Gymboree Does Back Flips

When will I learn to listen to my wife? Soon, I hope.

She pleaded with me last year to take a closer look at Gymboree (Nasdaq: GYMB  ) , the children's clothing store from which I have dozens of receipts socked away. My objection? Gymbucks. My wife is ruthless about saving them, resulting in more than a few outstanding deals on gear for our three tykes. I feared the dealmaking would destroy Gymboree's margins.

And now? (Thud.) That's me banging my head against the desk. Last week, Gymboree reported that same-store sales jumped 15% in December, stunning analysts who were calling for a 6.7% gain. Investors, meanwhile, were similarly delighted and bid the shares 9% higher the day of the report.

But there was still more to cheer about. Net sales for the five weeks ended on Dec. 30 climbed to $105.3 million -- up 22% year over year. That led management to boost fourth-quarter guidance from $0.62 to $0.64 per share to $0.70 to $0.72 per stub.

Clearly, the turnaround plan that began a year ago with the arrival of CEO Matthew McCauley is taking hold. But is the stock still a bargain? The investors participating in our Motley Fool CAPS community intelligence database seem to think so:

Metric

Gymboree

Total ratings

100

Bullish ratings

92

Bull ratio

92.0%

Bearish ratings

8

Bear ratio

8.0%

Bullish pitches

15

Bearish pitches

0

Note: Data current as of Jan. 8, 2007.

I'm inclined to agree. Why? By my math, Gymboree is trading for just 14.9 times its trailing free cash flow (FCF). That's peanuts when FCF has improved by 35% since January. Moreover, Gymboree appears to be in the early stages of a profitable rebound.

I'm willing to bet the clothier will stay on its feet. That's why I'll be adding Gymboree to my CAPS watch list today. Disagree? Join CAPS today and tell us what you think. It's free to participate.

Tumble your way through related Foolishness:

Fool contributor Tim Beyers, ranked 1,315 out of more than 19,500 in Motley Fool CAPS, didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on everything Tim is invested in by checking his Fool profile. The Motley Fool's disclosure policy never plays around with your portfolio.


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