Gordman's Delivers a Mixed Q1

| About: Gordmans Stores (GMAN)

Gordmans Stores Inc. (NASDAQ:GMAN) posted earnings per share of 38 cents in the first quarter of fiscal 2011, outpacing the Zacks Consensus Estimate of 36 cents. The quarter's results, however, deteriorated from 39 cents earned in the year-earlier quarter. Although net income grew 5.2% year over year, a large number of shares outstanding led to the decline in earnings per share.

Earnings outperformance was mainly aided by improvements in comparable store sales and gross profit margins. The quarter's earnings also surpassed management guidance range of 34–36 cents.

Total revenue for Gordmans Stores grew 5.2% year over year in the first quarter to $117.7 million driven by two new stores that were opened this year in Minneapolis, which is a new market for the company. The two stores opened in fiscal 2010 also contributed to the quarter's revenue growth. However, total revenue fell shy of the Zacks Consensus Estimate of $121.0 million.

Quarterly comparable store sales increased 0.9% year over year versus15.4% in the year-earlier quarter. The moderation in the year-over-year growth was due to soft Easter sales and macro issues that impacted the company's Midwest concentration.

During the quarter, Gordmans Stores' gross profit increased 6.5% year over year to $55.9 million and gross margin expanded 50 basis points (bps) to 47.5%. Selling, general and administrative costs as a percentage of total revenue were 30 bps lower than the year-ago performance.


At quarter end, Gordmans Stores had cash and cash equivalents of $28.5 million and total non-current liabilities of $9.5 million.


For the second quarter of 2011, management expects net sales in the range of $116–$117 million and earnings per share in the range of 10 – 11 cents.

For full fiscal 2011, Gordmans Stores trimmed its top-line expectation to the range of $553 million to $557 million from the pervious forecast of $563 million to $571 million due to a downtrend in comparable store sales. Guidance for earnings per share was also cut to the range of $1.18 – $1.23 from $1.30 – $1.35.

Our Take

Gordmans Stores houses a large pool of the latest brands and fashion, operating around 68 stores in Midwestern and surrounding states in the U.S. The company is also in an expansion mode and plans to open five new stores as well as relocate one over the remainder of this year.

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 remains another concern for the company.

Gordmans Stores currently retains a Zacks #5 Rank, which translates into a short-term "Strong Sell" rating. We are also maintaining our long-term "Neutral" recommendation on the stock. One of Gordmans Stores' peers Dollar Tree Inc. (NASDAQ:DLTR) currently retains the Zacks #2 Rank, which translates into a short-term "Buy" rating.