The Gymboree Corporation missed the multi-million-dollar June 1, 2017 payment date on its outstanding 9.125% notes due in 2018. The children’s clothing retailer also has hundreds of millions of dollars in principal due next year.
Drowning in debt and struggling to return to profitability, the company has few options left but to file for bankruptcy protection and restructure its operations. That is, if creditors can agree to any deal; if it can’t, Gymboree will be left with no option but to liquidate its holdings.
This is a far cry from the company’s humble origins. Gymboree was founded by Joan Barnes in 1976, beginning as a music and play center for kids. In the 1980s, the company added a line of clothing.
Bain Capital bought the company in 2010 for $1.8 billion and took it private. At the time, Gymboree was expanding, had lots of cash, and held virtually zero debt. Fast-forward seven years and the story has changed drastically.
Gymboree has $1.04 billion in outstanding debt; most of it, about $872.0 million, is due in less than a year. The company has just $9.7 million in cash on hand. In recent filings with the Securities and Exchange Commission, Gymboree warned it would need to refinance some or all of its debt or it would default.
In the first quarter, which ended October 29, 2016, net sales fell 4.6% year-over-year to $279.82 million as the company’s net loss widened to $10.9 million. The company said it planned to close approximately 10 stores, primarily in its “Crazy 8” and “Gymboree” brands, in the second quarter.
During the second quarter of 2017, net sales fell 6.4% to $356.8 million, with comparable sales falling five percent. Gymboree’s net loss came in at $324.9 million; this includes a $368.1-million non-cash goodwill and intangible asset impairment charge and an $11.6-million charge related to excess inventories.
The future doesn’t look bright for Gymboree. The company revised its outlook downward, saying, “the sustained difficult performance was not anticipated in previous projections that assumed an improvement in traffic and conversion trends.”
Since then, it’s been reported that Gymboree is looking at closing up to 350 stores as part of a restructuring effort under bankruptcy court protection. The retailer has also reached to firms known for liquidating companies’ inventory and other assets to help with the store closures.
Gymboree runs about 1,300 stores, which operate mostly in malls, and is split among three separate brands: higher-end “Janie and Jack,” lower-priced Crazy-8 stores, and Gymboree. Some believe that the company’s Janie and Jack stores, which are more profitable, may expand under any restructuring plans.
“Troubled children’s clothing retailer Gymboree misses June 1 interest payment: Debtwire,” MarketWatch, June 2, 2017.
“Gymboree Plans Store Closures as Part of Upcoming Bankruptcy Filing,” The Wall Street Journal, May 4, 2017.
“The Gymboree Corporation Reports First Quarter of Fiscal 2017 Results,” The Gymboree Corporation, December 16, 2017.
“The Gymboree Corporation Reports Second Quarter of Fiscal 2017 Results,” The Gymboree Corporation, March 14, 2017.)