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 12, 2014

 

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 12, 2014, The Gymboree Corporation issued an earnings release announcing its financial results for the first fiscal quarter ended May 3, 2014.  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 12, 2014.

 

 
 

 

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 12, 2014    
  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 12, 2014.

 

 

 

EXHIBIT 99.1

 

 

 

FOR IMMEDIATE RELEASE: Investor Relations contact:
  Marc Passalacqua
  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 and 2014 Results

 

San Francisco, Calif., June 12, 2014 – The Gymboree Corporation (the “Company”) today reported consolidated financial results for the first fiscal quarter ended May 3, 2014.

 

First Quarter Results (13-weeks ended May 3, 2014 versus 13-weeks ended May 4, 2013)

 

·Net sales were $272.0 million, compared to $292.8 million in the first quarter of fiscal 2013.
·Comparable sales (including online stores) declined 10%.
·Gross profit was $108.4 million, or 39.8% of net sales, compared to $121.0 million, or 41.3% of net sales, for the first quarter of fiscal 2013.
·Adjusted gross profit was $110.2 million, or 40.5% of net sales, compared to $123.6 million, or 42.2% of net sales, for the first quarter of fiscal 2013. Adjusted gross profit excludes purchase accounting adjustments of $1.8 million and $2.6 million for the first quarter of fiscal 2014 and the first quarter of fiscal 2013, respectively, relating to the November 2010 acquisition of the Company by investment funds sponsored by Bain Capital Partners, LLC (the “Acquisition”) (see Exhibit D for relevant reconciliation information).
·SG&A expense was $102.3 million, or 37.6% of net sales, compared to $104.1 million, or 35.6% of net sales, for the first quarter of fiscal 2013.
·Adjusted SG&A expense was $101.8 million, or 37.4% of net sales, compared to $100.3 million, or 34.2% of net sales, in the first quarter of fiscal 2013. Adjusted SG&A excludes $0.5 million and $3.9 million, respectively, of additional costs resulting from the Acquisition, including the effect of purchase accounting adjustments and non-recurring adjustments (see Exhibit D for relevant reconciliation information).
·Net loss attributable to The Gymboree Corporation was $13.4 million compared to a net loss of $2.5 million for the first quarter of fiscal 2013.

 

 
 

 

·Adjusted EBITDA, defined as net loss attributable to The Gymboree Corporation before interest income/expense, income taxes and depreciation and amortization, adjusted for other items described above, was $22.0 million compared to $36.0 million for the first quarter of fiscal 2013.
·Adjusted EBITDA is not a financial measure under U.S. generally accepted accounting principles (“GAAP”). For a description of these measures, see “Non-GAAP Financial Measures” below. A reconciliation of net loss attributable to The Gymboree Corporation to Adjusted EBITDA presented herein is included in Exhibit D of this press release.

 

Balance Sheet Highlights

 

·There were $10.0 million in borrowings outstanding under the Company's $225 million asset-backed loan facility and approximately $118 million of undrawn availability after deducting for Letters of Credit and outstanding borrowings at the end of the first quarter of fiscal 2014.
·Cash balances were at $24.8 million at the end of the first quarter of fiscal 2014, a decrease of $14.6 million from $39.4 million at the end of fiscal 2013.
·Capital expenditures were $9.4 million during the first quarter of fiscal 2014.
·Inventory balances at the end of the first quarter of fiscal 2014 were $170.4 million, compared to $180.8 million at the end of the first quarter of fiscal 2013. On a per square foot basis, inventory cost declined 10% and inventory units declined in the low teens.

 

Fiscal 2014 Business Outlook

 

The Company’s fiscal 2014 outlook is based on current economic environment trends, as well as management expectations for the remainder of the year.

 

Full Year

 

For the full year, the Company expects Adjusted EBITDA to be approximately flat compared to fiscal 2013. Based on this guidance, the Company expects to have sufficient liquidity during fiscal 2014 to service its debt and invest in the business to drive long-term growth. Furthermore, the Company anticipates utilizing its ABL facility throughout the course of the year to support seasonal working capital needs and does not anticipate having any outstanding borrowings by fiscal year end.

