10-Q 1 spwh-20231028.htm 10-Q 10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______to_______

Commission File Number: 001-36401

 

SPORTSMAN’S WAREHOUSE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

39-1975614

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

1475 West 9000 South, Suite A, West Jordan, Utah

 

84088

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (801) 566-6681

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $.01 par value

SPWH

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

 


Table of Contents

The number of shares of the registrant's common stock, $0.01 par value per share, outstanding as of December 1, 2023 was 37,412,194.

 

 


Table of Contents

SPORTSMAN’S WAREHOUSE HOLDINGS, INC.

 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (unaudited):

4

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

 

 

Condensed Consolidated Statements of Operations

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

35

 

 

 

 

Signatures

37

 

 

 

 

We operate on a fiscal calendar that, in a given fiscal year, consists of the 52- or 53-week period ending on the Saturday closest to January 31st. Our third fiscal quarters ended October 28, 2023 and October 29, 2022 both consisted of 13 weeks and are referred to herein as the third quarter of fiscal year 2023 and the third quarter of fiscal year 2022, respectively. Fiscal year 2023 contains 53 weeks of operations and will end on February 3, 2024. Fiscal year 2022 contained 52 weeks of operations and ended on January 28, 2023.

 


Table of Contents

References throughout this document to “Sportsman’s Warehouse,” “we,” “us,” and “our” refer to Sportsman’s Warehouse Holdings, Inc. and its subsidiaries, and references to “Holdings” refer to Sportsman’s Warehouse Holdings, Inc. excluding its subsidiaries. References to (i) “fiscal year 2023” refer to our fiscal year ending February 3, 2024; (ii) “fiscal year 2022” refer to our fiscal year ended January 28, 2023; and (iii) “fiscal year 2021” refer to our fiscal year ended January 29, 2022.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “10-Q”) contains statements that constitute forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. These statements concern our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition, which are subject to risks and uncertainties. All statements other than statements of historical fact included in this 10-Q are forward-looking statements. These statements may include words such as “aim,” “anticipate,” “assume,” “believe,” “can,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “likely,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “should,” “target,” “will,” “would” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events or trends. For example, all statements we make relating to our plans and objectives for future operations, growth or initiatives and strategies are forward-looking statements.

 

These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. We derive many of our forward-looking statements from our own operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that predicting the impact of known factors is very difficult, and we cannot anticipate all factors that could affect our actual results.

 

All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from our expectations. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to:

 

current and future government regulations, in particular regulations relating to the sale of firearms and ammunition, which may impact the supply and demand for our products and our ability to conduct our business;
our retail-based business model which is impacted by general economic and market conditions and economic, market and financial uncertainties that may cause a decline in consumer spending;
our concentration of stores in the Western United States which makes us susceptible to adverse conditions in this region, and could affect our sales and cause our operating results to suffer;
the highly fragmented and competitive industry in which we operate and the potential for increased competition;
changes in consumer demands, including regional preferences, which we may not be able to identify and respond to in a timely manner;
our entrance into new markets or operations in existing markets, including our plans to open additional stores in future periods, which may not be successful;
our implementation of a plan to reduce expenses in response to adverse macroeconomic conditions, including an increased focus on financial discipline and rigor throughout our organization; and
the impact of general macroeconomic conditions, such as labor shortages, inflation, rising interest rates, economic slowdowns, recessions or market corrections, liquidity concerns at, and failures of, banks and other financial institutions, and tightening credit markets on our operations.

 

The above is not a complete list of factors or events that could cause actual results to differ from our expectations, and we cannot predict all of them. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements disclosed under “Part I.,

2


Table of Contents

Item 1A., Risk Factors,” appearing in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (our “Fiscal 2022 Form 10-K”) and “Part I., Item 2., Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this 10-Q, as such disclosures may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”), including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, and public communications. You should evaluate all forward-looking statements made in this 10-Q and otherwise in the context of these risks and uncertainties.

 

Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on any forward-looking statements we make. These forward-looking statements speak only as of the date of this 10-Q and are not guarantees of future performance or developments and involve known and unknown risks, uncertainties and other factors that are in many cases beyond our control. Except as required by law, we undertake no obligation to update or revise any forward-looking statements publicly, whether as a result of new information, future developments or otherwise.

 

 

3


Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SPORTSMAN’S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts in Thousands, Except Par Value Data

(unaudited)

 

 

October 28,

 

 

January 28,

 

 

2023

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,915

 

 

$

2,389

 

Accounts receivable, net

 

 

3,105

 

 

 

2,053

 

Income tax receivable

 

 

622

 

 

 

 

Merchandise inventories

 

 

446,324

 

 

 

399,128

 

Prepaid expenses and other

 

 

29,615

 

 

 

22,326

 

Total current assets

 

 

482,581

 

 

 

425,896

 

Operating lease right of use asset

 

 

296,328

 

 

 

268,593

 

Property and equipment, net

 

 

199,555

 

 

 

162,586

 

Goodwill

 

 

1,496

 

 

 

1,496

 

Definite lived intangibles, net

 

 

344

 

 

 

389

 

Total assets

 

$

980,304

 

 

$

858,960

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

83,296

 

 

$

61,948

 

Accrued expenses

 

 

88,851

 

 

 

99,976

 

Income taxes payable

 

 

 

 

 

932

 

Operating lease liability, current

 

 

48,254

 

 

 

45,465

 

Revolving line of credit

 

 

185,388

 

 

 

87,503

 

Total current liabilities

 

 

405,789

 

 

 

295,824

 

Long-term liabilities:

 

 

 

 

 

 

Deferred income taxes

 

 

2,880

 

 

 

9,544

 

Operating lease liability, noncurrent

 

 

299,379

 

 

 

260,479

 

Total long-term liabilities

 

 

302,259

 

 

 

270,023

 

Total liabilities

 

 

708,048

 

 

 

565,847

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $.01 par value; 20,000 shares authorized; 0 shares issued and outstanding

 

 

 

 

 

 

Common stock, $.01 par value; 100,000 shares authorized; 37,411 and 37,541 shares issued and outstanding, respectively

 

 

374

 

 

 

375

 

Additional paid-in capital

 

 

80,760

 

 

 

79,743

 

Accumulated earnings

 

 

191,122

 

 

 

212,995

 

Total stockholders' equity

 

 

272,256

 

 

 

293,113

 

Total liabilities and stockholders' equity

 

$

980,304

 

 

$

858,960

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


Table of Contents

SPORTSMAN'S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Amounts in Thousands, Except Per Share Data

(unaudited)

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

 

$

340,569

 

 

$

359,720

 

 

$

917,593

 

 

$

1,020,246

 

Cost of goods sold

 

 

237,384

 

 

 

238,898

 

 

 

633,547

 

 

 

682,794

 

Gross profit

 

 

103,185

 

 

 

120,822

 

 

 

284,046

 

 

 

337,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

100,113

 

 

 

102,322

 

 

 

301,450

 

 

 

295,430

 

Income (loss) from operations

 

 

3,072

 

 

 

18,500

 

 

 

(17,404

)

 

 

42,022

 

Interest expense

 

 

3,944

 

 

 

1,187

 

 

 

9,518

 

 

 

2,521

 

(Loss) income before income taxes

 

 

(872

)

 

 

17,313

 

 

 

(26,922

)

 

 

39,501

 

Income tax expense (benefit)

 

 

459

 

 

 

4,436

 

 

 

(6,664

)

 

 

10,012

 

Net (loss) income

 

$

(1,331

)

 

$

12,877

 

 

$

(20,258

)

 

$

29,489

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

0.34

 

 

$

(0.54

)

 

$

0.71

 

Diluted

 

$

(0.04

)

 

$

0.33

 

 

$

(0.54

)

 

$

0.71

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

37,393

 

 

 

38,414

 

 

 

37,500

 

 

 

41,438

 

Diluted

 

 

37,393

 

 

 

38,681

 

 

 

37,500

 

 

 

41,672

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Table of Contents

SPORTSMAN'S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Amounts in Thousands

(unaudited)

 

For the Thirteen Weeks Ended October 28, 2023 and October 29, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

Restricted nonvoting

 

 

 

 

 

 

 

 

paid-in-

 

 

(deficit)

 

 

stockholders'

 

 

Common Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

capital

 

 

earnings

 

 

equity

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Amount

 

 

Amount

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 30, 2022

 

 

44,215

 

 

$

442

 

 

 

 

 

$

 

 

 

5,348

 

 

$

(52,057

)

 

$

91,976

 

 

$

239,491

 

 

$

279,852

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,193

 

 

 

(10,354

)

 

 

 

 

 

 

 

 

(10,354

)

Retirement of treasury stock

 

 

(6,541

)

 

 

(65

)

 

 

 

 

 

 

 

 

(6,541

)

 

 

62,411

 

 

 

(13,738

)

 

 

(48,608

)

 

 

 

Vesting of restricted stock units

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of withholdings on restricted stock units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(146

)

 

 

 

 

 

(146

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,077

 

 

 

 

 

 

1,077

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,877

 

 

 

12,877

 

Balance at October 29, 2022

 

 

37,697

 

 

$

377

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

79,169

 

 

$

203,760

 

 

$

283,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 29, 2023

 

 

37,381

 

 

$

374

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

79,887

 

 

$

192,453

 

 

$

272,714

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of withholdings on
restricted stock units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(92

)

 

 

 

 

 

(92

)

Issuance of common stock for
cash per employee stock purchase
plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

965

 

 

 

 

 

 

965

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,331

)

 

 

(1,331

)

Balance at October 28, 2023

 

 

37,411

 

 

$

374

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

80,760

 

 

$

191,122

 

 

$

272,256

 

 

6


Table of Contents

 

For the Thirty-Nine Weeks Ended October 28, 2023 and October 29, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

Restricted nonvoting

 

 

 

 

 

 

 

 

paid-in-

 

 

(deficit)

 

 

stockholders

 

 

Common Stock

 

 

common stock

 

 

Treasury Stock

 

 

capital

 

 

earnings

 

 

equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Amount

 

 

Amount

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 29, 2022

 

 

43,880

 

 

$

439

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

90,851

 

 

$

222,879

 

 

$

314,169

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,541

 

 

 

(62,411

)

 

 

 

