<span style="color: #a3a3a3;">Sportsman’s Warehouse Holdings reported sales jumped 59.1 percent in the third quarter outpacing Wall Street’s target as the hunt & fish chain was challenged to keep up with the demand for hunt, fish and camping products.
Jon Barker, CEO, on a conference call with analysts said, “Multiple factors in Q3, led by elevated participation in outdoor activities, market share gains in firearms, the election cycle, and social unrest, resulted in very favorable financial results.” He continued saying that both in-store and online demand was elevated across all categories.
The company’s quarterly growth marked a slowdown from the 80 percent year-over-year growth it saw in the second quarter, but Barker attributed the reduction to hurdles in catching up with out-of-stock products.
“During the quarter, we worked closely with our vendors and provided our customers with inventory levels that we believe were unmatched by our direct competitors; however, we are not satisfied,” said Baker. “It is our belief that inventory constraints, and not a decrease in demand, were the governor on our growth during the quarter. We ended Q3 with improved inventory positions compared to Q2 in all departments with the exception of shooting sports.”
Net sales reached $385.7 million against $242.5 million a year ago. Wall Street’s consensus estimate had been $326.2 million.
Firearms Comps Skyrocket 98 Percent
Same-store sales jumped 41 percent while same-store sales for firearms and ammunition surged 98 percent and 53 percent, respectively.
Total Sportsman’s Warehouse firearms unit sales vaulted 134 percent while adjusted NICS checks were up 57 percent during the same period. Baker said, “Once again, in the third quarter, we achieved significant market share gains in firearms confirming Sportsman’s Warehouse leadership in this category.”
Optics, electronics and the accessory category increased 26 percent during the quarter on a same-store sales basis. Apparel grew 19 percent and footwear sales grew 8 percent during the quarter. Sportsman’s Warehouse saw also saw strength in functional apparel and footwear with camouflage, outerwear and hunting boots outperforming expectations.
Discussing participation, Baker said that while final statistics are not yet available, hunting participation across many states is up double or even triple-digits this season. In addition to hunting, participation in fishing, camping and hiking continued at an elevated rate in Q3 as confirmed by national park attendance and hunting and fishing license sales.
Also helping to power its top-line growth was online growth over 200 percent year-over-year. The gains were supported by the accelerated adoption of its e-commerce platform, including BOPUS and ship-to-home. Said Baker, “This growth rate was notable given our strategic decision to prioritize inventory in stores and materially reduce digital marketing efforts which limited online growth during the quarter.”
Through the first nine months, e-commerce-driven sales accounted for more than 10 percent of total sales. Added the CEO, “We believe there is a meaningful opportunity for sustained e-commerce channel growth and, therefore, we plan to continue to invest in our team, platform and capabilities.”
The company’s sales performance was also supported by growth in its loyalty program to nearly 2.6 million customers and an increase in its overall e-mail database by 84 percent year-over-year. Said Baker, “We believe we are capitalizing on our best-in-class credit card and loyalty programs and our expanded database to better engage with customers which helps us drive traffic in stores and online.”
Q3 Earnings Triple
Net income for the quarter tripled to $30.5 million, or 68 cents a share, from $10.5 million, or 24 cents a year ago. On an adjusted basis, earnings rose 192 percent to $31.5 million, or 71 cents a share from $10.8 million, or 25 cents, and far ahead of Wall Street’s consensus estimate of 53 cents.
Adjusted EBITDA was $53.6 million compared to $15.8 million in the comparable prior-year period.
Gross margin eroded 80 basis points to 33.9 percent. Product and channel mix led to a 260 basis point headwind in gross margin due to a higher proportion of revenue coming from firearms and ammunition and a higher level of sales transacted through its e-commerce platform. This impact was partially offset by higher product margins, volume incentives and other adjustments which, in aggregate, positively impacted gross margin by 180 basis points.
SG&A expense, as a percentage of revenue, improved 430 basis points, to 23.9 percent for the quarter, due to sales leverage. The improvement came despite additional payroll expenses of $14.3 million incurred year-over-year including the $2 million of pandemic-related “hero pay” for frontline and non-executive back-office employees.
The company also incurred expenses due to new store growth. In 2020, the retailer opened nine new stores including one recent opening in Corona, CA. The company currently has 111 stores operating under the Sportsman’s Warehouse banner. Its first Legacy Shooting Center, which opened earlier this year, is performing ahead of expectations and expansion opportunities for the concept are being accessed in 2021.
Four-Wall Inventory Down 20 Percent
Quarter ending inventory was $322 million, a decline of 4.7 percent. Inventory is down approximately 20 percent on a same-store, four-wall basis compared to the prior year.
Looking to the fourth quarter, Baker said net sales for the month of November were up approximately 70 percent compared to the prior year. While firearms and ammunition continue to be in high demand. Strong results are also being seen across all major product categories.
“This broad-based growth confirms our belief that increased participation in activities like camping and fishing is a sustainable trend,” said Baker. “In regards to this past weekend, unlike many retailers, we saw increased foot traffic in our stores during the Black Friday weekend. Additionally, online traffic saw significant increases versus the prior year with online demand up triple-digits. These results give us optimism that our categories are continuing to grow and that our product assortment, and the Sportsman’s Warehouse brand, is resonating with customers.”
Asked whether the retailer’s mix has changed since the presidential election, Baker said a change was seen at the quarter’s start. He said, “We’ve seen a mix change starting in Q3 with a heavier concentration of sales units and demand in hunting products while personal protection, which includes handguns and shotguns, remained strong as well as the MSR category. We did start to see more of a transition into hunting in Q3, which lined up very closely with the increase in hunting license sales and hunting participation across the country.”
Baker added in the Q&A session that the flow of product in shooting sports, both firearms and ammunition, “is still solid,” but demand is outpacing new product arrivals. He pointed to Sportsman’s Warehouse’s 134 percent unit firearms growth and the 57 percent NICS expansion at the same time.
Said Baker, “It’s clearly an indicator of just looking at the math high level, demand is still outstripping production. We are gaining market share through our position in the industry, the relationships we have and our ability to forecast in pure goods. And I see a shortage of firearms and ammunition continuing for at least a few more months…I don’t have a crystal ball, but it looks to me like we’ve got a couple more months before the supply chain could get back to a normal state.”
Baker concluded that while there is significant uncertainty surrounding the path of the pandemic and its impact on the economy, the retailer is “highly encouraged” by the surge of new participants.
“The sustained factors impacting our society in 2020 have motivated millions of people to engage, or reengage, with the outdoors,” said Baker. “We believe Sportsman’s Warehouse is well-positioned to meet this heightened demand, and we’re just beginning to engage with new customers across multiple product categories. We also believe we are strategically positioned to continue to capitalize on meaningful growth opportunities from heightened outdoor activity participation, e-commerce growth and new store expansion, which we believe will create long-term shareholder value.”
Photos courtesy Sportsman’s Warehouse (Garmin, Alps Mountaineering)
