Sportsman’s Warehouse Holdings, Inc. — Form 10-Q Summary
Period: The filing reports the 13 weeks ended April 30, 2022, compared with the 13 weeks ended May 1, 2021. This differs from the request metadata’s “2021 Q1”; the filing itself covers fiscal 2022 first quarter. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted.
Business context and reporting period
Sportsman’s Warehouse operates outdoor sporting goods stores and an e-commerce platform as one reportable segment. At quarter-end it operated 125 stores in 29 states. Fiscal 2022 is a 52-week year ending January 28, 2023.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $309.5 million | $327.0 million |
| Gross profit / margin | $99.1 million / 32.0% | $104.0 million / 31.8% |
| Operating income / margin | $3.0 million / 1.0% | $13.6 million / 4.1% |
| Net income | $2.0 million | $10.5 million |
| Diluted EPS | $0.05 | $0.23 |
| Adjusted EBITDA / margin | $12.9 million / 4.2% | $23.5 million / 7.2% |
| Operating cash flow | $(16.8) million | $(4.0) million |
| Capital expenditures | $12.0 million | $5.6 million |
SG&A increased 6.3% to $96.1 million, reaching 31.0% of sales versus 27.7%. Interest expense was $0.6 million, up from $0.2 million. Cash and cash equivalents were $57.7 million at April 30, 2022, versus $57.0 million at January 29, 2022. Inventory increased to $436.4 million from $386.6 million.
At April 30, gross revolving-credit borrowings were $112.5 million; $14.0 million of lockbox balances were offset on the balance sheet, leaving $98.5 million reported as the revolving line of credit. The company reported $110.5 million available to borrow, subject to borrowing-base restrictions, plus $2.0 million in standby letters of credit. Total operating lease liabilities were $274.3 million.
Material changes versus prior period
- Sales fell 5.3%; same-store sales declined 11.6%, following a 24.1% same-store-sales increase in the prior-year quarter. The company attributed the decline primarily to lower demand as it compared against pandemic-era stimulus and demand, partly offset by 13 stores opened since May 1, 2021. Those newer stores contributed $20.0 million in sales.
- Firearm sales declined 9.9% ($8.8 million), while ammunition sales rose 13.9% ($7.6 million). Hunting and shooting represented 60.3% of sales.
- Gross margin improved 0.2 percentage points, reflecting favorable product mix and margins across most departments, partly offset by higher freight costs.
- Profitability contracted substantially as SG&A rose and sales declined. Adjusted EBITDA decreased to $12.9 million from $23.5 million.
- Operating cash use increased, principally due to a $49.9 million inventory build and lower accrued expenses. Financing cash flow included $32.5 million of net revolving-credit borrowings.
Outlook, risks and unusual items
- Management expects fiscal 2022 capital expenditures of $48–$55 million, primarily for store refurbishments and 10 planned new stores. The company’s stated target is annual square-footage growth of more than 5%–10%, subject to available opportunities.
- Management believes cash, operating cash flow and available credit will be sufficient for operating needs for at least the next 12 months. It also expects higher transportation costs to continue affecting the business. No full-year sales or earnings guidance is provided in the supplied filing text.
- On May 27, 2022, after quarter-end, the company amended its revolving-credit agreement: maximum capacity increased from $250 million to $350 million, maturity extended from May 23, 2023 to May 27, 2027, and LIBOR was replaced with Term SOFR. Borrowings were $138.5 million on May 27.
- A $75 million share-repurchase authorization runs through March 31, 2023; no shares were repurchased in the quarter. Repurchases are discretionary and may be funded with cash or credit-facility borrowings.
- Management cites labor shortages, wage and inflation pressures, vendor and supply-chain disruption, uncertain post-pandemic demand, weather, competition, consumer-spending conditions, and regulation of firearms and ammunition among relevant business risks. Hunting-season and holiday demand make sales seasonal, typically stronger in the third and fourth quarters.
- The company reports one unresolved store-lease lawsuit in California; it disputes the claim, and a potential loss range cannot be estimated. Management said it was not aware of other legal matters with probable, reasonably estimable material losses. No material change to previously disclosed risk factors was reported.
- Management reported effective disclosure controls as of April 30, 2022 and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether weaker same-store sales persist as the company compares against unusually strong pandemic-period demand.
- Inventory levels, sell-through, and the impact of freight costs and any resulting markdowns on future gross margins and cash flow.
- Available borrowing capacity under the amended facility, borrowing-base restrictions, interest costs, and covenant compliance as seasonal working-capital needs change.
- Execution and funding of planned store openings, the $48–$55 million capital-expenditure plan, and any share repurchases.
- Developments in the California lease litigation and the company’s exposure to labor, supply-chain, regulatory, economic, and weather-related risks.