Business context and reporting period
Sportsman’s Warehouse Holdings, Inc. operates outdoor sporting-goods stores and e-commerce. This is its Form 10-K for fiscal 2016, the 52 weeks ended January 28, 2017—not a 2015 Q4 filing as indicated in the request metadata. The company had 75 stores in 20 states at fiscal year-end and 77 by March 24, 2017. Its single reportable segment is retail.
Financial results and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Net sales | $780.0 million | $706.8 million |
| Gross profit / margin | $263.2 million / 33.7% | $238.5 million / 33.7% |
| Operating income / margin | $60.7 million / 7.7% | $59.3 million / 8.3% |
| Net income / diluted EPS | $29.7 million / $0.70 | $27.8 million / $0.66 |
| Adjusted EBITDA / margin | $82.3 million / 11.0% | $73.0 million / 10.0% |
| Operating cash flow | $15.5 million | $35.4 million |
Sales grew 10.4%, principally from new stores; same-store sales declined 0.8%, versus growth of 1.1% in FY2015. Gross margin was unchanged, while SG&A rose to $202.5 million from $179.2 million and increased to 26.0% of sales from 25.4%. Lower interest expense ($13.4 million versus $14.2 million) helped net income rise despite operating-margin compression. Adjusted EBITDA is a non-GAAP measure and is not a substitute for operating cash flow or net income.
Cash and cash equivalents were $1.9 million. Current assets were $255.9 million and current liabilities $147.2 million. At year-end, the revolving facility had $61.0 million outstanding and $52.8 million available; the term loan had $136.7 million outstanding before discounts and issuance costs. Reported long-term debt, including current portion and net of those costs, was $134.7 million; the revolver is presented separately as a current liability. The company reported covenant compliance. Operating cash flow fell mainly amid inventory and accounts-payable movements; inventory increased to $246.3 million from $217.8 million.
Capital expenditures were $39.4 million, partly offset by $11.9 million in sale-leaseback proceeds. Operating lease commitments totaled $330.6 million. Management said cash, operating cash flow and revolver availability should fund operations for at least 12 months. It expected FY2017 gross capital expenditures of $35–$40 million.
Material changes and quarterly performance
Eleven stores opened during FY2016; new-store sales and the prior-year opening cohort contributed $84.2 million of incremental sales, partly offset by weaker comparable-store sales. Lower firearm and ammunition demand reduced store traffic. Hunting and shooting accounted for 50.9% of sales; e-commerce sales rose 20.8% to $9.3 million, or 1.2% of total sales.
Fourth-quarter FY2016 sales were $221.4 million versus $208.5 million a year earlier; operating income was $21.1 million versus $22.1 million, net income was $10.5 million versus $11.4 million, and diluted EPS was $0.25 versus $0.27. The filing notes customary seasonal concentration in the third and fourth quarters.
The company revised prior-period presentation of state hunting/fishing licenses, duck stamps and mandated firearm background-check revenue from gross to net. This reduced reported sales and cost of goods sold but did not affect gross profit, net income or EPS. FY2016 stockholders’ equity turned positive at $30.0 million, from a $2.1 million deficit.
Outlook, risks and unusual items
Management intended to grow store square footage by more than 10% annually over the next several years. After opening two stores early in FY2017, it planned ten additional openings during the remainder of that year. No specific earnings or same-store-sales forecast was provided. Management cited opportunities in store expansion, e-commerce, private-label products and higher-margin clothing and footwear.
Key risks include discretionary consumer spending, regional concentration in the West, weather, competition, inventory and vendor availability, and regulation or reduced demand for firearms and ammunition. Variable-rate debt creates interest-rate exposure; the company estimated a 100-basis-point increase would add about $0.5 million in annual revolver interest expense, assuming the year-end balance remained outstanding for a full year. The term loan bears a 6.00% margin over LIBOR subject to a 1.25% LIBOR floor.
A prior $4.0 million litigation accrual relating to the Lacey Marketplace case was reversed in FY2015 after a favorable judgment; appeals remained pending. The filing says loss was not probable at the reporting date. The company also disclosed an ongoing federal tax audit of its 2014 and 2015 returns. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation because the company was an emerging growth company. Adoption of the new lease standard was expected to materially affect the balance sheet, though management was still assessing the impact.
Important facts for investors to verify
- Confirm the intended period: this filing covers FY2016 ended January 28, 2017, not 2015 Q4.
- Track comparable-store sales and traffic, particularly firearm and ammunition demand, against the growth contribution from new stores.
- Review liquidity and borrowing-base availability alongside rising inventory, low cash, debt maturities, covenants and substantial lease commitments.
- Assess cash conversion: operating cash flow fell to $15.5 million while capital expenditures reached $39.4 million.
- Monitor the pending litigation appeal, tax audit and impact of lease-accounting adoption.
- Reconcile the prior-period gross-to-net revenue revision when comparing reported sales; it did not change profit or EPS.