SPORTSMAN'S WAREHOUSE HOLDINGS, INC. The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those which are discussed in "Part I. Item 1A. Risk Factors" in our Fiscal 2021 Form 10-K. Also see "Statement Regarding Forward-Looking Statements" preceding Part I in this 10-Q.
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this 10-Q.
Overview
We are an outdoor sporting goods retailer focused on meeting the everyday needs
of the seasoned outdoor veteran, the first-time participant and everyone in
between. Our mission is to provide outstanding gear and exceptional service to
inspire outdoor memories.
Our business was founded in 1986 as a single retail store in
Our stores and our e-commerce platform are aggregated into one operating and reportable segment.
COVID-19 Pandemic
Since the beginning of the COVID-19 pandemic in mid-March 2020 and continuing
into the first quarter of 2022, we experienced a significant increase in sales
from pre-pandemic sales. A larger than normal portion of those sales came from
certain product categories, particularly firearms and ammunition. While our same
store sales decreased by 11.6% during the first quarter of 2022 compared to the
first quarter of 2021, when compared to the first quarters of 2020 and 2019,
same store sales increased by 11.1% and 38.2%, respectively.
In addition, we continue to see some interruption with various vendors as a
result of restrictions or limitations on their operations, including labor
shortages, due to the pandemic. We have been working closely with our vendors to
limit such disruption and we have been successful in building up our inventory
in recent months. The pandemic and current economic conditions have also
resulted in a short supply of qualified employees.
We cannot predict the future impact on us of the COVID-19 outbreak. The future
impact of the COVID-19 pandemic will depend on a number of future developments,
which are highly uncertain and cannot be predicted, including, but not limited
to the duration, spread and severity of the COVID-19 outbreak, any resurgence of
COVID-19, the effects of the outbreak on our customers and vendors and the
remedial actions and stimulus measures adopted by local and federal governments.
Further, we may experience a decrease in sales if the increased demand we
experienced during the pandemic subsides.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of
performance and financial measures. The key measures for determining how our
business is performing are net sales, same store sales, gross margin, selling,
general, and administrative expenses, income from operations and adjusted
earnings before interest, taxes, depreciation and amortization ("Adjusted
EBITDA").
Our net sales are primarily received from revenue generated in our stores and
also include sales generated through our e-commerce platform. When measuring
revenue generated from our stores, we review our same store sales as well as the
performance of our stores that have not operated for a sufficient amount of time
to be included in same store sales. We include net sales from a store in same
store sales on the first day of the 13th full fiscal month following the store's
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opening or acquisition by us. We exclude sales from stores that were closed during the period from our same store sales calculation. We include net sales from e-commerce in our calculation of same store sales. For fiscal years consisting of 53 weeks, we exclude net sales during the 53rd week from our calculation of same store sales. Some of our competitors and other retailers may calculate same store sales differently than we do. As a result, data regarding our same store sales may not be comparable to similar data made available by other retailers.
Measuring the change in year-over-year same store sales allows us to evaluate how our retail store base is performing. Various factors affect same store sales, including:
? the impact of the COVID-19 pandemic;
? changes or anticipated changes to regulations related to some of the products
we sell;
? consumer preferences, buying trends and overall economic trends;
? our ability to identify and respond effectively to local and regional trends
and customer preferences;
? our ability to provide quality customer service that will increase our
conversion of shoppers into paying customers;
? the success of our omni-channel strategy and our e-commerce platform;
? competition in the regional market of a store;
? atypical weather;
? new product introductions and changes in our product mix; and
? changes in pricing and average ticket sales.
Opening new stores and acquiring store locations is also an important part of our growth strategy. While our target is to grow square footage at a rate of greater than 5%-10% annually, we may deviate from this target if attractive opportunities are presented to open stores or acquire new store locations outside of our target growth rate.
We also have been scaling our e-commerce platform and increasing sales through our website, www.sportsmans.com.
We believe the key drivers to increasing our total net sales include:
? increasing our total gross square footage by opening new stores and through
strategic acquisitions;
? continuing to increase and improve same store sales in our existing markets;
increasing customer visits to our stores and improving our conversion rate
? through focused marketing efforts and continually high standards of customer
service;
? growing our loyalty and credit card programs; and
? expanding our omni channel capabilities through larger assortment and
inventory, expanded content and expertise and better user experience.
