Sportsman’s Warehouse Holdings, Inc. — Form 10-Q Summary
Reporting period: The filing is for the 13 and 39 weeks ended October 29, 2022, compared with the periods ended October 30, 2021. Although the request metadata says 2021 Q3, the filing itself reports fiscal 2022 Q3. Amounts below are in millions except per-share data and percentages.
Business context
The company operates outdoor sporting goods stores and an e-commerce platform as one reportable segment. It reported 130 stores in 30 states as of October 29, 2022; the MD&A separately says 131 stores at the time of the filing. Hunting and shooting accounted for 54.9% of Q3 sales. The fiscal year ends January 28, 2023.
Key financial results
| Metric | Q3 2022 | Q3 2021 | 39 weeks 2022 | 39 weeks 2021 |
|---|---|---|---|---|
| Net sales | $359.7 | $401.0 | $1,020.2 | $1,089.8 |
| Gross profit / margin | $120.8 / 33.6% | $129.6 / 32.3% | $337.5 / 33.1% | $353.7 / 32.5% |
| SG&A | $102.3 | $100.0 | $295.4 | $286.3 |
| Operating income / margin | $18.5 / 5.2% | $29.6 / 7.4% | $42.0 / 4.1% | $67.5 / 6.2% |
| Interest expense | $1.2 | $0.4 | $2.5 | $0.9 |
| Net income / diluted EPS | $12.9 / $0.33 | $21.9 / $0.49 | $29.5 / $0.71 | $50.0 / $1.13 |
| Adjusted EBITDA / margin | $29.1 / 8.1% | $39.3 / 9.8% | $72.7 / 7.1% | $98.0 / 9.0% |
Q3 sales fell 10.3% and same-store sales declined 15.0% year over year; 39-week sales fell 6.4% and same-store sales declined 12.1%. Same-store sales remained above pre-pandemic levels, up 19.5% versus Q3 2019 and 28.8% versus the comparable 39-week period in 2019.
Liquidity, cash flow and debt
- Cash was $2.6 at October 29, down from $57.0 at January 29, 2022. Current assets were $508.6 and current liabilities $376.7.
- Operating cash flow was $14.5 for the 39 weeks, versus cash used of $78.3 in 2021. Inventory reduced cash by $98.6, partly offset by a $68.3 increase in accounts payable.
- Capital expenditures were $38.5; investing cash outflow was $38.5. Financing cash outflow was $30.5, including $62.4 of share repurchases. Net revolver borrowings were $39.0.
- The $350.0 revolving facility had $120.2 outstanding and $192.9 available, subject to borrowing-base restrictions; $2.0 of standby letters of credit were also outstanding. The balance sheet presents $105.1 as revolving debt after lockbox offsets. The facility matures May 27, 2027; the company reported covenant compliance.
- Operating lease liabilities totaled $304.5, including $43.4 current. Total undiscounted committed lease payments were $414.0.
- Management said cash, operating cash flows and revolver availability should be sufficient for operating needs for at least the next 12 months and beyond.
Changes, outlook and risks
- Lower demand across most categories, inflation and recession concerns weighed on sales; comparisons also reflected unusually strong 2021 pandemic-era demand. Q3 firearm and ammunition sales fell $18.2 and $7.8, respectively. Apparel and footwear grew modestly, partly reflecting new stores.
- Gross margin improved year over year, helped by product margins, lower freight and logistics costs, and favorable mix. However, lower sales and higher SG&A as a share of sales reduced operating and net margins. Interest expense rose with higher borrowing and rates.
- The company repurchased 6.54 million shares for $62.4 through October 29 under a $75.0 million authorization; $12.6 remained. The program was scheduled to end March 31, 2023.
- Fiscal 2022 capital expenditures were expected to be $48–$55, including refurbishment and nine new stores. The company planned 13–18 openings in fiscal 2023 and targeted 190–210 stores by fiscal 2025; these are plans, not guarantees.
- Management cited inflation, recession concerns, labor costs, supply-chain and pandemic-related uncertainty, weather, competition, and changing consumer demand. Firearms regulation is a significant risk: Oregon’s new requirements were temporarily blocked by a state judge on December 6, 2022; the company had eight stores in Oregon. Regulatory changes could reduce firearms sales and store traffic.
- A California landlord’s lease-termination suit remains pending. The court granted the plaintiff’s motion on whether the lease authorized termination; damages and remaining defenses are unresolved, and the company intended to appeal. Management said it was not aware of other matters with probable, reasonably estimable losses expected to materially affect results.
- Floating-rate borrowing exposes the company to interest-rate risk; a 100-basis-point increase was estimated to raise annual interest expense by $1.2, assuming the October 29 revolver balance remained outstanding for a full year.
Important facts for investors to verify
- Whether sales and same-store sales stabilize after the decline from pandemic-driven peaks, particularly in hunting and shooting.
- Whether margin gains persist and offset SG&A deleverage, inflation and higher interest expense.
- Inventory levels, seasonal working-capital needs, cash availability and borrowing-base capacity under the revolver.
- Execution and funding of planned store openings, capital spending and remaining share repurchases.
- Potential effects of state and federal firearms regulation, including developments in Oregon, and the outcome of the California lease litigation.