Sportsman’s Warehouse Holdings, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2019 Q3, but the filing is for the 13 and 39 weeks ended October 31, 2020, compared with periods ended November 2, 2019. Fiscal 2020 ends January 30, 2021. Amounts below are USD unless stated otherwise.
Business context
Sportsman’s Warehouse operates outdoor sporting goods stores and an e-commerce platform as one reportable segment. At October 31, 2020, it had 112 stores in 27 states. Fiscal year-to-date, it opened six stores, acquired four locations, and closed one store.
Financial performance
| Metric | Q3 2020 | Q3 2019 | 39 weeks 2020 | 39 weeks 2019 |
|---|---|---|---|---|
| Net sales | $385.7 million | $242.5 million | $1,013.6 million | $628.2 million |
| Gross profit | $130.6 million | $84.2 million | $334.5 million | $211.6 million |
| Gross margin | 33.9% | 34.7% | 33.0% | 33.7% |
| Operating income | $38.3 million | $15.9 million | $83.4 million | $20.3 million |
| Net income | $30.5 million | $10.5 million | $61.8 million | $10.5 million |
| Diluted EPS | $0.68 | $0.24 | $1.40 | $0.24 |
| Adjusted EBITDA and margin | $49.9 million; 12.9% | $23.2 million; 9.6% | $111.7 million; 11.0% | $39.4 million; 6.3% |
Q3 sales increased 59.1%; year-to-date sales rose 61.3%. Same-store sales grew 41.0% in Q3 and 44.4% year-to-date. Hunting and shooting was the key driver: its year-to-date sales increased 91.0%, and its share of sales rose to 56.3% from 47.4%. SG&A increased in dollars, including payroll, store costs, credit card fees, and COVID-related hazard pay, but declined as a share of sales to 23.9% in Q3 and 24.8% year-to-date. Interest expense fell with lower debt balances.
Cash flow, balance sheet and debt
- Operating cash flow for the 39 weeks was $171.7 million, versus $57.8 million. The increase reflected higher earnings and increases in accounts payable and accrued expenses; inventory absorbed $38.9 million of cash.
- Investing cash outflow was $20.2 million, including $15.4 million of capital expenditures and acquisition spending. Financing cash outflow was $133.9 million, including net revolver repayments of $116.1 million and term-loan principal repayments of $22.0 million.
- Cash was $19.3 million at October 31, 2020, versus $1.7 million at fiscal year-end. Current assets were $356.4 million and current liabilities $283.4 million; working capital was approximately $73.0 million.
- No revolver borrowings were outstanding; $218.3 million was available, subject to borrowing-base restrictions, and $1.7 million of standby letters of credit was outstanding. The term loan had $8.0 million principal outstanding. Both facilities mature May 23, 2023; the company reported covenant compliance.
- Operating lease liabilities totaled $263.1 million. The filing also reported $374.4 million in undiscounted future lease cash flows.
Changes, outlook and material items
- Management attributed unusually strong demand to increased outdoor participation, e-commerce growth, competitor exits and market-share gains, COVID-related consumer behavior, and election-related demand. All stores were open at filing, with no significant operating restrictions, but renewed restrictions remained possible.
- Firearms and ammunition demand lifted sales but shifted mix toward lower-margin products; higher e-commerce sales also increased freight costs. Management expected these pressures to persist, partly offset by improved product margins. Vendor interruptions were reported, though management did not consider them a significant reduction in supply at that time.
- Management cautioned that the first three quarters’ sales spike could affect typical fourth-quarter seasonality and said it could not predict the pandemic’s future impact. It expected cash, operating cash flow, and revolver availability to fund operations for at least 12 months. Fiscal 2020 net capital expenditures were expected to be $17–$19 million. The company’s stated store-area growth target was 4%–6% annually, subject to available opportunities.
- Q3 and year-to-date results included a $2.2 million bargain-purchase gain from 2020 Field & Stream acquisitions. Adjusted EBITDA also added back $2.0 million of Q3 hazard pay and a $2.1 million legal accrual relating to pending California labor litigation. The company acquired four Field & Stream locations in 2020; approximately $1.8 million related to the October acquisition remained payable in January 2021.
- Management concluded disclosure controls were ineffective at October 31, 2020 because of a previously disclosed material weakness in internal control over financial reporting. Remediation was underway and expected before fiscal year-end, subject to successful testing.
- Two specific matters were disclosed: a wrongful-death/negligence suit relating to the Route 91 shooting and a dispute over termination of a store lease. The company said potential loss estimates could not be determined; management did not consider other legal losses probable and reasonably estimable at a material level.
Important facts for investors to verify
- Whether the exceptional pandemic-era sales and same-store growth persist, especially as hunting and shooting demand or consumer behavior changes.
- How firearms/ammunition and e-commerce mix affect gross margin, freight expense, and inventory availability.
- Whether cash generation remains strong after working-capital movements, particularly the substantial increases in accounts payable and accrued expenses.
- Current borrowing-base availability, compliance with credit-facility covenants, debt repayment progress, and lease obligations.
- Progress and testing results for remediation of the material weakness, and developments in the disclosed legal matters and California labor accrual.
- The filing’s reporting period: it is Q3 fiscal 2020, not Q3 2019 as stated in the request metadata.