 

 

 

 

 

(62,411

)

Retirement of treasury stock

 

 

(6,541

)

 

 

(65

)

 

 

 

 

 

 

 

 

(6,541

)

 

 

62,411

 

 

 

(13,738

)

 

 

(48,608

)

 

 

 

Vesting of restricted stock units

 

 

294

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

Payment of withholdings on
restricted stock units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,993

)

 

 

 

 

 

(1,993

)

Issuance of common stock for
cash per employee stock purchase
plan

 

 

64

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

525

 

 

 

 

 

 

526

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,526

 

 

 

 

 

 

3,526

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,489

 

 

 

29,489

 

Balance at October 29, 2022

 

 

37,697

 

 

$

377

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

79,169

 

 

$

203,760

 

 

$

283,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 28, 2023

 

 

37,541

 

 

$

375

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

79,743

 

 

$

212,995

 

 

$

293,113

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

529

 

 

 

(2,748

)

 

 

 

 

 

 

 

 

(2,748

)

Retirement of treasury stock

 

 

(529

)

 

 

(5

)

 

 

 

 

 

 

 

 

(529

)

 

 

2,748

 

 

 

(1,128

)

 

 

(1,615

)

 

 

 

Vesting of restricted stock units

 

 

326

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

Payment of withholdings on
restricted stock units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,649

)

 

 

 

 

 

(1,649

)

Issuance of common stock for
cash per employee stock purchase
plan

 

 

73

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

456

 

 

 

 

 

 

457

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,341

 

 

 

 

 

 

3,341

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,258

)

 

 

(20,258

)

Balance at October 28, 2023

 

 

37,411

 

 

$

374

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

80,760

 

 

$

191,122

 

 

$

272,256

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


Table of Contents

SPORTSMAN'S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in Thousands

(unaudited)

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(20,258

)

 

$

29,489

 

 Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

28,367

 

 

 

22,961

 

Amortization of deferred financing fees

 

 

114

 

 

 

146

 

Amortization of definite lived intangible

 

 

45

 

 

 

51

 

Noncash lease expense

 

 

24,493

 

 

 

21,169

 

Deferred income taxes

 

 

(6,664

)

 

 

(1,486

)

Stock-based compensation

 

 

3,341

 

 

 

3,526

 

Change in operating assets and liabilities, net of amounts acquired:

 

 

 

 

 

 

Accounts receivable, net

 

 

(1,051

)

 

 

252

 

Operating lease liabilities

 

 

(10,539

)

 

 

(18,580

)

Merchandise inventories

 

 

(47,196

)

 

 

(98,596

)

Prepaid expenses and other

 

 

(7,403

)

 

 

3,135

 

Accounts payable

 

 

26,081

 

 

 

68,327

 

Accrued expenses

 

 

(4,413

)

 

 

(11,369

)

Income taxes payable and receivable

 

 

(1,554

)

 

 

(4,516

)

Net cash (used in) provided by operating activities

 

 

(16,637

)

 

 

14,509

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment, net of amounts acquired

 

 

(71,170

)

 

 

(38,477

)

Net cash used in investing activities

 

 

(71,170

)

 

 

(38,477

)

Cash flows from financing activities:

 

 

 

 

 

 

Net borrowings on line of credit

 

 

97,885

 

 

 

39,010

 

Decrease in book overdraft

 

 

(5,611

)

 

 

(5,113

)

Proceeds from issuance of common stock per employee stock purchase plan

 

 

456

 

 

 

525

 

Payments to acquire treasury stock

 

 

(2,748

)

 

 

(62,411

)

Payment of withholdings on restricted stock units

 

 

(1,649

)

 

 

(1,993

)

Payment of deferred financing costs

 

 

 

 

 

(508

)

Net cash provided by (used in) financing activities

 

 

88,333

 

 

 

(30,490

)

Net change in cash and cash equivalents

 

 

526

 

 

 

(54,458

)

Cash and cash equivalents at beginning of period

 

 

2,389

 

 

 

57,018

 

Cash and cash equivalents at end of period

 

$

2,915

 

 

$

2,560

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

8,551

 

 

$

2,349

 

Income taxes, net of refunds

 

 

1,554

 

 

 

16,014

 

 

 

 

 

 

 

 

Supplemental schedule of noncash activities:

 

 

 

 

 

 

Noncash change in operating lease right of use asset and operating lease liabilities from remeasurement of existing leases and addition of new leases

 

$

52,314

 

 

$

46,050

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

3,583

 

 

$

7,223

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


Table of Contents

SPORTSMAN’S WAREHOUSE HOLDINGS, INC.

AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

Dollars in Thousands, except per share amounts (unaudited)

(1) Description of Business and Basis of Presentation

Description of Business

Sportsman’s Warehouse Holdings, Inc., a Delaware corporation (“Holdings”), and its subsidiaries (collectively, the “Company”) operate retail sporting goods stores. As of October 28, 2023, the Company operated 145 stores in 32 states. The Company also operates an e-commerce platform at www.sportsmans.com. The Company’s stores and website are aggregated into one operating and reportable segment.

Basis of Presentation

The condensed consolidated financial statements included herein are unaudited and have been prepared by management of the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company’s condensed consolidated balance sheet as of January 28, 2023 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments that are, in the opinion of management, necessary to summarize fairly the Company's condensed consolidated financial statements for the periods presented. All of these adjustments are of a normal recurring nature. The results of the fiscal quarter ended October 28, 2023 are not necessarily indicative of the results to be obtained for the fiscal year ending February 3, 2024. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023 filed with the SEC on April 13, 2023 (the “Fiscal 2022 Form 10-K”).

(2) Summary of Significant Accounting Policies

 

The Company’s significant accounting policies are described in Note 2 to the Fiscal 2022 Form 10-K. Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in the condensed consolidated financial statements presented herein.

(3) Revenue Recognition

Revenue recognition accounting policy

The Company operates solely as an outdoor retailer, which includes both retail stores and an e-commerce platform, and offers a broad range of products in the United States and online. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Accordingly, the Company implicitly enters into a contract with customers to deliver merchandise inventory at the point of sale. Collectability is reasonably assured since the Company only extends credit for immaterial purchases to certain municipalities.

Substantially all of the Company’s revenue is for single performance obligations for the following distinct items:

Retail store sales
E-commerce sales
Gift cards and loyalty rewards program

9


Table of Contents

For performance obligations related to retail store and e-commerce sales contracts, the Company typically transfers control, for retail stores, upon consummation of the sale when the product is paid for and taken by the customer and, for e-commerce sales, when the products are tendered for delivery to the common carrier.

The transaction price for each contract is the stated price on the product, reduced by any stated discounts at that point in time. The Company does not engage in sales of products that attach a future material right which could result in a separate performance obligation for the purchase of goods in the future at a material discount. The implicit point-of-sale contract with the customer, as reflected in the transaction receipt, states the final terms of the sale, including the description, quantity, and price of each product purchased. Payment for the Company’s contracts is due in full upon delivery. The customer agrees to a stated price implicit in the contract that does not vary over the contract.

The transaction price relative to sales subject to a right of return reflects the amount of estimated consideration to which the Company expects to be entitled. This amount of variable consideration included in the transaction price, and measurement of net sales, is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. The allowance for sales returns is estimated based upon historical experience and a provision for estimated returns is recorded as a reduction in sales in the relevant period. The estimated merchandise inventory cost related to the sales returns is recorded in prepaid expenses and other. The estimated refund liabilities are recorded in accrued expenses. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net sales and earnings in the period such variances become known.

Contract liabilities are recognized primarily for gift card sales and the Company’s loyalty reward program. Cash received from the sale of gift cards is recorded as a contract liability in accrued expenses, and the Company recognizes revenue upon the customer’s redemption of the gift card. Gift card breakage is recognized as revenue in proportion to the pattern of customer redemptions by applying a historical breakage rate of 4.0% when no escheat liability to relevant jurisdictions exists. Based upon historical experience, gift cards are predominantly redeemed in the first two years following their issuance date. The Company does not sell or provide gift cards that carry expiration dates.

Accounting Standards Codification (“ASC”) 606 requires the Company to allocate the transaction price between the goods and the loyalty reward points based on the relative standalone selling price. The Company recognizes revenue for the breakage of loyalty reward points as revenue in proportion to the pattern of customer redemption of the points by applying an estimated breakage rate of 20% using historical rates and future expectations.

As it relates to e-commerce sales, the Company accounts for shipping and handling as fulfillment activities, and not as a separate performance obligation. Accordingly, the Company recognizes revenue for only one performance obligation, the sale of the product, at the shipping point (when the customer gains control). The costs associated with fulfillment are recorded in costs of goods sold.

The Company offers promotional financing and credit cards issued by a third-party bank that manages and directly extends credit to the Company’s customers. The Company provides a license to its brand and marketing services, and the Company facilitates credit applications in its stores and online. The banks are the sole owners of the accounts receivable generated under the program and, accordingly, the Company does not hold any customer receivables related to these programs and acts as an agent in the financing transactions with customers. The Company is eligible to receive a profit share from certain of its banking partners based on the annual performance of their corresponding portfolio, and the Company receives monthly payments based on forecasts of full-year performance. This is a form of variable consideration. The Company records such profit share as revenue over time using the most likely amount method, which reflects the amount earned each month when it is determined that the likelihood of a significant revenue reversal is not probable, which is typically monthly. Profit-share payments occur monthly, shortly after the end of each program month.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

10


Table of Contents

Sales returns

 

The Company allows customers to return items purchased within 30 days provided the merchandise is in resaleable condition with original packaging and the original sales/gift receipt is presented. The Company estimates a reserve for sales returns and records the respective reserve amounts, including a right to return asset when a product is expected to be returned and resold. Historical experience of actual returns and customer return rights are the key factors used in determining the estimated sales returns.

