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GMAN > SEC Filings for GMAN > Form 10-Q on 29-Nov-2012All Recent SEC Filings

Show all filings for GORDMANS STORES, INC.

Form 10-Q for GORDMANS STORES, INC.


29-Nov-2012

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "may," "will," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, or strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including the factors described in "Item 1A - Risk Factors" in our fiscal year 2011 Annual Report on Form 10-K.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing cautionary statements as well as other cautionary statements that are made from time to time in our other Securities and Exchange Commission ("SEC") filings and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties. The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

The following discussion and analysis should be read in conjunction with our fiscal year 2011 Annual Report on Form 10-K and the unaudited condensed consolidated financial statements and the related notes thereto included in Item 1. Consolidated Financial Statements of this Quarterly Report.

Executive Overview

Gordmans is an everyday value price department store retailer featuring a large selection of the latest brands, fashions and styles at up to 60% off department and specialty store prices every day in a fun, easy-to-shop environment. Our merchandise assortment includes apparel for all ages, accessories (including fragrances), footwear and home fashions. The origins of Gordmans date back to 1915, and as of October 27, 2012, we operated 83 stores in 18 states situated in a variety of shopping center developments, including regional enclosed shopping malls, lifestyle centers and power centers.

We opened nine new stores during the thirty-nine weeks ended October 27, 2012 in four new markets and two existing markets, including two new stores opened during the third quarter of fiscal 2012, compared to six new stores in three new markets during the thirty-nine weeks ended October 29, 2011, of which two new stores were opened during the third quarter of fiscal 2011.

In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales and comparable store sales and other individual store performance factors, gross profit and selling, general and administrative expenses.

Net Sales. Net sales reflect our revenues from the sale of our merchandise less returns and discounts and exclusive of sales tax. Net sales include comparable store sales and non-comparable store sales.

Comparable Store Sales. Comparable store sales have been calculated based upon stores that were open at least 16 months as of the end of the reporting period. We also review average sale per transaction and comparable store transactions. Comparable store sales are an important indicator of current operating performance, with higher comparable store sales helping us to leverage our fixed expenses and positively impacting our operating results.

Gross Profit. Gross profit is equal to our net sales minus cost of sales, plus license fee income generated from sales of footwear and maternity apparel in our leased departments. Cost of sales includes the direct cost of purchased merchandise, inbound freight to our distribution center, inventory shrinkage and inventory write-downs. Gross margin measures gross profit as a percentage of our net sales. Our gross profit may not be comparable to other retailers, as some companies include all of the costs related to their distribution network in cost of sales while others, like us, exclude a portion of these costs from cost of sales and include those costs in selling, general and administrative expenses. Our gross margin is evaluated in terms of initial markup and the amount of markdowns, with higher initial markup and lower markdowns positively impacting our operating results.


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Selling, General and Administrative Expenses. Selling, general and administrative expenses include all operating costs not included in cost of sales. These expenses include payroll and other expenses related to operations at our corporate office, store expenses, occupancy costs, certain distribution and warehousing costs, depreciation and amortization and advertising expense. Selling general and administrative expenses as a percentage of net sales is generally higher in lower sales volume periods and lower in higher sales volume periods. Our ability to manage store level and certain other operating expenses directly impacts our operating results.

Overview

Net income for the thirteen and thirty-nine week periods ended October 27, 2012 was $4.0 million and $15.6 million, respectively, as compared to net income of $4.7 million and $15.0 million, respectively, for the thirteen and thirty-nine week periods ended October 29, 2011. The increase in net income for the thirty-nine weeks ended October 27, 2012 as compared to the same period last year was primarily due to higher net sales and a higher gross profit margin, partially offset by higher selling, general and administrative expenses. The decrease in net income for the thirteen weeks ended October 27, 2012 as compared to the same period last year was primarily due to higher selling, general and administrative expenses, partially offset by higher net sales attributable to new stores. Below are highlights of our financial results for the thirteen and thirty-nine weeks ended October 27, 2012.

