Wednesday is a Gymboree
What analysts say:
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Buy, sell, or waffle? Ten Wall Street firms follow the children's clothier, with four "buy" ratings and six "holds" between them. In our own Motley Fool CAPS investor community, this is a three-star stock today, based on more than 121 user ratings.
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Revenues. $208.5 million would satisfy the average analyst and show 10% sales growth over last year's $189.0 million. Management's guidance, updated in early May, points to $206.7 million.
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Earnings. The analyst consensus lands at $0.63 per share, up from $0.53 a year ago. The company stands by its original $0.60 to $0.63 per-share range.
What management does:
Since CEO Matt McCauley took the wheel in early 2006, the upswing has been remarkable. Margins have widened from top to bottom, the pace of revenue growth keeps increasing, and the company is firing on all cylinders. The one little fly in this ointment is the slackening free cash flow in the latest quarter, resulting from higher investment in new stores on top of distribution center upgrades.
|
10/2005 |
1/2006 |
4/2006 |
7/2006 |
10/2006 |
2/2007 |
|
|---|---|---|---|---|---|---|
|
Gross |
40.1% |
44.2% |
45.2% |
46.2% |
47.5% |
48.6% |
|
Operating |
5.0% |
9.6% |
11.0% |
12.4% |
13.8% |
14.6% |
|
Net |
1.9% |
5.0% |
6.5% |
6.9% |
7.3% |
7.6% |
|
FCF/Revenue |
3.7% |
10.2% |
12.4% |
12.4% |
12.0% |
10.5% |
|
YOY Growth |
10/2005 |
1/2006 |
4/2006 |
7/2006 |
10/2006 |
2/2007 |
|---|---|---|---|---|---|---|
|
Revenue |
10.7% |
13.3% |
15.4% |
16.2% |
18.3% |
18.6% |
|
Earnings |
(17.7%) |
77.2% |
208.6% |
239.5% |
207.8% |
86.3% |
What management says:
Gymboree is hardly done growing. The recently-filed 10-K statement for fiscal 2007 explains why we should expect about 80% more capital expenditures this year than for 2007:
The Company estimates capital expenditures for fiscal 2007 will approximate $70 million and will be used to open approximately 20 new Gymboree stores (16 in the United States and 4 in Canada), 45 new Gymboree Outlet stores, 15 new Janie and Jack shops, a minimum of 10 stores in a new concept in the children's retail space, and to remodel, relocate or expand approximately 64 Gymboree stores, as well as to invest in the Company's distribution center, a new retail point of sale system, on-line stores, and systems infrastructure upgrade and replacement.
The Company's current plans for Janie and Jack, Gymboree Outlet, and the new concept will require increasing capital expenditures for new stores for the next several years.
One Fool says:
When you're a growing small-cap retailer, capex expenses are your friends, much like how technology firms should shake hands with their best buddy, Mr. R&D. Furthermore, Gymboree can easily afford to grow at this accelerated pace, because the company generates plenty of free cash flow even after paying for new locations, and carries zero debt on the balance sheet.
If that's not exciting enough, consider the fact that the Play & Music programs only recently entered the growth equation in any meaningful way, with the start of two-way cross-promotion programs between the retail and child development segments.
Yes, the play groups have promoted the retail stores through Gymbucks and the like for years, but it was a one-way street. Now that both arms are helping each other, we should see the synergies starting to work for real. Children's Place
The Gap is both a Motley Fool Inside Value pick and a Motley Fool Stock Advisor recommendation.
Fool contributor Anders Bylund is a Gymboree shareholder and longtime customer, but holds no other position in any of the companies discussed here. You can check out Anders' holdings, and Foolish disclosure will help your portfolio develop.
