By Eric Smith
Sportsman’s Warehouse Holdings Inc. gained additional market share in the second quarter thanks to continued success in firearms sales as the shifting landscape has prompted other retailers to exit that business.
“We are picking up market share as we continue to focus on doing what we do correct,” Sportsman’s Warehouse CFO Kevan Talbot said on Thursday’s earnings conference call with analysts. “And obviously, our competitors have made certain decisions that are impacting that. But our customers have realized that we continue to [sell firearms] very well. … And I think that’s a testament to one of our strengths.”
The company reported units of firearms grew 8.3 percent, while revenues of firearms, on a same-store sales basis, increased 3.6 percent. Those figures weren’t as eye-opening as the previous quarter’s, when 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 first quarter’s 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 back in May following Q1 earnings release.
But the continued growth of firearms sales in Q2, even at a slower pace, signals a win for Sportsman’s Warehouse, according to Michael Kawamoto of D.A. Davidson & Co. He wrote in a note to investors, “SPWH has continued to gain share in the key firearms category, driven by increased assortment and online capabilities, as well as competitors’ shift in strategy.”
Kawamoto’s overview of the company in his investors note gave an equally rosy picture as the firm reiterated a “buy” rating: “SPWH is an attractively valued, leading outdoor retailer positioned to take share. We are encouraged by SPWH’s positive comp in 2Q, the company’s second in row. As the firearms industry continues to normalize, stabilizing comps, as well as reduced leverage, should help drive improved investor sentiment. We believe shares can appreciate, driven by both earnings growth and multiple expansion.”
Clearly, the decision by Dick’s Sporting Goods to stop selling firearms has had a positive impact on Sportsman’s Warehouse (so far, it’s been good for Dick’s too; the company reports Q2 earnings on Aug. 29), while other retailers such as Walmart and Kroger (through the company’s Fred Meyer stores) have limited firearms sales to those 21 and over.
In the primary firearms-related category, ammunition revenue was up 0.6 percent in Q2. The store’s hunting department—which includes firearms and ammunition—was up 0.5 percent for the quarter, dragged down by softness in accessories sales.
Companywide, net income of $6.6 million was flat with the second quarter of fiscal year 2017, but adjusted net income, which excludes the write-off of deferred financing fees and debt discount associated with the company’s old term loan, was up 18.2 percent to $7.8 million from Q2 F2017. Net income was helped by a reduction in tax expense to $925,000 from $1.8 million.
Diluted earnings per share of 15 cents was flat with the second quarter of fiscal year 2017. Adjusted diluted earnings per share was 18 cents compared to adjusted diluted earnings per share of 15 cents in the second quarter of fiscal year 2017.
Net sales increased by 6.2 percent to $203.3 million from $191.5 million in the second quarter of fiscal year 2017. Same store sales increased by 0.2 percent from the comparable prior year period.
The other notable stories from Thursday’s conference call included e-commerce, which Sportsman’s Warehouse has been beefing up in response to customer demand.
“We accelerated our progress in creating an easier-to-use and content rich site for our customers that brings to life our differentiated shopping experience online,” Barker said. “Other digital initiatives that we continue to see a positive customer response from are our buy online, pickup in store as well as real-time in-store inventory visibility for firearms. In the second quarter, we further expanded our assortment available online for our vendor drop ship program, and we are encouraged by the results of this program.”
Also, wildfires raging across the Western U.S. have had a negative impact on company, especially for camping sales in California stores.
Wall Street reacted favorably to Sportsman’s Warehouse’s Q2 earnings report. The company’s shares were up 55 cents per share, or 10.2 percent, at market close on Thursday.
Q2 earnings were a penny above analyst’s expectations while sales were at the top-end of guidance. The retailer had projected sales to be 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 was 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 third quarter of fiscal year 2018, net sales are expected to be in the range of $220.0 million to $228.0 million based on a same store sales increase in the range of (3) percent to 0.0 percent compared to the corresponding period of fiscal year 2017. Adjusted net income is expected to be in the range of $10.2 million to $11.5 million with adjusted diluted earnings per share of 24 cents to 27 cents on a weighted average of approximately 43 million estimated common shares outstanding.
For fiscal year 2018, net sales are expected to be in the range of $841 million to $857 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 $24.4 million to $27 million with adjusted earnings per diluted share of 57 cents to 63 cents on a weighted average of approximately 43 million estimated common shares outstanding when adjusted for the one-time expense incurred in connection with the announcement of the retirement of the company’s former CEO, John Schaefer, in the first quarter of fiscal 2018 and the write-off of the debt discount and deferred financing fees relating to the company’s old term loan incurred in the second quarter of fiscal 2018.
Previously, Sportsman’s Warehouse expected sales for the year in the range of $837 million to $860 million based on same store sales in the range of (1) percent to 2 percent. Adjusted net income was 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
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
