<span style="color: #787878;">Sportsman’s Warehouse Holdings, Inc. reported that while earnings and sales in the second quarter were unable to reach record year-ago levels, results topped the high end of guidance, and management remains confident the hunt & fish chain is well-positioned to take advantage of greater interest in the outdoors post-pandemic.
“The ongoing participation in the outdoors is greater than it’s been in decades, and whether it’s hiking, camping or hunting, we continue to see strong demand for the merchandise consumers need to enjoy these outdoor activities,” said Jon Barker, CEO, on its quarterly call with analysts.
He noted, for example, that according to KOA’s 2022 Camping Report, 40 percent of all leisure travel in North America involved a camping trip. Barker added, “Leisure travelers have found a new form of recreating, which for many is now the preferred method of choice for their travel. Stats such as these increase our confidence in the future. And while 2020 and 2021 were aided by people forced to stay close to home, the new norm for many now includes participating in some form of outdoor activity.”
Results for the second quarter were well below year-ago levels, boosted by stimulus checks and pent-up demand, but the company noted it made progress compared to the pre-pandemic second quarter of 2019.
Revenues in the quarter declined 3.0 percent to $351 million but exceeded guidance in the range of $330 million to $350 million. Compared to the pre-pandemic second quarter in 2019, sales jumped 65.7 percent from $211.8 million.
The sales decrease was primarily due to lower demand across most product categories and attributable to consumer inflationary pressures and recessionary concerns. This decrease, however, was partially offset by the opening of 12 new stores since July 31, 2021. The chain has 126 locations.
Same-store sales decreased 9.4 percent year-over-year, exceeding company guidance in the range of negative 16 percent to negative 10 percent, primarily driven by lower sales demand across product categories due to inflationary pressures and tough year-over-year comps.
Comparing same-store sales results to the second quarter of 2019, comps were up 31.7 percent. Double-digit increases were seen in several major categories compared to Q219, with hunting up 60.9 percent, footwear up 25 percent, apparel up 20.7 percent, camping up 19.8 percent, and optics, electronics and accessories up 10.5 percent.
Jeff White, CFO, said on the call, “These trends provide us continued confidence that our overall customer base has had a step function increase and continues to be very healthy.”
Barker said, “Our hunting category performed above expectations during the second quarter, driven by sales of firearms in certain categories, which benefited from political rhetoric and elevated media exposure. Other categories of firearms, such as centerfire rifles, continue to perform well. Seasonal demand for these products remains strong as consumers continue to participate in outdoor activities such as hunting and shooting sports.”
Compared to the second quarter of 2019, hunting and shooting category sales surged 61 percent, reflecting increased participation and additional market share capture. Ammunition sales were “very strong” during the quarter as certain ammo types returned to in-stock levels after nearly two years of supply shortages. Barker said the improved stocks drove traffic to both stores and its website. Ammo sales were up 82 percent versus 2019. Barker said, “We continue to focus our efforts on serving our customers to capitalize on this ammo demand by leveraging our omnichannel capabilities.”
Among other categories, Barker said the company was “pleased” with the performance of apparel and footwear. He elaborated, “We continued improving our merchandising efforts in this category to expand our in-store and online assortment. As we expanded our vendor base, we could leverage our omnichannel capabilities, allowing us to acquire and retain customers through increased assortment with limited investments in inventory. Compared to 2019, apparel is up 21 percent and footwear is up 25 percent.”
Barker also said Sportsman’s Warehouse is making good progress expanding its private label program, with the chain’s first hunting boot coming to market in the next few weeks in time for the core hunting season. A new technical camouflage pattern with the Killik brand was also launched. Barker said, “By leveraging our private brands to fill in our good, better, best-merchandising strategy, we continue to serve all levels of consumers. These initiatives support our long-term strategy of building a high single-digit penetrated private brand business.”
<span style="color: #787878;">Earnings in the quarter reached $14.6 million, or 35 cents a share, against $17.7 million, or 40 cents, a year ago. On an adjusted basis, earnings were down 22.6 percent to $15.1 million, or 36 cents a share, from $19.5 million, or 44 cents, a year ago, but easily ahead of company guidance in the range of 22 cents to 30 cents.
An improvement helped the better-than-expected earnings in gross margins to 33.5 percent from 33.2 percent. The 30 basis point improvement was attributed to favorable shipping, freight, and logistical expenses as Sportsman’s Warehouse slowed inventory receipts in response to consumer demand.
SG&A expenses increased 1.2 percent to $97 million and increased as a percent of sales to 27.6 percent from 26.5 percent a year ago. The net increase was primarily due to resuming its pre-pandemic marketing-related activities during the quarter and new store openings. Increased store operating efficiencies partially offset the expenses.
Adjusted EBITDA fell 13.1 percent to $30.6 million from $35.2 million in the same period a year ago.
Second quarter 2022 ending inventory was $437.4 million compared to $436.4 million at the end of the first quarter of 2022. White said, “As we look at inventory, our level of reserves as an overall percentage of gross inventory remains consistent to where we have run historically. This provides us comfort in the overall health of our inventory, and we are confident we are in a solid position to serve our customers’ needs.”
Barker is confident that Sportsman’s Warehouse’s inventory positioning won’t require excessive markdowns to clear.
“Although we are not 100 percent insulated, a large portion of what we carry as hard goods that are not exposed to seasonal trends or at risk of going out of fashion,” said Barker. “The team has done a great job managing our supply chain to keep our in-stock positions healthy in key product categories while managing inventory levels to meet changing consumer demand trends. It’s important that we are well-positioned to support the seasonal needs of our customers while not overweighting us in areas where discounting may be needed to flush through excess inventory. As the majority of our inventory is purchased through vendors, this provides us the flexibility to quickly adjust to changes in demand.”
Barker said Sportsman’s Warehouse continues to leverage its store base to support e-commerce. Over 70 percent of online sales during Q2 were serviced through stores and drop-ship partners. Barker said, “This allows us to serve the customer faster while managing expenses through reduced freight and labor. The success of this initiative will allow us to gain one additional year from our existing distribution center, pushing the permanent need for a second distribution center into 2024.”
Among newer initiatives, Sportsman’s Warehouse will launch a new e-commerce site, knives.com, focusing on knives and cutlery. Barker said, “We are excited about this organic go-to-market strategy to attract an adjacent customer that expands beyond our current reach.”
Sportsman’s Warehouse also plans to open four stores during the third quarter to bring its store count to 130.
For the third quarter, sales are expected to be in the range of $345 million to $365 million on expectations that same-store sales will decline in the range of 17 percent to 12 percent year-over-year. Adjusted EPS was expected to be in the range of 24 cents to 32 cents a share, down from adjusted EPS in the range of 51 cents.
This guidance considers the current inflationary pressures on consumers, which are specifically impacting higher ticket items where the trade-up cycle has slowed.
White said consumers appear to be postponing higher-ticket purchases, but strength in consumables, including ammunition, propane and fuels, indicates that outdoor participation remains healthy. White said, “While we are seeing some hesitation or some timing on consumers’ upcycling to a higher-end product, we are still seeing that they are coming in to buy the products that they used to participate in.”
Photo courtesy Sportsmans Warehouse/Killik
