By Eric Smith
Jon Barker likes to remind the analysts and investors he regularly speaks with that the hunting camo he buys at his local Sportsman’s Warehouse in Heber City, UT, costs twice as much as the power suits he dons for Wall Street presentations.
That’s a familiar refrain in this industry. But Barker, the president and CEO of Sportsman’s Warehouse Holdings Inc. since March 2018, mentions it not to highlight his passion for the outdoors and fervor for quality gear—both of which are strong—but to underscore the fact that the Midvale, UT-based retailer is laser-focused on bringing only the best brands into the company’s 100-plus stores.
The publicly traded retailer has indeed been dialed in lately, and the most recent quarter was no exception. Sportsman’s Warehouse last week reported an earnings and revenue beat, lifting its annual guidance in the process. That marked the second-straight quarter of exceeding expectations after a challenging Q1 due to a tough comp.
And the future looks bright for Sportsman’s Warehouse, which operates stores in 25 states with a heavy concentration in the outdoor havens of the Western U.S.
Because as other retailers exit the firearms category, the retailer is, well, sticking to its guns of selling a wider array of firearms and ammunition to more consumers in hopes of better serving its target audience of sportsmen and sportswomen.
Under Barker’s tenure, Sportsman’s also has been aggressive in taking share through real estate acquisition (the company recently added eight Field & Stream stores) and customer acquisition (it has launched a host of initiatives to attract and retain consumers) amid a comprehensive omnichannel strategy.
With so much happening at the company, and with competitors backing out of key categories, SGB wanted to sit down with Barker and go behind the scenes of the 33-year-old retailer.
Here’s what he shared with us in a pair of wide-ranging conversations about M&A, doubling down on firearms, what’s driving growth, how the retailer is working with its supply chain partners to mitigate tariffs and more.
Let’s start with the recent purchase of eight Field & Stream stores; take us through the origins of the deal. First, a little bit of background. I’ve been assembling a team for the past year and a half to grow on the fantastic foundation here, and that team complemented an existing team that’s the best in the business. During this period, we invested in the omnichannel capabilities, and at the same time, we slowed down store growth to focus on that omnichannel growth, which also gave us the opportunity to lessen capital expenses and get our balance sheet in place. Those two key strategies for the business came together this summer and showed the progress we expected. That’s the baseline for being able to do any consideration for material M&A—having the balance sheet in a conservative position and having omnichannel capabilities in place. As we accomplished our objectives on those two key things, we started to think differently about opportunities. Because we have relationships with many retailers and many suppliers, opportunities such as the Field & Stream purchase arise. When it did, we had the balance sheet to support the financial component and we had the team in place to execute it.
What was it about that specific opportunity that made it so attractive? A key element in our interest in the Field & Stream stores was the existing team. In our industry, like many retail industries, the expertise inside of the store is the differentiating factor for the consumer. And as I think about our business and the Field & Stream stores we acquired, the team they had in place was just excellent. It was a key factor in our interest when we started to have these conversations. They know the hunting, shooting, fishing and camping business very well. And they had a leadership team in those stores and an associate base that we felt could be accretive to our business and fit well in the Sportsman’s family.
How important is it for an acquisition target to fit into Sportsman’s core values? Our goal, as we think about organic or acquisition to grow the business, will be to stay consistent in our value proposition to the customer in the outdoor sporting goods. There are no plans for us to significantly vary outside of our core categories. We’ve always been very proud to carry the brands that our customers want, complemented by a very curated assortment of private label and exclusive products where the brands maybe don’t fit the needs of the customer. If you go into a Sportsman’s Warehouse, you will find the brand you’re looking for on the “good, better best” spectrum in the hunt, shoot, fish, camp business, and footwear and apparel. That is not the same in most of our competitors. Most of our key competitors carry a large assortment of their private label brands, which limits the consumer in finding the quality and the value they may be looking for. That’s different than our assortment strategy.
Can we expect similar market-shifting moves for the company moving forward? We will continue to evaluate opportunities to grow our business from an omnichannel perspective, and what that means is it could be a combination of organic growth, meaning real estate growth, it could be acquisitions or it could be on the e-com side, where we might see an opportunity that could be accretive to that side of the business. There are certainly opportunities that we will evaluate with traditional M&A, but we are very rigorous in how we think about deploying our capital. We have focused our energy and resources the last couple of years on getting our balance sheet in great shape, which puts us in a position to look at acquisitions, whether it’s an opportunistic real estate acquisition or an adjacent category acquisition as we go forward. So we are always looking for the right opportunities that would be accretive to Sportsman’s Warehouse.
