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 August 2, 2008

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 incorporation or organization)	(IRS Employer Identification No.)

500 Howard Street, San Francisco, California	94105
(Address of principal executive offices)	(Zip code)

(415) 278-7000

(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  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ	Accelerated Filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  þ

As of August 30, 2008, 29,000,985 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

Part I - FINANCIAL INFORMATION	3
Item 1. FINANCIAL STATEMENTS	3
CONDENSED CONSOLIDATED BALANCE SHEETS	3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME	4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	11
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	16
Item 4. CONTROLS AND PROCEDURES	18
Part II – OTHER INFORMATION	18
Item 1. LEGAL PROCEEDINGS	18
Item 1A. RISK FACTORS	18
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	19
Item 3. DEFAULTS UPON SENIOR SECURITIES	19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	19
Item 5. OTHER INFORMATION	19
Item 6. EXHIBITS	20
SIGNATURES	21
Exhibit Index	22

2

Part I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	August 2, 2008			February 2, 2008			August 4, 2007
Assets
Current Assets
Cash and cash equivalents	$	43,775		$	33,313		$	34,023
Accounts receivable		16,680			12,640			17,700
Merchandise inventories		129,099			119,523			115,677
Prepaid income taxes		22,495			—			18,412
Prepaid expenses		13,429			12,096			14,109
Deferred income taxes		11,815			11,652			9,297
Total current assets		237,293			189,224			209,218
Property and Equipment
Land and buildings		15,769			12,476			10,615
Leasehold improvements		201,764			186,777			185,379
Furniture, fixtures and equipment		177,343			176,900			176,744
		394,876			376,153			372,738
Less accumulated depreciation and amortization		(194,146	)		(190,796	)		(194,755	)
		200,730			185,357			177,983
Deferred income taxes		17,649			21,028			13,175
Other assets		1,929			1,575			1,540
Total Assets	$	457,601		$	397,184		$	401,916
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	53,876		$	52,915		$	57,391
Accrued liabilities		73,882			70,282			72,385
Income tax payable		—			7,989			—
Total current liabilities		127,758			131,186			129,776
Long-Term Liabilities
Deferred rent and other liabilities		59,161			51,722			51,104
Unrecognized tax benefits		6,330			5,981			9,081
Total Liabilities		193,249			188,889			189,961
Commitments and Contingencies		—			—			—
Stockholders’ Equity
Common stock, including additional paid-in capital ($.001 par value: 100,000,000 shares authorized; 28,993,652, 28,344,205, and 30,294,645 shares issued and outstanding at August 2, 2008, February 2, 2008, and August 4, 2007, respectively)		163,550			140,012			135,002
Retained earnings		99,747			67,340			77,385
Accumulated other comprehensive income (loss)		1,055			943			(432	)
Total stockholders’ equity		264,352			208,295			211,955
Total Liabilities and Stockholders’ Equity	$	457,601		$	397,184		$	401,916

See notes to condensed consolidated financial statements.

3

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

	13 Weeks Ended						26 Weeks Ended
	August 2, 2008			August 4, 2007			August 2, 2008			August 4, 2007
Net sales:
Retail	$	202,818		$	179,854		$	441,735		$	386,575
Play & Music		2,930			2,500			6,118			5,079
Total net sales		205,748			182,354			447,853			391,654
Cost of goods sold, including buying and occupancy expenses		(111,806	)		(102,141	)		(230,493	)		(207,641	)
Gross profit		93,942			80,213			217,360			184,013
Selling, general and administrative expenses		(81,067	)		(71,737	)		(162,892	)		(141,930	)
Operating income		12,875			8,476			54,468			42,083
Other income, net		417			637			698			1,755
Income before income taxes		13,292			9,113			55,166			43,838
Income tax expense		(5,281	)		(3,311	)		(22,117	)		(17,181	)
Net income	$	8,011		$	5,802		$	33,049		$	26,657
Net income per share:
Basic	$	0.29		$	0.20		$	1.19		$	0.90
Diluted	$	0.27		$	0.19		$	1.14		$	0.86
Weighted-average shares outstanding:
Basic		27,988			29,323			27,765			29,659
Diluted		29,166			30,452			29,060			30,846

See notes to condensed consolidated financial statements.

