Gymboree (GYMB)

13 weeks ended October 28, 2006 compared to 13 weeks ended October 29, 2005

Net Sales

Net retail sales in the third quarter of fiscal 2006 increased to $212.9 million from $174.5 million in the same period last year, an increase of $38.4 million, or 22%. Comparable store sales increased 16% over the same period last year. This increase was primarily driven by strong product acceptance resulting in increased full price selling, and effective direct mail marketing and promotional events. Non-comparable store sales increased due to net store and square footage growth of 46 stores and approximately 104,000 square feet, respectively. There were 709 stores open at the end of the period compared to 663 as of the end of the same period last year.

Play & Music net sales in the third quarter of fiscal 2006 increased to $2.7 million from $2.6 million in the same period last year.

Gross Profit

Gross profit for the third quarter of fiscal 2006 increased to $105.6 million from $81.3 million in the same period last year. As a percentage of net sales, gross profit for the third quarter of fiscal 2006 increased 3.1 percentage points to 49.0% from 45.9% in the same period last year. Gross profit for the third quarter of fiscal 2006 includes approximately $3.1 million of charges related to the closure of the Janeville division (primarily $1.2 million for the cancellation of certain purchase commitments and $1.2 million for lease terminations). Excluding this item,

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gross profit as a percentage of sales for the third quarter of fiscal 2006 increased 4.5 percentage points to 50.4% from 45.9% in the same period last year. This increase was primarily due to an increase in full price selling due to strong customer acceptance of the product, lower product costs resulting from the Company’s product cost reduction strategies, and the leveraging of buying and occupancy expenses. In the fourth quarter of fiscal 2006, the Company will continue the implementation of its product cost reduction strategies, which focus on improved coordination of product design, merchandising and development, as well as greater efficiencies in product sourcing. The Company expects to continue to generate lower product costs in the fourth quarter of fiscal 2006 but does not expect the year over year improvement in gross margin to be as significant as that experienced in the first three quarters of fiscal 2006.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $77.2 million in the third quarter of fiscal 2006 from $61.0 million in the same period last year. As a percentage of net sales, SG&A expenses increased 1.4 percentage points to 35.8% in the third quarter of fiscal 2006 from 34.4% in the same period last year. SG&A expense in the third quarter of fiscal 2006 includes approximately $7.1 million of charges related to the closure of the Janeville division (primarily related to approximately $6.9 million in asset impairment) and $1.7 million in share-based compensation expense as a result of the adoption of FASB Statement No. 123(R). Excluding these two items, SG&A as a percentage of sales for the third quarter of fiscal 2006 decreased 2.7 percentage points to 31.7% compared to the same period last year. SG&A savings as a percentage of sales for the third quarter of fiscal 2006 were generated from leveraging depreciation and store compensation, reduced repair and maintenance costs and lower operating supplies cost, partially offset by increased costs related to our additional marketing initiatives and corporate compensation. In addition, SG&A as a percentage of sales improved as a result of a $2.3 million legal settlement charge recorded in the third quarter of fiscal 2005.

Other Income, Net

Other income increased to $1.1 million in the third quarter of fiscal 2006 from $0.5 million in the same period last year, primarily due to an increase in net interest income due to higher investment balances coupled with higher interest rates.

Income Taxes

The Company’s effective tax rate for the third quarter of fiscal 2006 and 2005 was 40.9% and 46.7%, respectively. Income tax expense for the 13 weeks ended October 28, 2006 includes an increase in the state effective tax rate, as well as the adjustment of estimated income tax expense to match the fiscal 2005 federal and foreign tax returns filed during the quarter. Income tax expense for the 13 weeks ended October 29, 2005 includes $1.9 million of additional expense related to the establishment of valuation allowances for certain tax assets, an election to take bonus depreciation resulting in the impairment of an existing deferred tax asset and the adjustment of estimated income tax expense to match the final fiscal 2004 tax return filed in October 2005.

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Discontinued Operations

The income reported for the discontinued United Kingdom and Ireland operations in the third quarter of fiscal 2005 primarily represents the recognition of the cumulative foreign currency translation losses in connection with the liquidation of the United Kingdom and Ireland entities offset by income tax benefits primarily from the reconciliation of financial accounting records to the fiscal 2004 income tax return filed in the quarter.

13 weeks ended July 29, 2006 compared to 13 weeks ended July 30, 2005

Net Sales

Net retail sales in the second quarter of fiscal 2006 increased to $153.0 million from $129.3 million in the same period last year, an increase of $23.7 million, or 18.3%. Comparable store sales increased 12% over the same period last year. This increase was primarily driven by strong product acceptance, which resulted in an increase in full price selling and effective promotional events. Non-comparable store sales increased due to net store and square footage growth of 38 stores and approximately 96,000 square feet, respectively. There were 684 stores open at the end of the period compared to 646 as of the end of the same period last year.

Play & Music net sales in the second quarter of fiscal 2006 decreased to $2.5 million from $2.7 million in the same period last year. This decrease was primarily due to lower product sales to franchisees.

