Seeking Alpha: Gordmans Stores Needs To Fix Its Merchandising, And Soon

Relative to my feelings about Gordmans Stores (GMAN) nine months ago, a lot of my biggest worries have materialized and come home to roost, burying the stock under a mound of guano. Sluggish traffic is an issue across the retail space (amply demonstrated by many mall-based teen retailers), but Gordmans seems to have particular issues with its merchandising and it is taking a toll on same-store sales. What's more, I really disagree with the company's decision to pay out a sizable debt-funded special dividend earlier this year.

I feel as though I am in an uncertain and uncomfortable place with Gordmans now. I believe management is moving aggressively to deal with its merchandising issues, and I do take encouragement from the apparent willingness of developers to continue extending financing to the company. I also continue to believe that Gordmans has a differentiated discount retail model that can support a much bigger store footprint. The setbacks in same-store sales and a balance sheet-induced change to my discount rate lead me to meaningfully lower my estimated fair value here, but it still looks as though Gordmans is undervalued relative to what I see as its long-term prospects.

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Gordmans Stores Needs To Fix Its Merchandising, And Soon