Sportsman's Warehouse (NASDAQ:SPWH) Misses Q2 Sales Targets, Stock Drops 19.9%

Radek Strnad /
2023/09/06 4:30 pm EDT

Outdoor specialty retailer Sportsman's Warehouse (NASDAQ:SPWH) fell short of analysts' expectations in Q2 FY2023, with revenue down 11.8% year on year to $309.5 million. Turning to EPS, Sportsman's Warehouse made a non-GAAP loss of $0.04 per share, down from its profit of $0.36 per share in the same quarter last year.

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Sportsman's Warehouse (SPWH) Q2 FY2023 Highlights:

  • Revenue: $309.5 million vs analyst estimates of $326 million (5.06% miss)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of $0.08
  • Revenue Guidance for Q3 2023 is $320 million at the midpoint, below analyst estimates of $378.7 million
  • EPS (non-GAAP) Guidance for Q3 2023 is -$0.13 at the midpoint, below analyst estimates of $0.33
  • Free Cash Flow was -$50.6 million, down from $14.2 million in the same quarter last year
  • Gross Margin (GAAP): 32.6%, down from 33.5% in the same quarter last year
  • Same-Store Sales were down 16.1% year on year

“We were disappointed with our second quarter results and the slow-down in store traffic, as the challenging macroeconomic conditions continue to pressure consumer discretionary spending,” said Joseph Schneider, interim CEO and Chair of the Board.

A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ:SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.

Some of us spend our leisure time vegging out, but many others take to the courts, fields, beaches, and campsites; sports equipment retailers cater to the avid sportsman as well as the weekend warrior. Shoppers can find everything from tents to lawn games to baseball bats to satisfy their athletic and leisure needs along with competitive prices and helpful store associates that can talk through brands, sizing, and product quality. This is a category that has moved rapidly online over the last few decades, so these sports and outdoor equipment retailers have needed to be nimble and aggressive with their e-commerce and omnichannel presences.

Sales Growth

Sportsman's Warehouse is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.

As you can see below, the company's annualized revenue growth rate of 11.5% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it opened new stores and expanded its reach.

Sportsman's Warehouse Total Revenue

This quarter, Sportsman's Warehouse reported a rather uninspiring 11.8% year-on-year revenue decline, missing analysts' expectations. The company is guiding for a 11% year-on-year revenue decline next quarter to $320 million, a further deceleration from the 10.3% year-on-year decrease it recorded in the same quarter last year. Looking ahead, the analysts covering the company expect sales to grow 11% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Same-Store Sales

Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.

Sportsman's Warehouse's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 6.59% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

Sportsman's Warehouse Year On Year Same Store Sales Growth

In the latest quarter, Sportsman's Warehouse's same-store sales fell 16.1% year on year. This decline was a reversal from the 9.4% year-on-year increase it posted 12 months ago. A one quarter hiccup isn't material for the long-term prospects of a business, but we'll keep a close eye on the company.

Key Takeaways from Sportsman's Warehouse's Q2 Results

With a market capitalization of $167.7 million, Sportsman's Warehouse is among smaller companies, but its more than $2.89 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

We struggled to find many positives in these results. This quarter's revenue and EPS came in below Wall Street's estimates. Its full-year revenue guidance also came in significantly below analysts' expectations. Given the decrease in demand, Sportsman's Warehouse said it would be more aggressive in its promotional activity to drive foot traffic to its stores, putting pressure on its profit margins in future quarters. Furthermore, the company has yet to find a permanent CEO. Overall, this was a bad quarter and the stock is down 19.9% on the results. It currently trades at $3.62 per share.

So should you invest in Sportsman's Warehouse right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.