Sportsman’s Warehouse Holdings Inc. (Nasdaq:SPWH) reiterated plans to grow its store count 10 percent annually in coming years despite reporting competitors’ new stores were the main contributor to a decline in its same-store sales in its fiscal first quarter.

The Utah-based hook-and-bullet retailer reported net sales increased 9 percent to $151.6 million in the 13-weeks ended April 30, compared with the first quarter of fiscal 2015 thanks to the addition of 10 stores, including three that opened during the quarter. Sportsman’s Warehouse ended the quarter with 67 stores in 20 states, up from 57 at the end of the first quarter of fiscal 2015.

However, Sportsman’s Warehouse reported same-store sales decreased by 2.2 percent, driven by an 11.1 percent decline at eight stores that were subject to new competitive openings in the first quarter of the year. Excluding those stores, same-store sales decreased 0.6 percent compared with a year earlier. The declines came despite a 70 percent increase in the retailer’s loyalty program membership, which helped drive up conversion rates and average order size. Going-out-of-business sales at Sport Authority stores had minimal impact.

Competition impacted same-store sales in the quarter by 170 basis points, impacting three of Sportsman’s Warehouse stores, versus no new competitive openings in the first quarter of last year, officials said.

Declining sales in oil and gas producing regions shaved another 90 basis points off same-store sales growth, compared with 60 to 80 basis point in the preceding two quarters. Excluding these effects, same-store sales would have increased 70 basis points in the fiscal first quarter. Either way, the results were within guidance the company issued March 23.

Firearm sales were up 18 percent versus the first quarter of last year despite a shift in the timing of firearms and ammunition sales Sportsman’s Warehouse estimates pulled $5 million in revenue into the fourth quarter of 2015 from the first quarter of 2016. The growth came despite a 4.4 percent decline in same-store sales of ammunition, which surged a year earlier, when shooters loaded up on green-tip ammo in anticipation regulators might restrict sales.

Sportsman’s Warehouse customers continued to spend on “use categories” such as ammunition, fuel and fishing lures, rather than on ancillary categories within hunting, camping and fishing, or clothing, footwear and electronics, officials said. Sales of activewear were particularly weak.

Sportsman’s Warehouse President and CEO John Schaefer said he expects those patterns to continue as customers assess the economic outlook and the potential impact of the upcoming presidential election.

Gross margins increased 100 basis points to 32 percent compared with the first quarter of fiscal 2015, as Sportsman’s Warehouse cut back spending on promotions, including customer appreciation days. Better markdown management also enabled the company to grow gross margin on its clothing and footwear sales by 700 and 510 basis points respectively despite lower overall sales.

“Just to give you an example on the customer appreciation sale, that probably cost us $250,000 in sales, but increased our gross profit dollars by almost $600,000,” Schaefer explained. “So I think our customer is telling us they have a reason to come in and we are not going to get them to come in if we just put random things on sale.”

Operating income doubled and reached 1.6 percent of sales, up 70 basis points from the first quarter of fiscal 2015. Net income swung to a profit of $311,000 from a loss of $1.36 million a year earlier.

Sportsman’s Warehouse, which opened three new stores in the first quarter of fiscal 2016, ended the period with merchandise inventory valued at $251 million, up 15.2 percent from January 30. Total liquidity stood at $52 million, down from $63.9 million a year earlier.

Sportsman’s Warehouse forecasts same-store sales in the current quarter will come in somewhere between 1 percent less and 1 percent more than a year earlier as trends seen in the fiscal first quarter continue. It still expects same-store sales to come in flat to 2-percent growth for the full fiscal year 2016.

Despite growing competition, Sportsman’s Warehouse remains committed to growing its store count 10 percent a year in coming years. In fiscal 2016, it remains on track to open 11 stores, including three of its smaller-format (15,000-17,000 square-foot) stores in Rock Spring and Gillette, WY and Prescott, AZ. The company does not anticipate taking over any of the 450 locations Sport Authority is closing as part of its bankruptcy liquidation.

“As a reminder, when one of our larger competitors opens a store in our market, the impact of this new competition lasts approximately 18 months,” Schaefer said. “However, the biggest impact is in the first five months, as we believe, the retail theater environment of the competitor’s store results in significant curiosity and increased customer traffic for the competitor in the impacted market. We expect this impact to increase in the second quarter based on an additional competitive opening. On the oil side, as we anniversary the big declines in oil prices in late Q2, we should see the impact of this dynamic on our same-store sales comparisons diminish as well.”

Photo courtesy Sportsman’s Warehouse