At first glance, selling kid clothes has to be a racket. Growing bones require perpetual updates. Grandparents, aunts, and uncles are prone to spoil the young 'uns with new garb as well. It's also easy to argue that we're making a huge mistake in Foolmart by not stocking sizes smaller than an adult medium in our apparel offerings!
But if all of this is true, why is Gymboree (NASDAQ:GYMB) only trading in the teens? Granted, the toddler-geared retailer has seen its shares appreciate substantially since reaching a penny stock nadir four years ago. However, the stock is also fetching far less than it did during its heady growth days of the mid-1990s.
Yesterday, the company posted modest gains during the fourth quarter. On the year, earnings rose from $0.71 to $0.83 a share, on a 6% uptick in sales. While the company warned its new spring collection wasn't meshing well with the extended cold weather, it went on to produce a healthy February showing. Now, Gymboree is looking to continue its bottom-line growth by earning between $0.90 and $0.98 a share this year.
Yet this happy three-year earnings snapshot is an incomplete picture. Gymboree has had to battle back to get to this point. Sure, the sector may be a racket, but the barriers to entry are often as tall as its knee-high outfits. Specialty retailers like Gymboree and Children's Place (NASDAQ:PLCE) should have owned this space, but it was too easy for diversified companies like Gap (NYSE:GPS) and Toys "R" Us (NYSE:TOY) to jump in. Even worse, a toddler's idea of high fashion is often little more than color coding clothes to match their favorite Wiggles character. That makes saving money and buying kid clothing at discount chains, such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), an easier decision.
You had to know that this wasn't retailing paradise when Toys "R" Us bowed out of the kid apparel business last year to concentrate on getting spanked by Wal-Mart in its flagship toy business.
Maybe that's why Gymboree isn't going to put all of its eggs in one age-bracket basket. The retailer is growing up, in more ways than one. Next month, it will launch Janeville, an apparel concept aimed at female thirty-somethings. Ludicrous? Not really. It's already earned the young mother's respect through its namesake chain. This is a logical generational gap extension. It means business, too, as the new venture is being headed up by a former general merchandise manager for bebe Stores (NASDAQ:BEBE).
Gymboree isn't just about kids anymore. And if it plays its cards right, its stock won't be just about the teens anymore, either.
What are some unique characteristics of the relationship between a parent and a child? Are there differences between raising boys and girls? Is Mother's Day really just two months away? All this and more -- in the Mothers and Daughters discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz has been seen at a Gymboree store once or twice. He does not own shares in any companies mentioned in this story.
