Sportsman’s Warehouse Holdings, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended February 3, 2018, comprising 53 weeks. The filing also reports unaudited fourth-quarter results. Although the request metadata identifies 2016 Q4, the supplied filing is for FY2017; figures below follow the filing.
Business context
The company operates outdoor sporting-goods stores and e-commerce across the United States. At fiscal year-end it reported 87 stores in 22 states, with about 3.5 million gross square feet. Hunting and shooting represented 48.7% of annual sales. The filing’s Properties section separately says 88 stores, an inconsistency to verify.
Financial performance
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Net sales | $809.7 million | $780.0 million | +3.8% |
| Gross profit / margin | $273.9 million / 33.8% | $263.2 million / 33.7% | +4.0%; +0.1 percentage point |
| SG&A | $227.3 million / 28.1% of sales | $202.5 million / 26.0% | +12.2% |
| Operating income / margin | $46.6 million / 5.7% | $60.7 million / 7.7% | −23.3% |
| Net income / diluted EPS | $17.7 million / $0.42 | $29.7 million / $0.70 | −40.2% / −40.0% |
| Adjusted EBITDA / margin | $72.8 million / 9.0% | $82.3 million / 11.0% | −11.5% / −2.0 percentage points |
| Cash from operations | $30.8 million | $15.5 million | Increased |
Annual sales growth was driven by new and not-yet-comparable stores ($72.1 million incremental sales) and an additional fiscal week; comparable sales fell 6.9% excluding e-commerce and 6.5% including it. E-commerce sales were $11.9 million, up 27.1%, or 1.5% of total sales. Firearms and ammunition sales declined 9.4% and 15.8%, respectively. SG&A growth reflected the larger store base, wage and occupancy costs, acquisition-bid professional fees and a $0.5 million IT asset write-off.
Fourth-quarter FY2017 sales were $243.2 million versus $221.4 million in the prior-year quarter; operating income was $16.6 million versus $21.1 million, and net income was $5.9 million versus $10.5 million.
Liquidity, debt and capital spending
At February 3, 2018, cash was $1.8 million and current assets were $280.8 million against current liabilities of $155.6 million. Inventory was $270.6 million. The company reported $66.9 million available under its revolving facility, subject to borrowing-base limits.
Debt principal was approximately $201.7 million: $66.6 million outstanding on the revolving facility and $135.1 million on the term loan. The balance sheet presents the revolver net of lockbox deposits ($60.0 million) and term debt net of discount and issuance costs. The term loan carried a 7.63% rate and matures December 2020; the revolver rate was 3.26%. Both facilities are secured and include covenants; the company reported covenant compliance. FY2017 interest expense was $13.7 million.
Operating cash flow was $30.8 million; gross capital expenditures were $41.2 million, partly offset by $9.0 million of sale-leaseback proceeds. Cash ended the year at $1.8 million. The company reported $303.5 million of future operating lease payments, excluding certain occupancy-related charges. No dividends were paid or expected in the foreseeable future.
Outlook, commentary and material risks
- Management planned one additional FY2018 store opening after one had opened to date, with four more planned; expected FY2018 square-footage growth was about 3% as cash was redirected toward debt reduction. The longer-term target remained growth above 10% annually.
- FY2018 gross capital expenditures were forecast at $20–$26 million. Management stated cash, operating cash flow and revolver availability should fund operations for at least the next 12 months. No earnings or sales guidance was provided.
- Management cited weaker firearms and ammunition demand, lower store traffic and minimum-wage increases among operating pressures. Sales are seasonal, with the third and fourth quarters typically strongest, and are sensitive to weather and consumer spending.
- Key exposures include firearm and ammunition regulation, competition, Western-region concentration, inventory and vendor availability, reliance on one distribution center, cybersecurity, and floating-rate debt. A 100-basis-point rate increase was estimated to add about $0.5 million of annual revolver interest expense, assuming the balance remained outstanding for a year.
- Remington, a major vendor, filed for Chapter 11 in March 2018. CEO John Schaefer retired March 13, 2018, and President and COO Jon Barker became CEO. The retirement agreement provides $1.459 million in payments and accelerated vesting of 242,000 shares.
- The Tax Cuts and Jobs Act contributed to a 46.0% effective tax rate, versus 37.3% in FY2016; the filing reports a $2.153 million net discrete tax expense related to tax reform. Adoption of new lease accounting was expected to materially increase reported assets and liabilities.
- The Lacey Marketplace appeal concluded in December 2017 with no judgment against the company. Management said other ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Reconcile the reported 87-store year-end count with the 88 stores stated in the Properties section.
- Assess whether the decline in comparable sales and firearm/ammunition demand is continuing, and distinguish underlying sales trends from new-store additions and the extra fiscal week.
- Review borrowing-base availability, debt covenants, the December 2020 term-loan maturity and the company’s capacity to reduce debt while funding stores and lease obligations.
- Monitor the operational and financial effects of Remington’s bankruptcy, the CEO transition and the accelerated equity vesting.
- Check subsequent filings for finalized tax-reform accounting, the effect of lease-standard adoption and any changes to store-opening or capital-spending plans.