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Gordmans Stores (GMAN) $262mm market cap
at mid-range price of $14
$75mm IPO |
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SUMMARY |
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Infinite return for private equity sponsors on a 2year old investment |
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On a $20mm capital investment, the private equity sponsors post IPO will have already returned $71mm post-IPO to themselves, see "Leveraged buyout" below. And their retained stock value will be almost $200mm |
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. Price/earnings multiple of 10 annualizing first quarter, at price point mid-range, see financials below
. Comparable store sales up 15% in the March 10 quarter, that rate of increase most likely can’t be sustained. For example, recently reported an 8% same store sales figure for the July 31 quarter.
. Growth plan includes opening about 10% more new stores annually, from a base of 68 stores
. New management initiatives from private equity owners increased gross margins and net income |
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BUSINESS |
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. Off-price department store chain 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".
. Merchandise assortment includes apparel for all ages, accessories, footwear and home décor.
. Origins of Gordmans date back to 1915, and as of April 30, 2010, operated 67 stores in 16 primarily Midwestern states situated in a variety of shopping center developments, including regional enclosed shopping malls, lifestyle centers and power centers. |
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MARKET NICHE |
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Technically competes within the off-price segment of the industry
. GMAN maintains that it is actually a unique hybrid of specialty, department store, big box and off-price retailers. |
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RECENT RESULTS & GROWTH PLAN
May 1 2010 quarter |
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. During the first quarter of fiscal year 2010, GMAN opened one store and experienced a comparable store sales increase of 15.4%, which is very high & may not be sustainable
. Comparable store sales increased due to a 12.0% increase in the number of transactions combined with a 3.5% increase in the average dollars spent per transaction.
Growth plan |
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With a current store base of 68 stores,GMAN anticipate being able to increase its store base by approximately 10% annually for the next several years |
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RISKS |
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Consumer purchases of discretionary retail items, including GMAN’s merchandise, generally decline during recessionary periods and other periods when disposable income is adversely affected. |
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If there is a double dip recession GMAN could be negatively effected. |
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SEASONAL |
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GMAN’s business is affected by the seasonal pattern common to most retailers. Historically, the highest net sales occur during the fourth quarter, which includes the holiday selling season. |
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LEVERAGED BUYOUT |
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A private equity firm paid $56mm September 17, 2008 for GMAN. |
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On a $20mm capital investment, the private equity sponsors post IPO will have already returned $71mm post-IPO to themselves -- $35mmin dividends already received,$29mm from selling stock on the IPO, $7mm ‘consulting’ termination fee |
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. The mid-range market cap is $262mm (with $39mm going to GMAN on the IPO)
. Buyout partners intend to sell 2.1mm shares for $29mm before fees
. Their remaining ownership will about $187mm |
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.On September 17, 2008, investment funds managed by affiliates of Sun Capital acquired 100% of the equity interests of Gordmans, Inc. for aggregate consideration of $55.7 million, mainly consisting of $32.5 million of proceeds from debt issuance and a $20.0 million capital contribution from Sun Capital |
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RECENT DIVIDENDS |
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Since December 2009 paid out $35mm in dividends to private equity owners, pre-IPO |
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USE OF IPO PROCEEDS |
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$39mm net from sale of 3.2mm shares, shareholders intend to sell 2.1mm shares
• $7.5 million to pay termination fee to entities owned by major shareholder
• $16.0 million to repay debt
• Balance for working capital and general corporate purposes |
