At its Investor Day last week, Sportsman’s Warehouse announced plans to double the pace of new store openings over the next three years to grow sales on average by 10 percent annually through 2025.
The meeting, held on September 22, was closed to the media but an updated investor presentation posted on the retailer’s website outlined details of its growth strategy.
The meeting comes as Bass Pro and Sportsman’s Warehouse, in December 2021, called off plans to merge when it became evident FTC anti-trust approvals could not be attained. Bass Pro had agreed to purchase Sportsman’s Warehouse for $18 per share in cash, equating to approximately an $800 million purchase price.
Highlights from the meeting held at the retailer’s headquarters in West Jordan, UT include:
- SPWH cited four factors driving its market share (1) resurgence of outdoor participation, (2) fragmented and reduced competition, (3) increased brand reach and awareness, (4) entrepreneurial culture, driving go-to-market strategies.
- SPWH sees the outdoor space as a $70 billion Total Addressable Market (TAM) in a “highly-fragmented” marketplace. Nearly 65 percent of outdoor retailers are independently owned and 35 percent are either large retailers or regional stores. SPWH expects to benefit as competitors, including Dick’s, Walmart and Gander, have de-emphasized or exited the hunting/outdoor space and smaller independents remain competitively challenged. Outdoor participation also benefited from pandemic-related lockdowns to support the SPWH’s long-term tailwinds.
- SPWH plans to expand its store count from 131 at the close of 2022 to between 190 and 210 stores by 2025. Annual openings over the next three years are expected to range between 20-to-27 annually versus 8-to-12 historically, representing unit growth of 15 percent on a Compound Annual Growth Rate (CAGR). New stores exceed expectations, including its smaller Spike Camp concept. The long-term opportunity remains more than 300 stores.
- SPWH expects to have 20 percent of its store base refreshed by the end of 2022. The retailer said store refreshes have yielded customer satisfaction scores that are 14 percent higher on average and revenue growth that outpaces same-store sales growth.
- Sales are expected to expand from $1.4 billion at the close of 2022 to a range of $1.8 billion to $2.0 billion in 2025, representing a CAGR of 10 percent. The growth assumes an expectation of low-single-digit, same-store sales and the benefit of store remodels.
- EBITDA margin is projected to expand from 7 percent in 2022 to a range of 8-to-10 percent by 2025, implying a nearly doubling of EBITDA over the next three years.
- E-commerce increased from 4 percent of sales in 2019 to 15 percent in 2022 and is targeted to reach 25 percent by 2025. Besides its sportsmans.com site, SW plans to launch stand-alone domains, including its recently-launched knives.com which targets a different customer but leverages its inventory and distribution.
- SPWH sees merchandise opportunities in footwear and apparel, backyard, dog and pet, power sports, and saltwater fishing. Private labels, including Killik, RusticRidge, Lost Creek, and Vital Impact, account for 4 percent of sales and are expected to expand to a range of 7 percent to 9 percent by 2025.
- SPWH plans to open a second distribution center on the East Coast in 2024 to support growth. It has one distribution center in Salt Lake City.
Shares of SPWH closed at $8.20, up $0.6 on September 22. Shares closed at $8.56 on September 27.
At Craig-Hallum, Ryan Sigdahl noted, “Our biggest incremental takeaway from SPWH’s Analyst Day is a plan to double the pace of new store openings over the next three years along with attractive (and we think achievable) medium-term financial targets. Given record participation in outdoor recreation ($70B TAM), a competitively advantaged business, and an efficient new store expansion playbook, we think the business and stock opportunities are significant.”
Sigdahl said Sportsman’s Warehouse has “improved across every aspect versus the Sportsman’s of old,” including improving its balance sheet to achieve a leverage ratio of 0.6 times in 2021 versus 3 to 4 times a few years ago, modernizing much of its fleet through updates, building a wide assortment of good/better/best inventory with a focus on value, growing loyalty rewards and credit card databases, and significant e-commerce growth. He wrote, “The combination is winning with customers.”
Craig-Hallum has a “Buy” rating at a $15 price target. Sigdahl wrote, “We think there is sustainable SSS (same-store sales) growth, margin expansion and 15 percent+ EPS CAGR over the next 5+ years driven by increased participation in outdoor recreation, accelerated new store openings and market share gains given actions by competitors to de-emphasize hunting/guns/ammo.”
At Piper Sandler, Peter Keith reiterated his “Neutral” rating and $10 price target following the Investor Day event.
“While the company has benefited from share gains as larger retailers have all exited the gun/ammo category, future share gains will have to come from the roughly 50k smaller independents that control about 65 percent of the market,” said Keith. “The compliance aspect of selling guns and ammo is cumbersome, and we believe SPWH has a competitive advantage purely from their size and technological capabilities. However, we maintain our Neutral rating due to demand pull-forward concerns for both firearms and ammo.”
At B. Riley, Eric Wold reiterated his “Buy” rating on Sportsman’s Warehouse and raised this price target from $14 to $16.
He noted that with adjusted firearms background checks still running about 30 percent above 2019 levels and his team’s recent Federal manufacturing plant site visit with Vista Outdoor indicating strong point-of-sales sales trends for ammunition, Wold believes Sportsman’s Warehouse “remains well positioned” to capitalize on the 14 million new firearms owners entering the market during the pandemic.
The analyst noted, “Under the backdrop of continued elevated outdoor activity participation trends following the initial pandemic-driven boost, we came away from the Investor Day increasingly optimistic about SPWH’s potential to gain incremental market share and customer loyalty. In addition to management’s plans to accelerate store growth in the coming years with the flexible store format, we believe the departure of other competing retailers from the firearms and ammo segments provides an attractive set-up for repeat purchase activity and store visits.”
At Baird, Justin Kleber reiterated his “Neutral” rating on Sportsman’s Warehouse at a $9 price target following the analyst meeting although he was positive on the retailer’s long-term growth potential. He noted, “While sector demand continues to normalize (and macro/inflationary pressures are weighing on certain high-ticket/high-consideration purchases), outdoor participation trends (hunting/fishing/camping) are proving sticky/durable, so we believe industry sales have re-baselined higher relative to pre-pandemic levels.”
Kleber said Sportsman’s Warehouse’s ‘low cost/no-frills’ store model and flexible format (including ‘Spike Camp’ concept) is a key differentiator relative to the larger/ more ornate retailers in the industry” and he was impressed by the improved layout, better sightlines and enhanced visual merchandising at refreshed stores.
“We believe shares offer good long-term value,” wrote Kleber in his investment thesis. “However, we are staying patient near term as macro pressures cloud visibility into a fundamental inflection.”
