<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended AUGUST 4, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission file number 000-21250
THE GYMBOREE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2615258
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
700 AIRPORT BOULEVARD, BURLINGAME, CALIFORNIA 94010-1912
(Address of principal executive offices) (Zip code)
(415) 579-0600
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding at September 1, 1996: 25,246,805
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income........................... 3
Consolidated Balance Sheets................................. 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 12
Signatures............................................................. 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------- --------------
August 4, July 30, August 4, July 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 57,898 $ 49,391 $127,001 $104,468
Cost of goods sold, including
buying and occupancy expenses (32,750) (28,032) (68,197) (57,606)
-------- -------- -------- --------
Gross Profit 25,148 21,359 58,804 46,862
Selling, general and administrative
expenses (19,188) (15,170) (40,003) (31,240)
Play program income/(loss) (11) 131 117 315
-------- -------- -------- --------
Operating income 5,949 6,320 18,918 15,937
Interest income 962 701 1,852 1,391
-------- -------- -------- --------
Income before income taxes 6,911 7,021 20,770 17,328
Income taxes (2,626) (2,738) (7,892) (6,757)
-------- -------- -------- --------
Net income $ 4,285 $ 4,283 $ 12,878 $ 10,571
======== ======== ======== ========
Net income per share:
Primary $ 0.17 $ 0.17 $ 0.50 $ 0.42
Fully diluted $ 0.17 $ 0.17 $ 0.50 $ 0.41
Weighted average share outstanding:
Primary 25,715 25,379 25,586 25,338
Fully diluted 25,716 25,503 25,594 25,479
Number of stores at end of period 326 251 326 251
</TABLE>
See accompanying notes to consolidated financial statements
3
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THE GYMBOREE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Assets August 4, February 4, July 30,
1996 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,940 $ 8,755 $ 3,457
Investments 72,941 64,893 48,284
Accounts receivable 4,825 2,868 3,578
Merchandise inventories 45,065 37,652 49,053
Prepaid expenses and other 3,741 1,886 1,138
-------- -------- --------
Total current assets 132,512 116,054 105,510
Property and Equipment:
Leasehold improvements 38,046 31,126 26,365
Furniture, fixtures and equipment 32,351 24,367 17,838
-------- -------- --------
70,397 55,493 44,203
Less accumulated depreciation and amortization (15,532) (12,085) (10,789)
-------- -------- --------
54,865 43,408 33,414
Other assets 226 547 635
-------- -------- --------
Total assets $187,603 $160,009 $139,559
======== ======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable $ 24,455 $ 9,657 $ 14,675
Accrued liabilities 9,571 10,736 9,714
Income taxes payable -- 6,244 --
-------- -------- --------
Total current liabilities 34,026 26,637 24,389
Deferred Rent and Other 12,715 9,438 9,093
Stockholders' Equity:
Common stock, including excess paid-in capital
($.001 par value: 100,000,000 shares authorized
25,242,894, 24,992,276 and 24,887,088 shares
outstanding at August 4, 1996, February 4, 1996,
and July 30, 1995, respectively) 60,929 56,687 55,352
Restricted stock deferred compensation (946) (1,139) (1,340)
Unrealized change in value of investments 17 402 (109)
Retained earnings 80,861 67,984 52,174
-------- -------- --------
Total stockholders' equity 140,862 123,934 106,077
-------- -------- --------
Total Liabilities and Stockholders' Equity $187,603 $160,009 $139,559
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS ENDED
--------------
August 4, July 30,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ 18,008 $ (1,067)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,824) (12,145)
Purchases of investments (8,433) (1,027)
Proceeds from sale of investments -- 5,200
-------- --------
Net cash used in investing activities (24,257) (7,972)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 3,434 1,468
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,815) (7,571)
CASH AND CASH EQUIVALENTS:
Beginning of period 8,755 11,028
-------- --------
End of period $ 5,940 $ 3,457
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements presented
herein for the Gymboree Corporation and its wholly-owned subsidiaries
(the "Company") as of and for the periods ended August 4, 1996 have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is recommended that these financial statements be read
in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended February 4, 1996.
The accompanying interim consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for
a fair statement of the results for the interim periods presented and
necessary to present fairly the financial position, the results of
operations and cash flows for the periods presented. All such
adjustments are of a normal and recurring nature. Certain prior year
amounts have been reclassified to conform with the current year
presentation.
