By Eric Smith

The firearms market has proven ripe for Sportsman’s Warehouse Holdings Inc. of late, and the most recent evidence arrived Wednesday when the company reported a 3.3 percent increase in firearms sales and a 5.3 percent increase in firearms and ammunition sales for the second quarter.

Now those numbers could grow thanks to both outside and company-directed factors.

A highly fragmented dealer network (independent shops account for more than two-thirds of all firearm unit sales in the U.S.) coupled with some large operators (e.g., Dick’s Sporting Goods) getting out of the space has opened the door for the Midvale, UT-based retailer to take share.

But it’s the company’s own strategic moves amid the turbulent firearms marketplace that have it positioned so well.

Sportsman’s Warehouse has been adeptly leveraging available white space by adding such services as gunsmithing, a used product marketplace and an online sales platform that lets customers buy firearms on the Sportsman’s Warehouse website but pick up at their local dealer.

Toss in an overall commitment to the firearms market—in addition to the full array of outdoor products and sporting goods—and it’s clear the company sees plenty of runway in that category and others for the remainder of 2019 and beyond.

“Given recent industry rationalization and changing competitive dynamics, including the category exit decisions of some competitors, we remain one of a few national retailers dedicated to outdoor sports, including hunting and shooting,” CEO Jon Barker said on Wednesday’s earnings call with analysts. “We offer an expansive breadth of assortment at everyday low pricing with a high level of customer service. This offering combined with ongoing success of our merchandising initiatives, customer acquisition and engagement focus and omnichannel strategy is driving our outperformance relative to the industry, which was evidenced in our second-quarter results.”

Outperforming the industry was indeed evident in the company’s Q2 results. Sportsman’s Warehouse raised its full-year comparable sales growth range to flat to 2 percent, up from -1 percent to 1 percent, after reporting a strong quarter that saw the company beat revenue and earnings estimates.

For the quarter, net sales increased by 4.2 percent to $211.8 million from $203.3 million in the second quarter of fiscal year 2018 primarily due to new store openings and increased demand for firearms and ammunition due to legislative changes in some states in which the company operates. Q2 revenue beat Wall Street’s estimates by $4.5 million. Same-store sales increased by 1.7 percent from the comparable prior-year period.

Net income was $5.5 million compared to net income of $6.6 million in the second quarter of fiscal year 2018. Adjusted net income in the second quarter of fiscal 2019 was $5.7 million, which excludes expenses incurred relating to the recruitment and hiring of some senior management team members. Adjusted net income in the second quarter of fiscal 2018 was $7.8 million, which excludes the write-off of deferred financing fees and debt discount associated with the company’s old term loan.

Diluted earnings per share were 13 cents compared to diluted earnings per share of 15 cents for the second quarter of fiscal year 2018. Adjusted diluted earnings per share were 13 cents in the second quarter of fiscal 2019 compared to adjusted diluted earnings per share of 18 cents in the second quarter of fiscal 2018. Estimates called for 12 cents a share.

Click here to read more about Sportsman’s Warehouse’s Q2 earnings.

Firearms helped drive much of that growth, so let’s dig into how the retailer is differentiating here.

Sportsman’s Warehouse in March unveiled a firearms gunsmith service called The Gunsmith at Sportsman’s Warehouse in Salt Lake City. Though Barker didn’t discuss the gunsmith program on Wednesday, the program is clearly one of the “value-added services that are driving customer acquisition and engagement,” as he told analysts.

That program center “offers the full-machine services of mills and lathes, plus complete refinishing, threading, metal, and stock work. Services also include trigger and sight options, full customization and other work available in three simple ways,” the company said when it announced the service.

Customers can drop off and pick up firearms at any Sportsman’s Warehouse store, visit the Gunsmith Center in Salt Lake or ship firearms to the center for smithing.

Another value-add is the newly launched used firearms program in which Sportsman’s Warehouse buys firearms, accepts trade-ins and sells used firearms. That service is now live in five stores and online.

“While still early, we’ve seen over 70 percent of used gun transactions turned into a trade up,” Barker said. “Based on these initial results, we believe the service has the potential to drive increased customer engagement and strengthen customer loyalty, ultimately improving customer lifetime value. Given the margin profile of a used gun sale, these transactions have been accretive to the mix.”

And lastly, the company is gaining traction with new partnerships with select, licensed firearms dealers around the U.S. The service allows customers without a nearby Sportsman’s Warehouse to “shop and buy the largest assortment of firearms of any national retailer through sportsmans.com and then pick up the firearm at one of our partner locations,” Barker said.

At quarter’s end, Sportsman’s Warehouse had expanded its network of third-party federal firearms license (FFL) partnerships to 130 partners and 16 additional states outside regions where the company has a store. The company now serves, through its retail footprint and the FFL program, 41 states and covers 67 percent of the U.S population within a 45-mile radius.

“While still early, the trends of both volume and average unit retail price of these firearms is very encouraging and another proof point that Sportsman’s Warehouse as a unique assortment that is not available at any other retailer,” Barker said. “Over the coming months, we plan to continue on expanding these relationships with license firearms dealers with a goal of offering our assortment to a majority of U.S population within a short drive.”

Barker even touched on yet another service the company has added to build customer acquisition and retention: free, ladies-only, concealed carry training classes.

“While we’ve always had training classes available for all customers, we thought it was important to create an informative inviting environment for female customers who want to learn to use a firearm with proper instruction in a safe environment,” Barker said.

Shares of Sportsman’s Warehouse closed the day up 13 cents, or 3.3 percent, to $4.06 at market close Thursday. While the company’s stock has lost about a third of its value since the end of February, analysts remain bullish on the company based on firearm and other tailwinds.

In a note to investors, Michael Kawamoto of D.A. Davidson & Co. wrote: “While multiple headwinds have weighed on consumer stocks recently, we are encouraged by SPWH’s healthy 2Q results and topline guidance raise. Comp acceleration in 2H, combined with a continued reduction in leverage and a better firearms backdrop should help improve investor sentiment.”

Lead photo courtesy Cocalico Sportsmen. Center photo courtesy Sportsman’s Warehouse Holdings Inc.