Gander Mountains fourth quarter was hurt by the abnormally warm weather experienced by much of the country, some unforeseen cannibalization, and an inability to forecast accurate growth rates among its rapidly growing base of large-format retail stores. These three factors worked together to pull comp-store sales down 5.4% for the quarter despite total sales growth of 30.3% to $237.2 million. Gander Mountain did over 60% of its business in the back-half of the year and 37% of its business in Q4.
Gross margin was 26.6% during the quarter, up 60 basis points over the 26.0% posted last year. With such a large portion of its annual sales concentrated in Q4, the company realized all of its profits for the year during the fourth quarter, posting an increase of 42.0% in net income to $17.6 million, compared to $12.4 million last year.
In an effort to balance sales and income across the entire year, Gander Mountain is moving into the marine segment. Gander Mountain is increasing the amount of floor space dedicated to the category and adding several new market leading brands to their mix. Ganders initial test store, which set in late January, is said to be “producing positive results.”
Gander also feels that its expansion into Texas and the Southeast will decrease the seasonality of its business.
Gander Mountain processed 4.2 million transactions during the quarter compared to 3.6 million last year. The average ticket price increased from $51 to $57 for the quarter and was $10 higher at the chains larger stores.
Even though the company is producing higher per-customer sales at the larger stores, on a sales-per-square-foot basis, they are not performing up to expectations. During a conference call with analysts and the media, president and CEO Mark Baker said the company possibly under-estimated the Grand-Opening effect on their larger formatted stores, and this may have caused some of the comp-store decline. Baker does believe the larger-format stores will eventually reach comparable performance to their smaller stores.
While forecasting performance may be a problem for the retailer, competition does not seem to worry the management team. “Two years ago we built an 80,000 square foot store within 30 miles of one of the entertainment retailers in the Twin Cities here and then further built another 50,000 square foot store probably 20 or 30 miles to the west of them,” said Mr. Baker.
However, Ganders two stores did not complement each other and the company found that cannibalization impacted them more than projected. “In the Twin Cities, where we have two big box stores we have seen more continued cannibalization of our smaller stores than we anticipated,” he said.
Gander Mountain did not provide quarterly guidance, but for fiscal 2005, the company expects sales to exceed $850 million, an increase of at least 32% over fiscal 2004. Comparable store sales are expected to increase at least 2% and income before income taxes is expected to be more than $16 million, compared with $0.8 million in fiscal 2004. The company also expects to open 18 to 20 stores, including three or four store relocations and consolidations during the year.