4

THE GYMBOREE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	26 Weeks Ended
	August 2, 2008			August 4, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	33,049		$	26,657
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		17,021			14,704
Loss on disposal of property and equipment and other		324			482
Excess tax benefits from exercise of share-based awards		(5,754	)		(2,964	)
Tax benefit from exercise of stock options		6,147			3,223
Share-based compensation expense		9,424			5,638
Change in assets and liabilities:
Accounts receivable		(4,049	)		(4,646	)
Merchandise inventories		(9,328	)		(11,292	)
Prepaid expenses and other assets		(1,707	)		(3,793	)
Prepaid income taxes		(27,270	)		(23,748	)
Accounts payable		1,045			1,212
Accrued liabilities		5,492			(230	)
Deferred and other liabilities		7,834			4,132
Net cash provided by operating activities		32,228			9,375
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of marketable securities		34,700			404,978
Purchases of marketable securities		(34,700	)		(275,653	)
Capital expenditures		(30,013	)		(38,485	)
Proceeds from sale of assets and other		47			1
Net cash (used in) provided by investing activities		(29,966	)		90,841
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options		8,048			4,196
Repurchases of common stock		(5,420	)		(101,801	)
Excess tax benefits from exercise of share-based awards		5,754			2,964
Net cash provided by (used in) financing activities		8,382			(94,641	)
Effect of exchange rate fluctuations on cash		(182	)		955
Net increase in cash and cash equivalents		10,462			6,530
CASH AND CASH EQUIVALENTS:
Beginning of period		33,313			27,493
End of period	$	43,775		$	34,023
NON-CASH INVESTING ACTIVITIES:
Capital expenditures incurred, but not yet paid	$	7,221		$	10,763
OTHER CASH FLOW INFORMATION:
Cash paid for income taxes	$	43,604		$	37,612
Cash paid for interest	$	52		$	26

See notes to condensed consolidated financial statements.

5

THE GYMBOREE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited interim condensed consolidated financial statements, which include The Gymboree Corporation and its subsidiaries, all of which are wholly owned (the “Company”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should 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 fiscal year ended February 2, 2008.

The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal and recurring nature.

The results of operations for the 26 weeks ended August 2, 2008 are not necessarily indicative of the operating results that may be expected for the fiscal year ending January 31, 2009 (“fiscal 2008”).

2. Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 157, “Fair Value Measurements,” which establishes a single authoritative definition of fair value and a framework for measuring fair value and expands disclosure of fair value measurements for both financial and non-financial assets and liabilities. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS 157 for non-financial assets and liabilities, except for certain items that are recognized or disclosed at fair value at least annually. The Company elected to partially adopt SFAS 157 as of the beginning of fiscal 2008, as permitted by FSP 157-2 (see Note 3). The Company does not expect the adoption of the remaining provisions of SFAS 157 (delayed by FSP 157-2) to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.” SFAS 159 permits companies to measure many financial instruments and certain other items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The Company adopted SFAS 159 as of the beginning of fiscal 2008 but elected not to record additional financial assets and liabilities at fair value. As a result, the adoption of SFAS 159 did not impact the Company’s consolidated financial position, results of operations, or cash flows.

6

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,” which requires enhanced disclosures for derivative and hedging activities. The Company will adopt SFAS 161 as of the beginning of fiscal 2009. The Company does not expect the adoption of SFAS 161 to have a material impact on its consolidated financial statements.

3. Fair Value Measurements

SFAS 157 establishes a single authoritative definition of fair value and a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 requires financial assets and liabilities to be categorized based on the inputs used to calculate their fair values as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs for the asset or liability, which reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

As of August 2, 2008, the Company’s forward foreign exchange contracts had an estimated fair value of $216,000. There are no other financial assets or liabilities measured at fair value as of August 2, 2008. Fair value was determined using the market approach and Level 2 inputs. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.

