Business context and reporting period
Sportsman’s Warehouse Holdings, Inc. operates sporting-goods stores and an e-commerce platform, reported as one segment. This 10-Q covers the 13- and 26-week periods ended August 1, 2020, compared with periods ended August 3, 2019. The filing reports fiscal 2020 Q2; this differs from the request metadata’s “2019 Q2.” At quarter-end, the company operated 106 stores in 27 states.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Net sales | $381.0 | $211.8 | $627.8 | $385.8 |
| Gross profit / margin | $129.1 / 33.9% | $73.2 / 34.6% | $203.9 / 32.5% | $127.4 / 33.0% |
| Operating income | $45.5 | $9.8 | $45.0 | $4.4 |
| Net income | $32.5 | $5.5 | $31.3 | $0.04 |
| Diluted EPS | $0.73 | $0.13 | $0.71 | $0.00 |
| Adjusted EBITDA (non-GAAP) | $53.6 | $15.8 | $61.8 | $16.2 |
- Q2 sales rose 79.9%; first-half sales rose 62.7%. Same-store sales increased 61.0% in Q2 and 46.5% in the first half.
- Hunting and shooting drove growth: first-half department sales rose 92.5%, and that category represented 55.6% of first-half sales versus 46.6% a year earlier.
- Operating cash flow was $145.7 million for the first half, versus $35.4 million a year earlier. The increase reflected higher earnings and substantial increases in accounts payable and accrued expenses; inventory used $16.9 million of cash.
- Investing cash outflow was $12.0 million; financing cash outflow was $123.1 million, including $113.2 million of net revolver repayments and $14.0 million of term-loan principal payments. Ending cash was $12.3 million.
- At August 1, cash was $12.3 million and merchandise inventory was $296.8 million. The balance sheet reported $2.9 million of revolving credit, net of lockbox offsets, and $15.9 million of long-term debt, net of costs. Separately, gross revolver borrowings were $20.5 million, with $171.2 million available subject to borrowing-base restrictions; term-loan principal was $16.0 million. Operating lease liabilities totaled $247.7 million.
Material changes and management commentary
- Management attributed strong demand to increased outdoor participation, e-commerce, pandemic-related shifts in consumer behavior, competitor exits and market-share gains, and election-related demand; Q2 commentary also cited social unrest.
- Gross margin declined as firearms and ammunition—lower-margin categories—made up a larger share of sales, while increased e-commerce sales raised freight costs. Management expected these mix and channel pressures to continue, partly offset by improved product margins.
- SG&A increased 31.8% in Q2 and 29.1% in the first half, but fell as a percentage of sales because revenue grew faster. Costs included higher payroll, minimum-wage increases affecting 62 stores, and COVID-related hazard pay of $1.5 million in Q2 and $2.6 million in the first half.
- The company repaid $10.0 million of term-loan principal in Q2, including a required $2.0 million payment and $8.0 million voluntary prepayment. The term loan bears LIBOR plus 5.75%; the revolver’s weighted-average rate was 1.89%. Both facilities mature May 23, 2023. The company reported compliance with credit covenants.
Outlook, risks and contingencies
- Management expects fiscal 2020 net capital expenditures of $20–$25 million, funded by operating cash flow and revolver availability. It targets annual store-square-footage growth of 4%–6%, while allowing for deviations based on opportunities.
- Management said cash on hand, operating cash flow and available revolver capacity should fund operations for at least 12 months. It cautioned that unusually high first-half pandemic-driven sales could affect the typical stronger third- and fourth-quarter seasonal pattern; no specific earnings or sales guidance was provided.
- All 106 stores were open at filing, with no significant operating restrictions. Renewed closures or restrictions, changing consumer spending, pandemic developments, and vendor disruptions could adversely affect results; the company reported some supply-chain interruptions but no significant financial impact to date.
- Other risks include firearms and ammunition regulation, competition, western-U.S. store concentration, integration of acquired Field & Stream locations, interest-rate exposure and store expansion execution. A 100-basis-point rate increase was estimated to raise annual interest expense by approximately $0.2 million, based on the revolver balance at quarter-end.
- Disclosure controls were not effective at August 1 because of a previously disclosed material weakness in internal control over financial reporting. Management expected remediation before fiscal year-end, subject to successful operation and testing of controls.
- The company described a wrongful-death/negligence case related to the Route 91 shooting and a lease dispute, both with no reasonably estimable loss amount. Management said it was not aware of legal matters with a probable, reasonably estimable material loss.
Important facts for investors to verify
- Confirm the filing period: the document is fiscal 2020 Q2, ended August 1, 2020, not 2019 Q2.
- Assess whether exceptional pandemic-era sales and category mix can persist, and whether gross-margin pressure continues.
- Examine the quality and sustainability of operating cash flow, particularly the contribution from higher payables and accrued expenses.
- Reconcile revolver borrowings, lockbox offsets and borrowing-base availability, and monitor liquidity, debt repayments and covenant headroom.
- Track remediation and testing of the material weakness, alongside COVID-19, supply-chain and disclosed legal risks.
- Interpret Adjusted EBITDA as a non-GAAP measure; review its reconciliation and do not treat it as a substitute for GAAP earnings or cash flow.