IPO Spotlight: Gordmans Goes for Growth

| About: Gordmans Stores (GMAN)

The Basics

Gordmans Stores (NASDAQ:GMAN) is an everyday low price retailer with 68 locations across 16 states in the Midwest, offering discounts of up to 60% off department store prices on branded men's and women's apparel, home decor and accessories. Having spent the past few years enhancing its merchandising strategies to obtain products at bargain prices and better recognize and track fashion trends, the executives at Gordmans are now looking to accelerate the company's growth, planning a 10% increase in store locations per year. The company, which was acquired in September 2008 for $56 million by private equity firm Sun Capital, has filed to offer 5.4 million shares at a range of $13-$15 with 40% of the IPO proceeds going to insiders. Piper Jaffray (NYSE:PJC) and Wells Fargo Securities (NYSE:WFC) are the lead underwriters on the deal, which is scheduled on the IPO calendar for later this week.

The Model

Gordmans claims to have a unique business model in that it offers more apparel focus and brand names than discount stores (e.g. Walmart (NYSE:WMT)), more attractive prices and a smaller store layout than department stores (e.g. Macy's (NYSE:M)) and a broader assortment of products and more organized displays than off-price retailers (e.g. T.J. Maxx (NYSE:TJX)). The company also differs from its peers in that it avoids vendor reimbursements typically required by retailers, such as late delivery fees and advertising and markdown reimbursements, allowing for more attractive discounts for its customers. In addition to focusing on obtaining low priced goods, Gordmans has also undertaken several merchandising initiatives over the past few years, expanding its brand portfolio, developing its Juniors' Apparel, Young Men's Apparel and Decor business segments and using pattern recognition technology to track fashion trends and optimize pricing. These installments have resulted in impressive top line growth and improved operational efficiencies, as evidenced by the company's 1Q10 results; sales jumped 20% YoY to $113.5 million with a 15% increase in same store sales and EBITDA margin expanded from 6.8% to 9.5%. Gordmans also recently reported an 8% same store sales figure for the 2Q10 (ended July 31).

The Risks

The key risk for Gordmans lies in the execution of its planned growth strategy. Since 2008, net store count has only increased by five. The question is whether the company can maintain its profitable track record while pursuing more aggressive growth, which targets the eventual addition of 150 new stores, all within a 750-mile radius of Omaha, NE. Intensifying competition and worsening consumer sentiment and spending are also possible concerns for this company.


Gordmans executives have managed to streamline the business in recent years, positioning it to build out its relatively small geographic footprint. Though insider selling and a murky near term outlook on the retail sector are negatives, overall, this IPO is likely to attract investors who believe in Gordmans' ability to extend its historical financial performance as it executes its long term growth strategy. The success exhibited by the two most recent low price retail offerings, Dollar General (NYSE:DG) and rue21 (NASDAQ:RUE) (up 39% and 55%, respectively), could also generate interest in this IPO.

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