Faced with surging demand for firearms and ammunition, Sportsman’s Warehouses reported sales in the first quarter ended May 2 grew 41.8 percent, to $246.8 million. The gains would have been even stronger if not for out-of-stocks across firearms, ammunition and fishing.

Part the reasons for the shortages were supply chain interruptions with products sourced from China, primarily related to camping and fishing. Jon Barker, CEO, added on a conference call with analysts, “As China-related interruption has largely subsided, however, the disruption to our supply chain due to COVID-19 has continued into the second quarter within certain pockets of our business.”

The supply chain disruption was compounded by surging demand, creating shortages in firearms, ammunition and fishing.

“We believe the exceptional demand to date is been driven by multiple factors, including the COVID-19 situation, the exit of competitors in our core categories and the current election cycle,” said Barker. “However, parsing out the exact contribution of each factor is not possible.”

Firearms Comps Ahead 65 Percent
Same-store sales for Q1 increased by 28.6 percent. Firearms and ammunition were up 65 percent and 90 percent respectively, while NICS checks were up 56 percent for the quarter. Barker said the ability of Sportsman’s Warehouses’ sales gains to significantly exceed NICS checks “gives us confidence that we are not only growing sales, but we are continuing to take market share in our core categories.”

Starting in April, camping and fishing also rebounded nicely for the quarter, increasing over the prior-year period by 16.6 percent and 8.5 percent, respectively on a same-store basis. Apparel and footwear “were down materially” in the quarter

Sportsman’s Warehouse was able to keep the majority of its stores open throughout the crisis. Additional cleaning and sanitizing, plastic barriers at registers and face masks for associates were among the measures added to support a safe shopping environment.

Ship-to-home, BOPIS (buy online, pick up in-store) and recently-launched curbside pickup helped support an over 200 percent hike in online sales.

Barker said that due to the Q1 surge in demand, many customers entered a Sportsman’s Warehouse store or ordered from its website for the first time. He said, “This gives us the opportunity to expose newcomers to Sportsman’s Warehouse brand and to our extensive product offering. We believe this bodes well for developing repeat customers by re-engaging across new categories, building our loyalty program and customer database and ultimately growing our business.”

Gross margins were 30.3 percent for the quarter, a decline of 80 basis points. Product and channel mix caused a 250 basis point decline in gross margin due to a higher proportion of revenue coming from firearms and ammunition and more sales volume coming from e-commerce. This was partially offset by higher vendor incentives and improved product margins, which positively impacted gross margin by 120 basis points and 50 basis points, respectively.

SG&A expense decreased approximately 370 basis points to 30.5 percent. A store closing in the quarter resulted in a non-cash impairment charge of $1 million. Additional payroll expense of $6.5 million was also incurred, including $1.1 million of hero pay for frontline associates.

The remaining increase in SG&A expense was primarily due to minimum wage increases and new store growth. Rent expense increased approximately $1.6 million, primarily due to new store openings.

Inventories Drop 10 Percent

Inventory was down 9.6 percent on a per-store basis compared to the prior year. On a net basis, inventories were up 3.4 percent due to the addition of 14 stores year-over-year. Five to seven stores are expected to open in 2020, down from eight to 12 in a typical year, due to permitting and construction delays.

Sportsman’s Warehouse said its liquidity remains strong as it ended the quarter with $118.4 million in outstanding borrowings on its credit line, compared to $141.6 million at the end of Q119. The reduction was achieved despite holding an incremental $20 million of cash on its balance sheet in order to support flexibility. Robert Julian, CFO, said on the call, “We will remain financially disciplined as we limit discretionary expenses, reduce our debt load and preserve our liquidity to effectively navigate these uncertain times.”

Election Year Seen As Potential Growth Driver
The company is no longer providing guidance due to the uncertainty surrounding COVID-19. Sportsman’s Warehouse also said that despite the strong top-line growth, it will continue to take a relatively conservative approach to managing inventory, expenses and liquidity in 2020 and beyond.

Baker said, “In summary, we couldn’t be more excited with the momentum in our core business coming out of Q1. In the near-term, we view the upcoming election cycle as a potential catalyst for our business. Furthermore, we believe COVID-19 is changing consumer behavior and motivating people to spend more time outdoors. Our products did exceptionally well in an environment in which consumers are spending more time We will continue to work with our vendors to ensure we have our stores and websites stocked with the products our customers demand.

“In the medium-term, there is significant uncertainty in the economic environment and we are monitoring this evolving situation very closely. In the long-term, we believe we are uniquely positioned to capitalize on market share opportunities and changing consumer behavior to become a larger and more profitable company. With these factors as the backdrop, we continue to make progress on our growth initiatives, including enhancing our online platform and expanding our store footprint.”

Photos courtesy Sportsman’s Warehouse