Friday, April 8, 2016

Seeking Alpha: Gordmans Stores Remains In An Unsustainable Structure

Credit where it's due - Josh Arnold was not only negative on Gordmans Stores (NASDAQ:GMAN) back in 2015, he was short the shares and that was absolutely the right call. While I had thought new management would move quickly to address a seriously out-of-whack cost structure, results over the past year suggest that the cost structure is liable to remain stubbornly too high relative to peers and the company's gross margin, and nothing in the same-store sales trend suggests that "growing out of the problem" with more operating scale is a valid or viable plan.

Gordmans should be able to survive for a while, but I don't see a probable path to prosperity given what appears to be a sticky high cost structure. Given that this company would have to cut its SG&A spending almost in half to be in line with its peer group and that operating margins are unlikely to climb above the mid-single-digits on a sustained basis, I've come to realize much too late that this company is likely to continue struggling. If there's a bright side, it's that expectations have been beaten down and there's a sizable short interest - if the company were to report a surprisingly strong quarter, the shares could pop on covering - but that's not the underpinning of a long-term story.

Read the full article here:
Gordmans Stores Remains In An Unsustainable Structure

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