Playtime's Over: Gymboree Goes Up For Sale
The recently announced sale of kids'-clothing and play-gym chain Gymboree (GYMB) isn't a fire sale of a distressed or tired-out brand. In the parade of struggling companies such as Rite Aid and Radio Shack that are rumored to be looking for a buyout this year, Gymboree is an odd duck. There isn't much fundamentally wrong with this company.
Ordinarily, when a company seeks private-equity buyers, it's in trouble. The stock price is in the tank, and company managers are sick of being under a microscope about why. The fast-food world has been full of deals like this lately, including Burger King's sale last month to 3G Capital.
Gymboree is in a different scenario entirely. The brand has held up well in the downturn, and grew sales and profits in the first half of this year. The company netted $41 million in the first half of 2010, and is sitting on $132 million in cash. There's no emergency here like, say, financially struggling American Apparel (APP) faces.
About the only thing in the financials that raises an eyebrow: Cash is shrinking, and along with it, shareholders' equity. It appears that to lure customers, Gymboree is needing to keep inventories high -- there's $16 million more in inventory on the shelves now than there was a year ago. That's helped drain cash, which is down more than $30 million from a year ago. Maybe it's just a sign that the chain sees more sales opportunity now, as the economy thaws a bit, or maybe it's a sign that operations are slipping. But it hardly seems like a trigger that compels a sale.
Gymboree was reportedly approached by Apollo Management with an offer, and decided to hire Goldman Sachs (GS) to field all comers before deciding what to do. The company may just be doing its due diligence so it can report back to stockholders that the company can deliver more value by staying publicly traded. Buyout offers have come to Gymboree before, and it's passed.
Company managers who have a lot of company shares could also be hoping to benefit from the lift the buyout announcement has given the company's stock. Gymboree's stock price shot up more than 10 percent on the news that private-equity buyers were sniffing around.
Photo via Flickr user D'Arcy Norman