8
1
0
2
ANNUAL
REPORT
SPORTSMAN’S WAREHOUSE HOLDINGS, INC.
25 States
95 Store Locations
(cid:3)
(cid:3)
Existing location
Committed 2019 opening
(cid:3)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2019
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
(State or other jurisdiction of
incorporation or organization)
7035 South High Tech Drive
Midvale, Utah
(Address of principal executive offices)
39-1975614
(I.R.S. Employer
Identification No.)
84047
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share; Common stock traded on the Nasdaq stock market
Registrant’s telephone number, including area code: (801) 566-6681
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES NO
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting 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
As of August 3, 2018, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The Nasdaq Stock Market on such date, was $204,983,741. Shares held by
each executive officer and director and by each other person or entity deemed to be an affiliate have been excluded in such calculation. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of Registrant’s Common Stock outstanding as of March 29, 2019 was 42,978,780.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to the 2019 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission
within 120 days after the end of the 2018 fiscal year, are incorporated by reference into Part III of this Report.
Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Page
4
20
34
34
34
35
35
36
39
51
52
75
75
75
76
76
76
76
76
77
78
ii
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.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “10-K”) 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-K are forward-looking statements. These statements may include
words such as “aim,” “anticipate,” “assume,” “believe,” “can have,” “could,” “due,” “estimate,” “expect,” “goal,”
“intend,” “likely,” “may,” “objective,” “plan,” “potential,” “positioned,” “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:
•
•
•
our retail-based business model is impacted by general economic conditions and economic and financial
uncertainties may cause a decline in consumer spending;
current and future government regulations, in particular regulations relating to the sale of firearms and
ammunition, may impact the demand for our products and our ability to conduct our business;
our concentration of stores in the Western United States makes us susceptible to adverse conditions in this
region, which could affect our sales and cause our operating results to suffer;
• we operate in a highly fragmented and competitive industry and may face increased competition;
• we may not be able to anticipate, identify and respond to changes in consumer demands, including regional
preferences, in a timely manner; and
• we may not be successful in operating our stores in any existing or new markets into which we expand.
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 “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this 10-K,
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-K 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-K 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.
iii
Item 1. Business.
PART I
Overview
Sportsman’s Warehouse is an outdoor sporting goods retailer focused on meeting the everyday needs of the
seasoned outdoor veteran, the first-time participant, and every enthusiast in between. Our mission is to provide an omni-
channel shopping experience that equips our customers with the right quality hunting, shooting, fishing and camping
gear to maximize their enjoyment of the outdoors. We strive to accomplish this goal by tailoring our broad and deep
merchandise assortment to meet local conditions and demand, offering everyday low prices, providing friendly support
from our knowledgeable, highly trained staff, offering a top-tier e-commerce experience and extensive in-store events
and educational programming. These core strategies help position Sportsman’s Warehouse as the “local outdoor experts”
and the preferred place to both shop and share outdoor-based experiences in the communities we serve. As a result, we
are growing our loyal customer base in existing markets, expanding our footprint into new markets, and increasing our
omni-channel presence new and existing markets, which we believe will further drive our growth and profitability.
Sportsman’s Warehouse was founded in 1986 as a single retail store in Midvale, Utah and has grown to 92 stores
across 23 states. Today, we have the largest outdoor specialty store base in the Western United States and Alaska. Our
stores range from 15,000 to 65,000 gross square feet, with an average size of approximately 40,000 gross square feet.
Our store layout is adaptable to both standalone locations and strip centers. We believe it is less capital-intensive for us
to open new stores compared to our principal competitors because our “no frills” store layout requires less initial cash
investment to build out and our stores generally require less square footage than the stores of our competitors. We also
have the largest offering of firearms available online for in-store purchase by our customers when compared to the
offerings of our major competitors. Together, these features enable us to effectively serve markets of multiple sizes,
from Metropolitan Statistical Areas (“MSAs”) with populations of less than 75,000 to major metropolitan areas with
populations in excess of 1,000,000, while generating consistent four-wall Adjusted EBITDA margins and returns on
invested capital across a range of store sales volumes. We may post information that is important to investors on our
website from time to time. The information provided on our website is not part of this report and is, therefore, not
incorporated herein by reference.
Our Competitive Strengths
We believe the following competitive strengths allow us to capitalize on the growth opportunity within the outdoor
activities and sporting goods market:
Differentiated Shopping Experience for the Seasoned Outdoor Veteran, the First-Time Participant and Every
Enthusiast in Between. We place great emphasis on creating an inviting and engaging store experience for customers of
all experience levels. For the seasoned outdoor veteran, we offer a one-stop, convenient store layout that promotes
“easy-in, easy-out” access to replenish supplies, learn about local conditions and test products. We also serve first-time
participants and casual users who are interested in enjoying the outdoors but enter our store without a clear sense for
what equipment they need for their chosen activity. Our highly trained employees, who often are outdoor enthusiasts
themselves and users of the products we sell, engage and interact with our customers in order to educate them and equip
them with the right gear. Our sales associates draw upon both formal vendor sales training as well as first-hand
experiences from using our products in local conditions. This selling approach allows us to offer a broad range of
products and to deliver a shopping experience centered on the customer’s needs, which we believe results in increased
customer loyalty, repeat visits and frequent referrals to other potential customers.
A customer’s shopping experience in our stores is further enhanced by a variety of helpful in-store offerings and
features, including the issuance of hunting and fishing licenses, local fishing reports, availability of Sportsman’s News
(our proprietary in-store newspaper), access to the Braggin’ Board (where customers can post photos of their outdoor
adventures), indoor test ranges for archery equipment and displays of customer-owned taxidermy. In addition, we host a
variety of in-store programs (such as “ladies night”), contests (such as Bucks & Bulls, a free-to-enter, big-game trophy
contest) and a wide range of instructional seminars, from turkey frying to firearm operation and safety. We also offer the
ability for our customers to buy our product on-line and pick up their order in any of our stores. These programs are all
designed to help our customers connect with the outdoors and build the skill sets necessary to maximize enjoyment of
their chosen activities. As a result, we believe our stores often serve as gathering spots where local enthusiasts can share
4
stories, product knowledge and advice on outdoor recreation activities, which both drives traffic and fosters customer
loyalty.
Our in-store experience is further complimented by our top-tier e-commerce experience available on our website,
sportsmans.com.
Locally Relevant Merchandise Serving the Comprehensive Needs of Outdoor Enthusiasts at a Compelling
Value. We offer our customers an extensive and carefully selected assortment of branded, high-quality outdoor products
at competitive prices. We accomplish this in three principal ways:
• Locally Relevant Merchandise: We carry over 68,000 SKUs on average in each store, out of a pool of
approximately 150,000 total SKUs. Each store’s merchandise is tailored to meet local conditions and
consumer demand, taking into account seasonal requirements, regional game and fishing species, geographic
diversity, weather patterns and key demographic factors, so that our customers have the right product, at the
right time, for the right location.
• Breadth and Mix of Product Assortment: Our merchandise strategy is designed to serve a variety of
purchasing occasions, from big-ticket items to replenishment activity, as well as to meet the wide-ranging
needs of customers from first-time participants to seasoned outdoor veterans. We pride ourselves on carrying
an extensive selection of branded, “good, better and best” hard goods at everyday low prices, including a
broad array of in-stock consumable items. Approximately 35% of our unit sales and 19% of our dollar sales
during fiscal year 2018 were consumable goods, such as ammunition, bait, cleaning supplies, food, some
lures, propane and reloading supplies. We believe this pairing of product breadth and consumable goods
appeals to a broad range of customers and drives both repeat traffic and increased average ticket value.
• Strong Vendor Relationships: We believe our vendors find our “brand-centric”, high-service store concept to
be unique among national specialty outdoor retailers. Our attractive store locations, consistent presentation of
merchandise and thorough product training present a compelling opportunity for our vendors to offer their
brands to local markets that historically have been served primarily by “mom & pop” retailers. As a result, we
believe we are able to negotiate terms with our vendors that are similar to those offered to our principal
competitors that are larger in size. We share the benefits of these strategic vendor relationships with our
customers through better pricing and enhanced access to certain products that are limited in production.
Flexible and Adaptable Real Estate Strategy. We believe that our store model, combined with our rigorous site
selection process, is uniquely customizable to address the needs of the different markets we serve. Our stores vary in size
from approximately 15,000 to 65,000 gross square feet. We have had success with leasing existing sites as well as
constructing new build-to-suit sites. Our flexible store model permits us to serve both large metropolitan areas, like
Phoenix, Arizona, and smaller MSAs, like Soldotna, Alaska, while generating consistent four-wall Adjusted EBITDA
margins and returns on invested capital across a range of store sales volumes. In small- to medium-sized markets, we are
often able to establish ourselves as a standalone destination for our customers; in larger markets, we have successfully
leveraged existing infrastructure to open stores in shopping plazas near complementary retailers, drawing upon existing
foot traffic. We believe our low-cost, flexible model allows us to access both large and small markets more economically
than many of our peers.
We maintain a disciplined approach to new store development and perform comprehensive market research before
selecting a new site, including partnering with specialized, third-party local real estate firms. We select sites based on
criteria such as local demographics, traffic patterns, density of hunting and fishing license holders in the area, abundance
of hunting and fishing game and outdoor recreation activities, store visibility and accessibility, purchase data from our
existing customer database and availability of attractive lease terms. We have established productive relationships with
well-regarded commercial real estate firms and believe that we are a sought-after tenant, given the strength of the
Sportsman’s Warehouse brand, the high volume of customers that visit our stores and our flexible approach to site
locations. As a result, we continue to have access to desirable retail sites on attractive terms.
Low Cost Operating Structure with Attractive and Replicable Store Economics. We strive to maintain a lower
operating cost structure than our principal competitors, which allows us to serve small- to medium-sized markets as well
as larger MSAs. We achieve this by exercising tight control over store-level expenses, real estate costs and corporate
overhead. In addition, our growing store base, efficient, localized marketing spend and “no frills” warehouse store layout
5
helps us maintain comparatively low operating costs and provide us with the opportunity to achieve four-wall Adjusted
EBITDA margins of 10% or more for stores in most new markets. Our typical new store requires an average net
investment of approximately $2.0 million, which includes store build-out (net of contributions from landlords) and pre-
opening cash expenditures. In addition, we stock each new store with initial inventory at an average cost of
approximately $2.2 million. We target a pre-tax return on invested capital within one year after opening of over 50%
excluding initial inventory cost (or over 20% including initial inventory cost), although our historical returns have often
exceeded these thresholds. As of the end of fiscal year 2018, the majority of our stores that had been open for more than
twelve months were profitable and those stores had an average Adjusted EBITDA margin of 12.0%. We believe this
low-cost, capital-efficient approach also allows us to successfully serve markets that are not well-suited for the more
capital-intensive store models of our principal competitors. Approximately 61% of our markets currently lack another
nationally recognized outdoor specialty retailer, which we believe is a result of these dynamics.
Significant New Store Growth Opportunity within Existing and New Markets. As of February 2, 2019, we
operate 92 stores across 23 states, primarily in the Western United States and Alaska, with a presence in these markets
that is nearly three times that of the next largest outdoor retailer. We believe our leadership position in the Western
United States, combined with our existing scalable infrastructure, provides a strong foundation for continued expansion
within our core markets.
Passionate and Experienced Management Team with Proven Track Record. We are focused on delivering an
unsurpassed shopping experience to anyone who enjoys the excitement of the outdoors. This passion and commitment is
shared by team members throughout our entire organization, from senior management to the employees in our stores.
Our senior management team has an average of 23 years of retail experience, with extensive capabilities across a broad
range of disciplines, including merchandising, real estate, finance, compliance, store operations, supply chain
management and information technology. We also pride ourselves on the long tenure of our more than 200 store
managers and corporate employees, who have been with us for an average of approximately nine years.
Our Growth Strategy
We are pursuing a number of strategies designed to continue our growth and strong financial performance,
including:
Growing Our Omni-Channel Presence and Increasing Our Same Store Sales Growth. We are committed to
growing our omni-channel presence and increasing same store sales through a number of ongoing and new initiatives,
including: developing our website to improve functionality, expanding our product assortment through drop ship and
buy online, pick-up in store capabilities, continuing to improve the ability and increase our selection of firearms that can
be bought using our website and picked up in the store, expanding our clothing offerings and private label program (such
as our proprietary Rustic Ridge™ and Killik™ clothing lines),continuing to improve our loyalty program, and
continuing our “store-within-a-store” programs with major brands such as Carhartt, Columbia Sportswear and Under
Armour. Each of these ongoing and new initiatives is designed to foster additional shopping convenience, add deeper
merchandise selection and provide more product information to the customer. We believe these initiatives have driven
and will continue to drive additional traffic, improved conversion and increased average ticket value.
Continuing to Enhance Our Operating Margins. We believe that our expansion of our store base and growth in
net sales will result in improved Adjusted EBITDA margins as we take advantage of economies of scale in product
sourcing and leverage our existing infrastructure, supply chain, corporate overhead and other fixed costs. Furthermore,
we expect to increase our gross profit margin by expanding product offerings in our private label program, including our
proprietary Rustic RidgeTM and KillikTM clothing lines, and continuing marketing initiatives in our higher-margin clothing
and footwear departments.
Growing the Sportsman’s Warehouse Brand. We are committed to supporting our stores, product offerings and
brand through a variety of marketing programs, private label offerings and corporate partnerships. Our marketing and
promotional strategy includes coordinated print, digital and social media platforms. In-store, we offer a wide range of
outdoor-themed activities and seminars, from turkey frying to firearm operation and safety. In addition, we sponsor
community outreach and charity programs to more broadly connect with our local communities with the aim of
promoting our brand and educating consumers. Finally, we are committed to local chapters of national, regional and
local wildlife federations and other outdoor-focused organizations, such as Ducks Unlimited and the Rocky Mountain
Elk Foundation. Many of our store managers and employees serve in senior positions in these organizations, which
6
further strengthens our place as leaders in the local outdoor community. We believe all of these programs promote our
mission of engaging with our customers and serving outdoor enthusiasts.