Gross Profit

Gross profit for the second quarter of fiscal 2006 increased to $65.6 million from $47.2 million in the same period last year. As a percentage of net sales, gross profit for the second quarter of fiscal 2006 increased 6.4 percentage points to 42.2% from 35.8% in the same period last year. This increase was primarily due to the reduction in product costs resulting from the Company’s product costing strategy, which involves improved coordination of product design, merchandising and development, as well as greater efficiencies in product sourcing. Improved full price selling and the leveraging of buying and occupancy expenses also contributed to this increase. In the third quarter of fiscal 2006, the Company will begin to annualize the implementation of its product costing initiatives begun in fiscal 2005, thereby reducing the level of improvement in year over year gross profit margins.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $66.7 million in the second quarter of fiscal 2006 from $53.3 million in the same period last year. As a

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percentage of net sales, SG&A expenses increased 2.5 percentage points to 42.9% in the second quarter of fiscal 2006 from 40.4% in the same period last year. SG&A expense in the second quarter of fiscal 2006 includes a charge of $3.7 million related to the retirement of the Company’s former Chairman and Chief Creative Officer and $2.0 million in share-based compensation expense as a result of FAS Statement No. 123(R), offset by approximately $500,000 of benefit arising from the finalization of payments to be made under a previously accrued wage and hour lawsuit. Excluding these three items, SG&A as a percentage of sales for the second quarter of fiscal 2006 decreased 0.9 percentage points to 39.5% compared to the same period last year. SG&A savings as a percentage of sales for the second quarter of fiscal 2006 were generated from leveraging store compensation, depreciation savings, reduced repair and maintenance costs and lower operating supplies cost, partially offset by increases in corporate compensation and costs related to our incremental marketing initiatives.

Other Income, Net

Other income increased to $1.8 million in the second quarter of fiscal 2006 from $294,000 in the same period last year, primarily due to an increase in net interest income due to higher investment balances coupled with higher interest rates. In addition, the Company received and recorded income of approximately $400,000 in the second quarter of fiscal 2006 from the settlement of the class action antitrust litigation against Visa/Mastercard.

Income Taxes

The Company’s effective tax rate for the second quarter of fiscal 2006 and 2005 was 20.2% and 35.7%, respectively. Income tax expense for the 13 weeks ended July 29, 2006 includes an increase in the state effective tax rate, as well as the favorable adjustment of estimated income tax expense to match the final fiscal 2005 foreign tax returns filed during the quarter. The actual fiscal 2006 effective rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations and the Company’s overall level of earnings in fiscal 2006. Additional factors which may impact the Company’s fiscal 2006 income tax rate in subsequent quarters include the potential resolution of outstanding tax contingencies and the reassessment of certain valuation allowances based upon revised income projections.

Discontinued Operations

Income reported for the discontinued United Kingdom and Ireland operations in the second quarter of fiscal 2005 primarily represents favorable adjustments to previous lease termination accruals based on actual settlements in connection with the liquidation of the United Kingdom and Ireland entities.

13 weeks ended April 29, 2006 compared to 13 weeks ended April 30, 2005

Net Sales

Net retail sales in the first quarter of fiscal 2006 increased to $186.2 million from $160.8 million in the same period last year, an increase of $25.4 million, or 16%. Comparable store sales increased 13% over the same period last year. This increase was primarily driven by strong product acceptance. At Gymboree stores, all departments performed strongly led by the baby and newborn departments, which included additional sizes in the toddler age range. Janie and Jack shops also experienced strong performance from all departments, which resulted in an increase in full price selling. Non-comparable store sales increased due to net store and square footage growth of 25 stores and 64,000 square feet, respectively. There were 672 stores open at the end of the period compared to 647 as of the end of the same period last year.

Play & Music net sales in the first quarter of fiscal 2006 increased to $2.8 million from $2.2 million in the same period last year. This increase was primarily due to franchise fees associated with two new international franchise agreements.

Gross Profit

Gross profit for the first quarter of fiscal 2006 increased to $90.4 million from $64.6 million in the same period last year. As a percentage of net sales, gross profit increased 8.2 percentage points to 47.9% from 39.7% in the same period last year. This increase was primarily due to the reduction in product costs resulting from the Company’s product costing strategy, which involves improved coordination of product design, merchandising and development, as well as greater efficiencies in product sourcing. Improved full price selling and the leveraging of buying and occupancy expenses also contributed to this increase. Management expects a less significant improvement in gross margins in the second quarter of fiscal 2006 compared to the same period last year as a result of an anticipated smaller increase in comparable store sales.

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Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $63.2 million in the first quarter of fiscal 2006 from $56.6 million in the same period last year. The increase in SG&A expense was primarily due to higher corporate expenses for incentive compensation, including $1.8 million in share-based compensation expense as a result of adopting FAS Statement No. 123(R) in the first quarter of fiscal 2006, as well as higher store operating costs due to an increase in sales volume and total store count compared to the prior year. As a percentage of net sales, SG&A expenses decreased 1.2 percentage points to 33.5% in the first quarter of fiscal 2006 from 34.7% in the same period last year as the increase in comparable store sales allowed us to leverage store operating costs. Based on current sales expectations and expense plans, the Company expects a less significant reduction in SG&A expense as a percent of net sales, before the impact of share-based compensation, during the second quarter of fiscal 2006 compared to the same period last year.

Other Income, Net

Other income increased in the first quarter of fiscal 2006 to $1.3 million from $206,000 in the same period last year primarily due to an increase in net interest income due to higher investment balances coupled with higher interest rates.

Income Taxes

The Company’s effective tax rate for the first quarter of fiscal 2006 and 2005 was 37.1% and 35.7% respectively. The actual fiscal 2006 effective rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations and the Company’s overall level of earnings in fiscal 2006. Additional factors which may impact the Company’s fiscal 2006 income tax rate in subsequent quarters include the potential resolution of outstanding tax contingencies and the reassessment of certain valuation allowances based upon revised income projections.

Discontinued Operations

Income reported for the discontinued United Kingdom and Ireland operations in the first quarter of fiscal 2005 primarily represents favorable adjustments to previous lease termination accruals based on actual settlements in connection with the liquidation of the United Kingdom and Ireland entities. Due to immateriality, the results of the United Kingdom and Ireland operations have been included in continuing operations for the 13 weeks ended April 29, 2006.