Net sales increased 8.7% and 10.6% for the thirteen and thirty-nine week periods ended October 27, 2012, respectively. Higher net sales were primarily driven by an increase in non-comparable store sales due to the addition of nine new stores during the thirty-nine weeks ended October 27, 2012, two of which were opened in the third quarter of fiscal 2012, as well as two new stores opened during the third quarter of fiscal 2011. Comparable store sales decreased 1.4% for the thirteen weeks ended October 27, 2012 and increased 1.1% for the thirty-nine weeks ended October 27, 2012 as compared to a 1.3% comparable store sales decrease and a 0.1% comparable store sales increase for the thirteen and thirty-nine week periods ended October 29, 2011, respectively.

A 20 basis point improvement in gross profit margin for the thirty-nine weeks ended October 27, 2012 primarily resulted from a higher maintained mark-up.

Higher selling, general and administrative expenses were primarily attributable to the 12% expansion in our store base, as nine stores were opened during the thirty-nine weeks ended October 27, 2012, including two stores opened during the third quarter as well as the two stores opened during the third quarter of fiscal 2011.

Basis of Presentation and Results of Operations

The consolidated financial statements include the accounts of Gordmans Stores, Inc. and its subsidiaries, Gordmans Intermediate Holding Corp., Gordmans, Inc., Gordmans Management Company, Inc., Gordmans Distribution Company, Inc. and Gordmans LLC. All intercompany transactions and balances have been eliminated in consolidation. We utilize a typical retail 52-53 week fiscal year whereby the fiscal year ends on the Saturday nearest January 31. Fiscal year 2012 represents a fifty-three week year ending February 2, 2013, while fiscal year 2011 was a fifty-two week year ended January 28, 2012. All references to fiscal years are to the calendar year in which the fiscal year begins. The thirteen weeks ended October 27, 2012 and the thirteen weeks ended October 29, 2011 represent the third quarters of fiscal 2012 and fiscal 2011, respectively. The thirty-nine weeks ended October 27, 2012 and the thirty-nine weeks ended October 29, 2011 represent the first three quarters of fiscal 2012 and fiscal 2011, respectively.

The table below sets forth the consolidated statements of operations data for the periods presented (in thousands):

                                                 13 Weeks           13 Weeks           39 Weeks           39 Weeks
                                                   Ended              Ended              Ended              Ended
                                                October 27,        October 29,        October 27,        October 29,
                                                   2012               2011               2012               2011
Statements of Operation Data:
Net sales                                      $     143,072      $     131,629      $     405,232      $     366,328
License fees from leased departments                   1,917              1,800              5,474              4,878
Cost of sales                                        (80,716 )          (74,196 )         (224,249 )         (203,540 )

Gross profit                                          64,273             59,233            186,457            167,666
Selling, general and administrative expenses         (57,763 )          (51,425 )         (161,147 )         (143,072 )

Income from operations                                 6,510              7,808             25,310             24,594
Interest expense, net                                   (118 )             (148 )             (366 )             (455 )

Income before taxes                                    6,392              7,660             24,944             24,139
Income tax expense                                    (2,397 )           (2,911 )           (9,354 )           (9,173 )

Net income                                     $       3,995      $       4,749      $      15,590      $      14,966


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The table below sets forth the components of the consolidated statements of operations as a percentage of net sales:

                                      13 Weeks             13 Weeks             39 Weeks           39 Weeks
                                        Ended                Ended                Ended              Ended
                                     October 27,          October 29,          October 27,        October 29,
                                      2012 (1)             2011 (1)             2012 (1)           2011 (1)
Net sales                                   100.0 %              100.0 %              100.0 %            100.0 %
License fees from leased
departments                                   1.3                  1.4                  1.4                1.3
Cost of sales                               (56.4 )              (56.4 )              (55.3 )            (55.6 )

Gross profit                                 44.9                 45.0                 46.0               45.8
Selling, general and
administrative expenses                     (40.4 )              (39.1 )              (39.8 )            (39.1 )

Income from operations                        4.6                  5.9                  6.2                6.7
Interest expense, net                        (0.1 )               (0.1 )               (0.1 )             (0.1 )

Income before taxes                           4.5                  5.8                  6.1                6.6
Income tax expense                           (1.7 )               (2.2 )               (2.3 )             (2.5 )

Net income                                    2.8 %                3.6 %                3.8 %              4.1 %

(1) Percentages may not foot due to rounding.

