Sportsman’s Warehouse Holdings, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended January 30, 2021 (52 weeks), with comparisons to fiscal 2019, ended February 1, 2020. The request metadata says “2019 Q4,” but this filing reports fiscal 2020; fourth-quarter figures are identified separately below. Amounts are in U.S. dollars.
Business context and results
The company operated 112 outdoor sporting goods stores across 27 states, plus an e-commerce channel, as one reportable segment. COVID-19-related demand drove exceptionally strong sales, particularly for firearms and ammunition.
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Net sales | $1,451.8 million | $886.4 million |
| Same-store sales growth | 48.3% | Down 0.9% |
| Gross profit / margin | $476.5 million / 32.8% | $296.6 million / 33.5% |
| Operating income / margin | $122.7 million / 8.5% | $33.5 million / 3.8% |
| Net income | $91.4 million | $20.2 million |
| Diluted earnings per share | $2.06 | $0.46 |
| Adjusted EBITDA | $163.2 million; margin reported as 11.2% in the reconciliation | $59.0 million; 6.7% margin |
| Operating cash flow | $238.8 million | $77.9 million |
The MD&A percentage table reports fiscal 2020 Adjusted EBITDA margin as 11.3%, while the reconciliation reports 11.2%; the filing does not explain the difference. Adjusted EBITDA is a non-GAAP measure.
Fiscal 2020 fourth-quarter net sales were $438.2 million and net income was $29.6 million, versus $258.2 million and $9.7 million, respectively, in fiscal 2019’s fourth quarter.
Cash, debt and liquidity
- Cash at year-end was $65.5 million, compared with $1.7 million a year earlier. Operating, investing and financing cash flows were $238.8 million, negative $26.2 million and negative $148.7 million, respectively.
- The company reported no outstanding debt at January 30, 2021, after repaying its $40 million term loan and all revolver borrowings. Its $250 million revolving facility had $154.6 million available and $2.0 million of standby letters of credit; it matures May 23, 2023 and is subject to borrowing-base and covenant requirements.
- Operating lease liabilities totaled $264.3 million ($36.0 million current and $228.3 million noncurrent). These lease obligations are distinct from reported borrowings.
- Current assets were $324.7 million and current liabilities were $227.4 million. The company said cash, operating cash flow and revolver availability should fund operations for at least 12 months.
Material changes and management commentary
- Sales increased 63.8%; same-store sales rose 48.3%. Hunting and shooting sales grew 91.1% to $832.6 million and accounted for 57.6% of sales, up from 49.1% the prior year.
- Gross margin declined 0.7 percentage points, primarily because the sales mix shifted toward lower-margin firearms and ammunition and e-commerce shipping costs increased. SG&A rose in dollars by $90.5 million, but fell as a share of sales to 24.3% from 29.7%, reflecting sales growth and expense leverage.
- Operating cash flow benefited from higher net income, lower inventory and higher accounts payable. Capital expenditures were about $19.2 million; management expected $42–$52 million in fiscal 2021, mainly for store refurbishments and 8–12 planned new stores. No specific earnings or sales guidance was provided.
- The company opened or acquired ten stores in fiscal 2020 and reported 8.7% growth in gross square footage. Management’s longer-term target was annual square-footage growth of 6%–10%.
Merger, risks and unusual items
- Under the December 2020 merger agreement, Great Outdoors Group would acquire the company for $18.00 cash per share, subject to closing conditions. Shareholders approved the deal on March 23, 2021; the FTC’s February 5 second request extended antitrust review. Management expected closing in the second half of calendar 2021, subject to clearance and other conditions. A $55 million termination fee may be payable by Great Outdoors Group in specified circumstances.
- COVID-19 produced a large demand surge but also supply interruptions and constrained firearm and ammunition availability. All 112 stores were open without significant restrictions as of the filing. Management cautioned that renewed restrictions, weaker consumer spending or further supply issues could materially affect results and liquidity.
- Fiscal 2020 included $6.5 million of pandemic-related hazard pay, $3.5 million of merger costs, a $2.2 million bargain-purchase gain on acquired Field & Stream assets, a $2.1 million California labor-litigation accrual and a $1.0 million store-closure impairment.
- Seven stockholder lawsuits challenged merger proxy disclosures; three had been dismissed by April 1, 2021, and the company considered the suits without merit. A separate lawsuit arising from the 2017 Route 91 shooting remains pending; the company said it could not reasonably estimate potential losses. Management did not identify other probable, reasonably estimable material legal losses.
- Other key risks include firearm regulation and product liability, regional concentration in the Western U.S., seasonality and weather, competition, vendor and single-distribution-center dependence, labor costs, cybersecurity and merger failure or delay. The company reported that a prior IT-controls material weakness was remediated; management and the auditor concluded internal controls were effective as of year-end. The financial statement audit opinion was unqualified.
Important facts for investors to verify
- Whether and when the merger received FTC/HSR clearance, closed, or was terminated, and the effect of its $18-per-share terms and any termination provisions.
- Whether the extraordinary 2020 demand and same-store sales growth persisted, particularly in firearms and ammunition, and how inventory availability affected sales and gross margin.
- The company’s cash generation, borrowing-base availability, covenant compliance and planned fiscal 2021 capital spending and store openings.
- Updates on the merger-related stockholder cases and Route 91 litigation, including any changes in loss estimates or disclosure.
- The Adjusted EBITDA margin discrepancy (11.2% versus 11.3%) and the company’s reconciliation of that non-GAAP measure to GAAP results.