Sportsman's Warehouse Rallies On Q3 Earnings Surprise: Gross Margins Shine Amid Declining Sales

Sportsman’s Warehouse Holdings, Inc. SPWH shares are trading higher premarket on Wednesday.

On Tuesday, the company reported a net sales decline of 4.8% year over year to $324.3 million, beating the consensus of $287.1 million.

Sales decreased year over year primarily due to inflationary pressures reducing discretionary spending. This led to lower store traffic and decreased demand across most product categories, especially ammunition, apparel, and footwear.

Same-store sales fell 5.7% owing to the impact of consumer inflationary pressures and recessionary concerns on discretionary spending.

Gross profit was $103.1 million versus $103.2 million a year ago, with a gross margin of 31.8% compared to 30.3% of net sales in the prior year’s third quarter. The 150 basis-point improvement was mainly driven by higher product margins in the apparel and footwear categories.

Adjusted EPS of $0.04 surpassed the consensus loss of $0.09.

At the end of the third quarter, the company reported net debt of $151.3 million and $2.7 million in cash and cash equivalents.

Outlook: The company revised its FY24 guidance for net sales to $1.18 billion – $1.20 billion (from $1.13 billion – $1.17 billion prior) vs. an estimate of $1.147 billion and adjusted EBITDA to $23 million – $29 million from $20 million – $35 million earlier.

The company now expects capital expenditures of $17 million – $20 million vs. $20 million to $25 million earlier, primarily for technology investments in merchandising and store productivity.

Sportsman’s Warehouse has no planned new store openings for the remainder of fiscal 2024, with one store expected to open in fiscal 2025.

Jeff White, Chief Financial Officer of Sportsman’s Warehouse, said, “Given the current consumer environment and the shift towards value and promotion-driven shopping, we intensified our marketing and advertising campaigns to drive sales, which placed additional pressure on our margins this quarter.”  

“To ensure strong core product in-stocks and to bring fresh offerings to our stores, we made strategic inventory investments aimed at improving sales during the hunting and holiday seasons.”

”As we progress through the remainder of the year, we will remain disciplined in managing our expenses, and will reduce total inventory levels to generate positive free cash flow. Our mid and long-term objectives will be centered on improving our topline with a focus on margins and profitability.”

Price Action: SPWH shares are up 14.3% at $2.80 premarket at the last check Wednesday.

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