Thirteen Weeks Ended October 27, 2012 Compared to Thirteen Weeks Ended October 29, 2011

Net Sales

Net sales for the thirteen weeks ended October 27, 2012 increased $11.4 million, or 8.7%, to $143.1 million as compared to $131.6 million for the thirteen weeks ended October 29, 2011. This increase was primarily the result of a $13.3 million increase in non-comparable store sales due to the addition of two new stores in the third quarter of fiscal 2011 and the opening of nine new stores in the first three quarters of fiscal 2012, two of which opened during the third quarter of fiscal 2012. Comparable store sales decreased $1.8 million, or 1.4%, primarily due to a decrease in comparable transactions, which represents our measure for guest traffic, partially offset by an increase in the average sale per transaction. From a major merchandising category perspective, Apparel generated a low single digit comparable store sales increase in the third quarter, led by our Misses and Childrens divisions. Home Fashions experienced a low single digit comparable store sales decrease for the quarter, while Accessories (including Fragrances) experienced a mid-single digit comparable store sales decrease for the quarter.

License Fees from Leased Departments

License fee income related to sales of merchandise in leased departments for the thirteen weeks ended October 27, 2012 increased $0.1 million, or 6.5%, to $1.9 million as compared to $1.8 million for the thirteen weeks ended October 29, 2011 due to new store growth.

Gross Profit

Gross profit, which includes license fees from leased departments, for the thirteen weeks ended October 27, 2012 increased $5.0 million, or 8.5%, to $64.3 million as compared to $59.2 million for the thirteen weeks ended October 29, 2011. Gross profit margin for the thirteen weeks ended October 27, 2012 decreased 10 basis points to 44.9% of net sales as compared to 45.0% of net sales for the thirteen weeks ended October 29, 2011. This decrease was primarily due to higher markdowns as a percentage of net sales during the third quarter of 2012, partially offset by an increase in initial mark-up on merchandise available.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the thirteen weeks ended October 27, 2012 increased $6.3 million, or 12.3%, to $57.8 million as compared to $51.4 million for the thirteen weeks ended October 29, 2011. As a percentage of net sales, selling, general and administrative expenses for the thirteen weeks ended October 27, 2012 increased to 40.4% as compared to 39.1% for the thirteen weeks ended October 29, 2011.

Store expenses increased $3.1 million in the third quarter of fiscal 2012 as compared to the third quarter of fiscal 2011 primarily due to higher rent and real estate taxes and increased payroll and benefits, utilities, maintenance and cleaning expenses associated with new store growth. Store expenses were 25.7% of net sales in the third quarter of fiscal 2012 as compared to 25.6% of net sales in the third quarter of fiscal 2011, a 10 basis point increase, primarily resulting from higher rent and real estate taxes and higher health and workers compensation insurance as a percentage of net sales related to less leverage from comparable store sales, partially offset by lower credit card fees and lower payroll as a percentage of net sales.


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Corporate expenses increased $1.1 million in the third quarter of fiscal 2012 as compared to the third quarter of fiscal 2011 primarily due to higher corporate payroll and benefits due to the addition of personnel to support our growth, as well as merit increases, higher information technology consulting and software rental expenses primarily associated with the support of our Oracle enterprise merchandising system which was implemented in the second quarter of 2012, and higher recruiting and relocation expenses for corporate personnel. Corporate expenses increased as a percentage of net sales to 5.8% of net sales in the third quarter of fiscal 2012 as compared to 5.5% of net sales in the third quarter of fiscal 2011, a 30 basis point increase, primarily due to higher information technology consulting and software rental expenses and higher recruiting and relocation expenses.

Distribution center expenses increased $0.9 million primarily as a result of higher outbound freight delivery charges and higher payroll expenses associated with the increase in merchandise inventory receipts. Distribution center expenses were 4.3% of net sales in the third quarter of fiscal 2012 as compared to 4.0% of net sales in the third quarter of fiscal 2011, a 30 basis point increase, primarily due to higher outbound freight delivery charges.

