Sportsman's Warehouse (SPWH)

Outdoor specialty retailer Sportsman's Warehouse (NASDAQ:SPWH) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 2% year on year to $249.1 million. Its non-GAAP loss of $0.41 per share was 13.5% above analysts’ consensus estimates.

Company Overview

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.

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).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $1.20 billion in revenue over the past 12 months, Sportsman's Warehouse is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, Sportsman's Warehouse’s sales grew at a tepid 6.1% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts). This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

This quarter, Sportsman's Warehouse reported modest year-on-year revenue growth of 2% but beat Wall Street’s estimates by 4.6%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last six years. This projection is underwhelming and implies its products will face some demand challenges.

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Sportsman's Warehouse’s demand has been shrinking over the last two years as its same-store sales have averaged 8.5% annual declines.

In the latest quarter, Sportsman's Warehouse’s same-store sales rose 2% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Sportsman's Warehouse has bad unit economics for a retailer, giving it less room to reinvest and grow its presence. As you can see below, it averaged a 30.4% gross margin over the last two years. That means Sportsman's Warehouse paid its suppliers a lot of money ($69.62 for every $100 in revenue) to run its business.

Sportsman's Warehouse’s gross profit margin came in at 30.4% this quarter, in line with the same quarter last year but missing analysts’ estimates by 1.5%. On a wider time horizon, Sportsman's Warehouse’s full-year margin has been trending up over the past 12 months, increasing by 1.1 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold.

Operating margin is a key profitability metric because it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Despite the consumer retail industry’s secular decline, unprofitable public companies are few and far between. Unfortunately, Sportsman's Warehouse was one of them over the last two years as its high expenses contributed to an average operating margin of negative 1.4%.

Analyzing the trend in its profitability, Sportsman's Warehouse’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Sportsman's Warehouse generated a negative 7.9% operating margin. The company's consistent lack of profits raise a flag.

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

Sportsman's Warehouse broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Sportsman's Warehouse failed to improve its margin over the last year. Its unexciting margin and trend likely have shareholders hoping for a change.

Sportsman's Warehouse burned through $64.05 million of cash in Q1, equivalent to a negative 25.7% margin. The company’s cash burn increased from $37.96 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Sportsman's Warehouse historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.4%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Sportsman's Warehouse burned through $6.49 million of cash over the last year, and its $528.4 million of debt exceeds the $3.56 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Sportsman's Warehouse’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Sportsman's Warehouse until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly Sportsman's Warehouse blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. On the other hand, its gross margin missed. Zooming out, we think this was a good print with some key areas of upside. The market seemed to be hoping for more, and the stock traded down 10.3% to $2.10 immediately after reporting.

Updated: June 23, 2025 at 10:32 PM EDT

Before deciding whether to buy Sportsman's Warehouse or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Sportsman's Warehouse falls short of our quality standards. First off, its revenue growth was a little slower over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its operating margins reveal poor profitability compared to other retailers. On top of that, its shrinking same-store sales tell us it will need to change its strategy to succeed.

Sportsman's Warehouse’s EV-to-EBITDA ratio based on the next 12 months is 3.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $3.20 on the company (compared to the current share price of $3.20).