UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 29, 2005 |
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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)
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DELAWARE |
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94-2615258 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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500 Howard Street, |
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94105 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (415) 278-7000
700 Airport Boulevard, Suite 200, Burlingame, California 94010-1912
(Former address, if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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Title of Each Class |
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Name of each exchange on which registered |
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COMMON STOCK, $0.001 PAR VALUE |
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NASDAQ NATIONAL MARKET |
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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of July 31, 2004, was approximately $256,000,000 based upon the last sales price reported for such date on the NASDAQ National Market.
As of April 2, 2005, 31,180,946 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on June 13, 2005 (hereinafter referred to as the “Proxy Statement”) are incorporated by reference into Part III.
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THE GYMBOREE CORPORATION
TABLE OF CONTENTS
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The discussion in this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Inaccurate assumptions and known and unknown risks and uncertainties can affect the accuracy of forward-looking statements, and our actual results could differ materially from results that may be anticipated by such forward-looking statements. Certain risks and uncertainties that could cause our actual results to differ significantly from management’s expectations are described in the section entitled “Factors That May Affect Future Performance.” That section, along with other sections of this Annual Report, describes some, but not all, of the factors that could cause actual results to differ significantly from management’s expectations. When used in this document, the words “believes,” “expects,” “estimates,” or “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. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise.
PART 1
The Gymboree Corporation is a specialty retailer operating stores selling high quality apparel and accessories for children and women under the GYMBOREE®, JANIE AND JACK®, and JANEVILLE™ brands, as well as play programs for children under the GYMBOREE PLAY & MUSIC™ brand. The Company operates stores in the United States and Canada, primarily in regional shopping malls and in selected suburban and urban locations. All references to “we,” “our,” “us,” and “the Company” in this Annual Report mean The Gymboree Corporation and its subsidiaries.
GENERAL
As of January 29, 2005, the Company conducted its business through four primary divisions: Gymboree, Janie and Jack, Janeville and Gymboree Play & Music.
Gymboree. Gymboree retail stores offer high quality, fashionable, child-appropriate apparel and accessories characterized by bright colors, patterns and whimsical graphics, complex embellishments, comfort, functionality, and durability for children ages newborn to 9 years (larger sizes are available at our on-line store). Under the Gymboree brand name, we design and contract manufacture children’s apparel and accessories for sale exclusively by Gymboree. As of January 29, 2005, we operated 579 Gymboree retail stores, including 551 stores in the United States and 28 stores in Canada, as well as an on-line store at www.gymboree.com. During 2004, the Company closed 23 stores in the United Kingdom and Ireland. The Company plans to launch an outlet division for our Gymboree brand. We expect to open 10 outlets in fiscal 2005.
Janie and Jack. The Janie and Jack shops are highly differentiated from the Gymboree stores. Janie and Jack shops offer distinctive, finely crafted clothing and accessories for boys and girls sizes newborn to 4T. Lush fabrics, a hand-made quality and details such as hand-embroidery, smocking and vintage prints are utilized to create classic looks. Shops have an old mercantile boutique style with special details such as wainscotting and distressed wooden armoires. As of January 29, 2005, we operated 55 Janie and Jack shops in the United States, as well as an on-line shop at www.janieandjack.com.
Janeville. Janeville is the Company’s newest specialty retail concept. Janeville offers trend-infused apparel and accessories for women in their mid-30s and older. Clothing is modern, fresh and comfortable, designed with high quality fabrics and flattering cuts and styling. Janeville stores feature a residential environment with a cottage façade, front porch, and French doors. Subtle feminine details are found throughout the store, such as slip-covered furniture, one-of-a-kind fixtures, found objects, distressed wood and contrasting, warm textures. As of January 29, 2005, we operated 14 Janeville stores in the United States.
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Gymboree Play & Music. Gymboree Play & Music offers directed parent-child developmental play programs designed to enhance early childhood development through fun-filled sensory and motor activities that engage children ages newborn to 5 years old through sight, touch, sound and movement. Gymboree Play & Music also offers art classes and organized birthday parties and sells certain developmentally appropriate toys and audiotapes. As of January 29, 2005, Gymboree’s Play & Music programs included 7 Company-operated play centers in California and 521 franchisee-operated play centers, of which approximately 62% are located in the United States, and the remaining 38% are located in other countries, including Australia, Brazil, Canada, China, France, Ireland, Malaysia, Mexico, Singapore, South Korea, Switzerland, Taiwan, Thailand, and the United Kingdom. The Company is currently focusing on revitalizing the Play & Music program with the objective of building our overall customer base.
