Gymboree Q3: Beats Estimates on Higher Revenues, Guides Lower

| About: Gymboree Corp. (GYMB)

The Gymboree Corp. (NASDAQ:GYMB) reported its fiscal third quarter results after the closing bell on Wednesday. The company posted earnings of $34.8 million, a growth of 12.6% from $30.9 million recorded in the year-ago period. Earnings per share came in at $1.15, which topped the Zacks Consensus Estimate of $1.13.

Gymboree is a specialty retailer offering apparel and accessories for children under the Gymboree, Gymboree Outlet, Janie and Jack and Crazy 8 Brands, as well as play programs under the Gymboree Play & Music brand. At the end of October 2009, the company operated a total of 951 stores across the U.S., Canada and in Puerto Rico.

The company reported a nearly 2% increase in total sales to $269.1 million during the quarter, compared to $264.1 million in the year-ago quarter. The expansion was primarily driven by the addition of 78 new stores in the last one year period, partially offset by a 4% decline in same-store sales. During the quarter, the company opened a total of 25 new stores including six Gymboree stores, four Gymboree Outlets and 15 Crazy 8 stores.

Gymboree’s gross margin remained flat at 51.0% as higher merchandise margin was offset by the deleveraging impact of occupancy expenses on lower same-store sales. Selling, general and administrative expenses dipped 4.4% year over year to $80.7 million, while as a percentage of sales, it declined by 200 basis points (bps) to 30.0%. The decrease was mainly caused by lower corporate, store and incentive compensation as well as reduced professional fees. Accordingly, Gymboree posted a growth of 12.4% in operating income to $56.4 million, compared to $50.2 million in the year-ago quarter, while operating margin expanded by 200 bps to 21.0%.

At quarter end, the company had cash and cash equivalents of $212.1 million, compared to $93.2 million in the year-ago period. Gymboree also stated that it has received approval from the board of directors to deploy up to $40 million of cash to buy back its common stock through October 30, 2010.

Concurrent with the earnings release the company also offered guidance for fiscal 2009 fourth quarter. The company expects earnings for the quarter to range between 95 cents and $1.03 per share assuming same-store sales to decline in the range of low to mid single digits. The guidance is below the Zacks Consensus Estimate of $1.12 per share, which has reduced a penny over the past month as 3 of 8 covering analysts lowered expectations.

Gymboree also stated that it plans to open eight new stores during the fiscal fourth quarter comprising four Gymboree stores, three Crazy 8 stores and one Gymboree Outlet store. The company also intends to incur $41 million over the entire fiscal 2009 towards new store openings, remodels and relocations, investments in the distribution center and other information technology systems.