Shares of Sportsman’s Warehouse fell 26 percent on Thursday to close at $3.33 for the day after the outdoor, hunt & fish chain’s second-quarter earnings came in well below guidance and another double-digit comp decline was forecast for the third quarter. On an analyst call, Joe Schneider, chair and interim CEO, said finding a new CEO is the “number one priority” while announcing another round of cost-cutting and accelerated inventory clearance efforts.

“Frankly, the second quarter was a disappointment from a net sales, gross margin and profitability perspective,” said Schneider on the call. “In the quarter, we saw deterioration in revenue as we did not see store traffic improve from the first quarter like we had anticipated. This resulted in year-over-year declines in each of our departments. While we did experience a late start to our spring selling season and later in the quarter and seasonable warm weather, we believe that the difficult macro environment, macroeconomic environment, is leaving fewer dollars available for discretionary spending.”

For the quarter ended July 29, the adjusted net loss was $1.6 million, or 4 cents a share, compared to adjusted net income of $15.1 million, or 36 cents, a year ago. Company guidance had called for positive earnings on an adjusted basis in the range of 2 cents to 15 cents.

The net loss on a reported basis after non-recurring items was $3.3 million, or 9 cents a share, compared to net income of $14.6 million, or 35 cents, a year ago.

Non-recurring items include expenses related to the departure of directors and officers, including the exit of its former CEO Jon Barker in April. The charges in the latest quarter also include severance as part of a cost-reduction plan as well as one-time legal settlement costs. The year-ago period also includes expenses related to executive transition costs.

Sales in the latest quarter fell 11.8 percent to $309.5 million, reaching the low-end of guidance in the range of $310 million to $340 million. The decrease was said to be primarily due to lower demand across all product categories and a decline in store traffic resulting from the continued impact of consumer inflationary pressures on discretionary spending, partially offset by the opening of 14 new stores since July 30, 2022.

Same-store sales fell 16.1 percent during the quarter. Guidance had called for same-store sales to decline in the range of 17 percent to 9 percent year-over-year.

The 16.1 percent comp drop follows declines of 9.4 percent during the second quarter of 2022 and 9.9 percent during the second quarter of 2021. Comps surged 61.0 percent during the second quarter of 2020.

By department, hunting same-store sales in the latest quarter were down 17.5 percent, including a 30 percent decline in ammunition to drive the majority of the department decrease in the quarter. Hunting and shooting is by far the retailer’s largest category, making up 55 percent of revenues in 2022.

CFO Jeff White blamed the decline in part on difficult year-over-year comparison to last year’s second quarter that saw a significant pull-forward of demand as the chain started to return to normal in-stocks on key ammo calibers. Firearm sales on a comparable basis were down 10.9 percent.

White added, “In reviewing our performance for the quarter versus the adjusted mix data, a key indicator of firearm sales, we continue to outperform this industry measure which is down 12.7 percent in the same period. We believe this demonstrates that although sales were down year-over-year we are gaining market share in this key category to our business.”

In the fishing department, sales were down 11.1 percent on a comparable store basis. White said, “Continuing the same trend as Q1, we experienced soft trends in fishing as we entered the second quarter. However, we saw months over month improvements in comparable store sales through the end of the quarter and into the beginning of the third quarter.”

In other departments, apparel, camping and footwear comps were down 20.7 percent, 19.4 percent and 13.8 percent, respectively, on a same-store basis “as pressures on consumer discretionary spend continues to weigh heavily on these categories,” said White.

Gross margins eroded 90 basis points in the quarter to 32.6 percent, reflecting increased promotional activities and reduced product margins on ammunition.

SG&A expenses increased 5.5 percent overall and grew as a percent of sales to 33.1 percent from 27.6 percent a year ago. This increase was primarily driven by increases in total rent, depreciation, and new store opening expenses that was partially offset by a decrease in total payroll expense store labor was adjusted to reduced product demand.

Adjusted EBITDA tumbled 57.2 percent to $13.1 million from $30.6 million a year ago.

