Gander Mountain Gets Goosed

Outdoor retailer Gander Mountain Company (Nasdaq: GMTN  ) took it on the tail feathers yesterday, with its stock falling as much as 15% before settling back to an 8% decline after the first quarterly report as a public company.

Total sales increased 42% to $98.7 million, while same-store sales grew 8.7%. The company produced a net loss, though, of $13.6 million compared to a net loss of $11.2 million a year ago. It seems that a net loss for a long-standing, recognized brand with a new IPO shocked investors initially. But, given that it increased its square footage more than 40% in the last year and the net loss increased by only half that, this is a significant improvement in operating margin, albeit still negative.

However, that is because the business is highly cyclical. The company expects sales of $650 million to $700 million for the year, so this quarter's results amount to less than 15% of the expected total. In other words, sales in the first quarter are 40% below the expected average per quarter.

A significant portion of the expected sales will undoubtedly come from new stores. Gander Mountain plans to open about 15 this year, bringing the total to more than 80 and increasing its square footage by nearly 40%.

Now here's what makes Gander Mountain worth taking a closer gander at (sorry, couldn't resist): Currently, all of its retail locations are in nine states in the Northeast and the Upper Midwest. There's no reason to think that it can't duplicate its success with a similar number of stores per state across perhaps another 30 states. It could potentially triple in size over the next few years without sacrificing margins. That means that without any relative price-to-earnings change, the stock could also triple over that period.

And as far as competition goes, the company got out of the catalog business in 1996, so it's not competing directly in that market with private companies like Bass Pro Shops or Cabella's. Both companies also have retail stores, but they're focused on the interstate tourist attraction-sized shops, while Gander Mountain's shops are more mall-sized. And the competition from Wal-Mart (NYSE: WMT  ) is stable given that Gander's stores are well-established where they are.

Its biggest competition is likely to come from the big-box sporting goods stores like Dick's Sporting Goods (NYSE: DKS  ) , Sports Authority (NYSE: TSA  ) , and Galyans Trading Company (Nasdaq: GLYN  ) . But, given the success it has had with growing stores thus far, I'd say it has found a niche of its own and yesterday's sell-off was exaggerated.

Check out one of the Fool's many Sports discussion boards to find people with similar interests.

Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.


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