A manifold hike in interest expense, pushed NASDAQ-listed and apparel and home décor retailer Gordmans Stores Inc to report a net loss in the second fiscal quarter ended August 2, 2104 compared to net profit, a year earlier.
Interest expense which increased to $1.3 million from $0.1 million in the second quarter of fiscal 2013, led to Gordmans posting a net loss of $3.2 million against net income of $0.9 million.
Consequently, Gordmans reported negative earnings per share of $0.16, which includes interest expense of approximately $0.03 per diluted share, versus $0.05 in the prior year quarter.
Gordmans said the higher interest expense was associated with the term loan entered into in August 2013 to partially fund the special cash dividend paid in September 2013.
Net sales increased 3.1% to $141.0 million in the second quarter of 2014, driven by the ten new stores opened in fiscal 2013 and five new stores in first half of fiscal 2014, compared to $136.8 million, from a year ago period.
However, comparable store sales declined 6.8% in the second quarter of 2014 against a decrease of 2.6% in the same quarter of 2013.
During the quarter, Gordmans said the best performing merchandise category was apparel, followed by home and accessories.
Gross profit, which includes license fees, rose 0.9% to $59.7 million, or 42.3% of net sales, from $59.2 million, or 43.3% of net sales, in the second quarter of fiscal 2013.
“The 100 basis point reduction in gross margin was due to higher markdowns to clear aged merchandise”, Gordmans informed.
Selling, general and administrative costs (SG&A) reached $63.5 million, or 45.0% of net sales in thirteen weeks to August 2, 2014 compared to $57.6 million, or 42.1% of net sales, in the second quarter of fiscal 2013.
As a percentage of net sales, the increase in expenses was due to deleveraging from decline in comparable store sales, freight, new stores marketing and depreciation expense, as well as pre-opening expenses of a new distribution center, the retailer said.
"While we are disappointed with our second quarter sales performance, our earnings per share met the low end of our guidance," said, CEO Andy Hall.
"As we projected at the beginning of the quarter, our second quarter gross profit was negatively impacted by additional markdowns taken to clear aged merchandise. In addition, we reduced our average store inventory by 11% year-on-year at the end of the second quarter of 2014”, he added.
For the third quarter of fiscal year 2014, Gordmans expects net sales to be between $150 and $153 million, and an improvement in gross profit margin of approximately 40-50 bps compared to the third quarter of fiscal 2013.
