Sportsman’s Warehouse Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter, 13 weeks ended April 30, 2016; comparison is the 13 weeks ended May 2, 2015. The request metadata says “2015 Q1,” but the filing covers 2016 Q1. Unless otherwise noted, dollar amounts below are in millions.
Business context and results
The company operated 67 sporting-goods stores in 20 states and one reportable segment. It opened three stores during the quarter. Sales are seasonal, typically strongest in the third and fourth fiscal quarters.
| Metric | Q1 2016 | Q1 2015 | Change / context |
|---|---|---|---|
| Net sales | $151.6 | $139.2 | Up 9.0%; same-store sales declined 2.2% |
| Gross profit / margin | $48.5 / 32.0% | $43.2 / 31.0% | Margin improved 1.0 percentage point |
| SG&A | $46.1 | $41.9 | Up 10.1%; 30.4% of sales versus 30.1% |
| Operating income | $2.4 | $1.2 | Improved by $1.1 |
| Net income (loss) | $0.3 | $(1.4) | EPS $0.01 versus $(0.03) |
| Adjusted EBITDA | $7.4; 4.9% margin | $5.4; 3.9% margin | Non-GAAP measure |
| Operating cash flow | $(15.6) | $(2.9) | Higher seasonal inventory and working-capital needs |
| Capital expenditures | $8.7 | $8.9 | Cash used in investing activities |
Liquidity, debt and cash flow
- Cash was $2.4 at April 30, 2016. Current assets were $260.7 and current liabilities $176.2.
- Revolver borrowing was $70.7 before $7.3 of lock-box deposits offset on the balance sheet, leaving $63.3 reported. The company reported $49.6 available to borrow under the $135.0 facility, subject to its borrowing base.
- Term-loan principal outstanding was $137.9. The company made $20.1 of term-loan principal payments during the quarter, including $7.7 mandatory and $12.0 voluntary prepayments, in addition to the required quarterly payment. Revolver borrowings increased by $38.1, in part to fund those prepayments.
- Reported long-term debt, net of discount and issuance costs, was $135.3, plus $63.3 reported on the revolver. The filing states total remaining payments on long-term debt obligations were $183.3, including approximately $8.8 due during the rest of fiscal 2016.
- Operating cash use was driven primarily by a $33.2 increase in inventory; financing cash inflow was $24.7. Management said available cash, operating cash flows and revolver availability should fund operations for at least the next 12 months.
Material changes, outlook and risks
- Sales growth came principally from newer stores; the three fiscal-2016 openings contributed $3.3, while stores opened in fiscal 2015 but not yet in the comparable-store base contributed $12.1. Same-store sales fell 2.2%, with management citing reduced customer traffic and warmer weather affecting clothing sales. E-commerce sales rose 11.5% to $1.4.
- Gross-margin improvement reflected less promotional pricing and increased vendor incentives. SG&A rose with payroll, rent, depreciation, pre-opening costs and other expenses.
- Management expected fiscal-2016 capital expenditures of $35–$40 and planned to grow store count by more than 10% annually over the next several years. No quarterly or annual earnings guidance was provided.
- The quarter’s $1.5 income-tax benefit included $0.6 of prior-year tax credits and $0.5 of tax benefits related to restricted-stock vesting under newly adopted accounting guidance. Management cautioned that tax expense may be volatile from period to period.
- A secondary offering of 6.9 million shares by an existing investor generated no proceeds for the company; the company recorded $0.1 of related expenses. A $0.2 term-loan prepayment penalty was also included in interest expense.
- Key risks include consumer spending and regional economic conditions, competition, weather, changing customer preferences, expansion execution, and regulation affecting firearms and ammunition. Debt carries floating interest rates; the filing estimates a 100-basis-point increase would add about $0.6 of annual interest expense on the revolver balance. The company reported compliance with credit covenants.
- The company reported no material legal developments in the quarter. Appeals remain pending in the Lacey Marketplace matter; management said a material loss was not probable and reasonably estimable. Disclosure controls were assessed as effective, with no material change in internal control reported.
Accounting and presentation notes
- Prior-period sales and cost of goods sold were revised to present commissions on certain licenses, duck stamps and firearm background checks net rather than gross. The revision reduced reported Q1 2015 sales by $5.3 but did not affect gross profit, net income or EPS; management concluded the statements were not materially misstated.
- The company early adopted accounting updates affecting debt issuance-cost presentation, deferred-tax classification and share-based payment tax benefits. These affected presentation and, for share-based tax benefits, the timing/classification of tax benefits.
Important facts for investors to verify
- Confirm the reporting-period mismatch in the request metadata: this filing is fiscal 2016 Q1, not 2015 Q1.
- Track same-store sales, traffic and product-category trends, especially clothing, and distinguish new-store growth from comparable-store performance.
- Monitor inventory, seasonal operating cash use, borrowing-base availability and compliance with revolver and term-loan covenants.
- Assess whether gross-margin gains from promotions and vendor incentives persist, and consider the effects of planned store openings and capital spending.
- Review the tax-benefit components and the pending Lacey Marketplace appeal; the filing provides no clear quantified estimate of potential loss from that appeal.