Gordmans Stores, Inc. (GMAN): Time To Buy This Retailer?

Gordmans Stores, Inc. (NASDAQ:GMAN) stock has sold off by 20% since their fourth quarter earnings report. The Street obviously did not like either the numbers or what management had to say about the outlook going forward. The current consensus forecast is for a decline in EPS from $1.21 per share in FY13, to $0.92 in FY14 and then rising to $1.28 in FY15. The cuts were dramatic so the shares should have declined based on the cuts to the FY14 forecast, which forecasted FY14 EPS of $1.34 just 30 days ago. This could be the first cut of many and an indication the company will struggle over the next few years or it could have oversold and there may be value here.

Gordmans Stores, Inc. (NASDAQ:GMAN) is an operator of department stores based in Omaha. It stores sell apparel, home goods and footwear to a wide range of consumers including women, juniors, men and children. It has 86 stores located in 18 states and was founded in 1915.

Recent Concerns led to Sell-off

Its stores primarily sell to moderate income consumers. Spending from this group on apparel was muted over the past quarter and faces further headwinds due to the payroll tax increase, fallout from the government sequestration, and economic concerns that led to a decline in consumer confidence levels. As a result of these pressures, management stated that first quarter same-store sales would face a decline in the low double digit percentage points. The weather also played a role in addition to the decline in spending by its customer base. This led to higher than expected inventory levels which will negatively impact gross margins in the first quarters and possibly subsequent quarters. While sales and the number of customer transactions were down, the size of transactions increased in the fourth quarter. Gross margins decline by 140 bps in 4Q and are expected to decline by 440 bps to around 43% in 1Q according to management. Since the earnings report, the weather has continued to weigh on retail sales. Given its geographic exposure to the Midwest region, Gordmans Stores, Inc. (NASDAQ:GMAN) could see a greater impact versus the rest of the industry.

Growth Initiatives

Management has initiated new initiatives in order to offset potential declines and increase same-store sales. First, it brought on a new chief merchandising officer earlier this year. It also implemented a loyalty program. This could help mitigate some customer loss to discount retailers during periods of softer consumer confidence. Last, the company is implemented various technologies across its stores.

It is also targeting growth from more traditional means by expanding square footage by over 10% annually. Also, Gordmans Stores, Inc. (NASDAQ:GMAN) remains a regional player so it has a lot of geographic room to expand their footprint. New stores have a payback period of less than two years, which is relatively short.

Competition

Dillard’s, Inc. (NYSE:DDS)  is another larger department store operator as is Stage Stores Inc (NYSE:SSI). Both of these are subject similar pressures from softer consumer spending by moderate income consumers. The following chart compares data between these companies.