures were $9.4 million during the first quarter of fiscal 2014.
  • Inventory balances at the end of the first quarter of fiscal 2014 were $170.4 million, compared to $180.8 million at the end of the first quarter of fiscal 2013. On a per square foot basis, inventory cost declined 10% and inventory units declined in the low teens.

Fiscal 2014 Business Outlook

The Company's fiscal 2014 outlook is based on current economic environment trends, as well as management expectations for the remainder of the year.

Full Year

For the full year, the Company expects Adjusted EBITDA to be approximately flat compared to fiscal 2013. Based on this guidance, the Company expects to have sufficient liquidity during fiscal 2014 to service its debt and invest in the business to drive long-term growth. Furthermore, the Company anticipates utilizing its ABL facility throughout the course of the year to support seasonal working capital needs and does not anticipate having any outstanding borrowings by fiscal year end.

New Stores

During fiscal 2014, the Company plans to open approximately 50 new stores, distributed fairly evenly across the brands, and close approximately 25 to 30 stores. 

Capital Expenditures

During fiscal 2014, the Company now anticipates spending approximately $35 million to $40 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 taxes, and depreciation and amortization ("EBITDA") adjusted for other items including 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 and other non-recurring or unusual items.

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 loss attributable to The Gymboree Corporation).

Management Presentation

The live broadcast of the discussion of first quarter fiscal 2014 financial results and our business outlook will be available to interested parties at 1:00 p.m. PT (4:00 p.m. ET) on Thursday, June 12, 2014.  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 "Investors & Media" and then "Conference Calls & Webcasts."  A replay of the call will be available two hours after the broadcast through midnight PT, Wednesday, June 18, 2014, at 855-859-2056, passcode 32200008.

About The Gymboree Corporation

The Gymboree Corporation's specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of May 3, 2014, the Company operated a total of 1,337 retail stores: 627 Gymboree® stores (574 in the United States, 46 in Canada, 1 in Puerto Rico and 6 in Australia), 168 Gymboree Outlet stores (166 in the United States and 2 in Puerto Rico), 146 Janie and Jack® shops and 396 Crazy 8® stores in the United States. The Company also operates online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com, and offers directed parent-child developmental play programs at 698 franchised and Company-operated Gymboree Play & Music® centers in the United States and 41 other countries.

Forward-Looking Statements

The foregoing financial information for the first fiscal quarter of 2014 is unaudited and subject to quarter-end and year-end adjustments.  This press release includes forward-looking statements, including statements relating to The Gymboree Corporation's anticipated future financial performance, especially those set forth under the heading "Fiscal 2014 Business Outlook."  These forward-looking statements generally can be identified by the use of words such as "anticipate," "expect," "plan," "could," "may," "will," "believe," "estimate," "forecast," "goal," "project," and other words of similar meaning.  Each forward-looking statement contained in this press release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement.  The Company presently considers the following risks and uncertainties to be important factors that could cause actual results to differ materially from the Company's expectations:  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, consumer preferences and customer reactions to new merchandise and 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 February 1, 2014, filed with the Securities and Exchange Commission ("SEC") on May 2, 2014.  The Company cautions investors to carefully consider the risks associated with, and not to place considerable reliance on, the forward-looking statements contained in this press release. The forward-looking statements in this press release speak only as of the date of this document, and the Company undertakes no obligation to update or revise any of these statements.  

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

(In thousands)

(Unaudited)














13 Weeks Ended






May 3, 2014


May 4, 2013

Net sales:







Retail



$   259,124


$   280,877


Gymboree Play & Music 



6,832


6,328


Retail Franchise



6,054


5,578



Total net sales



272,010


292,783


Cost of goods sold, including buying and occupancy expenses



(163,652)


(171,810)



Gross profit



108,358


120,973


Selling, general and administrative expenses



(102,290)


(104,129)



Operating income



6,068


16,844


Interest income



47


41


Interest expense



(20,374)


(20,402)


Other income (expense), net



(368)


9



Loss before income taxes



(14,627)


(3,508)


Income tax (expense) benefit



(376)


660



Net loss



(15,003)


(2,848)



Net loss  attributable to noncontrolling interest



1,572


312



Net loss attributable to The Gymboree Corporation



$    (13,431)


$      (2,536)

 

EXHIBIT B

THE GYMBOREE CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)













May 3,


February 1,


May 4,





2014


2014


2013


ASSETS








Current assets:









Cash and cash equivalents


$       24,773


$       39,429


$       43,146



Accounts receivable


22,394


21,882


22,124



Merchandise inventories


170,411


175,495


180,796



Prepaid income taxes


2,986


1,979


3,076



Prepaid expenses


18,623


18,801


16,809



Deferred income taxes


14,236


13,454


30,647



    Total current assets


253,423


271,040


296,598











Property and equipment, net


203,476


206,308


205,985


Goodwill


758,777


758,777


898,983


Other intangible assets, net


559,003


559,824


578,456


Deferred financing costs


30,754


32,455


38,419


Other assets


10,288


11,700


7,443












    Total assets


$  1,815,721


$  1,840,104


$  2,025,884




















LIABILITIES AND STOCKHOLDERS' EQUITY








Current liabilities:









Accounts payable


$       73,345


$     101,959


$       57,753



Accrued liabilities


107,648


100,303


107,095



Line of credit


10,000


-


-



Current obligation under capital lease


515


503


-



    Total current liabilities


191,508


202,765


164,848











Long-term liabilities:









Long-term debt


1,113,817


1,113,742


1,138,524



Long-term obligation under capital lease


3,269


3,402


-



Lease incentives and other liabilities


50,534


50,432


43,432



Unrecognized tax benefits


6,304


6,157


8,135



Deferred income taxes


215,232


214,464


231,540



    Total liabilities


1,580,664


1,590,962


1,586,479











Stockholders' equity


235,057


249,142


439,405












Total liabilities and stockholders' equity


$  1,815,721


$  1,840,104


$  2,025,884


    

EXHIBIT C


THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)











13 Weeks Ended





May 3, 2014


May 4, 2013


CASH FLOWS FROM OPERATING ACTIVITIES:





Net loss

$     (15,003)


$       (2,848)


Adjustments to reconcile net loss to net cash (used in)





  provided by operating activities:






Depreciation and amortization

11,178


12,822



Amortization of deferred financing costs and accretion of original issue discount

1,776


1,690



Interest rate cap contracts - adjustment to market

461


183



Loss on disposal/impairment of assets

359


-



Deferred income taxes

(33)


(2,210)



Share-based compensation expense

1,276


1,497



Other

18


314



Change in assets and liabilities:







Accounts receivable

(553)


5,443




Merchandise inventories

4,776


17,244




Prepaid income taxes

(1,013)


(179)




Prepaid expenses and other assets

1,087


409




Accounts payable

(28,602)


(32,377)




Accrued liabilities

8,897


13,395




Lease incentives and other liabilities

693


4,335



Net cash (used in) provided by operating activities

(14,683)


19,718









CASH FLOWS FROM INVESTING ACTIVITIES:





Capital expenditures

(9,353)


(10,658)


Other


(56)


(93)



Net cash used in investing activities

(9,409)


(10,751)









CASH FLOWS FROM FINANCING ACTIVITIES:





Proceeds from ABL facility

78,000


-


Payments on ABL facility

(68,000)


-


Payments on capital lease

(121)


-


Dividend payment to Parent

-


(201)


Capital contribution received by noncontrolling interest

-


1,007



Net cash provided by financing activities

9,879


806


Effect of exchange rate fluctuations on cash and cash equivalents

(443)


45


Net (decrease) increase in cash and cash equivalents

(14,656)


9,818


CASH AND CASH EQUIVALENTS:





Beginning of period

39,429


33,328


End of period

$      24,773


$      43,146


    

EXHIBIT D

THE GYMBOREE CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands)

(Unaudited)









ADJUSTED EBITDA:

The Company defines "Adjusted EBITDA" as net income (loss) attributable to The Gymboree Corporation before interest expense, interest income, income tax expense/benefit, and depreciation and amortization ("EBITDA") adjusted for other items, including, non-cash share-based compensation, loss on disposal/impairment of assets, 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"), non-recurring and unusual items.

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 loss attributable to The Gymboree Corporation to Adjusted EBITDA:

    














13 Weeks Ended






May 3, 2014


May 4, 2013










Net loss attributable to The Gymboree Corporation




$    (13,431)


$      (2,536)


Reconciling items (a):








   Interest expense 




20,374


20,402


   Interest income 




(52)


(26)


   Income tax expense (benefit)




599


(861)


   Depreciation and amortization (b)




10,786


12,620


   Non-cash share-based compensation expense 




1,276


1,497


   Loss on disposal/impairment on assets




330


300


   Acquisition-related adjustments (c)




2,944


4,093


   Other (d)




(795)


489


Adjusted EBITDA




$     22,031


$     35,978










(a) Excludes amounts related to noncontrolling interest, which are already excluded from net loss attributable to The Gymboree Corporation.









(b) Includes the following:








Amortization of intangible assets (impacts SG&A)




$          384


$       2,258


Amortization of below and above market leases (impacts COGS)




(247)


(386)






$          137


$       1,872










(c) Includes the following:








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




$       2,068


$       2,232


Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)




876


1,120


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)




-


741






$       2,944


$       4,093










(d) Other is comprised of a non-recurring change in reserves and restructuring charges.
