Gymboree was organized in October 1979, as a California corporation, and re-incorporated as a Delaware corporation in June 1992.
RETAIL STORES
As of January 29, 2005, the Company operated a total of 648 stores: 579 Gymboree retail stores (551 in the United States and 28 in Canada), 55 Janie and Jack retail shops and 14 Janeville stores in the United States.
In 2004, the Company opened 24 Gymboree stores, 23 Janie and Jack shops and 14 Janeville stores in the United States. The Company also relocated 16 Gymboree stores in the United States and closed 32 Gymboree stores (9 in the United States and 23 in Europe). During 2005, the Company plans to remodel, relocate or expand 15 Gymboree stores, open 16 new Gymboree stores (including approximately 10 outlet stores), open 15 to 20 new Janie and Jack shops and 3 new Janeville stores. The Company also plans to close approximately 6 stores in fiscal 2005.
The following table sets forth the net number of stores opened and closed during each of the periods indicated.
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Fiscal Year |
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Prior |
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2000 |
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2001 |
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2002 |
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2003 |
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2004 |
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Total |
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Gymboree |
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586 |
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-6 |
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— |
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-7 |
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14 |
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-8 |
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579 |
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Janie and Jack |
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— |
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— |
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— |
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11 |
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21 |
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23 |
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55 |
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Janeville |
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14 |
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14 |
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Zutopia (sold in 2001) |
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19 |
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— |
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-19 |
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— |
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— |
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— |
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— |
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Total |
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605 |
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-6 |
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-19 |
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4 |
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35 |
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29 |
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648 |
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Less than 5% of the Company’s revenues were derived from outside the United States in 2004, 2003 and 2002, and less than 5% of the Company’s long-lived assets were located outside the United States in 2004, 2003 and 2002.
DIRECT-TO-CONSUMER
The Gymboree branded e-commerce site at www.gymboree.com currently offers our entire product offering for children between the ages of newborn and nine years, as well as a select product offering for girls up to twelve years. The site also offers on-line registration for our Gymboree Play & Music classes at selected U.S. locations. The Janie and Jack branded e-commerce web site at www.janieandjack.com, offers our entire Janie and Jack product offering for children between the ages of newborn and four years. We plan to continue to invest in technology, operations, and merchandise offerings to meet business demands and our customer’s expectations.
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SUPPLIERS
The majority of our apparel is manufactured to our specifications by approximately 200 independent manufacturers in key countries in Asia (including China, Indonesia, Macao, Taiwan, Thailand, Turkey and Bangladesh), as well as in the United Arab Emirates, Central America, South America and the United States. The Company purchases all products in U.S. dollars. One buying agent manages approximately 90% of our inventory purchases. We have no long-term contracts with suppliers and typically transact business on an order-by-order basis. All of our factories undergo annual audits for social accountability and production quality by an independent third party.
COMPETITION AND SEASONALITY
The Company’s operations are seasonal in nature, with sales from our retail operations peaking during the fourth quarter, primarily during the holiday season in November and December. During 2004, the fourth quarter accounted for approximately 30% of our net sales from retail operations.
Our Gymboree and Janie and Jack brands compete on a national level with BabyGap and GapKids (divisions of The Gap, Inc.), Talbots Kids and certain leading department stores, as well as certain discount retail chains such as Old Navy (a division of The Gap, Inc.), The Children’s Place and Target. Our Gymboree and Janie and Jack brands also compete with a wide variety of local and regional specialty stores, with certain other retail chains, and with children’s retailers that sell their products by mail order or over the Internet. Our new brand, Janeville, competes on a national level with J. Jill, Chico’s, Talbots, Anthropologie, Banana Republic, Nordstrom and Ann Taylor. The principal factors of competition for retail sales focus around product design, product quality, brand image, customer service, and pricing, among other factors. Our goal is to provide our customers with high quality apparel with an excellent price/value relationship. We design our apparel exclusively for sale at our retail and on-line stores.
