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.

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Gordmans Stores Remains In An Unsustainable Structure

Seekng Alpha: Gordmans Stores Has Better Management, Will Results Reflect It?

Six months ago I described Gordmans Stores (NASDAQ:GMAN) as a "falling knife", but since then the shares have acted more like a sharknado. The stock's 45% drop since then can't be explained away by a difficult environment - stocks like Stein Mart (NASDAQ:SMRT), TJX (NYSE:TJX), and Ross Stores (NASDAQ:ROST) haven't been ripping higher, but they haven't been nearly as weak as Gordmans. Despite better inventory management, Gordmans can't seem to get its merchandising/assortments right and the comps and margins are suffering as a result.

Maybe, just maybe, things might be looking up. Gordmans recently named Andy Hall as the new CEO, replacing interim CEO T. Scott King who took over when Jeff Gordman announced his retirement earlier in the year. Hall brings good experience as the former CEO of Stage Stores (NYSE:SSI) and has already laid out some common sense near-term initiatives. Gordmans is still looking at a long road back to growth, and I wouldn't dismiss the competitive threat of the likes of TJX's T.J. Maxx and Marshalls, Kohl's (NYSE:KSS), or Wal-Mart (NYSE:WMT), but the absolute pounding that this stock has seen (down 75% over the past year) has already washed out a lot of expectations.

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Gordmans Stores Has Better Management, Will Results Reflect It?

Seeking Alpha: Gordmans Stores' Merchandising Problems Linger

Discount retailer Gordmans Stores (GMAN) has been a falling knife since the fall of 2013, as the company has exacerbated a weak underlying retailing environment with poor merchandising decisions that have hit same-store sales hard and depressed margins. Although Gordmans' results weren't out of line with expectations for the quarter, they were still weak and the company announced that the CEO had elected to retire.

Gordmans Stores may benefit from a new vision or voice at the top, as the company's robust store growth of recent years is not producing compelling comp-growth. The good news here is that even in a tough quarter the company was still profitable and it does not take particularly aggressive model assumptions to suggest value in the shares. This is a speculative call, and the sell-side has slashed its price targets by almost half in the last four months, but simply stabilizing the comps could a make a significant difference.

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Gordmans Stores' Merchandising Problems Linger

Investopedia: Has The Street Finally Overshot Brown Shoe?

It can take a few quarters for Wall Street to dial in its expectations when a company has started out/underperforming, and that's particularly true in cases of turnarounds. Brown Shoe (NYSE:BWS) enjoyed a good two-year run in the market as the company's turnaround/restructuring efforts paid off and as the company's outperformance reset the bar for expectations. While the company's second quarter results and guidance weren't bad as such, they would suggest that maybe the Street has finally caught up to the story and the momentum angle of outperforming expectations is no longer in play.

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Investopedia: Collective Brands Might Be Worth The Wait

In most respects, these are pretty good days to be in value-oriented retail. Companies like Family Dollar (NYSE:FDO), Ross Stores (Nasdaq:ROSS) and TJX (NYSE:TJX) all are seeing their stocks trade near 52-week highs, and analyst estimates have been an upward match. 


That stands in pretty sharp comparison to the shoe sector, where leading value-oriented companies like Brown Shoe (NYSE:BWS) and Collective Brands (NYSE:PSS) (owner of Payless and Stride Rite) are struggling. With Collective Brands reporting a very disappointing first quarter, it is worth asking whether there is something fundamentally different about the shoe business, or whether the absence of institutional demand for these stocks makes for a buying opportunity for value investors.


A Tough Quarter for Several Reasons
Collective Brands announced that revenue for the fiscal first quarter fell a bit more than 1%, which is not so bad until it's considered that the company missed the average estimate by about 5%. Although the company's very profitable PLG Wholesale business saw revenue rise almost 23%, overall company results were hurt by a 9% drop in domestic Payless revenue (which was fueled by a greater than 8% drop in same-store comps). International sales were also weak, as poor performance in Canada pushed the Payless international revenue down by almost 3%. 



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Investopedia: Coach Still Flying First Class

Some things never change, including consumer behavior. Maybe the great housing boom/bust did force a few consumers to change their ways, but as the economy has rebounded, the demand for high-end consumer goods has gone along for the ride. As one of the more popular brands around, Coach (NYSE:COH) continues to deliver solid financial performance. 

On Target Performance 

Even with the significant impact of the Japanese earthquake, Coach once again managed to modestly beat estimates. Revenue rose 14% this quarter, fueled by direct-to-consumer sales growth of 15%. North American comps were up about 10% (and ahead of expectations), while Japanese sales fell 9% in local currency. Such was the impact of currency moves, though, that Japanese sales were actually flat on a reported (dollars) basis.

Coach did not perform quite as well on the profitability side. Like so many companies, Coach is seeing pressure from currency, materials, shipping, and so forth. Gross margin declined about 140 basis points, while operating income (on a non-GAAP basis) rose 12%. Still, it is clearly worth noting that at over 29%, Coach produces exceptionally good margins (as well as very high returns on assets and capital). 

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