UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 8-K

 

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of Earliest Event Reported): June 5, 2013

 

THE GYMBOREE CORPORATION

(Exact Name of Registrant as Specified in its Charter)

  

Delaware 000-21250 94-2615258

(State or Other Jurisdiction of

Incorporation)

(Commission File Number)

(I.R.S. Employer

Identification No.)

 

500 Howard Street, San Francisco, CA

94105

(Address of Principal Executive Offices, Including Zip Code)

 

(415) 278-7000

(Registrant’s Telephone Number, Including Area Code)

 


  

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 


 
 

 

Item 2.02 Results of Operations and Financial Condition.

 

On June 5, 2013, The Gymboree Corporation issued an earnings release announcing its financial results for the first fiscal quarter ended May 4, 2013.  A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.  

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

No.   Description 
     
99.1   Earnings release of The Gymboree Corporation dated June 5, 2013.

 

 
 

 

SIGNATURE

 

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 hereunto duly authorized.

 

  THE GYMBOREE CORPORATION
Date: June 5, 2013    
  By: /s/ EVAN PRICE
  Name: Evan Price
  Title: Chief Financial Officer

  

 
 

 

EXHIBIT INDEX

 

No.   Description 
     
99.1   Earnings release of The Gymboree Corporation dated June 5, 2013.

 

 

EXHIBIT 99.1

 

  

 

  

FOR IMMEDIATE RELEASE:   Investor Relations contact:
    Evan Price
    Tel: 415-278-7933
    investor_relations@gymboree.com
     
    Media Relations contact:
    Tel: 415-278-7493
    media_relations@gymboree.com

 

The Gymboree Corporation Reports First Fiscal Quarter 2013 Results

 

San Francisco, Calif., June 5, 2013 – The Gymboree Corporation (the “Company”) today reported consolidated financial results for the first fiscal quarter ended May 4, 2013.

 

For the first quarter of the fiscal year ending February 1, 2014 (“fiscal 2013”), net sales were $292.8 million, a decrease of 1.7% compared to $297.8 million in net sales for the first fiscal quarter of the fiscal year ended February 2, 2013 (“fiscal 2012”). Comparable sales for the quarter decreased 5% versus the first quarter of fiscal 2012.

 

Gross profit for the first quarter of fiscal 2013 was $121.0 million, or 41.3% of net sales, compared to $121.8 million, or 40.9% of net sales, for the first quarter of fiscal 2012. Excluding purchase accounting adjustments of $2.6 million and $3.0 million for the first quarter of fiscal 2013 and the first quarter of fiscal 2012, respectively, relating to the November 2010 acquisition of the Company by Giraffe Holding, Inc., an entity controlled by investment funds sponsored by Bain Capital Partners, LLC (the “Acquisition”), gross profit was $123.6 million, or 42.2% of net sales, and $124.8 million, or 41.9% of net sales, for the first quarter of fiscal 2013 and the first quarter of fiscal 2012, respectively (see Exhibit D).

 

 
 

 

SG&A expense for the first quarter of fiscal 2013 was $104.1 million, or 35.6% of net sales, compared to $91.7 million, or 30.8% of net sales, in the first quarter of fiscal 2012. Results for the first quarter of fiscal 2013 and fiscal 2012 include $3.9 million and $5.2 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments and other adjustments. Excluding these charges, SG&A expense for the first quarter of fiscal 2013 and fiscal 2012 was $100.3 million, or 34.2% of net sales, and $86.5 million, or 29.1% of net sales, respectively, which represents an increase of 510 basis points over fiscal 2012 (see Exhibit D).

 

Net loss for the first quarter of fiscal 2013 was $2.8 million compared to net income of $4.2 million for the same quarter of fiscal 2012.

 

Net income (loss) attributable to The Gymboree Corporation before interest (income) expense, income tax (expense) benefit and depreciation and amortization, adjusted for other items (“Adjusted EBITDA”), for the first quarter of fiscal 2013 decreased 29.2% to $36.0 million compared to $50.8 million for the first quarter of fiscal 2012. Adjusted EBITDA is not a performance measure under GAAP. See “Non-GAAP Financial Measures” below. A reconciliation of net income (loss) attributable to The Gymboree Corporation to Adjusted EBITDA presented herein is included in Exhibit D of this press release.

