August 20, 2008 / 8:59 PM / 10 years ago

UPDATE 2-Gymboree Q2 profit beats analysts' estimates

(Adds analyst’s comment, conference call details)

BANGALORE, Aug 20 (Reuters) - Children’s clothing retailer Gymboree Corp GYMB.O posted a better-than-expected quarterly profit on improved gross margin and backed its fiscal 2008 earnings outlook.

In a conference call with analysts, Gymboree said it expects fourth-quarter profit to be hit by 2 cents to 4 cents a share due to a fire at a contractor factory in Indonesia that led to higher freight costs arising from air shipments of the goods.

The company said it does not expect third-quarter earnings to be hurt by costs related to the fire.

“I think the sourcing strategy (for merchandise) that the company has should enable them to surpass the third-quarter and full-year guidance that they provided today,” Wedbush Morgan Securities analyst Betty Chen said by phone.

For the third quarter the company, which operates Janie and Jack stores as well as its namesake Gymboree chain, expects a profit of $1.02 to $1.04 a share. Analysts were expecting earnings of $1.04 a share, before items.

The San Francisco-based company earned $8.0 million, or 27 cents a share, for the second quarter, compared with $5.8 million, or 19 cents a share, a year earlier.

Total net sales rose 13 percent to $205.7 million.

Analysts on average expected a profit of 25 cents a share, before exceptional items, on revenue of $206.1 million, according to Reuters Estimates.

For the quarter ended Aug. 2, the gross margin rose to 45.7 percent from 44 percent last year.

Analyst Chen said it is going to be a very challenging second half but she likes the more resilient children’s retailing space and believes Gymboree continues to execute on the product front.

Gymboree, which competes with Talbots Inc TLB.N, Children’s Place Retail Stores Inc (PLCE.O) as well as larger rivals like Gap Inc (GPS.N) and Target Corp (TGT.N), expects same-store sales to be flat or fall slightly in the third quarter.

For fiscal 2008, the company which operated 835 retail stores as of Aug. 2, forecast earnings of $3.15 to $3.20 a share. Analysts expect $3.20 a share, before items.

The company’s stock closed at $36.57 Wednesday on Nasdaq. (Reporting by Dilipp S. Nag in Bangalore; Editing by Amitha Rajan)

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