Sportsman’s Warehouse(US:SPWH)2021-04-02 16:38Part I Business Sportsman's Warehouse operates 112 outdoor sporting goods stores across 27 states, with a proposed merger with Great Outdoors Group for $18.00 per share pending regulatory approval - As of January 30, 2021, the company operates 112 stores across 27 states, primarily in the Western United States and Alaska1938 - On December 21, 2020, the company entered into a merger agreement with Great Outdoors Group, LLC, to be acquired for $18.00 per share in cash, pending regulatory approval and expected to close in the second half of calendar year 2021212228 Net Sales by Department (Fiscal Years 2019-2021) | Department | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Hunting and Shooting | 57.6% | 49.1% | 48.3% | | Camping | 12.7% | 14.4% | 14.2% | | Fishing | 9.9% | 11.1% | 10.6% | | Apparel | 7.5% | 9.3% | 8.9% | | Optics, Electronics, Accessories, and Other | 6.7% | 8.6% | 10.7% | | Footwear | 5.6% | 7.5% | 7.3% | | Total | 100.0% | 100.0% | 100.0% | - The company plans to open 8 to 12 new stores in fiscal year 2021, targeting an annual square footage growth rate of 6% to 10%4559 - The company's loyalty program has approximately 2.7 million participants and generated about 45% of revenue as of January 30, 202181 - In response to the COVID-19 pandemic, the company provided $6.5 million in 'hero pay' to its employees during fiscal year 2020139 Risk Factors The company faces significant risks including potential merger failure, extensive firearms regulation, COVID-19 impacts, and operational reliance on a single distribution center - The consummation of the merger with Great Outdoors Group is subject to closing conditions, including HSR Act clearance, and failure to complete it could adversely affect stock price and business operations147149154 - The business is highly susceptible to changes in federal, state, and local regulations concerning the sale of firearms and ammunition, which could decrease demand and increase operating expenses164168 - The COVID-19 pandemic poses risks including potential store closures, supply chain interruptions, and shifts in consumer discretionary spending, with current high demand for firearms and ammunition outpacing supply172174175 - A majority of stores are located in the Western U.S., making the company vulnerable to regional economic conditions, natural disasters, and specific regulatory changes177 - The company relies on a single distribution center in Salt Lake City, Utah, where any disruption could significantly impair its ability to stock stores and fulfill orders183 - The discontinuation of LIBOR, a reference rate for the company's variable-rate debt, by the end of 2021 (or June 2023 for some tenors) could lead to increased interest costs217218 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None236 Properties The company leases all 112 retail stores, its corporate headquarters, and its 507,000 square foot distribution center in Salt Lake City, totaling approximately 4.5 million gross square feet - The company does not own any material real property and leases all 112 store locations, its corporate headquarters, and its distribution center237 - The main distribution center is a 507,000 square foot facility in Salt Lake City, Utah, believed to be sufficient to support a network of 120 or more stores238 - The 112 retail stores total approximately 4.5 million gross square feet, with leases typically ranging from five to fifteen years, often with renewal options239 Legal Proceedings The company is facing seven purported stockholder lawsuits regarding the Great Outdoors Group merger proxy statement, three of which have been dismissed, and other incidental legal proceedings - As of April 1, 2021, seven lawsuits were filed by purported stockholders alleging the merger proxy statement was false and misleading, with three actions subsequently dismissed240241 - The company is also a defendant in litigation related to the Route 91 Harvest Festival shooting and a lease termination dispute, believing the claims are without merit and unable to estimate potential losses521522 Mine Safety Disclosures This item is not applicable to the company - Not Applicable245 Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "SPWH," with no dividends paid in fiscal 2020 or 2019, nor anticipated due to merger restrictions - The company's common stock is listed on the Nasdaq under the symbol "SPWH"247 - No cash dividends were paid in fiscal year 2020 or 2019, and none are anticipated in the foreseeable future, with the pending merger agreement also restricting dividend payments248249 Selected Financial Data As a smaller reporting company, Sportsman's Warehouse is not required to provide this information - The company is a smaller reporting company and is not required to provide this information250 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2020 saw net sales increase by 63.8% to $1.45 billion, driven by a 48.3% rise in same-store sales and strong hunting and shooting category growth, while gross margin slightly decreased due to product mix shifts Fiscal Year 