2. MERCHANDISE INVENTORIES
Merchandise inventories are recorded under the retail method of
accounting are stated at the lower of cost (retail method) or market.
6
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THE GYMBOREE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i) selected
income statement data expressed as a percentage of net sales, (ii) the
percentage change from the same period of the prior year in such selected income
statement data and (iii) the number of stores open at the end of such period:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
---------------------------- PERCENTAGE CHANGE
THIRTEEN TWENTY-SIX IN DOLLAR AMOUNTS
WEEKS ENDED WEEKS ENDED FROM 1995 TO 1996
---------------------- --------------------- -----------------------
AUGUST 4, JULY 30, AUGUST 4, JULY 30, THIRTEEN TWENTY-SIX
1996 1995 1996 1995 WEEKS WEEKS
--------- ------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 17 % 22 %
Cost of goods sold, including
buying and occupancy expenses (56.6) (56.8) (53.7) (55.1) 17 18
----- ----- ----- -----
Gross Profit 43.4 43.2 46.3 44.9 18 25
Selling, general and administrative
expenses (33.1) (30.7) (31.5) (29.9) 26 28
Play program income/(loss) (0.0) 0.3 0.1 0.3 (108) (63)
----- ----- ----- -----
Operating income 10.3 12.8 14.9 15.3 (6) 19
Interest income 1.7 1.4 1.5 1.3 37 33
----- ----- ----- -----
Income before income taxes 11.9 14.2 16.4 16.7 (2) 20
----- ----- ----- -----
Income taxes (4.5) (5.5) (6.2) (6.5) (4) 17
----- ----- ----- -----
Net income 7.4 8.7 10.1 10.1 1 22
===== ===== ===== =====
Number of stores at end of period 326 251 326 251
</TABLE>
This Form 10-Q contains certain forward-looking statements reflecting the
Company's current expectations and there can be no assurance that the Company's
actual future performance will meet such expectations. Factors that could cause
future performance to vary from current expectations include, but are not
limited to, the factors discussed at the end of the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section.
7
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RESULTS OF OPERATIONS (CONTINUED)
THIRTEEN WEEKS ENDED AUGUST 4, 1996 COMPARED TO THIRTEEN WEEKS ENDED JULY 30,
1995
NET SALES
Net sales for the second quarter of fiscal 1996 increased 17% to $57.9
million compared to $49.4 million for the corresponding period last year. Sales
for the 47 stores opened in fiscal 1996 contributed $5.0 million of the increase
in net sales. Stores opened prior to fiscal 1996 but not qualifying as
comparable stores, including the 22 stores that were expanded in fiscal 1995 and
1996, contributed $6.4 million of the increase in net sales. Comparable store
net sales decreased 7% in the second quarter and were $2.8 million lower than
the prior year.
The decrease in comparable store sales was primarily due to the Company's
strategy of operating with lower per store inventory levels, and a lower level
of promotional pricing. The Company anticipates that the trend of lower per
store inventory levels will continue in future periods and this trend is
expected to adversely affect comparable store net sales.
GROSS PROFIT
Gross profit for the thirteen weeks ended August 4, 1996 increased 18% to
$25.1 million from $21.4 million in the comparable period last year. As a
percentage of net sales, gross profit was 43.4 % in the second quarter of fiscal
1996 compared to 43.2% in the same period last year. Merchandise gross margins
improved 1.3% of sales, however, 1.1% of sales was offset by a higher rate of
buying and occupancy costs resulting primarily from the decline in comparable
store sales. The company believes that the increase in merchandise gross margins
was attributable to the trend of lower per store inventory levels, which
contributed to a reduction in promotional pricing in the second quarter of
fiscal 1996 compared to the same period last year resulting in improved
merchandise gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("S,G&A"), which principally
consist of non-occupancy store expenses, corporate overhead and distribution
expenses, increased as a percentage of net sales to 33.1% in the second quarter
of fiscal 1996, compared to 30.7% in the same period last year.
The increase in S, G & A, as a percentage of net sales, was primarily due to
the funding of new business activities (1.1% of sales) and lost expense leverage
in depreciation and amortization expense (1.1% of sales) due primarily to lower
average sales per store. The new business activities included the launch of the
Gymboree catalog and international store expansion. These increased expenses, as
well as lower expense leverage, are expected to continue in the foreseeable
future.
INTEREST INCOME
Net interest income increased to $962,000 from $701,000 in the prior year
second quarter. The increase was due to higher average cash and investment
balances as compared to the prior year.