Expanding Our Store Base. We believe that our compelling new store economics and our track record of opening
successful new stores provide a strong foundation for continued growth through new store openings in existing, adjacent
and new markets. Over the last three fiscal years, we have opened an average of nine stores per year. We currently plan
to open three new stores in fiscal year 2019. In 2019, we expect we will grow our square footage approximately 3% as
we continue to shift some of our cash use to reducing our debt balance. Over the long term, however, our target is to
grow our square footage at a rate of greater than 5% annually. Our longer-term plans include expanding our store base to
serve the outdoor needs of enthusiasts in markets across the United States. We believe our existing infrastructure,
including distribution, information technology, loss prevention and employee training, is capable of sustaining 100 or
more stores without significant additional capital investment.
Our Stores
We operate 92 stores across 23 states as of February 2, 2019. Most of our stores are located in power,
neighborhood and lifestyle centers. Power centers are large, unenclosed shopping centers that are usually anchored by
three or more national supercenters, such as Target, Wal-Mart and Costco. Neighborhood centers are shopping centers
anchored by a supermarket or drugstore that provide convenience goods and services to a neighborhood. Lifestyle
centers are shopping centers that combine the traditional functions of a shopping mall with leisure amenities such as
pedestrian friendly areas, open air seating and inviting meeting spaces. We also operate several single-unit, stand-alone
locations. Our stores average approximately 40,000 gross square feet.
The following table lists the location by state of our 92 stores open as of February 2, 2019:
Washington
California
Utah
Oregon
Arizona
Colorado
Idaho
Alaska
Wyoming
Nevada
New Mexico
Montana
Number of
Stores
12
11
9
8
8
6
6
5
5
4
3
3
South Carolina
Tennessee
Minnesota
Iowa
Kentucky
Louisiana
Mississippi
North Dakota
Virginia
North Carolina
West Virginia
Store Design and Layout
Number of
Stores
2
1
1
1
1
1
1
1
1
1
1
We present our broad and deep array of products in a convenient and engaging atmosphere to meet the everyday
needs of all outdoor enthusiasts, from the seasoned veteran to the first-time participant. We maintain a consistent floor
layout across our store base that we believe promotes an “easy-in, easy-out” shopping experience. All of our stores
feature wide aisles, high ceilings, visible signage and central checkouts with multiple registers. Sportsman’s Warehouse
stores, true to their name, are designed in a “no frills” warehouse format that welcomes customers directly from or on the
way to an outdoor activity. All of our stores also feature “store-within-a-store” concepts for certain popular brand
partners, such as Carhartt, Columbia Sportswear and Under Armour, through which we dedicate a portion of our floor
7
space to these brands to help increase visibility and drive additional sales. The diagram below demonstrates our typical
store layout.
Our stores include locally relevant features such as a large fishing board at the entrance that displays current
fishing conditions in local lakes and rivers with coordinating gear in end-cap displays in the fishing aisles. We actively
engage our customers through in-store features such as the Braggin’ Board, various contests (such as Bucks & Bulls and
Fish Alaska), and customer-owned taxidermy displays on the walls. We also host in-store programs such as “ladies
night” and a wide range of instructional seminars, from Dutch oven cooking to choosing the right binocular. Annually,
we organize approximately 3,000 programs across our stores for the benefit of our customers. We believe these
programs help us connect with the communities in which we operate and encourage first time participants to build the
skills necessary to become outdoor enthusiasts and loyal customers.
The retail stores and the distribution center have loss prevention employees who monitor an average of 60 cameras
at each store and 200 at the distribution center. These cameras are connected to digital video recorders (DVR) that record
at least 30 days of video. Cameras are monitored locally during store hours. In addition, all cameras are monitored
centrally at our headquarters in our dedicated surveillance room, which has capacity to monitor over 120 stores. This
room is staffed continuously and provides off-hours monitoring and backup for all stores. Digital recorded video can be
searched by pixel movement, which can quickly identify any loss prevention issue. Our sophisticated systems are a key
factor in our shrink rates of less than 1% and an important component of our comprehensive compliance program.
Expansion Opportunities and Site Selection
We have developed a rigorous and flexible process for site selection. We select sites for new store openings based
on criteria such as local demographics, traffic patterns, density of hunting and fishing license holders in the area,
abundance of hunting and fishing game and outdoor recreation activities, store visibility and accessibility, purchase data
from our existing customer database and availability of attractive lease terms. Our store model is adaptable to markets of
8
multiple sizes, from MSAs with populations of less than 75,000 to major metropolitan areas with populations in excess
of 1,000,000. We have been successful both in remodeling existing buildings and in constructing new build-to-suit
locations.
Our store model is designed to be profitable in a variety of real estate venues, including power, neighborhood and
lifestyle centers as well as single-unit, stand-alone locations. In small- to medium-sized markets, we generally seek
anchor locations within high-traffic, easily accessible shopping centers. In larger metropolitan areas, we generally seek
locations in retail areas with major discount retailers (such as Wal-Mart), wholesale retailers (such as Costco), other
specialty hardline retailers (such as The Home Depot) or supermarkets. As we continue to expand our store base, we
believe that small- to medium-sized markets offer a significant opportunity. In these markets, we believe our store size,
which is smaller than many of our national competitors but larger than many independent retailers, enables us to find
convenient, easily accessible store locations while still offering the broad and deep selection of merchandise that our
customers desire. In addition, our store format and size allow us to open multiple stores in local areas within major
MSAs, which gives our customers convenient, easy access to our products without having to travel long distances.
Members of our real estate team spend considerable time evaluating prospective sites before bringing a proposal to
our real estate committee. Our real estate committee, which is comprised of senior management including our Chief
Executive Officer, Chief Financial Officer, Vice President of Real Estate, and Senior Vice President of Stores, approves
all prospective locations before a lease is signed.
We opened five new stores in fiscal year 2018. We currently plan to open an additional three new stores in fiscal
year 2019. In 2019, we expect we will grow our square footage approximately 3% as we continue to shift some of our
cash use to reducing our debt balance. Over the long term, however, our target is to grow our square footage at a rate of
greater than 5% annually. Our new store openings are planned in existing, adjacent and new markets.
Our new store growth plan is supported by our target new unit economics, which we believe to be compelling. A
typical store location ranges in size from 15,000 to 65,000 gross square feet. Our net investment to open a new store is
approximately $2.0 million, consisting of pre-opening expenses and capital investments, net of tenant allowances. In
addition, we stock each new store with initial inventory at an average cost of approximately $2.2 million. For the first
twelve month period after opening a new store, we target net sales of $8.0 million to $11.0 million, a four-wall Adjusted
EBITDA margin of more than 10% and a pre-tax return on invested capital of over 50% excluding initial inventory cost
(or over 20% including initial inventory cost). Our new stores typically reach a mature sales growth rate within three to
four years after opening, with net sales increasing approximately 25% in the aggregate during this time period. For the
52 stores opened since 2010 that have been open for a full twelve months (excluding our 10 acquired stores), we
achieved an average four-wall Adjusted EBITDA margin of 12.0% and an average ROIC of 63.3% excluding initial
inventory cost (and 24.6% including initial inventory cost) during the first twelve months of operations. In addition, we
achieved an average pre-tax payback period of less than one year (excluding initial inventory cost) and expect to achieve
an average pre-tax payback period of approximately 2.5 years (including initial inventory cost).
Omni-Channel Strategy
We believe our website is an extension of our brand and our retail stores. Our website, www.sportsmans.com,
serves as both a sales channel and a platform for marketing and product education, and allows us to engage more fully
with the local outdoor community. In 2018, we redeveloped our website to improve functionality. Our website features a
similar merchandise assortment as offered in our stores as well as certain products found exclusively online. Regulatory
restrictions create certain structural barriers to the online sale of a portion of our revenue, such as firearms, ammunition,
certain cutlery, propane and reloading powder. As a result, this portion of our business is currently more protected from
online-only retailers, such as Amazon.
We also provide our online customers with convenient omni-channel services. To ensure that our customers have
access to our entire assortment of products available on the e-commerce website, our retail stores feature kiosks that
allow customers to place orders for items that are available only on our website or that are out of stock or not regularly
stocked. We view our kiosk offering as an important complement to our larger format stores, as well as a key
differentiator and extension of our smaller format stores. Our in-store pickup offering allows customers to order products
through our e-commerce website and pick up the products in our retail stores without incurring shipping costs. We
believe our ship-to-store functionality is a valuable service offering to customers, as well as a means to generate
additional foot traffic to our retail stores.
9
In addition, our website features local area content, including fishing reports and event schedules, as well as online
educational resources, including tips, advice and links to video demonstrations on our dedicated YouTube channel. We
have also rolled out our social media strategy through our Facebook page and Instagram feed. These platforms allow us
to reach our customers more directly with targeted postings of advertisements and in-store events. We believe our online
educational resources and community outreach drive traffic to our website and retail stores, while improving user
engagement as shoppers move from single-purchase users to loyal customers. We provide online customer service
support and fulfill all orders in-house through our distribution center and through select partner drop ship integration. In
fiscal year 2018 our website received greater than 29.2 million visits, which we believe demonstrates our position as a
leading resource for outdoor products and product education.
Merchandise Strategy
Our Products and Services
We offer a broad range of products at a variety of price points and carry a deep selection of branded merchandise
from well-known manufacturers, such as Browning, Carhartt, Coleman, Columbia Sportswear, Federal Premium
Ammunition, Honda, Johnson Outdoors, Remington, Shakespeare, Shimano, Smith & Wesson and Under Armour. To
reinforce our convenient shopping experience, we offer our products at competitive, everyday low prices. We believe
our competitive pricing strategy supports our strong value proposition, instills price confidence in both our customers
and our sales associates and is a critical element of our competitive position.
We believe we offer a wider selection of hard goods than many of our principal competitors. We employ a “good,
better, and best” merchandise strategy, with an emphasis on “better” products that meet the needs of customers of all
experience levels. We strive to keep our merchandise mix fresh and exciting by continuously searching for new,
innovative products and introducing them to our customers. Our hunting and shooting department, which is strategically
located at the back of the store, is a key driver of store traffic and one of the reasons for our high frequency of customer
visits. We carry a large array of consumable goods, which includes ammunition, bait, cleaning supplies, food, select
lures, propane and reloading supplies. During fiscal year 2018, sales of consumable goods accounted for approximately
35.0% of our unit sales and 19.0% of our dollar sales. We believe the sale of consumables and replenishment items
drives repeat traffic, with approximately 66% of our customers visiting our stores seven or more times per year
(according to our internal surveys). During such visits, our customers frequently browse and purchase other items,
including additional gear and accessories.
We also carry a variety of private label and special make-up offerings under the Rustic RidgeTM, KillikTM, Vital
ImpactTM, Yukon Gold, Lost Creek and Sportsman’s Warehouse brands as well as special make-up items through
vendors such as Tikka, Camp Chef, and various others. These products are designed and priced to complement our
branded assortment, by offering our customers a quality alternative at all price points. We believe the clothing, footwear
and camping categories present a compelling near-term opportunity to expand our private label offering. In order to
address these segments, we previously introduced our proprietary Rustic RidgeTM and KillikTM clothing lines. During
fiscal year 2018, private label offerings accounted for approximately 3.6% of our total sales with special make-up
offerings accounting for an additional 1.4% of our total sales. This combined total of 5.0% compares to more than 20%
for many of our sporting goods retail peers. We believe our private label and special make-up products are an important
opportunity to drive sales and increase margins alongside our branded merchandise.
In addition to outfitting our customers with the correct gear, we provide our customers with various in-store, and
inner company options, along with value-added, technical support services, such as gunsmithing and firearm service
plans. Our stores offer full-service archery technician services, fishing-reel line winding, gun bore sighting and scope
mounting, and cleaning services. We also help first-time participants enjoy the outdoors responsibly by issuing hunting
and fishing licenses. We believe the support services provided by our highly trained staff technicians differentiate us
from our competitors and drive customer loyalty and repeat traffic to our stores.
10
Our stores are organized into six departments. The table below summarizes the key product lines and brands by
Products
department:
Department
Camping
Clothing
Fishing
Footwear
Product Offerings
Backpacks, camp essentials, canoes and kayaks, coolers, outdoor cooking
equipment, sleeping bags, tents and tools
Camouflage, jackets, hats, outerwear, sportswear, technical gear and work wear
Bait, electronics, fishing rods, flotation items, fly fishing, lines, lures, reels, tackle
and small boats
Hiking boots, socks, sport sandals, technical footwear, trail shoes, casual shoes,
waders and work boots
Hunting and Shooting
Ammunition, archery items, ATV accessories, blinds and tree stands, decoys,
firearms, firearms safety and storage, reloading equipment, and shooting gear
Optics, Electronics, Accessories,
Gift items, GPS devices, knives, lighting, optics (e.g. binoculars), two-way radios,
and Other
and other license revenue, net of revenue discounts
Each department has buying and planning teams that are responsible for monitoring product availability from
vendors and sales volume within the department and across all stores. We actively monitor the profitability of each
product category within each department and adjust our assortment and selling space accordingly. This flexibility
enables us to provide customers with more preferred product choices and to enhance the profit potential of each store.
Hunting and shooting have historically been the largest contributor to our sales. Hunting and shooting department
products are generally sold at significantly higher price points than other merchandise but often have lower margins.
Camping is our second largest department, and family-oriented camping equipment in particular continues to be a high
growth product category. Clothing sales have grown as we have introduced new brands and styles, including our
selections for women and children. We view clothing sales as an important opportunity, given this department’s high
gross margins and appeal to a broad, growing demographic.
