Gander Mountain on Thursday filed its S-1 with the U.S. Securities and Exchange Commission for an Initial Public Offering. The IPO, which is expected to raise $86.25 million for the Outdoor superstore chain, has been widely expected for some time to support the companys aggressive growth strategy. The company will debut on the Nasdaq market with the symbol GMTN.
The public offering is expected to raise enough cash to pay down almost $10 million in debt to Holiday Company, another entity owned by the Erickson family that owns the Gander chain. The balance of the proceeds are expected to repay outstanding indebtedness under Ganders credit facility with Fleet Retail Finance, which the filing indicates is in excess of $111.6 million.
According to the S-1 filing, Gander has not made money in the last five years and saw its net loss increase 45.2% in fiscal 2003 to $12.2 million from $8.4 million in 2002. Total fiscal 2003 sales increased 13.7% to $357.4 million from $314.5 million in the previous year. Comparable store sales increased 2.9% year-on-year. Sales per square foot are reported at $203/sf in 2003, down 3.8% from $211/sf in 2002. Gross margin in 2003 was 23.9%, up 120 basis points from 2002.
Ganders ten largest vendors collectively represented approximately 21% of total purchases in fiscal 2003, with no single vendor representing greater than 4% of total purchases. The company reports relationships with over 1,500 vendors.
On a category basis, Hunting was the largest contributor in fiscal 2003 with 41% of total sales. Apparel/Footwear represented 27% of sales, Fishing/Marine accounted for 18% and Camping/Water Sports/Backyard delivered 9% of sales in fiscal 2003. ATV/other was 5% of sales. The company indicated that sales of firearms represented approximately 12% of sales in fiscal 2003 and approximately 12% of sales consisted of merchandise for winter activities.
For the first nine months of fiscal 2004, Gander saw sales increase 31.6% to $307.5 million from $233.6 million in the 2003 nine-month YTD period. Comps increased 11.1% for the 2004 YTD period against a 2.1% comp store sales decline in the previous year period. Store count at the end of the nine-month period ended November 1, 2003 was 64 doors with 2.5 million sf.
The increase in comparable store sales was attributed primarily to sales increases in the hunting category led by “consistently strong performance” in the firearms department. The increase was “partially offset by lower sales in the apparel and footwear categories” from “unseasonably cool and wet weather in the first quarter of fiscal 2002 and lower fishing rod and reel sales”.
Gross margin for the 2004 YTD period improved by 50 basis points to 23.2% versus 22.7% for the same period in the previous year.
The increase was due primarily to enhanced vendor programs associated with opening new stores and lower occupancy costs as a percentage of sales, offset in part by reduced sales in the higher margin apparel and footwear categories and increased sales in the lower margin firearms category. The net loss for the YTD period narrowed by 17% to $11.2 million versus $13.5 million in the previous YTD period.
As of January 31, 2004, members of the Erickson family, together with Holiday Stationstores, Inc. and Lyndale Terminal Co. — both of which are wholly owned by members of the Erickson family or entities they control — collectively owned 100% of the outstanding shares of Gander voting stock.
The company has signed a long-term shared services agreement with Holiday Companies that will continue after the IPO. The two companies are joined at the hip with Holiday providing human resources services, cash management, financial analysis and other back-office services. Gander expects to pay $3.0 to $3.5 million to Holiday Companies under the shared services agreement in fiscal 2004.
Holiday has obtained insurance for Gander and guarantees leases with third parties for 36 stores and Ganders DC. As of the end of the November, those lease guarantees totaled approximately $184.3 million. Gander also sublets its corporate headquarters in Bloomington, MN from Holiday Stationstores, Inc. and subleases additional office space in Minneapolis, MN from World Wide, Inc., also controlled by Holiday Companies.
Gander bought a Cessna airplane for $2.5 million in 2002 from a company controlled by current Gander Mountain CEO Mark Baker and now subleases hangar space from Mr. Baker for that plane. Under the terms of his current employment agreement, Baker has use of the plane for 50 hours of personal use per year.
Gander borrowed $55.0 million from Holiday in late 2001, but converted the $54.6 million balance to preferred stock at the end of fiscal 2002. Gander still has two other outstanding loans with Holiday totaling approximately $9.9 million which will be repaid with the IPO proceeds.
After the IPO, four of the six Erickson family members will resign from the company board and be replaced by CEO Baker and four other non-family members.
The Gander Mountain brand name was built from a nationwide catalog operation that was started in 1960. In 1996 and 1997, Holiday Companies, which at the time owned and operated a group of retail sporting goods stores, acquired the 17 Gander Mountain retail stores and formed the current company that today operates 65 Gander Mountain stores in nine states.
The offering is being underwritten by Banc of America Securities, William Blair & Co. and Piper Jaffray & Co.