Business Context and Reporting Period
Sportsman’s Warehouse Holdings, Inc. operates outdoor sporting-goods stores and an e-commerce channel, with merchandise focused on hunting and shooting, camping, fishing, clothing, footwear, and related products. This Form 10-K covers fiscal 2014, the 52 weeks ended January 31, 2015, and compares results primarily with fiscal 2013, ended February 1, 2014. Although the request metadata says “2013 Q4,” the filing is an annual report for fiscal 2014, not a quarterly filing.
The company reported 55 stores at fiscal year-end; it described 56 stores across 18 states in portions of the filing reflecting later dates. It opened eight stores during fiscal 2014. Hunting and shooting remained its largest department, accounting for 47.9% of sales.
Financial Performance and Liquidity
| Metric | Fiscal 2014 | Fiscal 2013 |
|---|---|---|
| Net sales | $660.0 million | $643.2 million |
| Gross profit / margin | $215.2 million / 32.6% | $207.2 million / 32.2% |
| Income from operations / margin | $44.9 million / 6.8% | $60.0 million / 9.3% |
| Net income / diluted EPS | $13.8 million / $0.34 | $21.8 million / $0.66 |
| Adjusted EBITDA / margin | $66.3 million / 10.0% | $70.7 million / 10.9% |
| Same-store sales growth | (8.4%) | (3.7%) |
Net sales rose 2.6%, principally from new stores and stores not yet included in same-store comparisons. Gross margin improved 0.4 percentage points, but SG&A rose to $170.3 million, or 25.8% of sales, from $147.1 million, or 22.9%. Higher store costs, IPO-related compensation, pre-opening costs, and a $4.0 million litigation accrual contributed to the increase. Interest expense declined to $22.5 million from $25.4 million; fiscal 2014 included $5.7 million of term-loan refinancing charges.
Cash provided by operations was $20.5 million, versus $0.03 million in fiscal 2013. Capital expenditures were $30.2 million, making operating cash flow less capital expenditures approximately negative $9.7 million. Cash at year-end was $1.8 million. Current assets were $203.7 million and current liabilities $117.2 million, including $185.9 million of inventory and $41.9 million outstanding on the revolver.
At January 31, 2015, the company had a $159.6 million term loan outstanding before unamortized discount and $41.9 million drawn under its revolving facility. The revolver had $73.2 million of net borrowing availability. The new term loan matures in December 2020, carries LIBOR plus 6.00% with a 1.25% LIBOR floor, and requires quarterly principal payments. The company reported compliance with debt covenants. Total liabilities of $302.1 million exceeded total assets of $270.7 million, leaving a stockholders’ deficit of $31.3 million.
Material Changes Versus the Prior Comparable Period
- Same-store sales fell 8.4%, worsening from a 3.7% decline. Management attributed the decline mainly to normalization in firearm and ammunition demand after elevated purchases in late fiscal 2012 and fiscal 2013; hunting and shooting same-store sales fell 16.1%.
- New-store sales helped lift total revenue despite the comparable-store decline. Sales in camping, clothing, fishing, footwear, and optics/accessories increased in aggregate, while hunting and shooting sales declined.
- Gross margin improved, but higher SG&A and weaker comparable-store sales contributed to lower operating income, net income, and Adjusted EBITDA.
- Debt declined after the IPO generated approximately $73.3 million of net proceeds used for term-loan repayment, and the company refinanced its term loan in December 2014. The revolver’s maximum commitment increased from $105 million to $135 million.
- Fiscal 2014 operating cash flow improved substantially from fiscal 2013, when it was nearly break-even; inventory growth remained a significant use of cash.
Outlook, Risks, Contingencies, and Unusual Items
- Management planned eight additional store openings during the remainder of fiscal 2015 after opening one store to date, and targeted store-base growth above 10% annually in subsequent years. It forecast $30–$35 million of capital expenditures over the next 12 months and stated that cash, operating cash flow, and revolver availability should fund operations for at least that period. No specific revenue or earnings guidance was provided.
- A jury awarded $11.9 million against defendants, including the company, in a dispute associated with leases of former Wholesale Sports locations. The company recorded a $4.0 million accrual in fiscal 2014, disputed the verdict, and planned post-trial motions and, if needed, an appeal. The ultimate liability was unresolved in the filing.
- Key risks include dependence on consumer discretionary spending, concentration of stores in the western United States, seasonality and weather, competitive pressure, firearm and ammunition regulation, execution of store expansion, and reliance on a single distribution center. Floating-rate borrowings expose the company to interest-rate risk.
- The company’s $66.3 million Adjusted EBITDA is a non-GAAP measure and includes adjustments for items such as stock compensation, pre-opening expense, IPO bonuses, and the litigation accrual; it is not a substitute for GAAP earnings or cash flow.
- The company reported no cash dividends in fiscal 2014 and did not expect to pay dividends in the foreseeable future. Affiliates of Seidler beneficially owned approximately 52.7% of common stock, giving them significant voting influence.
Most Important Facts for Investors to Verify
- Resolution of the $11.9 million jury award, the adequacy of the $4.0 million accrual, and any resulting cash payment or appeal outcome.
- Whether same-store sales and firearm/ammunition demand stabilize, and whether new-store growth can offset comparable-store weakness.
- Actual revolver availability under the borrowing-base formula, covenant headroom, debt repayment requirements, and sensitivity to higher interest rates.
- Whether operating cash flow can fund planned capital spending and inventory needs while maintaining adequate liquidity.
- Performance of the planned store openings and the company’s ability to recover operating margins as SG&A and new-store costs rise.