TRADEMARKS AND SERVICE MARKS
In the United States, the Company is the owner of the trademarks and service marks “GYMBOREE” and “JANIE AND JACK,” the service mark “MATCHMATICS” and the trademarks “GYMBO,” “GYMBUCKS” and “GYMBABY”. These marks and certain other of our marks are registered in the United States Patent and Trademark Office, and the mark “GYMBOREE” is also registered, or is the subject of pending applications, in approximately 60 foreign countries. The Company is also the owner of a federal trademark and service mark application for “JANEVILLE.” Each federal registration is renewable indefinitely if the mark is still in use at the time of renewal. Our rights in the “GYMBOREE” mark and other marks are a significant part of our business. Accordingly, we intend to maintain the mark and the related registrations. We are not aware of any material claims of infringement or other challenges to our right to use the “GYMBOREE” mark in the United States.
The Company uses a number of other trademarks, certain of which have been registered with the United States Patent and Trademark Office and in certain foreign countries. We believe that our registered and common law trademarks have significant value and that some of our trademarks are instrumental to our ability to create and sustain demand for and market our products.
TEAM MEMBERS
As of January 29, 2005, we had 8,802 full-time and part-time employees or 3,878 full-time equivalents. In addition, a significant number of seasonal employees are hired during each holiday selling season. None of our employees is represented by a labor union.
SEGMENT AND INTERNATIONAL FINANCIAL INFORMATION
Financial information for the Company’s segments and international subsidiary for each of the three years ended January 29, 2005, January 31, 2004, and February 1, 2003 is contained in Note 11 of the Notes to Consolidated Financial Statements.
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AVAILABLE INFORMATION
We make available on our website at www.gymboree.com, under “Financial Resources & SEC filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, code of ethics, and amendments to such documents as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth current information regarding our executive officers.
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Lisa M. Harper |
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Chairman of the Board and Chief Executive Officer |
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Blair W. Lambert |
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Chief Operating Officer and Chief Financial Officer |
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Lisa T. Bayne |
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Senior Vice President, Brand |
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Marina Armstrong |
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Senior Vice President, Human Resources and Loss Prevention, and Secretary |
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Matthew K. McCauley |
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Senior Vice President and General Manager |
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Kip M. Garcia |
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Senior Vice President, Merchandising - Kids |
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Lynda Gustafson |
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Vice President and Corporate Controller |
Lisa M. Harper has served as Chairman of our Board of Directors since June 2002 and Chief Executive Officer since February 2001. She was Vice Chair of the Board from February 2001 through June 2002. Ms. Harper joined Gymboree in January 1999 as Vice President, Design. From December 1999 until February 2000, she served as our Senior Vice President, Merchandising and Design. From February 2000 until September 2000, Ms. Harper served as our General Merchandise Manager. From September 2000 until February 2001, she served as our President. Prior to that, Ms. Harper served as our Director of Design and Merchandising from 1993 to 1995. Ms. Harper has also held merchandising and design positions with several other clothing retailers, including Limited Too, Esprit de Corp., GapKids, Mervyn’s, and Levi Strauss.
Blair W. Lambert has served as Chief Operating Officer and Chief Financial Officer of Gymboree since January 2005. In August 2003, Mr. Lambert joined Illuminations.com, Inc., a candle and home decorating solution manufacturer, as the Chief Financial Officer. He was named to the Illuminations.com, Inc. board of directors in October 2003. Illuminations.com, Inc. filed for bankruptcy protection on January 9, 2004. Prior to becoming an officer of Illuminations.com, Mr. Lambert has been a vineyard owner and a private consultant for specialty retail companies since October 2001. Mr. Lambert served as the Chief Financial Officer of Bebe Stores, Inc. from June 1996 through October 2001. From 1988 to 1996, Mr. Lambert was employed by Esprit de Corp., a wholesaler and retailer of junior and children’s apparel, footwear and accessories, most recently serving as Corporate Vice President of Finance. Mr. Lambert has been on the board of directors of The Gymboree Corporation since 2003. Mr. Lambert is a Certified Public Accountant.