Contract balances

 

The following table provides information about right of return assets, contract liabilities, and sales return liabilities with customers as of October 28, 2023 and January 28, 2023:

 

 

October 28, 2023

 

 

January 28, 2023

 

Right of return assets, which are included in prepaid expenses and other

 

$

2,631

 

 

$

1,951

 

Estimated gift card contract liability, net of breakage

 

 

(25,738

)

 

 

(29,174

)

Estimated loyalty contract liability, net of breakage

 

 

(4,271

)

 

 

(5,383

)

Sales return liabilities, which are included in accrued expenses

 

 

(3,927

)

 

 

(2,912

)

 

During the 13 and 39 weeks ended October 28, 2023, the Company recognized approximately $338 and $1,137 in gift card breakage and approximately $583 and $2,513 in loyalty reward breakage. During the 13 and 39 weeks ended October 29, 2022, the Company recognized approximately $333 and $1,118 in gift card breakage and approximately $829 and $2,425 in loyalty reward breakage. During the 13 and 39 weeks ended October 28, 2023, the Company recognized revenue of $2,974 and $17,187 relating to contract liabilities that existed at January 28, 2023.

The current balance of the right of return assets is the expected amount of inventory to be returned that is expected to be resold. The current balance of the contract liabilities primarily relates to the gift card and loyalty reward program liabilities. The Company expects the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions over the next two years. The current balance of sales return liabilities is the expected amount of sales returns from sales that have occurred.

11


Table of Contents

Disaggregation of revenue from contracts with customers

In the following table, revenue from contracts with customers is disaggregated by department. The percentage of net sales related to the Company’s departments during the 13 and 39 weeks ended October 28, 2023 and October 29, 2022, was approximately:

 

 

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

Department

 

Product Offerings

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Camping

 

Backpacks, camp essentials, canoes and kayaks, coolers, outdoor cooking equipment, sleeping bags, tents and tools

 

 

11.1

%

 

 

12.6

%

 

 

12.1

%

 

 

13.5

%

Apparel

 

Camouflage, jackets, hats, outerwear, sportswear, technical gear and work wear

 

 

10.9

%

 

 

10.5

%

 

 

8.4

%

 

 

8.2

%

Fishing

 

Bait, electronics, fishing rods, flotation items, fly fishing, lines, lures, reels, tackle and small boats

 

 

7.4

%

 

 

6.8

%

 

 

10.3

%

 

 

10.2

%

Footwear

 

Hiking boots, socks, sport sandals, technical footwear, trail shoes, casual shoes, waders and work boots

 

 

7.7

%

 

 

7.2

%

 

 

7.1

%

 

 

6.7

%

Hunting and Shooting

 

Ammunition, archery items, ATV accessories, blinds and tree stands, decoys, firearms, reloading equipment and shooting gear

 

 

55.8

%

 

 

54.9

%

 

 

56.0

%

 

 

55.0

%

Optics, Electronics, Accessories, and Other

 

Gift items, GPS devices, knives, lighting, optics, two-way radios, and other license revenue, net of revenue discounts

 

 

7.1

%

 

 

8.0

%

 

 

6.1

%

 

 

6.4

%

Total

 

 

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

(4)
Property and Equipment

Property and equipment consisted of the following as of October 28, 2023 and January 28, 2023:

 

 

October 28,

 

 

January 28,

 

 

2023

 

 

2023

 

Furniture, fixtures, and equipment

 

$

164,924

 

 

$

138,004

 

Leasehold improvements

 

 

221,348

 

 

 

170,494

 

Construction in progress

 

 

7,128

 

 

 

20,875

 

Total property and equipment, gross

 

 

393,400

 

 

 

329,373

 

Less accumulated depreciation and amortization

 

 

(193,845

)

 

 

(166,787

)

Total property and equipment, net

 

$

199,555

 

 

$

162,586

 

 

12


Table of Contents

 

(5) Accrued Expenses

Accrued expenses consisted of the following as of October 28, 2023 and January 28, 2023:

 

 

October 28,

 

 

January 28,

 

 

2023

 

 

2023

 

Book overdraft

 

$

15,112

 

 

$

20,723

 

Unearned revenue

 

 

34,459

 

 

 

41,203

 

Accrued payroll and related expenses

 

 

10,070

 

 

 

15,820

 

Sales and use tax payable

 

 

9,177

 

 

 

5,896

 

Accrued real estate tax payable

 

 

4,681

 

 

 

2,714

 

Accrued construction costs

 

 

371

 

 

 

1,469

 

Other

 

 

14,981

 

 

 

12,151

 

Total accrued expenses

 

$

88,851

 

 

$

99,976

 

 

 

 

(6) Leases

At the inception of the lease, the Company’s operating leases have lease terms of up to 15 years, which typically includes multiple options for the Company to extend the lease which are not reasonably certain.

The Company determines whether a contract is or contains a lease at contract inception. As the rate implicit in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The operating lease asset also includes any fixed lease payments made and includes lease incentives and incurred initial direct costs. Operating lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. The Company’s lease terms may include options to extend or terminate the lease. Additionally, the Company’s leases do not contain any material residual guarantees or material restrictive covenants.

During the 13 and 39 weeks ended October 28, 2023, the Company recorded a non-cash increase of $6,233 and $52,314 to the right of use assets and operating lease liabilities resulting from lease remeasurements from the exercise of lease extension options, acquired leases, and new leases added.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

In accordance with ASC 842, total lease expense was comprised of the following for the periods presented:

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating lease expense

 

$

16,448

 

 

$

14,729

 

 

$

48,165

 

 

$

43,674

 

Variable lease expense

 

 

5,474

 

 

 

4,635

 

 

 

16,702

 

 

 

13,697

 

Short-term lease expense

 

 

385

 

 

 

337

 

 

 

994

 

 

 

921

 

Total lease expense

 

$

22,307

 

 

$

19,701

 

 

$

65,861

 

 

$

58,292

 

 

In accordance with ASC 842, other information related to leases was as follows for the periods presented:

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

Operating cash flows from operating leases

 

$

(51,849

)

 

$

(47,402

)

 

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As of October 28,

 

 

As of October 29,

 

 

2023

 

 

2022

 

Right-of-use assets obtained in exchange for new or remeasured operating lease liabilities

 

$

52,314

 

 

$

46,050

 

Terminated right-of-use assets and liabilities

 

 

 

 

 

 

Weighted-average remaining lease term - operating leases

 

 

5.83

 

 

 

5.83

 

Weighted-average discount rate - operating leases

 

 

7.76

%

 

 

8.06

%

 

In accordance with ASC 842, maturities of operating lease liabilities as of October 28, 2023 were as follows:

 

 

Operating

 

Fiscal Year Ending:

 

Leases

 

2023 (remainder)

 

$

18,129

 

 2024

 

 

71,934

 

 2025

 

 

65,851

 

 2026

 

 

60,797

 

 2027

 

 

53,252

 

Thereafter

 

 

188,817

 

Undiscounted cash flows

 

$

458,780

 

Reconciliation of lease liabilities:

 

 

 

Present values

 

$

347,633

 

Lease liabilities - current

 

 

48,254

 

Lease liabilities - noncurrent

 

 

299,379

 

Lease liabilities - total

 

$

347,633

 

Difference between undiscounted and discounted cash flows

 

$

111,147

 

 

The Company has excluded in the table above approximately $7.9 million of leases (undiscounted basis) that were entered into as of December 7, 2023. These leases will commence in 2025 with lease terms of 12 years.

(7) Revolving Line of Credit

On May 27, 2022, Sportsman’s Warehouse, Inc. (“SWI”), a wholly owned subsidiary of Holdings, as lead borrower, Holdings and other subsidiaries of the Company, each as borrowers or guarantors, and Wells Fargo Bank, National Association (“Wells Fargo”), with a consortium of banks led by Wells Fargo, entered into an Amended and Restated Credit Agreement (as amended, restated, supplemented or otherwise modified, the “Credit Agreement”). The Credit Agreement governs the Company’s senior secured revolving credit facility (“Revolving Line of Credit”). The Revolving Line of Credit provides borrowing capacity of up to $350,000, subject to a borrowing base calculation.

In conjunction with the Credit Agreement, the Company incurred $508 of fees paid to various parties which were capitalized. Fees associated with the Revolving Line of Credit were recorded in prepaid expenses and other assets.

As of October 28, 2023 and January 28, 2023, the Company had $202,047 and $96,892, respectively, in outstanding revolving loans under the Revolving Line of Credit. Amounts outstanding are offset on the condensed consolidated balance sheets by amounts in depository accounts under lock-box type arrangements, which were $16,659 and $9,389 as of October 28, 2023 and January 28, 2023, respectively. As of October 28, 2023, the Company had $110,985 available for borrowing, subject to certain borrowing base restrictions and stand-by commercial letters of credit of $1,967 under the terms of the Revolving Line of Credit.

Borrowings under the Revolving Line of Credit bear interest based on either the base rate or Term SOFR (as defined in the Credit Agreement), at the Company’s option, in each case plus an applicable margin. The base rate is the greatest of (1) the floor rate (as defined in the Credit Agreement as a rate of interest equal to 0.0%) (2) Wells Fargo’s prime rate, (3) the federal funds rate (as defined in the Credit Agreement) plus 0.50% or (4) the one-month Term SOFR (as defined in the Credit Agreement) plus 1.00%. The applicable margin for loans under the Revolving Line of Credit, which varies based on the average daily availability, ranges from 0.25% to 0.50% per year for base

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rate loans and from 1.35% to 1.60% per year for Term SOFR loans. The Company is required to pay a commitment fee for the unused portion of the Revolving Line of Credit, which will range from 0.20% to 0.225% per annum, depending on the average daily availability under the Revolving Line of Credit.

The Company may be required to make mandatory prepayments under the Revolving Line of Credit in the event of a disposition of certain property or assets, in the event of receipt of certain insurance or condemnation proceeds, upon the issuance of certain debt or equity securities, upon the incurrence of certain indebtedness for borrowed money or upon the receipt of certain payments not received in the ordinary course of business.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit the Company’s ability to incur, create or assume certain indebtedness, to create, incur or assume certain liens, to make certain investments, to make sales, transfers and dispositions of certain property and to undergo certain fundamental changes, including certain mergers, liquidations and consolidations. The Credit Agreement also requires the Company to maintain a minimum availability at all times of not less than 10.0% of the gross borrowing base and contains customary events of default. The Revolving Line of Credit matures on May 27, 2027.

