By Charlie Lunan

Sportsman’s Warehouse Holdings Inc. (Nasdaq:SPWH) firearms sales surged 30.8 percent from May through July, enabling the retailer to beat its forecast and announce plans for its first stores in North Carolina and West Virginia.

The Midvale, UT-based hook-and-bullet retailer’s decision to expand to two more eastern states reflected growing confidence that it can coexist with larger national rivals by focusing on smaller markets served by mom-and-pop retailers. In addition to opening its standard 30,000-square-foot stores in Wilmington, NC and Morgantown, WV, the company announced plans Thursday to open 15,000-square-foot stores in Cedar City, UT and Moses Lake, WA next year.

Sportsman’s Warehouse reported net sales of $189.8 million, up 13.7 percent from the year-ago quarter. Same-store sales rose 2.9 percent, compared with the 1.0 percent the company forecast in late May. Excluding non-recurring items, adjusted operating income and EBITDA surged 30.4 and 28.9 percent, respectively. Net income inched up 1.3 percent to $8.3 million, or 20 cents per share, compared with a forecast of 15 to 17 cents.

Firearms, Camping Still Driving Growth
The growth in firearms surpassed the 24.6 percent rate in NICS background checks in the states where the retailer operates. Sportsman’s Warehouse President and CEO John Schaefer said that indicates the company, which derives half its revenue from firearms, hunting and shooting sports, grew its share of gun sales during the quarter. Ammunition sales, conversion rates and average order size also continued to the increase.

“Once again, as we move through the quarter, it became evident that our customers were focusing their dollars on the use categories within hunting, camping and fishing versus the ancillary categories in these same areas and the clothing, footwear and electronic categories,” Schaefer said. “We continue to see demand in excess supply in a few key camping categories, and have made great progress with our key vendors in these categories to ensure supply will meet demand as we approach the all-important fall season.”

While clothing sales were down from a year ago, they were up from the previous quarter, thanks largely to private label sales. Those sales, which consist primarily of softgoods, grew 25 percent quarter over quarter to 3.4 percent of net sales.

“We’re getting a lot of good traction with some of our private label products, especially in the camo area,” Schaefer said.

Diminishing Impact from Competition
Year-over-year growth was also driven by the addition of nine new stores, including three opened during the quarter, as well as the aging of competitor stores. In the second quarter, same-store sales declined 8.3 percent at stores subject to competitive openings, which Sportsman’s Warehouse defines as competing stores opened in the last 18 months. Still, the drag on same-store sales from competitive openings declined 210 basis points as that comp base declined. Schaefer said he expects that trend to continue over the next few quarters, due to both fewer competitive openings and the aging of existing competing stores.

Despite heavy discounting of apparel, footwear and accessories by competitors and the higher mix of lower-margin firearms sales, Sportsman’s Warehouse grew gross profit 14.1 percent and gross margin 20 basis points to 34.9 percent from a year earlier.

“Our results across the markets in which we operate continue to demonstrate that we are able to coexist with our national competitors in those markets where we compete as a neighborhood alternative, and also that we are continuing to take share from mom and pop retailers across markets, large and small,” Schaefer said. “It is noteworthy that the largest increase in same-store sales came from those stores where we faced mature competition.”

Outlook
Sportsman’s Warehouse forecasts net sales to grow 6 to 8.5 percent in the current fiscal quarter, based on same-store sales growth of 2 to 4 percent and the addition of new stores. For fiscal 2016, net sales are expected to hit $780 million to $790 million, or grow by 6.8 to 8.2 percent. That forecast assumes the company will open 11 new stores, grow same-store sales 0 to 2 percent and that growth in firearms sales will moderate in the back half of the year, when it will be difficult to surpass last year’s surge in firearms sales following the mass shooting in San Bernardino, CA.

Lead photo courtesy Sportsman’s Warehouse