Sportsman’s Warehouse Holdings, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the 13 weeks ended May 4, 2024. The comparable period was the 13 weeks ended April 29, 2023. The company operates 146 outdoor sporting-goods stores in 32 states and an e-commerce platform, reported as one segment.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Net sales | $244.2 million | $267.5 million |
| Same-store sales change | (13.5%) | Not stated here |
| Gross profit / margin | $73.8 million / 30.2% | $80.0 million / 29.9% |
| Operating loss | $20.6 million | $19.0 million |
| Net loss | $18.1 million; $(0.48) per share | $15.6 million; $(0.42) per share |
| Adjusted EBITDA / margin | $(8.7) million / (3.6%) | $(7.8) million / (2.9%) |
| Cash used in operations | $34.7 million | $37.0 million |
SG&A declined 4.6% to $94.4 million, but rose as a share of sales to 38.6% from 37.0%. Interest expense increased 45% to $2.9 million, primarily due to higher revolving borrowings and interest rates. The income tax benefit was $5.5 million; the effective tax rate was 23.2%.
Liquidity, debt and cash flow
At May 4, 2024, cash was $2.2 million and working capital was $47.2 million, compared with $3.1 million and $65.4 million at February 3, 2024. Inventory increased to $391.6 million from $354.7 million. The company used $3.3 million in investing activities, mainly for capital expenditures, and received $37.0 million from financing activities, primarily net revolving-credit borrowings. Cash declined by $1.0 million during the quarter.
The $350 million secured revolving facility had $176.1 million in gross loans outstanding, $78.6 million available to borrow, and a 6.72% weighted-average interest rate at quarter end. The balance sheet reports $164.0 million of revolving debt after $12.1 million of lockbox deposits. The facility matures May 27, 2027; the company reported covenant compliance. Operating lease liabilities totaled $364.2 million, with $477.6 million of undiscounted future payments.
Changes and management outlook
Sales fell 8.7%, which management attributed mainly to inflationary pressure on discretionary spending, lower store traffic and weaker demand across most categories. Fishing sales increased, while most other departments declined; hunting and shooting remained the largest category at 63.9% of sales. E-commerce accounted for more than 18% of sales. Gross margin improved modestly, driven primarily by product mix and rate in Fishing, but was insufficient to offset lower sales and higher SG&A as a percentage of revenue.
Management said the fiscal 2023 inventory-reduction effort was complete and gross margins had begun returning toward historical levels. Cost-reduction actions included lower payroll and reduced store-opening spending. The company does not currently plan to open stores in fiscal 2024. It expects $20–$25 million in fiscal-year capital expenditures, mainly for technology investments and store maintenance, and stated that cash, operating cash flow and facility availability should cover needs for at least the next 12 months and beyond. Management cautioned that quarterly results are seasonal, typically stronger in the third and fourth quarters.
Risks, contingencies and unusual items
- Key risks include consumer weakness, inflation, interest rates, competition, weather, regional concentration in the Western U.S., and regulation affecting firearms and ammunition. Hunting and shooting represented nearly two-thirds of quarterly sales.
- Floating-rate debt exposes the company to interest-rate risk; management estimated a 100-basis-point rate increase would add about $1.7 million in annual interest expense at the quarter-end balance.
- A putative shareholder class action filed in Delaware challenges advance-notice bylaw provisions and alleges directors breached fiduciary duties. Management said it was not aware of other matters likely to have a material financial impact, but litigation outcomes and costs are uncertain.
- The company recorded $324,000 of director and officer transition costs in the quarter. No material change in risk factors was reported, and disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether sales and same-store sales stabilize after the 13.5% comparable-sales decline, and whether margin recovery continues.
- Inventory levels, seasonal cash needs, and whether the company can manage liquidity while carrying low cash and using its revolving facility.
- Borrowing-base availability, covenant headroom, and the impact of floating interest rates on debt service.
- Delivery of planned cost reductions and $20–$25 million of capital expenditures, given the no-new-store plan for fiscal 2024.
- Developments and potential costs in the Delaware litigation, plus changes in firearm-related laws or consumer demand.
- The filing text identifies the quarter as ended May 4, 2024, but its signature section gives a date of June 5, 2023; verify the filed document’s signature date.