Sportsman’s Warehouse’s shares fell Thursday on weak first-quarter guidance and the abrupt retirement of CEO John Barker. Analysts slashed price and earnings targets on the hunt & fish retailer while generally remaining cautious on the stock, given low visibility into a return to positive same-store growth.

Following the report on Thursday, Sportsman’s Warehouse shares fell $1.10, or 13 percent, to close at $7.21. The stock’s 52-week range is between $5.93 and $11.19.

Highlights include:

  • Sales in the quarter ended January 28 declined 8.9 percent to $379.3 million, in line with company guidance in the range of $370 millionto $385 million. Sales matched Wall Street’s consensus estimate of $379 million. The decline was attributed to weakening consumer spending due to inflationary pressures and recessionary concerns, partially offset by the opening of nine stores over the last year;
  • Same-store sales slid 12.5 percent year over year compared with guidance calling for a decline in the range of 13 percent to 9 percent. Apparel, footwear, and hunting/shooting outperformed the company average comp although they were still negative;
  • Compared to the fourth quarter of the pre-pandemic fiscal year 2019, total sales jumped 46.9 percent and same-store sales climbed 24.9 percent;
  • On an adjusted basis, EBITDA was down 24.9 percent to $28.9 million. Gross margins were down 40 basis points year over year due to heightened promotions, but cost controls drove EBITDA above Wall Street’s consensus estimate of $25 million;
  • On an adjusted basis, earnings dropped 42.3 percent to $12.7 million, or 33 cents a share, at the high-end of guidance in the range of 25 cents to 35 cents and above Wall Street’s consensus estimate of 29 cents;
  • For the first quarter, guidance calls for sales in the range of $265 million to $270 million, same-store sales to decline in the range of 19 percent to 17 percent, and adjusted EPS in the range of a loss of 40 cents to 35 cents a share. Wall Street’s consensus estimates had called for earnings of 3 cents a share on sales of $317 million. The retailer said snowy and rainy weather out West had delayed the start of the shooting, fishing and camping seasons;
  • Inventories ended the quarter down 18 percent versus the third quarter of 2022 and officials are comfortable with their composition;
  • Sportsman’s Warehouse plans to open 15 stores in 2023 and reiterated a plan announced last October to have 190 to 210 stores by the end of 2025, up from 131 currently;
  • The retailer announced that Jon Barker, CEO since March 2018, retires as CEO and director, effective April 14, replaced on an interim basis by Board Chair Joseph Schneider. An executive search firm has been retained to search for a successor.

Among the firms covering the stock, Craig-Hallum downgraded the stock to “Hold” from “Buy” and reduced its price target to $10 from $13. Baird maintained its “Neutral” rating and lowered its price target to $8 from $10. B. Riley reiterated its “Buy” rating and reduced its price target from $16 to $12. Lake Street reiterated its “Buy” rating while trimming its price target to $11 from $15.

In downgrading the stock, Craig-Hallum analyst Ryan Sigdahl wrote in a note that the firm was “moving to the sidelines” until better visibility arrives into a return of positive same-store sales comps and margin expansion.

Sigdahl wrote, “We were big fans of CEO Barker and the business improvements over his 5-year tenure, and we were surprised that he will be retiring effective this Friday with Chairman Schneider taking over as interim CEO. Moreover, the cold/wet weather this spring/winter combined with macro and inflationary pressures are having a material impact on the business, and we cut our EPS estimate in half for this year as a result. Until SSS [same-store sales] comps turn positive (possibly 2H) and there is a new CEO, we think shares will remain pressured. That said, we do continue to think SPWH is making the right operational and strategic moves with favorable competitive dynamics and that the stock is undervalued, so we will be looking to get more constructure on shares.”

B. Riley’s Eric Wold in a note said that while management provided weaker-than-expected first-quarter guidance from weather-related disruptions to the start of many outdoor activity seasons, he expects this will be a short-term issue and believes the guidance shortfall “should not have impacted shares as much as it did.”

Wold expects a pick-up in sales related to spring outdoor activities once the weather cooperates. Wold wrote, “With an expectation for stronger water flows and improved outdoor conditions into the spring/summer, we expect this only to be a delay into stronger participation vs. any lingering adverse participation impact.”

The analyst also noted that management indicated that purchasing patterns and loyalty data show consumers are delaying purchases rather than trading down or not buying altogether. Wold was also encouraged that the firearms category was called out for some “demand strength” as in-stocks have improved and ammunition purchases remain well above pre-pandemic levels with pricing normalized.

In reiterating his “Buy” rating, Wold wrote, “We remain positive on the opportunity for SPWH to (1) gain market share from accelerated store openings through 2025; (2) benefit from elevated shooting sports participation as others have exited the business; and (3) delayed trade-up purchase cycles as the consumer spending headwinds subside. And while the $65M in share repurchases this past year may seem ill-timed currently, we expect this to be the right move as sales and profitability trends rebound into 2H23.”

Baird’s Justin Kleber maintained his “Neutral” rating due to low visibility into same-store sales improvement amid macroeconomic uncertainty. The analyst wrote in a note, “While unusually wet/cold weather is impacting early seasonal demand, visibility into a stabilization in comps remains low amid macro pressures on big-ticket durable goods.”

Kleber added that while he sees “significant white space opportunity for SPWH’s differentiated/flexible store format,” accelerating store openings “in the face of a tough top-line environment will exacerbate SG&A deleverage in the near term.”

Finally, on the retirement of Barker, Kleber believes Sportsman’s Warehouse will have “big shoes to fill” as it seeks a successor. He wrote, “Jon has been instrumental in building a better Sportsman’s (particularly the company’s omnichannel capabilities), so his abrupt retirement creates incremental near-term risk to what is already a difficult operating backdrop.”

Photo courtesy Sportsman’s Warehouse