The following table shows our sales during the past three fiscal years presented by department:
Department
Camping
Clothing
Fishing
Footwear
Hunting and Shooting
Optics, Electronics,
Accessories, and Other
Product Offerings
Backpacks, camp essentials, canoes and
kayaks, coolers, outdoor cooking equipment,
sleeping bags, tents and tools
Camouflage, jackets, hats, outerwear,
sportswear, technical gear and work wear
Bait, electronics, fishing rods, flotation
items, fly fishing, lines, lures, reels, tackle
and small boats
Hiking boots, socks, sport sandals, technical
footwear, trail shoes, casual shoes, waders
and work boots
Ammunition, archery items, ATV
accessories, blinds and tree stands, decoys,
firearms, reloading equipment and shooting
gear
Gift items, GPS devices, knives, lighting,
optics (e.g. binoculars), two-way radios, and
other license revenue, net of revenue
discounts
Fiscal Year Ended
February 2,
2019
February 3,
2018
January 28,
2017
14.2%
15.1%
14.6%
8.9%
9.3%
8.7%
10.6%
10.7%
10.0%
7.3%
7.4%
7.1%
48.3%
48.7%
50.9%
10.6%
8.8%
8.7%
Total
100.0%
100.0%
100.0%
11
Camping. Camping represented approximately 14.2% of our net sales during fiscal year 2018. Our camping
assortment addresses both the technical requirements of the heavy-use camper, including gear for long-duration or deep-
woods excursions, as well as the needs of the casual camper. We offer a broad selection of tents and shelters for both
multi-day back country use and weekend outings, sleeping bags for the most extreme conditions as well as the summer
overnight trip, backpacks and backpacking gear, including camouflaged styles for hunting, generators for home and
camp use, cooking and food preparation equipment, including stoves and extended-use coolers, as well as dehydrated
foods. Our camping department also includes canoes, kayaks and a selection of recreational family camping equipment,
including basic automotive accessories, camp chairs and canopies. Our camping department includes brands such as
Alps Mountaineering, Camp Chef, Coleman, Honda, Teton Sports, and Yeti Coolers.
Clothing. Clothing represented approximately 8.9% of our net sales during fiscal year 2018 and includes
camouflage, outerwear, sportswear, technical gear, work-wear, jackets and hats. We primarily offer well-known brands
in our clothing department, such as Carhartt, Columbia, Sitka, and Under Armour. We also intend to grow our private
label clothing lines, including Rustic RidgeTM and KillikTM. Our clothing selection offers technical performance
capabilities for a variety of hunting activities, including upland game, waterfowl, archery, big game hunting, turkey
hunting and shooting sports. Performance attributes include waterproofing, temperature control, scent control features
and visual capabilities, such as blaze orange and camouflage in a wide range of patterns. Outerwear, particularly
performance rainwear, is an important product category for customers who are fishing, hiking, hunting or marine
enthusiasts. We further complement our technical clothing with an assortment of casual clothing that fits our customers’
lifestyles, including a variety of branded graphic t-shirts, and private label motto t-shirts.
Fishing. Fishing represented approximately 10.6% of our net sales during fiscal year 2018 and includes products
for fresh-water fishing, salt-water fishing, fly-fishing, ice-fishing and boating. Our broad assortment appeals to the
beginning and weekend angler, as well as avid and tournament anglers. In addition to lures, rods and reels, our fishing
assortment features a wide selection of products in tackle management and organization, electronics, fly-fishing, ice-
fishing and marine accessories sub-categories. We also provide fishing-reel line winding services in all of our stores and
live bait in most of our stores. We offer products for boat care and maintenance, as well as safety equipment and aquatic
products such as float tubes and pontoons. All of our stores also sell fishing licenses. Our fishing department includes
brands such as Johnson Outdoors, Normark, Plano, Pure Fishing, Rivers Wild Flies, and Shimano.
Footwear. Footwear represented approximately 7.3% of our net sales during fiscal year 2018 and includes work
boots, technical footwear, hiking boots, trail shoes, socks, sport sandals and waders. As with clothing, our footwear
selection offers a variety of technical performance capabilities, such as different levels of support and types of tread,
waterproofing, temperature control and visual attributes. Our footwear department includes brands such as Danner,
Keen, Merrell, Red Wing, and Under Armour.
Hunting and Shooting. Hunting and shooting is our largest merchandise department, representing approximately
48.3% of our net sales during fiscal year 2018. Products such as ammunition, cleaning supplies, firearms, firearms safety
and storage, and reloading selections are typically key drivers of traffic in our stores. Our hunting and shooting
merchandise assortment provides equipment, accessories and consumable supplies for virtually every type of hunting
and shooting sport. A backroom shop staffed with technicians allows us to support our hunting assortments for the
benefit of the hunter, shooter, and archery enthusiast. Our merchandise selection includes a wide variety of firearms
designed for hunting, shooting sports and home and personal defense, including air guns, black powder muzzle loaders,
handguns, rifles and shotguns. We carry a wide selection of ammunition, archery equipment, dog training products,
hunting equipment, reloading equipment and shooting accessories. Our hunting and shooting department includes brands
such as Federal Premium Ammunition, Hornady, Remington Arms, Ruger, Smith & Wesson, and Winchester.
Optics, Electronics, Accessories and Other. Our optics, electronics, accessories and other department represented
approximately 10.6% of our net sales during fiscal year 2018. This department supplements our other equipment
departments with complementary products, such as optics (including binoculars, spotting scopes and rangefinders), GPS
devices and other navigation gear, GoPro video cameras, two-way radios, specialized and basic cutlery and tools,
including hunting and other knives, lighting, bear spray and other accessories. Our optics, electronics and accessories
department includes brands such as Garmin, Leica, Nikon, Swarovski Optik and Vortex Optics. Our other department
includes miscellaneous products and services.
12
Loyalty Programs
We have a loyalty program through which our consumers are able to earn “points” towards Sportsman’s
Warehouse gift cards on most of their purchases. The program is free to join and accepted through all channels for both
purchases and the use of redemption cards. As of February 2, 2019, we had approximately 1.9 million participants in our
loyalty program.
Customers may obtain a loyalty program card when making a purchase in-store or online. After obtaining a card,
the customer must register on our website in order to redeem loyalty rewards. Customers earn one point for each dollar
spent, with the exception of certain items, such as gift cards and fish and game licenses. For every 100 points
accumulated, the customer is entitled to a $1.00 credit in loyalty rewards, which may be redeemed by logging into our
website to request a redemption card for any whole dollar amount (subject to the customer’s available point balance).
The redemption card is then mailed to the customer and operates as a gift card to be used for both in-store and online
purchasing. The rewards points expire after 18 months of dormancy.
In addition, we offer our customers the multi-use Sportsman’s Warehouse Rewards VISA Platinum credit card
issued by US Bank. US Bank extends credit directly to cardholders and provides all servicing for the credit card
accounts, funds the rewards and bears all credit and fraud losses. This card allows customers to earn points whenever
and wherever they use their card. Customers may redeem earned points for products and services just as they would
redeem loyalty card points.
Sourcing
Sourcing and Distribution
We maintain central purchasing, replenishment and distribution functions to manage inventory planning, allocate
merchandise to stores and oversee the replenishment of basic merchandise to the distribution center. We have no long-
term purchase commitments. During fiscal year 2018, we purchased merchandise from approximately 1,500 vendors
with no vendor accounting for more than approximately 6% of total merchandise purchased. We have established long-
standing, continuous relationships with our largest vendors.
Our sourcing organization is currently managed by our merchant team in our corporate headquarters. We also have
field merchants that coordinate certain merchandising functions at the store level to provide a more localized
merchandising model. To ensure that our product offerings are tailored to local market conditions and demand, our
merchant teams regularly meet one-on-one with our vendors, and attend trade shows, review trade periodicals and
evaluate merchandise offered by other retail and online merchants. We also frequently gather feedback and new product
reviews from our store management and employees, as well as from reviews submitted by our customers. We believe
this feedback is valuable to our vendor-partners and improves our access to new models and technologies.
Distribution and Fulfillment
We currently distribute all of our merchandise from our 507,000 square foot distribution center in Salt Lake City,
Utah. The distribution center supports replenishment for all 92 stores and manages the fulfillment of direct-to-consumer
e-commerce orders. We use preferred carriers for replenishment to our retail stores. We ship merchandise to our e-
commerce customers via courier service. An experienced distribution management team leads a staff of approximately
400 employees at peak inventory levels heading into the fourth quarter.
The distribution center has dynamic systems and processes that we believe can accommodate continued new store
growth. We use the HighJump Warehouse Management System (“WMS”) to manage all activities. The system is highly
adaptable and can be easily changed to accommodate new business requirements. For example, our WMS enabled us to
support full omni channel distribution under one roof by allowing us to comingle inventory to optimize space
requirements and labor. Additionally, we have developed customized Radio Frequency and Voice Directed processes to
handle the specific requirements of our operations. We have the capability to both case pick and item pick, which is
designed to ensure that our stores have sufficient quantities of product while also allowing us to maintain our in stock
levels . This balance allows us to stock the right products at the necessary locations, all at the right time and in the
correct quantity.
13
Marketing and Advertising
We believe, based on internal surveys, that the majority of our customers are male, between the ages of 35 and 65,
and have an annual household income between $40,000 and $100,000. We also actively market to women and children
and have expanded our product offerings of women’s and children’s outerwear, clothing and footwear to address rising
participation rates in hunting and shooting sports, as well as overall outdoor activity.
Our primary marketing efforts are focused on driving additional consumers to the stores and increasing the
frequency and profitability of visits by customers of all types. We employ a two-pronged marketing approach:
•
•
regional advertising programs; and
local grass roots efforts to build brand awareness and customer loyalty.
Our regional advertising programs emphasize seasonal requirements for hunting, fishing and camping in our
various store geographies. Our advertising medium is typically newspaper inserts (primarily multi-page color inserts
during key shopping periods such as the Christmas season and Father’s Day), supplemented with modest amounts of
direct mail, seasonal use of local and national television ads and a variety of out-of-home media buys. We proactively
modify the timing and content of our message to match local and regional preferences, changing seasons, weather
patterns and topography of a given region. In addition, the use of co-op funding with select vendors to supplement our
out-of-pocket media expenses allows us to improve brand exposure through various advertising vehicles, while
partnering with national brands in relevant media channels. This program also reinforces the general consumer’s
impression of Sportsman’s Warehouse as a preferred retailer for those brands. Finally, we sponsor regional and national
television programming, including sponsoring the, Angler’s Channel, Fishful Thinking, Hooked on Utah and Eastman’s
Hunting TV. Our total marketing expenses for fiscal year 2018 were approximately $10.3 million, excluding co-op
reimbursement of $1.9 million.
The second prong of our marketing effort is the time and resources devoted to fostering grass roots relationships in
the local community. Each Sportsman’s Warehouse store employs a variety of outreach tools to build local awareness.
One key component to a successful store is hosting events throughout the year, targeting a variety of end user customer
profiles (such as hunters, campers, anglers, women and children). In total, our store base hosts or facilitates
approximately 3,000 in-store and offsite seminars and events per year, such as “ladies night,” Eastman’s Deer Tour,
Waterfowl Weekend, Conservation Days contest and Bucks & Bulls. We are also active in supporting a variety of
conservation groups, such as Ducks Unlimited, Rocky Mountain Elk Foundation, Mule Deer Foundation and the
National Wild Turkey Federation, both at the corporate level and through store employee local memberships and
participation. Company representatives attend more than 600 events annually in the aggregate, both to provide support
for these organizations and to solidify ties between their members and the Sportsman’s brand. Furthermore, we believe
that the Sportsman’s News newspaper, offered in-store, provides a unique point of contact with our customers by
offering outdoor stories, product reviews, how-to articles and new product introductions to keep all of our customers up
to date on the latest trends and technology. Finally, such grass roots campaigns enable us to reduce our initial marketing
spend in connection with new store openings. We believe that these initiatives are highly cost-effective tools to create
brand awareness and engender a loyal community of local customers, as well as a key differentiator versus other national
retailers.
Hiring, Training and Motivating our Employees
We believe that the recruitment, training and knowledge of our employees and the consistency and quality of the
service they deliver are central to our success. We emphasize deep product knowledge for store managers and sales
associates at both the hiring and training stages. We hire most of our sales associates for a specific department or product
category. As part of the interview process, we test each prospective employee for knowledge specific to the department
or category in which he or she is applying to work. All of our managers and sales associates undergo focused sales
training, consisting of both sales techniques and specialized product instruction, both immediately upon hiring
(approximately 20 hours) and continuing throughout their career (approximately 16 hours annually). In addition, our
sales associates receive loss prevention instruction and departmental training upon hiring. For example, in our hunting
department, all employees receive an additional nine hours of training on ATF and company policies initially upon hire,
with continuing education throughout the year. Our store managers complete two to six months of on-the-job training at
another store with an existing district manager, as part of which they receive approximately 80 hours of dedicated
14
managerial training and instruction. Our department heads receive extensive online training as well as on-site instruction,
totaling approximately 40 hours. As a result of these programs, our employees are highly trained to provide friendly and
non-intimidating education, guidance and support to address our customers’ needs.
Our employees are often outdoor enthusiasts themselves, participating in outdoor activities alongside our
customers in the local community. Our employees spend a portion of their gross wages in-store, underscoring their
passion for both our company and the outdoor lifestyle. We believe our level of employee store patronage is unique
among our competitors in this industry and enhances our differentiated shopping experience.
One of our unique assets is a specially designed training room located at our headquarters. Our training room is
used frequently for firm-wide training programs and by vendors to stage training demonstrations for new products.