INCOME TAX
The Company's effective rate in the second quarter of fiscal 1996 was 38%,
compared to 39% for the same period last year. The decrease is due to a lower
expected aggregate state income tax rate.
8
<PAGE> 9
RESULTS OF OPERATIONS (CONTINUED)
TWENTY-SIX WEEKS ENDED AUGUST 4, 1996 COMPARED TO TWENTY-SIX WEEKS ENDED JULY
30, 1995
NET SALES
Net sales for the twenty-six weeks ended August 4, 1996 increased 22% to
$127.0 million compared to $104.5 million for the corresponding period last
year. Sales for the 47 stores opened in fiscal 1996, through August 4, 1996,
contributed $7.9 million of the increase in net sales. Stores opened prior to
fiscal 1996, but not qualifying as comparable stores, including the 22 stores
that were expanded in fiscal 1995 and 1996, contributed $18.4 million of the
increase in net sales. Comparable store net sales decreased 5% in the twenty-six
weeks ended August 4, 1996 and were $3.8 million lower than the prior year.
The decrease in comparable store sales was primarily due to the Company's
strategy of operating with lower per store inventory levels and a lower level of
promotional pricing. The Company anticipates that the trend of lower per store
inventory levels will continue in future periods and this trend is expected to
adversely affect comparable store net sales.
GROSS PROFIT
Gross profit for the twenty-six weeks ended August 4, 1996 increased 25% to
$58.8 million from $46.9 million in the comparable period last year. As a
percentage of net sales, gross profit was 46.3% through the second quarter of
fiscal 1996 compared to 44.9% in the same period last year. Merchandise gross
margins improved 2.2% of sales, however 0.8% of sales was offset by a higher
rate of buying and occupancy costs resulting primarily from the decline in
comparable store sales. The company believes that the increase in merchandise
gross margins was attributable to the trend of lower per store inventory levels,
which contributed to a reduction in promotional pricing through the second
quarter of fiscal 1996 compared to the same period last year resulting in
improved merchandise gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("S,G&A"), which principally
consist of non-occupancy store expenses, corporate overhead and distribution
expenses, increased as a percentage of net sales to 31.5% through the second
quarter of fiscal 1996, compared to 29.9% in the same period last year.
The increase in S, G & A, as a percentage of net sales, was primarily due to
the funding of new business activities (1.5% of sales) and lost expense leverage
in depreciation and amortization expense (0.9% of sales) due primarily to lower
average sales per store. The new business activities included the launch of the
Gymboree catalog and international store expansion. These increased expenses, as
well as lower expense leverage, are expected to continue in the foreseeable
future.
INTEREST INCOME
Net interest income increased to $1.9 million from $1.4 million in the prior
year through the second quarter. The increase was due to higher average cash and
investment balances as compared to the prior year.
INCOME TAX
The Company's effective rate through the second quarter of fiscal 1996 was
38%, compared to 39% for the same period last year. The decrease is due to a
lower expected aggregate state income tax rate.
9
<PAGE> 10
FINANCIAL CONDITION
Net cash provided by operating activities was $18.0 million during the
twenty-six weeks ended August 4, 1996 compared to $1.1 million used in the same
period last year. The increase was primarily due to increased net income and
decreased net inventory levels. At August 4, 1996, average inventory per store
was approximately 29% lower than the same period last year. The decrease was
primarily due to a reduction in planned inventory purchases.
During the twenty-six week period ended August 4, 1996, the primary sources
of funds were $18.0 million generated from operating activities and $3.4 million
from the exercise of stock options. Uses of cash consisted primarily of $8.4
million for the purchase of investments and $15.8 million of capital
expenditures related to new store openings and the relocation/expansion of
certain existing stores.
The combined balances of cash, cash equivalents and investments were $78.9
million at August 4, 1996, an increase of $5.2 million from February 4, 1996.
Working capital as of August 4, 1996 was $98.5 million compared to $89.4 million
at the end of fiscal 1995. The increase in working capital was primarily due to
higher cash, cash equivalents and investments balances, and a significant
increase in accounts payable, partially offset by lower merchandise inventories.
The Company's investments are largely invested in short-to-medium term
investment grade securities.
The Company estimates that capital expenditures during fiscal 1996 will be
approximately $25 million to $30 million, and will be principally used to open
approximately 65 to 70 new stores and remodel or expand 10 to 20 existing
stores.`
The Company has no long term debt and did not require any cash borrowings in
the first twenty-six weeks of fiscal 1996 and 1995. The Company currently has
$100 million of long-term unsecured letters of credit. As of August 16, 1996,
$79.3 million was available. The Company uses these lines primarily to support
letters of credit which fund its foreign sourcing of merchandise inventories.