You said after the Field & Stream deal that “we remain one of a few national retailers dedicated to outdoor sports, including hunting and shooting.” Why is that stance so important to the Sportsman’s ethos? We are very proud to be in the outdoor sporting goods business, and a key driver of our customer relationships over the last 33 years has been around the hunting and shooting categories. We’ve always had an immense selection of firearms of all types—for the entry-level individual, the hardcore hunter and the hardcore competitive shooter. What has now opened this up to even greater opportunity is the omnichannel capability. We now have the largest assortment of any retailer in America of firearms. We are only able to do that because we can leverage our relationships with vendors through integrating with drop-ship networks, both directly to distributors and manufacturers, and we can leverage the inventory of all 103 of our stores. Those things have allowed us to gain market share, even before some of the competitive changes with other retailers. We’ve invested in the right places, we’ve stayed true to who we are and we have no intent, plan or expectations to change our position in the hunting and shooting categories. Matter of fact, we will grow that assortment both online and in the stores in the near future.
As competitors exit firearms, how would you define the growth opportunity for Sportsman’s? There are three major retailers in the hunting, shooting, fishing and camping business that have started to materially change, with Walmart being the largest factor. Walmart has decided to exit ammunition for handguns. That has been estimated by the industry to be as much as $300 million worth of ammunition. In many cases of those retailers’ stores, we have a store within a short driving distance. So it provides us an opportunity to introduce Sportsman’s Warehouse to some new customers that may be shopping at those retailers as their core business. And it provides us an opportunity to gain a larger wallet share from our customers who might be shopping there for specific price points or products that they’re not buying from Sportsman’s Warehouse.
Sportsman’s has made other strategic investments in growing firearms (Gunsmith Center, used sales, women’s shooting classes, etc.), but can you talk about the new Legacy Shooting Center next to the Sportsman’s headquarters in Salt Lake City? We see an opportunity for an underserved customer in indoor shooting. As outdoor shooting options continue to reduce with public land options externally being reduced, there’s a need for a safe, inviting environment for indoor shooting, archery and firearms ranges for all types of shooters. The Legacy Shooting Center will be a facility that allows us to bring together the absolute best assortment of shooting sports equipment, with training for customers, training of all types—concealed carry, hunter’s ed, self-defense, etc.—in a well-lit, safe environment, which is not what you always find when you go into a range. This is a concept shop for us. We’re excited about the opportunity. We will test it in the first quarter, and from there, we will adjust our learnings and decide whether or not there’s an opportunity to expand this brand in a greater way in the future.
And what opportunities do you see with the used gun sales initiative? We have used firearms in 13 stores, and we will continue to roll that out to other stores in the coming months. There’s an underserved demand in used firearms on both the buy-side and the sell-side. That means many customers don’t have a good solution to sell their firearms in a facility that’s credible and trustworthy and receive a fair price. And then there are a lot of consumers that are always in our stores looking for used firearms, whether that’s a particular price point that’s important to them because of the cost, or particular model that may no longer be in production that they’re looking to purchase.
Let’s shift to the general outdoor and sporting goods retail trends; what’s driving growth for the company right now? About 15 percent of our revenue comes from firearms, so while that is a key component in driving traffic and customer relationships, it’s certainly not driving the majority of the revenue in the business. We’ve seen good trends this year in fishing. We’ve increased our localized assortment approach in fishing and that’s paid off nicely for the business. Our opportunity on the apparel side is in more technical clothing for hunting and fishing, and this year, we rolled out a new camouflage pattern in our Killik private label brand, which has done fantastic against our expectations. And from those learnings, we will continue to evolve our technical clothing and our private label brand—while we maintain our “good, better, best” strategy.
We speak with brands often about the impact of tariffs on their business. How are they affecting retailers like Sportsman’s Warehouse? I believe the heightened level of trade talks that we’ve seen in 2019 will influence supply chains and sourcing for the long run. I do believe it’s costing many vendors, including us with our private label, to think about how we mix the sourcing channels, and how many countries and from what countries we source. As for pricing, we have been working with our vendors since day one to mitigate the cost increases from tariffs. In some cases, we’ve been able to mitigate those 100 percent. In other cases, we’ve had to balance that with the vendors who worked with us to find a middle place. And in other cases, we’ve appropriately changed our retail pricing to maintain our margins. There’s definitely not a one-size-fits-all approach to tariff mitigation.
Editor’s note: The interview was edited for length and clarity.
Photo courtesy Sportsman’s Warehouse