Gander Mountain Sees Upside in Slower New Store Growth, Building Private Label…

Gander Mountain managed to impress Wall Street with fourth quarter earnings results that far outstripped previous guidance and consensus estimates. But the hunt/fish/camp retailer is still seeing difficult comparisons to previous performance at many of its locations with comparable store sales dropping 7.4% in the quarter and 6.0% for the fiscal year. Nonetheless, Gander management was able to pull off an impressive quarter by controlling expenses and boosting the bottom line.

Fourth quarter sales increased 17.5% to $280.8 million, while store operating expenses decreased one full percentage point to 14.6% of sales and general and administrative expenses declined 30 basis points to 3.2% of sales. This helped income from operations increase 37% to $26.0 million and saw net income jump 26.4% to $22.2 million, compared to $17.5 million for the fourth quarter of fiscal 2004.

The large decline in comparable store sales was said to occur mainly during the month of January, when Gander decreased its seasonal promotional activity and worked to boost gross margin dollars. This effort hurt the top-line, but improved the company’s profitability. November and December comps were said to have been down in the low-single-digits. During a conference call with analysts and the media, Gander management said that competition and cannibalization negatively impacted comps by roughly one to three percentage points. However, stores that have reached the 26- to 29-month age range have started to show positive comps. Long term, Gander expects to operate with low-single-digit increases in their same-store sales.

Gander Mountain has based much of its top-line growth on its ability to expand its retail footprint rapidly. Over the past two years the retailer has opened 19 stores a year, and currently operates nearly 100 locations. Moving forward, however, Gander will slow down its new store opening schedule in an effort to focus on improving the performance of its existing retail base and enhance the bottom line. In 2006, Gander will only open six to eight new stores with two off those being replacement stores. Most of the company’s new stores will likely be in the southern states. Gander hopes that this southern expansion will reduce their reliance on Q3 and Q4 sales and at the same time reduce their seasonal operating loss during the first quarter.

In spite of the slow down in their store opening strategy, Gander remains committed to its stated long-term goal of 300 U.S. stores.

For the year, pre-opening expenses were down 20% per store. In addition to reducing their store opening expenses, Gander was able to implement a new time and tracking mechanism in their retail locations. This allows management to “reduce the number of fingerprints” on an item between the time it arrives at their distribution center and the time it rings through the register. The company said it is not using this tool to reduce customer service in any way, rather they are reducing back room steps and aligning their sales floor hours with the hours that customers want to shop.

Gander management continues to keep their assortment heavily weighted towards national brands, but they do see increasing their percentage of private label offerings. Last year, Gander’s private label was 8.7% of sales while this year it was 12.5% of sales. The company sees increasing this number to 15% to 20% over time.

>>> Looks like Wall Street likes the idea of managed growth in an over-inventoried retail market. Shares were up 17%…