* Q1 EPS $0.74 vs est. of $0.67
* Lower expenses boost results
* Sees mid- to high-single-digit fall in Q2 same-store sales
* Expects Q2 inventories to fall in the mid-single digits (Adds conference call details, analyst comment, stock activity)
By Amitha Rajan
BANGALORE, May 20 (Reuters) - Children's clothing retailer Gymboree Corp GYMB.O posted a quarterly profit above analysts' estimates, helped by lower product costs and operating expenses, but forecast a fall in same-store sales in the second quarter.
Gymboree, on a conference call with analysts, said the second quarter is the most discretionary period of the year because it lacks boosters, unlike the other periods which gain from events such as Easter, back-to-school season and Christmas.
Most apparel companies have been hit hard by the economic recession given that consumers tend to buy essentials and hold back on spending on discretionary items.
The company's forecast for same-store sales decline in the second quarter was likely conservative and cost controls could help offset weak sales, Betty Chen of Wedbush Morgan Securities told Reuters.
"Gymboree has done a very good job of internally controlling costs, so that if comp-store sales remain negative, like we saw in the first quarter, they can still leverage SG&A significantly in order to preserve their earnings power," Chen said.
Selling, general and administrative expenses at the company, which late last year had implemented salary reductions for its senior staff, fell about 10 percent to $73.3 million in the first quarter.
But Chen said the second quarter could be pressurized by other retailers and their willingness to discount much further to regain market share.
For the second quarter, the company, whose rivals include Talbots Inc TLB.N, Children's Place (PLCE.O) and Gap Inc (GPS.N), sees earnings of 9 cents to 14 cents a share. Analysts were expecting a profit of 11 cents a share for the period.
Gymboree, which does not expect the macro-environment to improve significantly in the near term, said it plans to open 24 new store in the second quarter and sees capital expenditure of about $19.7 million for the quarter.
For the first quarter, the company, which operates Janie and Jack stores as well as its namesake chain, earned $21.8 million, or 74 cents a share, compared with $25.0 million, or 86 cents a share, a year earlier.
Analysts were expecting earnings of 67 cents a share, before special items, according to Reuters Estimates.
Analyst Chen, who has a "buy" rating on the stock, believes that a combination of a strong brand, improved merchandise and the fact that the retailer buys its products at a discount has worked well for the company.
"What they have done very well is buy the goods appropriately for discounted price points, and they have adjusted their marketing initiative (markdowns) by either extending the time period or including more products into the sale that allows them to drive sales volume," she added.
Shares of San Francisco-based Gymboree closed were trading slightly down at $36.00 after the bell. They closed at $36.14 Wednesday on Nasdaq. (Editing by Anil D'Silva, Savio D'Souza)