In the half, sales declined 12.6 percent to $577.0 million. Same-store sales slumped 16.9 percent. The net loss in the half was $18.9 million, or 50 cents a share, against earnings of $16.6 million, or 38 cents, a year ago. The adjusted net loss was $16.4 million, or 44 cents, compared to adjusted net income of $17.3 million, or 40 cents, a year ago. Adjusted EBITDA collapsed 82.8 percent to $7.5 million compared to $43.6 million a year ago.

Schneider said a “bright spot” in the quarter was the retailer’s omni-channel business where e-commerce sales continue to outpace store sales.

Schneider, however, said that given the underperformance in the second quarter, the company took immediate action to reduce total inventories and have identified the areas of inventory that need to be accelerated for short-term promotions and markdowns. Apparel and footwear are expected to particularly see heavier promotions than those categories have seen historically in the back half.

On a per store basis, inventory was down nearly 6 percent at the quarter-end year-over-year and just over 5 percent compared to the 2023 first quarter.

Sportsman’s Warehouse also took steps to adjust the company’s expense structure to right-size to current sales trends and significantly reduce investments in future news stores, openings, and other capital spend.

“These aggressive actions we are taking to reduce inventory combined with increasing store traffic through short-term focus promotions and markdowns will further reduce gross margins during the back half of this year,” said Schneider. “In addition, we will continue to streamline our expense structure and focus our debt pay down to start fiscal 2024 in a strong position to return Sportsman’s Warehouse to profitable growth.”

Efforts to streamline its overall expense structure inthe second quarter are expected to yield up to $25 million in annualized cost savings.

Schneider said the search for a new CEO is ongoing. He said, “This search is progressing well and we are very pleased with the quality and experience we are seeing in candidates. The search committee continues to filter candidates and the board is expecting to fill the position soon.”

He also noted that Sportsman’s Warehouse has added additional talent over the last several months in both its merchandising group and its distribution center operations.

A key addition was the hiring in February of Brian Westfall as chief merchant. With nearly 30 years of specialty outdoor retail experience, Westfall was most recently chief merchandising officer at Christy Sports. His prior roles include SVP, merchandise planning & allocation at Academy Sports and chief of staff – merchandise, planning & inventory strategic planning at Cabela’s.

“Brian is driving our inventory and merchandising realignment efforts and I’m confident in his ability to execute at a very high level,” said Schneider.

Schneider concluded, “While I’m not happy with our Q2 performance, we are taking swift and aggressive action to get the business back on track to return to a profitability. I’m very confident in the team. The adjustments we have made in our ability to execute with a sense of urgency. We are confident that we will successfully navigate through challenging business environment.”

For the third quarter, sales are expected to be in the range of $310 million to $330 million, down 11.0 percent at the midpoint against $359.7 million a year ago. Guidance is well below analysts’ consensus estimate of $378.8 million.

Same-store sales are expected to be down 19 percent to 14 percent year-over-year on top of a decline of 15.0 percent a year ago.

Adjusted EPS is expected to range between a loss of 20 cents to a loss of 5 cents compared to earnings of 34 cents a year ago, 51 cents in the 2021 second quarterabd 71 cents in the 2020 third quater. Analysts had expected consensus earnings of 33 cents a share. Promotional activities during the quarter are expected to impact gross margins between 250 and 350 basis points versus prior year.

Despite the anticipated slowdown in store expansion in 2024 as Sportsman’s Warehouse focuses on its balance sheet due to current challenges, White said the retailer still sees significant expansion opportunities over the long term.

”We still see immense amounts of white space and expansion opportunities for Sportsman’s to continue to take market share,” said the CFO. “We continue to see retraction from our competition in our core categories. So, as we look at the 2024 real estate plan, I would frame it up that this is a short-term pause on what we’re doing in terms of making sure our balance sheet is healthy as we then start to focus more on long-term growth objectives.”

In September 2022 at an Investor Day, Sportsman’s Warehouse announced plans to double the pace of new store openings over the next three years, expecting to expand from 131 at the close of 2022 to between 190 and 210 stores by 2025. It has opened 13 stores so far in 2023 and expects to open 15 in total this year.

Photo courtesy Sportsman’s Warehouse