Kids' apparel sure seems like it should be a lucrative market niche, considering how quickly tykes can outgrow clothes, but that doesn't mean it's easy for players in the space. While Gymboree (Nasdaq: GYMB) reported robust third-quarter earnings on Tuesday, same-store sales were down and its sales outlook appears flat -- for the time being, anyway.
Gymboree said that third-quarter profits were up 32%, meeting analysts' expectations. While total sales rose 2%, same-store sales actually dipped 3%, and the children's apparel retailer forecast flat same-store sales for the fourth quarter.
It's hard to imagine there's no doting going on when it comes to children. Many of the new fathers and mothers I know claim their little ones get dressed to the nines by relatives, especially thrilled Baby Boomer grandparents. And, as mentioned before, kids' constant outgrowing of clothing certainly can't hurt apparel sales.
Overall demand may be there, but there are also plenty of options for pint-sized threads. Other choices include Children's Place (Nasdaq: PLCE), Gap (NYSE: GPS) Kids, Old Navy (another Gap concept, and a popular one at that), and of course discounters like Target (NYSE: TGT), as well as loads of department stores and small specialty shops.
Earlier this week, Jeff Hwang reportedToys "R" Us (NYSE: TOY) plans to shutter its Kids R Us retail outlets, which suggests that shoppers aren't exactly lining up at those stores either. And in October, Dave Marino-Nachison took a look at Children's Place, pointing out that easy comparisons can sure make sales look robust.
Some news agencies cited strong profit margins boosting Gymboree's earnings. It's good news that the company is able to keep its expenses low, but hints of lackluster sales are a concern, as is the nagging idea that maybe the company's design team isn't hitting any home runs. In that regard, investors might need to worry about whether Gymboree's appeal to its target market is fading.
Indeed, when the company reported second-quarter earnings, it pointed to weakness in its boys' selection; at the time, it indicated some changes ahead, and projected some positive results early in its fourth quarter. Let's hope so... otherwise, there might be plenty of reasons for investors to outgrow interest in Gymboree.
Is Gymboree all played out due to competition from other kids' retailers, or even mass merchandise discounters like Target? Share your views with other Fools on the Retail discussion board.
Alyce Lomax welcomes your feedback at alomax@fool.com.
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