For a book-end period that concludes what is historically a weak half for outdoor retailers, Gander Mountain reported surprisingly strong revenue growth for the second quarter of fiscal 2008.  Company management called the quarter “the strongest second quarter operating result in [company] history” after categories like firearms and hunting products rebounded following an exceptionally weak first quarter.

 

Comparable store sales for the retailer, however, decreased low-single-digits for the quarter. Margin expansion offset the comps decline, helping to slim the quarterly net loss to $4.9 million, or 20 cents per share, compared to a net loss of $9.7 million, or 48 cents per share, for the same period last year. Losses for the retailer were largely attributed to a strong double-digit decline in all-terrain vehicle sales and weak sales for apparel products.


As noted, sales of firearms and hunting products along with fishing and camping gear recovered to post strong numbers following a weak first quarter.  Likewise, strong numbers for boats and footwear indicate the expected transition to a stronger back-end for fiscal 2008. Management placed significant emphasis on the retailer’s surprising boat sales, which are an indicator that the company may finally be gaining ground in its attempts to expand into the boat business.


Management also noted that the performance “reflects a shift in our annual marketing allocation toward the second half of the year.”  Advertising in the retail segment declined 35% from $4.4 million to $2.8 million for the quarter, but marketing allocations for the back half will be increased to accommodate the launch of the company’s e-commerce and catalog efforts. Gandermountain.com launched August 3  and the retailer’s first product catalog since 1996 will be shipped in early September. Gander Mountain was recently awarded the rights for direct marketing and cataloging after a court ruled Cabelas Inc.’s trademark licensing agreement with the company had expired.   That ruling was recently upheld after an appeal by Cabela’s.


Inventory per square foot at quarter-end was down 15% from the previous year, a reduction management attributes to recent efforts to maximize efficiency and optimize inventory.


Operating margins improved 224 basis points from the year-ago period, but approximately half of this improvement was directly correlated with the December acquisition of Overtons.  SG&A for the quarter increased 21% to $11.7 million, or 26.5% of sales.


At the close of the second quarter, Gander Mountain operated 115 stores and approximately 6.5 million square feet of retail space. Total square footage increased 13.6% year-over-year. The average square footage per store increased approximately 6.7% to 56,400 square feet for the second quarter.


Regarding Gander Mountain’s outlook, management expects revenues to surpass $1 billion by the end of the fiscal year.  Likewise, the company expects to reach its goal of a profitable performance for the year amidst efforts to emphasize improvements around business fundamentals, product gross margins, expense control, store profitability, and management of inventory.  The retailer also expects margins expansion as a result of the direct segment and improved product mix, among other factors.


“As we enter the seasonally strong second half, we are encouraged by a stronger allocation of marketing dollars in the retail segment and the opportunity offered by our direct business,” says Bob Vold, CFO of Gander Mountain. “Our focus remains on cost control.”