Each of the subsidiaries of Holdings is a borrower under the Revolving Line of Credit, and all obligations under the Revolving Line of Credit are guaranteed by Holdings. All of the obligations under the Revolving Line of Credit are secured by a lien on substantially all of Holdings’ tangible and intangible working capital assets and the tangible and intangible working capital assets of all of Holdings’ subsidiaries, including a pledge of all capital stock of each of Holdings’ subsidiaries. The lien securing the obligations under the Revolving Line of Credit is a first priority lien as to certain liquid assets, including cash, accounts receivable, deposit accounts and inventory.

As of October 28, 2023 and January 28, 2023, the Credit Agreement had $543 and $657, respectively, in deferred financing fees. During the 13 and 39 weeks ended October 28, 2023, the Company recognized $38 and $114 of non-cash interest expense with respect to the amortization of deferred financing fees. During the 13 and 39 weeks ended October 29, 2022, the Company recognized $38 and $146 of non-cash interest expense with respect to the amortization of deferred financing fees.

During the 13 and 39 weeks ended October 28, 2023, gross borrowings under the Revolving Line of Credit were $358,266 and $1,104,501, respectively. During the 13 and 39 weeks ended October 29, 2022, gross borrowing under the Company’s prior revolving line of credit were $409,465 and $1,161,959, respectively. During the 13 and 39 weeks ended October 28, 2023, gross paydowns under the Revolving Line of Credit were $377,561 and $1,008,743. During the 13 and 39 weeks ended October 29, 2022, gross paydowns under the Company’s prior revolving line of credit were $396,192 and $1,121,716, respectively.

Restricted Net Assets

The provisions of the Revolving Line of Credit restrict all of the net assets of the Company’s consolidated subsidiaries, which constitute all of the net assets on the Company’s condensed consolidated balance sheet as of October 28, 2023, from being used to pay any dividends without prior written consent from the financial institutions party to the Revolving Line of Credit.

(8) Income Taxes

The Company recognized income tax expense of $459 and $4,436, respectively, in the 13 weeks ended October 28, 2023 and October 29, 2022. The Company’s effective tax rate during the 13 weeks ended October 28, 2023 and October 29, 2022 was -52.6% and 25.6%, respectively. The Company recognized income tax benefit of $6,664 and income tax expense of $10,012, respectively, in the 39 weeks ended October 28, 2023 and October 29, 2022. The Company’s effective tax rate during the 39 weeks ended October 28, 2023 and October 29, 2022 was 24.8% and 25.3%, respectively. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions.

 

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(9) Stockholders’ Equity

Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding, reduced by the number of shares repurchased and held in treasury, during the period. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding share option awards, nonvested share awards and nonvested share unit awards.

 

The following table sets forth the computation of basic and diluted earnings per share for the periods presented:

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net (loss) income

 

$

(1,331

)

 

$

12,877

 

 

$

(20,258

)

 

$

29,489

 

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

37,393

 

 

 

38,414

 

 

 

37,500

 

 

 

41,438

 

Dilutive effect of common stock equivalents

 

 

 

 

 

267

 

 

 

 

 

 

234

 

Diluted

 

 

37,393

 

 

 

38,681

 

 

 

37,500

 

 

 

41,672

 

Basic (loss) earnings per share

 

$

(0.04

)

 

$

0.34

 

 

$

(0.54

)

 

$

0.71

 

Diluted (loss) earnings per share

 

$

(0.04

)

 

$

0.33

 

 

$

(0.54

)

 

$

0.71

 

Restricted stock units considered anti-dilutive and excluded in the calculation

 

 

483

 

 

 

136

 

 

 

354

 

 

 

171

 

 

Repurchase Program

 

On March 24, 2022 the Company announced that its Board of Directors had authorized a share repurchase program (the “Repurchase Program”) to allow for the repurchase of up to $75.0 million of outstanding shares of the Company’s common stock, $0.01 par value per share, commencing on March 31, 2022. On March 15, 2023, the Company's Board of Directors extended the term of the Repurchase Program through March 31, 2024. During the 13 weeks ended October 28, 2023, the Company did not repurchase any shares of its common stock. During the 39 weeks ended October 28, 2023, the Company repurchased approximately 0.5 million shares of its common stock for $2.7 million, utilizing cash on hand and available borrowings under its Revolving Line of Credit. The Company has retired all repurchased stock.

(10) Stock-Based Compensation

Stock-Based Compensation

During the 13 and 39 weeks ended October 28, 2023, the Company recognized total stock-based compensation expense of $965 and $3,341, respectively. During the 13 and 39 weeks ended October 29, 2022, the Company recognized total stock-based compensation expense of $1,077 and $3,526, respectively. Compensation expense related to the Company’s stock-based payment awards is recognized in selling, general, and administrative expenses in the condensed consolidated statements of operations.

Employee Stock Plans

As of October 28, 2023, the number of shares available for awards under the 2019 Performance Incentive Plan (the “2019 Plan”) was 1,391. As of October 28, 2023, there were 901 unvested stock awards outstanding under the 2019 Plan.

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Inducement Plan

On September 21, 2023, the Company's Board of Directors adopted and approved the Sportsman’s Warehouse Holdings, Inc. Inducement Plan (the “Inducement Plan”) to reserve 1,000 shares of the Company’s common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company (or following a bona fide period of non-employment) as an inducement material to the individual's entering into employment with the Company in accordance with Nasdaq Marketplace Rule 5635(c)(4). The Inducement Plan provides for the grant of options, stock appreciation rights, restricted stock, stock bonuses, stock units, restricted stock units, performance stock, deferred shares, phantom stock, dividend equivalent rights and other cash or share-based awards. Awards granted under the Inducement Plan must be approved by either a majority of the Company’s independent directors or the compensation committee of the Company’s Board of Directors. As of October 28, 2023, the number of shares available for awards under the Inducement Plan was 1,000. As of October 28, 2023, there were no unvested stock awards outstanding under the Inducement Plan.

Employee Stock Purchase Plan

The Company also maintains an Employee Stock Purchase Plan (the “ESPP”) that was approved by the Company’s stockholders in fiscal year 2015, under which 800 shares of common stock were authorized. During the 13 weeks ended October 28, 2023, no shares were issued under the ESPP and, as of October 28, 2023, the number of shares available for issuance was 197.

Nonvested Performance-Based Stock Awards

During the 13 weeks ended October 28, 2023, the Company did not issue any nonvested performance-based stock awards to employees. During the 39 weeks ended October 28, 2023, the Company issued 36 nonvested performance-based stock awards to employees at a weighted average grant date fair value of $8.40 per share. The nonvested performance-based stock awards issued to employees vest in full on the third anniversary of the grant date. The number of shares issued is contingent on management achieving fiscal year 2023, 2024, and 2025 performance targets for percentage of total return on invested capital and total operating income percentage. If minimum threshold performance targets are not achieved, no shares will vest. The maximum number of shares subject to the award is 72, and the “target” number of shares subject to the award is 36 as reported below. Following the end of the performance period (fiscal years 2023, 2024, and 2025), the number of shares eligible to vest, based on actual performance, will be fixed and vesting will then be subject to each employee’s continued employment over the remaining service period.

 

 

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During the 13 weeks ended October 29, 2022, the Company did not issue nonvested performance-based stock awards to employees. During the 39 weeks ended October 29, 2022, the Company issued 188 nonvested performance-based stock awards to employees at a weighted average grant date fair value of $10.88 per share. The nonvested performance-based stock awards issued to employees vest in full on the third anniversary of the grant date. The number of shares issued is contingent on management achieving fiscal year 2022, 2023, and 2024 performance targets for total revenue growth and adjusted earnings per share. If minimum threshold performance targets are not achieved, no shares will vest. The maximum number of shares subject to the award is 376, and the “target” number of shares subject to the award is 188 as reported below. Following the end of the performance period (fiscal years 2022, 2023, and 2024), the number of shares eligible to vest, based on actual performance, will be fixed and vesting will then be subject to each employee’s continued employment over the remaining service period.

The following table sets forth the rollforward of outstanding nonvested performance-based stock awards (per share amounts are not in thousands):

 

 

 

 

 

Weighted

 

 

 

 

 

average

 

 

 

 

 

grant-date

 

 

Shares

 

 

fair value

 

Balance at January 28, 2023

 

 

313

 

 

$

7.72

 

Grants

 

 

36

 

 

 

8.40

 

Forfeitures

 

 

(64

)

 

 

11.28

 

Vested

 

 

(221

)

 

 

6.20

 

Balance at October 28, 2023

 

 

64

 

 

$

9.67

 

 

 

 

 

 

Weighted

 

 

 

 

 

average

 

 

 

 

 

grant-date

 

 

Shares

 

 

fair value

 

Balance at January 29, 2022

 

 

487

 

 

$

5.13

 

Grants

 

 

188

 

 

 

10.88

 

Forfeitures

 

 

(169

)

 

 

7.93

 

Vested

 

 

(168

)

 

 

3.49

 

Balance at October 29, 2022

 

 

338

 

 

$

7.75

 

 

Nonvested Stock Unit Awards

During the 13 and 39 weeks ended October 28, 2023, the Company issued 79 and 754 nonvested stock units, respectively, to employees and directors of the Company at an average value of $3.96 and $7.25 per share, respectively. The shares issued to employees of the Company vest over a three-year period with one third of the shares vesting on each anniversary of the grant date. The shares issued to directors of the Company vest over a 12 month period with one twelfth of the shares vesting each month.

During the 13 and 39 weeks ended October 29, 2022, the Company issued 6 and 424 nonvested stock units, respectively, to employees and directors of the Company at an average value of $10.06 and $10.81 per share, respectively. The shares issued to employees of the Company vest over a three-year period with one third of the shares vesting on each anniversary of the grant date. The shares issued to directors of the Company vest over a 12 month period with one twelfth of the shares vesting each month.