Depreciation and amortization expenses increased $0.8 million, or 50 basis points as a percentage of net sales, in the third quarter of fiscal 2012 as compared to the third quarter of fiscal 2011 due to increased property additions associated with new store openings and investments in upgrading our information technology systems.

Advertising expenses increased $0.6 million in the third quarter of fiscal 2012 as compared to the third quarter of fiscal 2011 primarily due to higher television and direct mail advertising costs. Advertising expenses were 2.8% of net sales in the third quarter of fiscal 2012 as compared to 2.5% of net sales in the third quarter of fiscal 2011, a 30 basis point increase, as advertising expenses in fiscal 2012 were planned to more closely align with historical quarterly sales patterns, although advertising expenses for the year are planned at a level consistent with fiscal 2011 as a percentage of net sales.

Store pre-opening expenses decreased $0.2 million, or 20 basis points as a percentage of net sales, in the third quarter of fiscal 2012 due to opening two new stores in the third quarter of fiscal 2012 as compared to the two new stores opened and an existing store relocated in the third quarter of fiscal 2011.

Interest Expense, Net

Interest expense was $0.1 million for both the thirteen weeks ended October 27, 2012 and the thirteen weeks ended October 29, 2011. There were no borrowings on the revolving line of credit during the thirteen weeks ended October 27, 2012 or October 29, 2011.

Income Before Taxes

Income before taxes for the thirteen weeks ended October 27, 2012 decreased $1.3 million, or 16.6%, to $6.4 million compared to $7.7 million for the thirteen weeks ended October 29, 2011. As a percentage of net sales, income before taxes was 4.5% for the third quarter of fiscal 2012 compared to 5.8% for the third quarter of fiscal 2011.

Income Tax Expense

Income tax expense for the thirteen weeks ended October 27, 2012 was $2.4 million compared to income tax expense of $2.9 million for the thirteen weeks ended October 29, 2011. The effective income tax rate for the third quarter of fiscal 2012 was 37.5% compared to an effective rate of 38.0% for the third quarter of fiscal year 2011. The effective rate differed from the federal enacted rate of 35% primarily due to state taxes, net of federal benefits.

Net Income

Net income for the thirteen weeks ended October 27, 2012 decreased $0.8 million, or 15.9%, to $4.0 million compared to $4.7 million for the thirteen weeks ended October 29, 2011. As a percentage of net sales, net income was 2.8% for the third quarter of fiscal 2012 compared to 3.6% for the third quarter of fiscal 2011. The decrease in net income as a percentage of net sales was primarily due to the comparable store sales decrease for the quarter, higher selling, general and administrative expenses and the 10 basis point decrease in gross margin in the third quarter of fiscal 2012, partially offset by higher non-comparable store sales due to new store growth.


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Thirty-nine Weeks Ended October 27, 2012 Compared to Thirty-nine Weeks Ended October 29, 2011

Net Sales

Net sales for the thirty-nine weeks ended October 27, 2012 increased $38.9 million, or 10.6%, to $405.2 million as compared to $366.3 million for the thirty-nine weeks ended October 29, 2011. This increase was primarily the result of a $35.2 million increase in non-comparable store sales due to the addition of six new stores in fiscal 2011, all of which opened in the first three quarters of fiscal 2011, and the opening of nine new stores in the first three quarters of fiscal 2012, two of which opened during the third quarter of fiscal 2012. Comparable store sales increased $3.9 million, or 1.1%, primarily due to an increase in the average sale per transaction, partially offset by a decrease in comparable transactions. From a major merchandising category perspective, Apparel experienced a low single digit comparable store sales increase in the first three quarters of fiscal 2012, led by Misses and Childrens. Home Fashions and Accessories (including Fragrances) both experienced a low single digit comparable store sales decrease for the first three quarters of fiscal 2012.

License Fees from Leased Departments

License fee income related to sales of merchandise in leased departments for the thirty-nine weeks ended October 27, 2012 increased $0.6 million, or 12.2%, to $5.5 million as compared to $4.9 million for the thirty-nine weeks ended October 29, 2011 primarily due to new store growth.

