Gander Mountain Sees Billion Dollar Year Ahead…

Gander Mountain fourth quarter sales increased 16.4% to $326.9 million compared to $280.8 million during the fourth quarter of last year. Comparable store sales inched up 0.4% and were not as strong as management planned due to the warmest December on record in the upper Midwest. This weakness in the Midwest was partially offset by stronger comps in Gander’s southern stores. Sales per square foot declined slightly to $175 for the year as a result of comparable store sales and increasing penetration of larger format stores.

GMTN reported double-digit comp sales increases in its hunting categories while the camping and marine business benefited from the warmer weather in November. Apparel sales were slow through December, but rebounded once the weather returned to more seasonal temperatures in January. However, this did not help the comp sales for the overall quarter in the apparel categories, which remained soft.

The retailer has been testing a new apparel floor plan and merchandising program in its New York stores over the past year. The company will now be rolling that program out to over 30 locations and expects to expand the program company wide in the future. Gander will also be rolling out its new program with Tracker Boats this spring. Management hopes this will create a halo effect around all watersports categories.

Fourth quarter gross margin expanded approximately 80 basis points to 27.8% due penetration of Gander’s private label brands, which increased 80 basis points to 13.4% of total sales for the quarter. Other positive margin impacts included increased co-branded credit card revenues and a reduction in property tax cost estimates. These increases in the quarter were somewhat offset by reduced vendor discounts as a result of fewer new stores and higher fuel costs.

In advertising, GMTN is changing its campaigns to more radio than print. Last year, advertising expenses were balanced between print and radio. This year, print will be part of grand opening packages in selected markets, but the primary vehicle will be radio.

Fourth quarter store operating expenses increased 90 basis points to 15.5% of sales compared to 14.6% last year. In addition, Gander’s efforts to drive sales increases in the fourth quarter resulted in increased advertising and labor costs. G&A expenses increased to 3.4% of sales compared to 3.2% last year.

During 2006, GMTN continued to establish itself in second- and third-tier markets and also developed a formula to address major metro markets in Houston, Tex. The company believes that their assessment of a 300-plus store opportunity nationwide remains intact. In 2007, Gander is planning to open 13 new stores with 70% to 80% of those stores in the southern states.

Fourth quarter net income fell 30% to $15.3 million compared to $22.2 million in the prior period. The primary reason behind this decline was a debt conversion charge of $9 million in the quarter. This charge was related to a transaction in which GMTN chairman, David Pratt, purchased 5.7 million newly issued shares of common stock for $50 million, which was paid with a $30 million cash investment and the cancellation of a $20 million note he held. Without this charge, net income would have increased 9.5% for the quarter.

While Gander management did not provide specific guidance, Mark Baker, company president and CEO, said that shareholders can expect Gander Mountain to have its first $1 billion year in 2007.