Lisa T. Bayne joined The Gymboree Corporation in December 2003 as Senior Vice President, Brand, and is responsible for in-store marketing, visual merchandising, packaging, public relations, direct mail, advertising and corporate communications. Ms. Bayne was previously Senior Vice President of Marketing for Smith & Hawken from 2001 to 2003 and Senior Vice President of Creative Services and Brand Marketing for Eddie Bauer from 1998 to 2001.
Marina Armstrong joined The Gymboree Corporation in May 1997 as a District Manager. In 1998, Ms. Armstrong became a Human Resources Staffing Manager at the corporate office and later that year was promoted to Director, Recruiting and Staffing. Ms. Armstrong was named Vice President, Human Resources in 1999 and Senior Vice President, Human Resources and Loss Prevention in February 2005. Ms. Armstrong was named Assistant Secretary in March 2002 and Secretary in December 2004. Prior to joining The Gymboree Corporation, Ms. Armstrong held several human resources and store operations positions with other retailers including Saks Fifth Avenue, Robinsons-May and The Bon Marche.
Matthew K. McCauley joined The Gymboree Corporation in July 2001 as Director of Allocation and was named Vice President of Planning and Allocation in 2003. In February 2005, Mr. McCauley was named Senior Vice President and General Manager. Prior to joining The Gymboree Corporation, Mr. McCauley served as a Manager of Business Solutions for The Gap, Inc. from 1999 to 2001.
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Kip M. Garcia joined The Gymboree Corporation in May 2004 as Senior Vice Present of Merchandising - Kids. Prior to joining The Gymboree Corporation, Mr. Garcia served as Senior Vice President for Gap Kids from April 2002 to February 2003 and Senior Vice President for DFS Merchandising Ltd. from February 1992 to February 2002.
Lynda Gustafson joined The Gymboree Corporation in August 2001 as the Corporate Controller and was promoted to Vice President, Corporate Controller in December 2004. Ms. Gustafson was a business consultant for various companies from September 2000 to July 2001. From November 1993 to August 2000, Ms. Gustafson was at US Home & Garden Inc., and was the Principal Accounting Officer when she departed. Prior to that time, she spent five years in public accounting. Ms. Gustafson is a Certified Public Accountant.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
We may not be able to operate successfully if we lose key personnel, are unable to hire qualified additional personnel, or experience turnover of our management team.
The continued success of the Company is largely dependent on the individual efforts and abilities of our senior management and certain other key personnel and on our ability to retain current management and to attract and retain qualified key personnel in the future. The loss of certain key employees or our inability to continue to attract and retain other qualified key employees could have a material adverse effect on our growth, our operations and our financial position.
Our results may be impaired by changes in fashion trends and consumer preferences.
Our sales and profitability depend upon the continued demand by customers for our apparel and accessories. We believe that our success depends in large part upon our ability to anticipate, gauge and respond in a timely manner to changing consumer demands and fashion trends and upon the appeal of our products. There can be no assurance that the demand for our apparel or accessories will not decline or that we will be able to anticipate, gauge and respond to changes in fashion trends. A decline in demand for our apparel and accessories or a misjudgment of fashion trends could have a material adverse effect on our business, financial condition and operating results.
The highly competitive industry in which we operate may impair our ability to maintain and grow our sales and results.
The apparel segment of the specialty retail industry is highly competitive, and we may not be able to compete successfully in the future. Our Gymboree and Janie and Jack brands compete on a national level with BabyGap and GapKids (divisions of The Gap, Inc.), Talbots Kids and certain leading department stores, as well as certain discount retail chains such as Old Navy (a division of The Gap, Inc.), The Children’s Place and Target. Our Gymboree and Janie and Jack brands also compete with a wide variety of local and regional specialty stores, with certain other retail chains, and with children’s retailers that sell their products by mail order or over the Internet. Our new brand, Janeville, competes on a national level with J. Jill, Chico’s, Talbots, Anthropologie, Banana Republic and Ann Taylor. Many of these competitors are larger and have substantially greater financial, marketing and other resources than the Company. Increased competition may reduce sales and gross margins, increase operating expenses and decrease profit margins.
Our new concepts require a substantial commitment of resources and are not certain of ultimate success.