4. Share-based Compensation

Share-based compensation expense for the 13 and 26 weeks ended August 2, 2008 and August 4, 2007, is included as a component of selling, general and administrative expenses and consists of the following:

	13 weeks ended				26 weeks ended
	August 2, 2008		August 4, 2007		August 2, 2008		August 4, 2007
	(in thousands)				(in thousands)
Stock options	$	433	$	723	$	896	$	1,502
Restricted stock awards and units		4,375		2,107		8,309		3,928
Employee stock purchase plan		106		130		219		208
Total	$	4,914	$	2,960	$	9,424	$	5,638

7

Stock Options

The following table summarizes stock option activity during the 26 weeks ended August 2, 2008:

	Number of shares (in thousands)		Weighted-average exercise price per share		Weighted-average remaining contractual life (in years)	Aggregate intrinsic value (in thousands)
Outstanding at February 2, 2008	1,369		$	13.89
Exercised	(516	)		14.37
Forfeited	(8	)		14.61
Outstanding at August 2, 2008	845		$	13.58	6.0	$	19,854
Vested and expected to vest at August 2, 2008 (1)	838		$	13.55	5.9	$	19,712
Exercisable at August 2, 2008	651		$	13.44	5.7	$	15,410

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total unvested options outstanding.

The total intrinsic value of options exercised during each of the 26 weeks ended August 2, 2008 and August 4, 2007, was $15.3 million and $6.2 million, respectively.

Restricted Stock Awards and Units

The following table summarizes restricted stock award activity during the 26 weeks ended August 2, 2008:

	Restricted Stock Awards
	Number of shares (in thousands)		Weighted-average grant date fair value per share
Nonvested at February 2, 2008	1,129		$	32.35
Granted (1)	393			41.56
Vested	(223	)		29.90
Forfeited	(329	)		36.89
Nonvested at August 2, 2008	970			35.12

(1) Restricted stock awards granted in fiscal 2008 are subject to performance conditions for fiscal 2008, which will determine the total number of shares that could ultimately vest over four years. The satisfaction of the performance conditions will be finally determined during the first quarter of fiscal 2009 based on fiscal 2008 results.

The following table summarizes restricted stock unit activity during the 26 weeks ended August 2, 2008:

	Restricted Stock Units
	Number of units (in thousands)		Weighted-average grant date fair value per share
Nonvested at February 2, 2008	237		$	28.49
Granted	141			39.99
Vested	(63	)		30.13
Forfeited	(26	)		33.84
Nonvested at August 2, 2008	289			33.26

8

5. Net Income Per Share

Basic net income per share is calculated by dividing net income for the period by the weighted-average common shares outstanding for the period. Diluted net income per share includes the effect of dilutive instruments, such as stock options and restricted stock awards and units, and uses the average share price for the period in determining the number of shares that are to be added to the weighted-average number of shares outstanding. The following table summarizes the shares from these potentially dilutive securities, calculated using the treasury stock method:

	13 Weeks Ended		26 Weeks Ended
	August 2, 2008	August 4, 2007	August 2, 2008	August 4, 2007
	(in thousands)
Weighted-average number of shares - basic	27,988	29,323	27,765	29,659
Add: effect of dilutive securities	1,178	1,129	1,295	1,187
Weighted-average number of shares - diluted	29,166	30,452	29,060	30,846

The number of share-based awards excluded from the computation of weighted-average shares due to their anti-dilutive effect was immaterial for the 13 weeks ended August 2, 2008 and August 4, 2007, respectively. Approximately 44,000 and 23,000 share-based awards for the 26 weeks ended August 2, 2008 and August 4, 2007, respectively, were excluded from the above computations of weighted-average shares as the effect would have been anti-dilutive.

6. Comprehensive Income

Comprehensive income, which includes net income, foreign currency translation adjustments and fluctuations in the fair market value of certain derivative financial instruments, is as follows:

	13 Weeks Ended				26 Weeks Ended
	August 2, 2008		August 4, 2007		August 2, 2008		August 4, 2007
	(in thousands)
Net income	$	8,011	$	5,802	$	33,049	$	26,657
Other comprehensive income, net of tax		97		200		111		642
Total comprehensive income	$	8,108	$	6,002	$	33,160	$	27,299

9

7. Segments

The Company has two reportable segments: retail stores and Play & Music. The retail stores segment includes four brands that sell apparel: Gymboree^® (including an online store), Gymboree Outlet, Janie and Jack^® (including an online store), and Crazy 8^® (including an online store). Corporate overhead (costs related to the Company’s distribution center and shared corporate services) is included in the retail stores segment. The following table provides the summary financial data of each reportable segment (in thousands):

