Gander Mountain Swings to Profitability in Q3…

Gander Mountain managed to turn its declining comp sales and consistently red bottom line around in the third quarter with a very solid upper-single-digit comp store sales increase and a bottom line that was actually in the black. Management said that much of the comp-store increase was driven by setting their fall assortment early in their stores. This move was designed to create more demand as customers created “wish-lists” in anticipation of the colder weather. This strategy drove strong sales gains in larger-ticket purchases.

The company was quick to point out that it did not buy its comp sales gain with deeper discounts and special sales. In fact, margins increased during the quarter by 200 basis points. On $32 million of incremental sales, Gander earned $11.8 million of operating profit.

Margins were also supplemented by an increase in the penetration of Gander Mountain’s private label merchandise in both softgoods and hardgoods. Overall penetration increased from 8% during the third quarter of last year to 11% this year. In particular, GMTN’s outdoor performance GSX line saw strong results with sales increasing 250% over last year. Long-term, management sees private label penetration reaching the upper-teens to the low-twenties. Other positive impacts on margins included lower distribution costs in the quarter, the results of investments in distribution and supply chain processes last year.

Advertising and marketing expenditures in dollar terms were similar to the third quarter a year ago. However, these expenses declined as a percent of sales compared to the third quarter of 2005. Going forward, the company does not see any significant positive or negative change in its expense structure, with profitability attached directly to sales performance. Sales per square foot was $170 for the latest 12 months, compared to $183 for the prior 12-month period, as a result of the decline in comparable store sales in the preceding three quarters and lower sales per square foot in less mature stores.

Average customer ticket increased 4.7% from $58.55 to $61.32 for the quarter, while the average ticket at comp stores was $60.28, up from $58.49 for the third quarter of fiscal 2005. Management stated that some of this improvement is due to the increasing proportion of large-box stores in the total mix. The average ticket at larger stores was over $12 higher than at smaller stores.

The company opened five new stores in the third quarter, one each in Florida, West Virginia, Tennessee, Alabama, and Virginia — bringing the total to 105 stores in 22 states. Florida in particular is a major endeavor for Gander Mountain, as this store is not only their first location in this market but also a prototype store that is designed to be regionally relevant, as the company expands in southern markets.

Total square footage at the end of the third quarter increased 9% from last year to 5.5 million square feet. The average square footage per store was 52,000 square feet at the end the quarter, compared with 50,000 in last year's quarter. GMTN management anticipates that most new stores will be in the 60,000 to 65,000 square-foot range with additional outdoor selling space. The company is only looking at opening three locations in the first half of the year.

For the third quarter of fiscal 2006, the company reported net income of $2.0 million, compared to a net loss of $7.5 million in the third quarter of 2005. Excluding a $1.4 million insurance settlement related to the flooding of Ganders’ Binghamton, NY, store, income would have been $600,000. The company provided no guidance, except that management expects to return to profitability sometime in the future.