<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 MAY 5, 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 June 2, 1996: 25,095,394
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
PART I. FINANCIAL INFORMATION
<S> <C>
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 4. Submission of Matters to a Vote of Security Holders . 11
Item 6. Exhibits and Reports on Form 8-K .................... 11
Signatures ..................................................... 12
</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
----------------------
MAY 5, APRIL 30,
1996 1995
-------- ---------
<S> <C> <C>
NET SALES $ 69,103 $ 55,077
COST OF GOODS SOLD, INCLUDING
BUYING AND OCCUPANCY EXPENSES (35,447) (29,574)
-------- --------
GROSS PROFIT 33,656 25,503
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (20,815) (16,070)
PLAY PROGRAM INCOME 128 184
-------- --------
OPERATING INCOME 12,969 9,617
INTEREST INCOME 890 690
-------- --------
INCOME BEFORE INCOME TAXES 13,859 10,307
INCOME TAXES (5,266) (4,019)
-------- --------
NET INCOME $ 8,593 $ 6,288
======== ========
NET INCOME PER SHARE:
PRIMARY $ 0.34 $ 0.25
FULLY DILUTED $ 0.34 $ 0.25
WEIGHTED AVERAGE SHARES OUTSTANDING:
PRIMARY 25,444 25,286
FULLY DILUTED 25,575 25,287
NUMBER OF STORES AT END OF PERIOD 305 234
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
THE GYMBOREE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MAY 5, FEBRUARY 4, APRIL 30,
1996 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 11,476 $ 8,755 $ 6,155
INVESTMENTS 74,983 64,893 58,455
ACCOUNTS RECEIVABLE 4,319 2,868 2,746
MERCHANDISE INVENTORIES 29,091 37,652 33,691
PREPAID EXPENSES AND OTHER 2,342 1,886 968
--------- --------- ---------
TOTAL CURRENT ASSETS 122,211 116,054 102,015
--------- --------- ---------
PROPERTY AND EQUIPMENT:
LEASEHOLD IMPROVEMENTS 34,657 31,126 21,829
FURNITURE, FIXTURES AND EQUIPMENT 28,143 24,367 15,841
--------- --------- ---------
62,800 55,493 37,670
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (13,554) (12,085) (9,676)
--------- --------- ---------
49,246 43,408 27,994
OTHER ASSETS 517 547 1,036
--------- --------- ---------
TOTAL ASSETS $ 171,974 $ 160,009 $ 131,045
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
TRADE ACCOUNTS PAYABLE $ 9,794 $ 9,657 $ 9,922
ACCRUED LIABILITIES 9,843 10,736 8,734
INCOME TAXES PAYABLE 8,408 6,244 4,586
--------- --------- ---------
TOTAL CURRENT LIABILITIES 28,045 26,637 23,242
--------- --------- ---------
DEFERRED RENT AND OTHER 11,310 9,438 7,499
STOCKHOLDERS' EQUITY:
COMMON STOCK, INCLUDING EXCESS PAID-IN CAPITAL
($.001 PAR VALUE: 100,000,000 SHARES AUTHORIZED;
25,042,605, 24,992,276 AND 24,681,903 SHARES
OUTSTANDING AT MAY 5, 1996, FEBRUARY 4, 1996,
AND APRIL 30, 1995, RESPECTIVELY) 57,355 56,687 54,089
RESTRICTED STOCK DEFERRED COMPENSATION (1,043) (1,139) (1,437)
UNREALIZED CHANGE IN VALUE OF INVESTMENTS (269) 402 (239)
RETAINED EARNINGS 76,576 67,984 47,891
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 132,619 123,934 100,304
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 171,974 $ 160,009 $ 131,045
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------
MAY 5, APRIL 30,
1996 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 21,077 $ 6,048
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF PROPERTY AND EQUIPMENT (8,100) (5,441)
PURCHASES OF INVESTMENTS (10,761) (6,130)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (18,861) (11,571)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 505 650
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,721 (4,873)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 8,755 11,028
======== ========
END OF PERIOD $ 11,476 $ 6,155
======== ========
</TABLE>
SEE 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 of The
Gymboree Corporation and its wholly-owned subsidiaries (the "Company") as
of and for the period ended May 5, 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 results of operations, the financial
position 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.
