MRO Magazine

The Gymboree Corporation Reports Second Quarter Fiscal 2015 Results


September 10, 2015
By PRN NewsWire

SAN FRANCISCO, Sept. 10, 2015 /PRNewswire/ — The Gymboree Corporation (the “Company”) today reported consolidated financial results for the second fiscal quarter ended August 1, 2015.

Second Quarter Results (13-weeks ended August 1, 2015 versus 13-weeks ended August 2, 2014)

— Net sales were $273.5 million, compared to $264.3 million in the second quarter of fiscal 2014; — Comparable sales (including online stores) increased 2%; — Gross profit was $100.7 million, or 36.8% of net sales, compared to $96.4 million, or 36.5% of net sales, for the second quarter of fiscal 2014; — Adjusted gross profit was $102.3 million, or 37.4% of net sales, compared to $98.2 million, or 37.1% of net sales, for the second quarter of fiscal 2014, an increase of 30 basis points; — SG&A expense was $103.4 million, or 37.8% of net sales, compared to $107.1 million, or 40.5% of net sales, in the second quarter of fiscal 2014. The $3.8 million decline in SG&A expense was primarily driven by a decline in impairment charges of $3.2 million from the comparable prior year period; — Adjusted SG&A expense was $100.8 million, or 36.9% of net sales, compared to $104.9 million, or 39.7% of net sales, in the second quarter of fiscal 2014; — Adjusted EBITDA, defined as net loss attributable to The Gymboree Corporation before interest, income taxes and depreciation and amortization, adjusted for other items as described below, was $11.1 million compared to $9.6 million for the second quarter of fiscal 2014, an increase of $1.5 million; — Adjusted EBITDA was negatively impacted by approximately $5 million as a result of receipt flow disruption driven by the west coast port slowdown; and — Net loss attributable to The Gymboree Corporation for the quarter was $26.6 million compared to $31.2 million for the same quarter of fiscal 2014.

Adjusted EBITDA, Adjusted gross profit and Adjusted SG&A expense are not financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). For a description of Adjusted EBITDA and a reconciliation of these measures to GAAP measures, see “Non-GAAP Financial Measures” below and Exhibit D of this press release.

Balance Sheet Highlights

— As of the end of the second quarter of fiscal 2015, there were $70.0 million in borrowings outstanding under the Company’s $225 million asset-backed loan facility and approximately $95.7 million of undrawn availability after being reduced by letters of credit of $30.4 million. — Capital expenditures were $4.4 million during the second quarter of fiscal 2015. — Inventory balances at the end of the second quarter of fiscal 2015 were $243.0 million, compared to $223.7 million at the end of the second quarter of fiscal 2014. On a per square foot basis, inventory cost was up 9% over the second quarter of fiscal 2014. Inventory units were up on a mid-teens percentage basis.

As previously announced, on May 5, 2015, the Company entered into an agreement to sell and lease-back its distribution center located in Dixon, California. Net proceeds received from the sale were $25.9 million of which approximately $10.9 million were restricted to fund capital expenditures or reduce the Company’s liability under the Term loan.

Fiscal 2015 Business Outlook

The Company’s fiscal 2015 outlook is based on the current economic environment trends, as well as management expectations for the remainder of the year.

For the full year, the Company continues to expect Adjusted EBITDA to be in the range of $95 million to $105 million, which includes the net impact to Adjusted EBITDA of approximately $11 million resulting from the west coast port slowdown in the first half of the year. Based on this guidance, the Company expects to have sufficient liquidity during fiscal 2015 to service its debt and invest in the business to drive long-term growth.

Stores

During fiscal 2015, the Company continues to plan to open approximately 12 stores and expects to close approximately 30 to 40 stores.

Capital Expenditures

During fiscal 2015, the Company continues to anticipate spending approximately $25 million to $30 million for capital expenditures.

