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| GYMB > SEC Filings for GYMB > Form 10-Q on 10-Jun-2009 | All Recent SEC Filings |
10-Jun-2009
Quarterly Report
Forward-looking statements
The following discussion and analysis should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report. This report contains forward-looking statements that involve risks and uncertainties, including statements regarding planned capital expenditures, planned store openings, expansions and renovations, systems infrastructure development, future cash generated from operations and future cash needs. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and the Company's actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, increasing levels of unemployment and consumer debt, extreme volatility in the financial markets, current recessionary economic conditions, customer reactions to new merchandise, service levels and new concepts, success in meeting delivery targets, the level of our promotional activity, our gross margin achievement, our ability to appropriately manage inventory, effects of future embargoes from countries used to source product, competitive market conditions, and the other factors described in this document and in our Annual Report on Form 10-K for the fiscal year ended January 31, 2009. When used in this document, the words "believes," "expects," "estimates," "anticipates," and similar expressions are intended to identify certain of these forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. The Company does not intend to revise any forward-looking statements to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report, in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2009 and its other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business, prospects and results of operations.
General
The Gymboree Corporation is a specialty retailer operating stores selling high-quality apparel and accessories for children under the GYMBOREE®, GYMBOREE OUTLET, JANIE AND JACK®, and CRAZY 8® brands, as well as play programs for children under the GYMBOREE PLAY & MUSIC® brand. As of May 2, 2009, the Company operated a total of 901 retail stores: 619 Gymboree stores (587 in the United States, 30 in Canada and 2 in Puerto Rico), 126 Gymboree Outlet stores, 118 Janie and Jack shops, and 38 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 606 franchised and Company-operated centers in the United States and 29 other countries.
During the first quarter of fiscal 2009, the Company opened 4 Gymboree stores, 8 Gymboree Outlet stores, and 3 Janie and Jack shops. The Company also relocated or remodeled 16 Gymboree stores (14 in the United States and 2 in Canada).
During the remainder of fiscal 2009, the Company plans to open approximately 60 new stores consisting of approximately 21 Gymboree stores, 12 Gymboree Outlet stores, 2 Janie and Jack shops, and 25 Crazy 8 stores.
Results of Operations
13 weeks ended May 2, 2009, compared to 13 weeks ended May 3, 2008
Net Sales
Net retail sales in the first quarter of fiscal 2009 decreased to $228.0 million from $238.9 million in the same period last year, a decrease of $10.9 million, or 4.6%. Comparable store sales for the first quarter of fiscal 2009 decreased 10% from the same period in the prior year. This decrease was primarily due to the continuing difficult retail environment. The pullback in consumer spending resulted in an overall decrease in average unit retail prices and units per transaction. There were 901 stores open at the end of the first quarter of fiscal 2009 compared to 811 as of the end of the same period last year.
Gymboree Play & Music net sales in the first quarter of fiscal 2009 decreased to $2.9 million from $3.2 million in the same period last year primarily due to a decrease in international franchisee fees, as well as a decrease in international equipment and product sales. These decreases were partially offset by an increase in revenues from the Company's corporate-owned sites. The Company operated 7 corporate owned sites at the end of the first quarter of fiscal 2009 compared to 3 as of the end of the same period last year.
Gross Profit
Gross profit for the first quarter of fiscal 2009 decreased to $109.5 million from $123.4 million in the same period last year. As a percentage of net sales, gross profit for the first quarter of fiscal 2009 decreased 3.6 percentage points to 47.4% from 51.0% in the same period last year. This decrease was primarily due to deleveraging of occupancy costs and lower average unit retail prices, and was partially offset by lower product costs.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses, which principally consist of non-occupancy store expenses, corporate overhead, and distribution expenses, decreased to $73.3 million in the first quarter of fiscal 2009 from $81.8 million in the same period last year. As a percentage of net sales, SG&A expenses decreased to 31.8% of sales for the first quarter of fiscal 2009 compared to 33.8% of sales in the same period last year. This decrease was primarily due to lower incentive compensation and benefits costs, as well as lower operating supply expenses and professional fees, and was partially offset by higher depreciation and marketing expenses.