Gross Margin
Gross profit is our net sales less cost of goods sold. Gross margin measures our
gross profit as a percentage of net sales. Our cost of goods sold primarily
consists of merchandise acquisition costs, including freight-in costs, shipping
costs, payment term discounts received from the vendor and vendor allowances and
rebates associated directly with merchandise and shipping costs related to
e-commerce sales.
We believe the key drivers to improving our gross margin are increasing the
product mix to higher margin products, particularly apparel and footwear,
increasing foot traffic within our stores and traffic to our website, improving
buying opportunities with our vendor partners and coordinating pricing
strategies among our stores and our merchandise group. Our ability to properly
manage our inventory can also impact our gross margin. Successful inventory
management ensures we have sufficient high margin products in stock at all times
to meet customer demand, while overstocking of items could lead to markdowns in
order to help a product sell. We believe that the overall growth of our business
will
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allow us to generally maintain or increase our gross margins, because increased
merchandise volumes will enable us to maintain our strong relationships with our
vendors.
Selling, General, and Administrative Expenses
We closely manage our selling, general, and administrative expenses. Our selling, general, and administrative expenses are comprised of payroll, rent and occupancy, depreciation and amortization, acquisition expenses, pre-opening expenses and other operating expenses, including stock-based compensation expense. Pre-opening expenses include expenses incurred in the preparation and opening of a new store location, such as payroll, travel and supplies, but do not include the cost of the initial inventory or capital expenditures required to open a location. Our selling, general, and administrative expenses are primarily influenced by the volume of net sales of our locations, except for our corporate payroll, rent and occupancy and depreciation and amortization, which are generally fixed in nature. We control our selling, general, and administrative expenses through a budgeting and reporting process that allows our personnel to adjust our expenses as trends in net sales activity are identified. We expect that our selling, general, and administrative expenses will increase in future periods due to our continuing growth. In addition, we have experienced increased payroll expenses due to increased minimum wages and generally increasing salaries and wages due to a competitive labor market and inflation.
Income from Operations
Income from operations is gross profit less selling, general, and administrative expenses. We use income from operations as an indicator of the productivity of our business and our ability to manage selling, general, and administrative expenses.
Adjusted EBITDA
We define Adjusted EBITDA as net income plus interest expense, income tax
expense, depreciation and amortization, stock-based compensation expense,
pre-opening expenses, and other gains, losses and expenses that we do not
believe are indicative of our ongoing expenses. In evaluating our business, we
use Adjusted EBITDA and Adjusted EBITDA margin as an additional measurement tool
for purposes of business decision-making, including evaluating store
performance, developing budgets and managing expenditures. See "-Non-GAAP
Measures."
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Results of Operations
The following table summarizes key components of our results of operations as a percentage of net sales for the periods indicated:
Thirteen Weeks Ended
April 30, May 1,
2022 2021
Percentage of net sales:
Net sales 100.0% 100.0%
Cost of goods sold 68.0 68.2
Gross profit 32.0 31.8
Selling, general, and administrative expenses 31.0 27.7
Income from operations 1.0 4.1
Interest expense 0.2 0.1
Income before income taxes 0.8 4.0
Income tax expense 0.1 0.9
Net income 0.7% 3.1%
Adjusted EBITDA 4.2% 7.2%
The following table shows our sales during the periods presented by department:
Thirteen Weeks Ended
April 30, May 1,
Department Product Offerings 2022 2021
Camping Backpacks, camp essentials,canoes and kayaks, coolers, outdoor cooking equipment, sleeping bags, tents and tools
10.8% 11.3%
Apparel Camouflage, jackets, hats, outerwear, sportswear, technical gear and work wear 6.9% 6.4%
Fishing Bait, electronics, fishing rods, flotation items, fly fishing, lines, lures, reels, tackle and small boats
10.4% 11.5%
Footwear Hiking boots, socks, sport sandals, technical footwear, trail shoes, casual shoes, waders and work boots
6.3% 6.1%
Hunting and Shooting Ammunition, archery items, ATV accessories, blinds and tree stands, decoys, firearms, reloading equipment and shooting gear 60.3% 58.6% Optics, Electronics, Accessories, and Other Gift items, GPS devices, knives, lighting, optics, two-way radios, and other license revenue, net of revenue discounts
5.3% 6.1%
Total 100.0% 100.0%
Thirteen Weeks Ended