Non-GAAP Financial Measures

The Company defines “Adjusted EBITDA” as net loss attributable to The Gymboree Corporation before interest, income taxes, and depreciation and amortization (“EBITDA”) adjusted for other items including, non-cash share-based compensation, loss on disposal/impairment of assets and sponsor management fees and expenses, as well as the impact of purchase accounting adjustments resulting from the Acquisition and other non-recurring or unusual items. The Company is likely to exclude these items from Adjusted EBITDA in the future and may also exclude other similar items, the effect of which is uncertain but may be significant in amount. The determination of the amounts that are excluded from non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts.

Adjusted EBITDA is a non-GAAP measure but is considered an important supplemental measure of the Company’s performance and is believed to be used frequently by securities analysts, investors and other interested parties in the evaluation of similar retail companies. Adjusted EBITDA is not a presentation made in accordance with GAAP and the Company’s computation of Adjusted EBITDA may vary from others in the industry. Adjusted EBITDA should not be considered an alternative to operating income or net income, as a measure of operating performance or cash flow, or as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP (see Exhibit D for a reconciliation of Adjusted EBITDA to net loss attributable to The Gymboree Corporation).

The live broadcast of the discussion of second quarter fiscal 2015 financial results and fiscal 2015 business outlook will be available to interested parties at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, September 10, 2015. To listen to the live broadcast over the internet, please log on to www.gymboree.com, click on “Company Information” at the bottom of the page; go to “Investor & Media” and then “Conference Calls & Webcasts.” A replay of the call will be available two hours after the broadcast through midnight PT, September 24, 2015, at 855-859-2056, passcode 93757199.

About The Gymboree Corporation

The Gymboree Corporation’s specialty retail brands offer unique, high-quality products delivered with personalized customer service. As of August 1, 2015, the Company operated a total of 1,317 retail stores: 604 Gymboree(R) stores (550 in the United States, 48 in Canada, 1 in Puerto Rico and 5 in Australia), 172 Gymboree Outlet stores (171 in the United States and 1 in Puerto Rico), 150 Janie and Jack(R) shops (149 in the United States and 1 in Puerto Rico), and 391 Crazy 8(R) stores in the United States. The Company also operates online stores at www.gymboree.com, www.janieandjack.com and www.crazy8.com, and offers directed parent-child developmental play programs at 712 franchised and Company-operated Gymboree Play & Music(R) centers in the United States and 42 other countries.

Gymboree, Janie and Jack, Crazy 8 and Gymboree Play & Music are registered trademarks of The Gymboree Corporation.

Forward-Looking Statements

The foregoing financial information for the second quarter of fiscal 2015 is unaudited and subject to quarter-end and year-end adjustments. This press release includes forward-looking statements, including statements relating to The Gymboree Corporation’s anticipated future financial performance, especially those set forth under the heading “Fiscal 2015 Business Outlook”. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “plan,” “could,” “may,” “will,” “believe,” “estimate,” “forecast,” “goal,” “project,” and other words of similar meaning. Each forward-looking statement contained in this press release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. The Company presently considers the following risks and uncertainties to be important factors that could cause actual results to differ materially from the Company’s expectations: the recent disruptions in the west coast ports and the timing of the ports resuming normal operations, ongoing volatility in the commodities markets, uncertainties relating to high levels of consumer debt and general economic conditions, volatility in the financial markets, potential data breaches of the Company’s or the Company’s vendors or suppliers computer networks, the Company’s ability to anticipate and timely respond to changes in trends, consumer preferences and customer reactions to new merchandise (particularly given the Company’s need to build up inventory significantly in advance of potential product sales), competitive market conditions, including promotional activities of the Company’s competitors, success in meeting the Company’s delivery targets, gross margin achievement, the Company’s ability to appropriately manage inventory, effects of future embargos from countries used to source product, the Company’s ability to attract and retain key personnel and other qualified team members, the limited data available in the future upon which to base its expectations for stabilizing sales trends, and other factors, including those discussed under “Risk Factors” in “Item 1A. Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on May 1, 2015. The Company cautions investors to carefully consider the risks associated with, and not to place considerable reliance on, the forward-looking statements contained in this press release. The forward-looking statements in this press release speak only as of the date of this document, and the Company undertakes no obligation to update or revise any of these statements.

