Sportsman's Warehouse (NASDAQ:SPWH) Reports Bullish Q3 But Stock Drops

Full Report / December 06, 2023

Outdoor specialty retailer Sportsman's Warehouse (NASDAQ:SPWH) reported results ahead of analysts' expectations in Q3 FY2023, with revenue down 5.3% year on year to $340.6 million. Guidance for next quarter's revenue was also optimistic at $377.5 million at the midpoint, 2.3% above analysts' estimates. It made a non-GAAP loss of $0.01 per share, down from its profit of $0.34 per share in the same quarter last year.

Sportsman's Warehouse (SPWH) Q3 FY2023 Highlights:

  • Revenue: $340.6 million vs analyst estimates of $323.9 million (5.1% beat)
  • EPS (non-GAAP): -$0.01 vs analyst estimates of -$0.12
  • Revenue Guidance for Q4 2023 is $377.5 million at the midpoint, above analyst estimates of $368.9 million
  • EPS Guidance for Q4 2023 is ($0.30) at the midpoint, well below estimates of $0.03
  • Free Cash Flow of $22.49 million is up from -$9.35 million in the same quarter last year
  • Gross Margin (GAAP): 30.3%, down from 33.6% in the same quarter last year
  • Same-Store Sales were down 11.4% year on year (beat vs. expectations of down 15.8% year on year)

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.

The company was founded in 1986 and its extensive selection encompasses everything from fishing rods and camping tents to firearms and apparel designed to withstand rugged environments.

Sportsman’s Warehouse views itself as not only a retailer but also a central pillar of the outdoor community. The company often hosts workshops, seminars, and events that provide insights into outdoor activities, gear maintenance, and safety practices.

Consistent with this theme, each store is designed to promote community building and acts as a hub for like-minded individuals to gather, exchange stories, and share their love for the outdoors. The stores feature spacious layouts that showcase a wide array of products, making it easy for customers to explore and discover the right gear for their specific interests.

Sportsman's Warehouse also staffs its stores with knowledgeable associates, often experienced outdoor enthusiasts themselves, to offer personalized recommendations, answer questions, and share insights to help customers make informed decisions.

Whether customers are seasoned outdoor veterans or newcomers looking to explore the natural world, Sportsman's Warehouse Holdings offers a comprehensive selection of products and resources to elevate their outdoor experiences.

Sports & Outdoor Equipment Retailer

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.

Retailers offering sporting and outdoor goods include Academy Sports and Outdoor (NASDAQ:ASO), Camping World (NYSE:CWH), Dick’s Sporting Goods (NYSE:DKS), and Hibbett (NASDAQ:HIBB).

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 10.5% 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's revenue fell 5.3% year on year to $340.6 million but beat Wall Street's estimates by 5.1%. The company is guiding for revenue to rise 0.5% year on year to $377.5 million next quarter, improving from the 8.9% year-on-year decrease it recorded in the same quarter last year. Looking ahead, the Wall Street analysts covering the company expect revenue to remain relatively flat over the next 12 months.

Same-Store Sales

Sportsman's Warehouse's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 7.8% 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 11.4% year on year. This decrease was a further deceleration from the 15% year-on-year decline it posted 12 months ago. We hope the business can get back on track.

Gross Margin & Pricing Power

Sportsman's Warehouse has weak unit economics for a retailer, making it difficult to reinvest in the business. As you can see below, it's averaged a 32.1% gross margin over the last eight quarters. This means the company makes $0.32 for every $1 in revenue before accounting for its operating expenses. Sportsman's Warehouse Gross Margin (GAAP)

Sportsman's Warehouse's gross profit margin came in at 30.3% this quarter, marking a 3.3 percentage point decrease from 33.6% in the same quarter last year. Although the company could've performed better, we care more about its long-term trends rather than just one quarter. Additionally, a retailer's gross margin can often change due to factors outside its control, such as product discounting and dynamic input costs (think distribution and freight expenses to move goods). We'll keep a close eye on this.

Operating Margin

Operating margin is a key profitability metric for retailers because it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

In Q3, Sportsman's Warehouse generated an operating profit margin of 0.9%, down 4.3 percentage points year on year. We can infer Sportsman's Warehouse was less efficient with its expenses or had lower leverage on its fixed costs because its operating margin decreased more than its gross margin.

Sportsman's Warehouse Operating Margin (GAAP)

Zooming out, Sportsman's Warehouse was profitable over the last two years but held back by its large expense base. Its average operating margin of 2.1% has been paltry for a consumer retail business. On top of that, Sportsman's Warehouse's margin has declined, on average, by 5 percentage points year on year. This shows the company is heading in the wrong direction, and investors were likely hoping for better results.


These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.

In Q3, Sportsman's Warehouse reported EPS at negative $0.01, down from $0.34 in the same quarter a year ago. This print beat Wall Street's estimates by 91.7%.

Sportsman's Warehouse EPS (Adjusted)

Between FY2019 and FY2023, Sportsman's Warehouse's adjusted diluted EPS dropped 195%, translating into 48.8% average annual declines. In a mature sector such as consumer retail, we tend to steer our readers away from companies with multiple years of falling EPS. If there's no earnings growth, it's difficult to build confidence in a business's underlying fundamentals, leaving a low margin of safety around the company's valuation (making the stock susceptible to large downward swings).

Wall Street expects Sportsman's Warehouse to continue performing poorly over the next 12 months, with analysts projecting year-on-year declines in EPS.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe in the end, cash is king, and you can't use accounting profits to pay the bills.

Sportsman's Warehouse's free cash flow came in at $22.49 million in Q3, representing a 6.6% margin and flipping from negative in the same quarter last year to positive this quarter. Seasonal factors aside, this was great for the business.

Sportsman's Warehouse Free Cash Flow Margin

While Sportsman's Warehouse posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last eight quarters, Sportsman's Warehouse's capital-intensive business model and large investments in new store buildouts have consumed many company resources. Its free cash flow margin has averaged negative 3.5%, poor for a consumer retail business. Furthermore, its margin has averaged year-on-year declines of 8.1 percentage points. We'll keep an eye on this as almost any movement in the wrong direction is undesirable given it's already burning cash. The company will need to improve its free cash flow conversion if it wants to survive (and ultimately thrive).

Key Takeaways from Sportsman's Warehouse's Q3 Results

With a market capitalization of $189.5 million, Sportsman's Warehouse is among smaller companies, but its more than $2.92 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

We were impressed that same-store sales, revenue, and EPS beat analysts' expectations this quarter. On the other hand, next quarter's EPS guidance was well below expectations. The company blamed "more aggressive promotional activities" and said that gross margins will contract meaningfully because of this. Zooming out, we think this was a fine quarter but with weak guidance. The stock is down 5.8% after reporting, trading at $5.01 per share.

Is Now The Time?

Sportsman's Warehouse may have had a mixed quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Sportsman's Warehouse, we'll be cheering from the sidelines. Although its revenue growth has been decent over the last four years, its declining EPS over the last four years hurt its performance. And while its new store openings show it's growing its brand, the downside is its projected EPS for the next year is lacking.

While we've no doubt one can find things to like about Sportsman's Warehouse, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

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