Gross Profit

Gross profit, which includes license fees from leased departments, for the thirty-nine weeks ended October 27, 2012 increased $18.8 million, or 11.2%, to $186.5 million as compared to $167.7 million for the thirty-nine weeks ended October 29, 2011. Gross profit margin for the thirty-nine weeks ended October 27, 2012 increased 20 basis points to 46.0% of net sales as compared to 45.8% of net sales for the thirty-nine weeks ended October 29, 2011. This increase was primarily due to an increase in initial mark-up on merchandise available.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the thirty-nine weeks ended October 27, 2012 increased $18.1 million, or 12.6%, to $161.1 million as compared to $143.1 million for the thirty-nine weeks ended October 29, 2011. As a percentage of net sales, selling, general and administrative expenses for the thirty-nine weeks ended October 27, 2012 increased to 39.8% as compared to 39.1% for the thirty-nine weeks ended October 29, 2011.

Store expenses increased $9.7 million in the first three quarters of fiscal 2012 as compared to the first three quarters of fiscal 2011 primarily due to increased payroll and benefits, rent and real estate taxes, maintenance, utilities and cleaning expenses associated with new store growth. Store expenses were 25.5% of net sales in the first three quarters of fiscal 2012 as compared to 25.6% of net sales in the first three quarters of fiscal 2011, a 10 basis point decrease, primarily resulting from lower credit card fees and lower payroll as a percentage of net sales, partially offset by higher health and workers compensation insurance benefits and higher rent and real estate taxes.

Corporate expenses increased $2.4 million in the first three quarters of fiscal 2012 as compared to the first three quarters of fiscal 2011 primarily due to higher corporate payroll and benefits due to the addition of personnel to support our growth, as well as merit increases, higher information technology consulting and software rental expenses primarily associated with the support of our Oracle enterprise merchandising system which was implemented in the second quarter of 2012 and higher recruiting and relocation expenses for corporate personnel. Corporate expenses were 5.9% of net sales in both the first three quarters of fiscal 2012 and 2011.

Distribution center expenses increased $2.0 million in the first three quarters of fiscal 2012 primarily due to higher payroll expenses and higher outbound freight delivery charges related to the increase in merchandise inventory receipts. Distribution center expenses were 3.9% of net sales in the first three quarters of fiscal 2012 as compared to 3.8% of net sales in the first three quarters of fiscal 2011.

Depreciation and amortization expenses increased $1.8 million, or 40 basis points as a percentage of net sales, in the first three quarters of fiscal 2012 as compared to the first three quarters of fiscal 2011 due to increased property additions associated with new store openings and investments in upgrading our information technology systems.

Advertising expenses increased $1.6 million in the first three quarters of fiscal 2012 as compared to the first three quarters of fiscal 2011 primarily as a result of higher television and direct mail advertising costs. Advertising expenses were 2.4% of net sales in the first three quarters of fiscal 2012 as compared to 2.2% of net sales in the first three quarters of fiscal 2011 as advertising expenses in fiscal 2012 were planned to more closely align with historical sales patterns, although advertising expenses for the year are planned at a level consistent with fiscal 2011 as a percentage of net sales.

Store pre-opening expenses increased $0.6 million, or 10 basis points as a percentage of net sales, in the first three quarters of fiscal 2012 due to the opening of nine new stores during the first three quarters of fiscal 2012 as compared to the six new stores opened and one existing store relocated in the first three quarters of fiscal 2011.


Table of Contents

Interest Expense, Net

Interest expense for the thirty-nine weeks ended October 27, 2012 decreased $0.1 million to $0.4 million as compared to $0.5 million for the thirty-nine weeks ended October 29, 2011. There were no borrowings on the revolving line of credit during the thirty-nine weeks ended October 27, 2012 or October 29, 2011.

Income Before Taxes

Income before taxes for the thirty-nine weeks ended October 27, 2012 increased $0.8 million, or 3.3%, to $24.9 million compared to $24.1 million for the thirty-nine weeks ended October 29, 2011. As a percentage of net sales, income before taxes was 6.2% for the first three quarters of fiscal 2012 compared to 6.6% for the first three quarters of fiscal 2011.

Income Tax Expense

Income tax expense for the thirty-nine weeks ended October 27, 2012 was $9.4 . . .

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