 

Balance Sheet Highlights

 

Effective March 2012, the Company’s $225 million asset-backed loan (“ABL”) facility was refinanced to take advantage of favorable rates and to extend the maturity date. There were no borrowings outstanding under the ABL as of the end of the first fiscal quarter of fiscal 2013 and approximately $143.1 million of undrawn availability.

 

Cash at the end of the first quarter of fiscal 2013 was $43.1 million compared to $88.3 million at the end of the first quarter of fiscal 2012, reflecting the pay down of approximately $69.4 million of debt since the end of the first quarter last year.

 

Capital expenditures for the first quarter of fiscal 2013 were $10.7 million, with the majority of the cash used to fund the opening of 23 new stores during the quarter.

 

Inventory balances at the end of the first quarter of fiscal 2013 were $180.8 million compared to $185.7 million at the end of the first quarter of fiscal 2012. Inventory cost on a per square foot basis was down 12%, while inventory units on a per square foot basis were down in the low single digits.

 

Fiscal 2013 Business Outlook

 

In fiscal 2013, the Company is focused on improving its inventory discipline, strengthening its product assortment and continuing to drive its growth opportunities of real estate, ecommerce and international. The Company’s fiscal 2013 outlook is based on the current economic environment and trends, as well as its expectations for the balance of the year.

 

 
 

 

Full Year

 

For the full year, the Company continues to expect Adjusted EBITDA to grow modestly over last year and comparable sales to be flat to slightly positive. Based on this guidance, the Company expects to generate sufficient cash flow to service its debt and invest in the business to drive long term growth.

 

New Stores

 

During fiscal 2013, the Company plans to open approximately 100 new stores, with the majority being Crazy 8 stores.

 

Capital Expenditures

 

During fiscal 2013, the Company anticipates spending approximately $50 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 tax expense (benefit), and depreciation and amortization ("EBITDA") adjusted for other items, including loss on extinguishment of debt, 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.

 

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 income (loss).

 

Management Presentation

 

To listen live 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, Tuesday, June 11, 2013, at 855-859-2056, passcode 75524872.

 

 
 

 

About The Gymboree Corporation

 

The Gymboree Corporation’s specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of May 4, 2013, the Company operated a total of 1,280 retail stores: 634 Gymboree® stores (584 in the United States, 43 in Canada, 1 in Puerto Rico and 6 in Australia), 160 Gymboree Outlet stores (158 in the United States, 2 in Puerto Rico), 134 Janie and Jack® shops and 352 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 718 franchised and Company-operated Gymboree Play & Music® centers in the United States and 42 other countries.

 

Forward-Looking Statements

The foregoing financial information for the first fiscal quarter ended May 4, 2013 is unaudited and subject to quarter-end and year-end adjustments.   The foregoing paragraphs contain forward-looking statements relating to The Gymboree Corporation's anticipated future financial performance, such as those relating to its comparable store sales growth, Adjusted EBITDA, capital expenditures, cash flows and new store openings in fiscal 2013. Actual results could vary materially as a result of a number of factors, including 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 and consumer preferences and customer reactions to new merchandise, service levels and new 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 2, 2013 filed with the Securities and Exchange Commission (“SEC”) on May 2, 2013, and its subsequent SEC filings. The forward-looking statements contained in this press release reflect the Company's expectations as of the date hereof, and the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by the Company that its plans or objectives will be achieved. The Company undertakes no obligation to update the information provided herein.

 

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
(Unaudited)

 

   Quarter Ended   Quarter Ended 
   May 4, 2013   April 28, 2012 
   13 Weeks   13 Weeks 
   (in thousands) 
Net sales:          
Retail  $280,877   $288,116 
Gymboree Play & Music   6,328    5,792 
Retail Franchise   5,578    3,843 
Total net sales   292,783    297,751 
Cost of goods sold, including buying and occupancy expenses   (171,810)   (175,927)
Gross profit   120,973    121,824 
Selling, general and administrative expenses   (104,129)   (91,739)
Operating income   16,844    30,085 
Interest income   41    59 
Interest expense   (20,402)   (21,658)
Loss on extinguishment of debt   -    (1,237)
Other income (expense), net   9    (66)
Income (loss) before income taxes   (3,508)   7,183 
Income tax (expense) benefit   660    (3,013)
Net income (loss)   (2,848)   4,170 
Net loss attributable to noncontrolling interest    312    826 
Net (loss) income attributable to The Gymboree Corporation  $(2,536)  $4,996 

