Mixed 3Q for Gordmans; Guides Lower

Gordmans Stores Inc. (GMAN - Snapshot Report) posted earnings per share of 21 cents in the third quarter of fiscal 2012, ahead of the Zacks Consensus Estimate of 19 cents. However, quarterly result lagged the year-ago quarter’s earnings of 25 cents per share. Lower comparable store sales combined with higher expenses led to the fall in net income.

Behind the Headline Numbers

Net sales for Gordmans Stores grew 8.7% year over year in the third quarter to $143.1 million, supported by nine new store openings over the last three quarters that broadened the company’s store base by 12%. Revenues beat the Zacks Consensus estimate of $143.0 million by a narrow margin.

Quarterly comparable store sales (comps) declined 1.4% year over year affected by low and mid single-digit decreases in home fashions and accessories, partly compensated by the outperformance in the apparel segment.

During the quarter, Gordmans Stores' gross margin dipped 10 basis points (bps) to 44.9%, due to higher mark-downs. Selling, general and administrative costs, as a percentage of total revenue, were up 90 bps year over year on increased pre-opening expenses related to new stores and investments to upgrade the information technology systems.

Liquidity

At quarter end, Gordmans Stores had cash and cash equivalents of $32.2 million and total non-current liabilities of $26.2 million.

Store Update

The company opened two new stores and ventured into four new markets -- Salt Lake City and Ogden in Utah; Boise in Idaho; and Indianapolis in Indiana during the third quarter of 2012.

Guidance

For the fourth quarter of 2012, management expects net sales in the range of $213--$215 million and earnings per share in the range of 58--61 cents.

For fiscal 2012, Gordmans Stores has lowered its top-line expectation to the range of $618--$620 million from $624--$628 million guided earlier. In the prior quarter, Gordmans had slashed its revenue guidance to the range of $624--$628 million from $629--$634 million. Guidance for earnings per share was also trimmed from the range of $1.46--$1.51 to $1.39--$1.42.

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. The company is also focusing on various sales driven initiatives like launching a loyalty program to ensure steady traffic.

However, sluggish comps growth and successive declines in revenue guidance indicating a poor business environment remain causes of concern. Management has also curtailed the earnings estimate this time. Even an extra additional operating week in fiscal 2012 compared with the previous year fails to trigger the company’s business for the year.

Gordmans Stores, which competes with Dollar Tree Inc. (DLTR - Snapshot Report), currently has a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating. We are also maintaining our long-term “Underperform” recommendation on the stock.