	13 Weeks Ended August 2, 2008						13 Weeks Ended August 4, 2007
	Retail Stores		Play & Music		Total		Retail Stores		Play & Music		Total
Net sales	$	202,818	$	2,930	$	205,748	$	179,854	$	2,500	$	182,354
Depreciation and amortization		8,482		134		8,616		7,398		112		7,510
Operating income		11,600		1,275		12,875		7,979		497		8,476
Total assets		453,045		4,556		457,601		397,866		4,050		401,916
Capital expenditures		15,792		140		15,932		21,129		29		21,158
	26 Weeks Ended August 2, 2008						26 Weeks Ended August 4, 2007
	Retail Stores		Play & Music		Total		Retail Stores		Play & Music		Total
Net sales	$	441,735	$	6,118	$	447,853	$	386,575	$	5,079	$	391,654
Depreciation and amortization		16,763		258		17,021		14,478		226		14,704
Operating income		52,167		2,301		54,468		40,887		1,196		42,083
Total assets		453,045		4,556		457,601		397,866		4,050		401,916
Capital expenditures		29,622		391		30,013		38,456		29		38,485

Net retail sales from the Company’s Canadian operations were $8.4 million and $7.8 million for the 13 weeks ended August 2, 2008 and August 4, 2007, respectively, and $18.9 million and $15.6 million for the 26 weeks ended August 2, 2008 and August 4, 2007, respectively. Long-lived assets held by the Company’s Canadian operations were $3.3 million and $3.2 million as of August 2, 2008 and August 4, 2007, respectively.

8. Credit Facility Amendment

On August 8, 2008, the Company entered into a Tenth Amendment to Credit Agreement (the “Tenth Amendment”), by and between the Company and certain of its subsidiaries and the Bank of America, N.A. The Tenth Amendment amends certain terms of the Credit Agreement dated as of August 11, 2003, as previously amended, to, among other things: (i) extend the maturity date of the unsecured revolving credit facility from August 11, 2008 to August 11, 2009; and (ii) reduce the maximum revolving loan limit from an aggregate principal amount of $100,000,000 to $80,000,000, subject to an option to increase such limit by an aggregate amount of up to $20,000,000.

10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of

The Gymboree Corporation

San Francisco, CA

We have reviewed the accompanying condensed consolidated balance sheets of The Gymboree Corporation and subsidiaries (the “Company”) as of August 2, 2008 and August 4, 2007, and the related condensed consolidated statements of income for the thirteen and twenty-six week periods then ended, and cash flows for the twenty-six week periods then ended. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Gymboree Corporation and subsidiaries as of February 2, 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated March 27, 2008, we expressed an unqualified opinion on those consolidated financial statements and included explanatory paragraphs related to a change in accounting method and the adoption of a new accounting principle. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 2, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

September 9, 2008

11

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

The following discussion and analysis should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report. This report contains forward-looking statements that involve risks and uncertainties, including statements regarding planned capital expenditures, planned store openings, expansions and renovations, the effect of manufacturing disruptions, systems infrastructure development, future cash generated from operations and future cash needs. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and the Company’s actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, customer reactions to new merchandise, service levels and new concepts, the level of promotional activity, gross margin achievement, the Company’s ability to manage inventory levels appropriately, general economic conditions, changes in the Company’s costs, success in meeting delivery targets, competitive market conditions, effects of future embargoes from countries used to source product, instability in countries where the Company’s merchandise is manufactured, and the other factors described in this document and in our Annual Report on Form 10-K for the fiscal year ended February 2, 2008. When used in this document, the words “believes,” “expects,” “estimates,” “anticipates,” and similar expressions are intended to identify certain of these forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. The Company does not intend to revise any forward-looking statements to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report, in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008 and its other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company’s business, prospects and results of operations.

General

The Gymboree Corporation is a specialty retailer operating stores selling apparel and accessories for children under the GYMBOREE^®, GYMBOREE OUTLET, JANIE AND JACK^®, and CRAZY 8^® brands, as well as play programs for children under the GYMBOREE PLAY & MUSIC^® brand. As of August 2, 2008, the Company operated a total of 835 retail stores: 606 Gymboree stores (577 in the United States and 29 in Canada), 104 Gymboree Outlet stores, 101 Janie and Jack shops, and 24 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 597 franchised and company-operated centers in the United States and 30 other countries.