Net Sales . Net sales decreased by$17.5 million , or 5.3%, to$309.5 million during the 13 weeks endedApril 30, 2022 compared to$327.0 million in the corresponding period of fiscal year 2021. Our net sales decreased primarily due to lower demand across all product categories as we anniversaried the increased demand during the first quarter of fiscal 2021 driven by the COVID-19 economic stimulus package (the American Rescue Plan) and social unrest, partially offset by our opening of 13 new stores sinceMay 1, 2021 . Stores that have been open for less than 12 months and were, therefore, not included in our same store sales, contributed$20.0 million to net sales. Same store sales decreased by 11.6% for the 13 weeks endedApril 30, 2022 compared to the comparable 13-week period of fiscal year 2021, primarily driven by a decrease in demand across all product categories as we anniversaried the prior year same store sales increase of 24.1% experienced in the 13 weeks endedMay 1, 2021 . Our apparel department saw an increase of$0.3 million in the first quarter of fiscal year 2022 compared to the comparable 13-week period of fiscal year 2021 due to the opening of 13 new stores sinceMay 1, 2021 . Our fishing, hunting and shooting, camping, optics, electronics and accessories and footwear categories saw decreases of$5.4 million ,$5.1 million ,$3.5 million ,$2.8 million and$0.3 million , respectively, in the first quarter of fiscal year 2022 22
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compared to the comparable 13-week period of fiscal year 2021. Within the hunting and shooting department, our firearm category saw a decrease of$8.8 million or 9.9%, while our ammunition category saw an increase of$7.6 million or 13.9% in the first quarter of fiscal year 2022 compared to the comparable 13-week period of fiscal year 2021. The decrease seen in the firearm category is primarily due to lower demand as we anniversaried the increased demand during the first quarter of fiscal 2021 driven by the COVID-19 economic stimulus package (the American Rescue Plan) and social unrest, partially offset by the opening of 13 new stores sinceMay 1, 2021 . The increase in the ammunition category is due to improvements in the supply chain disruptions seen in this category over the past two fiscal years as well as the opening of 13 new stores sinceMay 1, 2021 . With respect to same store sales, during the 13 weeks endedApril 30, 2022 , our fishing, optics, electronics and accessories, camping, hunting and shooting, footwear and apparel departments saw decreases of 19.4%, 15.7%, 14.9%, 10.0%, 6.7% and 4.4%, respectively, as we anniversaried the increased demand during the first quarter of fiscal 2021 driven by the COVID-19 economic stimulus package (the American Rescue Plan) and social unrest. As ofApril 30, 2022 , we had 113 stores included in our same store sales calculation. Gross Profit. Gross profit decreased to$99.1 million during the 13 weeks endedApril 30, 2022 compared to$104.0 million for the corresponding period of fiscal year 2021. As a percentage of net sales, gross profit increased to 32.0% for the 13 weeks endedApril 30, 2022 , compared to 31.8% for the corresponding period of fiscal year 2021 primarily driven by favorable product sales mix and increased product margins across most departments, partially offset by higher freight costs. We expect higher transportation costs to continue to impact the business during the remainder of fiscal 2022 and beyond. Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased by$5.7 million , or 6.3%, to$96.1 million during the 13 weeks endedApril 30, 2022 from$90.4 million for the comparable 13-week period of fiscal year 2021. This increase was primarily due to an increase in other selling, general and administrative expenses of$4.5 million , which was largely the result of a return to pre-pandemic levels of marketing and travel activities compared to the comparable 13-week period of fiscal 2021. We also had increased pre-opening expenses of$0.8 million due to the timing of opening new stores, as well as increases in depreciation, payroll and rent of$1.6 million ,$0.8 million ,$0.6 million , respectively, during the 13 weeks endedApril 30, 2022 primarily related to the opening of 13 new stores sinceMay 1, 2021 . These increases were offset by a decrease in acquisition costs of$2.8 million due to the terminated merger withGreat Outdoors Group . As a percentage of net sales, selling, general, and administrative expenses increased to 31.0% of net sales in the first quarter of fiscal year 2022, compared to 27.7% of net sales in the first quarter of fiscal year 2021, due to the same reasons disclosed for the increase in selling, general, and administrative expenses. Interest Expense. Interest expense increased by$0.4 million , or 200.0%, to$0.6 million during the 13 weeks endedApril 30, 2022 from$0.2 million for the comparable 13-week period of fiscal year 2021. Interest expense increased primarily as a result of increased borrowings on our revolving credit facility during the first quarter of fiscal year 2022 compared to the first quarter of fiscal year 2021. Income Taxes. We recognized income tax expense of$0.4 million during the 13 weeks endedApril 30, 2022 compared to an income tax expense of$3.0 million during the comparable 13-week period of fiscal year 2021. Our effective tax rates for the 13 weeks endedApril 30, 2022 andMay 1, 2021 were 18.1% and 22.0%, respectively. Our effective tax rate will generally differ from theU.