Sportsman's Warehouse Holdings Inc. reported net sales increased by 9.1 percent in the fiscal first quarter ended May 2 compared with the year earlier quarter as it comped against more modest firearms sales.

The Utah-based hunting and fishing retailer reported same store sales decreased by 0.7 percent during the quarter, which is the typically its slowest in terms of sales. That compared with a decline of 5.3 percent in the fourth quarter of 2014. Net loss declined nearly 60 percent to $1.4 million, or -3 cents per diluted share, compared to -10 cents in first quarter of fiscal 2014. Excluding stores affected by new national competitors, comp store sales increased 2.0 percent.

SPWH President and CEO John Schaefer noted the results came in at the high end of the company’s guidance despite growing competition and deep discounting of firearms by the mom and pop channel. Schaefer attributed a decline in traffic to unseasonably warm weather that kept people from shopping for winter apparel and footwear. But he noted that the same weather continued to boost hunting and camping sales as they had in the fourth quarter. Conversion, average ticket size and ammo sales all increased.

Loss of rebates, shift away from MSRs squeezes margins

While average selling prices of firearms declined 3.3 percent, overall unit sales were up 1.4 percent. Schaefer attributed the decline in ASPs to a mix shift as customers moved back toward more moderately priced guns following the 2013-14 boom in modern sporting rifle sales. Schaefer said a decline in promotional activity since the quarter ended signals mom and pops have cleaned out their firearms inventory.

“Finally mom and pops have turned that inventory into cash,” said Schaefer. “We were expecting them to do that in the fourth quarter but they did not. They decided to maintain price and then began discounting in first quarter. So we think their inventories are now clean.”

Gross margin dipped 40 basis points to 29.9 percent during the quarter due primarily to a decline in the availability of deep discounts firearms vendors were offering national chains a year ago to keep manufacturing lines open.

“In Q1 2014, we experienced a lot of opportunistic buys,” Schaefer explained. “Because the mom and pop channels were flooded, manufacturers were offering a lot of incentives to national retailers. Those were one time rebates and we knew they would not repeat this year.”

Excluding expenses related to bonuses paid as a result of the successful completion of its 2014 initial public offering, SPWH’s net income declined 30 percent to $1.4 million, or 3 cents per diluted share compared to 5 cents in the fiscal first quarter a year ago. Adjusted EBITDA dropped 20.5 percent to $5.4 million.

The company ended the quarter with 57 stores in 18 states.

Full year forecast assumes return of normal firearms business
For the second quarter of fiscal 2015, SPWH expects net sales to grow 4.7-to-7.8 percent and same-store sales in the range of -1.0-to-1.0 percent. 

For the full fiscal year, net sales are expected to reach $720.0-to-$740.0 million, which would represent growth of 9.1-to-12.1 percent. The forecast anticipates opening nine new stores. Same-store sales are expected to shrink by 1.0 percent, grow 2.0 percent or fall somewhere in between. Gross margin is expected to be flat with the last fiscal year at 32.6 percent, but net income is expected to jump to between $23.9 million and $26.7 million, or by 73.2 to 99.1 percent.

“[We]…remain encouraged by indicators that suggest normalized industry dynamics in the firearm and ammunition categories are not far off,” Schaefer said.