Business context and reporting period
Sportsman’s Warehouse Holdings, Inc. operates sporting-goods stores and reported one operating segment. This 10-Q covers the 13 weeks ended May 2, 2015 (fiscal Q1 2015), compared with the 13 weeks ended May 3, 2014. The filing’s reporting period differs from the request metadata’s “2014 Q1.” The company reported 57 stores in 18 states at quarter-end; it opened another store on May 9, bringing the post-quarter count to 58.
Key financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net sales | $144.5 | $132.4 | +9.1% |
| Gross profit / margin | $43.2 / 29.9% | $40.1 / 30.3% | Margin down 0.4 percentage points |
| SG&A | $41.9 | $40.3 | +3.9% |
| Operating income (loss) | $1.2 | ($0.2) | Improved |
| Net loss | ($1.4) | ($3.4) | Loss narrowed |
| Loss per diluted share | ($0.03) | ($0.10) | Improved |
| Adjusted EBITDA | $5.4 / 3.7% margin | $6.8 / 5.1% margin | Down 20.6%; margin down 1.4 points |
Same-store sales declined 0.7%; e-commerce sales were flat at $1.3 million. Operating cash flow was negative $2.9 million, versus negative $19.2 million a year earlier. Capital expenditures were $8.9 million; cash and cash equivalents were $2.0 million.
At May 2, total liabilities were $338.7 million and stockholders’ deficit was $32.8 million. Term-loan principal was $159.2 million. Gross revolving borrowings were $58.8 million, offset by $6.6 million in lock-box deposits for balance-sheet presentation, leaving $52.3 million reported. The company reported $61.9 million of revolver availability and compliance with credit-facility covenants.
Material changes and management commentary
- Sales growth primarily reflected stores opened within the prior 12 months; these contributed $15.0 million, partly offset by the 0.7% same-store sales decline.
- Camping and fishing same-store sales rose 6.1% and 12.3%, respectively. Clothing and hunting/shooting fell 5.0% and 3.9%. Management cited warmer weather as a factor and lower average firearm selling prices as a driver of the hunting decline.
- Gross margin declined mainly because of lower vendor incentives. SG&A increased by $1.6 million, but the prior-year period included a $2.2 million one-time IPO bonus; excluding that bonus, SG&A increased $3.8 million, primarily due to more stores and legal fees.
- Interest expense fell to $3.5 million from $5.3 million, primarily due to lower term debt after IPO proceeds were used to repay debt. Adjusted EBITDA nevertheless declined, and excludes certain items; the filing cautions it is a non-GAAP measure and not a substitute for GAAP results or cash flow.
Outlook, risks and unusual items
- Management expects fiscal 2015 capital expenditures of $30–$35 million, plans six additional store openings in 2015, and intends to grow the store base by more than 10% annually over the next several years. It expects cash, operating cash flows and revolver availability to fund operations for at least 12 months.
- Management emphasized seasonality: sales are typically higher in the third and fourth fiscal quarters. Weather, consumer preferences, competition, regional economic conditions, store openings and regulation of firearms and ammunition may affect results.
- Revolver and term-loan borrowings have floating-rate exposure. A 100-basis-point rate increase was estimated to add about $0.5 million of annual interest expense on the revolver balance, assuming it remained outstanding for a full year. The term loan rate was 7.25% while LIBOR remained below its 1.25% floor.
- A jury awarded $11.887 million against defendants, including the company, in the Lacey Marketplace litigation. The company had accrued $4.0 million, disputes the verdict, and filed post-trial motions with appeal contemplated if needed. The filing does not specify the company’s individual share of the award.
- The filing reported no material change in risk factors, no material development in other disclosed legal proceedings, and no material change to internal controls. Adoption of new revenue-recognition and other accounting standards was still under evaluation.
Investor verification points
- Confirm the applicable filing period: the document is for fiscal Q1 2015, not 2014 Q1.
- Track same-store sales, gross margin and Adjusted EBITDA trends, including the effects of vendor incentives, weather and firearm pricing.
- Monitor seasonal working-capital needs, revolver availability, debt covenants, floating interest rates and planned capital spending/store openings.
- Follow the litigation motions and appeal, and clarify the company’s potential exposure relative to the total jury award.
- Reconcile the quarter-end store count of 57 with the post-quarter count of 58 and subsequent opening plans.