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The following table sets forth the rollforward of outstanding nonvested stock units (per share amounts are not in thousands):

 

 

 

 

 

Weighted

 

 

 

 

 

average

 

 

 

 

 

grant-date

 

 

Shares

 

 

fair value

 

Balance at January 28, 2023

 

 

721

 

 

$

12.16

 

Grants

 

 

754

 

 

 

7.25

 

Forfeitures

 

 

(314

)

 

 

10.45

 

Vested

 

 

(324

)

 

 

10.31

 

Balance at October 28, 2023

 

 

837

 

 

$

9.10

 

 

 

 

 

 

Weighted

 

 

 

 

 

average

 

 

 

 

 

grant-date

 

 

Shares

 

 

fair value

 

Balance at January 29, 2022

 

 

929

 

 

$

11.56

 

Grants

 

 

424

 

 

 

10.81

 

Forfeitures

 

 

(173

)

 

 

11.12

 

Vested

 

 

(317

)

 

 

9.40

 

Balance at October 29, 2022

 

 

863

 

 

$

12.07

 

 

(11) Commitments and Contingencies

Legal Matters

The Company is involved in various legal matters generally incidental to its business. After discussion with legal counsel, management is not aware of any matters for which the likelihood of a loss is probable and reasonably estimable and which could have a material impact on its consolidated financial condition, liquidity, or results of operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those which are discussed in the “Risk Factors” section in Part I., Item 1A. of our Fiscal 2022 Form 10-K. Also see “Special Note Regarding Forward-Looking Statements” preceding Part I. of this 10-Q. Additionally, our historical results are not necessarily indicative of the results that may be expected or achieved for any future period.

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, the unaudited condensed consolidated financial statements and the notes thereto included in this 10-Q.

Overview

We are an outdoor sporting goods retailer focused on meeting the everyday needs of the seasoned outdoor veteran, the first-time participant and everyone in between. Our mission is to provide outstanding gear and exceptional service to inspire outdoor memories.

Our business was founded in 1986 as a single retail store in Midvale, Utah. Today, we operate 145 stores in 32 states, totaling approximately 5.4 million gross square feet. We also operate an e-commerce platform at www.sportsmans.com. We do not incorporate the information on or accessible through our website into this 10-Q, and you should not consider any information on or accessible through our website as part of this 10-Q.

Our stores and our e-commerce platform are aggregated into one operating and reportable segment.

Impact of Macroeconomic Conditions

 

Our financial results and operations have been, and will continue to be, impacted by events outside of our control.

During the COVID-19 pandemic we experienced increases in net sales compared to pre-pandemic levels, primarily driven by historically high sales in certain product categories, particularly firearms and ammunition. However, while our net sales and same store sales for fiscal year 2023 remain elevated as compared to pre-COVID periods, we have experienced decreases in net sales and same store sales during fiscal year 2023 from the COVID-driven peak levels in fiscal year 2021.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, liquidity concerns at, and failures of, banks and other financial institutions, rising interest rates, recession risks and potential disruptions from the Russia-Ukraine conflict and the Israel-Hamas war. Starting in the second half of 2022 and continuing into the third quarter of 2023, our business was impacted by consumer inflationary pressures and recession concerns. As a result of our recent performance, we have begun to take steps to reduce our total inventory, implement cost reduction measures to reflect current sales trends and reduce investments in future new store openings. We currently do not plan to open any new stores during fiscal year 2024.

 

We continue to actively monitor the impact of these macroeconomic factors on our financial condition, liquidity, operations, suppliers, industry and workforce. The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected timeframe, will depend on future developments, and the impact on our customers, partners and employees, all of which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact our business.

 

 

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How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures for determining how our business is performing are net sales, same store sales, gross margin, selling, general, and administrative expenses, income from operations and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”).

 

Net Sales and Same Store Sales

 

Our net sales are primarily received from revenue generated in our stores and also include sales generated through our e-commerce platform. When measuring revenue generated from our stores, we review our same store sales as well as the performance of our stores that have not operated for a sufficient amount of time and include each in same store sales. We include net sales from a store in same store sales on the first day of the 13th full fiscal month following the store’s grand opening or acquisition by us. We exclude sales from stores that were closed during the period from our same store sales calculation. We include net sales from e-commerce in our calculation of same store sales. For fiscal years consisting of 53 weeks, we exclude net sales during the 53rd week from our calculation of same store sales. Some of our competitors and other retailers may calculate same store sales differently than we do. As a result, data regarding our same store sales may not be comparable to similar data made available by other retailers.

 

Measuring the change in year-over-year same store sales allows us to evaluate how our retail store base is performing. Various factors affect same store sales, including:

macroeconomic factors, such as the ongoing impact of the COVID-19 pandemic, political trends, social unrest, inflationary pressures, recessionary trends, labor shortages, monetary supply shifts, rising interest rates, tightening of credit markets, liquidity concerns at, and failures of, banks and other financial institutions and potential disruptions from the ongoing Russia-Ukraine conflict and Israel-Hamas war;
consumer preferences, buying trends and overall economic trends;
changes or anticipated changes to laws and government regulations related to some of the products we sell, in particular regulations relating to the sale of firearms and ammunition;
our ability to identify and respond effectively to local and regional trends and customer preferences;
our ability to provide quality customer service that will increase our conversion of shoppers into paying customers;
the success of our omni-channel strategy and our e-commerce platform;
competition in the regional market of a store;
atypical weather;
new product introductions and changes in our product mix; and
changes in pricing and average ticket sales.

 

We operate in a complex regulatory and legal environment that could negatively impact the demand for our products, which could significantly affect our operations and financial results. State, local and federal laws and regulations relating to products that we sell may change, sometimes significantly, as a result of political, economic or social events. For instance, in November 2022, the State of Oregon passed legislation that will, among other things, impose complex permitting and training requirements for the purchases of firearms. As a result, sales of firearms in Oregon may be halted or substantially diminished until such permitting and training programs are developed by the state, which may take a significant amount of time. If that were to occur, it could result in a substantial decline in our sales of firearms and related products and reduce traffic to our stores in Oregon, which could have a substantial impact on our sales and gross margin. On December 6, 2022 a state court judge in Oregon temporarily blocked the enforcement of such legislation pending trial, and a decision is expected before calendar

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year end. The measure is also being challenged in a related case in federal court and is currently on appeal in the U.S. Court of Appeals for the Ninth Circuit. We currently operate eight stores in the State of Oregon.

 

Opening new stores and acquiring store locations is also an important part of our growth strategy. During fiscal year 2022, we opened nine stores, and we currently plan to open 15 new stores in fiscal year 2023, of which we had opened 14 stores as of October 28, 2023. We currently do not plan to open any new stores during fiscal year 2024. We may deviate from this target if attractive opportunities are presented to open stores or acquire new store locations outside of our target growth rate.

 

We also have been scaling our e-commerce platform and increasing sales through our website, www.sportsmans.com.

 

We believe the key drivers to increasing our total net sales include:

 

increasing and improving same store sales in our existing markets;
increasing our total gross square footage by opening new stores and through strategic acquisitions;
increasing customer visits to our stores and improving our conversion rate through focused marketing efforts and continually high standards of customer service;
expanding our omni-channel capabilities through larger assortment and inventory, expanded content and expertise and better user experience; and
growing our loyalty and credit card programs.

 

Gross Margin

Gross profit consists of our net sales less cost of goods sold. Gross margin measures our gross profit as a percentage of net sales. Our cost of goods sold primarily consists of merchandise acquisition costs, including freight-in costs, shipping costs, payment term discounts received from the vendor and vendor allowances and rebates associated directly with merchandise and shipping costs related to e-commerce sales.

 

We believe the key drivers to improving our gross margin are increasing the product mix to higher margin products, particularly apparel and footwear, increasing foot traffic within our stores and traffic to our website, improving buying opportunities with our vendor partners and coordinating pricing strategies among our stores and our merchandise group. Our ability to properly manage our inventory can also impact our gross margin. Successful inventory management ensures we have sufficient high margin products in stock at all times to meet customer demand, while overstocking of items could lead to markdowns in order to help a product sell. During 2023, we commenced an effort to reduce our inventory. We have initiated various strategic promotional efforts as part of this plan. While these efforts are decreasing our gross margins, the inventory reduction plan is progressing as planned. We intend to continue this effort during the remainder of fiscal year 2023 and expect our gross margins to be reduced by 600 to 800 points in the fourth quarter of fiscal year 2023 compared to the corresponding period of fiscal year 2022. We believe that the overall growth of our business can also help improve our gross margins, because increased merchandise volumes will enable us to maintain our strong relationships with our vendors. If we see significant declines in sales or increases in overstocked inventory, we may experience a decline in gross margins as we use promotions to drive traffic and reduce inventory.

 

Selling, General, and Administrative Expenses

We closely manage our selling, general, and administrative expenses. Our selling, general, and administrative expenses are comprised of payroll, rent and occupancy, depreciation and amortization, acquisition expenses, pre-opening expenses and other operating expenses, including stock-based compensation expense. Pre-opening expenses include expenses incurred in the preparation and opening of a new store location, such as payroll, travel and supplies, but do not include the cost of the initial inventory or capital expenditures required to open a location.

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Our selling, general, and administrative expenses are primarily influenced by the volume of net sales of our locations, except for our corporate payroll, rent and occupancy and depreciation and amortization, which are generally fixed in nature. We control our selling, general, and administrative expenses through a budgeting and reporting process that allows our personnel to adjust our expenses as trends in net sales activity are identified.

In response to persistent consumer inflationary pressures and adverse weather conditions in the Western United States during the first half of fiscal year 2023, we have implemented a company-wide plan to reduce expenses, with increased focus on financial discipline and rigor throughout the organization. We expect this plan may result in up to $25 million in annualized cost savings.

Income from Operations

Income from operations is gross profit less selling, general, and administrative expenses. We use income from operations as an indicator of the productivity of our business and our ability to manage selling, general, and administrative expenses.

Adjusted EBITDA

We define Adjusted EBITDA as net income plus interest expense, income tax expense, depreciation and amortization, stock-based compensation expense, transition and severance costs related to director and officer transitions and our cost reduction plan, and other gains, losses and expenses that we do not believe are indicative of our ongoing expenses. We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. In evaluating our business, we use Adjusted EBITDA and Adjusted EBITDA margin as additional measurement tools for purposes of business decision-making, including evaluating store performance, developing budgets and managing expenditures. See “—Non-GAAP Financial Measures.”