Training room sessions are broadcast real-time in high definition to each store location and are recorded for future
viewing. Vendor training is especially interactive, permitting vendor representatives to present a uniform message
simultaneously to all employees, while allowing managers and sales staff in individual stores to ask questions of the
vendors and provide real-time feedback on products. This system decreases the vendor’s promotion and education costs
and provides more meaningful training to our employees. Training room sessions are particularly important for technical
products, especially those with numerous features and a high unit price, because they enable our sales associates to better
educate customers and provide additional assurance that a given product fits the customer’s needs. Given its utility as a
cost-effective sales tool, our training room is reserved well in advance by vendors. We believe our training program has
been a critical factor in increasing conversion and average ticket growth.
Information Technology
Business critical information technology (“IT”) systems include our supply chain systems, merchandise system,
point-of-sale (“POS”) system, warehouse management system, e-commerce system, loss prevention system and financial
and payroll systems. Our IT infrastructure is robustly designed to be able to access real-time data from any store or
channel. The network infrastructure allows us to quickly and cost effectively add new stores to the wide area network
(“WAN”). The private WAN is built on a CenturyLink backbone with all of its resources and support. Additionally, we
have implemented a redundant wireless WAN on Verizon’s infrastructure. All key systems will continue to run in the
event of a power or network outage. All data is backed up daily from one storage array to another storage array.
We have implemented what we believe to be best-of-class software for all of our major business critical systems.
Key operating systems include Oracle Applications for ERP, SAP Commerce for our e-commerce channel, Salesforce’s
(formally Tomax’s) Retail.net and JPOS for in-store functionality and HighJump for WMS. Our physical infrastructure
is also built on products from best-in-class vendors Cisco, Dell, Oracle Sun and VMWare. Originally designed with the
goal of being able to run a significantly larger retail business, our IT systems are scalable to support our growth.
We furthermore have incorporated enhanced reporting tools that have allowed for more comprehensive monitoring
of business performance, which has been critical to management’s ability to drive strong store level performance.
Management has access to a reporting dashboard that shows key performance indicators (“KPIs”) on a company, store,
department and category level. KPIs include sales, margin, budget, conversions, payroll, shrinkage and average order
value all on a daily, weekly, monthly and yearly basis. All KPIs are compared to comparable prior year periods. District,
store and department managers have access to the data relevant to their area of responsibility. Real-time, up to the
second, sales data is available on demand. The system allows for custom-created reports as required.
Intellectual Property
Sportsman’s Warehouse®, Sportsman’s Warehouse America’s Premier Outfitter®, Lost Creek®, LC Lost Creek
Fishing Gear and Accessories®, Rustic RidgeTM, KillikTM, K Killik & DesignTM, LC & DesignTM, and Vital ImpactTM are
among our service marks or trademarks registered with the United States Patent and Trademark Office. In addition, we
own several other registered and unregistered trademarks and service marks involving advertising slogans and other
names and phrases used in our business. We also own numerous domain names, including www.sportsmans.com, among
others. The information on, or that can be accessed through, our websites is not a part of this filing.
We believe that our trademarks are valid and valuable and intend to maintain our trademarks and any related
registrations. We do not know of any material pending claims of infringement or other challenges to our right to use our
marks in the United States or elsewhere. We have no franchises or other concessions that are material to our operations.
15
Our Market
Our Market and Competition
We compete in the large, growing and fragmented outdoor activities and sporting goods market, which we believe
is currently underserved by full-line multi-activity retailers. We believe, based on reports by the National Sporting
Goods Association and other industry sources, that U.S. outdoor activities and sporting goods retail sales in our related
product categories totaled over $70 billion in 2018. The U.S. outdoor activities and sporting goods sector is comprised of
three primary categories—equipment, clothing and footwear—with each category containing distinct product sets to
support a variety of activities, including hunting, fishing, camping and shooting, as well as other sporting goods
activities.
We believe growth in the U.S. outdoor activities and sporting goods market is driven by several key trends,
centered around enhancing performance and enjoyment while participating in sporting and outdoor activities, including
new product introductions, and the resilience of consumer demand for purchases in these categories versus other
discretionary categories. We believe these factors will continue to foster growth in the outdoor activities and sporting
goods market in the future.
Within the retail sporting goods sector, we operate primarily in the outdoor equipment, clothing and footwear
segment, which includes hunting and shooting, fishing, camping and boating. This segment is growing at a faster rate
than the sporting goods industry at large. The 2016 U.S. Fish and Wildlife national survey, published once every five
years, found that fishing participation increased 9% and participation in wildlife relation recreation increased 6%, for
Americans aged 16 and older from 2011 to 2016.
A 2018 National Sporting Goods Association report indicated a 2% increase in hunting and firearm equipment
sales from 2017 to 2018.
Furthermore, we believe that specialty retailers have generated additional sales volume by expanding their
presence, especially in smaller communities, which has increased customers’ access to products that formerly were less
available. The nature of the outdoor activities to which we cater requires recurring purchases throughout the year,
resulting in high rates of conversion among customers. For example, active anglers typically purchase various fishing
tackle throughout the year based on seasons and changing conditions. Hunting with firearms typically is accompanied by
recurring purchases of ammunition and cleaning supplies throughout the year and multiple firearm styles for different
hunted game.
Competition
We believe that the principal competitive factors in our industry are breadth and depth of product selection, including
locally relevant offerings, value pricing, convenient locations, technical services and customer service. A few of our
competitors have a larger number of stores, and some of them have a greater market presence, name recognition and
financial, distribution, marketing and other resources than we have. We believe that we compete effectively with our
competitors with our distinctive branded selection and superior customer service, as well as our commitment to
understanding and providing merchandise that is relevant to our targeted customer base. We cater to the outdoor enthusiast
and believe that we have both an in-depth knowledge of the technical outdoor customer and a “grab and go” store
environment that is uniquely conducive to their need for value and convenience. We believe that our flexible box size,
combined with our low-cost, high-service model, also allows us to enter into and serve smaller markets that our larger
competitors cannot penetrate as effectively. Finally, certain barriers, including legal restrictions, exist on the sale of our
product offerings that comprise a portion of our revenue, such as firearms, ammunition, certain cutlery, propane and
reloading powder, create a structural barrier to competition from many online retailers, such as Amazon.
Our principal competitors include the following:
•
•
independent, local specialty stores, often referred to as “mom & pops”;
other specialty retailers that compete with us across a significant portion of our merchandising categories
through retail store, catalog or e-commerce businesses, such as Bass Pro Shops and Cabela’s;
16
•
large-format sporting goods stores and chains, such as Academy Sports + Outdoors and Dick’s Sporting
Goods; and
• mass merchandisers, warehouse clubs, discount stores, department stores and online retailers, such as
Amazon, Target and Wal-Mart.
Independent, Local Specialty Stores. These stores generally range in size from approximately 2,000 to 10,000
square feet, and typically focus on one or two specific product categories, such as hunting, fishing or camping, and
usually lack a broad selection of product.
Other Specialty Retailers. Some of the other specialty retailers that compete with us across a significant portion of
our merchandising categories are large-format retailers that generally range in size from 40,000 to 250,000 square feet.
These retailers seek to offer a broad selection of merchandise focused on hunting, fishing, camping and other outdoor
product categories. Some of these stores combine the characteristics of an outdoor retailer with outdoor entertainment
and theme attractions. We believe that the number of these stores that can be supported in any single market area is
limited because of their large size and significant per-store cost.
Other specialty retailers are smaller chains that typically focus on offering a broad selection of merchandise in one
or more of the following product categories—hunting, fishing, camping or other outdoor product categories. We believe
that these other outdoor-focused chains generally do not offer a similar depth and breadth of merchandise or specialized
services in all of our product categories.
Large-Format Sporting Goods Stores And Chains. These stores generally range from 20,000 to 80,000 square
feet and offer a broad selection of sporting goods merchandise covering a variety of sporting goods categories, including
baseball, basketball, football and home gyms, as well as hunting, fishing and camping. However, we believe that the
amount of space at these stores devoted to our outdoor product categories limits the extent of their offerings in these
areas.
Mass Merchandisers, Warehouse Clubs, Discount Stores, Department Stores and Online Retailers. With respect
to retailers in this category with physical stores, these stores generally range in size from approximately 50,000 to over
200,000 square feet and are primarily located in shopping centers, free-standing sites or regional malls. Hunting, fishing
and camping merchandise and clothing represent a small portion of the stores’ assortment, and of their total sales. We
believe that less than 10% of our product offering, and less than 5% of our hunting and shooting product offering,
overlap with these stores.
Over the past decade, specialty retailers, such as us, have gained market share of equipment sales at the expense of
mass merchants, discount stores and independent retailers, or “mom & pop” shops, which we believe comprise
approximately 65% of the market. In addition, while there are over 60,000 Type 01 Federal Firearms Licenses, or FFLs,
in the United States today, only 4,000 are currently held by national or regional specialty stores. Since FFLs are issued at
the store level, these statistics imply that the remaining 95% of the market is fragmented among mom & pop stores. We
believe this fragmentation within the total addressable market presents an attractive opportunity for us to continue to
expand our market share, as customers increasingly prefer a broad and appealing selection of merchandise, competitive
prices, high levels of service and one-stop shopping convenience.
Seasonality
We experience moderate seasonal fluctuations in our net sales and operating results as a result of holiday spending
and the opening of hunting seasons. While our sales are more level throughout the year than many retailers, our sales are
still traditionally somewhat higher in the third and fourth fiscal quarters than in the other quarterly periods. On average
over the last three fiscal years, we have generated 27.0% and 29.0% of our net sales in the third and fourth fiscal
quarters, respectively, which includes the holiday selling season as well as the opening of the fall hunting season.
However, Spring hunting, Father’s Day and the availability of hunting and fishing throughout the year in many of our
markets counterbalance this seasonality to a certain degree. For additional information, see Part II, Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operation."
17
Regulation and Legislation
Regulation and Compliance
We operate in highly regulated industries. There are a number of federal, state and local laws and regulations that
affect our business. In every state in which we operate, we must obtain various licenses or permits in order to operate our
business.
Because we sell firearms at all of our retail stores, we are subject to regulation by the Bureau of Alcohol, Tobacco,
Firearms and Explosives, or the “ATF”. Each store has a federal firearms license permitting the sale of firearms, and our
distribution center has obtained a federal firearms license to store and distribute firearms. Certain states require a state
license to sell firearms, and we have obtained these licenses for the states in which we operate that have such a
requirement.
We must comply with federal, state and local laws and regulations, including the National Firearms Act of 1934,
or NFA, the Gun Control Act of 1968, or GCA, the Arms Export Control Act of 1976 and Internal Revenue Code
provisions applicable to the Firearms and Ammunition Excise Tax, all of which have been amended from time to time.
The NFA and the GCA require our business to, among other things, maintain federal firearms licenses for our locations
and perform a pre-transfer background check in connection with all firearms purchases. We perform this background
check using either the FBI-managed National Instant Criminal Background Check System, or NICS, or a comparable
state government-managed system that relies on NICS and any additional information collected by the state, a state point
of contact. These background check systems either confirm that a transfer can be made, deny the transfer or require that
the transfer be delayed for further review, and provide us with a transaction number for the proposed transfer. We are
required to record the transaction number on an ATF Form 4473 and retain this form in our records for auditing purposes
for 20 years for each approved transfer and five years for each denied or delayed transaction.
The federal categories of prohibited purchasers are the prevailing minimum for all states. States (and, in some
cases, local governments) on occasion enact laws that further restrict permissible purchasers of firearms. We are also
subject to numerous other federal, state and local laws and regulations regarding firearm sale procedures, record keeping,
inspection and reporting, including adhering to minimum age restrictions regarding the purchase or possession of
firearms or ammunition, residency requirements, applicable waiting periods, importation regulations and regulations
pertaining to the shipment and transportation of firearms.
In September 2004, Congress declined to renew the Assault Weapons Ban of 1994, or AWB, which prohibited the
manufacture of certain firearms defined as “assault weapons”; restricted the sale or possession of “assault weapons,”
except those that were manufactured prior to the law’s enactment; and placed restrictions on the sale of new high
capacity ammunition feeding devices. Various states and local jurisdictions, including Colorado, California, and
Washington (states in which we operate stores), have adopted their own versions of the AWB or high capacity
ammunition feeding device restrictions, some of which restrictions apply to the products we sell in other states. If a
statute similar to the AWB were to be enacted or re-enacted at the federal level, it would impact our ability to sell certain
products. Additionally, state and local governments have proposed laws and regulations that, if enacted, would place
additional restrictions on the manufacture, transfer, sale, purchase, possession and use of firearms, ammunition and
shooting-related products. For example, several states, such as California, Colorado, Connecticut, Florida, Maryland,
New Jersey, New York, and Washington have enacted laws and regulations that are more restrictive than federal laws
and regulations that limit access to and sale of certain firearms and ammunition. Connecticut and New York impose
mandatory screening of ammunition purchases; California and the District of Columbia have requirements for
microstamping (that is, engraving the handgun’s serial number on each cartridge) of new handguns; Washington recently
passed legislation that, among other things, raises the minimum age to purchase any firearm to 21 from 18 and imposes a
three-day waiting period on gun purchases. California also raised the minimum age to purchase any firearm to 21 and
enacted several restrictions regarding ammunition sales. Some states prohibit the sale of guns without internal or external
locking mechanisms. Other state or local governmental entities may also explore similar legislative or regulatory
initiatives that may further restrict the manufacture, sale, purchase, possession or use of firearms, ammunition and
shooting-related products.
The Protection of Lawful Commerce in Arms Act, which became effective in October 2005, prohibits civil
liability actions from being brought or continued in any federal or state court against federally licensed manufacturers,
distributors, dealers or importers of firearms or ammunition for damages, punitive damages, injunctive or declaratory
18
relief, abatement, restitution, fines, penalties or other relief resulting from the criminal or unlawful misuse of a qualified
product by third parties. The legislation does not preclude traditional product liability actions.
