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Gymboree Corporation (NASDAQ:GYMB)

December Sales Results Call

January 10, 2008 8:00 am ET

Executives

Jeff Harris, Vice President of Finance

Presentation

Jeff Harris

Hello. This is Jeff Harris, Vice President of Finance for Gymboree. Thank you for your interest in the Gymboree Corporation and welcome to our report on business for the fiscal month of December ended January 5, 2008.

Before I continue, allow me to point out that the information presented in this recorded call contains forward-looking statements, including statements about trends in operations, future sales expectations and financial performance. Actual results could differ materially from those forecast as a result of a number of factors, including those set forth in our annual report on Form 10-K filed with the SEC.

Before I discuss the details by division, let me say that we truly had an amazing holiday season. Each of our offensive and defensive teams delivered on very high expectations during the holidays. Our designers and merchants delivered a compelling product assortment, while our production group delivered the assortments at a lower average cost than last year.

In addition, our marketing team implemented strategies that drove new customers into our stores, greeted by our fantastic sales associates. Our web team provided a compelling online experience for our customers, while the logistics team assured timely delivery to our customers and our stores.

In a difficult retail environment, our planning and allocation group effectively managed our inventory to maximize our gross margin performance. So far this quarter, we completed the rollout of our new POS system to all Janie and Jack shoppes; opened 15 new stores; and everyone focused on expense reductions to increase returns to our shareholders.

As a result of all of these activities, we are increasing our fourth quarter comp store sales growth expectations to mid to high single-digits; and our earnings guidance to the range of $0.88 to $0.90 per diluted share, an increase of $0.10 from our prior guidance.

In addition, we now expect that for the quarter our operating income as a percent of sales will be higher than the 15.8% reported last year. More importantly, the new earnings expectations represent an increase of over 35% from the comparable prior-year earnings of $0.68 discussed in our earnings call. For the full fiscal year, we now expect earnings in the range of $2.64 to $2.66 per diluted share.

Turning now to the details of the Gymboree division. Looking first at product deliveries, we delivered our Winter 2 line in week 1. High Altitude was the theme for boys and Tres Chic for girls. In week 3, we introduced our spring trans line with the boys’ line themed around Boats & Bridges and the girls’ entitled Holland Days.

The stronger performing department during the month was kid boy, followed by baby girl, baby boy, accessories, kid girl, and newborn.

By geographic region, the Midwest, Mid-Atlantic and California regions were the strongest performing, followed by the South, Great Lakes and Rockies.

Inventories are well positioned at the end of December. Gross margins finished ahead of plan for the month. We still anticipate gross margin rates below prior year after excluding the one-time benefit from the year end shrink adjustment last year.

The promotional calendar for the month was very similar to the prior year. The first half of the month featured a sale offering 20% off of already marked down products. As we did last year, we also offered Jingle Deals throughout the holiday season. These well-priced items continued to show year-over-year growth. Initial seasonal markdowns were taken the week before Christmas, as it was done last year. This year, however, we added signage to our front windows to highlight the markdowns over the weekend before Christmas. The semi-annual clearance sale themed Big Red Balloon continued through the remainder of the month.

Business during the month was also supported by a direct mail campaign that landed in homes in November. Consistent with last year, the mailing targeted both new and, to a smaller degree, existing customers.

Turning to the Janie and Jack division, in terms of line sets, we set our reserve cap line in December week 1 and our Spring Preview line in week 4. For the month, the strongest performing department was accessories followed by girl and then boy. Consistent with the prior year, December also featured our season ending clearance sale. Overall sales continue to be strong for Janie and Jack.

Looking at new store openings, during the month of December we opened one Gymboree store, one Gymboree outlet and two Janie and Jack shops. Our total store count now stands at 788, consisting of 599 Gymboree stores, 82 Gymboree outlets, 93 Janie and Jack shops, and 14 Crazy 8 stores.

This concludes our call for the fiscal month of December. Again, thank you for your interest in Gymboree. For further information you can reach us at 415-278-7933.

Question-and-Answer Session

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