Gander in the hunt for better results

Is it time to take another gander at Gander Mountain?

The St. Paul-based outdoor retailer, which specializes in gear for hunting, camping and fishing, has been slashing its way through the retail wilderness during the recession and is looking more solid than it has in years.

Much of the benefit has come from America's current "staycation" mentality as well as gun-toters' fears that the Obama administration will make it harder to buy firearms and ammunition. But Gander also has nibbled away at overhead costs and ground its new store openings to a near-halt. Cash flow is at a four-year high.

"We are building a new Gander Mountain," interim CEO David Pratt said during an earnings call last month.

Company officials declined a request for interviews, but in recent earnings calls, they've talked about making a return to basics: a disciplined approach to keeping down costs and a better understanding of who their customers are.

During this past brutal holiday season, Gander Mountain held up better than many retailers. Same-store sales fell just 1.6 percent compared to a year earlier. Gander followed that up in the first quarter, historically its worst of the year, with a 7.4 percent same-store sales gain.

Shares, which were trading at a dollar in November when the global financial crisis hit full throttle, have bounced back to about $6, following a mostly upward path since early spring.

But Gander is far from being a Wall Street darling. There's only one analyst covering the company. And while Reed Anderson likes what he's seeing, he isn't budging off his neutral rating.

"It's still a company with a lot of leverage," said Anderson, of D.A. Davidson & Co. in Minneapolis. "They're making progress, but we're in the early innings. They have a long ways to go where they make the earnings to support the stock."

Because sales at Gander are tied to the outdoor seasons --it often doesn't turn a profit until the fourth quarter when hunters take to the fields and holiday shoppers hit the stores -- a relatively strong first-quarter showing gives it more momentum than usual.

Additionally, before the year is out, Gander finally will shed its power sports business, mostly motor boats and all-terrain vehicles, which have dragged down sales for years.

After starting an expansion boom in 2003 that added 63 stores and boosted revenue 118 percent, the company has put the lid on growth plans. Gander will open just one store this year, in Springfield, Ill., which opened in March.

With 116 stores in 23 states, the company's focus now isn't on building new stores, but on making existing stores more profitable. The company hasn't made a profit since 2004. One indicator the retailer's on the right track: inventory in the first quarter was down 17 percent, making drastic markdowns to move merchandise less necessary.

Gander also believes future growth lies in its online and catalog businesses, which have been operating for less than a year. Gander projects Internet and catalog sales eventually could make up a quarter to 40 percent of its total business.

Gander's previous CEO, Mark Baker, left voluntarily last September, and board chairman Pratt took over the CEO duties as well. He hired Mike Owens, a 27-year veteran of Anheuser-Busch, as chief operating officer in January. Though the company isn't tipping its hand, there's a good chance Owens, 54, will be moving up the corporate ladder in the future.

Pratt, 64, is said to have no desire to run the company over the long haul, though he owns 42 percent of Gander stock, so he has a vested interest in its success. (Holiday Stations, owned by the Erickson family, owns 28 percent.)

Pratt, who lives on the outskirts of St. Louis, Mo., is an avid outdoorsman who has opened a hunting and fishing resort on his private ranch in Colorado and is a minority stakeholder in the St. Louis Cardinals baseball team.

Gander's second quarter ends in July, so it's not yet known whether firearm sales are continuing to offset slower sales in boats, ATVs and apparel.

Anderson and other analysts caution that gun and ammo sales, which also boosted revenue for Cabela's and Smith & Wesson, may be a one-time pop. Even if Obama and congressional Democrats end up enacting new gun controls, it would be tough to sustain the swirl around the election, when some Gander stores saw gun sales rise 30 to 40 percent in the final months of the year.

Recession-weary consumers also are heading to Gander to upgrade camping and fishing gear as they search for cheap family vacations. Gander spent more on advertising and promotions and spiffed up its store merchandising, which has led to increased store traffic last quarter. Average sales price was up 1.6 percent to $59.48.

After posting a $15.5 million loss last year, Anderson sees Gander returning to profitability in 2009. But he said it's still tough to make a strong case for why Gander is a stock "you have to own."

"This company, despite how long it has been around, is still less profitable than Cabela's," Anderson said. "Will they ever close that gap? Who knows. Our estimate for 2009 is about a 1.6 percent operating margin. That's well below the 4, 5 or 6 percent in related categories. That suggests that the company has an opportunity to be more profitable. But it isn't any one thing they have to do to get there. They just gotta keep blocking and tackling and plugging away."

Jackie Crosby • 612-673-7335