We are also subject to a variety of federal, state and local laws and regulations relating to, among other things,
protection of the environment, human health and safety, advertising, pricing, weights and measures, product safety, and
other matters. Some of these laws affect or restrict the manner in which we can sell certain items, such as handguns,
smokeless powder, black powder substitutes, ammunition, bows, knives and other products. State and local laws and
regulations governing hunting, fishing, boating, ATVs and other outdoor activities and equipment can also affect our
business. We believe that we are in substantial compliance with the terms of such laws and that we have no liabilities
under such laws that we expect could have a material adverse effect on our business, results of operations or financial
condition.
In addition, many of our imported products are subject to existing or potential duties, tariffs or quotas that may
limit the quantity of products that we may import into the United States and other countries or impact the cost of such
products. To date, quotas in the operation of our business have not restricted us, and customs duties have not comprised
a material portion of the total cost of our products.
Our e-commerce business is subject to the Mail or Telephone Order Merchandise Rule and related regulations
promulgated by the Federal Trade Commission, or FTC, which affect our catalog mail order operations. FTC
regulations, in general, govern the solicitation of orders, the information provided to prospective customers, and the
timeliness of shipments and refunds. In addition, the FTC has established guidelines for advertising and labeling many of
the products we sell.
Compliance
We are routinely inspected by the ATF and various state agencies to ensure compliance with federal and local
regulations. While we view such inspections as a starting point, we employ more thorough internal compliance
inspections to help ensure we are in compliance with all applicable laws. With the IT infrastructure systems we have in
place, certain components of recall inspections can be done remotely.
We dedicate significant resources to ensure compliance with applicable federal, state and local regulations. Since
we began operations in 1986, none of our federal firearm licenses have been revoked, and none of our ATF compliance
inspections within the last ten years have resulted in a major violation.
We are also subject to a variety of state laws and regulations relating to, among other things, advertising and
product restrictions. Some of these laws prohibit or limit the sale, in certain states and locations, of certain items, such as
black powder firearms, ammunition, bows, knives, and similar products. Our compliance department administers various
restriction codes and other software tools to prevent the sale of such jurisdictionally restricted items.
We have particular expertise in the California market and have passed several California Department of Justice, or
CA DOJ, firearm audits with zero violations or only minor violations. The CA DOJ communicates with us for policy
discussion, recognizing the strength of our compliance infrastructure.
Employees
As of February 2, 2019, we had approximately 5,100 total employees. Of our total employees, approximately 200
were based at our corporate headquarters in Midvale, Utah, approximately 400 were located at our distribution center,
and approximately 4,500 were store employees. We had approximately 1,700 full-time employees and approximately
3,400 part-time employees, who are primarily store employees. None of our employees are represented by a labor union
or are party to a collective bargaining agreement, and we have had no labor-related work stoppages. Our positive
relationship with our employees is one of the keys to our success.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, are available on our web site at www.sportsmanswarehouse.com, free of charge, as soon
19
as reasonably practicable after the electronic filing of these reports with, or furnishing of these reports to, the SEC. In
addition, the SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC, including us.
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.
Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its
entirety, in addition to other information contained in or incorporated by reference into this 10-K and our other public
filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also
affect our business, prospects, financial condition and results of operations.
Risks Related to Our Business
Current and future government regulations, in particular regulations relating to the sale of firearms and
ammunition, may negatively impact the demand for our products and our ability to conduct our business.
We operate in a complex regulatory and legal environment that could negatively impact the demand for our
products and expose us to compliance and litigation risks, which could materially affect our operations and financial
results. These laws may change, sometimes significantly, as a result of political, economic or social events. For instance,
Washington recently passed legislation that, among other things, raises the minimum age to purchase any firearm to 21
from 18 and imposes a five-day waiting period on gun purchases. Some of the federal, state or local laws and regulations
that affect our business and demand for our products include:
•
•
•
•
•
•
•
federal, state or local laws and regulations or executive orders that prohibit or limit the sale of certain items
we offer, such as firearms, black powder firearms, ammunition, bows, knives and similar products;
the ATF, regulations, audit and regulatory policies that impact the process by which we sell firearms and
ammunition and similar policies of state agencies that have concurrent jurisdiction, such as the CA DOJ;
laws and regulations governing hunting and fishing;
laws and regulations relating to the collecting and sharing of non-public customer information;
laws and regulations relating to consumer products, product liability or consumer protection, including
regulation by the Consumer Product Safety Commission and similar state regulatory agencies;
laws and regulations relating to the manner in which we advertise, market or sell our products;
labor and employment laws, including wage and hour laws;
• U.S. customs laws and regulations pertaining to proper item classification, quotas and the payment of duties
and tariffs; and
• FTC regulations governing the manner in which orders may be solicited and prescribing other obligations in
fulfilling orders and consummating sales.
Over the past several years, bills have been introduced in the United States Congress that would restrict or prohibit
the manufacture, transfer, importation or sale of certain calibers of handgun ammunition, impose a tax and import
controls on bullets designed to penetrate bullet-proof vests, impose a special occupational tax and registration
requirements on manufacturers of handgun ammunition and increase the tax on handgun ammunition in certain calibers.
Because we carry these products, such legislation could, depending on its scope, materially harm our sales.
Additionally, state and local governments have proposed laws and regulations that, if enacted, would place
additional restrictions on the manufacture, transfer, sale, purchase, possession and use of firearms, ammunition and
shooting-related products. For example, in response to mass shootings and other incidents in the United States, several
20
states, such as Colorado, Connecticut, Maryland, New Jersey, and New York, have enacted laws and regulations that
limit access to and sale of certain firearms in ways more restrictive than federal laws. Other state or local governmental
entities may continue to explore similar legislative or regulatory restrictions that could prohibit the manufacture, sale,
purchase, possession or use of firearms and ammunition. In New York and Connecticut, mandatory screening of
ammunition purchases is now required. In addition, California and the District of Columbia have adopted requirements
for micro-stamping (that is, engraving the handgun’s serial number on the firing pin of new handguns), and at least seven
other states and the United States Congress have introduced microstamping legislation for certain firearms. Lastly, some
states prohibit the sale of firearms without internal or external locking mechanisms, and several states are considering
mandating certain design features on safety grounds, most of which would be applicable only to handguns. Other state or
local governmental entities may also explore similar legislative or regulatory initiatives that may further restrict the
manufacture, sale, purchase, possession or use of firearms, ammunition and shooting-related products.
The regulation of firearms, ammunition and shooting-related products may become more restrictive in the future.
Changes in these laws and regulations or additional regulation, particularly new laws or increased regulations regarding
sales and ownership of firearms and ammunition, could cause the demand for and sales of our products to decrease and
could materially adversely impact our net sales and profitability. Sales of firearms represent a significant percentage of
our net sales and are critical in drawing customers to our stores. A substantial reduction in our sales or margins on sales
of firearms and firearm related products due to the establishment of new regulations could harm our operating results.
Moreover, complying with increased or changed regulations could cause our operating expenses to increase.
Our retail-based business model is impacted by general economic conditions in our markets, and ongoing
economic and financial uncertainties may cause a decline in consumer spending that may adversely affect our
business, operations, liquidity, financial results and stock price.
As a retail business that depends on consumer discretionary spending, we may be adversely affected if our
customers reduce, delay or forego their purchases of our products as a result of job losses, bankruptcies, higher consumer
debt and interest rates, increases in inflation, higher energy and fuel costs, reduced access to credit, falling home prices
and other adverse conditions in the mortgage and housing markets, lower consumer confidence, uncertainty or changes
in tax policies and tax rates, uncertainty due to potential national or international security concerns and adverse or
unseasonal weather conditions. Decreases in same store sales, customer traffic to our stores and e-commerce site or
average ticket sales negatively affect our financial performance, and a prolonged period of depressed consumer spending
could have a material adverse effect on our business. Promotional activities, vendor incentives, and decreased demand
for consumer products could affect profitability and margins. In addition, adverse economic conditions may result in an
increase in our operating expenses due to, among other things, higher costs of labor, energy, equipment and facilities.
Due to fluctuations in the U.S. economy, our sales, operating and financial results for a particular period are difficult to
predict, making it difficult to forecast results to be expected in future periods. Any of the foregoing factors could have a
material adverse effect on our business, results of operations and financial condition and could adversely affect our stock
price.
Our concentration of stores in the Western United States makes us susceptible to adverse conditions in this
region.
The majority of our stores are currently located in the Western United States, comprising Alaska, Arizona,
California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming. As a result, our
operations are more susceptible to regional factors than the operations of more geographically diversified competitors.
These factors include regional economic and weather conditions, natural disasters, demographic and population changes
and governmental regulations in the states in which we operate. Environmental changes and disease epidemics affecting
fish or game populations in any concentrated region may also affect our sales. If a region with a concentration of our
stores were to suffer an economic downturn or other adverse event, our operating results could suffer.
Competition in the outdoor activities and sporting goods market could reduce our net sales and profitability.
The outdoor activities and sporting goods market is highly fragmented and competitive. We compete directly or
indirectly with the following types of companies:
•
independent, local specialty stores, often referred to as “mom & pops”;
21
•
•
other specialty retailers that compete with us across a significant portion of our merchandising categories
through retail store, catalog or e-commerce businesses, such as Bass Pro Shops, Cabela’s and Gander
Outdoors;
large-format sporting goods stores and chains, such as Academy Sports + Outdoors and Dick’s Sporting
Goods; and
• mass merchandisers, warehouse clubs, discount stores, department stores and online retailers, such as
Amazon, Target and Wal-Mart.
A few of our competitors have a larger number of stores, and some of them have a greater market presence (both
brick and mortar and online), name recognition and financial, distribution, marketing and other resources than we have.
As a result of this competition, we may need to spend more on advertising and promotion than we anticipate. In addition,
the ability of consumers to compare prices on a real-time basis through the use of smartphones and digital technology
puts additional pressure on us to maintain competitive pricing. If our competitors reduce their prices, we may have to
reduce our prices in order to compete, which could harm our margins. Furthermore, some of our competitors may build
new stores in or near our existing locations or in locations with high concentrations of our e-commerce business
customers. As a result of this competition, we may need to spend more on advertising and promotion. Some of our mass
merchandising competitors, such as Wal-Mart, do not currently compete in many of the product lines we offer. However,
if these competitors were to begin offering a broader array of competing products, or if any of the other factors listed
above occurred, our net sales could be reduced or our costs could be increased, resulting in reduced profitability.
If we fail to anticipate changes in consumer demands, including regional preferences, in a timely manner, our
operating results could suffer.
Our products appeal to consumers who regularly hunt, camp, fish and participate in various shooting sports. The
preferences of these consumers cannot be predicted with certainty and are subject to change. In addition, due to different
game and fishing species and varied weather conditions found in different markets, it is critical that our stores stock
products appropriate for their markets. Our success depends on our ability to identify product trends in a variety of
markets as well as to anticipate, gauge and quickly react to changing consumer demands in these markets. We usually
must order merchandise well in advance of the applicable selling season. The extended lead times for many of our
purchases may make it difficult for us to respond rapidly to new or changing product trends or changes in prices. If we
misjudge either the market for our products or our customers’ purchasing habits, our net sales may decline significantly
and we may not have sufficient quantities of merchandise to satisfy customer demand or we may be required to mark
down excess inventory, either of which would result in lower profit margins and harm our operating results.
Our expansion into new, unfamiliar markets presents increased risks that may prevent us from being profitable
in these new markets.
We intend to continue to expand by opening stores in new markets, which may include small- to medium-sized
markets and which may not have existing national outdoor sports retailers. As a result, we may have less familiarity with
local customer preferences and encounter difficulties in attracting customers due to a reduced level of customer
familiarity with our brand. Other factors that may impact our ability to open stores in new markets and operate them
profitably, many of which are beyond our control, include:
•
•
•
•
•
our ability to identify suitable locations, including our ability to gather and assess demographic and marketing
data to determine consumer demand for our products in the locations we select;
our ability to obtain financing on favorable terms or negotiate favorable lease agreements;
our ability to properly assess the profitability of potential new retail store locations;
our ability to secure required governmental permits and approvals;
our ability to attract, hire and train skilled store operating personnel, especially management personnel;
22
•
•
•
•
•
•
•
the availability of construction materials and labor and the absence of significant construction delays or cost
overruns;
our ability to provide a satisfactory mix of merchandise that is responsive to the needs of our customers living
in the areas where new retail stores are built;
our ability to supply new retail stores with inventory in a timely manner;
our competitors building or leasing stores near our retail stores or in locations we have identified as targets for
a new retail store;
consumer demand for our products, particularly firearms and ammunition, which drives traffic to our retail
stores;
regional economic and other factors in the geographies in which we expand; and
general economic, political, and business conditions affecting consumer confidence and spending and the
overall strength of our business.
Once we decide on a new market and find a suitable location, any delays in opening new stores could impact our
financial results. It is possible that events, such as delays in the entitlements process or construction delays caused by
permitting or licensing issues, material shortages, labor issues, weather delays or other acts of god, discovery of
contaminants, accidents, deaths or injunctions, could delay planned new store openings beyond their expected dates or
force us to abandon planned openings altogether. In addition, new retail stores typically generate lower operating
margins because pre-opening expenses are expensed as they are incurred and because fixed costs, as a percentage of net
sales, are higher. Furthermore, the substantial management time and resources which our retail store expansion strategy
requires may result in disruption to our existing business operations, which may decrease our profitability.
As a result of the above factors, we cannot assure you that we will be successful in operating our stores in new
markets on a profitable basis.
If we are unable to successfully develop and maintain our omni-channel strategy, we may not be able to compete
effectively and our sales and profitability may be adversely affected.