Gymboree, Janie and Jack, Crazy 8, and Gymboree Play & Music are registered trademarks of The Gymboree Corporation.

EXHIBIT A THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) (Unaudited) 13 Weeks Ended 26 Weeks Ended ————– ————– August 1, 2015 August 2, 2014 August 1, 2015 August 2, 2014 ————– ————– ————– ————– Net sales: Retail $256,991 $253,376 $518,723 $512,500 Gymboree Play & Music 11,667 7,319 20,315 14,151 Retail Franchise 4,807 3,608 10,496 9,662 Total net sales 273,465 264,303 549,534 536,313 Cost of goods sold, including buying and occupancy expenses (172,805) (167,939) (343,517) (331,591) ——– ——– ——– ——– Gross profit 100,660 96,364 206,017 204,722 Selling, general and administrative expenses (103,366) (107,140) (208,076) (209,430) Operating loss (2,706) (10,776) (2,059) (4,708) Interest income 23 68 42 115 Interest expense (21,631) (20,455) (42,707) (40,829) Other income (expense), net 142 (134) 32 (502) Loss before income taxes (24,172) (31,297) (44,692) (45,924) Income tax expense (1,222) (1,556) (3,182) (1,932) —— —— —— —— Net loss (25,394) (32,853) (47,874) (47,856) Net (income) loss attributable to noncontrolling interest (1,168) 1,700 (1,713) 3,272 Net loss attributable to The Gymboree Corporation $(26,562) $(31,153) $(49,587) $(44,584)

EXHIBIT B THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) August 1, January 31, August 2, 2015 2015 2014 —- —- —- ASSETS Current assets: Cash and cash equivalents $23,497 $18,520 $24,879 Accounts receivable 24,684 25,248 21,129 Merchandise inventories 243,037 198,337 223,694 Prepaid income taxes 2,596 2,599 3,076 Prepaid expenses 19,399 6,821 19,684 Deferred income taxes 9,124 6,824 8,172 Total current assets 322,337 258,349 300,634 Property and equipment, net 170,605 182,431 196,667 Goodwill 373,446 373,834 758,777 Other intangible assets, net 342,157 343,552 558,210 Deferred financing costs 23,145 25,622 29,091 Restricted cash 8,157 – – Other assets 3,867 4,155 9,835 —– —– —– Total assets $1,243,714 $1,187,943 $1,853,214 LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY Current liabilities: Accounts payable $123,995 $87,032 $112,638 Accrued liabilities 95,079 94,805 86,231 Line of credit borrowings 70,000 33,000 64,000 Current obligation under capital lease 578 552 527 Total current liabilities 289,652 215,389 263,396 Long-term liabilities: Long-term debt 1,114,207 1,114,048 1,113,893 Long-term sale-leaseback financing liability 26,516 – – Long-term obligation under capital lease 2,555 2,850 3,133 Lease incentives and other liabilities 51,770 53,677 52,664 Unrecognized tax benefits 5,123 5,048 6,475 Deferred income taxes 131,887 129,196 209,220 Total liabilities 1,621,710 1,520,208 1,648,781 Stockholders’ (deficit) equity (377,996) (332,265) 204,433 ——– ——– ——- Total liabilities and stockholders’ (deficit) equity $1,243,714 $1,187,943 $1,853,214

