-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WUxOspbXtklLDU3KZQyjcM6jaTat0AvaDE1yuif8PvCIBVq/fR8zhisa4VML2zZ4 gf7YbAtpsZc5DzT6Uv0oXA== 0000891618-96-003090.txt : 19961218 0000891618-96-003090.hdr.sgml : 19961218 ACCESSION NUMBER: 0000891618-96-003090 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961103 FILED AS OF DATE: 19961217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GYMBOREE CORP CENTRAL INDEX KEY: 0000786110 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 942615258 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21250 FILM NUMBER: 96681966 BUSINESS ADDRESS: STREET 1: 700 AIRPORT BLVD STE 200 CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 4155790600 MAIL ADDRESS: STREET 2: 700 AIRPORT BLVD #200 CITY: BURLINGAME STATE: CA ZIP: 94010 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED NOVEMBER 3, 1996 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 NOVEMBER 3, 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 December 1, 1996: 25,290,183 1 2 TABLE OF CONTENTS
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION 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 6. Exhibits and Reports on Form 8-K........................................ 12 Signatures......................................................................... 13
2 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)
13 WEEKS ENDED 39 WEEKS ENDED -------------- -------------- Nov. 3, Oct. 29, Nov. 3, Oct. 29, 1996 1995 1996 1995 -------- -------- --------- --------- Net Sales $ 84,685 $ 66,225 $ 211,687 $ 170,693 Cost of goods sold, including buying and occupancy expenses (44,432) (37,705) (112,629) (95,311) -------- -------- --------- --------- Gross Profit 40,253 28,520 99,058 75,382 Selling, general and administrative expenses (26,343) (17,386) (66,346) (48,626) Play program income (loss) (222) (68) (105) 247 -------- -------- --------- --------- Operating income 13,688 11,066 32,607 27,003 Interest income 819 462 2,671 1,853 -------- -------- --------- --------- Income before income taxes 14,507 11,528 35,278 28,856 Income taxes (5,512) (4,496) (13,406) (11,253) -------- -------- --------- --------- Net income $ 8,995 $ 7,032 $ 21,872 $ 17,603 ======== ======== ========= ========= Net income per share: Primary $ 0.35 $ 0.28 $ 0.85 $ 0.69 Fully diluted $ 0.35 $ 0.28 $ 0.85 $ 0.69 Weighted average shares outstanding: Primary 25,772 25,442 25,653 25,370 Fully diluted 25,834 25,441 25,777 25,372 Number of stores at end of period 348 271 348 271
See accompanying notes to consolidated financial statements 3 4 THE GYMBOREE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Assets NOVEMBER 3, FEBRUARY 4, OCTOBER 29, 1996 1996 1995 --------- --------- --------- Current Assets: Cash and cash equivalents $ 6,960 $ 8,755 $ 7,171 Investments 72,546 64,893 45,160 Accounts receivable 4,937 2,868 4,068 Merchandise inventories 51,725 37,652 51,620 Prepaid expenses and other 1,918 1,886 1,292 --------- --------- --------- Total current assets 138,086 116,054 109,311 Property and Equipment: Leasehold improvements 41,454 31,126 29,195 Furniture, fixtures and equipment 37,129 24,367 21,664 --------- --------- --------- 78,584 55,493 50,859 Less accumulated depreciation and amortization (17,259) (12,085) (11,821) --------- --------- --------- 61,324 43,408 39,038 Other assets 336 547 464 --------- --------- --------- Total assets $ 199,746 $ 160,009 $ 148,813 ========= ========= ========= Liabilities and Stockholders' Equity Current Liabilities: Trade accounts payable $ 19,768 $ 9,657 $ 12,952 Accrued liabilities 11,999 10,736 10,456 Income taxes payable 2,666 6,244 1,729 --------- --------- --------- Total current liabilities 34,433 26,637 25,137 Deferred Rent and Other 14,274 9,438 9,387 Stockholders' Equity: Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized 25,282,749, 24,992,276 and 24,938,539 shares outstanding at November 3, 1996, February 4, 1996, and October 29, 1995, respectively) 61,874 56,687 56,216 Restricted stock deferred compensation (850) (1,139) (1,244) Unrealized change in value of investments 178 402 110 Cumulative foreign currency translation adjustment (20) Retained earnings 89,857 67,984 59,207 --------- --------- --------- Total stockholders' equity 151,039 123,934 114,289 --------- --------- --------- Total liabilities and stockholders' equity $ 199,746 $ 160,009 $ 148,813 ========= ========= =========
See accompanying notes to consolidated financial statements 4 5 THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
