Bank of America Merrill Lynch Downgrading Gymboree

Bank of America Merrill Lynch is out with a research report on Gymboree GYMB and is downgrading shares to Underweight. In a note to clients, Bank of America Merrill Lynch writes, "Gymboree reported 2Q11 Adjusted EBITDA that declined 23% year-over-year, to $25 million, which was in line with our estimate of $24 million. 2Q11 comparable- store sales increased 8%, driven by discounting to clear styles that do not represent Gymboree's core tenets of “cute, wholesome and age-appropriate fashion.” During the quarter, Gymboree saw an increase in total transactions and average units per transaction, and decreases in average unit retails and average transaction size versus the prior year. Adjusted gross margins decreased 690 basis points year-over-year, to 36.6%, due to discounting to clear inventory that did not align with Gymboree's core tenets. Based upon debt of $1.25 billion and cash of $55 million, net leverage was 5.4x and net lease-adjusted leverage was 6.3x at quarter-end."