Our e-commerce business is an important element of our brand and relationship with our customers, and we expect
it to continue to grow. For instance, in 2018, we launched a redesign of our website and significantly enhanced the
online shopping experience for our customers. While e-commerce has been a rapidly growing sales channel and an
increasing source of competition in our industry, sales from our e-commerce channel are not yet material to our
operations. If we are unable to continue to successfully develop and maintain our omni-channel platform, we may not be
able to compete effectively and our sales and profitability may be adversely affected.
Online shopping is rapidly evolving, and we expect competition in the e-commerce market to continue to intensify
as the Internet facilitates competitive entry and comparison shopping. Consumers are increasingly embracing shopping
online and through mobile commerce applications. As a result, a growing portion of total consumer expenditures with
retailers is occurring online and through mobile commerce applications. Our future success could be adversely affected
if we are unable to identify and capitalize on retail trends, including technology, e-commerce and other process
efficiencies to gain market share and better service our customers. In addition, many of our competitors already have e-
commerce businesses that are substantially larger and more developed than ours, which places us at a competitive
disadvantage. There are also regulatory restrictions on the sale of a portion of our product offerings, such as ammunition,
certain cutlery, firearms, propane and reloading powder. If we are unable to expand our e-commerce business, our
growth plans will suffer and the price of our common stock could decline.
We are also vulnerable to additional risks and uncertainties associated with e-commerce sales, including rapid
changes in technology, website downtime and other technical failures, security breaches, cyber-attacks, consumer
privacy concerns, changes in state tax regimes and government regulation of internet activities. Our failure to
successfully respond to these risks and uncertainties could reduce our e-commerce same store sales, increase our costs,
23
diminish our growth prospects and damage our brand, which could negatively impact our results of operations and stock
price.
Our planned growth may strain our business infrastructure, which could adversely affect our operations and
financial condition.
Over time, we expect to expand the size of our retail store network in new and existing markets. As we grow, we
will face the risk that our existing resources and systems, including management resources, accounting and finance
personnel and operating systems, may be inadequate to support our growth. We cannot assure you that we will be able to
retain the personnel or make the changes in our systems that may be required to support our growth. Failure to secure
these resources and implement these systems on a timely basis could have a material adverse effect on our operating
results. In addition, hiring additional personnel and implementing changes and enhancements to our systems will require
capital expenditures and other increased costs that could also have a material adverse impact on our operating results.
Our expansion in new markets may also create new distribution and merchandising challenges, including strain on
our distribution facility, an increase in information to be processed by our management information systems and
diversion of management attention from existing operations towards the opening of new stores and markets. To the
extent that we are not able to meet these additional challenges, our sales could decrease and our operating expenses
could increase.
Our ability to operate and expand our business and to respond to changing business and economic conditions will
depend on the availability of adequate capital.
The operation of our business, the rate of our expansion and our ability to respond to changing business and
economic conditions depend on the availability of adequate capital, which in turn depends on cash flow generated by our
business and, if necessary, the availability of equity or debt capital. We will also need sufficient cash flow to meet our
obligations under our existing debt agreements. We paid total cash interest on our credit facilities of $13.2 million, $13.7
million, and $12.0 million, in fiscal years 2018, 2017 and 2016, respectively, and our term loan requires us to make
quarterly principal payments of $2.0 million.
The amount that we are able to borrow and have outstanding under our revolving credit facility at any given time
is subject to a borrowing base calculation, which is a contractual calculation equal to roughly (1) 90% of the net orderly
liquidation value of our eligible inventory, multiplied by (2) 90% of the eligible credit card receivables, less the term
loan reserve and certain reserves against outstanding gift cards, layaway deposits and amounts outstanding under
commercial letters of credit, each term as defined in the credit agreement for the revolving credit facility. As a result, our
ability to borrow is subject to certain risks and uncertainties, such as a deterioration in the quality of our inventory
(which is the largest asset in our borrowing base), a decline in sales activity and the collection of our receivables, which
could reduce the funds available to us under our revolving credit facility.
We cannot assure you that our cash flow from operations or cash available under our revolving credit facility will
be sufficient to meet our needs. If we are unable to generate sufficient cash flows from operations in the future, and if
availability under our revolving credit facility is not sufficient, we may have to obtain additional financing. If we obtain
additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional
indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our
operations, and our ability to fund expansion or take advantage of future opportunities. We cannot assure you that we
could obtain refinancing or additional financing on favorable terms or at all.
Our revolving credit facility and term loan contain restrictive covenants that may impair our ability to access
sufficient capital and operate our business.
Our revolving credit facility and term loan contain various provisions that limit our ability to, among other things:
•
•
incur, create or assume certain indebtedness;
create, incur or assume certain liens;
• make certain investments;
24
• make sales, transfers and dispositions of certain property;
•
•
•
undergo certain fundamental changes, including certain mergers, liquidations and consolidations;
purchase, hold or acquire certain investments; and
declare or make certain dividends and distributions.
These covenants may affect our ability to operate and finance our business as we deem appropriate. If we are
unable to meet our obligations as they become due or to comply with various financial covenants contained in the
instruments governing our current or future indebtedness, this could constitute an event of default under the instruments
governing our indebtedness.
If there were an event of default under the instruments governing our indebtedness, the holders of the affected
indebtedness could declare all of that indebtedness immediately due and payable, which, in turn, could cause the
acceleration of the maturity of all of our other indebtedness. We may not have sufficient funds available, or we may not
have access to sufficient capital from other sources, to repay any accelerated debt. Even if we could obtain additional
financing, the terms of the financing may not be favorable to us. In addition, substantially all of our assets are subject to
liens securing our revolving credit facility and term loan. If amounts outstanding under the revolving credit facility or
term loans were accelerated, our lenders could foreclose on these liens and we could lose substantially all of our assets.
Any event of default under the instruments governing our indebtedness could have a material adverse effect on our
business, financial condition and results of operations.
Our same store sales may fluctuate and may not be a meaningful indicator of future performance.
Our same store sales may vary from quarter to quarter, and an unanticipated decline in net sales or same store sales
may cause the price of our common stock to fluctuate significantly. A number of factors have historically affected, and
will continue to affect, our same store sales results, including:
•
•
•
•
•
•
•
•
•
changes or anticipated changes to regulations related to some of the products we sell;
consumer preferences, buying trends, including a shift of consumer spending from brick-and-mortar to online,
and overall economic trends;
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.
Our operating results are subject to seasonal fluctuations.
We experience moderate seasonal fluctuations in our net sales and operating results. On average over the last three
fiscal years, we have generated 27.0% and 29.0% of our annual net sales in the third and fourth fiscal quarters,
respectively, which includes the holiday selling season as well as the opening of the fall hunting season. We incur
additional expenses in the third and fourth fiscal quarters due to higher purchase volumes and increased staffing in our
25
stores. If, for any reason, we miscalculate the demand for our products or our product mix during the third or fourth
fiscal quarters, our sales in these quarters could decline, resulting in higher labor costs as a percentage of sales, lower
margins and excess inventory, which could cause our annual operating results to suffer and our stock price to decline.
Due to our seasonality, the possible adverse impact from other risks associated with our business, including atypical
weather, consumer spending levels and general economic and business conditions, is potentially greater if any such risks
occur during our peak sales seasons.
We currently rely on a single distribution center for our business, and if there is a natural disaster or other
serious disruption at such facility, we may be unable to deliver merchandise effectively to our stores or customers.
We currently rely on a single distribution center in Salt Lake City, Utah for our business. Any natural disaster or
other serious disruption at such facility due to fire, tornado, earthquake, flood or any other cause could damage our on-
site inventory or impair our ability to use such distribution center. While we maintain business interruption insurance, as
well as general property insurance, the amount of insurance coverage may not be sufficient to cover our losses in such an
event. Any of these occurrences could impair our ability to adequately stock our stores or fulfill customer orders and
harm our operating results.
Any delay or disruption of the supply of products from our vendors could have an adverse impact on our net
sales and profitability.
We cannot predict when, or the extent to which, we will experience any delay or disruption in the supply of
products from our vendors. Any such delay or disruption could negatively impact our ability to market and sell our
products and serve our customers, which could adversely impact our net sales and profitability. If any of our significant
vendors were to become subject to bankruptcy, receivership or similar proceedings, we may be unable to arrange for
alternate or replacement products, transactions or business relationships on terms as favorable terms, or at all, which
could adversely affect our sales and operating results. For instance, in March 2018, Remington, one of our largest
vendors, filed for Chapter 11 relief under the United States Bankruptcy Code. Remington’s bankruptcy may impact our
ability to get products to our customers, result in disruptions to our operations, increase our costs and decrease our
profitability.
We depend on merchandise purchased from our vendors to obtain products for our stores. We have no contractual
arrangements providing for continued supply from our key vendors, and our vendors may discontinue selling to us at any
time. Changes in commercial practices of our key vendors or manufacturers, such as changes in vendor support and
incentives or changes in credit or payment terms, could also negatively impact our results. If we lose one or more key
vendors or are unable to promptly replace a vendor that is unwilling or unable to satisfy our requirements with a vendor
providing equally appealing products at comparable prices, we may not be able to offer products that are important to
our merchandise assortment.
We also are subject to risks, such as the price and availability of raw materials and fabrics, labor disputes, union
organizing activity, strikes, inclement weather, natural disasters, war and terrorism and adverse general economic and
political conditions, that might limit our vendors’ ability to provide us with quality merchandise on a timely and cost-
efficient basis. We may not be able to develop relationships with new vendors, and products from alternative sources, if
any, may be of a lesser quality and more expensive than those we currently purchase. Any delay or failure in offering
products to our customers could have a material adverse impact on our net sales and profitability.
Political and economic uncertainty and unrest in foreign countries where our merchandise vendors are located
and trade restrictions upon imports from these foreign countries could adversely affect our ability to source
merchandise and operating results.
In fiscal year 2018, approximately 3.0% of our merchandise was imported directly from vendors located in foreign
countries, with a substantial portion of the imported merchandise being obtained directly from vendors in China and El
Salvador. In addition, we believe that a significant portion of our domestic vendors obtain their products from foreign
countries that may also be subject to political and economic uncertainty. We are subject to risks and uncertainties
associated with changing economic, political and other conditions in foreign countries where our vendors are located,
such as:
•
increased import duties, tariffs, border-adjusted taxes, trade restrictions and quotas;
26
• work stoppages;
•
•
economic uncertainties;
adverse foreign government regulations;
• wars, fears of war and terrorist attacks and organizing activities;
•
•
•
adverse fluctuations of foreign currencies;
natural disasters; and
political unrest.
We cannot predict when, or the extent to which, the countries in which our products are manufactured will
experience any of the above events. Any event causing a disruption or delay of imports from foreign locations would
likely increase the cost or reduce the supply of merchandise available to us and would adversely affect our operating
results.
In addition, trade restrictions, including increased tariffs or quotas, embargoes, safeguards and customs restrictions
against clothing and other items, as well as U.S. or foreign labor strikes, work stoppages or boycotts could increase the
cost or reduce the supply of merchandise available to us or may require us to modify our current business practices, any
of which could hurt our profitability. For instance, general trade tensions between the U.S. and China began escalating in
2018, with multiple rounds of U.S. tariffs on Chinese goods taking effect during 2018. Furthermore, China or other
countries may institute retaliatory trade measures in response to existing or future tariffs imposed by the U.S. that could
have a negative impact on our business. If any of these events continue as described, we may need to seek alternative
suppliers or vendors, raise prices, or make changes to our operations, any of which could have a material adverse effect
on our sales and profitability, results of operations and financial condition.
Finally, potential changes in federal restrictions on the importation of firearms and ammunition products could
affect our ability to acquire certain popular brands of firearms and ammunition products from importers and wholesalers,
which could negatively impact our net sales until replacements in the United States can be obtained, if at all.
We rely on information technology in our operations and any material failure, inadequacy, interruption or
security breach or failure of that technology could disrupt our business and lead to reputational damage.
We rely on information technology networks and systems, including the Internet, to process, transmit and store
electronic information, and to manage or support a variety of business processes, including financial transactions and
records, and maintaining personal identifying information and customer data. We rely on commercially available
systems, software, tools and monitoring to provide security for the processing, transmission and storage of confidential
tenant and customer data, including individually identifiable information relating to financial accounts. We have taken
steps to protect the security of our information systems and the data maintained in those systems. It is possible, however,
that our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper
access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches,
including those caused by physical or electronic break-ins, computer viruses, malware, worms, attacks by hackers or
foreign governments, disruptions from unauthorized access and tampering (including through social engineering such as
phishing attacks), coordinated denial-of-service attacks and similar breaches, could create system disruptions, shutdowns
or unauthorized disclosure of confidential information. The risk of security breaches has generally increased as the
number, intensity and sophistication of attacks and intrusions from around the world have increased. In some cases, it
may be difficult to anticipate or immediately detect such incidents and the damage they cause. In addition, due to the fast
pace and unpredictability of cyber threats, long-term implementation plans designed to address cybersecurity risks
become obsolete quickly. Any failure to maintain proper function, security and availability of our information systems
and the data maintained in those systems could interrupt our operations, damage our reputation, subject us to liability
claims or regulatory penalties and could have a materially adverse effect on our business, financial condition and results
of operations.
27
Unauthorized disclosure of sensitive or confidential customer information could harm our business and standing
with our customers.
The protection of our customer, employee and company data is critical to us. We rely on commercially available
systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential
customer information, such as payment card and personally identifiable information. Despite the security measures we
have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security
breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors or other similar
events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential
information, whether by us or our third party service providers, could damage our reputation, expose us to risk of
litigation and liability, disrupt our operations and harm our business.
Our business depends on our ability to meet our labor needs
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified
employees, including district managers, store managers, department managers and sales associates, who understand and
appreciate our outdoor culture and are able to adequately represent this culture to our customers. Qualified individuals of
the requisite caliber and number needed to fill these positions may be in short supply, especially during times of low
unemployment rates like we are currently experiencing, and the turnover rate in the retail industry is high. If we are
unable to hire and retain sales associates capable of consistently providing a high level of customer service, as
demonstrated by their enthusiasm for our culture and knowledge of our merchandise, our business could be materially
adversely affected. Although none of our employees are currently covered by collective bargaining agreements, our
employees may elect to be represented by labor unions in the future, which could increase our labor costs. Additionally,
competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees.
