Business context and reporting period
Sportsman’s Warehouse Holdings, Inc. operates sporting goods stores and e-commerce as one reportable segment. This filing covers the 13 weeks ended April 29, 2017 (fiscal Q1 2017), compared with the 13 weeks ended April 30, 2016. The request metadata says “2016 Q1,” but the filing itself reports fiscal Q1 2017. Fiscal 2017 is a 53-week year ending February 3, 2018. The company says sales are seasonal, with a significant portion typically occurring in the third and fourth quarters.
The filing gives differing store counts: the notes report 79 stores at April 29, while MD&A reports 80 stores as of the filing date, following five fiscal-year-to-date openings.
Financial performance and liquidity
Amounts below are in millions except per-share data. Percentages are of net sales.
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Net sales | $156.9 | $151.6 | Up 3.5% |
| Gross profit / margin | $48.6 / 31.0% | $48.5 / 32.0% | Margin down 1.0 percentage point |
| SG&A | $52.4 / 33.4% | $46.1 / 30.4% | Up 13.6% |
| Operating income (loss) | $(3.8) | $2.4 | Declined |
| Interest expense | $3.2 | $3.6 | Down 12.2% |
| Net income (loss) | $(4.5) | $0.3 | EPS $(0.11) vs. $0.01 |
| Adjusted EBITDA (non-GAAP) | $4.2 / 2.7% | $7.4 / 4.9% | Margin down 2.2 percentage points |
Same-store sales declined 6.9%. Newer stores contributed to reported sales growth, partly offsetting the comparable-store decline. E-commerce sales rose 28.1% to $1.8 million. Gross margin pressure reflected increased promotions and a return to more normal margins in clothing and footwear. SG&A growth included $1.7 million of professional fees related to an unsuccessful Gander Mountain asset bid, higher advertising, and costs associated with additional stores.
Operating cash flow was $(8.9) million, versus $(15.6) million a year earlier; the improvement was primarily attributed to payment timing for accounts payable. Investing cash flow was $(13.2) million, including $13.2 million of capital expenditures. Financing cash flow was $22.4 million, principally reflecting $17.1 million of net revolver borrowings and a $6.4 million increase in book overdraft. Cash ended at $2.3 million.
At April 29, 2017, the balance sheet showed $304.8 million of current assets and $211.0 million of current liabilities. The revolver had $87.3 million of gross borrowings, presented net of $9.2 million in lock-box deposits as $78.1 million on the balance sheet; reported availability was $33.0 million. Term-loan principal was $136.3 million. Total gross borrowings were approximately $223.6 million. The company reported compliance with credit-facility covenants at quarter-end.
Outlook, risks, and unusual items
- Management expected fiscal 2017 capital expenditures of $35 million to $40 million, funded by operating cash flow and revolver availability. It said liquidity was expected to cover operating needs for at least the next 12 months.
- Although its long-term target was to grow square footage by more than 10% annually, management expected growth of 3% to 7% for fiscal 2018 as it shifted some cash use toward debt reduction.
- Management expected industry inventory oversupply to sustain promotional activity and pressure margins through the remainder of fiscal 2017. It also anticipated higher SG&A, including wage-increase effects at 56 stores.
- Sales risks include consumer spending and economic conditions, regional concentration in the Western U.S., competition, changing customer preferences, weather, and regulation of firearms and ammunition. Management cited reduced firearms and ammunition demand amid expectations of fewer new gun-control restrictions, and unusually heavy snowpack/runoff affecting fishing sales.
- After quarter-end, the term loan was amended to increase maximum leverage-ratio limits in remaining quarters. The amendment also raised the rate by 25 basis points to LIBOR plus 6.25%, subject to a 1.25% LIBOR floor.
- The company disclosed an appeal in the Lacey Marketplace litigation; management said loss was not probable based on the most recent judgment in its favor. It reported no other legal matter believed probable and reasonably estimable at a material level.
- Management stated disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter. It expects the new lease accounting standard to have a material financial-statement impact when adopted.
Important facts for investors to verify
- Confirm the reporting period: the filing is for fiscal Q1 2017, notwithstanding the request metadata’s “2016 Q1.”
- Reconcile the filing’s 79-store quarter-end count with its 80-store count as of the filing date.
- Monitor same-store sales, promotions, and gross-margin performance, particularly in hunting/shooting and fishing.
- Review revolver availability, seasonal working-capital needs, debt covenant headroom, and the higher post-amendment term-loan interest rate.
- Track execution of the stated capital-spending and store-growth plans, and developments in the Gander Mountain-related costs and Lacey Marketplace appeal.