Sportsman’s Warehouse Holdings Inc., in its first quarterly report since its merger with Bass Pro was scuttled, managed to generate modest growth in the third quarter ended October 30. The gains came despite grueling comparisons in the year-ago period due to the surge in interest in the hunt and outdoor activities in the early stages of the pandemic.
“I am very proud of our team and pleased with the performance of the business during the third quarter,” said Jon Barker, Sportsman’s Warehouse CEO, in a statement. “Despite a very difficult comparison and the terminated merger agreement with the Great Outdoors Group, Inc., our team has been able to achieve incredible results in the quarter and year-to-date periods.”
Sales grew 4.0 percent year over year to $401.0 million. The gains were primarily due to the opening of seven new stores since October 31, 2020. Compared to the third quarter of fiscal year 2019, net sales surged 65.3 percent from $242.5 million.
The company has opened 10 stores in fiscal 2021, including in two new U.S. states. This brings its total store count to 122 in 29 states.
On a same-store basis, sales in the quarter dipped 1.5 percent. According to Sportsman’s Warehouse’s 10-Q filing, the decline was due to a decrease in sales in its hunting and shooting department due to ”a leveling out in demand compared to the corresponding period of fiscal year 2020.”
The hunting and shooting category accounted for 55.4 percent of Sportsman’s Warehouse’s sales in the quarter against 57.4 percent a year ago.
Sportsman’s Warehouse’s footwear, apparel, optics, electronics, and accessories, camping, fishing, and hunting and shooting departments saw gains of $4.0 million, $3.0 million, $2.2 million, $1.7 million, $0.9 million and $0.2 million, respectively, in the latest third quarter against the year-ago period due to the opening of the seven stores since last year.
Firearm Sales Decline 10 Percent In Q3
Within the hunting and shooting department, the firearm category saw a decrease of $9.3 million, or 10.0 percent, while the ammunition category saw an increase of $1.8 million, or 2.9 percent, year-over-year. The decrease was seen in the firearm category “is primarily due to lower demand as we anniversaried the social unrest and pending presidential election of the prior-year period,” Sportsman’s Warehouse said in its 10-Q filing. The increase in the ammunition category was due to the new store openings that offset supply chain disruptions.
On a same-store basis, footwear, apparel, and the optics, electronics, and accessories departments had increases of 14.3 percent, 5.6 percent, and 3.5 percent, respectively, year over year. compared to the comparable 13-week period a year ago. Hunting and shooting, fishing, and camping departments saw decreases of 6.1 percent,1.8 percent, and 0.4 percent, respectively, as the chain anniversaried the demand-driven in the prior year by the pandemic, social unrest, and the pending presidential election.
E-commerce sales in the third quarter grew over 15 percent year over year and 260 percent compared to the same period in 2019.
Gross profit in the quarter was down slightly $129.6 million from $130.6 million and reduced as a percent of sales to 32.3 percent from 33.9 percent a year ago. The gross margin decline was due to an increase in freight costs partially offset by higher product margins and vendor programs.
Net income came to $21.9 million, or 49 cents a share, down 28.2 percent from $30.5 million, or 68 cents, in the third quarter last year. On a two-year basis, net income was up about two-fold from earnings of $10.5 million, or 24 cents, in the 2019 third quarter.
Adjusted net income was down 27.9 percent to $22.7 million, or 51 cents, from adjusted net income of $31.5 million, or 71 cents, in the third quarter of fiscal year 2020. On a two-year basis, adjusted earnings surged 110.2 percent from $10.8 million, or 25 cents, in the third quarter of 2019.
Adjusted EBITDA was down 21.2 percent to $39.3 million from $49.9 million in the comparable prior-year period, but up 69.4 percent from $23.2 million in the 2019 third quarter.
The same-store decline of 1.5 percent in the third quarter marked incremental improvement on the decline of 9.9 percent seen in the second quarter as Sportsman’s Warehouse has started to anniversary surges in sales during the pandemic. Same-store sales grew 28.6 percent during the first quarter of this year. In 2020, same-store sales climbed 28.6 percent during the first quarter, 61.0 percent in the second quarter, 40.9 percent in the third quarter, and 57.7 percent in the fourth quarter.
Overall in 2020, same-store sales jumped 48.3 percent. The gains were led by hunting and shooting department, with a same-store increase of 70.0 percent; followed by camping, up 34.0 percent; fishing, 30.8 percent; optics, electronics and accessories, 28.9 percent; footwear, 18.5 percent; and apparel, 13.0 percent.
Inventory Stocks Recover
Total inventory was $428.5 million as of the end of the third quarter. Inventory per store has recovered as compared to 2020 levels with an increase of 25.2 percent more on a per-store basis. The retailer said in its 10-Q, “We focused on rebuilding our inventory during the first three quarters of fiscal 2021 after experiencing strong demand since the second quarter of fiscal 2020 while also encountering supply chain disruptions at the same time and in order to mitigate global supply chain constraints in advance of the holiday season. ”
Sportsman’s Warehouse’s total liquidity was $151.8 million as of the end of the third quarter with $149.3 million of availability on the revolving credit facility and $2.5 million of cash on hand. As of December 8, the company had approximately $57.5 million of cash on hand due to the $55.0 million payment received in conjunction with the termination of the merger agreement with Great Outdoors Group, the corporate name of Bass Pro, Cabela’s and White River Marine Group.
At this time, Sportsman’s Warehouse said it continues to not provide guidance as it has since the announcement of its merger agreement with Great Outdoors Group in late December 2020.
Great Outdoors Group had reached an agreement to acquire Sportsman’s Warehouse for $18 per share in cash, valuing the chain at around $800 million. The price represented a 42 percent premium versus Sportsman’s Warehouse’s closing price of $12.65 on December 21, just before the deal was announced.
In a filing with the Securities & Exchange Commission that came out last Thursday, December 2, Sportsman’s Warehouse said the decision to terminate the merger “follows feedback from the Federal Trade Commission (FTC) that led the parties to believe that they would not have obtained FTC clearance to consummate the merger.”
Sportsman’s Warehouse’s shares had been trading slightly less than $18 a share since the merger agreement was announced. On December 3, the day after news of the merger termination arrived, shares fell 19.7 percent on the day, to $13.61 from $16.94.
Sportman’s Warehouse is in the process of re-establishing communications with Wall Street and is expected to return to hosting quarterly conference calls as typical of publicly-traded companies. Many analysts didn’t drop coverage but weren’t actively following the stock with the merger agreement in place.
On December 3, Craig-Hallum analyst Ryan Sigdahl upgraded shares of Sportsman’s Warehouse to “Buy” with a $20 price target due to the sell-off that followed news of the termination of the Bass Pro deal.
“We continue to think this capitulation is an opportunity for long-term shareholders to accumulate shares,” wrote Sigdahl in a note issued December 9. “Attractive valuation, strong and much-improved Balance Sheet, strong competitive position with Dick’s/Gander/Walmart exiting various hunting/shooting categories over the past few years and scaled advantages versus mom & pop retailers, participation in outdoor recreation remains well above pre-COVID levels, and new store growth opportunity (122 today, targeting 300+ long term). We think all of this will result in a base of $1.40-$1.50 EPS, with revenue growing at an [approximately] 10 percent CAGR and EPS growing in the mid-teens.”
Photo courtesy Sportsman’s Warehouse