2020 vs. 2019 Performance | Metric | Fiscal Year 2020 | Fiscal Year 2019 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,451.8M | $886.4M | +$565.4M | +63.8% | | Same Store Sales | - | - | - | +48.3% | | Gross Profit | $476.4M | $296.6M | +$179.8M | +60.6% | | Gross Margin | 32.8% | 33.5% | - | -70 bps | | Net Income | $91.4M | $20.2M | +$71.2M | +352.2% | - The increase in net sales was driven by heightened demand from the COVID-19 pandemic, the presidential election, social unrest, and strong growth in the e-commerce platform286 - The Hunting and Shooting category sales increased by 91.1% ($397.1 million) in fiscal 2020, with firearm and ammunition sales growing 115.5% and 93.7%, respectively287 - The company repaid its term loan and all outstanding amounts under its revolving credit facility during fiscal year 2020, leaving no outstanding indebtedness as of January 30, 2021291314 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | | :--- | :--- | :--- | :--- | | Net income | $91,380 | $20,215 | $23,750 | | Interest expense | 3,506 | 7,995 | 13,206 | | Income tax expense | 30,080 | 5,254 | 7,063 | | Depreciation and amortization | 21,830 | 19,321 | 18,250 | | Stock-based compensation expense | 3,302 | 2,104 | 1,742 | | Pre-opening expenses | 1,942 | 2,695 | 1,838 | | Hazard pay and CEO retirement | 6,526 | — | 2,647 | | Acquisition costs | 3,710 | 662 | — | | Bargain purchase | (2,218) | — | — | | Legal accrual | 2,125 | — | — | | Store closure | 1,039 | — | — | | Executive transition costs | — | 770 | — | | Adjusted EBITDA | $163,222 | $59,016 | $68,496 | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Sportsman's Warehouse is not required to provide this information - The company is a smaller reporting company and is not required to provide this information350 Financial Statements and Supplementary Data Fiscal year 2020 consolidated financial statements show total assets of $660.8 million, total liabilities of $456.2 million, net sales of $1.45 billion, and net income of $91.4 million, with strong operating cash flow of $238.8 million Consolidated Balance Sheet Data (in thousands) | | Jan 30, 2021 | Feb 1, 2020 | | :--- | :--- | :--- | | Total current assets | $324,653 | $291,638 | | Total assets | $660,818 | $616,641 | | Total current liabilities | $227,428 | $264,776 | | Total liabilities | $456,158 | $506,373 | | Total stockholders' equity | $204,660 | $110,268 | Consolidated Income Statement Data (in thousands, except per share data) | | FY ended Jan 30, 2021 | FY ended Feb 1, 2020 | FY ended Feb 2, 2019 | | :--- | :--- | :--- | :--- | | Net sales | $1,451,767 | $886,401 | $849,129 | | Gross profit | $476,454 | $296,633 | $284,930 | | Income from operations | $122,748 | $33,464 | $44,019 | | Net income | $91,380 | $20,215 | $23,750 | | Diluted EPS | $2.06 | $0.46 | $0.55 | Consolidated Cash Flow Data (in thousands) | | FY ended Jan 30, 2021 | FY ended Feb 1, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $238,816 | $77,866 | | Net cash used in investing activities | ($26,227) | ($49,064) | | Net cash used in financing activities | ($148,749) | ($28,664) | - In fiscal 2020, the company acquired four Field & Stream stores from DICK'S Sporting Goods for approximately $6.5 million, resulting in a bargain purchase gain of $2.2 million440443445 - The company's Term Loan, with a $30.0 million balance at the beginning of the fiscal year, was paid in full during fiscal year 2020486487 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None529 Controls and Procedures Management concluded disclosure controls were effective as of January 30, 2021, having remediated a prior material weakness in IT general controls, and the independent auditor issued an unqualified opinion on internal control effectiveness - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of January 30, 2021530 - A material weakness in IT general controls (ITGCs) previously reported for the fiscal year ended February 1, 2020, has been remediated as of January 30, 2021537539 - Management's assessment of internal controls excluded the four Field & Stream stores acquired during fiscal 2020, which represent 4.5% of total assets and 2.4% of total revenues535 - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of January 30, 2021542 Other Information The company reports no other information for this item - None550 Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for these items is incorporated by reference from the company's Definitive Proxy Statement for its 2021 Annual Meeting of Shareholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Registrant's Definitive Proxy Statement for the 2021 Annual Meeting of Shareholders553554555 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K report, including the Merger Agreement and credit agreements - This section contains the list of financial statements and exhibits filed with the report562 - Key exhibits filed include the Merger Agreement with Great Outdoors Group, credit agreements, and management compensation plans561563 Form 10-K Summary This item is not applicable to the company - Not Applicable565