OTHER NON-GAAP FINANCIAL MEASURES:




















13 Weeks Ended






May 3, 2014


May 4, 2013










Gross profit as reported




$   108,358


$   120,973


Acquisition-related adjustments




1,821


2,587


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




$   110,179


$   123,560






















13 Weeks Ended






May 3, 2014


May 4, 2013










SG&A as reported




$  (102,290)


$  (104,129)


Acquisition-related adjustments




1,260


3,378


Other adjustments




(795)


489






465


3,867


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




$  (101,825)


$  (100,262)


    

EXHIBIT E

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)












For the 13 Weeks Ended May 3, 2014



Balance Before 









Consolidation of VIEs


VIEs*


Eliminations


As Reported

Net sales

$                      269,144


$  5,404


$        (2,538)


$     272,010

Cost of goods sold, including buying and occupancy expenses

(162,438)


(1,302)


88


(163,652)


Gross profit

106,706


4,102


(2,450)


108,358

Selling, general and administrative expenses

(98,960)


(5,793)


2,463


(102,290)


Operating income (loss)

7,746


(1,691)


13


6,068

Other non operating expense

(20,591)


(104)


-


(20,695)


Loss before income taxes

(12,845)


(1,795)


13


(14,627)

Income tax (expense) benefit

(599)


223


-


(376)


Net loss

(13,444)


(1,572)


13


(15,003)


Net loss attributable to noncontrolling interest

-


1,572


-


1,572


Net loss attributable to The Gymboree Corporation

$                      (13,444)


$        -


$              13


$      (13,431)





















For the 13 Weeks Ended May 4, 2013



Balance Before 









Consolidation of VIEs


VIEs*


Eliminations


As Reported

Net sales

$                      289,480


$  4,634


$        (1,331)


$     292,783

Cost of goods sold, including buying and occupancy expenses

(170,782)


(1,230)


202


(171,810)


Gross profit

118,698


3,404


(1,129)


120,973

Selling, general and administrative expenses

(101,631)


(3,646)


1,148


(104,129)


Operating income (loss)

17,067


(242)


19


16,844

Other non operating (expense) income

(20,483)


131


-


(20,352)


Loss before income taxes

(3,416)


(111)


19


(3,508)

Income tax benefit (expense)

861


(201)


-


660


Net loss

(2,555)


(312)


19


(2,848)


Net loss attributable to noncontrolling interest

-


312


-


312


Net loss attributable to The Gymboree Corporation

$                        (2,555)


$        -


$              19


$        (2,536)

    


EXHIBIT E (continued)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

(Unaudited)




May 3, 2014




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported

Current assets

$                      238,320


$  17,334


$        (2,231)


$     253,423

Non-current assets

1,557,828


4,470


-


1,562,298

Total assets

$                   1,796,148


$  21,804


$        (2,231)


$  1,815,721











Current liabilities

$                      185,467


$    8,131


$        (2,090)


$     191,508

Non-current liabilities

1,388,802


354


-


1,389,156

Total liabilities

$                   1,574,269


$    8,485


$        (2,090)


$  1,580,664











Total stockholders' equity

221,879


-


(141)


221,738

Noncontrolling interest

-


13,319


-


13,319

Total liabilities and stockholders' equity

$                   1,796,148


$  21,804


$        (2,231)


$  1,815,721














February 1, 2014




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported

Current assets

$                      253,764


$  18,764


$        (1,488)


$     271,040

Non-current assets

1,564,620


4,444


-


1,569,064

Total assets

$                   1,818,384


$  23,208


$        (1,488)


$  1,840,104











Current liabilities

$                      196,631


$    7,490


$        (1,356)


$     202,765

Non-current liabilities

1,387,828


370


(1)


1,388,197

Total liabilities

$                   1,584,459


$    7,860


$        (1,357)


$  1,590,962











Total stockholders' equity

233,925


-


(131)


233,794

Noncontrolling interest

-


15,348


-


15,348

Total liabilities and stockholders' equity

$                   1,818,384


$  23,208


$        (1,488)


$  1,840,104














May 4, 2013




Balance Before 










Consolidation of VIEs


VIEs*


Eliminations


As Reported

Current assets

$                      288,822


$  13,131


$        (5,355)


$     296,598

Non-current assets

1,726,636


2,650


-


1,729,286

Total assets

$                   2,015,458


$  15,781


$        (5,355)


$  2,025,884











Current liabilities

$                      157,669


$  12,321


$        (5,142)


$     164,848

Non-current liabilities

1,421,443


188


-


1,421,631

Total liabilities

$                   1,579,112


$  12,509


$        (5,142)


$  1,586,479











Total stockholders' equity

436,346


-


(213)


436,133

Noncontrolling interest

-


3,272


-


3,272

Total liabilities and stockholders' equity

$                   2,015,458


$  15,781


$        (5,355)


$  2,025,884











*  The Variable Interest Entities ("VIEs") include 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.

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