Markets & Finance

Gymboree Gains Ground


Shares of the retailer advanced Wednesday after it posted solidly higher sales

Gymboree's (GYMB) efforts to change its business operations have begun to pay off. Investors bought the stock on March 14 after news about the San Francisco company's improving profits and sales.

The women's and children's clothing retailer's net sales were $241.0 million during the quarter ended Feb. 3, an increase of 18% compared to the same period last year. Sales at stores open more than a year increased 7% over the same quarter last year, according to a press release March 13.

One major change involved the company's women's clothing chain called "Janeville." In spring 2004 Gymboree had announced a plan to test the new concept, whose stores were designed to have a homey feel with decorations like antique tables, wrought iron gates, and galvanized pieces like old flower containers. Gymboree hoped to draw well-off women in their mid-30s by designing clothing styled for them (see BusinessWeek.com, 3/19/04, "Gymboree Grows Up with Janeville"). The company ended up closing the Janeville division during the February quarter.

Excluding the closed Janeville division, income from continuing operations increased 26% year over year to $26.8 million. The company's net income rose overall to $24.4 million during the quarter, up 19.9% compared to the same period last year.

Gymboree surprised market players on the upside with its forecast. The company says its income from continuing operations will be between 60 cents to 63 cents per share during the April quarter and between $2.36 and $2.40 per share during the year. The consensus forecast had been for 63 cents per share and $2.36 per share, respectively, according to Thomson Financial.

Gymboree has also taken other steps to improve its business. Its Outlet division, started in 2005, now operates 42 lower-priced stores. The Janie and Jack stores, which sell children's clothing at higher prices than the company's original Gymboree children's retail stores, have grown in number to 81 since their 2002 launch. In the coming year, the company plans to open a minimum of 90 new stores, consisting of 20 Gymboree stores, 45 Gymboree Outlet stores, 15 Janie and Jack shops and a minimum of 10 stores that will involve a new concept.

"We hope that the new concept focuses more on the company's core competency. That said, in specialty retail, we'd expect strong competition lurking in any market," Morningstar analyst Michelle Chang in a research note. She pointed out that mass merchants such as Wal-Mart (WMT) and Target (TGT) have entered the children's apparel market and threaten to take market share. But she was positive about the company's recent results, which she said "showed impressive improvement."

Gymboree is planning on having flat to slightly positive sales at stores open more than a year during the April quarter of 2007. For the full year the company plans for slightly positive sales.

Investors bid up shares by 9.1% to $38.35 per share on the Nasdaq Mar. 14.


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