Gordmans Stores Inc. (GMAN) posted earnings per share of 15 cents in the second quarter of fiscal 2011, outpacing the Zacks Consensus Estimate of 11 cents. The quarter’s earnings also surpassed management guidance range of 10–11 cents. Earnings outperformance was mainly aided by improvements in comparable store sales and gross profit margins.
The quarter’s results, however, deteriorated from 20 cents earned in the year-earlier quarter. The deterioration can be traced back to a 10.3% decline in earnings per share. Pre-opening expenses for the stores opened later in the quarter or due to open in the third quarter caused a deceleration in net income.
Total revenue for Gordmans Stores grew 53.4% year over year in the second quarter to $117.0 million driven by two store openings this year in Minneapolis, which is a new market for the company. Quarterly revenue was at the upper end of management’s guidance range of $116–$117 million.
Quarterly comparable store sales (comps) increased 0.4% year over year versus 8.3% in the year-earlier quarter. The muted growth in comps was due to a 0.8% increase in the average sale per transaction, partially offset by a 0.4% decrease in comparable transactions.
During the quarter, Gordmans Stores' gross profit increased 5.2% year over year to $52.5 million and gross margin expanded 70 basis points (bps) to 44.9%. The growth came on the back of solid store level expense management. Selling, general and administrative costs as a percentage of total revenue were up 150 bps year over year largely due to increased pre-opening expenses.
Financials
At quarter end, Gordmans Stores had cash and cash equivalents of $23.8 million and total non-current liabilities of $11.5 million.
Outlook
For the third quarter of 2011, management expects net sales in the range of $133–$135 million and earnings per share in the range of 18–19 cents.
For the fourth quarter of 2011, management expects net sales in the range of $185–$187 million and earnings per share in the range of 51–55 cents.
For full fiscal 2011, Gordmans Stores reiterated its top-line expectation at $553 million to $557 million, reflecting an uptick in comparable store sales. Guidance for earnings per share was raised to $1.22–$1.27 from $1.18–$1.23.
Our Take
Gordmans Stores houses a large pool of the latest brands and fashion, and operates around 70 stores in 16 Midwestern and surrounding states in the U.S. The company is also in an expansion mode, with a total of seven new stores and one reallocation slated this year. Gordmans also opened two new stores at the end of the second quarter in Chicago, another new market for the company. We believe, like Minneapolis, the Chicago market will also contribute substantially to Gordmans’ future comps. The company also plans to open a minimum of 8 stores next year out of which 4 locations, scheduled for a first quarter opening, have already been leased.
However, although the company believes that going forward, its merchandising, marketing and inventory management initiatives will help in enhancing its comparable store sales, the current trend is quite soft. Hence, we remain cautious on the stock for the near future. Moreover, stiff competition in the industry and increasing cost pressure remain other concerns for the company.
Gordmans Stores currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Neutral” recommendation on the stock. One of Gordmans Stores’ peers Dollar Tree Inc. (DLTR) also retains the Zacks #3 Rank and a long-term “Neutral” recommendation.
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