6
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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 each such
period:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES PERCENTAGE CHANGE
FOR THE THIRTEEN WEEKS ENDED IN DOLLAR AMOUNTS
---------------------------- FROM 1995 TO 1996 FOR
MAY 5, APR. 30, THE THIRTEEN
1996 1995 WEEK PERIOD
------ -------- ---------------------
<S> <C> <C> <C>
NET SALES 100.0% 100.0% 25%
COST OF GOODS SOLD, INCLUDING
BUYING AND OCCUPANCY EXPENSES (51.3) (53.7) 20
------ ------
GROSS PROFIT 48.7 46.3 32
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (30.1) (29.2) 30
PLAY PROGRAM INCOME 0.2 0.3 (30)
------ ------
OPERATING INCOME 18.8 17.4 35
INTEREST INCOME 1.3 1.3 29
------ ------
INCOME BEFORE INCOME TAXES 20.1 18.7 34
INCOME TAXES (7.7) (7.3) 31
------ ------
NET INCOME 12.4% 11.4% 37%
====== ======
NUMBER OF STORES AT END OF PERIOD 305 234
</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
<PAGE> 8
RESULTS OF OPERATIONS (CONTINUED)
THIRTEEN WEEKS ENDED MAY 5, 1996 COMPARED TO THIRTEEN WEEKS ENDED APRIL 30, 1995
NET SALES
Net sales in the first quarter of fiscal 1996 increased 25% to $69.1
million compared to $55.1 million in the same period last year. Sales for the 26
stores opened in the first fiscal quarter of 1996 contributed $3.0 million of
the increase in net sales. Stores opened prior to fiscal 1996, but not
qualifying as comparable stores, including seven stores that were expanded in
fiscal 1996, contributed $11.7 million of the increase in net sales. Comparable
store net sales decreased 3% in the first quarter and were $1.2 million lower
than the prior year.
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. 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 increased 32% to $33.7 million from $25.5 million in the
first quarter of prior year. As a percentage of net sales, gross profit was
48.7% in the first quarter of fiscal 1996 compared to 46.3% in the same period
last year. The trend of lower per store inventory levels contributed to lower
promotional pricing in the first 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 30.1% in the first quarter
of fiscal 1996, compared to 29.2% in the same period last year.
The increase, as a percentage of net sales, was primarily due to the
funding of new business activities. These activities included the launch of the
Gymboree catalog and international expansion. These increased expenses, as well
as lower expense leverage related to the decrease in comparable store net sales,
are expected to continue in the foreseeable future.
INTEREST INCOME
Net interest income increased to $890,000 from $690,000 in the prior year
first 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 first 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
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $21.1 million during the
thirteen weeks ended May 5, 1996 compared to $6.0 million for the same period
last year. The increase was primarily due to increased net income and decreased
net inventory levels. At May 5, 1996, average inventory per store was
approximately 34% lower than the same period last year. The decrease was
primarily due to a reduction in planned inventory purchases.
During the thirteen week period ended May 5, 1996, the primary sources of
funds were $21.1 million generated from operating activities and $505,000 from
the exercise of stock options. Uses of cash consisted primarily of $10.8 million
for the purchase of investments and $8.1 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 $86.5
million at May 5, 1996, an increase of $12.8 million from February 4, 1996.
Working capital as of May 5, 1996 was $94.2 million compared to $89.4 million at
end of fiscal 1995. The increase in working capital was primarily due to higher
cash, cash equivalents and investments balances, 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 $30 million to $35 million, and will be principally used to open
approximately 65 to 70 new stores and remodel or expand 10 to 20 existing
stores, and begin the installation of a new in-store point-of-sales system for
each of the Company's retail stores.