An inability to recruit and retain a sufficient number of qualified individuals in the future may delay the planned
openings of new stores. Any such delays, any material increases in employee turnover rates at existing stores or any
increases in labor costs could have a material adverse effect on our business, financial condition or operating results.
Increases in the minimum wage have recently adversely affected our financial results.
Recently, several states in which we operate have enacted minimum wage increases and it is possible that other
states or the federal government could also enact minimum wage increases. In fiscal year 2018, 58 of our stores were
impacted by the minimum wage increases, which increased our selling, general and administrative expenses. Base wage
rates for some of our employees are at or slightly above the minimum wage. As more state minimum wage rates increase
or if the federal government enacts a minimum wage increase, we may need to increase not only the wage rates of our
minimum wage employees, but also the wages paid to our other hourly employees as well. Further, should we fail to
increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline,
causing our customer service to suffer. Any increase in the cost of our labor could have an adverse effect on our
operating costs, financial condition and results of operations.
We may incur costs from litigation relating to products that we sell, particularly firearms and ammunition, which
could adversely affect our net sales and profitability.
We may incur damages due to lawsuits relating to products we sell, including lawsuits relating to firearms,
ammunition, tree stands and archery equipment. We may incur losses due to lawsuits, including potential class actions,
relating to our performance of background checks on firearms purchases and compliance with other sales laws as
mandated by state and federal law. We may also incur losses from lawsuits relating to the improper use of firearms or
ammunition sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from
manufacturers and retailers of firearms and ammunition. Our insurance coverage and the insurance provided by our
vendors for certain products they sell to us may be inadequate to cover claims and liabilities related to products that we
sell. In addition, claims or lawsuits related to products that we sell, or the unavailability of insurance for product liability
claims, could result in the elimination of these products from our product line, thereby reducing net sales. If one or more
successful claims against us are not covered by or exceed our insurance coverage, or if insurance coverage is no longer
available, our available working capital may be impaired and our operating results could be materially adversely
28
affected. Even unsuccessful claims could result in the expenditure of funds and management time and could have a
negative impact on our profitability and on future premiums we would be required to pay on our insurance policies.
Our net sales and profitability could be impacted if the strength of our brand is not maintained, and our sales of
firearm-related products could present reputational risks and negative publicity.
Our success depends on the value and strength of the Sportsman’s Warehouse brand. The Sportsman’s Warehouse
name is integral to our business as well as to the implementation of our strategies for expanding our business.
Maintaining, promoting and positioning our brand will depend largely on the success of our marketing and
merchandising efforts and our ability to provide high quality merchandise and a consistent, high quality customer
experience both in-store and online. Our brand could be adversely affected if we fail to achieve these objectives or if our
public image or reputation were to be tarnished by negative publicity, any of which could result in decreases in net sales.
In addition, the sale of firearm-related products also may present reputational risks and negative publicity that could
affect consumers’ perception of us or willingness to shop with us, which could harm our results of operations and
financial condition
Our inability or failure to protect our intellectual property could have a negative impact on our operating results.
Our trademarks, service marks, copyrights, patents, trade secrets, domain names and other intellectual property are
valuable assets that are critical to our success. The unauthorized reproduction or other misappropriation of our
intellectual property could diminish the value of our brands or goodwill and cause a decline in our net sales. Any
infringement or other intellectual property claim made against us, whether or not it has merit, could be time-consuming,
result in costly litigation, cause product delays or require us to enter into royalty or licensing agreements. As a result, any
such claim could have a material adverse effect on our operating results.
Our computer hardware and software systems are vulnerable to damage that could harm our business.
Our success, in particular our ability to successfully manage inventory levels, largely depends upon the efficient
operation of our computer hardware and software systems. We use management information systems to track inventory
information at the store level, communicate customer information and aggregate daily sales, margin and promotional
information. These systems are vulnerable to damage or interruption from:
•
•
•
•
fire, flood, tornado and other natural disasters;
power loss, computer system failures, internet and telecommunications or data network failures, operator
negligence, improper operation by or supervision of employees, physical and electronic loss of data or
security breaches, misappropriation and similar events;
hacking by third parties and computer viruses; and
upgrades, installations of major software releases and integration with new systems.
Any failure that causes an interruption in our systems processing could disrupt our operations and result in reduced
sales. We have centralized the majority of our computer systems in our corporate office. It is possible that an event or
disaster at our corporate office could materially and adversely affect the performance of our company and the ability of
each of our stores to operate efficiently.
Our private brand offerings expose us to various risks.
We expect to continue to grow our exclusive private brand offerings through a combination of brands that we own
and brands that we license from third parties. We have invested in our development and procurement resources and
marketing efforts relating to these private brand offerings. Although we believe that our private brand products offer
value to our customers at each price point and provide us with higher gross margins than comparable third-party branded
products we sell, the expansion of our private brand offerings also subjects us to certain specific risks in addition to those
discussed elsewhere in this section, such as:
•
potential mandatory or voluntary product recalls;
29
•
•
•
•
our ability to successfully protect our proprietary rights (including defending against counterfeit, knock offs,
grey-market, infringing or otherwise unauthorized goods);
our ability to successfully navigate and avoid claims related to the proprietary rights of third parties;
our ability to successfully administer and comply with obligations under license agreements that we have with
the licensors of brands, including, in some instances, certain minimum sales requirements that, if not met,
could cause us to lose the licensing rights or pay damages; and
other risks generally encountered by entities that source, sell and market exclusive branded offerings for retail.
An increase in sales of our private brands may also adversely affect sales of our vendors’ products, which may, in
turn, adversely affect our relationship with our vendors. Our failure to adequately address some or all of these risks could
have a material adverse effect on our business, results of operations and financial condition.
We may pursue strategic acquisitions or investments, and the failure of an acquisition or investment to produce
the anticipated results or the inability to fully integrate the acquired companies could have an adverse impact on
our business.
We may from time to time acquire or invest in complementary companies, businesses or assets. The success of
such acquisitions or investments will be based on our ability to make accurate assumptions regarding the valuation,
operations, growth potential, integration and other factors relating to the respective business or assets. Our acquisitions
or investments may not produce the results that we expect at the time we enter into or complete the transaction. For
example, we may not be able to capitalize on previously anticipated synergies. Furthermore, acquisitions may result in
dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or write-
offs of goodwill or other intangibles, any of which could harm our financial condition or results of operations. We also
may not be able to successfully integrate operations that we acquire, including their personnel, financial systems, supply
chain and other operations, which could adversely affect our business. Acquisitions may also result in the diversion of
our capital and our management’s attention from other business issues and opportunities.
We may not achieve projected goals and objectives in the time periods that we anticipate or announce publicly,
which could harm our business and cause the price of our common stock to decline.
We set targets and timing to accomplish certain objectives regarding our business. We have included some of
these targets in this filing and may make similar future public statements. For example, we state in this filing that:
• we currently plan to open three additional new stores in fiscal year 2019 and, for the next several years
thereafter, intend to grow our square footage at a rate greater than 5% annually; and
• we target a minimum 10% four-wall Adjusted EBITDA margin and a minimum return on invested capital of
50% excluding initial inventory cost (or 20% including initial inventory cost) in the first twelve months of
operation for a new store.
This filing also includes other forecasts and targets. These forecasts and targets are based on our current
expectations. We may not achieve these forecasts and targets, and the actual achievement and timing of these events can
vary due to a number of factors, including currently unforeseen matters and matters beyond our control. You should not
unduly rely on these forecasts or targets in deciding whether to invest in our common stock.
30
Risks Related to Our Common Stock
Our bylaws, our certificate of incorporation and Delaware law contain provisions that could discourage another
company from acquiring us and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions of our bylaws, our certificate of incorporation and Delaware law may discourage, delay or prevent a
merger or acquisition that stockholders may consider favorable, including transactions in which our stockholders might
otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making it more difficult for stockholders to replace or
remove our board of directors. These provisions include:
•
•
•
•
•
•
•
establishing a classified board of directors;
providing that directors may be removed only for cause;
not providing for cumulative voting in the election of directors;
requiring at least a supermajority vote of our stockholders to amend our bylaws or certain provisions of our
certificate of incorporation;
eliminating the ability of stockholders to call special meetings of stockholders;
establishing advance notice requirements for nominations for election to the board of directors or for
proposing matters that can be acted on by stockholders at stockholder meetings;
authorizing the issuance of “blank check” preferred stock without any need for action by stockholders.
In addition, we are subject to Section 203 of the Delaware General Corporation Law. In general, subject to some
exceptions, Section 203 prohibits a Delaware corporation from engaging in any “business combination” with any
“interested stockholder” (which is generally defined as an entity or person who, together with the person’s affiliates and
associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did
own, 15% or more of the outstanding voting stock of the corporation), for a three-year period following the date that the
stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a
change in control that our stockholders might consider to be in their best interests.
Further, our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the
State of Delaware will be, to the fullest extent permitted by law, the exclusive forum for any derivative action or
proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us
arising pursuant to the Delaware General Corporation Law; or any action asserting a claim against us that is governed by
the internal affairs doctrine. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and agents, which
may discourage such lawsuits against us and our directors, officers, employees and agents.
Together, these charter and statutory provisions could make the removal of management more difficult and may
discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our
common stock. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors
might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our
company, thereby potentially reducing the likelihood that our stockholders could receive a premium for their common
stock in an acquisition.
We expect that the price of our common stock will fluctuate.
The price of our common stock is volatile and may fluctuate significantly. During our fiscal year ended February
2, 2019, the closing price of our stock ranged from a high of $6.29 per share to a low of $3.71 per share. Volatility in the
31
market price of our common stock may prevent our stockholders from being able to sell their common stock at or above
the prices they paid for their common stock. The market price for our common stock could fluctuate significantly for
various reasons, including:
•
•
•
•
our operating and financial performance and prospects, including seasonal fluctuations in our financial
performance;
conditions that impact demand for our products;
the public’s reaction to our press releases, other public announcements and filings with the SEC;
changes in earnings estimates or recommendations by securities analysts who track our common stock;
• market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
•
•
•
•
•
•
strategic actions by us or our competitors, such as acquisitions, store closures, or restructurings;
actual or anticipated changes in federal and state government regulation, including regulations related to the
sale of firearms and ammunition;
changes in accounting standards, policies, guidance, interpretations or principles;
arrival or departure of key personnel;
sales of common stock by us or members of our management team; and
changes in general market, economic and political conditions in the United States and global economies or
financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses
to such events.
In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor
confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial
condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us
to lawsuits that, even if unsuccessful, could be costly to defend and distract our management.
We are currently an emerging growth company (“EGC”) within the meaning of The Jumpstart our Business
Startups Act (“JOBS Act”), and the reduced reporting requirements applicable to EGCs may make our common
stock less attractive to investors.
Because we currently qualify as an EGC under the JOBS Act, we have elected to comply with some of the reduced
disclosure and other reporting requirements available to us as an EGC for a period of up to five years following our
initial public offering if we remain an EGC. For example, for as long as we remain an EGC, we are not subject to certain
governance requirements, such as holding a “say-on-pay” and “say-on-golden-parachute” advisory votes, we are not
required to include a “Compensation Discussion and Analysis” section in our proxy statements and reports filed under
the Exchange Act, and we do not need to obtain an annual attestation report on our internal control over financial
reporting from a registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”). We could be an EGC for a period up to the end of the fifth fiscal year after our initial public
offering, which is February 1, 2020,, although we will cease to be an EGC earlier than this five-year period if our total
annual gross revenues equal or exceed $1 billion in a fiscal year, if we issue more than $1 billion in non-convertible debt
over a three-year period or if we become a “large accelerated filer” (which requires, among other things, the market
value of our common stock held by non-affiliates to be at least $700 million as of the last business day of our second
fiscal quarter of any fiscal year).
Accordingly, our stockholders may not receive the same level of disclosure that is afforded to stockholders of a
non-EGC. It is possible that investors will find our common stock to be less attractive because we have elected to
comply with the reduced disclosure and other reporting requirements available to us as an EGC, which could adversely
32
affect the trading market for our common stock and the prices at which stockholders may be able to sell their common
stock.
The requirements of being a public company may strain our resources and divert management’s attention, and
management will be required to devote substantial time to new compliance initiatives as a result of transitioning
out of EGC status.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act,
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and other applicable securities rules and
regulations. Compliance with these rules and regulations have increased our legal and financial compliance costs, make
some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The
Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business
and results of operations and proxy or information statements in connection with matters upon which our stockholders
may vote. As a result of our public disclosure of information in filings required of a public company, our business and
financial condition have become more visible, which could result in threatened or actual litigation, or other adverse
actions taken by competitors and other third parties. The time and resources necessary to comply with the requirements
of being a public company and contend with any action that might be brought against us as a result of publicly available
information could divert our resources and the attention of our management and adversely affect our business, financial
condition and results of operations.
In addition, we currently expect that we will cease to be an EGC at the end of the fifth fiscal year after our initial
public offering, which is February 1, 2020. As a result, we will become subject to the additional regulatory requirements
described above (unless we are able to rely on other exemptions), including the requirement to have our independent
registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial
reporting so long as we qualify as an accelerated filer under Rule 12b-2 of the Exchange Act. In order to maintain and
improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting we have
expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and
significant management oversight. We expect that the requirements of these rules and regulations will continue to
increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and
costly, and place significant strain on our personnel, systems and resources.
If we are unable to implement and maintain effective internal control over financial reporting, investors may lose
confidence in the accuracy and completeness of our financial reports, and the market price of our common stock
may be adversely affected.