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions. Seasonality Due to the openings of hunting season across the country and consumers' holiday buying patterns, net sales are typically higher in the third and fourth fiscal quarters than in the first and second fiscal quarters. We also incur additional expenses in the third and fourth fiscal quarters due to higher sales volume and increased staffing in our stores. We anticipate that our net sales will continue to reflect this seasonal pattern. The timing of our new retail store openings also may have an impact on our quarterly results. First, we incur certain non-recurring expenses related to opening each new retail store, which are expensed as they are incurred. Second, most store expenses generally vary proportionately with net sales, but there is also a fixed cost component, which includes occupancy costs. These fixed costs typically result in lower store profitability during the initial period after a new retail 23 Table of Contents store opens. Due to both of these factors, new retail store openings may result in a temporary decline in operating profit, in dollars and/or as a percentage of net sales. Weather conditions affect outdoor activities and the demand for related apparel and equipment. Customers' demand for our products, and, therefore, our net sales, can be significantly impacted by weather patterns on a local, regional and national basis. Liquidity and Capital Resources
Overview; Sources and Uses of Cash
Our primary cash requirements are for seasonal working capital needs and capital expenditures related to opening and acquiring new store locations. For both the short-term and the long-term, our sources of liquidity to meet these needs have primarily been borrowings under our revolving credit facility, operating cash flows and short and long-term debt financings from banks and financial institutions. We believe that our cash on hand, cash generated by operating activities and funds available under our revolving credit facility will be sufficient to finance our operating activities for at least the next twelve months and beyond. In addition, onDecember 2, 2021 , we received a$55.0 million cash payment fromGreat Outdoors Group, LLC ("Great Outdoors Group ") in connection with the termination of our previously pending merger with a subsidiary ofGreat Outdoors Group .
Material Cash Requirements
Our material cash requirements are primarily for opening and acquiring new store locations, along with our general operating expenses and other expenses discussed below.
Capital Expenditures. For the 13 weeks endedApril 30, 2022 , we incurred approximately$12.0 million in capital expenditures primarily related to the construction of new stores and the refurbishment of existing stores during the period. We expect capital expenditures between$48 million and$55 million for fiscal year 2022 primarily to refurbish some of our existing stores and to open 10 new stores in fiscal year 2022. We intend to fund these capital expenditures with our operating cash flows, cash on hand and funds available under our revolving credit facility. Other investment opportunities, such as potential strategic acquisitions or store expansion rates in excess of those presently planned, may require additional funding. Principal and Interest Payments. We maintain a$250.0 million revolving credit facility. As ofApril 30, 2022 ,$112.5 million was outstanding under the revolving credit facility. Assuming no additional repayments or borrowings on our revolving credit facility afterApril 30, 2022 our interest payments would be approximately$2.3 million for fiscal year 2022 based on the interest rate atApril 30, 2022 . See below under "Indebtedness" for additional information regarding our revolving credit facility, including the interest rate applicable to any borrowing under such facility. Operating Lease Obligations. Lease commitments consist principally of leases for our retail stores, corporate office and distribution center. Our leases often include options which allow us to extend the terms beyond the initial lease term. For the remainder of 2022, our expected operating lease payments will be$47.8 million and our total committed lease payments are$377.9 million as ofApril 30, 2022 . Other operating lease obligations consist of distribution center equipment. Additional information regarding our operating leases is available in our Fiscal 2021 Form 10-K. Purchase Obligations. In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. We or the vendor can generally terminate the purchase orders at any time. These purchase orders do not contain any termination payments or other penalties if cancelled. Share Repurchase Authorization. In addition, our board recently authorized a share repurchase program to allow for the repurchase of up to$75.0 million of outstanding shares of our common stock for the period fromMarch 31, 2022 toMarch 31, 2023 . We may repurchase shares of our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 plans, accelerated share repurchase transactions, open market purchases, privately negotiated transactions, tender offers, block purchases or other transactions. We intend to fund repurchases under the repurchase program using cash on hand or 24 Table of Contents available borrowings under our revolving credit facility. We have no obligation to repurchase any shares of our common stock under the share repurchase program and we may modify, suspend or discontinue it at any time.
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