<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 NOVEMBER 3, 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 December 1, 1996: 25,290,183
1
<PAGE> 2
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 39 WEEKS ENDED
-------------- --------------
Nov. 3, Oct. 29, Nov. 3, Oct. 29,
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 84,685 $ 66,225 $ 211,687 $ 170,693
Cost of goods sold, including
buying and occupancy expenses (44,432) (37,705) (112,629) (95,311)
-------- -------- --------- ---------
Gross Profit 40,253 28,520 99,058 75,382
Selling, general and administrative expenses (26,343) (17,386) (66,346) (48,626)
Play program income (loss) (222) (68) (105) 247
-------- -------- --------- ---------
Operating income 13,688 11,066 32,607 27,003
Interest income 819 462 2,671 1,853
-------- -------- --------- ---------
Income before income taxes 14,507 11,528 35,278 28,856
Income taxes (5,512) (4,496) (13,406) (11,253)
-------- -------- --------- ---------
Net income $ 8,995 $ 7,032 $ 21,872 $ 17,603
======== ======== ========= =========
Net income per share:
Primary $ 0.35 $ 0.28 $ 0.85 $ 0.69
Fully diluted $ 0.35 $ 0.28 $ 0.85 $ 0.69
Weighted average shares outstanding:
Primary 25,772 25,442 25,653 25,370
Fully diluted 25,834 25,441 25,777 25,372
Number of stores at end of period 348 271 348 271
</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 NOVEMBER 3, FEBRUARY 4, OCTOBER 29,
1996 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,960 $ 8,755 $ 7,171
Investments 72,546 64,893 45,160
Accounts receivable 4,937 2,868 4,068
Merchandise inventories 51,725 37,652 51,620
Prepaid expenses and other 1,918 1,886 1,292
--------- --------- ---------
Total current assets 138,086 116,054 109,311
Property and Equipment:
Leasehold improvements 41,454 31,126 29,195
Furniture, fixtures and equipment 37,129 24,367 21,664
--------- --------- ---------
78,584 55,493 50,859
Less accumulated depreciation and amortization (17,259) (12,085) (11,821)
--------- --------- ---------
61,324 43,408 39,038
Other assets 336 547 464
--------- --------- ---------
Total assets $ 199,746 $ 160,009 $ 148,813
========= ========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable $ 19,768 $ 9,657 $ 12,952
Accrued liabilities 11,999 10,736 10,456
Income taxes payable 2,666 6,244 1,729
--------- --------- ---------
Total current liabilities 34,433 26,637 25,137
Deferred Rent and Other 14,274 9,438 9,387
Stockholders' Equity:
Common stock, including excess paid-in capital
($.001 par value: 100,000,000
shares authorized 25,282,749, 24,992,276 and
24,938,539 shares outstanding at
November 3, 1996, February 4, 1996,
and October 29, 1995, respectively) 61,874 56,687 56,216
Restricted stock deferred compensation (850) (1,139) (1,244)
Unrealized change in value of investments 178 402 110
Cumulative foreign currency translation adjustment (20)
Retained earnings 89,857 67,984 59,207
--------- --------- ---------
Total stockholders' equity 151,039 123,934 114,289
--------- --------- ---------
Total liabilities and stockholders' equity $ 199,746 $ 160,009 $ 148,813
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
4
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THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
39 WEEKS ENDED
---------------------------
NOVEMBER 3, October 29,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 27,062 $ 6,082
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (24,961) (19,422)
Purchases of investments (7,877) (3,041)
Proceeds from sale of investments -- 10,578
Other (201) --
-------- --------
Net cash used in investing activities (33,039) (11,885)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4,182 1,946
-------- --------
Net increase (decrease) in cash and cash equivalents (1,795) (3,857)
CASH AND CASH EQUIVALENTS:
Beginning of period 8,755 11,028
-------- --------
End of period $ 6,960 $ 7,171
======== ========
</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 November 3, 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 and are stated at the lower of cost (retail method) or
market.