39 WEEKS ENDED --------------------------- NOVEMBER 3, October 29, 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities $ 27,062 $ 6,082 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (24,961) (19,422) Purchases of investments (7,877) (3,041) Proceeds from sale of investments -- 10,578 Other (201) -- -------- -------- Net cash used in investing activities (33,039) (11,885) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 4,182 1,946 -------- -------- Net increase (decrease) in cash and cash equivalents (1,795) (3,857) CASH AND CASH EQUIVALENTS: Beginning of period 8,755 11,028 -------- -------- End of period $ 6,960 $ 7,171 ======== ========
See accompanying notes to consolidated financial statements 5 6 THE GYMBOREE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The unaudited interim consolidated financial statements presented herein for the Gymboree Corporation and its wholly-owned subsidiaries (the "Company") as of and for the periods ended November 3, 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 financial position, the results of operations 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 7 THE GYMBOREE CORPORATION 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 such period:
AS A PERCENTAGE OF NET SALES ------------------------------------------------- PERCENTAGE CHANGE THIRTEEN THIRTY-NINE IN DOLLAR AMOUNTS WEEKS ENDED WEEKS ENDED FROM 1995 TO 1996 ----------- ----------- ----------------- NOV. 3, OCT. 29, NOV. 3, OCT. 29, THIRTEEN THIRTY-NINE 1996 1995 1996 1995 WEEKS WEEKS ---- ---- ---- ---- ----- ----- Net sales 100.0% 100.0% 100.0% 100.0% 28% 24% Cost of goods sold, including buying and occupancy expenses (52.5) (56.9) (53.2) (55.8) 18 18 ----- ----- ----- ----- Gross Profit 47.5 43.1 46.8 44.2 41 31 Selling, general and administrative expenses (31.1) (26.3) (31.3) (28.5) 52 36 Play program income/(loss) (0.3) (0.1) (0.0) 0.1 (226) (143) ----- ----- ----- ----- Operating income 16.1 16.7 15.4 15.8 24 21 Interest income 1.0 0.7 1.3 1.1 77 44 ----- ----- ----- ----- Income before income taxes 17.1 17.4 16.7 16.9 26 22 Income taxes (6.5) (6.8) (6.3) (6.6) 23 19 ----- ----- ----- ----- Net income 10.6% 10.6% 10.3% 10.3% 28% 24% ===== ===== ===== ===== Number of stores at end of period 348 271 348 271
This Quarterly Report on 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 8 RESULTS OF OPERATIONS (CONTINUED) THIRTEEN WEEKS ENDED NOVEMBER 3, 1996 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER 29, 1995 NET SALES Net sales for the third quarter of fiscal 1996 increased 27.9% to $84.7 million compared to $66.2 million for the corresponding period last year. Sales for the 69 stores opened in fiscal 1996 plus the new catalog operation contributed $13.3 million of the increase in net sales. Stores opened prior to fiscal 1996 but not qualifying as comparable stores, including expanded stores, contributed $4.6 million of the increase in net sales. Comparable store net sales increased 0.9% in the third quarter and were $0.5 million higher than the prior year. Restating fiscal 1995 to adjust for the 52/53 week calendar shift results in a decrease in comparable store net sales of 12% in the third quarter. The decrease in comparable store sales compared to the restated fiscal 1995 sales was due primarily to the Company's strategy of operating with lower per store inventory levels and significantly lower levels of promotional pricing. This trend of lower comparable sales and lower levels of promotional pricing is expected to continue through the fourth quarter of 1996. GROSS PROFIT Gross profit for the thirteen weeks ended November 3, 1996 increased 41.1% to $40.3 million from $28.5 million in the comparable period last year. As a percentage of net sales, gross profit was 47.5% in the third quarter of fiscal 1996 compared to 43.1% in the same period last year. The increase in gross margins was attributable to the trend of lower per store inventory levels, which contributed to a lower level of promotional pricing in the third quarter of fiscal 1996 compared to the same period last year. In addition, the level of promotional pricing in the third quarter of 1995 was higher than normal as the Company was beginning a program to reduce high inventory levels. 