Income Taxes
The Company's effective tax rate for the first quarter of fiscal 2009 and 2008 was 40.2%. The actual fiscal 2009 effective tax rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations, the Company's overall level of earnings in fiscal 2009, and the potential resolution of tax contingencies.
Seasonality
The Company's business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations in the past several years have been highest during the third and fourth fiscal quarters, somewhat lower during the first fiscal quarter, and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year. These historical quarterly trends may not continue in the future.
Critical Accounting Policies and Estimates
There have been no material changes to the Company's critical accounting policies and estimates affecting the application of those accounting policies since the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2009.
Financial Condition
Liquidity and Capital Resources
Cash and cash equivalents were $150.1 million at May 2, 2009, an increase of $9.7 million from January 31, 2009. Working capital as of May 2, 2009 was $209.0 million compared to $180.0 million as of January 31, 2009.
Net cash provided by operating activities for the 13 weeks ended May 2, 2009 was $22.2 million compared to $38.7 million in the same period last year. This decrease was primarily due to:
• a smaller decrease in inventory levels during the 13 weeks ended May 2, 2009 compared to the same period last year. This was in part due to compliance with new consumer product safety laws, which resulted in lower inventory levels at the end of fiscal 2008 compared to the end of fiscal 2007;
• a larger increase in prepaid rent during the 13 weeks ended May 2, 2009 compared to the same period last year. This was due to the timing of payments; and
• lower operating income.
Net cash used in investing activities for the 13 weeks ended May 2, 2009 was $9.0 million compared to $14.1 million in the same period last year. Capital expenditures during the 13 weeks ended May 2, 2009 were primarily related to the opening of 15 new stores, relocation, remodeling or expansion of 16 existing stores, information technology improvements, and continued investment in the Company's distribution center. Capital expenditures during the 13 weeks ended May 3, 2008 were primarily related to the opening of 25 new stores, relocation, remodeling or expansion of 8 existing stores, information technology improvements and investment in the Company's distribution center.
Net cash used in financing activities for the 13 weeks ended May 2, 2009 was $3.7 million compared to $0.3 million provided in the same period last year. This decrease was primarily due to fewer stock option exercises and lower excess tax benefits related to share-based awards. Financing activities for the 13 weeks ended May 2, 2009 and May 3, 2008 included $4.4 million and $4.6 million, respectively, in stock repurchases, primarily reflecting employee minimum statutory tax withholding requirements for restricted stock awards and units that vested during the period. Employees satisfy their minimum statutory tax requirements through a net settlement feature whereby restricted stock awards and units are sold on their vest date to cover tax obligations.
The Company has an unsecured revolving credit facility for borrowings of up to $80 million (subject to an option to increase the borrowing limit up to $100 million). The credit facility, which expires in August 2009, may be used for the issuance of documentary and standby letters of credit, working capital, and capital expenditure needs. The credit facility requires the Company to meet financial covenants on a quarterly basis and limits annual capital expenditures. As of May 2, 2009, the Company was in compliance with these covenants. As of May 2, 2009, $45.1 million of documentary and standby letters of credit were outstanding, and no borrowings were outstanding. The maximum amount of documentary and standby letters of credit outstanding during the 13 weeks ended May 2, 2009 was $60.4 million. The Company expects to extend or replace its existing credit facility prior to its expiration.
The Company anticipates that cash generated from operations, together with its existing cash resources and funds available from current and future credit facilities, will be sufficient to satisfy the Company's cash needs through the next 12 months.
There have been no material changes outside the ordinary course of business to the Company's contractual obligations since its Annual Report on Form 10-K for the year ended January 31, 2009.
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