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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 THIRTY-NINE IN DOLLAR AMOUNTS
WEEKS ENDED WEEKS ENDED FROM 1995 TO 1996
----------- ----------- -----------------
NOV. 3, OCT. 29, NOV. 3, OCT. 29, THIRTEEN THIRTY-NINE
1996 1995 1996 1995 WEEKS WEEKS
---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 28% 24%
Cost of goods sold, including
buying and occupancy expenses (52.5) (56.9) (53.2) (55.8) 18 18
----- ----- ----- -----
Gross Profit 47.5 43.1 46.8 44.2 41 31
Selling, general and administrative
expenses (31.1) (26.3) (31.3) (28.5) 52 36
Play program income/(loss) (0.3) (0.1) (0.0) 0.1 (226) (143)
----- ----- ----- -----
Operating income 16.1 16.7 15.4 15.8 24 21
Interest income 1.0 0.7 1.3 1.1 77 44
----- ----- ----- -----
Income before income taxes 17.1 17.4 16.7 16.9 26 22
Income taxes (6.5) (6.8) (6.3) (6.6) 23 19
----- ----- ----- -----
Net income 10.6% 10.6% 10.3% 10.3% 28% 24%
===== ===== ===== =====
Number of stores at end of period 348 271 348 271
</TABLE>
This Quarterly Report on 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 NOVEMBER 3, 1996 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER
29, 1995
NET SALES
Net sales for the third quarter of fiscal 1996 increased 27.9% to $84.7
million compared to $66.2 million for the corresponding period last year. Sales
for the 69 stores opened in fiscal 1996 plus the new catalog operation
contributed $13.3 million of the increase in net sales. Stores opened prior to
fiscal 1996 but not qualifying as comparable stores, including expanded stores,
contributed $4.6 million of the increase in net sales. Comparable store net
sales increased 0.9% in the third quarter and were $0.5 million higher than the
prior year. Restating fiscal 1995 to adjust for the 52/53 week calendar shift
results in a decrease in comparable store net sales of 12% in the third quarter.
The decrease in comparable store sales compared to the restated fiscal 1995
sales was due primarily to the Company's strategy of operating with lower per
store inventory levels and significantly lower levels of promotional pricing.
This trend of lower comparable sales and lower levels of promotional pricing is
expected to continue through the fourth quarter of 1996.
GROSS PROFIT
Gross profit for the thirteen weeks ended November 3, 1996 increased 41.1% to
$40.3 million from $28.5 million in the comparable period last year. As a
percentage of net sales, gross profit was 47.5% in the third quarter of fiscal
1996 compared to 43.1% in the same period last year. The increase in gross
margins was attributable to the trend of lower per store inventory levels, which
contributed to a lower level of promotional pricing in the third quarter of
fiscal 1996 compared to the same period last year. In addition, the level of
promotional pricing in the third quarter of 1995 was higher than normal as the
Company was beginning a program to reduce high inventory levels.
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 31.1% in the third quarter
of fiscal 1996, compared to 26.3% 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 (3.1% of net sales) and a higher level of
store expenses principally depreciation, amortization and repairs and
maintenance (0.7% of net sales). The new business activities included the launch
of the Gymboree catalog and international store expansion. In addition, higher
corporate general and administrative expenses (1.1% of net sales) occurred as a
result of a higher corporate payroll and additional costs related to building
the corporate infrastructure. These increased expenses, as well as lower expense
leverage, are expected to continue in the foreseeable future.
INTEREST INCOME
Net interest income increased to $819,000 from $462,000 in the prior year
third quarter. The increase was due to higher average cash and investment
balances as compared to the prior year.
8
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RESULTS OF OPERATIONS (CONTINUED)
INCOME TAX
The Company's effective rate in the third quarter of fiscal 1996 was 38%,
compared to 39% for the same period last year. The decrease was due to a lower
expected aggregate state income tax rate.
THIRTY-NINE WEEKS ENDED NOVEMBER 3, 1996 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 29, 1995
NET SALES
Net sales for the thirty-nine weeks ended November 3, 1996 increased 24.0%
to $211.7 million compared to $170.7 million for the corresponding period last
year. Sales for the 69 stores opened in fiscal 1996 plus the new catalog
operation contributed $22.0 million of the increase in net sales. Stores opened
prior to fiscal 1996 but not qualifying as comparable stores, including expanded
stores, contributed $22.2 million of the increase in net sales. Comparable store
net sales decreased 2.2% in the thirty-nine weeks ended November 3, 1996 and
were $3.2 million lower than the prior year. Restating fiscal 1995 to adjust for
the 52/53 week calendar shift results in a decrease in comparable store net
sales of 8% in the thirty-nine week period.
The decrease in comparable store net sales was primarily due to the
Company's strategy of operating with lower per store inventory levels and a
lower level of promotional pricing.
GROSS PROFIT
Gross profit for the thirty-nine weeks ended November 3, 1996 increased 31.4%
to $99.1 million from $75.4 million in the comparable period last year. As a
percentage of net sales, gross profit was 46.8% through the third quarter of
fiscal 1996 compared to 44.2% in the same period last year. Merchandise gross
margins, as a percent of net sales, improved 3.3%, however, this was offset by
slightly higher buying and occupancy costs (0.7% of net 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 third quarter of fiscal 1996
compared to the same period last year.
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 31.3% through the third
quarter of fiscal 1996, compared to 28.5% 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 (2.1% of net sales) and lost expense
leverage in depreciation and amortization expense (0.8% of net 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.
9
<PAGE> 10
INTEREST INCOME
Net interest income increased to $2.7 million from $1.9 million in the prior
year through the third 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 third 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.