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 31.1% in the third quarter of fiscal 1996, compared to 26.3% in the same period last year. The increase in S, G & A as a percentage of net sales was primarily due to the funding of new business activities (3.1% of net sales) and a higher level of store expenses principally depreciation, amortization and repairs and maintenance (0.7% of net sales). The new business activities included the launch of the Gymboree catalog and international store expansion. In addition, higher corporate general and administrative expenses (1.1% of net sales) occurred as a result of a higher corporate payroll and additional costs related to building the corporate infrastructure. These increased expenses, as well as lower expense leverage, are expected to continue in the foreseeable future. INTEREST INCOME Net interest income increased to $819,000 from $462,000 in the prior year third quarter. The increase was due to higher average cash and investment balances as compared to the prior year. 8 9 RESULTS OF OPERATIONS (CONTINUED) INCOME TAX The Company's effective rate in the third quarter of fiscal 1996 was 38%, compared to 39% for the same period last year. The decrease was due to a lower expected aggregate state income tax rate. THIRTY-NINE WEEKS ENDED NOVEMBER 3, 1996 COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 29, 1995 NET SALES Net sales for the thirty-nine weeks ended November 3, 1996 increased 24.0% to $211.7 million compared to $170.7 million for the corresponding period last year. Sales for the 69 stores opened in fiscal 1996 plus the new catalog operation contributed $22.0 million of the increase in net sales. Stores opened prior to fiscal 1996 but not qualifying as comparable stores, including expanded stores, contributed $22.2 million of the increase in net sales. Comparable store net sales decreased 2.2% in the thirty-nine weeks ended November 3, 1996 and were $3.2 million lower than the prior year. Restating fiscal 1995 to adjust for the 52/53 week calendar shift results in a decrease in comparable store net sales of 8% in the thirty-nine week period. 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. GROSS PROFIT Gross profit for the thirty-nine weeks ended November 3, 1996 increased 31.4% to $99.1 million from $75.4 million in the comparable period last year. As a percentage of net sales, gross profit was 46.8% through the third quarter of fiscal 1996 compared to 44.2% in the same period last year. Merchandise gross margins, as a percent of net sales, improved 3.3%, however, this was offset by slightly higher buying and occupancy costs (0.7% of net sales). The Company believes that the increase in merchandise gross margins was attributable to the trend of lower per store inventory levels, which contributed to a reduction in promotional pricing through the third 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 31.3% through the third quarter of fiscal 1996, compared to 28.5% in the same period last year. The increase in S, G & A, as a percentage of net sales, was primarily due to the funding of new business activities (2.1% of net sales) and lost expense leverage in depreciation and amortization expense (0.8% of net sales) due primarily to lower average sales per store. The new business activities included the launch of the Gymboree catalog and international store expansion. These increased expenses, as well as lower expense leverage, are expected to continue in the foreseeable future. 9 10 INTEREST INCOME Net interest income increased to $2.7 million from $1.9 million in the prior year through the third 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 through the third 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. FINANCIAL CONDITION Net cash provided by operating activities was $27.1 million during the thirty-nine weeks ended November 3, 1996 compared to $6.1 million in the same period last year. The increase was primarily due to increased net income and decreased net inventory levels. At November 3, 1996, average inventory per store was approximately 22% lower than the same period last year. The decrease was primarily due to a planned reduction in inventory purchases. During the thirty-nine week period ended November 3, 1996, the Company's primary sources of cash were $27.1 million generated from operating activities and $4.2 million from the exercise of stock options. Uses of cash consisted primarily of $7.9 million for the purchase of investments and $25 million for capital expenditures primarily related to new store openings and the relocation/expansion of certain existing stores. The combined balances of cash, cash equivalents and investments were $79.5 million at November 3, 1996, an increase of $5.9 million from February 4, 1996. Working capital as of November 3, 1996 was $103.7 million compared to $89.4 million at the end of fiscal 1995. The increase in working