 

New Stores

 

During fiscal 2014, the Company plans to open approximately 50 new stores, distributed fairly evenly across the brands, and close approximately 25 to 30 stores.

 

Capital Expenditures

 

During fiscal 2014, the Company now anticipates spending approximately $35 million to $40 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 taxes, and depreciation and amortization ("EBITDA") adjusted for other items including 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 and other non-recurring or unusual items.

 

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 loss attributable to The Gymboree Corporation).

 

Management Presentation

 

The live broadcast of the discussion of first quarter fiscal 2014 financial results and our business outlook will be available to interested parties at 1:00 p.m. PT (4:00 p.m. ET) on Thursday, June 12, 2014. To listen to the live broadcast 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, Wednesday, June 18, 2014, at 855-859-2056, passcode 32200008.

 

About The Gymboree Corporation

 

The Gymboree Corporation’s specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of May 3, 2014, the Company operated a total of 1,337 retail stores: 627 Gymboree® stores (574 in the United States, 46 in Canada, 1 in Puerto Rico and 6 in Australia), 168 Gymboree Outlet stores (166 in the United States and 2 in Puerto Rico), 146 Janie and Jack® shops and 396 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 698 franchised and Company-operated Gymboree Play & Music® centers in the United States and 41 other countries.

 

 
 

 

Forward-Looking Statements

 

The foregoing financial information for the first fiscal quarter of 2014 is unaudited and subject to quarter-end and year-end adjustments.  This press release includes forward-looking statements, including statements relating to The Gymboree Corporation’s anticipated future financial performance, especially those set forth under the heading “Fiscal 2014 Business Outlook.”  These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “plan,” “could,” “may,” “will,” “believe,” “estimate,” “forecast,” “goal,” “project,” and other words of similar meaning.  Each forward-looking statement contained in this press release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement.  The Company presently considers the following risks and uncertainties to be important factors that could cause actual results to differ materially from the Company’s expectations: 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, consumer preferences and customer reactions to new merchandise and 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 1, 2014, filed with the Securities and Exchange Commission (“SEC”) on May 2, 2014.  The Company cautions investors to carefully consider the risks associated with, and not to place considerable reliance on, the forward-looking statements contained in this press release. The forward-looking statements in this press release speak only as of the date of this document, and the Company undertakes no obligation to update or revise any of these statements.  

 

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

(In thousands)

(Unaudited)

 

   13 Weeks Ended 
   May 3, 2014   May 4, 2013 
Net sales:          
Retail  $259,124   $280,877 
Gymboree Play & Music   6,832    6,328 
Retail Franchise   6,054    5,578 
Total net sales   272,010    292,783 
Cost of goods sold, including buying and occupancy expenses   (163,652)   (171,810)
Gross profit   108,358    120,973 
Selling, general and administrative expenses   (102,290)   (104,129)
Operating income   6,068    16,844 
Interest income   47    41 
Interest expense   (20,374)   (20,402)
Other income (expense), net   (368)   9 
Loss before income taxes   (14,627)   (3,508)
Income tax (expense) benefit   (376)   660 
Net loss   (15,003)   (2,848)
Net loss attributable to noncontrolling interest   1,572    312 
Net loss attributable to The Gymboree Corporation  $(13,431)  $(2,536)

 

 
 

 

EXHIBIT B

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

   May 3,   February 1,   May 4, 
   2014   2014   2013 
ASSETS               
Current assets:               
Cash and cash equivalents  $24,773   $39,429   $43,146 
Accounts receivable   22,394    21,882    22,124 
Merchandise inventories   170,411    175,495    180,796 
Prepaid income taxes   2,986    1,979    3,076 
Prepaid expenses   18,623    18,801    16,809 
Deferred income taxes   14,236    13,454    30,647 
Total current assets   253,423    271,040    296,598 
                