 

 

 
 

 

EXHIBIT B

 

THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 

   May 4, 2013   February 2, 2013   April 28, 2012 
   (in thousands) 
Current assets               
Cash and cash equivalents  $43,146   $33,328   $88,268 
Accounts receivable   22,124    27,542    25,264 
Merchandise inventories   180,796    197,935    185,691 
Prepaid income taxes   3,076    2,903    3,220 
Prepaid expenses   16,809    17,341    3,573 
Deferred income taxes   30,647    31,383    30,800 
    Total current assets   296,598    310,432    336,816 
                
Property and equipment, net   205,985    205,325    202,419 
Goodwill   898,983    898,966    899,097 
Other intangible assets   578,456    580,641    594,574 
Deferred financing costs   38,419    40,040    46,220 
Other assets   7,443    7,809    5,504 
                
    Total assets  $2,025,884   $2,043,213   $2,084,630 
                
Current liabilities               
Accounts payable  $57,753   $90,133   $48,954 
Accrued liabilities   107,095    90,443    91,772 
Current portion of long-term debt   -    -    15,648 
    Total current liabilities   164,848    180,576    156,374 
                
Long-term liabilities               
Long-term debt   1,138,524    1,138,455    1,192,241 
Lease incentives and other deferred liabilities   43,432    40,104    31,082 
Unrecognized tax benefits   8,135    7,848    8,172 
Deferred income taxes   231,540    234,593    242,244 
    Total liabilities   1,586,479    1,601,576    1,630,113 
                
Stockholders' equity   439,405    441,637    454,517 
                
Total liabilities and stockholders' equity  $2,025,884   $2,043,213   $2,084,630 

 

 
 

 

EXHIBIT C

 

THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

   Quarter Ended   Quarter Ended 
   May 4, 2013   April 28, 2012 
   13 Weeks   13 Weeks 
   (in thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income (loss)  $(2,848)  $4,170 
Adjustments to reconcile net income (loss) to net cash          
  provided by operating activities:          
Loss on extinguishment of debt   -    1,237 
Depreciation and amortization   12,822    14,248 
Amortization of deferred financing costs and accretion of original issue discount   1,690    1,802 
Interest rate cap contracts - adjustment to market   183    53 
Provision (benefit) for deferred income taxes   (2,210)   2,098 
Share-based compensation expense   1,497    1,407 
Other   314    848 
Change in assets and liabilities:          
            Accounts receivable   5,443    (380)
            Merchandise inventories   17,244    24,046 
            Prepaid expenses and other assets   409    1,902 
            Prepaid income taxes   (179)   525 
            Accounts payable   (32,377)   (30,078)
            Accrued liabilities   13,395    (5,378)
            Lease incentives and other deferred liabilities   4,335    3,476 
Net cash provided by operating activities   19,718    19,976 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital expenditures   (10,658)   (8,625)
Other   (93)   (176)
Net cash used in investing activities   (10,751)   (8,801)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Payments on Term Loan   -    (2,050)
Deferred financing costs paid   -    (1,274)
Investment by affiliate of Parent   -    2,400 
Dividend payment to Parent   (201)   - 
Capital contribution to noncontrolling interest   1,007    - 
Net cash provided by (used in) financing activities   806    (924)
Effect of exchange rate fluctuations on cash   45    107 
Net increase in cash and cash equivalents   9,818    10,358 
CASH AND CASH EQUIVALENTS:          
Beginning of period   33,328    77,910 
End of period  $43,146   $88,268 

 

 
 

 

EXHIBIT D

 

THE GYMBOREE CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

 

ADJUSTED EBITDA:

The Company defines "Adjusted EBITDA" as net income (loss) attributable to The Gymboree Corporation before interest (income) expense, income tax expense (benefit), and depreciation and amortization ("EBITDA") adjusted for other items, including gain or loss on extinguishment of debt, 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 income (loss) attributable to The Gymboree Corporation to Adjusted EBITDA (in thousands):

 

