Sportsman’s Warehouse Holdings, Inc. — Form 10-K Summary
Reporting period: The filing covers fiscal 2015, the 52 weeks ended January 30, 2016, with comparisons to fiscal 2014 ended January 31, 2015. Although the request metadata says “2014 Q4,” this is an annual report for fiscal 2015, not a 2014 quarterly filing.
Business context and reporting period
Sportsman’s Warehouse operates outdoor sporting goods stores focused on hunting, shooting, fishing and camping. It reported 64 stores in 19 states at fiscal year-end; two further stores had opened by March 24, 2016, bringing the reported footprint to 66 stores in 20 states. The company reports one operating and reportable segment.
Financial performance
| Metric | Fiscal 2015 | Fiscal 2014 | Change / context |
|---|---|---|---|
| Net sales | $729.9 million | $660.0 million | Up 10.6% |
| Same-store sales | Up 1.1% | Down 8.4% | Improved; fiscal 2014 decline was largely associated with lower firearms and ammunition demand |
| Gross profit / margin | $238.5 million / 32.7% | $215.2 million / 32.6% | Gross profit up 10.8%; margin up 0.1 percentage point |
| SG&A | $179.2 million / 24.6% of sales | $170.3 million / 25.8% of sales | Expense rose 5.2%; share of sales declined |
| Operating income / margin | $59.3 million / 8.1% | $44.9 million / 6.8% | Improved |
| Net income / diluted EPS | $27.8 million / $0.66 | $13.8 million / $0.34 | Net income approximately doubled |
| Adjusted EBITDA / margin | $73.0 million / 10.0% | $66.3 million / 10.0% | Non-GAAP measure; definition and adjustments are company-specific |
Revenue growth was primarily driven by new stores and stores not yet included in the same-store calculation; new-store-related sales contributed $62.5 million of year-over-year growth. Same-store growth was led by camping (+6.5%), hunting and shooting (+2.2%), and fishing (+2.6%); warm weather weighed on clothing and footwear.
Cash flow, debt and liquidity
- Cash from operations was $35.7 million, versus $20.5 million in fiscal 2014. Cash used in investing was $15.0 million, including $34.0 million of capital expenditures and $19.0 million of sale-leaseback proceeds. Cash used in financing was $20.4 million, mainly reflecting debt repayments. Year-end cash was $2.1 million.
- At January 30, 2016, the company had $158.0 million of term-loan principal outstanding and $31.2 million of gross revolving borrowings; the balance sheet reports $25.3 million of revolver borrowings after lockbox offsets. Reported long-term debt, net of discount and including the current portion, was $156.7 million, excluding the revolver.
- The $135 million revolving facility had $89.5 million available for borrowing at year-end, subject to borrowing-base limits and covenants. The company reported compliance with its debt covenants.
- A mandatory term-loan prepayment of approximately $7.7 million was due by May 6, 2016. The term loan matures in December 2020; the revolver matures in December 2019. The term loan carries a 6.00% margin over LIBOR, subject to a 1.25% LIBOR floor; management stated the resulting rate was 7.25% while LIBOR remained below the floor.
- Current assets were $233.1 million and current liabilities $128.3 million, but inventory represented $217.8 million of current assets. Total liabilities exceeded assets, resulting in a $2.1 million stockholders’ deficit. Operating lease obligations totaled $295.7 million, excluding certain occupancy-related charges.
Material changes, outlook and risks
- Interest expense declined to $14.2 million from $22.5 million, primarily due to lower debt and financing changes. Cash interest paid was $12.8 million.
- Fiscal 2015 SG&A included $0.7 million of secondary-offering costs. The company reversed a prior $4.0 million litigation accrual after obtaining judgment in its favor; the plaintiff and a co-defendant appealed, and the appeal remained in process. The prior-year comparison included a $4.0 million accrual and a $2.2 million IPO-related executive bonus.
- Management planned nine additional store openings during the remainder of fiscal 2016 after two openings early in the year, and targeted store-base growth above 10% annually thereafter. Fiscal 2016 gross capital expenditures were forecast at $35–$40 million. These are plans, not guarantees.
- Management highlighted expansion, same-store sales initiatives and greater private-label sales as growth and margin opportunities. New-store targets include first-year sales of $8–$11 million and a four-wall Adjusted EBITDA margin above 10%; historical results cited by management are not a guarantee of future performance.
- Principal risks include discretionary consumer demand, regional concentration in the Western United States, weather and seasonality, competition, new-store execution, inventory management, reliance on a single distribution center, floating-rate debt, borrowing-base and covenant restrictions, and regulation or litigation involving firearms and ammunition. Firearms and shooting products are a substantial sales and traffic driver.
- E-commerce sales were $7.7 million, or 1.1% of total sales, up 2.7%. The company notes that online competition is stronger and that regulatory restrictions affect online sales of some products.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end. Its financial statements received an unqualified audit opinion; the auditor did not provide an internal-control attestation because the company qualified as an emerging growth company.
Important facts for investors to verify
- Whether same-store sales and margins improve beyond fiscal 2015’s modest 1.1% same-store growth and 10.0% Adjusted EBITDA margin.
- Actual store-opening pace, returns on new-store investment, and whether planned fiscal 2016 capital spending is funded by operating cash flow and available credit.
- Debt repayment, interest-rate exposure, borrowing-base availability and compliance with financial covenants, including the required $7.7 million prepayment.
- The final outcome and potential financial exposure from the appealed Lacey Marketplace litigation, despite reversal of the $4.0 million accrual.
- Inventory levels, cash conversion and lease obligations, and the reconciliation of reported store counts at fiscal year-end versus the later filing date.