EXHIBIT C THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) 26 Weeks Ended ————– August 1, 2015 August 2, 2014 ————– ————– CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(47,874) $(47,856) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 20,896 22,534 Amortization of deferred financing costs and accretion of original issue discount 3,758 3,515 Interest rate cap contracts – adjustment to market 1,693 932 (Gain) loss on disposal/ impairment of assets (93) 3,883 Deferred income taxes 294 36 Share-based compensation expense 1,852 2,269 Other (549) 21 Change in assets and liabilities: Accounts receivable 637 739 Merchandise inventories (45,037) (48,576) Prepaid income taxes (24) (1,095) Prepaid expenses and other assets (12,831) (174) Accounts payable 37,001 10,673 Accrued liabilities (792) (12,822) Lease incentives and other liabilities (897) 3,472 Net cash used in operating activities (41,966) (62,449) —————– CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7,506) (16,523) Increase in restricted cash (10,863) – Decrease in restricted cash 2,706 – Proceeds from sale of assets 353 – Other 40 (66) Net cash used in investing activities (15,270) (16,589) —————– CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from ABL facility 283,000 218,000 Payments on ABL facility (246,000) (154,000) Proceeds from sale-leaseback financing liability 26,750 – Payments for deferred financing costs (1,122) – Payments on capital lease and sale- leaseback financing liability (312) (246) Dividend payment to parent (11) – Capital contribution received by noncontrolling interest – 992 Net cash provided by financing activities 62,305 64,746 —————— Effect of exchange rate fluctuations on cash and cash equivalents (92) (258) — —- Net increase (decrease) in cash and cash equivalents 4,977 (14,550) CASH AND CASH EQUIVALENTS: Beginning of period 18,520 39,429 End of period $23,497 $24,879 ======= =======

EXHIBIT D THE GYMBOREE CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (In thousands) (Unaudited) ADJUSTED EBITDA: —————- The Company defines “Adjusted EBITDA” as net income (loss) attributable to The Gymboree Corporation before interest expense, interest income, income tax expense/benefit, and depreciation and amortization (“EBITDA”) adjusted for other items, including non-cash share-based compensation, loss on disposal/impairment of assets, sponsor management fees and expenses, as well as the impact of purchase accounting adjustments resulting from the acquisition of the Company by investment funds sponsored by Bain Capital Partners, LLC (the “Acquisition”), non-recurring and unusual items. Adjusted EBITDA is not a performance measure under U.S. generally accepted accounting principles (“GAAP”), but is considered an important supplemental measure of the Company’s performance and is believed to be used frequently by securities analysts, investors and other interested parties in the evaluation of similar retail companies. Adjusted EBITDA is not a presentation made in accordance with GAAP and the Company’s computation of Adjusted EBITDA may vary from others in the industry. Adjusted EBITDA should not be considered an alternative to operating income or net income, as a measure of operating performance or cash flow, or as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. The table below provides a reconciliation of net loss attributable to The Gymboree Corporation to Adjusted EBITDA: 13 Weeks Ended 26 Weeks Ended ————– ————– August 1, 2015 August 2, 2014 August 1, 2015 August 2, 2014 ————– ————– ————– ————– Net loss attributable to The Gymboree Corporation $(26,562) $(31,153) $(49,587) $(44,584) Reconciling items (a): Interest expense 21,631 20,455 42,707 40,829 Interest income (10) (14) (17) (66) Income tax expense 613 791 1,918 1,390 Depreciation and amortization (b) 9,813 11,018 20,108 21,804 Non-cash share-based compensation expense 1,132 993 1,852 2,269 Loss on disposal/impairment on assets 409 3,525 542 3,855 Acquisition-related adjustments (c) 2,767 2,963 6,001 5,907 Other (d) 1,271 983 3,137 188 Adjusted EBITDA $11,064 $9,561 $26,661 $31,592 ======= ====== ======= ======= (a) Excludes amounts related to noncontrolling interest, which are already excluded from net loss attributable to The Gymboree Corporation. (b) Includes the following: Amortization of intangible assets (impacts SG&A) $383 $383 $767 $767 Amortization of below and above market leases (impacts COGS) (214) (240) (347) (487) $169 $143 $420 $280 ==== ==== ==== ==== (c) Includes the following: Additional rent expense recognized due to the elimination of deferred rent and construction allowances in purchase accounting (impacts COGS) $1,881 $2,063 $3,767 $4,131 Sponsor fees, legal and accounting, as well as other costs incurred as a result of the Acquisition or refinancing (impacts SG&A) 886 900 2,234 1,776 $2,767 $2,963 $6,001 $5,907 ====== ====== ====== ====== (d) Other is comprised of restructuring charges in the first half of fiscal 2015 and 2014, and non-recurring changes in reserves in the second quarter of fiscal 2015 and first quarter of fiscal 2014. OTHER NON-GAAP FINANCIAL MEASURES: ———————————- 13 Weeks Ended 26 Weeks Ended ————– ————– August 1, 2015 August 2, 2014 August 1, 2015 August 2, 2014 ————– ————– ————– ————– Gross profit as reported $100,660 $96,364 $206,017 $204,722 Acquisition-related adjustments 1,667 1,823 3,420 3,644 Adjusted gross profit excluding Acquisition-related adjustments (non-GAAP measure) $102,327 $98,187 $209,437 $208,366 ======== ======= ======== ======== 13 Weeks Ended 26 Weeks Ended ————– ————– August 1, 2015 August 2, 2014 August 1, 2015 August 2, 2014 ————– ————– ————– ————– SG&A as reported $(103,366) $(107,140) $(208,076) $(209,430) Acquisition-related adjustments 1,269 1,283 3,001 2,543 Other adjustments 1,271 983 3,137 188 —– — —– — 2,540 2,266 6,138 2,731 Adjusted SG&A excluding Acquisition-related and other adjustments (non-GAAP measure) $(100,826) $(104,874) $(201,938) $(206,699) ========= ========= ========= =========