The Company has no long term debt and did not require any cash borrowings
in the first thirteen weeks of fiscal 1996 and 1995. The Company currently has
$100 million of long-term unsecured letters of credit. As of June 2, 1996, $66.1
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.
9
<PAGE> 10
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 identify and respond to emerging children's fashion trends, achieve
its expansion plans and effectively 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 will
be 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 business 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
In fiscal 1996, the Company is planning to open approximately five retail
stores in Canada. 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.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 16, 1996 at which the
stockholders voted on proposals as follows:
<TABLE>
<CAPTION>
Votes Against Votes Abstained
Votes for or Withheld and Non-Votes
--------- ----------- -------------
<S> <C> <C> <C>
Election of Directors:
Stuart G. Moldaw 21,282,229 661,244 Not Applicable
William U. Westerfield 21,291,691 651,782 Not Applicable
Approve an amendment of the
Company's 1993 Stock Option
Plan to increase the number of
shares of Common Stock
available for issuance thereunder
by 1,000,000 shares 16,649,758 4,854,984 438,731
Approve the adoption of
The Gymboree Corporation
Bonus Plan 21,129,310 516,090 298,073
Ratify the appointment of
Deloitte & Touche LLP as
independent auditors for
fiscal 1996. 21,851,589 56,693 35,191
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Net Income per Share
(b) No reports on Form 8-K were filed by the Registrant during
the quarter for which this report is filed.
11
<PAGE> 12
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)
June 10, 1996 By: /s/ Nancy J. Pedot
- ------------------------ -------------------------------------------
Date Nancy J. Pedot
President and Chief Executive Officer
(Principal executive officer of the registrant)
June 10, 1996 By: /s/ 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)
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- ------
Description
<S> <C> <C>
11 Computation of Net Income per Share
27 Financial Data Schedule
</TABLE>
13
<PAGE> 1
EXHIBIT 11
THE GYMBOREE CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------------
MAY 5, APRIL 30,
1996 1995
----------- -----------
<S> <C> <C>
NET INCOME $ 8,592,527 $ 6,287,508
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
DURING THE PERIOD:
COMMON STOCK 25,027,377 24,637,213
ADD INCREMENTAL SHARES FROM ASSUMED
EXERCISE OF STOCK OPTIONS 416,270 649,046
----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 25,443,647 25,286,259
=========== ===========
PRIMARY NET INCOME PER SHARE $ 0.34 $ 0.25
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
DURING THE PERIOD:
COMMON STOCK 25,027,377 24,637,213
ADD INCREMENTAL SHARES FROM ASSUMED
EXERCISE OF STOCK OPTIONS 547,454 649,296
----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 25,574,831 25,286,509
=========== ===========
FULLY DILUTED NET INCOME PER SHARE $ 0.34 $ 0.25
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 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 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> FEB-05-1996
<PERIOD-END> MAY-05-1996
<EXCHANGE-RATE> 1
<CASH> 11,476
<SECURITIES> 74,983
<RECEIVABLES> 4,319
<ALLOWANCES> 0
<INVENTORY> 29,091
<CURRENT-ASSETS> 122,211
<PP&E> 62,800
<DEPRECIATION> 13,554
<TOTAL-ASSETS> 171,974
<CURRENT-LIABILITIES> 28,045
<BONDS> 0
0
0
<COMMON> 57,355
<OTHER-SE> 75,264
<TOTAL-LIABILITY-AND-EQUITY> 171,974
<SALES> 69,103
<TOTAL-REVENUES> 69,103
<CGS> 35,447
<TOTAL-COSTS> 35,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,859
<INCOME-TAX> 5,266
<INCOME-CONTINUING> 8,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,593
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
