Gordmans Stores: A Solid Retailer Goes Public Attractively Priced

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 |  Includes: GMAN, ROST, TGT, TJX
by: Bill Simpson

This analysis of Gordmans Stores (NASDAQ:GMAN) was provided to TradingIPOs subscribers in advance of its Wednesday, August 4, IPO. The company sold 5.4 million shares for $11 each, raising about $58.9 million. It had planned to sell shares for $13 to $15 each.

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Gordmans Stores plans on offering 6.2 million shares (assuming over-allotments are exercised) at a range of $13-$15. Insiders will be selling 3 million shares in the deal. Piper Jaffray and Wells Fargo are leading the deal, Baird and Stifel co-managing. Post-IPO GMAN will have 18.7 million shares outstanding for a market cap of $262 million on a pricing of $14. IPO proceeds will be used for debt repayment and general corporate purposes.

Sun Capital Partners will own 67% of GMAN post-IPO. Sun Capital acquired a 100% stake in GMAN in 9/08 for total considerations of just $55.7 million. Of this, $32.5 million was debt on the back of GMAN. That debt will be paid off on IPO.

From the prospectus:

'Gordmans is an everyday low price retailer featuring a large selection of the latest brands, fashions and styles at up to 60% off department and specialty store prices every day in a fun, easy-to-shop environment.'

Discount retailer in the Mid-West. 68 stores in 16 Midwestern states. 50,000 square foot stores. 'Upscale discounter' appears to be how GMAN positions themselves.

10 stores in Missouri, 9 in Iowa and 8 in Illinois.

GMAN defines their target as: 'Our primary target shopper is a 25 to 49-year-old mother with children living at home with household incomes from $50,000 to $100,000.'

Apparel 53% of revenues, Home Fashions 29% and Accessories 18%.

GMAN positions themselves as a blend of specialty, department and off-price retailer. Up to 60% off department store prices with a broad selection of fashion-oriented apparel. Also, GMAN keeps mentioning that their stores offer a shopping experience infused with 'fun and entertainment'.

GMAN has beefed up their Home Decor, Juniors and Young Men's sections in an attempt to offer a broader range of selection in these three areas than their competitors.

Growth - GMAN opened 23 stores from 2004-2008, but just one in 2009. There was one store opening in first quarter of 2010. The plan going forward is to increase store base by approximately 10% annually. That would be roughly 7 new store openings a year.

Same store sales increase of 4.6% in 2009 with 4th quarter '09 totaling 9.3%.

***Strong start to 2010 with same store sales increase of 15.4% in first quarter of fiscal year. As we all know, retail comparables against first half of 2009 are quite easy as that period represented the trough of the recent recession - especially the first 3 months of 2009.

Footwear is sold under a licensing agreement with DSW.

All store locations are leased.

Financials

$1 per share in net cash post-IPO.

Fiscal year ends last working day of January annually. FY '10 ends 1/31/11.

FY '09 (ending 1/30/10) - Revenues of $457.5 million. 4.6% same store sales growth. Average store sales of $6.9 million. 42.4% gross margins. Operating expense ratio of 36.7%. Operating margins of 5.7%, net margins of 3.8%. Earnings per share of $0.92. Pretty good results considering the shaky consumer spending environment the first half of 2009.

FY '10 (ending 1/31/11) - GMAN had a strong first quarter to the fiscal year. In fact, the past two quarters have easily been the strongest operating profit quarters in GMAN history. Impressive here is that GMAN followed up a strong holiday season with a fantastic quarter in what is often a slow one for retailers. The question going forward is whether GMAN can continue this momentum. I've attempted to be conservative and factored in a flat quarter for the 2nd Q of FY '10 and rather conservative growth the back half of the fiscal year.

Total revenues should grow a solid 14% to $520 million. Note that in the first quarter of the fiscal year, GMAN grew revenues year over year by 20%, so again I am factoring in more conservative results for the rest of the fiscal year. Gross margins look as if they will improve to 44%. Operating expense ration should remain similar at 7%. 7% operating margins, 4.6% net margins. Earnings per share of $1.27. On a pricing of $14, GMAN would trade 11 X's FY '10 estimates.

Conclusion - GMAN is being priced in range at similar PEs to discounters such as Target (NYSE:TGT)/Ross Stores (NASDAQ:ROST)/TJX. Those three trade 12-13 Xs 2010 estimates. Key differences are:

  1. GMAN is expected to grow 14% by my conservative 2010 estimates, while the other discounters are growing 4%-8%;
  2. GMAN only has 68 stores in existence, leaving a lot more room for store growth than those other discounters.

This is a solid retailer coming public attractively priced.

Disclosure: At date of this post [8/20], tradingipos.com is long GMAN.