As the father of a child who has just begun walking, I can tell you that if you take your eye off the tyke for even a moment, more than likely the next thing you hear will be a dull thump on the hardwood floor, followed (after a few seconds of consideration) by a piercing wail of distress. Yesterday, Gymboree
Without warning, the company released an earnings "pre-announcement" that belied the optimism described in last quarter's earnings release. For those following the company, but who perhaps have taken their eye off it, here's the story. Back in Q1, Gymboree was feeling cautious, beginning to find its footing after a period of a lack of coordination in managing its inventory. The company voiced guarded optimism about its earnings for later in the year, suggesting that same-store sales would probably be negative in Q2, but that by year-end, profits would be better than Gymboree had expected last year.
By Q2, little Gymboree was feeling optimistic. It had started walking itself out of negative territory earlier than expected, and actually posted positive comps (up 2%). What's more, Gymboree was looking to repeat this feat in Q3 and post earnings from continuing operations of about $0.29. Boy, were its shareholders ever proud of the little prodigy. Until yesterday.
On Thursday, Gymboree showed that, just as with child rearing, the business of clothing the little hellions is sometimes two steps forward, one step back. In Gymboree's case, it walked its Q3 earnings projections back by about 31%, from $0.29 to $0.20. The stock's price promptly toppled over and dropped nearly 14%.
Was that an overreaction? Probably not, when you consider that at the same time as Gymboree was relaying its bad news, rival The Children's Place
Read more about Gymboree's growing pains in:
Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.