Have you ever liked a company for its name alone? Type "gander" into Roget's online thesaurus and you're redirected to "amble" and offered 19 synonyms, including meander, dawdle, saunter, stroll, boogie, hoof it, and sashay. Virtually all of them are fair representations of Gander Mountain's (NASDAQ:GMTN) first-quarter results: improving, but nowhere near a sprint. Even calling it a scamper might be generous.
The numbers
Total sales were up 13% on an 8%-9% increase in square footage. Comp sales improved by 1%. Operating loss was slightly improved from the prior year, but your binoculars have to be in pretty sharp focus to notice the difference between this year's $18.9 million loss and last year's $19.0 million. Management noted on the call that the loss this year was 10.7% of sales compared to 12.2% of sales last year. I guess I agree that makes it more visible to the naked eye.
Well, perhaps that wasn't fair. The first quarter has always been tough for Gander Mountain; most of its store base is in the Northern states, where its customers don't come out of hibernation until May. The company has historically made its profits in the third and fourth quarters. Margins improved by 190 basis points, a positive sign as the company reported less product sold at clearance.
A little Gander history
Since Gander Mountain doesn't get much coverage, a look at the company's history may be useful. Gander has been around since 1960; it survived bankruptcy and returned to the public market in the spring of 2004. The stock has been stuck in a deer stand since the IPO. It went public at $20 and has been trading below that level ever since, although it has recovered from last year's low around $5 to its current level of $13. There are nine analyst recommendations on the stock -- six holds and three sells. The high price target from these analysts is its current trading level of $13 per share.
The company operates 105 outdoor lifestyle stores in 22 states. Average square footage is 52,000 square feet per store. Gander expects to open 10 new stores and three replacement stores this year. It's recently been concentrating efforts on a larger prototype (65,000 square feet) and stores in Southern markets, which have higher growth rates and more opportunities for seasonal sales between Christmas and when the ice thaws on the northern lakes in spring.
Gander Mountain went back to the well for additional equity financing last December, but is not swimming in liquidity. The company ended the first quarter with $223 million borrowed under its credit facility, and noted $28 million borrowing availability at quarter's end.
Tough competition
Outdoor lifestyle retailers compete against virtually every retailer. The most direct competition is Cabela's (NYSE:CAB), Dick's Sporting Goods (NYSE:DKS), and Bass Pro Shops. But it's hard to think of retailers Gander Mountain don't compete against in some category. Certainly Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are aggressively courting the outdoor enthusiast.
Making progress is good
Clearly, Gander Mountain is making progress. This is the first time since going public that the company has reported improved first-quarter results. Margins have expanded year over year for four consecutive quarters, and the company appears to have discovered a Southern growth strategy that is working. But with the intense level of competition, I can't recommend the stock until Gander Mountain can boogie its way to profitability.
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Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles. Timothy owns shares of Wal-Mart, but none of the other companies mentioned in this article. The Fool has a disclosure policy.
