Gordmans Stores BUY More then a double BUY

GMAN : NASDAQ : US$3.96
Target Price $ 9.00
COMPANY DESCRIPTION:
Gordmans Stores is an everyday value price retailer
offering merchandise up to 60% off department and
specialty store prices. The company operates nearly 100
stores in 20 states, located in multiple shopping center
formats including regional shopping malls, lifestyle
centers, and power centers. The merchandise
assortment consists of apparel, home fashions, and
accessories including fragrances.

Consumer & Retail — Specialty Retail
WE AWAIT IMPROVED Q2 PRODUCT AS AGED INVENTORY HAS BEEN CLEARED
Investment recommendation
GMAN generated a Q2 loss of ($0.16) per share, in line with our
estimate and a penny below consensus. As expected, the
company spent the bulk of Q2 clearing out stale inventory ahead
of H2. The higher level of markdowns resulted in 95bps of yr./yr.
gross margin contraction in Q2, which did not come as a surprise
to us. We believe this was necessary to make room for an
improved product assortment, including the recent launch of a
Missy contemporary department. Gross margin should begin to
recover in H2 as better product rolls into stores. We believe SSS
will be slower to rebound, however, and we are lowering our Q3
SSS forecast to -5% on top of -6.1% versus our prior flat estimate.
This pushes our Q3 EPS estimate from $0.02 to ($0.09). We
continue to believe GMAN’s long-term recovery potential is not
reflected with shares trading at 0.2x C2015E EV/revenue.
Investment highlights
The appointment of department store veteran Andrew Hall
as CEO should bring some stability to GMAN. Hall spent six
years at Stage Stores, including a run as CEO from 2008-
2012, and 13 years prior at May Department Stores.
We are reducing our price target from $10 to $9 based on
our DCF model. There is still notable turnaround risk here,
but we believe investors will be paid for their patience.

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