Aug 19, 2009
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Gymboree second quarter profit likely to beat Street on promotions

Aug 19, 2009

By Vidya Lakshmi

BANGALORE, August 18 (Reuters) - Children's clothing retailer Gymboree Corp's (GYMB.O) earnings are expected to top market expectations in the second quarter, as promotions and a product mix in line with fashion trends resonate with customers.

Gymboree Corp - Photo: www.gymboree.com

"Gymboree has done a fantastic job of creating value-centric propositions," Susquehanna Financial Group analyst Thomas Filandro said.

This, he said, was especially important at a time when customers are looking to maximize their discretionary spending power.

Dorothy Lakner, analyst with Caris & Co, said the company has lined up a strong product assortment and has the ability to further cash-in on carefully-timed promotional events.

Gymboree, which caters to newborns to 12-year-olds, has been running back-to-school offers and coupon promotions for customers spending above a certain amount.

The San Francisco-based retailer's Gymbucks coupon scheme is driving business at a time when customers demand discounts, Lakner, who has a "buy" rating on the stock, said by phone.

Growth, especially in the future, is also expected to get a boost from Crazy 8 -- a new line whose prices are 30 percent below the core Gymboree line.

"Crazy 8 is gaining some real brand traction," analyst Filandro said.

"When it was initially launched, there were some kinks in terms of quality, fit and price, (which) have been worked out," he said.

These trends have resulted in improved same-store sales, which along with better cost and inventory control could provide an earnings upside in the quarter.

The company's second-quarter same-store sales declined by one percent, while rival Children's Place (PLCE.O) posted a 7 percent decline in the period.

"They've done a great job of controlling their inventory, managing their cost structure and cash flow," Filandro said, adding that cost-controls are likely to be the greatest positive variance on a year-over-year basis.

Analysts on average are looking for the company to post a profit of 39 cents, before items, on revenue of 211.8 million, according to Reuters Estimates. (Reporting by Vidya Lakshmi in Bangalore; Editing by Anthony Kurian)

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