FINANCIAL CONDITION
Net cash provided by operating activities was $27.1 million during the
thirty-nine weeks ended November 3, 1996 compared to $6.1 million in the same
period last year. The increase was primarily due to increased net income and
decreased net inventory levels. At November 3, 1996, average inventory per store
was approximately 22% lower than the same period last year. The decrease was
primarily due to a planned reduction in inventory purchases.
During the thirty-nine week period ended November 3, 1996, the Company's
primary sources of cash were $27.1 million generated from operating activities
and $4.2 million from the exercise of stock options. Uses of cash consisted
primarily of $7.9 million for the purchase of investments and $25 million for
capital expenditures primarily related to new store openings and the
relocation/expansion of certain existing stores.
The combined balances of cash, cash equivalents and investments were $79.5
million at November 3, 1996, an increase of $5.9 million from February 4, 1996.
Working capital as of November 3, 1996 was $103.7 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 investment balances, as well as higher
merchandise inventories, offset by an increase in accounts payable. The
Company's investments largely consist of short-to-medium term investment grade
securities.
The Company estimates that total capital expenditures during fiscal 1996 will
be approximately $35 million to $40 million, and will be principally used to
open approximately 70 to 75 new stores and remodel or expand 15 to 20 existing
stores.
The Company has no long term debt and did not require any cash borrowings in
the first thirty-nine weeks of fiscal 1996 and 1995. The Company currently has
$100 million of long-term unsecured letters of credit. As of November 26, 1996,
$61.3 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.
10
<PAGE> 11
OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
The foregoing paragraphs contain certain forward-looking statements within
the meaning of the federal securities laws. Actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of factors, including competitive market conditions, the degree of
promotional pricing activity by the Company, the ability of the Company to
successfully identify and respond to emerging children's fashion trends,
effectively monitor and control costs, levels of discretionary consumer spending
and general economic conditions.
Other factors that may affect future performance include the following:
LOWER INVENTORY LEVELS
The Company plans to operate with lower per store inventory levels throughout
fiscal 1996 and comparable inventory levels in the fiscal 1997. This has
resulted in downward pressure on comparable store net sales during fiscal 1996,
and the Company expects this trend to continue.
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.
INTERNATIONAL EXPANSION
During the third quarter of 1996, Gymboree opened five stores in Canada. The
success of this expansion will depend upon a number of factors, including the
ability to provide an adequate supply of inventory and the ability to hire and
train qualified employees, of which there can be no assurance.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Net Income per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed for
the 3rd quarter of the fiscal year.
12
<PAGE> 13
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)
December 12, 1996 By: Nancy J. Pedot
- -------------------- --------------------------------------
Date Nancy J. Pedot
President and Chief Executive Officer
(Principal executive officer of the registrant)
December 12, 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
27.1 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 39 WEEKS ENDED
-------------- --------------
NOV. 3, OCT. 29, NOV. 3, OCT. 29,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 8,995 $ 7,032 $21,872 $17,603
======= ======= ======= =======
Weighted average number of shares outstanding during the period:
Common Stock 25,257 24,908 25,155 24,803
Add incremental shares from assumed
exercise of stock options and warrants 515 534 498 567
------- ------- ------- -------
25,772 25,442 25,653 25,370
======= ======= ======= =======
PRIMARY NET INCOME PER SHARE $ 0.35 $ 0.28 $ 0.85 $ 0.69
======= ======= ======= =======
Weighted average number of shares outstanding during the period:
Common Stock 25,257 24,908 25,155 24,803
Add incremental shares from assumed
exercise of stock options and warrants 576 533 622 569
------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding during
the period 25,834 25,441 25,777 25,372
======= ======= ======= =======
FULLY DILUTED NET INCOME PER SHARE $ 0.35 $ 0.28 $ 0.85 $ 0.69
======= ======= ======= =======
</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 FROM 10Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL.
</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> AUG-05-1996
<PERIOD-END> NOV-03-1996
<EXCHANGE-RATE> 1
<CASH> 6,960
<SECURITIES> 72,546
<RECEIVABLES> 4,937
<ALLOWANCES> 0
<INVENTORY> 51,725
<CURRENT-ASSETS> 138,086
<PP&E> 78,584
<DEPRECIATION> (17,259)
<TOTAL-ASSETS> 119,746
<CURRENT-LIABILITIES> 34,433
<BONDS> 0
0
0
<COMMON> 61,874
<OTHER-SE> 89,165
<TOTAL-LIABILITY-AND-EQUITY> 199,746
<SALES> 84,685
<TOTAL-REVENUES> 84,685
<CGS> (44,432)
<TOTAL-COSTS> (44,432)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,507
<INCOME-TAX> (5,512)
<INCOME-CONTINUING> 8,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,995
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
