Tonight, children's clothier extraordinaireGymboree (NASDAQ:GYMB) is set to report third-quarter 2006 earnings, and this Fool is trading his jingly cap for a clown hat long enough to tell you why we want, we want Gymbo.

What analysts say:

  • Buy, sell, or waffle? Seven Wall Street analysts currently follow Gymboree. Four of them want to buy, and the other three are just holding. In our Motley Fool CAPS community, this is a four-star stock with the support of 17 all-star bulls and no comparable bears.
  • Revenues. $213 million of sales would satisfy the average analyst, up 20.4% from last year's $177 million.
  • Earnings. The average forecast calls for earnings of $0.67 per share, up from $0.35 last year. But the range of estimates is rather wide, going from $0.49 at the low end to $0.72 up top.

What management says:
Gymboree just saw its first profitable Q2 in nearly 10 years. "This milestone achievement validates the initiatives we have been focusing on these past two years," said CEO Matthew McCauley about the second-quarter success. But he doesn't stop there: "While I am pleased with the quarterly results, I am even more excited about the merchandising, marketing and operational opportunities ahead of us." Backing up his words, Gymboree then delivered a string of positive monthly sales reports, prompting the company to up its guidance for the third quarter and full year by $0.10.

What management does:
McCauley took the wheel in January 2006, and it looks like he made a difference from day one. Every margin is headed in the right direction, and other metrics are looking great, too.

Margins %

4/05

7/05

10/05

1/06

4/06

7/06

Gross

38.4

38.4

40.1

43.1

45.2

46.2

Op.

2.8

2.7

5.0

8.3

10.9

12.1

Net

0.8

0.9

1.9

5.5

6.5

6.9


4/05

7/05

10/05

1/06

4/06

7/06

Return on Equity

6.7%

6.8%

8.1%

13.4%

18.0%

21.7%

TTM Reve-nue

$610

$626

$648

$679

$704

$728

TTM Net Income

$4.9

$5.5

$12.5

$33.7

$46.0

$49.0
Dollars in millions.
 All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
McCauley is a very young CEO at just 33, but he brings a wealth of experience from his various positions at The Gap (NYSE:GPS). His focus on operational efficiency seems to be paying off in spades as Gymboree works its way back from years of operational chaos. The company hasn't seen net margins north of 6% or 15% ROE since 1998, and revenues are growing faster now -- 16.2% year over year on a trailing basis -- than at any time since 1999.

In return, the stock is trading at all-time highs now, with historically generous price-to-book, price-to-sales, and even P/E ratios. The share price has more than doubled since the beginning of the year, and barring bad news, that chart looks intent on further skyward climbing.

We already have some of the results for this quarter, with $213 million of revenues from retail operations reported earlier this month. Add in between $2 million and $3 million from the Play & Music segment, and we've passed expectations on that point. As for earnings, the analysts are jumping way ahead of the company's guidance, which tops out around $0.47 per share. In other words, Wall Street is looking for an absolutely stellar performance, and it may be hard to pop those bubbles.

Competitors:

  • Children's Place (NASDAQ:PLCE)
  • JC Penney (NYSE:JCP)
  • Sears Holdings (NASDAQ:SHLD)
  • Carter's (NYSE:CRI)
  • Target (NYSE:TGT)

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Fool contributor Anders Bylund holds no position in any of the companies discussed here, but his kids have a severe addiction to those Gymboree play and music classes. You can check out Anders' holdings if you like, and Foolish disclosure keeps you young.