The Company anticipates that cash generated from operations, together with
its existing cash resources, and funds available from its current letter of
credit facility will be sufficient to satisfy its cash needs through at least
fiscal 1997.
OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
Future operating results will depend upon many factors, including general
economic conditions, levels of competition and the ability of the Company to
successfully monitor and control costs.
LOWER INVENTORY LEVELS
The Company plans to operate with lower per store inventory levels throughout
fiscal 1996. The Company expects this to result in downward pressure on
comparable store net sales.
CATALOG LAUNCH
Gymboree launched a new catalog at the beginning of fiscal 1996. This was a
start-up operation, and it is anticipated that expenses will exceed revenues in
fiscal 1996 in order to build this business. The success of the catalog will
depend upon a number of factors relating to consumer response, as to which the
Company does not have a historical basis for prediction.
10
<PAGE> 11
INTERNATIONAL EXPANSION
In fiscal 1996, the Company is planning to open approximately five retail
stores in Canada. Two Canadian stores were opened in August, 1996. The success
of this planned expansion will depend upon a number of factors, including the
availability of suitable store locations, the ability to provide an adequate
supply of inventory and the ability to hire and train qualified employees. As
this international expansion will be a start-up operation, there can be no
assurance that the Company will be able to achieve its planned expansion on a
timely or profitable basis.
11
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Net Income per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed for
the 2nd quarter of the fiscal year.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GYMBOREE CORPORATION
(Registrant)
September 13, 1996 By: Nancy J. Pedot
- -------------------------- -----------------------------------------
Date Nancy J. Pedot
President and Chief Executive Officer
(Principal executive officer of the registrant)
September 13, 1996 By: James P. Curley
- -------------------------- -----------------------------------------
Date James P. Curley
Senior Vice President and
Chief Financial Officer and
Chief Administrative Officer
(Principal financial and accounting officer
of the registrant)
13
<PAGE> 14
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
11 Computation of Net Income per Share
27 Financial Data Schedule
14
<PAGE> 1
EXHIBIT 11
THE GYMBOREE CORPORATION
COMPUTATION OF INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
---------------------- ----------------------
AUGUST 4, JULY 30, AUGUST 4, JULY 30,
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
NET INCOME $ 4,285 $ 4,283 $12,878 $10,571
======= ======= ======= =======
Weighted average number of shares
outstanding during the period:
Common Stock 25,161 24,848 25,103 24,748
Add incremental shares from assumed
exercise of stock options and warrants 554 531 484 590
------- ------- ------- -------
25,715 25,379 25,586 25,338
======= ======= ======= =======
PRIMARY NET INCOME PER SHARE $ 0.17 $ 0.17 $ 0.50 $ 0.42
======= ======= ======= =======
Weighted average number of shares
outstanding during the period:
Common Stock 25,161 24,849 25,103 24,748
Add incremental shares from assumed
exercise of stock options and warrants 555 654 491 731
------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding during
the period 25,716 25,503 25,594 25,479
======= ======= ======= =======
FULLY DILUTED NET INCOME PER SHARE $ 0.17 $ 0.17 $ 0.50 $ 0.41
======= ======= ======= =======
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS FILED AS
PART OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS ON FORM 10-Q.
</LEGEND>
<CIK> 0000786110
<NAME> THE GYMBOREE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> MAY-06-1996
<PERIOD-END> AUG-04-1996
<EXCHANGE-RATE> 1
<CASH> 5,940
<SECURITIES> 72,941
<RECEIVABLES> 4,825
<ALLOWANCES> 0
<INVENTORY> 45,065
<CURRENT-ASSETS> 132,512
<PP&E> 70,397
<DEPRECIATION> (15,532)
<TOTAL-ASSETS> 187,603
<CURRENT-LIABILITIES> 34,026
<BONDS> 0
0
0
<COMMON> 60,929
<OTHER-SE> 79,932
<TOTAL-LIABILITY-AND-EQUITY> 187,603
<SALES> 57,898
<TOTAL-REVENUES> 57,898
<CGS> (32,750)
<TOTAL-COSTS> (32,750)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,911
<INCOME-TAX> 2,626
<INCOME-CONTINUING> 4,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,285
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