Results of Operations

 

The following table summarizes key components of our results of operations as a percentage of net sales during the periods presented:

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Percentage of net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of goods sold

 

 

69.7

 

 

 

66.4

 

 

 

69.0

 

 

 

66.9

 

Gross profit

 

 

30.3

 

 

 

33.6

 

 

 

31.0

 

 

 

33.1

 

Selling, general, and administrative expenses

 

 

29.4

 

 

 

28.4

 

 

 

32.9

 

 

 

29.0

 

Income (loss) from operations

 

 

0.9

 

 

 

5.2

 

 

 

(1.9

)

 

 

4.1

 

Interest expense

 

 

1.2

 

 

 

0.3

 

 

 

1.0

 

 

 

0.2

 

(Loss) income before income taxes

 

 

(0.3

)

 

 

4.9

 

 

 

(2.9

)

 

 

3.9

 

Income tax expense (benefit)

 

 

0.1

 

 

 

1.2

 

 

 

(0.7

)

 

 

1.0

 

Net (loss) income

 

 

(0.4

)%

 

 

3.7

%

 

 

(2.2

)%

 

 

2.9

%

Adjusted EBITDA

 

 

4.8

%

 

 

7.7

%

 

 

2.1

%

 

 

6.8

%

 

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The following table shows our percentage of net sales by department during the periods presented:

 

 

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

Department

 

Product Offerings

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Camping

 

Backpacks, camp essentials, canoes and kayaks, coolers, outdoor cooking equipment, sleeping bags, tents and tools

 

 

11.1

%

 

 

12.6

%

 

 

12.1

%

 

 

13.5

%

Apparel

 

Camouflage, jackets, hats, outerwear, sportswear, technical gear and work wear

 

 

10.9

%

 

 

10.5

%

 

 

8.4

%

 

 

8.2

%

Fishing

 

Bait, electronics, fishing rods, flotation items, fly fishing, lines, lures, reels, tackle and small boats

 

 

7.4

%

 

 

6.8

%

 

 

10.3

%

 

 

10.2

%

Footwear

 

Hiking boots, socks, sport sandals, technical footwear, trail shoes, casual shoes, waders and work boots

 

 

7.7

%

 

 

7.2

%

 

 

7.1

%

 

 

6.7

%

Hunting and Shooting

 

Ammunition, archery items, ATV accessories, blinds and tree stands, decoys, firearms, reloading equipment and shooting gear

 

 

55.8

%

 

 

54.9

%

 

 

56.0

%

 

 

55.0

%

Optics, Electronics, Accessories, and Other

 

Gift items, GPS devices, knives, lighting, optics, two-way radios, and other license revenue, net of revenue discounts

 

 

7.1

%

 

 

8.0

%

 

 

6.1

%

 

 

6.4

%

Total

 

 

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

Thirteen Weeks Ended October 28, 2023 Compared to Thirteen Weeks Ended October 29, 2022

Net Sales and Same Store Sales. Net sales decreased by $19.2 million, or 5.3%, to $340.6 million during the 13 weeks ended October 28, 2023 compared to $359.7 million in the corresponding period of fiscal year 2022. Our net sales decreased primarily due to the continued impact of consumer inflationary pressures and recessionary concerns on discretionary spending, resulting in a decline in store traffic and lower demand across most product categories. This decrease was partially offset by our opening of 15 new stores since October 29, 2022 and increased demand in certain categories as a result of social unrest. Stores that have been open for less than 12 months and were, therefore, not included in our same store sales, contributed $23.7 million to net sales. E-commerce driven sales comprised more than 15% of total sales for the 13 weeks ended October 28, 2023. Same store sales decreased by 11.4% during the 13 weeks ended October 28, 2023 compared to the corresponding 13-week period of fiscal year 2022, primarily as a result of the factors discussed above that impacted net sales.

 

Our Fishing and Footwear departments saw net sales increases of $0.7 million and $0.5 million, respectively, in the third quarter of fiscal year 2023 compared to the corresponding period of fiscal year 2022 primarily driven by our promotional efforts to reduce inventory in these areas. Our Camping, Hunting and Shooting, Optics, Electronics and Accessories and Apparel departments saw net sales decreases of $7.8 million, $7.3 million, $4.7 million and $0.8 million, respectively, in the third quarter of fiscal year 2023 compared to the corresponding period of fiscal year 2022. Within our Hunting and Shooting department, our firearm category saw an increase of $1.8 million or 2.8% while our ammunition category saw a decrease of $2.6 million or 4.7%, in the third quarter of fiscal year 2023 compared to the corresponding period of fiscal year 2022. The increase in our firearm category was due to the

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opening of 15 new stores since October 29, 2022 and increased demand in certain categories as a result of social unrest.

 

The decrease in our ammunition category was primarily due to the continued impact of consumer inflationary pressures and recessionary concerns on discretionary spending. This was partially offset by our opening of 15 new stores since October 29, 2022.

 

With respect to same store sales, during the 13 weeks ended October 28, 2023, our Camping, Optics, Electronics and Accessories, Hunting and Shooting, Apparel, Fishing and Footwear departments saw decreases of 21.6%, 19.2%, 10.6%, 7.6%, 5.8% and 4.1%, respectively, compared to the corresponding period of fiscal year 2022 , as a result of a decline in store traffic and the continued impact of consumer inflationary pressures and recessionary concerns on discretionary spending. As of October 28, 2023, 129 stores were included in our same store sales calculation.

 

Gross Profit. Gross profit decreased by $17.6 million, or 14.6%, to $103.2 million during the 13 weeks ended October 28, 2023 compared to $120.8 million for the corresponding period of fiscal year 2022. As a percentage of net sales, gross profit decreased to 30.3% during the 13 weeks ended October 28, 2023, compared to 33.6% for the corresponding period of fiscal year 2022, primarily driven by reduced product margins in our ammunition category within our Hunting and Shooting department, as the margins from ammunition sales begin to normalize, and driven by lower margins in our Apparel and Footwear departments, resulting from our increased promotional efforts to drive additional customer traffic online and to our stores and to reduce inventory.

 

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased by $2.2 million, or 2.2%, to $100.1 million during the 13 weeks ended October 28, 2023, compared to $102.3 million for the corresponding period of fiscal year 2022. This decrease was primarily the result of decreases in payroll and other operating expenses of $6.2 million and $2.2 million, respectively, during the 13 weeks ended October 28, 2023 primarily related to our ongoing expense cutting efforts. These decreases were partially offset by increases of $2.8 million and $2.6 million in depreciation and rent expenses, respectively, during the 13 weeks ended October 28, 2023 primarily the result of opening 15 new stores since October 29, 2022. We incurred $1.2 million in Chief Executive Officer transitional expenses during the 13 weeks ended October 28, 2023, due to the retirement of our Chief Executive Officer in April 2023. Additionally, we incurred $0.4 million of severance expenses related to the implementation of our cost reduction plan.

 

On a per store basis, our payroll and other operating expenses were down approximately 22% and 19%, respectively, compared to the corresponding period of fiscal year 2022. As a percentage of net sales, selling, general, and administrative expenses increased to 29.4% of net sales in the third quarter of fiscal year 2023, compared to 28.4% of net sales in the third quarter of fiscal year 2022, as a result of the factors discussed above. New store pre-opening expenses decreased by $0.4 million to $1.0 million during the 13 weeks ended October 28, 2023 compared to $1.4 million in the corresponding period of fiscal year 2022.

 

Interest Expense. Interest expense increased by $2.8 million, or 233%, to $3.9 million during the 13 weeks ended October 28, 2023, compared to $1.2 million for the corresponding period of fiscal year 2022. Interest expense increased primarily because of increased borrowings on our revolving credit facility and higher interest rates during the third quarter of fiscal year 2023 compared to the corresponding period of fiscal year 2022.

 

Income Taxes. We recognized income tax expense of $0.5 million during the 13 weeks ended October 28, 2023 compared to an income tax expense of $4.4 million during the corresponding period of fiscal year 2022. Our effective tax rates during the 13 weeks ended October 28, 2023 and October 29, 2022 were -52.6% and 25.6%, respectively. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions.

Thirty-Nine Weeks Ended October 28, 2023 Compared to Thirty-Nine Weeks Ended October 29, 2022

Net Sales and Same Store Sales. Net sales decreased by $102.7 million, or 10.1%, to $917.6 million during the 39 weeks ended October 28, 2023 compared to $1,020.2 million in the corresponding period of fiscal year 2022. Our net sales decreased primarily from the continued impact of consumer inflationary pressures and recessionary

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concerns on discretionary spending, resulting in a decline in store traffic and lower demand across all product categories. Additionally, net sales declined due to extended winter conditions in the Western United States, leading to decreased outdoor participation. This decrease was partially offset by our opening of 15 new stores since October 29, 2022 and increased demand in certain categories as a result of social unrest. Stores that have been open for less than 12 months and were, therefore, not included in our same store sales, contributed $55.8 million to net sales. E-commerce driven sales comprised more than 15% of total sales for the 39 weeks ended October 28, 2023. Same store sales decreased by 15.0% during the 39 weeks ended October 28, 2023 compared to the corresponding 39-week period ended October 29, 2022, primarily as a result of the factors discussed above that impacted net sales.

 

Our Hunting and Shooting, Camping, Optics, Electronics and Accessories Fishing, Apparel, and Footwear departments saw net sales decreases of $47.8 million, $26.9 million, $9.6 million, $9.4 million, $7.4 million and $3.6 million, respectively, in the 39 weeks ended October 28, 2023 compared to the corresponding period of fiscal year 2022. Within our Hunting and Shooting department, our firearm and ammunition categories saw decreases of $3.5 million and $35.5 million or 1.6% and 19.9%, respectively, in the 39 weeks ended October 28, 2023 compared to the corresponding period of fiscal year 2022. The decrease in our firearm category was due to a softening in demand related to the impact of consumer inflationary pressures. The decrease in our ammunition category was driven by the continued normalization of sales during the 39 weeks ended October 28, 2023 compared to the pull forward of ammunition sales that occurred during the 39-week period ended October 29, 2022 as we returned to normal in-stocks for ammunition during that period and the continued impact of consumer inflationary pressures and recessionary concerns on discretionary spending. This was partially offset by our opening of 15 new stores since October 29, 2022 and increased demand in certain categories as a result of social unrest.

