Sportsman’s Warehouse Holdings, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2022 Q2, but the supplied filing covers the 13 and 26 weeks ended July 29, 2023 (fiscal 2023 Q2 and first half), compared with periods ended July 30, 2022. Amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
Sportsman’s Warehouse operates outdoor sporting goods stores and an e-commerce platform as one reportable segment. At July 29, 2023, it operated 140 stores in 31 states; e-commerce generated more than 15% of sales in both the quarter and first half. Fiscal 2023 is a 53-week year ending February 3, 2024.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $309.5 | $351.0 | $577.0 | $660.5 |
| Gross profit / margin | $100.8 / 32.6% | $117.5 / 33.5% | $180.9 / 31.3% | $216.6 / 32.8% |
| Operating income (loss) | $(1.5) | $20.5 | $(20.5) | $23.5 |
| Net income (loss) | $(3.3) | $14.6 | $(18.9) | $16.6 |
| Diluted EPS | $(0.09) | $0.35 | $(0.50) | $0.38 |
| Adjusted EBITDA / margin | $13.1 / 4.2% | $30.6 / 8.7% | $7.5 / 1.3% | $43.6 / 6.6% |
Q2 interest expense was $3.5 million versus $0.8 million; first-half expense was $5.6 million versus $1.3 million. The first-half effective tax rate was 27.3%, compared with 25.1% in the prior-year period; the company recorded tax benefits in 2023 as it reported losses.
First-half operating cash flow was negative $58.3 million, versus positive $8.0 million a year earlier. Investing cash outflow was $52.0 million, mainly for store construction and refurbishment; financing provided $110.8 million, primarily through revolver borrowings. Cash ended at $2.9 million, compared with $6.0 million a year earlier.
At July 29, 2023, working capital was $77.0 million, down from $130.1 million at fiscal year-end. The company reported $217.3 million outstanding on its $350 million secured revolving facility and $95.7 million available, subject to borrowing-base restrictions; standby letters of credit were $2.0 million. The balance sheet presents $203.1 million as the revolving line of credit after lockbox offsets. Operating lease liabilities totaled $346.6 million and are separate from revolving debt.
Material changes versus the prior comparable period
- Q2 sales fell 11.8%; same-store sales declined 16.1%. First-half sales fell 12.6%, with same-store sales down 16.9%.
- Management attributed weaker sales to inflation and recession concerns reducing discretionary spending and store traffic. First-half performance was also affected by unusually wet and snowy Western U.S. weather that delayed outdoor seasons.
- Q2 gross margin decreased 0.9 percentage point; first-half margin decreased 1.5 points. Drivers included ammunition margin normalization, promotional activity, and sales mix shifts toward lower-margin products.
- SG&A increased 5.5% in Q2 and 4.3% in the first half, while declining sales pushed SG&A to 33.1% and 34.9% of sales, respectively. New-store rent, depreciation, and pre-opening costs contributed to the increase.
- Hunting and Shooting represented 49.9% of Q2 sales and 56.1% of first-half sales. Ammunition sales declined 26.6% in Q2 and 26.8% in the first half, largely against prior-year demand pull-forward; firearm sales also declined.
- Inventory increased to $457.2 million from $399.1 million at fiscal year-end. Revolver borrowings rose from $96.9 million gross at year-end to $217.3 million.
Outlook, management commentary, risks and unusual items
- Management expects continued gross-margin pressure in the second half of 2023 from reduced store traffic and efforts to reduce inventory. It announced an expense-reduction plan that may produce up to $25 million in annualized savings; $0.9 million of related severance was recorded in the first half.
- The company planned 15 store openings in fiscal 2023 and had opened nine by July 29; it had opened 14 since the prior-year comparison date. Fiscal-year capital expenditures, net of tenant allowances, were estimated at $48–$56 million, including amounts already spent. Management also said it intends to reduce future new-store investment in response to current conditions.
- No specific full-year revenue or earnings guidance is provided. Management said cash, operating cash flow, and revolver availability should fund operations and requirements for at least the next 12 months, while noting that outlook depends on uncertain economic and operating conditions.
- Risks include consumer weakness, inflation, interest rates, weather, labor costs, competition, and firearms-related regulation. The company noted Oregon legislation imposing firearm purchase permitting and training requirements; a state court temporarily blocked enforcement, and the company operates eight Oregon stores.
- The floating-rate facility exposes the company to rate increases; a 100-basis-point increase was estimated to raise annual interest expense by $2.2 million based on the July 29 balance. The company reported compliance with credit covenants.
- Unusual costs included $1.9 million of first-half director and officer transition costs, $0.9 million of cost-reduction-plan severance, and $0.7 million for a one-time legal settlement and related costs. The CEO retired in April 2023; the filing is signed by the interim CEO.
- The company repurchased approximately 0.5 million shares for $2.7 million in the first half, leaving $7.5 million authorized under its repurchase program. Management reported no probable and reasonably estimable legal matters expected to materially affect results. Disclosure controls were judged effective.
Important facts for investors to verify
- Whether sales and same-store sales stabilize, and whether inventory reduction can be achieved without further markdowns or gross-margin deterioration.
- Revolver availability and covenant headroom as seasonal working-capital needs, capital spending, and borrowings evolve.
- Progress and realized savings from the expense-reduction plan, including any effect on store operations and planned openings.
- Whether the stated $48–$56 million capital-spending estimate and 15-store opening plan remain current amid management’s stated intent to reduce future expansion investment.
- Effects of leadership transition, Oregon firearms regulation, and the disclosed one-time legal settlement on subsequent periods.