EXHIBIT E THE GYMBOREE CORPORATION CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (In thousands) (Unaudited) For the 13 Weeks Ended August 1, 2015 ————————————- Balance Before Consolidation of VIEs VIEs* Eliminations As Reported ——————— —- ———— ———– Net sales $264,895 $11,081 $(2,511) $273,465 Cost of goods sold, including buying and occupancy expenses (170,680) (2,831) 706 (172,805) Gross profit 94,215 8,250 (1,805) 100,660 Selling, general and administrative expenses (98,709) (6,490) 1,833 (103,366) Operating (loss) income (4,494) 1,760 28 (2,706) Other non operating (expense) income (21,482) 16 – (21,466) (Loss) income before income taxes (25,976) 1,776 28 (24,172) Income tax expense (614) (608) – (1,222) —- —- — —— Net (loss) income (26,590) 1,168 28 (25,394) Net income attributable to noncontrolling interest – (1,168) – (1,168) Net loss attributable to The Gymboree Corporation $(26,590) $ – $28 $(26,562) ============================= For the 13 Weeks Ended August 2, 2014 ————————————- Balance Before Consolidation of VIEs VIEs* Eliminations As Reported ——————— —- ———— ———– Net sales $259,392 $6,246 $(1,335) $264,303 Cost of goods sold, including buying and occupancy expenses (166,259) (2,011) 331 (167,939) Gross profit 93,133 4,235 (1,004) 96,364 Selling, general and administrative expenses (102,881) (5,241) 982 (107,140) Operating loss (9,748) (1,006) (22) (10,776) Other non operating (expense) income (20,592) 71 – (20,521) Loss before income taxes (30,340) (935) (22) (31,297) Income tax expense (791) (765) – (1,556) —- —- — —— Net loss (31,131) (1,700) (22) (32,853) Net loss attributable to noncontrolling interest – 1,700 – 1,700 Net loss attributable to The Gymboree Corporation $(31,131) $ – $(22) $(31,153) ============================= For the 26 Weeks Ended August 1, 2015 ————————————- Balance Before Consolidation of VIEs VIEs* Eliminations As Reported ——- —- ———— ———– Net sales $535,033 $19,692 $(5,191) $549,534 Cost of goods sold, including buying and occupancy expenses (340,242) (5,058) 1,783 (343,517) Gross profit 194,791 14,634 (3,408) 206,017 Selling, general and administrative expenses (199,697) (11,663) 3,284 (208,076) Operating (loss) income (4,906) 2,971 (124) (2,059) Other non operating (expense) income (42,639) 6 – (42,633) (Loss) income before income taxes (47,545) 2,977 (124) (44,692) Income tax expense (1,918) (1,264) – (3,182) —— —— — —— Net (loss) income (49,463) 1,713 (124) (47,874) Net income attributable to noncontrolling interest – (1,713) – (1,713) Net loss attributable to The Gymboree Corporation $(49,463) $ – $(124) $(49,587) ============================= For the 26 weeks Ended August 2, 2014 ————————————- Balance Before Consolidation of VIEs VIEs* Eliminations As Reported ——- —- ———— ———– Net sales $528,536 $11,650 $(3,873) $536,313 Cost of goods sold, including buying and occupancy expenses (328,697) (3,313) 419 (331,591) Gross profit 199,839 8,337 (3,454) 204,722 Selling, general and administrative expenses (201,841) (11,034) 3,445 (209,430) Operating loss (2,002) (2,697) (9) (4,708) Other non operating expense (41,183) (33) – (41,216) Loss before income taxes (43,185) (2,730) (9) (45,924) Income tax expense (1,390) (542) – (1,932) —— —- — —— Net loss (44,575) (3,272) (9) (47,856) Net loss attributable to noncontrolling interest – 3,272 – 3,272 Net loss attributable to The Gymboree Corporation $(44,575) $ – $(9) $(44,584) =============================

