Sportsman’s Warehouse Holdings, Inc., as expected, reported a sharp decline in sales and earnings in the fourth quarter as inflationary and recessionary pressures slowed sales of higher-ticket items. However, the hunt & fish retailer unexpectedly delivered dismal guidance for the first quarter as unseasonally snowy and rainy weather in the West stalled the start of the shooting, fishing and camping seasons.
The retailer also surprised by announcing that John Barker, CEO since March 2018, plans to retire as CEO and director, effective April 14, replaced by Joseph Schneider, the current Board chair. An executive search firm has been retained to search for Barker’s successor.
For the first quarter, sales are expected in the range of $265 million to $270 million with same-store sales expected to be down 19 percent to 17 percent year-over-year. Adjusted EPS is projected in the range of a loss of 40 cents to 35 cents a share.
Results were well below Wall Street’s consensus targets for the quarter calling for earnings of 3 cents a share on sales of $317 million.
“We believe that weather has been a significant headwind for us, especially in the western half of the United States,” said Jeff White, CFO, who led the quarterly conference call with analysts. “A combination of unusually high amounts of rain and snow is influencing the timing of the spring fishing and camping seasons, likely pushing these to later than normal. However, the much-needed water we received in the west should open up more streams, rivers, reservoirs and campgrounds for better fishing and fewer wildfires, allowing people to enjoy the outdoors more than we’ve seen in the prior years.”
In quantifying the impact, Sportsman’s Warehouse said it believes the impact due to weather on-top line sales is somewhere between $17 million and $20 million and 15 to 20 cents a share on of EPS in the first quarter. He said Sportsman’s Warehouse has been adjusting inventories accordingly.
“While participation in the outdoors remains strong, the macro environment and inflationary pressure continue to weigh on the consumer and how they are spending,” added White. “These trends, coupled with the headwinds from weather and tough year-over-year comps are factored into our first-quarter guidance. It is critical that we maintain rigor and discipline as we navigate this environment. However, we remain optimistic about the overall strategic position of the business and the health of the outdoor industry.”
Fourth-Quarter Sales Fall 9 Percent
Fourth-quarter results beat the midpoint of the retailer’s guidance range for both sales and EPS.
In the quarter ended January 28, sales declined 8.9 percent to $379.3 million. Sales were about even Wall Street’s consensus estimate of $380 million. The decline was primarily due to lower sales demand traced to inflationary pressures and recessionary concerns, partially offset by the opening of nine new stores over the last year.
Same-store sales decreased 12.5 percent in the quarter compared to the same quarter of fiscal year 2021. However, compared to the fourth quarter of the pre-pandemic fiscal year 2019, total sales jumped 46.9 percent and same-store sales increased 24.9 percent.
“We achieved significant increases in most categories compared to pre-COVID Q4 2019 with footwear up 42.8 percent, apparel up 42.1 percent, hunting up 26.8 percent, camping up 6.6 percent and optics, electronics and accessories up 9.9 percent,” said White. “Although the consumer continues to be pressured by inflation, the business has maintained sales that are elevated over pre-pandemic levels, reflecting the continued strong participation in outdoor activities that we support.”
Same-store sales decreased 12.5 percent year over year. Compared to the same period of the pre-pandemic 2019 fourth quarter, same-store sales increased 24.9 percent.
On an adjusted basis, earnings dropped 42.3 percent to $12.7 million, or 33 cents a share, from $22 million, or 49 cents, a year ago. Adjusted earnings of 33 cents exceeded Wall Street’s consensus estimate of 29 cents.
On an adjusted basis, EBITDA was down 24.9 percent to $28.9 million, compared to $38.5 million in the comparable prior year period.
Net earnings on a reported basis were $11.0 million, or 29 cents a share, down from $58.4 million, or $1.31, in the fourth quarter of 2021. The year-ago period was boosted by a one-time $55 million termination payment received in connection with the terminated merger with Bass Pro. The latest quarter includes a $2.1 million accrued settlement in relation to the closure of one of it stores in 2019.
Gross margins eroded 40 basis points to 32.4 percent. Product margins declined due to promotional activity, partially offset by lower overall transportation and freight costs. White said that during the fourth quarter of 2022, particularly during the holiday season, customers’ average basket composition focused more on promotion-driven merchandise than seen during the last few years. While overall transportation costs were down year-over-year, the average basket margin was lower than the prior year.
SG&A expenses were down 5.9 percent to $113.4 million as lower total payroll and bonus expenses were offset by higher rent and depreciation expenses from the addition of nine new stores opened during 2022 as well as costs related to store refurbishments and the stores refreshed over the last two years. As a percent of sales, SG&A expenses increased to 28.1 percent of sales from 27.2 percent due to sales deleverage.
Full-Year Same-Store Sales Dip 12 Percent
For the full year, sales fell 7.1 percent to $1.4 billion. Same-store sales decreased 12.2 percent on a year-over-year basis but grew 27.6 percent compared to fiscal 2019.
Net earnings came to $40.5 million, $1.00, against earnings of $108.5 million, or $2.44, the prior year. Adjusted earnings declined 44.0 percent to $43.0 million, or $1.06 a share, from $76.8 million, or $1.72, a year ago. Adjusted EBITDA fell 25.6 percent to $101.6 million.
