Gymboree shares climb; upgraded to strong buy at Wedbush Morgan

BOSTON, Jul 14, 2008 (Thomson Financial via COMTEX) -- GYMB | Quote | Chart | News | PowerRating -- Shares of Gymboree Corp. jumped Monday after the children's clothing retailer was upgraded to strong buy from buy at Wedbush Morgan, which cited continued business momentum, sourcing benefits, and improving profitability at its retail division Crazy 8.

The stock was up 4.2% at $35.85 on volume of 863,072 shares. The issue's 30-day average volume is about 951,400.

Analyst Betty Chen said Gymboree benefits from its leading position in the more resilient children's apparel space and continues to outperform because of its "solid" pricing strategies.

Chen expects "solid" second-quarter business will lead management to raise second-quarter earnings guidance when it reports full second-quarter sales in early August. Chen said she sees upside to her above-guidance earnings estimate of 21 cents a share.

Furthermore, Chen said her analysis suggests "modest" sourcing strategies and Crazy 8's improving profitability are drivers for the company to exceed historical peak margins. She estimates a potential lift of 40 to 50 basis points to fiscal 2008 operating margin opportunity.

Wedbush Morgan set its price target at $52.

The firm raised its 2008 estimates to earnings of $3.16 a share on revenue of $1.037 billion, from earnings of $3.14 a share on revenue of $1.032 billion. Analysts polled by Thomson Reuters, on average, forecast profit of $3.16 a share on revenue of $1.04 billion. Casey Logan cl/vj

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