The Company’s ongoing efforts to develop, launch and grow new businesses and brands require significant capital expenditures and management attention. Our commitment of management resources and capital to a new concept means that those resources and capital are unavailable for other Company activities and operations. Our decision to launch a new business is based on our assessment that a significant opportunity exists in the marketplace. We feel that such opportunity exists for Janie and Jack, Janeville and our planned Gymboree outlet stores. Though initial consumer reaction to Janie and Jack has been positive since its launch in the third quarter of 2002, it is too early to tell whether the Janie and Jack business will grow into a profitable division of the Company. There are no assurances that Janeville will receive sufficient consumer acceptance in its testing phase to justify the further significant investment and management effort necessary to establish the brand and business. Janeville, which targets women in their mid-30s, operates in a very competitive market in which the Company has not historically operated. While we believe that we have an opportunity to further build the Gymboree brand by establishing outlet stores under that brand, there can be no assurance that this will be well received by our current customers or attractive to potential new customers. If one or more of these business concepts do not develop and grow substantially and achieve profitability, this could have a material adverse effect on the Company’s long-term growth, operating results, margins and profitability.
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Our business may be harmed by additional United States regulation of foreign trade or customs delays.
Our business is subject to the risk that the United States may adopt additional regulations relating to imported apparel products, including quotas, duties, taxes and other charges or restrictions on imported apparel. We cannot predict whether additional United States quotas, duties, taxes or other charges or restrictions will be imposed upon the importation of our products in the future, or what effect any such actions would have on our business, financial position and results of operations. If the U.S. government imposes any such charges or restrictions, the supply of products could be disrupted and their cost could substantially increase, either of which could have a material adverse effect on our operating results. Unforeseen delays in customs clearance of any goods could have a material adverse effect on our ability to deliver complete shipments to our stores, which in turn could have a material adverse effect on our business and operating results.
Because we purchase our products internationally, our business is sensitive to risks associated with international business.
Our products are currently manufactured to our specifications by independent factories located primarily in Asia, as well as Central America, South America, Mexico, the Middle East, and the United States. As a result, our business is subject to the risks generally associated with doing business abroad, such as foreign governmental regulations, currency fluctuations, adverse conditions including epidemics, natural disasters, social or political unrest, disruptions or delays in transportation or customs clearance, local business practices and changes in economic conditions in countries in which our suppliers are located. We cannot predict the effect of such factors on our business relationships with foreign suppliers. If our current foreign manufacturing sources or textile mills were to cease doing business with us for any reason, such actions could have a material adverse effect on our operating results and financial position.
We may suffer negative publicity if any of our products are found to be unsafe.
We currently test products sold in our stores. If these products have safety problems of which we are not aware or if the Consumer Product Safety Commission recalls a product sold in our stores, we may experience not only negative publicity, which could adversely impact our sales and reputation, but also product liability lawsuits, which could have a material adverse effect on our reputation, business and financial position.
We may be subject to negative publicity or be sued if our manufacturers violate labor laws or engage in practices that our customers believe are unethical.
We seek to require our independent manufacturers to operate their businesses in compliance with the laws and regulations that apply to them. Our sourcing personnel periodically visit and monitor the operations of our independent manufacturers, but we cannot control their business and labor practices. We also rely on an independent third party to audit all of our factories on an annual basis. If an independent manufacturer violates or is suspected of violating labor laws or other applicable regulations, or if such a manufacturer engages in labor or other practices that diverge from those typically acceptable in the United States, Canada or Europe, we could in turn experience negative publicity or be sued. Negative publicity regarding the production of our products could have a material adverse affect on our sales, business and financial position.
The loss of a key buying agent could impair our ability to deliver our inventory in a timely fashion, impacting its value.
In 2004 and 2003, one buying agent managed approximately 90% of the company’s inventory purchases. Although we believe that other buying agents could be identified and retained to place our required foreign production, the loss of this buying agent could result in delays in procuring inventory and as a result could have a material adverse effect on our business and operating results.
Our business is sensitive to economic conditions that impact consumer spending.
Our financial performance is sensitive to changes in overall economic conditions that impact consumer spending, particularly discretionary spending. Future economic conditions affecting disposable consumer income such as employment levels, business conditions, interest rates and tax rates could reduce consumer spending or cause consumers to shift their spending to other products.