Sportsman’s Warehouse ended 2022 with a total of 131 stores in 30 states and improved its omnichannel capabilities with e-commerce-driven sales now in excess of 15 percent of total sales.
White noted that when compared to the pre-COVID year of 2019, Sportsman’s Warehouse has increased sales by nearly 60 percent, added over 30 new stores, strengthened its balance sheet with minimal debt and more than doubled the amount of revenue that comes from its website.
“As we navigate through 2022, the business experienced a return to pre-pandemic seasonal trends, inventory availability across key categories improved and marketing and promotional activities returned to a normal cadence,” said White. “While sales levels are still significantly elevated over pre-pandemic 2019, the persistent inflationary pressures felt by our consumers weighed on ourselves. As we mentioned on our last few calls, many consumers put discretionary purchases on hold, especially on high-ticket durable goods flowing down their normal trade-up cycle.”
Priorities For 2023
- Grow store footprint using its flexible store approach;
- Grow omnichannel platform in sales generated from sportsmans.com;
- Engage customers by leveraging its databases and improving its digital marketing efforts; and
- Improve local assortment and grow private label brands to fill in good-better-best merchandising strategy.
On store expansion, Sportsman’s Warehouse plans to open 15 stores in 2023, up from nine openings in 2022. At its Investor Day in October 2022, Sportsman’s Warehouse announced plans to double the pace of new store openings over the next three years to grow sales on average by 10 percent annually through 2025.
Sportsman’s Warehouse also plans to refresh two stores during 2023. Over the last two years, it has spent $29 million refreshing 29 of its locations. Said White, “Keeping our fleet of stores relevant and esthetically pleasing was the key driver of our decision to remodel these older stores.”
Online will continue to be looked to as a way to drive additional sales by reaching new customers outside its geographic area. The retailer will also continue to leverage its store inventory to support online growth and will expand assortments on the site. White said, “We are pleased with the growth of our e-commerce-driven sales and continue to see that part of the business outperforming the trends of other parts of the business and increasing year-over-year.”
Regarding improved customer engagement, White said Sportman’s Warehouse has experienced “significant increases” in its customer data files over the last few years with more e-mails, loyalty members and credit card customers than ever before. Sales from loyalty customers continue to penetrate at approximately 50 percent of its sales with the number of loyalty members now in excess of 3.8 million. White said, “Our strategic efforts in 2023 will be centered on continuously improving our capabilities with digital and print marketing to become even more efficient and effective with customer engagement. As we look to the future, we have immense opportunities to grow and leverage our databases, increased retention and maximize the lifetime value of our customers.”
From a merchandising standpoint, Sportsman’s Warehouse will continue to complement its national brand offerings by continuing to invest in private brand selections that fill gaps in its “good-better-best” merchandising strategy. Other merchandising priorities include investing in visual merchandising to enhance the look and feel of stores and working with more of its key vendor partners to further build-out out in-store shops. Said White, “These in-store shops provide a visually appealing way to highlight certain geographically relevant brands and provide the customer with an improved in-store experience.”
Inventory Increases 3.2 Percent
Inventory was $399.1 million compared with $386.6 million at the end of the prior year, up 3.2 percent. Compared to the end of third quarter, inventory is down $86 million.
White said, “We are very confident in the overall health of our year-end inventory and believe our stores are well-positioned to handle our current sales trend. With the plan of 15 new stores opening in 2023, four of which fall in Q1, we expect our normal inventory increases and decreases to be impacted by these openings throughout the year. As a reminder, the initial load-in of inventory is about $2.5 million per store.”
Leadership Changes
Sportsman’s Warehouse said Barker was retiring to spend time on personal interests.
Barker joined Sportsman’s Warehouse as president and chief operating officer in March 2017 and has been CEO since March 2018. Prior to joining Sportsman’s Warehouse, he was VP global officer for Walmart, holding dual roles including president and CEO of Hayneedle.com, an online home furnishings retailer, as well as group leader for Home and Outdoor furnishings categories for U.S. e-commerce across Walmart.com, Jet.com and Hayneedle.com.
Barker will be available to advise the company for 30 days after his retirement to aid in the transition. In brief comments on the analyst call, Barker said, “While there’s no easy time for a transition like this, I feel that now is the right time for me to retire as I’ve never been more confident in the future of the company. Thank you for a wonderful six years. They have been the highlight of my career.”
Schneider said on the call, “I want to personally thank Jon for his six years of leadership and commitment to the company and for his willingness to be available for the next 30 days to help with this transition. On behalf of the Board and the company we wish you the best in your retirement.”
Schneider, 63, has served as a member of the Board of Directors since April 2014 and as the Chairman of the Board since April 2019. From 2000 until 2012, Schneider served as president and chief executive officer of LaCrosse Footwear Inc. until its acquisition by ABC-Mart in August 2012. He will continue in his role as chair of the Board.
Also as part of the leadership change, Martha Bejar, who joined the retailer’s board in January 2019, was appointed as a lead independent director, also effective April 14.
Photo courtesy Sportsman’s Warehouse