Sportsman’s Warehouse’s Q4 Earnings Slide On Margin Pressures

Sportsman’s Warehouse’s Q4 Earnings Slide On Margin Pressures

Sportsman’s Warehouse Holdings Inc. reported fourth-quarter earnings on an adjusted basis slid 20 percent and missed guidance due to “an elevated promotional backdrop and a tax-reform driven investment in our associates.” Same-store sales sunk 4.5 percent, in line with guidance.

Jon Barker, chief executive officer, stated, “In 2017, despite a difficult backdrop and a heightened promotional environment in the second half, we successfully completed our 12 planned new store openings, generated important learnings that are informing our omni-channel strategy, delivered an over 80 percent increase in website driven sales year-over-year, increased customer engagement with our growing loyalty member base and targeted marketing efforts, generated free cash flow and reduced debt by $2.3 million. We finished the year with fourth quarter top-line sales growth of 9.8 percent, which was in line with our expectations, while our bottom-line results were impacted by an elevated promotional backdrop and a tax-reform-driven investment in our associates.”

Barker added, “Looking ahead, our 2018 priorities are focused on our omni-channel strategy encompassing both store growth and e-commerce platform enhancements, customer acquisition and engagement and merchandising. We will continue to operate with great discipline and look forward to strengthening our competitive position in 2018 as our extensive offering of brand name products, everyday low pricing strategy and knowledgeable customer service, combined with our focused market specific localization strategy, continue to resonate with our loyal customers.”

The company’s fiscal year 2017 ended on February 3, 2018, resulting in an extra week of operations in the fourth quarter of fiscal 2017 (53rd week) as compared to the fourth quarter of fiscal 2016. The 53rd week contributed approximately $10.6 million in sales. There was no impact to same-store sales, which are presented on a 52-week comparative basis.

Also, starting with this fiscal quarter and going forward, the company will be including e-commerce in same-store sales. The company has historically excluded e-commerce from same-store sales. For purposes of this earnings release, the company is providing same-store sales both including and excluding e-commerce for the fourth quarter and full year 2017.

For the Fourteen Weeks Ended February 3, 2018

Net sales increased by 9.8 percent to $243.2 million from $221.4 million in the fourth quarter of fiscal year 2016. Same-store sales decreased by 4.5 percent, or 5.2 percent excluding e-commerce, over the same period.

Income from operations was $16.6 million compared to $21.1 million in the fourth quarter of fiscal year 2016. Adjusted income from operations, which excludes the write-off of an IT related asset, was $17.1 million, compared to adjusted income from operations of $21.1 million for the fourth quarter of fiscal year 2016.

The company opened one new store in the fourth quarter of fiscal 2017 and ended the quarter with 87 stores in 22 states, or square footage growth of 11.3 percent, from the end of the fourth quarter of fiscal year 2016.

Interest expense increased to $3.7 million from $3.3 million in the fourth quarter of fiscal year 2016.

Net income was $5.9 million compared to $10.5 million in the fourth quarter of fiscal year 2016. Adjusted net income, which excludes the write-off of an IT-related asset and the impact of the Tax Cuts and Jobs Act, was $8.4 million compared to adjusted net income of $10.5 million for the fourth quarter of fiscal year 2016.

Diluted earnings per share were $0.14 compared to $0.25 in the fourth quarter of fiscal year 2016. Adjusted diluted earnings per share were 20 cents compared to 25 cents in the fourth quarter of fiscal year 2016.Adjusted EBITDA was $23.0 million compared to $26.4 million in the fourth quarter of fiscal year 2016.

When it reported fourth-quarter endings on November 16, Sportsman’s Warehouse said it expected net sales to be in the range of $240.0 million to $245.0 million based on a same-store sales decline in the range of 4.0 percent to 6.0 percent. Net income was expected to be in the range of $11.0 million to $12.4 million with diluted earnings per share of 26 cents to 29 cents on a weighted average of approximately 42.6 million estimated common shares outstanding.

Reported Third-Quarter Results on November 16 for the Fifty-three Weeks Ended February 3, 2018

Net sales increased by 3.8 percent to $809.7 million from $780.0 million in fiscal year 2016. Same-store sales decreased by 6.5 percent, or 6.9 percent excluding e-commerce, over the same period.

Income from operations was $46.6 million compared to $60.7 million in fiscal year 2016. Adjusted income from operations, which excludes professional and other fees incurred in connection with the evaluation of a strategic acquisition and the write-off of an IT related asset, was $48.8 million, compared to adjusted income from operations of $60.8 million for fiscal year 2016, which excludes secondary offering expenses.

The company opened twelve new stores in fiscal year 2017 and saw square footage growth of 11.3 percent from fiscal year 2016.

Interest expense increased to $13.7 million in fiscal year 2017 compared to $13.4 million in fiscal year 2016.

Net income was $17.7 million compared to $29.7 million in fiscal year 2016. Adjusted net income, which excludes professional and other fees incurred in connection with the evaluation of a strategic acquisition, the write-off of an IT related asset and the impacts of U.S. Tax Reform, was $21.3 million compared to adjusted net income, which excludes secondary offering expenses and prior-year tax credits, of $29.2 million for fiscal year 2016.

Diluted earnings per share were $0.42 compared to $0.70 in fiscal year 2016. Adjusted diluted earnings per share were $0.50 compared to $0.69 in fiscal year 2016.

Adjusted EBITDA was $72.8 million compared to $82.3 million in fiscal year 2016.

Balance Sheet Highlights as of February 3, 2018

Total debt: $193.3 million, consisting of $60.0 million outstanding under the company’s revolving credit facility and $133.3 million outstanding under the term loan, net of unamortized discount and debt issuance costs.

Total liquidity (cash plus $66.9 million of availability on revolving credit facility): $68.7 million

First Quarter and Fiscal Year 2018 Outlook

For the first quarter of fiscal year 2018, net sales are expected to be in the range of $173.0 million to $180.0 million based on a same-store sales increase in the range of 2.0 percent to 6.0 percent compared to the corresponding period of fiscal year 2017. Adjusted net income is expected to be in the range of ($3.6) million to ($4.6) million with adjusted diluted earnings per share of ($0.08) to ($0.11) on a weighted average of approximately 42.8 million estimated common shares outstanding, when adjusted for the one-time expense incurred in connection with the announcement of the retirement of the company’s former chief executive officer, John Schaefer, in the first quarter of fiscal 2018.

For fiscal year 2018, net sales are expected to be in the range of $830 million to $860.0 million based on same store sales in the range of (1.0 percent) to 2.0 percent compared to fiscal year 2017. Adjusted net income is expected to be in the range of $22.2 million to $27.3 million, with adjusted earnings per diluted share of $0.52 to $0.64 on a weighted average of approximately 43.0 million estimated common shares outstanding, when adjusted for the one-time expense incurred in connection with the announcement of the retirement of the company’s former chief executive officer, John Schaefer, in the first quarter of fiscal 2018.