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A general reduction in the level of discretionary spending or shifts in consumer discretionary spending to other products could have a material adverse effect on our growth, sales and profitability.
Our business is sensitive to changes in seasonal consumer spending patterns that are beyond our control.
Historically, a disproportionate amount of our retail sales and a significant portion of our net income have been realized during the holiday season in November and December. We have also experienced periods of increased sales activity in the early spring, during the period leading up to the Easter holiday, and in the early fall, in connection with back-to-school sales. Our second quarter has historically been our weakest performing quarter due to seasonal consumer spending patterns. Changes in seasonal consumer spending patterns for reasons beyond our control could result in lower-than-expected sales during these periods. Such a circumstance could cause us to have excess inventory, necessitating markdowns to minimize this excess, which would reduce our profitability. Any failure by us to meet our business plans for, in particular, the third and fourth quarter of any fiscal year would have a material adverse effect on our earnings, which in all likelihood would not be offset by satisfactory results achieved in other quarters of the same fiscal year. Also, because we typically spend more in labor costs during the holiday season, hiring temporary store employees in anticipation of holiday spending, a shortfall in expected sales during that period could result in a disproportionate decrease in our net income.
Damage to our computer systems could severely hamper our ability to manage our business.
Our operations depend on our ability to maintain and protect our computer systems, on which we rely to manage our purchase orders, store inventory levels, web applications, accounting functions and other aspects of our business. We have computer systems located in each of our stores, with the main database server for our systems located in San Francisco, California, which exists on or near known earthquake fault zones. An earthquake or similar disaster could have a material adverse impact on our business and operating results not only by damaging our stores, but also by damaging our main server, which could disrupt our business for an indeterminate length of time. Our systems are vulnerable to damage from fire, floods, earthquakes, power loss, telecommunications failures, and similar events. There can also be no assurance that the Company can maintain or protect its web application from a significant disruption that could result in a material adverse effect on its web revenue.
Our stores must be located in appropriate retail venues and shopping areas.
Our stores must be located in appropriate retail space in areas with demographic characteristics consistent with our customer base. These locations tend to be limited to upscale malls and similar venues where the market for space is very competitive. The location of acceptable store sites and the negotiation of acceptable lease arrangements require considerable time, effort and expense. Our ability to lease desirable retail space for expansion and relocation of stores, and to renew our existing store leases, on favorable economic terms is essential to our revenue growth. Failure to obtain and renew leases for a sufficient number of stores on acceptable terms would have a material adverse effect on our revenues and results of operations.
Our comparable store sales fluctuate from period to period
Our comparable store sales have fluctuated significantly in the past and are expected to fluctuate in the future, especially for our newer brands, Janie and Jack and Janeville. Our comparable store sales are affected by a number of factors including our merchandise mix, economic conditions, weather conditions, timing of our promotional offerings, competition and the overall retail environment. The investment community often tracks comparable store sales and a decline or significant fluctuation in comparable store sales, or a failure to meet investor expectations of comparable store sales, could affect the market price of our common stock.
In March 2004, the Company signed a lease agreement for a new corporate office building in San Francisco, California. The new lease expires on April 14, 2018. The Company moved into its new corporate headquarters during the fourth quarter of fiscal 2004. See Note 14 of the Notes to Consolidated Financial Statements.
We own a 300,000 square foot distribution center on 21 acres in Dixon, California. All products are distributed to our U.S. stores from this facility. The Company utilizes a third-party owned and operated distribution center in Mississauga, Ontario, Canada for Canadian operations.
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At January 29, 2005, the Company’s 648 stores included an aggregate of approximately 1,201,000 square feet of space. Our stores are all leased, typically for a 10-year term, and typically include a cancellation clause if minimum revenue levels are not achieved during a specified 12-month period during the lease term. In most cases, we pay a minimum rent plus a percentage rent based on the store’s net sales in excess of a certain threshold. Substantially all of the leases require us to pay insurance, utilities, real estate taxes, and repair and maintenance expenses. In addition, we operate 7 Gymboree Play & Music sites in California under leases that expire between 2005 and 2010. See Note 5 of the Notes to Consolidated Financial Statements.
