Sportsman’s Warehouse Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended October 28, 2023 (13 weeks), and year to date (39 weeks). Fiscal 2023 is a 53-week year ending February 3, 2024. Unless noted otherwise, amounts below are in millions of dollars.
Business context
The company operates 145 sporting goods stores in 32 states and an e-commerce platform, reported as one operating segment. Hunting and shooting accounted for 55.8% of quarterly sales. E-commerce represented more than 15% of sales in both the quarter and year-to-date period.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 39 weeks 2023 | 39 weeks 2022 |
|---|---|---|---|---|
| Net sales | $340.6 | $359.7 | $917.6 | $1,020.2 |
| Same-store sales change | -11.4% | — | -15.0% | — |
| Gross profit / margin | $103.2 / 30.3% | $120.8 / 33.6% | $284.0 / 31.0% | $337.5 / 33.1% |
| Operating income (loss) | $3.1 | $18.5 | ($17.4) | $42.0 |
| Net income (loss) | ($1.3) | $12.9 | ($20.3) | $29.5 |
| Diluted EPS | ($0.04) | $0.33 | ($0.54) | $0.71 |
| Adjusted EBITDA / margin | $16.2 / 4.8% | $27.7 / 7.7% | $19.3 / 2.1% | $69.8 / 6.8% |
Cash flow and liquidity: Year-to-date operating cash flow was a use of $16.6, versus $14.5 provided in the prior-year period. Investing cash use was $71.2, primarily for store construction and refurbishments; financing provided $88.3, largely from increased revolver borrowings. Cash was $2.9 at October 28, 2023. Working capital was $76.8, down from $130.1 at fiscal year-end.
Debt and obligations: The $350.0 senior secured revolving facility had $202.0 outstanding and $111.0 available, subject to borrowing-base restrictions, at October 28. The balance sheet reports $185.4 of revolver debt after offsets for funds in lockbox-type accounts. The facility matures May 27, 2027; the company reported covenant compliance. Operating lease liabilities totaled $347.6; undiscounted committed lease payments were $458.8.
Other balance-sheet measures: Inventory increased to $446.3 from $399.1 at January 28, 2023. Total assets were $980.3 and stockholders’ equity was $272.3 at quarter-end.
Material changes versus prior year
- Quarterly sales fell 5.3%; year-to-date sales fell 10.1%. Same-store sales declined 11.4% and 15.0%, respectively, reflecting weaker traffic and discretionary demand.
- Quarterly gross margin contracted 3.3 percentage points; year-to-date margin declined 2.1 points. Management cited ammunition margin normalization and promotional activity in apparel and footwear to move inventory.
- Year-to-date operating results swung from $42.0 of operating income to a $17.4 loss; net income swung from $29.5 to a $20.3 loss.
- Year-to-date interest expense rose to $9.5 from $2.5, primarily due to higher revolver borrowings and interest rates. Revolver borrowings increased from $96.9 at January 28 to $202.0 gross at October 28.
- Year-to-date capital expenditures and related investing cash use increased substantially; the company reported $54.1 of capital expenditures net of tenant allowances for the period.
Outlook, commentary and risks
- Management expects inventory-reduction promotions to reduce Q4 fiscal 2023 gross margin by 600–800 basis points versus Q4 2022. It said the inventory reduction was progressing as planned.
- Management implemented company-wide expense reductions and increased financial discipline; the plan may produce up to $25 million in annualized savings. It also reported CEO-transition expenses and cost-reduction severance.
- Net capital expenditures for fiscal 2023 were expected at $56–$60 million, including amounts already spent, mainly for store refurbishments and planned openings. The company said it currently does not plan to open new stores in fiscal 2024.
- Management believed cash, operating cash flow and revolver availability would fund operations and requirements for at least the next 12 months and beyond. This outlook is subject to sales, working-capital, borrowing-base and market developments.
- Risks include inflation, recession concerns, interest-rate exposure, adverse weather, competition, regional concentration, and regulation of firearms and ammunition. A 100-basis-point rate increase would raise annual interest expense by an estimated $2.0 million, assuming the quarter-end revolver balance remained outstanding for a full year.
- The company noted Oregon firearm legislation and related litigation; it operated eight stores in Oregon. Management said it was unaware of legal matters with probable, estimable losses expected to have a material impact. No material changes to previously disclosed risk factors were reported.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether sales and same-store sales stabilize after the reported declines, including trends by product category and e-commerce.
- Whether inventory reductions achieve the intended level and timing, and the resulting impact on gross margin and markdowns.
- Quarter-end revolver availability, borrowing-base limits, covenant compliance and interest expense as borrowing needs change.
- Progress against the cost-reduction plan, including realized savings versus the stated potential of up to $25 million annualized.
- Actual fiscal 2023 capital expenditures and store openings, and any change to the stated fiscal 2024 pause on new stores.
- Potential effects of firearm-related regulation and Oregon litigation, as well as weather and broader consumer-spending conditions.