Sportsman's Warehouse Holdings Inc. joined Thursday a chorus of companies reporting better-than-expected earnings due to a turn in firearms sales.
The Midvale, UT-based retailer reported its sales grew 8.5 percent to $173.0 million in fiscal second quarter ended Aug. 1, thanks mainly to the addition of seven new stores, but also to the first increase in same-store sales since the company went public in April, 2014.
Sportsman’s Warehouse ended the quarter with 61 stores, including four opened during the quarter, and reported same-store sales inched up 0.5 percent from a year earlier. At stores in the comp based not affected by new competition, same-store sales grew 2.7 percent.
The increase followed five consecutive quarters of declines that kicked off in the first quarter of 2014, when the company reported same-store sales plummeted 18.1 percent in the wake of a boom in military sport rifles and ammunition sales broadly attributed to fears of tighter gun control in the wake of a lone gunman’s mass shooting at a Newton, CT elementary school that took the lives of 20 children and six adults.
Traffic on a same-store basis, or more specifically customer frequency, remained negative, but both conversion and average order size improved year-over-year.
“Two years ago you had a number of people coming in,” explained President and CEO John Schaefer. “Ten people would want the one box of ammunition that was available, so you had terrible conversion, but you had huge traffic.”
Firearms sales grew 12.2 percent compared with a year earlier while ammunition sales were down slightly. Clothing and footwear sales also comped down due in part to warmer weather, although private label sales were up 2.7 percent.
Growing camping business boost margins
Gross Margin increased by 40 basis points to 33.5 percent as growing sales of camping and other non-firearm hunting categories more than offset a higher ratio of lower-margin firearms and loyalty program sales.
“The increase in gross profit as a percentage of net sales was primarily driven by the strength of the camping department as more camping-only customers become aware of our substantial product offering and expertise in this area,” said CFO Kevan Talbot.
Schaefer said he was surprised by the amount and of clothing, footwear and accessories promotions being undertaken by mom-and-pop retailers.
“That was a little surprising because those categories normally – at least for us – don’t drive people into our store,” he said. “What drives people into our store are optics and firearms, fishing and camping.”
SG&A reached 23.8 percent of revenues, down 150 basis points, but would have increased 80 basis points from a year earlier to 26.1 percent of revenue if not for the reversal of $4 million in reserves the company had set aside in anticipating of paying a verdict in a civil case it now thinks will be overturned.
Income from operations, including a one-time accrual related to litigation, surged 36.6 percent, or by $4.5 million compared with the second quarter of fiscal 2014. Excluding the reversal, income from operations grew 4.1 percent to $12.8 million as compared to $12.3 million in the second quarter of fiscal 2014. Net income soared 62.7 percent to $8.2 million due in large part to the reversal of an accrual related to a litigation matter. Excluding non-recurring items, net income grew 11.8 percent to $5.7 million.
Fiscal year outlook unchanged, though clouded by smoke
SPWH issued guidance for the fiscal third quarter that calls for net sales of $198-to-$203 million based on same-store sales in the range of -1.0-to-2.0 percent. The company’s guidance for the full fiscal year same-store sales of -1-to-2 percent – remains unchanged.
The forecast anticipates continued sequential improvement in firearms sales as the mix of guns being sold approaches a more normal level.
“We expect to see – and we are seeing – both unit decreases and slight price increases,” said Schaefer.
Talbot said forest fires raging across much of the Pacific Northwest present the biggest risk to the forecast since they could affect the access to camping as well as the salmon fishery. ‘
In the meantime, executives remain encouraged by indicators that firearm and ammunition sales are returning to normal as well as a new 15,000-square-foot store format that allows SPWH to profitably serve smaller markets. The company has opened two such stores recently and has a few more in the pipeline that are designed to penetrate SMAs with 75,000 or fewer people. The retailer’s next smallest store format measures about 30,000 square feet.
“There are number of [markets] in the West where you have relatively difficult drives to get to a major population center, and those I think provide significant opportunities in the South and in the West,” said Schaefer.
SPWH also sees opportunities to grow its private label business beyond apparel and footwear by adding items for fishing, camping and firearms accessories such as gun cases.