Property and equipment, net   203,476    206,308    205,985 
Goodwill   758,777    758,777    898,983 
Other intangible assets, net   559,003    559,824    578,456 
Deferred financing costs   30,754    32,455    38,419 
Other assets   10,288    11,700    7,443 
                
Total assets  $1,815,721   $1,840,104   $2,025,884 
                
                
LIABILITIES AND STOCKHOLDERS' EQUITY               
Current liabilities:               
Accounts payable  $73,345   $101,959   $57,753 
Accrued liabilities   107,648    100,303    107,095 
Line of credit   10,000    -    - 
Current obligation under capital lease   515    503    - 
Total current liabilities   191,508    202,765    164,848 
                
Long-term liabilities:               
Long-term debt   1,113,817    1,113,742    1,138,524 
Long-term obligation under capital lease   3,269    3,402    - 
Lease incentives and other liabilities   50,534    50,432    43,432 
Unrecognized tax benefits   6,304    6,157    8,135 
Deferred income taxes   215,232    214,464    231,540 
Total liabilities   1,580,664    1,590,962    1,586,479 
                
Stockholders' equity   235,057    249,142    439,405 
                
Total liabilities and stockholders' equity  $1,815,721   $1,840,104   $2,025,884 

 

 
 

 

EXHIBIT C

 

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

   13 Weeks Ended 
   May 3, 2014   May 4, 2013 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(15,003)  $(2,848)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:          
Depreciation and amortization   11,178    12,822 
Amortization of deferred financing costs and accretion of original issue discount   1,776    1,690 
Interest rate cap contracts - adjustment to market   461    183 
Loss on disposal/impairment of assets   359    - 
Deferred income taxes   (33)   (2,210)
Share-based compensation expense   1,276    1,497 
Other   18    314 
Change in assets and liabilities:          
Accounts receivable   (553)   5,443 
Merchandise inventories   4,776    17,244 
Prepaid income taxes   (1,013)   (179)
Prepaid expenses and other assets   1,087    409 
Accounts payable   (28,602)   (32,377)
Accrued liabilities   8,897    13,395 
Lease incentives and other liabilities   693    4,335 
Net cash (used in) provided by operating activities   (14,683)   19,718 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital expenditures   (9,353)   (10,658)
Other   (56)   (93)
Net cash used in investing activities   (9,409)   (10,751)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from ABL facility   78,000    - 
Payments on ABL facility   (68,000)   - 
Payments on capital lease   (121)   - 
Dividend payment to Parent   -    (201)
Capital contribution received by noncontrolling interest   -    1,007 
Net cash provided by financing activities   9,879    806 
Effect of exchange rate fluctuations on cash and cash equivalents   (443)   45 
Net (decrease) increase in cash and cash equivalents   (14,656)   9,818 
CASH AND CASH EQUIVALENTS:          
Beginning of period   39,429    33,328 
End of period  $24,773   $43,146 

 

 
 

 

EXHIBIT D

 

THE GYMBOREE CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands)

(Unaudited)

 

ADJUSTED EBITDA:

 

The Company defines "Adjusted EBITDA" as net income (loss) attributable to The Gymboree Corporation before interest expense, interest income, income tax expense/benefit, and depreciation and amortization ("EBITDA") adjusted for other items, including 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 loss attributable to The Gymboree Corporation to Adjusted EBITDA:

 

   13 Weeks Ended 
   May 3, 2014   May 4, 2013 
           
Net loss attributable to The Gymboree Corporation  $(13,431)  $(2,536)
Reconciling items (a):          
Interest expense   20,374    20,402 
Interest income   (52)   (26)
Income tax expense (benefit)   599    (861)
Depreciation and amortization (b)   10,786    12,620 
Non-cash share-based compensation expense   1,276    1,497 
Loss on disposal/impairment on assets   330    300 
Acquisition-related adjustments (c)   2,944    4,093 
Other (d)   (795)   489 
Adjusted EBITDA  $22,031   $35,978 

 

(a) Excludes amounts related to noncontrolling interest, which are already excluded from net loss attributable to The Gymboree Corporation.