 

With respect to same store sales, during the 39 weeks ended October 28, 2023, our Camping, Optics, Electronics and Accessories, Fishing, Hunting and Shooting, Apparel and Footwear departments saw decreases of 23.1%, 18.1%, 15.3%, 13.8%, 13.7% and 9.7%, respectively, compared to the corresponding period of fiscal year 2022, as a result of a decline in store traffic and the continued impact of consumer inflationary pressures and recessionary concerns on discretionary spending. As of October 28, 2023, 129 stores were included in our same store sales calculation.

 

Gross Profit. Gross profit decreased by $53.4 million, or 15.8%, to $284.0 million during the 39 weeks ended October 28, 2023 compared to $337.5 million for the corresponding period of fiscal year 2022. As a percentage of net sales, gross profit decreased to 31.0% during the 39 weeks ended October 28, 2023, compared to 33.1% for the corresponding period of fiscal year 2022, primarily driven by reduced product margins in our ammunition category within our Hunting and Shooting department, as the margins from ammunition sales begin to normalize and lower margins in our Apparel and Footwear departments, resulting from our increased promotional efforts to drive additional customer traffic online and to our stores and to reduce inventory.

 

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased by $6.0 million, or 2.0%, to $301.5 million during the 39 weeks ended October 28, 2023, compared to $295.4 million for the corresponding period of fiscal year 2022. This increase was primarily the result of increases in rent and depreciation expenses of $7.6 million and $5.4 million, respectively, during the 39 weeks ended October 28, 2023 primarily related to the opening of 15 new stores since October 29, 2022. We incurred $3.1 million in transitional expenses after the retirement of our Chief Executive Officer in April 2023. Additionally, we incurred $1.2 million of severance expenses related to the implementation of our cost reduction plan and $0.7 million related to a one-time legal settlement and related fees and expenses. These increases were partially offset by a decreases of $9.5 million and $3.7 million in payroll and other operating expenses, respectively, driven by our ongoing cost cutting measures and increased operational efficiencies across our retail stores.

 

On a per store basis, our payroll and other operating expenses were down approximately 15% and 14%, respectively, compared to the corresponding period of fiscal year 2022. As a percentage of net sales, selling, general, and administrative expenses increased to 32.9% of net sales in the 39 weeks ended October 28, 2023 compared to 29.0% of net sales in the corresponding period of fiscal year 2022, as a result of the factors discussed above. New store pre-opening expenses increased by $2.5 million to $5.4 million during the 39 weeks ended October 28, 2023 compared to $2.9 million in the corresponding period of fiscal year 2022.

 

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Interest Expense. Interest expense increased by $7.0 million, or 280.0%, to $9.5 million during the 39 weeks ended October 28, 2023, compared to $2.5 million for the corresponding period of fiscal year 2022. Interest expense increased primarily as a result of increased borrowings on our revolving credit facility and higher interest rates during the 39 weeks ended October 28, 2023 compared to the corresponding period of fiscal year 2022.

 

Income Taxes. We recognized an income tax benefit of $6.7 million during the 39 weeks ended October 28, 2023 compared to an income tax expense of $10.0 million during the comparable 39-week period ended October 29, 2022. Our effective tax rates during the 39 weeks ended October 28, 2023 and October 29, 2022 were 24.8% and 25.3%, respectively. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions.

Seasonality

Due to the openings of hunting season across the country and consumer holiday buying patterns, net sales are typically higher in our third and fourth fiscal quarters than in our first and second fiscal quarters. We also incur additional expenses in our third and fourth fiscal quarters due to higher sales volume and increased staffing in our stores. We anticipate our net sales will continue to reflect this seasonal pattern.

The timing of our new retail store openings also may have an impact on our quarterly results. First, we incur certain non-recurring expenses related to opening each new retail store, which are expensed as they are incurred. Second, most store expenses generally vary proportionately with net sales, but there is also a fixed cost component, which includes occupancy costs. These fixed costs typically result in lower store profitability during the initial period after a new retail store opens. Due to both of these factors, new retail store openings may result in a temporary decline in operating profit, in dollars and/or as a percentage of net sales.

Weather conditions affect outdoor activities and the demand for related apparel and equipment. Customers’ demand for our products, and, therefore, our net sales, can be significantly impacted by weather patterns on a local, regional and national basis. For example, weather conditions were a significant headwind for us in the first half of fiscal year 2023, especially in the western half of the United States. A combination of unusually high amounts of rain and snow influenced the timing of the spring fishing and camping seasons, pushing them to later than normal.

Liquidity and Capital Resources

Overview; Uses and Sources of Cash

As of October 28, 2023, we had cash and cash equivalents of $2.9 million and working capital, consisting of current assets less current liabilities, of $76.8 million. As of January 28, 2023, we had cash and cash equivalents of $2.4 million and working capital, consisting of current assets less current liabilities, of $130.1 million.

Our primary cash requirements are for seasonal working capital needs and capital expenditures related to opening and acquiring new store locations. For both the short-term and the long-term, our primary sources of cash are borrowings under our $350.0 million senior secured revolving credit facility, operating cash flows and short and long-term debt financings from other banks and financial institutions. We believe that our cash on hand, cash generated by operating activities and funds available under our revolving credit facility will be sufficient to finance our operating activities and meet our cash requirements for at least the next twelve months and beyond.

Material Cash Requirements

Our material cash requirements from known contractual and other obligations are primarily for opening and acquiring new store locations, along with our general operating expenses and other expenses discussed below.

Purchase Obligations. In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. We or the vendor can generally terminate the purchase orders at any time. These purchase orders do not contain any termination payments or other penalties if cancelled. Our inventory reduction during the 13 weeks ended October 28, 2023, was driven by our strategic promotional efforts, primarily

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related to apparel and footwear and the execution to lower our overall operating costs. While it is weighing on our gross margins, moving this inventory is progressing as planned. We will continue this effort during the remainder of fiscal year 2023 and expect our gross margins to be reduced by 600 to 800 basis points in the fourth quarter of fiscal year 2023 when compared to the corresponding period of fiscal year 2022.

Operating Lease Obligations. Operating lease commitments consist principally of leases for our retail stores, corporate office and distribution center. Our leases often include options which allow us to extend the terms beyond the initial lease term. As of October 28, 2023 our expected operating lease payments for the remainder of fiscal year 2023 are $18.1 million and our total committed lease payments are $458.8 million. Other operating lease obligations consist of distribution center equipment. See Note 6, “Leases” to our unaudited condensed consolidated financial statements included in this 10-Q.

Capital Expenditures. For the 39 weeks ended October 28, 2023, we incurred approximately $54.1 million in capital expenditures, net of $17.1 million in tenant allowances, primarily related to the construction of new stores and the refurbishment of existing stores during the period. We expect capital expenditures, net of tenant allowances, between $56 million and $60 million for fiscal year 2023 (inclusive of amounts spent during the 39 weeks ended October 28, 2023) primarily to refurbish some of our existing stores and to open 15 new stores in fiscal year 2023. We intend to fund these capital expenditures with our operating cash flows, cash on hand and funds available under our revolving credit facility. Other investment opportunities, such as potential strategic acquisitions or store expansion rates in excess of those presently planned, may require additional funding.

Principal and Interest Payments. We maintain a $350.0 million revolving credit facility. As of October 28, 2023, $202.0 million was outstanding under the revolving credit facility. Assuming no additional repayments or borrowings on our revolving credit facility after October 28, 2023 our interest payments would be approximately $3.5 million for the remainder of fiscal year 2023 based on the interest rate as of October 28, 2023. See below under “Indebtedness” for additional information regarding our revolving credit facility, including the interest rate applicable to any borrowing under such facility.

Share Repurchase Authorization. Our board of directors authorized a share repurchase program to provide for the repurchase of up to $75.0 million of outstanding shares of our common stock during the period from March 31, 2022 to March 31, 2023. On March 15, 2023, our board of directors extended the term of the share repurchase program through March 31, 2024. We may repurchase shares of our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 plans, accelerated share repurchase transactions, open market purchases, privately negotiated transactions, tender offers, block purchases or other transactions. We intend to fund repurchases under the repurchase program using cash on hand or available borrowings under our revolving credit facility. We have no obligation to repurchase any shares of our common stock under the share repurchase program and we may modify, suspend or discontinue it at any time. As of October 28, 2023, we had repurchased 7,326,507 shares of our common stock for $67.5 million, utilizing cash on hand and available borrowings under our revolving credit facility. As of October 28, 2023, $7.5 million remained available to us for repurchases of outstanding shares of our common stock pursuant to the share repurchase program.

Cash Flows

Cash flows provided by (used in) operating, investing and financing activities are shown in the following table:

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

 

(in thousands)

 

Cash flows (used in) provided by operating activities

 

$

(16,637

)

 

$

14,509

 

Cash flows used in investing activities

 

 

(71,170

)

 

 

(38,477

)

Cash provided by (used in) financing activities

 

 

88,333

 

 

 

(30,490

)

Cash at end of period

 

 

2,915

 

 

 

2,560

 

 

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Net cash used in operating activities was $16.6 million for the 39 weeks ended October 28, 2023, compared to net cash provided by operating activities of $14.5 million for the corresponding period of fiscal year 2022, a change of approximately $31.1 million. The increase in our cash flows used in operating activities was primarily driven by a net loss of $20.3 million in the 39 weeks ended October 28, 2023 compared to net income of $29.5 million for the corresponding period of fiscal year 2022.

Net cash used in investing activities was $71.2 million for the 39 weeks ended October 28, 2023, compared to $38.5 million for the corresponding period of fiscal year 2022, an increase of approximately $32.7 million, which was primarily driven by capital expenditures related to the construction of new stores and the refurbishment of existing stores incurred during the 39 weeks ended October 28, 2023. As of the fiscal period ended October 28, 2023, net cash used by capital expenditures related to the construction of new stores represents nearly all of the estimated fiscal year 2023 net cash use for new store construction.

Net cash provided by financing activities was $88.3 million for the 39 weeks ended October 28, 2023, compared to net cash used in financing activities of $30.5 million for the corresponding period of fiscal year 2022, a change of approximately $118.8 million. The increase in cash provided by financing activities was primarily the result of increased borrowings under our revolving credit facility.