         
   Quarter Ended   Quarter Ended 
   May 4, 2013   April 28, 2012 
    13 Weeks    13 Weeks 
Net (loss) income attributable to The Gymboree Corporation  $(2,536)  $4,996 
Reconciling items (a):          
Interest expense   20,402    21,658 
Interest income   (26)   (48)
Income tax expense (benefit)   (861)   2,954 
Depreciation and amortization (b)   12,620    14,162 
Non-cash share-based compensation expense   1,497    1,407 
Loss on disposal/impairment on assets   300    62 
Loss (gain) on extinguishment of debt   -    1,237 
Restructuring charges   489    - 
Acquisition-related adjustments (c)   4,093    4,398 
Adjusted EBITDA  $35,978   $50,826 
           
(a) Exclude amounts related to noncontrolling interest, which are already excluded from net income (loss) attributable to The Gymboree Corporation.          
           
(b) Includes the following (in thousands):          
Amortization of intangible assets (impacts SG&A)  $2,258   $4,340 
Amortization of below and above market leases (impacts COGS)   (386)   (548)
   $1,872   $3,792 
           
(c) Include the following (in thousands):          
Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)  $2,232   $2,324 
Sponsor fees, legal and  accounting,  as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)   1,120    872 
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    1,202 
   $4,093   $4,398 
           
           
OTHER NON-GAAP FINANCIAL MEASURES:          
         
   Quarter Ended   Quarter Ended 
   May 4, 2013   April 28, 2012 
    13 Weeks    13 Weeks 
           
Gross profit as reported  $120,973   $121,824 
Acquisition-related adjustments   2,587    2,978 
Adjusted gross profit excluding Acquisition-related adjustments (non-GAAP measure)  $123,560   $124,802 
           
           
    Quarter Ended    Quarter Ended 
    May 4, 2013    April 28, 2012 
    13 Weeks    13 Weeks 
           
SG&A as reported  $(104,129)  $(91,739)
           
Acquisition-related adjustments   3,378    5,212 
Other adjustments   489    - 
    3,867    5,212 
Adjusted SG&A excluding Acquisition-related and other adjustments (non-GAAP measure)  $(100,262)  $(86,527)

 

 
 

 

 

EXHIBIT E              
THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)

 

   For the quarter ended May 4, 2013 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
   (in thousands) 
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 
Interest income   27    14    -    41 
Interest expense   (20,402)   -    -    (20,402)
Other income (expense), net   (108)   117    -    9 
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)

 

   For the quarter ended April 28, 2012 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
   (in thousands) 
Net sales  $297,931   $2,143   $(2,323)  $297,751 
Cost of goods sold, including buying and occupancy expenses   (176,049)   (242)   364    (175,927)
Gross profit   121,882    1,901    (1,959)   121,824 
Selling, general and administrative expenses   (90,894)   (2,655)   1,810    (91,739)
Operating income (loss)   30,988    (754)   (149)   30,085 
Interest income   48    11    -    59 
Interest expense   (21,658)   -    -    (21,658)
Loss on extinguishment of debt   (1,237)   -    -    (1,237)
Other expense, net   (42)   (24)   -    (66)
Income (loss) before income taxes   8,099    (767)   (149)   7,183 
Income tax expense   (2,954)   (59)   -    (3,013)
Net income (loss)   5,145    (826)   (149)   4,170 
Net loss attributable to noncontrolling interest   -    826    -    826 
Net income attributable to The Gymboree Corporation  $5,145   $-   $(149)  $4,996 

 

 

 
 

 

 EXHIBIT E (continued) 

 

THE GYMBOREE CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

 

 

   May 4, 2013 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
   (in thousands) 
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 

 

   April 28, 2012 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
   (in thousands) 
Current assets  $327,746   $11,536   $(2,466)  $336,816 
Non-current assets   1,746,957    857    -    1,747,814 
Total assets  $2,074,703   $12,393   $(2,466)  $2,084,630 
                     
Current liabilities  $149,593   $9,098   $(2,317)  $156,374 
Non-current liabilities   1,473,680    59    -    1,473,739 
Total liabilities  $1,623,273   $9,157   $(2,317)  $1,630,113 
                     
Total stockholders' equity   451,430    -    (149)   451,281 
Noncontrolling interest   -    3,236    -    3,236 
Total liabilities and stockholders' equity  $2,074,703   $12,393   $(2,466)  $2,084,630 
                     

 

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