Try as it might, children's clothing retailer and playgroup operator Gymboree (NASDAQ:GYMB) couldn't earn itself a profit this quarter. But the results for the second quarter of fiscal 2005 do deserve an A for effort. In Q2, Gymboree grew its same-store sales by 9% over Q2 2004 and increased its overall revenues by 14%, a result of the company's adding a net of 22 new stores over the past year.

You might think that such strong sales performance would have to yield a profit -- but you'd be wrong. Actually, Gymboree did slightly worse on the profits front compared with last year. It lost $3.6 million one year ago and reported losing $3.7 million on Thursday. Both of those numbers, mind you, are for continuing operations. On a straight net profit basis, the company did a little better this year than last, posting a per-share loss of $0.11 in Q2 2005, a bit better than last year's $0.13-per-share loss.

This year's losses make it difficult to compare the company's marginal performance year over year, at least with regard to net margins. But if we limit our review to the top line of Gymboree's income statement, we can see that gross margins improved slightly in Q2 2005, up about 20 basis points from last year's 36.3% gross margin. Year to date, however, the trend is downward, with the gross margin falling 160 basis points to 38.6%.

On the balance sheet, Gymboree again gives off mixed signals. On the one hand, accounts receivable declined over the past year. That's a good thing. But on the other hand, inventories rose slightly faster than sales did -- 16.5% compared with 14% sales growth. But that rise may well be explainable, given that some of those 22 new stores, opened over the past year, may have opened too recently to yet be contributing significant new sales. New stores still need to be stocked with goods for retail, however -- and that time lag between stores opening and sales ramping up might account for the 2.5% discrepancy between sales growth and inventory growth.

Although Gymboree seems to be primed for growth -- to catch up to the much larger competitor Children's Place (NASDAQ:PLCE) -- we'll want to monitor the sales/inventory relationship closely in hopes of seeing that gap close.

Fool contributor Rich Smith has no position, short or long, in Gymboree or Children's Place.