Gordmans In Line; Guides Rev Lower

Gordmans Stores Inc. (GMAN - Snapshot Report) posted earnings per share of 18 cents in the second quarter of fiscal 2012, in line with the Zacks Consensus Estimate. The result surpassed the year-ago quarter’s earnings of 15 cents per share.

Behind the Headline Numbers

Net sales for Gordmans Stores grew 9.6% year over year in the first quarter to $128.2 million supported by the four new stores opened in the last three quarters of fiscal 2011 and the four new stores opened in the first quarter of this year.

Quarterly comparable store sales (comps) nudged up 0.1% year over year. As expected, Apparel outperformed others in the quarter, clocking a low single-digit comps increase. This gain was offset heavily by low and mid-low comps decline in home fashions and accessories, respectively.

During the quarter, Gordmans Stores' gross margin expanded 90 basis points (bps) to 11.8% due to lower mark-downs combined with higher initial mark-up. Selling, general and administrative costs as a percentage of total revenue were up 60 bps year over year due to higher health and workers' compensation insurance benefits as well as occupancy costs.

Liquidity

At quarter end, Gordmans Stores had cash and cash equivalents of $44.1 million and total non-current liabilities of $22.4 million.

Store Update

The company opened three new stores and entered one new market, Indianapolis, during the second quarter of 2012. The company will end the year with a total of nine new stores representing a 12% expansion of store base.

Guidance

For the third quarter of 2012, management expects net sales in the range of $145–$147 million and earnings per share in the range of 24–26 cents.
For full fiscal 2012, Gordmans Stores has lowered its top-line expectation to the range of $624—$628 million from the $629—$634 million range. However, guidance for earnings per share was reiterated at $1.46–$1.51.

Our Take

Gordmans Stores houses a large pool of the latest brands and fashion. The company is in an expansion mode in new as well as existing markets. Additionally, fiscal 2012 includes an additional week which will benefit the comps. The company is also planning to launch a loyalty program to ensure steady traffic. However, sluggish comps growth and a decline in revenue guidance remain causes of concern.

Gordmans Stores, which competes with Dollar Tree Inc. (DLTR - Snapshot Report), currently has a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Neutral” recommendation on the stock.