 

(b) Includes the following:

Amortization of intangible assets (impacts SG&A)  $384   $2,258 
Amortization of below and above market leases (impacts COGS)   (247)   (386)
   $137   $1,872 

 

(c) Includes the following:

 

Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS)  $2,068   $2,232 
Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A)   876    1,120 
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 
   $2,944   $4,093 

 

(d) Other is comprised of a non-recurring change in reserves and restructuring charges.

 

OTHER NON-GAAP FINANCIAL MEASURES:

 

   13 Weeks Ended 
   May 3, 2014   May 4, 2013 
         
Gross profit as reported  $108,358   $120,973 
Acquisition-related adjustments   1,821    2,587 
Adjusted gross profit excluding Acquisition-related adjustments (non-GAAP measure)  $110,179   $123,560 

 

   13 Weeks Ended 
   May 3, 2014   May 4, 2013 
         
SG&A as reported  $(102,290)  $(104,129)
Acquisition-related adjustments   1,260    3,378 
Other adjustments   (795)   489 
    465    3,867 
Adjusted SG&A excluding Acquisition-related and other adjustments (non-GAAP measure)  $(101,825)  $(100,262)

 

 
 

 

EXHIBIT E

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

   For the 13 Weeks Ended May 3, 2014 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
Net sales  $269,144   $5,404   $(2,538)  $272,010 
Cost of goods sold, including buying and occupancy expenses   (162,438)   (1,302)   88    (163,652)
Gross profit   106,706    4,102    (2,450)   108,358 
Selling, general and administrative expenses   (98,960)   (5,793)   2,463    (102,290)
Operating income (loss)   7,746    (1,691)   13    6,068 
Other non operating expense   (20,591)   (104)   -    (20,695)
Loss before income taxes   (12,845)   (1,795)   13    (14,627)
Income tax (expense) benefit   (599)   223    -    (376)
Net loss   (13,444)   (1,572)   13    (15,003)
Net loss attributable to noncontrolling interest   -    1,572    -    1,572 
Net loss attributable to The Gymboree Corporation  $(13,444)  $-   $13   $(13,431)

 

   For the 13 Weeks Ended May 4, 2013 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
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 
Other non operating (expense) income   (20,483)   131    -    (20,352)
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)

 

 
 

 

EXHIBIT E (continued)

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

(In thousands)

(Unaudited)

 

   May 3, 2014 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
Current assets  $238,320   $17,334   $(2,231)  $253,423 
Non-current assets   1,557,828    4,470    -    1,562,298 
Total assets  $1,796,148   $21,804   $(2,231)  $1,815,721 
                     
Current liabilities  $185,467   $8,131   $(2,090)  $191,508 
Non-current liabilities   1,388,802    354    -    1,389,156 
Total liabilities  $1,574,269   $8,485   $(2,090)  $1,580,664 
                     
Total stockholders' equity   221,879    -    (141)   221,738 
Noncontrolling interest   -    13,319    -    13,319 
Total liabilities and stockholders' equity  $1,796,148   $21,804   $(2,231)  $1,815,721 

 

   February 1, 2014 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
Current assets  $253,764   $18,764   $(1,488)  $271,040 
Non-current assets   1,564,620    4,444    -    1,569,064 
Total assets  $1,818,384   $23,208   $(1,488)  $1,840,104 
                     
Current liabilities  $196,631   $7,490   $(1,356)  $202,765 
Non-current liabilities   1,387,828    370    (1)   1,388,197 
Total liabilities  $1,584,459   $7,860   $(1,357)  $1,590,962 
                     
Total stockholders' equity   233,925    -    (131)   233,794 
Noncontrolling interest   -    15,348    -    15,348 
Total liabilities and stockholders' equity  $1,818,384   $23,208   $(1,488)  $1,840,104 

 

   May 4, 2013 
   Balance Before             
   Consolidation of VIEs   VIEs*   Eliminations   As Reported 
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 

 

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