Gander Sees Improvements to Q1 Bottom Line…

While Gander Mountain was still unable to post a profit in the first quarter of 2007, the rapidly expanding outdoor retail chain was able to improve its bottom line results for the first time since becoming a public company. This quarter is the first time losses have been reduced in the first quarter with operating loss per square foot declining from $3.79 per square foot last year to $3.43 per square foot this year, a 10% improvement. However, management still maintained that they are “not satisfied with losses of this size” during the quarter and they have several
initiatives in place to reduce the red ink even further.

The chain was able to post positive comparable store sales during the quarter. Much of this gain was due to strength in the southern markets, which had been maturing relatively slowly due to regional selection discrepancies and off-season merchandising. Now, Gander has implemented a regionally segmented merchandising and buying plan so that it can address different markets with different product selections. Management is also able to close-out merchandise on a regional basis and sell full-price goods based on regional weather patterns.

The company started this program in the fishing department by adding three regionally located fishing buyers. As an example, GMTN buyers can now add as many as 10,000 SKUs in a strong saltwater fishing market like Florida or remove SKUs in an inland area that does not have a strong fishing base.

Gander was also pleased with the new store openings during the quarter. In fact, management called out one of their FL stores as being the most successful new store opening celebration in company history. Total square footage increased 8.5% from last year to 5.5 million square feet with average square footage per store up 3% to 52,500 square feet. Through 2007, GMTN expects this metric to continue to increase with new stores averaging approximately 65,000 square feet plus additional outdoor selling space for ATVs, boats and other products. The strong performance in the South caused GMTN to accelerate its expansion plans in the region. This year, the company invested all of its new-store growth into 10 new Southern stores while replacing three Northern stores.

In the first quarter, gross profit expanded approximately 190 basis points due to lower levels of clearance inventory, improvements from buying leverage and regional retail pricing. As a percent of sales, store operating expenses were flat at 23.1%. First quarter G&A expenses increased 50 basis points to 6.5% of sales, primarily due to investments in systems infrastructure and logistics and severance costs.

Clearance inventory remains below last year, but inventory per square foot in open stores excluding in transit and pre-opening inventory, was $63.80 versus $60.17, which is a 6% increase.

Private label penetration was slightly below last year at 8% of sales versus 9% last year. However, Gander was able to sell more private label merchandise at full price and realized more gross margin dollars from their owned-brand initiative than they did during Q1 of last year.

Gander’s profitability was only marginally better than last year, with a slight improvement in the net loss for the quarter. Management said that they are using a single-store economic model that provides four-wall profitability contributions in more than 90% of Gander Mountain stores on an annual basis. This statement means that roughly 10 Gander Mountain Stores are operating at a loss this year. While management does not provide guidance, Mark Baker, GMTN’s president and CEO said he expects the company to hit the $1 billion mark this year.