Indebtedness

We maintain our $350.0 million revolving credit facility, with $202.0 million outstanding as of October 28, 2023. Borrowings under our revolving credit facility are subject to a borrowing base calculation. Our revolving credit facility is governed by an amended and restated credit agreement with a consortium of banks led by Wells Fargo Bank, National Association (“Wells Fargo”). As of October 28, 2023, we had $111.0 million available for borrowing, subject to certain borrowing base restrictions, and $2.0 million in stand-by commercial letters of credit.

Borrowings under the revolving credit facility bear interest based on either the base rate or Term SOFR (as defined by the credit agreement governing the revolving credit facility), at our option, in each case plus an applicable margin. The base rate is the greatest of (1) the floor rate (as defined in the credit agreement as a rate of interest equal to 0.0%) (2) Wells Fargo’s prime rate, (3) the federal funds rate (as defined in the credit agreement) plus 0.50% or (4) the one-month Term SOFR (as defined in the credit agreement) plus 1.00%. The applicable margin for loans under the revolving credit facility, which varies based on the average daily availability, ranges from 0.25% to 0.50% per year for base rate loans and from 1.35% to 1.60% per year for Term SOFR loans. We are required to pay a commitment fee for the unused portion of the revolving credit facility, which will range from 0.20% to 0.225% per annum, depending on the average daily availability under the revolving credit facility.

Each of the subsidiaries of Holdings is a borrower under the revolving credit facility, and all obligations under the revolving credit facility are guaranteed by Holdings. All of the obligations under the revolving credit facility are secured by a lien on substantially all of Holdings’ tangible and intangible working capital assets and the tangible and intangible working capital assets of all of Holdings’ subsidiaries, including a pledge of all capital stock of each of Holdings’ subsidiaries. The lien securing the obligations under the revolving credit facility is a first priority lien as to certain liquid assets, including cash, accounts receivable, deposit accounts and inventory.

We may be required to make mandatory prepayments under the revolving credit facility in the event of a disposition of certain property or assets, in the event of receipt of certain insurance or condemnation proceeds, upon the issuance of certain debt or equity securities, upon the incurrence of certain indebtedness for borrowed money or upon the receipt of certain payments not received in the ordinary course of business.

Our revolving credit facility requires us to maintain a minimum availability at all times of not less than 10% of the gross borrowing base. In addition, the credit agreement governing our revolving credit facility contains customary affirmative and negative covenants, including covenants that limit our ability to incur, create or assume certain indebtedness, to create, incur or assume certain liens, to make certain investments, to make sales, transfers and dispositions of certain property and to undergo certain fundamental changes, including certain mergers, liquidations

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and consolidations. The credit agreement also contains customary events of default. As of October 28, 2023, we were in compliance with all covenants under the credit agreement governing our revolving credit facility.

Critical Accounting Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of the financial statements, we are required to make assumptions, make estimates and apply judgment that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time the condensed consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

There have been no significant changes to our critical accounting estimates as described in “Part II., Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Fiscal 2022 Form 10-K.

Off Balance Sheet Arrangements

We are not party to any off balance sheet arrangements.

Non-GAAP Financial Measures

In evaluating our business, we use Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our operating performance. We define Adjusted EBITDA as net (loss) income plus interest expense, income tax (benefit) expense, depreciation and amortization, stock-based compensation expense, director and officer transition costs, cost related to the implementation of our cost reduction plan and a one-time legal settlement and related fees and expenses. Beginning with the three months ended October 28, 2023, we no longer add back new store pre-opening expenses to our net (loss) income to determine Adjusted EBITDA. The presentation of past periods has been conformed to the current presentation. Net (loss) income is the most comparable GAAP financial measure to Adjusted EBITDA. We define Adjusted EBITDA margin as, for any period, the Adjusted EBITDA for that period divided by the net sales for that period. We consider Adjusted EBITDA and Adjusted EBITDA margin important supplemental measures of our operating performance and believe they are frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. Other companies in our industry, however, may calculate Adjusted EBITDA and Adjusted EBITDA margin differently than we do. Management also uses Adjusted EBITDA and Adjusted EBITDA margin as additional measurement tools for purposes of business decision-making, including evaluating store performance, developing budgets and managing expenditures. Management believes Adjusted EBITDA and Adjusted EBITDA margin allow investors to evaluate our operating performance and compare our results of operations from period to period on a consistent basis by excluding items that management does not believe are indicative of our core operating performance.

Adjusted EBITDA is not defined under GAAP and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation or as a substitute for net income or other condensed consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to:

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA may be defined differently by other companies, and, therefore, it may not be directly comparable to the results of other companies in our industry;

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Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and
Adjusted EBITDA does not reflect income taxes or the cash requirements for any tax payments.

A reconciliation of net income, to Adjusted EBITDA and a calculation of Adjusted EBITDA margin is set forth below for the periods presented (amounts in thousands):

 

 

Thirteen Weeks Ended

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

 

 

October 29,

 

 

October 28,

 

 

October 29,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(dollars in thousands)

 

Net (loss) income (1)

 

$

(1,331

)

 

$

12,877

 

 

$

(20,258

)

 

$

29,489

 

Interest expense

 

 

3,944

 

 

 

1,187

 

 

 

9,518

 

 

 

2,521

 

Income tax expense (benefit)

 

 

459

 

 

 

4,436

 

 

 

(6,664

)

 

 

10,012

 

Depreciation and amortization

 

 

10,663

 

 

 

7,839

 

 

 

28,412

 

 

 

23,012

 

Stock-based compensation expense (2)

 

 

965

 

 

 

1,077

 

 

 

3,341

 

 

 

3,526

 

Director and officer transition costs (3)

 

 

1,180

 

 

 

289

 

 

 

3,067

 

 

 

1,214

 

Cost reduction plan (4)

 

 

351

 

 

 

 

 

 

1,216

 

 

 

 

Legal settlement (5)

 

 

 

 

 

 

 

 

687

 

 

 

 

Adjusted EBITDA

 

$

16,231

 

 

$

27,705

 

 

$

19,319

 

 

$

69,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

340,569

 

 

$

359,720

 

 

$

917,593

 

 

$

1,020,246

 

Net (loss) income margin

 

 

(0.4

)%

 

 

3.6

%

 

 

(2.2

)%

 

 

2.9

%

Adjusted EBITDA margin (6)

 

 

4.8

%

 

 

7.7

%

 

 

2.1

%

 

 

6.8

%

 

(1)
Beginning with the three months ended October 28, 2023, we no longer add back new store pre-opening expenses to our net (loss) income to determine Adjusted EBITDA. The presentation of past periods has been conformed to the current presentation. For the 13 and 39 weeks ended October 28, 2023 we incurred $1.0 million and $5.4 million, respectively, in new store pre-opening expenses compared to $1.4 million and $2.9 million, respectively, for the 13 and 39 weeks ended October 29, 2022.
(2)
Stock-based compensation expense represents non-cash expenses related to equity instruments granted to employees under the Sportsman's Warehouse Holdings, Inc. 2019 Performance Incentive Plan and the Sportsman's Warehouse Holdings, Inc. Employee Stock Purchase Plan.
(3)
Expenses incurred relating to departure of directors and officers and the recruitment of directors and key members of our senior management team. For the 39 weeks ended October 28, 2023, we incurred $3.1 million in expenses for employee retention bonuses after the retirement of our Chief Executive Officer in April 2023, professional fees for the engagement of a search firm to identify director candidates and candidates for Chief Executive Officer and an executive signing bonus and relocation reimbursement.
(4)
Severance expenses paid as part of our cost reduction plan implemented during the 39 weeks ended October 28, 2023.
(5)
Represents a one-time legal settlement and related fees and expenses.
(6)
We calculate net income margin as net income divided by net sales and we define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal exposure to market risk relates to changes in interest rates. Borrowings under our revolving credit facility carry a floating interest rate tied to Term SOFR, the federal funds rate and the prime rate, and, therefore, our income and cash flows will be exposed to changes in interest rates to the extent that we do not have effective hedging arrangements in place. We historically have not used interest rate swap agreements to hedge the variable cash flows associated with the interest on our credit facilities. Based on a sensitivity analysis at October 28, 2023, assuming the amount outstanding under our revolving credit facility would be outstanding for a full year, a 100 basis point increase in interest rates would have increased our interest expense by $2.0 million. We do not use derivative financial instruments for speculative or trading purposes. However, this does not preclude our adoption of specific hedging strategies in the future.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) ) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of October 28, 2023.

Inherent Limitations in Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake or fraud. Additionally, controls can be circumvented by individuals or groups of persons or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements in our public reports due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the 13 weeks ended October 28, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in legal proceedings arising in the ordinary course of business. We believe there is no pending or threatened litigation that could have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. There have been no material changes in our risk factors from those set forth in our Fiscal 2022 Form 10-K.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

 

 

 

Exhibit Number

Description

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Sportsman’s Warehouse Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 8, 2023).

 

 

 

3.2

 

Third Amended and Restated Bylaws of Sportsman’s Warehouse Holdings, Inc. (incorporated by reference to Exhibit (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on September 7, 2023).

 

 

 

10.1*

 

Form of Restricted Stock Unit Award Agreement (CEO) under the Sportsman’s Warehouse Holdings, Inc. Inducement Plan.

 

 

 

10.2*

 

Form of Restricted Stock Unit Award Agreement (VP and Above) under the Sportsman’s Warehouse Holdings, Inc. Inducement Plan.

 

 

 

10.3

 

Employment Agreement, dated September 22, 2023, between the Company and Paul Stone (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 26, 2023).

 

 

 

10.4

 

Employee Confidential Information and Inventions Assignment Agreement, dated September 22, 2023, between the Company and Paul Stone (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 26, 2023).

 

 

 

10.5

 

Sportsman’s Warehouse Holdings, Inc. Inducement Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on September 26, 2023).

 

 

 

31.1*

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

99.1

 

Description of Capital Stock of Sportsman’s Warehouse Holdings, Inc. (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 26, 2023)

101.INS*

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

XBRL Taxonomy Extension Schema Document.

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

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104*

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

*

Filed herewith.

**

Furnished herewith.

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

SPORTSMAN’S WAREHOUSE HOLDINGS, INC.

 

 

Date: December 7, 2023

By:

/s/Paul Stone

 

 

Paul Stone

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Date: December 7, 2023

By:

/s/Jeff White

 

 

Jeff White

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

37