12

During the second quarter of fiscal 2008, the Company opened 4 Gymboree stores, 6 Janie and Jack shops, 8 Crazy 8 stores and 8 Gymboree Outlet stores. The Company also relocated or remodeled 5 Gymboree stores (4 in the U.S. and 1 in Canada) and 1 Janie and Jack shop and closed 2 Gymboree stores (1 in the U.S. and 1 in Canada).

During the remainder of fiscal 2008, the Company plans to open approximately 54 new stores consisting of 12 Gymboree stores, 15 Outlet stores, 12 Janie and Jack shops, and 15 Crazy 8 stores. The Company also expects to relocate or remodel approximately 10 Gymboree stores.

Results of Operations

13 weeks ended August 2, 2008, compared to 13 weeks ended August 4, 2007

Net Sales

Net retail sales in the second quarter of fiscal 2008 increased to $202.8 million from $179.9 million in the same period last year, an increase of $22.9 million, or 12.8%. This increase was primarily due to net store and square footage growth of 96 stores and approximately 213,000 square feet, respectively. Comparable store sales increased 1% over the corresponding period last year. This increase was primarily due to continued product acceptance and transaction growth, offset by lower average transaction values attributed to a general reduction in consumer spending. There were 835 stores open at the end of the second quarter of fiscal 2008 compared to 739 as of the end of the same period last year.

Gymboree Play & Music net sales in the second quarter of fiscal 2008 increased to $2.9 million from $2.5 million in the same period last year primarily due to increases in royalties and international franchisee sales.

Gross Profit

Gross profit for the second quarter of fiscal 2008 increased to $93.9 million from $80.2 million in the same period last year. As a percentage of net sales, gross profit for the second quarter of fiscal 2008 increased 1.7 percentage points to 45.7% from 44.0% in the same period last year. This increase was primarily due to the Company’s continuing product cost reduction strategies and leveraging of buying costs, partially offset by increased occupancy costs and lower average unit retail prices. In the third quarter of fiscal 2008, one of the factories that the Company contracts with in Indonesia experienced a fire. The Company is currently cancelling several fourth quarter orders and placing these orders in other factories owned by this manufacturer or with new factories. As a result, the Company expects to incur higher shipping costs in the fourth quarter in order to receive its orders as originally scheduled. While the Company is still assessing the financial impact from the fire, the Company estimates an impact to fiscal fourth quarter earnings in the range of $0.02 to $0.04 per diluted share.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead, and distribution expenses, increased to $81.1 million in the second quarter of fiscal 2008 from $71.7 million in the same period last year. As a percentage of net sales, SG&A expenses increased to 39.4% of sales for the second quarter of fiscal 2008 compared to 39.3% of sales in the same period last year. This increase was primarily due to higher share-based and incentive compensation expense offset by reductions in professional fees, communication expenses, marketing costs, and travel expenses.

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Income Taxes

The Company’s effective tax rates for the second quarters of fiscal 2008 and 2007 were 39.7% and 36.3%, respectively. The effective tax rate for the remainder of the current fiscal year is expected to be in the range of 40% to 41%; however, the actual fiscal 2008 effective tax rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations, the Company’s overall level of earnings in fiscal 2008, and the potential resolution of tax contingencies. The lower tax rate in fiscal year 2007 was primarily due to a favorable settlement with certain state taxing authorities of $1.1 million, offset in part by foreign withholding taxes of $0.9 million.

Results of Operations

26 weeks ended August 2, 2008, compared to 26 weeks ended August 4, 2007

Net Sales

Net retail sales for the 26 weeks ended August 2, 2008 increased to $441.7 million from $386.6 million in the same period last year, an increase of $55.1 million, or 14.3%. This increase was primarily due to net store and square footage growth of 96 stores and approximately 213,000 square feet, respectively. Comparable store sales increased 3% over the corresponding period last year. This increase was primarily due to continued product acceptance and transaction growth, offset by lower average transaction values.

