Firearms and ammunition revenue growth boosted Sportsman’s Warehouse in the first quarter, but it’s too soon to say how much the retailer is benefiting from competitors pulling out of gun sales and how well these categories will perform throughout the year.

Sportsman’s Warehouse reported Q1 net sales of $180.1 million, up 14.8 percent from the first quarter of Fiscal 2017, beating analysts’ expectations by $4.6 million. Same store sales increased by 3.4 percent from the comparable prior year period.

Firearm units, on a same-store sales basis, increased 14.9 percent, while firearm revenue increased 17.5 percent on a same-store sales basis for the first quarter. The growth marked “a significant improvement from the fourth quarter, largely driven by an increase in traffic as a result of recent policy changes by our competitors,” CEO Jon Barker said on Thursday morning’s earnings call with analysts.

Recent examples of competitors exiting or altering the firearms business include:

Ammunition increased 9.3 percent in Q1, an improvement from the 4.7 percent decline in Q4. And while these numbers might have been a pull-forward of sales, “We are very encouraged by our performance in the firearm and ammunition categories in the first quarter that are reflective of solid market share gains,” Barker said. “We continue to gain market share in the states we serve.”

Sportsman’s Warehouse helped the company’s market share growth potential by opening two new stores in the first quarter of Fiscal 2018, ending the quarter with 89 stores in 22 states, or square footage growth of 8.9 percent from the end of the first quarter of fiscal year 2017.

But company executives agreed that a “pull forward” of demand—market reaction to what might be coming in the way of gun regulations, especially in light of recent school shootings—was also at play for the strong quarterly performance in both firearms and ammunition.

“There is clearly a combination of pull forward that happened in Q1 and market share gains,” CFO Kevan Talbot said on the call. “We can see it in specific regions where we compete against some of the competitors who have made changes. We’re hearing it from our customers on a daily basis. The question that’s unclear for any of us at this point is how much of that market share long-term versus pull forward our optimistic that a portion of it is market share gains for the long-term but only time will tell how much.”

Nevertheless, the performance impressed analysts such as Michael M.Y. Kawamoto of D.A. Davidson & Co.

“SPWH’s profitable retail concept is well-positioned to continue to take share,” Kawamoto wrote in a note to investors. “We are encouraged by SPWH’s strong start to the year, and continue to believe that fundamentals should show further improvement as the year progresses. The company’s increased ecommerce focus, combined with prudent store expansion create a compelling growth model. As comps stabilize, we expect earnings growth and valuation expansion to drive share price appreciation.”

Another analyst, Seth Sigman of Credit Suisse Securities (USA) LLC, wrote this in his note to investors: “The positive take from the quarter was stable gross margins, strong expense control, lower headwinds from stores facing competition and share gains driving EPS near the high end of guidance. Guidance overall is relatively in line, and seems to offer room for upside with market share, better non-hunting trends and a more normal promotional environment.”

The quarter wasn’t entirely rosy for Sportsman’s Warehouse. Gross profit as a percentage of net sales decreased 10 basis points to 30.9 percent from 31 percent in the prior year period, primarily driven by a shift toward lower margin firearms and ammunition categories.

And the company actually widened the loss slightly in Q1. Net loss was $5.8 million compared to net loss of $4.5 million in the first quarter of fiscal year 2017. Adjusted net loss, which excludes charges incurred in conjunction with the retirement of the company’s former CEO, was $3.6 million compared to adjusted net loss, which excludes professional and other fees incurred in connection with evaluation of a strategic acquisition, of $3.4 million for the first quarter of fiscal year 2017.

However, reported loss also beat analysts’ estimates and came in at the high end of its own expectations. When Sportsman’s Warehouse announced Q4 results on March 28, the company is expecting sales in the first quarter to be in the range of $173 million to $180 million based on a same-store sales increase in the range of 2 percent to 6 percent. Adjusted net income was expected to be in the range of from a loss of $3.6 million to a loss of $4.6 million, with adjusted loss per share of 8 to 11 cents.

Look for more details about what’s driving firearms sales—market share gains vs. pull forward demand—in Sportsman’s Warehouse’s Q2 earnings.

“We don’t believe that the firearm and ammunition demand will continue in the second quarter that we saw in the first quarter,” Talbot said. “So, there’s a lot of factors involved there yet. We’re still revising—looking at our estimates and analyzing the differences between the pull forward and the market share gain.”

Overall, Sportsman’s Warehouse expects Q2 net sales in the range of $199 million to $206 million based on a same store sales increase in the range of (2) percent to 2 percent compared to the corresponding period of fiscal year 2017. Adjusted net income is expected to be in the range of $5.9 million to $7.1 million with adjusted diluted earnings per share of 14 cents to 17 cents.

For the fiscal year, net sales are expected to be in the range of $837 million to $860 million based on same store sales in the range of (1) percent to 2 percent compared to fiscal year 2017. Adjusted net income is expected to be in the range of $23.8 million to $27.6 million, with adjusted earnings per diluted share of 55 cents to 64 cents.

Photo courtesy Sportsman’s Warehouse