On April 21, 2005, Gymboree Operations, Inc. (“Gymboree Operations”), a wholly-owned subsidiary of the Company, was served in a lawsuit filed in the Superior Court of Riverside County, California. The complaint, on behalf of the manager of a Gymboree store in Temecula, California, alleges that Gymboree Operations failed to pay overtime wages and provide meal breaks. The plaintiff seeks unspecified damages, including interest and penalties, under the California Labor Code and other statutes. The complaint also seeks class action status on behalf of the plaintiff and other managers of Company stores in California. The Company has not yet had an opportunity to evaluate the complaint.
The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the results in any of these legal proceedings, either individually or in the aggregate, would have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Gymboree Corporation’s common stock is traded on the Nasdaq National Market under the symbol “GYMB.” The following table sets forth the quarterly high and low sale prices per share of our common stock over the last two fiscal years, as reported on the Nasdaq National Market.
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|
Fiscal 2004 |
|
Fiscal 2003 |
|
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|
|
|
|
|
|
|
||||||||
|
|
|
High |
|
Low |
|
High |
|
Low |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
17.91 |
|
$ |
14.02 |
|
$ |
17.50 |
|
$ |
11.79 |
|
|
Second Quarter |
|
|
18.33 |
|
|
14.51 |
|
|
18.32 |
|
|
13.36 |
|
|
Third Quarter |
|
|
16.04 |
|
|
11.32 |
|
|
18.32 |
|
|
12.62 |
|
|
Fourth Quarter |
|
|
13.25 |
|
|
10.87 |
|
|
18.38 |
|
|
14.13 |
|
As of April 2, 2005, the number of holders of record of the Company’s common stock totaled approximately 634. The Company has never declared or paid cash dividends on its common stock and anticipates that all future earnings will be retained for development of its business. The payment of any future dividends will be at the discretion of the Company’s Board of Directors and will depend upon, among other things, future earnings, capital requirements, our financial position and general business conditions. In addition, the Company is restricted from paying dividends under the terms of its existing credit facility.
11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data have been derived from the Consolidated Financial Statements of the Company and have been restated to reflect the adjustments discussed in Note 2 to the Consolidated Financial Statements and to present the results of the United Kingdom and Ireland operations as discontinued operations. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and notes thereto.
|
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 (1) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except operating data and per share amounts) |
|
|
|
(4) |
|
(4) |
|
(4) |
|
(4) |
|
|||||
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
583,178 |
|
$ |
537,625 |
|
$ |
504,679 |
|
$ |
482,206 |
|
$ |
424,333 |
|
|
Play & Music and Other |
|
|
11,300 |
|
|
11,647 |
|
|
14,940 |
|
|
13,977 |
|
|
13,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
|
594,478 |
|
|
549,272 |
|
|
519,619 |
|
|
496,183 |
|
|
437,473 |
|
|
Cost of goods sold, including buying and occupancy expenses |
|
|
(362,356 |
) |
|
(323,678 |
) |
|
(297,142 |
) |
|
(308,717 |
) |
|
(304,767 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
232,122 |
|
|
225,594 |
|
|
222,477 |
|
|
187,466 |
|
|
132,706 |
|
|
Selling, general and administrative expenses |
|
|
(211,359 |
) |
|
(185,516 |
) |
|
(186,029 |
) |
|
(172,634 |
) |
|
(182,220 |
) |
|
Lease termination charges |
|
|
(4,408 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
16,355 |
|
|
40,078 |
|
|
36,448 |
|
|
14,832 |
|
|
(49,514 |
) |
|
Foreign exchange gains (losses), net |
|
|
(82 |
) |
|
137 |
|
|
874 |
|
|
(383 |
) |
|
176 |
|
|
Interest income |
|
|
1,022 |
|
|
652 |
|
|
646 |
|
|
514 |
|
|
86 |
|
|
Interest expense |
|
|
(355 |
) |
|
(411 |
) |
|
(1,244 |
) |
|
(3,475 |
) |
|
(1,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
16,940 |
|
|
40,456 |
|
|
36,724 |
|
|
11,488 |
|
|
(51,238 |
) |
|
Income tax benefit (expense) |
|
|
139 |
|
|
(15,170 |
) |
|
(14,139 |
) |
|
(4,423 |
) |
|
19,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax |
|
|
17,079 |
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