Gymboree Play & Music net sales for the 26 weeks ended August 2, 2008 increased to $6.1 million from $5.1 million in the same period last year primarily due to increases in royalties, international franchise fees, and product sales.

Gross Profit

Gross profit for the 26 weeks ended August 2, 2008 increased to $217.4 million from $184.0 million in the same period last year. As a percentage of net sales, gross profit for the 26 weeks ended August 2, 2008 increased 1.5 percentage points to 48.5% from 47.0% in the same period last year. This increase was primarily due to the Company’s continuing product cost reduction strategies and leveraging of buying costs, and was partially offset by increased occupancy costs and lower average unit retail prices.

Selling, General and Administrative Expenses

SG&A expenses increased to $162.9 million for the 26 weeks ended August 2, 2008 from $141.9 million in the same period last year. As a percentage of net sales, SG&A expenses increased to 36.4% of sales for the 26 weeks ended August 2, 2008 compared to 36.2% of sales in the same period last year. This increase was primarily due to higher share-based and incentive compensation expense, partially offset by reductions in professional fees.

Income Taxes

The Company’s effective tax rates for the 26 weeks ended August 2, 2008 and for the 26 weeks ended August 4, 2007 were 40.1% and 39.2%, respectively. The lower tax rate in fiscal year 2007 was primarily due to a favorable settlement with certain state taxing authorities of $1.1 million and a greater benefit from tax-exempt interest of $0.2 million, offset in part by foreign withholding taxes of $0.9 million.

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Seasonality

The Company’s business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations have historically been highest during the fourth fiscal quarter, somewhat lower during the first and third fiscal quarters, and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year. These historical quarterly trends may not continue in the future.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s critical accounting policies and estimates affecting the application of those accounting policies since the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008.

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $43.8 million at August 2, 2008, an increase of $10.5 million from February 2, 2008. Working capital as of August 2, 2008 was $109.5 million compared to $58.0 million as of February 2, 2008. The increase in working capital was due primarily to a decrease in income tax payable related to the payment of estimated taxes during the 26 weeks ended August 2, 2008, as well as an increase in inventory levels to support new stores.

Net cash provided by operating activities for the 26 weeks ended August 2, 2008 was $32.2 million compared to $9.4 million in the same period last year. This increase was primarily due to higher operating income and changes in working capital items.

Net cash used in investing activities for the 26 weeks ended August 2, 2008 was $30.0 million compared to net cash provided by investing activities of $90.8 million in the same period last year. This decrease was primarily due to the Company liquidating its marketable securities to complete its authorized share repurchase programs in fiscal 2007. Capital expenditures during the 26 weeks ended August 2, 2008 were primarily related to the opening of 51 new stores, relocation, remodeling or expansion of 15 existing stores, information technology improvements, and continued investment in the Company’s distribution center. During the 26 weeks ended August 2, 2008, the Company purchased land adjacent to its existing distribution center for the future expansion of its distribution facilities.

Net cash provided by financing activities for the 26 weeks ended August 2, 2008 was $8.4 million compared to $94.6 million used in financing activities in the same period last year. This increase was primarily due to decreased activity under the Company’s authorized share repurchase programs. Financing activities for the 26 weeks ended August 2, 2008 included $5.4

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million in stock repurchases primarily reflecting employee minimum statutory tax withholding requirements for restricted stock awards and units that vested during the period. Employees satisfy their minimum statutory tax requirements through a net settlement feature whereby restricted stock awards and units are sold on their vest date in order to cover tax obligations.

The Company has an unsecured revolving credit facility for borrowings of up to $100 million (decreased to $80 million on August 8, 2008, subject to an option to increase the borrowing limit up to $100 million). The credit facility, which expires in August 2009, may be used for the issuance of documentary and standby letters of credit, working capital, and capital expenditure needs. The credit facility requires the Company to meet financial covenants on a quarterly basis and limits annual capital expenditures. As of August 2, 2008, the Company was in compliance with these covenants. As of August 2, 2008, $57.9 million of documentary and standby letters of credit were outstanding, and no borrowings were outstanding. The maximum amount of documentary and standby letters of credit outstanding during the 26 weeks ended August 2, 2008 was $71.6 million.

The Company anticipates that cash generated from operations, together with its existing cash resources and funds available from current and future credit facilities, will be sufficient to satisfy the Company’s cash needs through the next 12 months.

