Gordman’s looks to regain groove

Midwestern department store operator Gordman’s Stores was putting up some big numbers last year, and then in early August it decided to go public. Things are not looking quite as good of late, with first quarter comps weaker than planned and guidance for the remainder of the year lowered.

First-quarter sales at the regional chain increased 5.2% to $118 million, and profits increased 14.2% to $7.3 million. Same-store sales for the quarter ended April 30 were up 0.9%, and earnings per share of 38 cents exceeded the high end of the company’s guidance by two cents. However, the earnings outperformance was quickly overshadowed by a downward revision to forecast earnings based on slower than anticipated sales.

“While our second-quarter comparable-store sales trend is consistent with that of the first quarter, it continues to be below our previous expectations,” said Gordman’s president and CEO Jeff Gordman. “Although we are implementing a number of merchandising, marketing and inventory management initiatives to drive comparable store sales growth, we believe it is prudent to lower our expectations for fiscal 2011 until improved trends begin to materialize.”

According to Stifel Nicolaus analyst Richard Jaffe, the conservative guidance is appropriate considering the current sales trends.

“Gordman’s is a small company with significant leverage. We believe management will continue to work hard to drive comp store sales, without sacrificing gross margin,” Jaffe said. “In addition, we anticipate increased leverage from higher prices as product cost increases are passed on to consumers. This coupled with a shift in advertising and compelling merchandise could help the company regain earnings momentum.”

The weaker-than-expected first-quarter results were the result of soft Easter sales and macro issues that impacted the company’s predominantly Midwestern store base, according to Gordman.

“We are pleased with our solid net income increase of 14.2%, a 50 basis point improvement in gross margin, and management of expenses during the first quarter of 2011,” Gordman said. “However, our comparable-store sales increase of 0.9%, which came on top of a very strong 15.4% comparable store sales increase in the first quarter of 2010, was short of our expectations primarily due to soft Easter sales and macro issues impacting our regional, primarily Midwest concentration.”