Thursday, March 5, 2009

CPSIA - Body Count Rises

The article below tells the bleak story of Gymboree, a marketer of children's clothing in more than 800 stores nationwide. Gymboree's stock price slid 40% last night in after-hours trading on news that it took massive inventory write-offs in the most recent quarter and suffered sharp margin declines and sales losses, all as a result of the CPSIA. They took especially high losses due to the sudden and unanticipated imposition of the retroactive phthalates ban a mere two business days before February 10. [I have previously written about this issue in this space:] It is particularly notable that this senseless economic devastation seems to have no relation to safety, at least as measured by recall notices on the website. Consider these losses in light of the fact that Gymboree does not seem to have EVER had a recall for lead contamination of clothing or for any hazard created by phthalates in its products. If Gymboree was a "bad guy" that the CPSIA was designed to flush out, apparently no one knew it except Congress. So, while the arbitrary new standards of the CPSIA have been hailed by its supporters as "necessary" to protect the American public from vaguely described and strongly-asserted "hidden" product hazards, the data suggests that Gymboree is just another innocent victim of an over-reaching, poorly-conceived law.

The pleas for help from innocent corporate victims of the CPSIA have been consistently and heartlessly ignored by Congress for months now. To those of us suffering from the law, the rigid and unfeeling indifference of Congress over the results of its very own handiwork is disheartening. Many of us wonder whose government this is now. It is truly sad that the spirit and opportunity of the Obama "Revolution" is being so callously squandered by the stubborn insistence of Congress to defend the indefensible.

American business owners, employees, schools, teachers, parents, grandparents AND kids are suffering from the impact of the CPSIA on a daily basis. Whether it's the loss of a dirt bike or ATV, restricted access to treasured classic books or widespread loss of confidence in trusted stores that had never previously let their customers down, this law is touching everyone with an interest in kids and making their life WORSE. The supposed safety benefits are nowhere to be found - because the safety benefits are imaginary. Serious losses like those of Gymboree are gratuitous and come at the worst possible time, during a DEPRESSION. Hey, Congress, in case it has not come to your attention, the American economy is being crushed. We believe First Quarter GDP declines will easily exceed 10% (consider recent data on rail car loadings and auto sales) and in fact, may be much, much worse. Under these circumstances, there can be NO justification for continuing support of this damaging legislation. It's obvious to everyone - except, apparently, to Congressional Democrats.

If Congress won't act soon, the next TARP plan will need to be for the Mom and Pops our government put out of business with the CPSIA. Let's hope they keep the printing presses warmed up for us.


UPDATE 2-Gymboree shares tank 40 pct on bleak Q1 outlook

Wed Mar 4, 2009 7:28pm EST

* Says product safety related changes to hurt margins

* Sees Q1 EPS $0.18-$0.25 vs estimate of $0.77

* Expects challenging retail environment to continue

* Sees inventory down to mid-to-high single digits by Q1 end

* Shares plunge as much as 40 pct in after-hours trading

By Mihir Dalal

BANGALORE, March 4 (Reuters) - Gymboree Corp (GYMB.O) forecast a bleak first quarter as regulatory changes related to product safety significantly weigh down on the children's clothing retailer, slamming its shares down 40 percent in aftermarket trading.

The company, which expects the challenging retail environment to continue throughout fiscal 2009, sees first-quarter earnings substantially below analysts' view.

Gymboree said regulatory changes related the Consumer Product Safety Improvement Act (CPSIA) passed by the Congress in August 2008 will impact sales and gross margins in the first half of 2009.

The Act required the Consumer Product Safety Commission (CPSC) to begin enforcement of new lead and phthalate standards for children's products on Feb. 10, 2009.

In order to comply with the new laws, the company began an initiative to remove any styles in its 800-plus stores that did not meet the new limits prior to Feb. 10, Chief Executive Matthew Mccauley said on a conference call with analysts.

The company had already pulled out products and changed production lines even before a clarification to the law was issued on Feb. 6, Mccauley said.

Separately, the company said a change in safety requirements related to levels of phthalates, a chemical used to increase flexibility in plastics, rendered about 1.7 million of its inventory obsolete.

"This...caused us to pull sleepwear for ages three and under off all of our shelves," said Mccauley.
The company, which operates Janie and Jack stores as well as its namesake Gymboree chain, however, reported a better-than-expected fourth-quarter profit, helped by higher sales and a lower tax rate.

Gymboree sees first-quarter earnings of 18 cents to 25 cents a share. Analysts on average were expecting 77 cents, excluding items, according to Reuters Estimates.

For the first quarter, the San Francisco-based company expects comparable-store sales to decline in the range of 20 percent to 25 percent, amid the weak retail environment.

In the conference call, Gymboree forecast a gross margin decline of about 800 basis points for the first quarter.

Fourth-quarter net income was $29.5 million, or $1 per share, compared with net income of $26.8 million, or 93 cents per share, last year.

The tax rate for the quarter was 33.2 percent compared with 39.8 percent in the prior year.

Shares of the company fell to $13.69 in trading after the bell, but later recovered some losses to trade at $15.50. Earlier, the stock closed down 6 percent at $22.66 Wednesday on Nasdaq.


jen said...

This is all so senseless and it WAS entirely avoidable. Our government seems to like cleaning up messes rather then correcting them before they happen.

Phthalates are banned so you can be sure now that your little ones are 100% safer, right? Wrong – do you know if the substitutes are safe? Congress doesn’t either. Stay tuned our children are now guinea pigs.

Lora said...

Why all the kicking and screaming over “tests” and “certificates” ?

Everything should be TESTED and CERTIFIED!!!

Just because you “honest” business people tell me it’s cotton — how can I know for sure?

It’s not that I am stupid and mistrusting and gullible - I simply need data and documents approved by my faithful Government (that’s where I put all my trust and my money in the form of taxes - and a lot of it, too).

How can I be sure paper is really PAPER?
An apple really an APPLE?

I am all for being afraid of everything - we have every reason to be!

For all I know, I may not be sitting in this “chair” right now, in front of a “computer”. Neither my chair nor my computer have been certified by my Government ensuring me that they really are what they claim to be!

Oh dear! I am lost now. How will I ever be safe?

As a concerned parent of 2.3 children I am concerned at the lack of action by the CPSC.

I do hope that this gets resolved so that only Government manufactured products, or at least Govt. approved manufacturers like the Federal Reserve (they make such pretty money) will be on the market and then distributed in rations, as they should have been all along!

Let’s band together to make us even safer by adding more regulations! There are just too many dangers out there to not take this seriously.”

Petite Spoon said...

Okay we all want to get test and certified, then we go to the raw materials once we know the source of the problem then get rid of it.

Why are useless money spend on testing after testing when it is the same thing that is being tested over and over and over again.

If it passed the first test why are we testing it the second time?

Why not test each item individually from the beginning?

If I bought a button and a ball of yarn that has been tested and passed and certified. I used those and made it into a child sweater to sell. Why should my sweater be tested?

jenny said...

As a first step let me say that I agree with most of what is said in this paper. FCC is in desperate need of reform. It is interesting that this paper comes out around the same time as Lessig’s Newsweek article[1] on FCC reform which takes a rather different approach. A key point where I agree more with Lessig than with Weiser is that the issue of FCC reform is vitally important to the whole economy.
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