capital was primarily due to higher cash, cash equivalents and investment balances, as well as higher merchandise inventories, offset by an increase in accounts payable. The Company's investments largely consist of short-to-medium term investment grade securities. The Company estimates that total capital expenditures during fiscal 1996 will be approximately $35 million to $40 million, and will be principally used to open approximately 70 to 75 new stores and remodel or expand 15 to 20 existing stores. The Company has no long term debt and did not require any cash borrowings in the first thirty-nine weeks of fiscal 1996 and 1995. The Company currently has $100 million of long-term unsecured letters of credit. As of November 26, 1996, $61.3 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. 10 11 OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE The foregoing paragraphs contain certain forward-looking statements within the meaning of the federal securities laws. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including competitive market conditions, the degree of promotional pricing activity by the Company, the ability of the Company to successfully identify and respond to emerging children's fashion trends, effectively monitor and control costs, levels of discretionary consumer spending and general economic conditions. Other factors that may affect future performance include the following: LOWER INVENTORY LEVELS The Company plans to operate with lower per store inventory levels throughout fiscal 1996 and comparable inventory levels in the fiscal 1997. This has resulted in downward pressure on comparable store net sales during fiscal 1996, and the Company expects this trend to continue. CATALOG LAUNCH Gymboree launched a new catalog at the beginning of fiscal 1996. This was 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 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 During the third quarter of 1996, Gymboree opened five stores in Canada. The success of this expansion will depend upon a number of factors, including the ability to provide an adequate supply of inventory and the ability to hire and train qualified employees, of which there can be no assurance. 11 12 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (11) Computation of Net Income per Share (b) Reports on Form 8-K No reports on Form 8-K were filed or required to be filed for the 3rd quarter of the fiscal year. 12 13 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) December 12, 1996 By: Nancy J. Pedot - -------------------- -------------------------------------- Date Nancy J. Pedot President and Chief Executive Officer (Principal executive officer of the registrant) December 12, 1996 By: 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) 13 14 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 11 Computation of Net Income per Share 27.1 Financial Data Schedule 14 EX-11 2 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 THE GYMBOREE CORPORATION COMPUTATION OF INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
13 WEEKS ENDED 39 WEEKS ENDED -------------- -------------- NOV. 3, OCT. 29, NOV. 3, OCT. 29, 1996 1995 1996 1995 ---- ---- ---- ---- NET INCOME $ 8,995 $ 7,032 $21,872 $17,603 ======= ======= ======= ======= Weighted average number of shares outstanding during the period: Common Stock 25,257 24,908 25,155 24,803 Add incremental shares from assumed exercise of stock options and warrants 515 534 498 567 ------- ------- ------- ------- 25,772 25,442 25,653 25,370 ======= ======= ======= ======= PRIMARY NET INCOME PER SHARE $ 0.35 $ 0.28 $ 0.85 $ 0.69 ======= ======= ======= ======= Weighted average number of shares outstanding during the period: Common Stock 25,257 24,908 25,155 24,803 Add incremental shares from assumed exercise of stock options and warrants 576 533 622 569 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding during the period 25,834 25,441 25,777 25,372 ======= ======= ======= ======= FULLY DILUTED NET INCOME PER SHARE $ 0.35 $ 0.28 $ 0.85 $ 0.69 ======= ======= ======= =======
15 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS FILED AS PART OF THE COMPANY'S QUARTERLY REPORT ON FROM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL. 0000786110 THE GYMBOREE CORPORATION 1,000 U.S. DOLLARS 3-MOS FEB-02-1997 AUG-05-1996 NOV-03-1996 1 6,960 72,546 4,937 0 51,725 138,086 78,584 (17,259) 119,746 34,433 0 0 0 61,874 89,165 199,746 84,685 84,685 (44,432) (44,432) 0 0 0 14,507 (5,512) 8,995 0 0 0 8,995 0.35 0.35
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