Gymboree Going Private Just in Time<br><br>Gymboree (GYMB) is scheduled to be taken private by Bain Capital this week. An affiliate of Bain Capital has offered $1.8 billion for the company,louboutin shoes, or $65.40 per share.<br><br>Let be clear. GYMB and its management team enjoyed a nice run over the past 45 years. CEO Matt McCauley joined the company as a relative youngster 89 years ago in the Planning Allocation department,Moncler Jackets On Sale. We were told during an investor day approximately 8 years ago that he singlehandedly developed a markdown optimization system on spreadsheets and this led to a meteoric rise in the company merchandise margin rate versus historical norms.<br><br>His retail career subsequently took off. He going to enjoy a stellar career in retail because, unlike most CEOs who primarily have a fashion/merchandising background, Mr. McCauley has command of the quantitative underpinnings of merchandise margin optimization. This is a rare quality in the retail sector,Moncler Jackets For Women, especially in specialty apparel.<br><br>Beyond markdown optimization (topline driver as well),http://www.boo-ku.com/, Mr. McCauley then spearheaded the following additional topline drivers at GYMB over the past few years:<br><br>Expanded size ranges; Growing the newborn/boys sales mix; Launching direct mail; Outlet channel expansion Loyalty program launch; Crazy 8 brand launch. Mr,cheap red bottom shoes. McCauley should be commended for building the business into a midteen EBIT margin company. He materially improved the profitability of the company beyond what anyone thought imaginable just 45 years ago.<br><br>That said, in our view,michael kors bags for cheap, Mr. McCauley greatest feat may be the fact that he offloaded the company to the folks at Bain Capital at a time when his mouth had written checks that we don think could have been cashed. since the Great Depression. Take a look at the company 3year comp store sales See chart below. It ugly and not likely to get any better anytime soon. The company has reported negative comp store sales in 8 of the past 9 fiscal quarters.<br><br>(Click charts to enlarge)<br><br>GYMB qualifies as one of the few retailers that saw its 3year begin to deteriorate in FY 2007. Most retailers did not begin to report deteriorating 3year until the latter half of FY 2008. GYMB continues to report a declining 3year even as other retailers have seen their 3year run rates begin to stabilize or improve this year.<br><br>GYMB Management Promised no EBIT Margin via Crazy 8 Expansion<br><br>On the company Q1 2010 quarterly earnings conference call, GYMB management suggested that there would be no total enterprise EBIT margin slippage from the material store growth this year of the Crazy 8 chain. It is extremely rare for a new chain to perform at or above the level of a tremendously profitable large core chain such as Gymboree.<br><br>But, it gets better. Mr. McCauley and GYMB stopped disclosing the actual quarterly EPS impact of Crazy 8 this year. Why? If the chain was so successful and not a drain on total enterprise profitability, why not provide your investors more transparency?<br><br>LEADGATE a Diversionary Tactic,Moncler Jackets For Men?<br><br>We still skeptical of GYMB management representations during the company LEADGATE fiasco in Q1 2009. While the company admits that it unnecessarily pulled product from shelves, we believe that fashion concerns were also a material driver of the dismal comp store sales performance in Q1 Q2 2009. In our view,michael kors handbags, the lead issues (handled without a glitch at PLCE) were a red herring for the fashion issues we were seeing at the storelevel.<br><br>Emerging Problems? Find a Suitor FAST!<br><br>While Mr. McCauley has done a great job for GYMB shareholders over the years, his greatest accomplishment may have been unloading the company at an opportune time at an attractive price:<br><br>The sales trend was headed south (see 3year run rate chart above). The company had even its earlyquarter comp store sales guidance in 4 of the last 5 fiscal quarters. We can think of a specialty apparel retailer that had missed its quarterly topline guidance 4 of the past 5 fiscal quarters. The company was going to have to good on its 8 is not negatively impacting total enterprise profitability mantra. We believe that management was going to be forced to eventually clean on that remark. It appears that SG had been cut to the bone. Check out Q3 2010. The company guided to as a percent of sales SG in Q3 2010 and ended up reporting a 200 Bps SG decline on worse than expected sales. In Q3 2010, SG per square foot declined a miraculous 24.9% per gross square foot versus 2 years ago (Q3 2008). Hmmm. It would not have looked good to the folks at Bain Capital for GYMB to have earnings ahead of the transaction closing. But, the SG leverage in Q3 2010 was suspicious, at best.<br><br>Inventory became a real problem for the company in Q2/Q3 2010. Check out the bloated inventory levels (versus sales growth) in the below chart,2013 christian louboutin. Any elementary analyst can see that there were severe GPM% issues facing the company that will now likely need to be flushed through the P in Q4 2010.<br><br>Finally, Mr. McCauley likely realized that, while the company level of profitability is impressive, there was no more upside. The below chart shows a continuing upward trend in trailing 4quarter EBIT margin in Q3 2010. But we not fully convinced that Q3 2010 numbers would have withstood the additional scrutiny an end of year audit would have provided.<br><br>Conclusion Fair Acquisition Price or Opportunistic Timing?<br><br>Time will only tell. But, is it possible that Mr. McCauley had seen a future at GYMB with a continuation of negative comp store sales and an inability to offset the topline decline with further SG cuts? Is it possible that Mr. McCauley only exit strategy (or,michael kors tote bags, best exit strategy) was to convince Bain Capital to purchase the company just prior to the scope of the company woes becoming public?
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