EXHIBIT E (continued) THE GYMBOREE CORPORATION CONDENSED CONSOLIDATING BALANCE SHEETS (In thousands) (Unaudited) August 1, 2015 ————– Balance Before Consolidation of VIEs VIEs* Eliminations As Reported ——————— —- ———— ———– Current assets $304,808 $19,769 $(2,240) $322,337 Non-current assets 916,610 4,767 – 921,377 Total assets $1,221,418 $24,536 $(2,240) $1,243,714 ============ Current liabilities $279,221 $12,373 $(1,942) $289,652 Non-current liabilities 1,331,588 470 – 1,332,058 Total liabilities 1,610,809 12,843 (1,942) 1,621,710 ———— Total stockholders’ deficit (389,391) – (298) (389,689) Noncontrolling interest – 11,693 – 11,693 Total liabilities and stockholders’ deficit $1,221,418 $24,536 $(2,240) $1,243,714 ============== January 31, 2015 —————- Balance Before Consolidation of VIEs VIEs* Eliminations As Reported ——————— —- ———— ———– Current assets $243,682 $16,222 $(1,555) $258,349 Non-current assets 924,367 5,227 – 929,594 Total assets $1,168,049 $21,449 $(1,555) $1,187,943 ============ Current liabilities $205,674 $11,088 $(1,373) $215,389 Non-current liabilities 1,304,384 435 – 1,304,819 Total liabilities 1,510,058 11,523 (1,373) 1,520,208 ———— Total stockholders’ deficit (342,009) – (182) (342,191) Noncontrolling interest – 9,926 – 9,926 Total liabilities and stockholders’ deficit $1,168,049 $21,449 $(1,555) $1,187,943 ============== August 2, 2014 ————– Balance Before Consolidation of VIEs VIEs* Eliminations As Reported ——————— —- ———— ———– Current assets $286,407 $15,567 $(1,340) $300,634 Non-current assets 1,547,311 5,269 – 1,552,580 Total assets $1,833,718 $20,836 $(1,340) $1,853,214 ============ Current liabilities $256,936 $7,652 $(1,192) $263,396 Non-current liabilities 1,384,986 399 – 1,385,385 Total liabilities 1,641,922 8,051 (1,192) 1,648,781 ———— Total stockholders’ equity 191,796 – (148) 191,648 Noncontrolling interest – 12,785 – 12,785 Total liabilities and stockholders’ equity $1,833,718 $20,836 $(1,340) $1,853,214 ==============

* The Variable Interest Entities (“VIEs”) include the results of Gymboree (China) Commercial and Trading Co. Ltd. and Gymboree (Tianjin) Educational Information Consultation Co. Ltd. While the Company does not control these two entities, they have been determined to be variable interest entities and their results have been consolidated by the Company.

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The Gymboree Corporation

CONTACT: Investor Relations contact: Tel: 415-278-7933,investor_relations@gymboree.com or Media Relations contact: Tel:415-278-7493, media_relations@gymboree.com

Web site: http://www.gymboree.com/