There have been no material changes outside the ordinary course of business to the Company’s contractual obligations since its Annual Report on Form 10-K for the year ended February 2, 2008.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company enters into forward foreign exchange contracts to hedge certain inventory purchases. The term of the forward exchange contracts is generally less than one year. The purpose of the Company’s foreign currency hedging activities is to protect it from the risk that the eventual dollar margins resulting from inventory purchases will be adversely affected by changes in exchange rates.

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The table below summarizes the notional amounts and fair values of the Company’s forward foreign exchange contracts in U.S. dollars.

	August 2, 2008
	Notional Amount		Fair Value Gain			Weighted- Average Rate
	(in thousands, except weighted average rate data)
Canadian dollars	$	5,847	$	218		$	0.98
Total	$	5,847	$	218
	February 2, 2008
	Notional Amount		Fair Value Gain			Weighted- Average Rate
	(in thousands, except weighted average rate data)
Canadian dollars	$	4,662	$	6		$	1.01
Total	$	4,662	$	6
	August 4, 2007
	Notional Amount		Fair Value Loss			Weighted- Average Rate
	(in thousands, except weighted average rate data)
Canadian dollars	$	4,731	$	(116	)	$	0.95
Total	$	4,731	$	(116	)

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Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and the Chief Operating Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on their evaluation, the Chief Executive Officer and the Chief Operating Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure them that information relating to the Company (including its consolidated subsidiaries) required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the Company’s Chief Executive Officer and the Chief Operating Officer and Chief Financial Officer concluded as of the end of the period covered by this report that the Company’s disclosure controls and procedures are also effective to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Operating Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

The Company also maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). During the second quarter of fiscal 2008, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Not applicable.

Item 1A. RISK FACTORS

There has been no material change to the risk factors discussed in Part I, “Item 1A. Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended February 2, 2008.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company’s 2008 Annual Meeting of Stockholders was held on June 10, 2008, at which time the stockholders voted on the following proposals:

(I) Election of three Class III directors, each to serve for a three-year term expiring upon the 2011 Annual Meeting of Stockholders.

	For	Withheld
Michael J. McCloskey	25,104,030	293,423
John C. Pound	21,107,575	4,289,878
William U. Westerfield	24,255,655	1,141,798

Continuing Class I directors, whose terms will expire at the Annual Meeting in 2009, are Matthew K. McCauley and Gary M. Heil. Continuing Class II directors, whose terms will expire at the Annual Meeting in 2010, are Blair W. Lambert and Daniel R. Lyle.

(II) Approval vote on the amendment to The Gymboree Corporation 2004 Equity Incentive Plan to authorize the issuance of an additional 925,000 shares of the Company’s Common Stock.

For	Against	Abstain
17,771,622	5,995,468	5,221

(III) Approval vote on the amendment to The Gymboree Corporation 1993 Employee Stock Purchase Plan to authorize the issuance of an additional 150,000 shares of the Company’s Common Stock.

For	Against	Abstain
20,626,636	3,144,085	1,590

(IV) Advisory vote on the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the fiscal year ending January 31, 2009, was as follows:

For	Against	Abstain
24,633,546	762,097	1,809

Item 5. OTHER INFORMATION

Not applicable.

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Item 6. EXHIBITS

10.87	Tenth Amendment to Credit Agreement, dated as of August 8, 2008. (1)
15	Letter re: Unaudited Interim Financial Information
31.1	Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.2	Certification of Blair W. Lambert Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Blair W. Lambert Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to Exhibit 10.87 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2008.

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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)
September 9, 2008	By:	/s/ Blair W. Lambert
Date		Blair W. Lambert
		Chief Operating Officer and
		Chief Financial Officer
		(Principal Financial Officer)

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Exhibit Index

Exhibit Number	Description
10.87	Tenth Amendment to Credit Agreement, dated as of August 8, 2008. (1)
15	Letter re: Unaudited Interim Financial Information
31.1	Certification of Matthew K. McCauley Pursuant to §302 of the Sarbanes- Oxley Act of 2002.
31.1	Certification of Blair W. Lambert Pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Matthew K. McCauley Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Blair W. Lambert Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to Exhibit 10.87 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2008.

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