Sportsman’s Warehouse(SPWH) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company reported a net loss of $15.6 million in Q1 2023, a downturn from $2.0 million net income in Q1 2022, driven by decreased sales and increased inventory Condensed Consolidated Balance Sheets Total assets rose to $981.7 million by April 29, 2023, driven by inventory growth, while liabilities increased and equity decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 29, 2023 | January 28, 2023 | | :--- | :--- | :--- | | Total Assets | $981,697 | $858,960 | | Merchandise inventories | $469,489 | $399,128 | | Total Liabilities | $705,114 | $565,847 | | Revolving line of credit | $150,250 | $87,503 | | Total Stockholders' Equity | $276,583 | $293,113 | Condensed Consolidated Statements of Operations Q1 2023 saw a net loss of $15.6 million ($0.42 per share) due to decreased net sales and lower gross profit margins Q1 2023 vs Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 (13 weeks ended Apr 29) | Q1 2022 (13 weeks ended Apr 30) | | :--- | :--- | :--- | | Net sales | $267,529 | $309,505 | | Gross profit | $80,044 | $99,091 | | (Loss) income from operations | $(18,959) | $3,006 | | Net (loss) income | $(15,639) | $1,998 | | Diluted (loss) earnings per share | $(0.42) | $0.05 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity declined to $276.6 million by April 29, 2023, primarily due to a net loss and share repurchases - The primary drivers for the decrease in stockholders' equity during the quarter were the net loss of $15.6 million and payments for treasury stock repurchases ($0.7 million) and withholdings on restricted stock units ($1.4 million)[22] Condensed Consolidated Statements of Cash Flows Operating cash outflow increased to $37.0 million in Q1 2023, driven by inventory build-up, funded by $60.4 million from financing activities Cash Flow Summary (in thousands) | Activity | Q1 2023 (13 weeks ended Apr 29) | Q1 2022 (13 weeks ended Apr 30) | | :--- | :--- | :--- | | Net cash used in operating activities | $(36,985) | $(16,843) | | Net cash used in investing activities | $(22,757) | $(12,001) | | Net cash provided by financing activities | $60,393 | $29,531 | - The increase in cash used in operations was largely driven by a $70.4 million investment in merchandise inventories, compared to a $49.9 million increase in the same period last year[27] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, lease liabilities, the $350 million revolving credit facility, and share repurchase program - As of April 29, 2023, the company operated 136 stores in 31 states and an e-commerce platform, all aggregated into a single reportable segment[29] Revenue by Department (% of Net Sales) | Department | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Hunting and Shooting | 63.2% | 60.3% | | Fishing | 9.1% | 10.4% | | Camping | 8.9% | 10.8% | | Apparel | 7.0% | 6.9% | | Footwear | 6.7% | 6.3% | | Optics, Electronics, etc. | 5.1% | 5.3% | - The company settled a lease termination lawsuit with TMS McCarthy for a one-time payment of $2.1 million during the quarter[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2023 net sales decline of 13.6% to reduced consumer demand and lower gross margins, while planning new stores and expense reductions - Net sales decreased by 13.6% to $267.5 million, and same-store sales decreased by 17.8% in Q1 2023 compared to Q1 2022[111] - The decline in sales was attributed to lower demand from extended winter conditions in the Western U.S., consumer inflationary pressures, and recessionary concerns[111] - Gross profit margin decreased to 29.9% from 32.0% in the prior year, driven by a reduction in sales of higher-margin Camping and Fishing products and lower margins on ammunition[114] - The company plans to open 15 new stores in fiscal year 2023 and is developing a plan to reduce expenses in response to adverse macroeconomic conditions[96][103] Results of Operations Q1 2023 net sales decreased by $42.0 million due to a 17.8% same-store sales drop, leading to a pre-tax loss of $21.0 million Departmental Net Sales Change (Q1 2023 vs Q1 2022) | Department | Change (in millions) | | :--- | :--- | | Hunting and Shooting | $(17.7) | | Camping | $(9.6) | | Fishing | $(7.6) | | Optics, Electronics, etc. | $(2.7) | | Apparel | $(2.6) | | Footwear | $(1.7) | - Within the Hunting and Shooting department, ammunition sales decreased by $16.9 million (27.1%), while firearm sales decreased by a smaller $1.6 million (1.9%)[112] - SG&A expenses increased by $2.9 million, primarily due to higher rent ($2.4M), depreciation ($1.4M), pre-opening expenses ($1.3M) for new stores, and executive transition costs ($1.1M)[115] Liquidity and Capital Resources Liquidity is primarily from a $350 million revolving credit facility, with $150.5 million available, funding capital expenditures and inventory growth - Primary sources of cash are borrowings under a $350.0 million senior secured revolving credit facility and operating cash flows[125] - As of April 29, 2023, $162.6 million was outstanding under the revolving credit facility, with $150.5 million available for borrowing[130][136] - Fiscal year 2023 capital expenditures are expected to be between $48 million and $56 million, primarily for opening 15 new stores and refurbishing existing ones[129] - The share repurchase program was extended through March 31, 2024, with $9.6 million remaining available for repurchases as of April 29, 2023[131][132] Non-GAAP Financial Measures Adjusted EBITDA for Q1 2023 was negative $5.6 million, a significant decline from $12.9 million in Q1 2022, with a margin of (2.1%) Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Line Item | Q1 2023 (13 weeks ended Apr 29) | Q1 2022 (13 weeks ended Apr 30) | | :--- | :--- | :--- | | Net (loss) income | $(15,639) | $1,998 | | Interest expense | $2,047 | $567 | | Income tax (benefit) expense | $(5,367) | $441 | | Depreciation and amortization | $8,782 | $7,411 | | Stock-based compensation expense | $1,250 | $1,358 | | Pre-opening expenses | $2,256 | $951 | | Director and officer transition costs | $1,113 | $222 | | Adjusted EBITDA | $(5,558) | $12,948 | | Adjusted EBITDA margin | (2.1)% | 4.2% | Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate exposure on the floating-rate credit facility; a 100 basis point increase would raise annual interest expense by $1.7 million - The principal market risk is from interest rate changes on the floating-rate revolving credit facility[153] - A hypothetical 100 basis point increase in interest rates would increase the company's annual interest expense by $1.7 million[153] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of April 29, 2023, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (April 29, 2023)[156] - No material changes to the internal control over financial reporting were identified during the first quarter of fiscal 2023[158] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal matters, including a $2.1 million settlement for a lease termination lawsuit - This section refers to Note 11, which discloses the settlement of the TMS McCarthy lawsuit regarding a lease termination. The company made a one-time payment of $2,087 thousand to settle the litigation[80][161] Item 1A. Risk Factors No material changes in risk factors were reported from those disclosed in the Fiscal 2022 Form 10-K - There have been no material changes in risk factors from those set forth in the Fiscal 2022 Form 10-K[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred; 97,500 shares were repurchased for $0.7 million, with $9.6 million remaining in the program - The Board of Directors extended the term of the $75.0 million share repurchase program through March 31, 2024[165] Share Repurchases in Q1 2023 | Period | Total of Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | March 31, 2023 to April 29, 2023 | 97,500 | $7.13 | $9,557 thousand | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including a retention agreement, compensation policy, and SOX certifications - Exhibits filed include a Retention Agreement dated April 27, 2023, the Directors' Compensation Policy, and Sarbanes-Oxley Act certifications[171]