As a public company, we are required to implement and maintain effective internal control over financial reporting
and to disclose any material weaknesses identified in our internal controls. Our management is required to furnish an
annual report regarding the effectiveness of our internal control over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act (“Section 404”). We have refined, implemented, and tested the internal controls required to comply
with Section 404. If we identify material weaknesses in our internal control over financial reporting, if we fail to comply
with the requirements of Section 404 in a timely manner or if we are unable to assert that our internal control over
financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports
and the market price of our common stock could be adversely affected. We could also become subject to investigations
by The Nasdaq Stock Market, the SEC or other regulatory authorities, which could require additional financial and
management resources.
Additionally, beginning with our first Annual Report on Form 10-K for the fiscal year ending February 2, 2020,
our independent registered public accounting firm will be required pursuant to Section 404 to attest to the effectiveness
of our internal control over financial reporting on an annual basis so long as we qualify as an accelerated filer under Rule
12b-2 of the Exchange Act. Even if management finds such controls to be effective, our independent registered public
accounting firm may decline to attest to the effectiveness of such internal controls. If our independent registered public
accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over
financial reporting, investor confidence and, in turn, the market price of our common stock could decline.
33
We do not expect to pay any cash dividends for the foreseeable future.
We currently expect to retain all available funds and future earnings, if any, for use in the operation and growth of
our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay
dividends will be at the discretion of our board of directors, subject to compliance with applicable law and any
contractual provisions, including under the credit agreements governing our term loan and revolving credit facility and
agreements governing any additional indebtedness we may incur in the future, that restrict or limit our ability to pay
dividends, and will depend upon, among other factors, our results of operations, financial condition, earnings, capital
requirements and other factors that our board of directors deems relevant. Further, because we are a holding company,
our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further
restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of our
subsidiaries or covenants under our existing or future indebtedness. All of our business operations are conducted through
our wholly owned subsidiaries, Sportsman’s Warehouse, Inc. and Minnesota Merchandising Corporation and their
subsidiaries. The ability of Sportsman’s Warehouse, Inc. and Minnesota Merchandising Corporation to pay dividends to
us, and our ability to pay dividends on our capital stock, is limited by our term loan. Our revolving credit facility also
limits our ability to pay dividends on our capital stock. Our ability to pay dividends may also be restricted by the terms
of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries.
If securities or industry analysts publish inaccurate or unfavorable research about us, our stock price and trading
volume could decline.
The trading market for our common stock will depend in part on the research reports that securities or industry
analysts publish about us, our business and our industry. Assuming we obtain securities or industry analyst coverage, if
one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about us,
our business or our industry, our stock price would likely decline. If one or more of these analysts cease coverage of our
company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock
price and trading volume to decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We do not plan to own any material real property, but rather intend to lease all of our store locations. From time to
time we will self-develop one of our properties with the intention to enter into a sale-leaseback transaction with a third
party. Depending upon where we are in the process of completing the sale-leaseback transaction, we may legally own
real property at any particular balance sheet date. Our corporate headquarters is located in an approximately 60,000
square foot building in Midvale, Utah. The building is leased under an agreement expiring on December 31, 2019.
Our distribution center is located in a 507,000 square foot facility in Salt Lake City, Utah. The building is leased
under an agreement expiring on December 31, 2023, with three options that each allow us to extend for an additional
five years. We believe that our distribution center is of sufficient scale to support a network of 100 or more stores.
We currently operate 92 retail stores in 23 states. See above under “Business – Our Stores” for a breakdown of our
stores by state. In total we have approximately 3.6 million gross square feet across all of our stores. All of our stores are
leased from third parties with lease terms typically ranging from five to fifteen years, and many of our lease agreements
have additional five-year renewal options. All of our leases provide for additional payments associated with common
area maintenance, real estate, taxes and insurance. In addition, many of our lease agreements have defined escalating
rent provisions over the initial term and extensions.
ITEM 3. LEGAL PROCEEDINGS
When we become aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If a loss
contingency is probable and the amount of the loss can be reasonably estimated, we record an accrual for the loss. In
such cases, there may be an exposure to potential loss in excess of the amount accrued. Where a loss is not probable but
is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of
34
the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount
of such reasonably possible losses is not material to our financial position, results of operations or cash flows. The ability
to predict the ultimate outcome of such matter involves judgments and inherent uncertainties. The actual outcome could
differ.
We are subject to various legal proceedings and claims, including employment claims, wage and hour claims,
intellectual property claims, contractual and commercial disputes and other matters that arise in the ordinary course of
our business. While the outcome of these and other claims cannot be predicted with certainty, we do not believe that the
outcome of these matters individually or in the aggregate will have a material adverse effect on our business, results of
operations or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Registrant’s Common Equity
Our common stock is listed on the Nasdaq under the symbol “SPWH.” As of March 1, 2019, there were 134
holders of record of our common stock. This number does not include persons who hold our common stock in nominee
or “street name” accounts through brokers or banks.
Dividend Policy
We did not pay any dividends in fiscal year 2018 or fiscal year 2017. We currently expect to retain all available
funds and future earnings, if any, for use in the operation and growth of our business and do not anticipate paying any
cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board
of directors, subject to compliance with applicable law and any applicable contractual provisions.
35
ITEM 6. SELECTED FINANCIAL DATA.
February 2,
2019
February 3,
2018
Fiscal Year Ended
January 28,
2017
(in thousands, except per share amounts)
January 30,
2016
January 31,
2015
Consolidated Statements of Income Data:
Net sales (1) (2)
Cost of goods sold (1)
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense
Income before income taxes
Income tax expense
Net income
Earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic shares
Diluted shares
$ 849,129 $ 809,671 $ 779,956 $ 706,764 $ 639,869
424,662
215,207
170,315
44,892
(22,480)
22,412
8,628
13,784
516,726
263,230
202,543
60,687
(13,402)
47,285
17,616
29,669 $
535,811
273,860
227,292
46,568
(13,738)
32,830
15,088
17,742 $
468,234
238,530
179,218
59,312
(14,156)
45,156
17,385
27,771 $
564,199
284,930
240,911
44,019
(13,206)
30,813
7,063
23,750 $
$
$ 0.55
$ 0.55
$ 0.42 $
$ 0.42 $
0.70 $
0.70 $
0.66 $
0.66 $
0.34
0.34
42,878
42,979
42,496
42,522
42,187
42,485
41,966
42,334
39,961
40,141
Fiscal Year Ended
February 2, February 3, January 28, January 30, January 31,
2019
2015
2017
(in thousands, except number of stores and per share amounts)
2016
2018
Consolidated Balance Sheet Data:
Total current assets
Total assets
Long-term debt (including current portion), net of discount
Total liabilities
Total stockholders’ equity/(deficit)
Total liabilities and stockholders’ equity
$ 293,570 $ 280,755 $ 255,924 $ 232,710 $ 203,339
268,784
346,248
156,107
134,704
300,116
316,247
(31,332)
30,001
268,784
346,248
301,328
155,016
303,387
(2,059)
301,328
379,661
133,339
329,863
49,798
379,661
388,897
35,632
310,237
78,660
388,897
Other Data:
Adjusted EBITDA (3)
Adjusted EBITDA margin (3)
Number of stores open at end of period
Same store sales growth/(decline) for period (4)
$ 68,496 $ 72,799 $ 82,254 $ 73,024 $ 66,252
10.0%
55
(8.4)%
9.0%
87
(6.5)%
11.0%
75
(0.8)%
10.0%
64
1.1%
8.1%
92
1.5%
(1) Prior to fiscal year 2016, we presented our sales and costs of state fish and game licenses, duck stamps, and state
government-mandated firearm background checks in net sales and cost of goods sold under the gross method. In
fiscal year 2016, our management determined that the revenue from these transactions should have been presented
under the net method, thereby recognizing only the commission received in net sales for acting as the agent under
the principal versus agent model. Net sales and cost of goods sold for fiscal years 2014 and 2015 shown above have
been revised to reflect this revision. This revision did not have any impact upon gross profit, net income or earnings
per share.
(2) Fiscal year 2017 contained 53 weeks of operations
36
(3) Adjusted EBITDA has been presented in this filing as a supplemental measure of financial performance that is not
required by, or presented in accordance with, generally accepted accounting principles, or GAAP. We define
Adjusted EBITDA as net income plus interest expense, income tax expense, depreciation and amortization, stock-
based compensation expense, pre-opening expenses, and other gains, losses, and expenses that we do not believe are
indicative of our ongoing expenses. In addition, Adjusted EBITDA excludes pre-opening expenses because we do
not believe these expenses are indicative of the underlying operating performance of our stores. The amount and
timing of pre-opening expenses are dependent on, among other things, the size of the new stores opened and the
number of new stores opened during any given period. Adjusted EBITDA margin means, for any period, the
Adjusted EBITDA for that period divided by the net sales for that period.
Adjusted EBITDA and Adjusted EBITDA margin are included in this filing because they are key metrics used by
management and our board of directors to assess our financial performance. Adjusted EBITDA and Adjusted
EBITDA margin are frequently used by analysts, investors and other interested parties in the evaluation of
companies in our industry. In addition to assessing our financial performance, 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.
Adjusted EBITDA is not a GAAP measure of our financial performance or liquidity and should not be considered as
an alternative to net income as a measure of financial performance or cash flows from operations as a measure of
liquidity, or any other performance measure derived in accordance with GAAP, and it should not be construed as an
inference that our future results will be unaffected by unusual or non-recurring items. Additionally, Adjusted
EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect
certain cash requirements such as tax payments, debt service requirements, capital expenditures, store openings and
certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including
the failure to reflect our cash expenditures or future requirements for capital expenditures or contractual
commitments. In evaluating Adjusted EBITDA, you should be aware that, in the future, we will incur expenses that
are the same as or similar to some of the adjustments reflected in this presentation, such as income tax expense
(benefit), interest expense, depreciation and amortization and pre-opening expenses. Our presentation of Adjusted
EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments.
Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted
EBITDA supplementally. Our measures of Adjusted EBITDA are not necessarily comparable to other similarly
titled captions of other companies due to different methods of calculation. See below for a reconciliation of net
income to Adjusted EBITDA.
(4) Fiscal years 2016 and 2015 do not include sales from e-commerce but would not differ had e-commerce sales been
included in the same store sales calculation.
37
A reconciliation of net income to Adjusted EBITDA is set forth below:
February 2,
2019
February 3,
2018
Fiscal Year Ended
January 28,
2017
January 30,
2016
January 31,
2015
Net income
Plus:
Interest expense
Income tax expense
Depreciation and amortization
Stock-based compensation expense (a)
Pre-opening expenses (b)
CEO retirement (c)
IPO bonus (d)
Litigation accrual (reversal) (e)
Secondary offering expenses (f)
Acquisition expenses (g)
Asset write-off (h)
Adjusted EBITDA
$ 23,750 $ 17,742 $ 29,669 $ 27,771 $
13,784
(in thousands)
13,206
7,063
18,250
1,742
1,838
2,647
—
—
—
—
—
13,738
15,088
17,706
2,294
3,971
—
—
—
—
1,744
516
13,402
17,616
13,974
3,186
4,264
—
—
—
143
—
—
14,156
17,385
11,569
2,257
3,159
—
—
(4,000)
727
—
—
$ 68,496 $ 72,799 $ 82,254 $ 73,024 $
22,480
8,628
9,150
3,293
2,717
—
2,200
4,000
—
—
—
66,252
Adjusted EBITDA Margin
8.1%
9.0%
11.0%
10.0%
10.0%
(a) Stock-based compensation expense represents non-cash expenses related to equity instruments granted to
employees under our 2013 Performance Incentive Plan and Employee Stock Purchase Plan.
(b) 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.
(c) Payroll and stock compensation expenses incurred in conjunction with the retirement of our former CEO.
(d) As a result of the completion of our initial public offering and pursuant to the terms of the employment
agreements with our executive officers, we paid $2.2 million in bonuses to our executive officers.
(e) In fiscal year 2014, we accrued $4.0 million for a pending litigation matter in which a jury trial assessed
damages against us. In fiscal year 2015, a court reversed the damages assessed against us and granted a motion
for judgment as a matter of law in our favor. As a result of that judgment, in fiscal year 2015, we reversed our
previous accrual of $4.0 million. On December 21, 2017, after appeal of the judgment in our favor, the appeals
court ruled there to be no judgment against us.
(f) We incurred certain costs related to secondary offerings of our common stock by affiliates of Seidler Equity
Partners III, L.P. on September 15, 2015 and April 18, 2016. These costs were expensed as incurred.
(g) Professional fees for fiscal year 2017 relate to fees incurred in connection with the evaluation of a strategic
acquisition.
(h) We identified certain assets relating to our e-commerce platform that were no longer planned to be placed into
service. These assets were expensed through selling, general, and administrative expenses during fiscal year
2017.
38
ITEM 7. 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 this 10-K. Also see “Statement
Regarding Forward-Looking Statements” preceding Part I.
The following discussion and analysis should be read in conjunction with the consolidated financial statements
and the notes thereto included in this 10-K.
Overview
We are an outdoor sporting goods retailer focused on meeting the everyday needs of the seasoned outdoor veteran,
the first-time participant and every enthusiast in between. Our mission is to provide an omni-channel shopping
experience that equips our customers with the right quality, brand name hunting, shooting, fishing and camping gear to
maximize their enjoyment of the outdoors.
Our business was founded in 1986 as a single retail store in Midvale, Utah. Today, we operate 92 stores in 23
states, totaling approximately 3.6 million gross square feet. During fiscal year 2018, we increased our gross square
footage by 3.9% through the opening of five stores in the following locations:
• Sheridan, Wyoming on March 8, 2018
• Walla Walla, Washington on April 19, 2018
• Anderson, South Carolina on June 21, 2018
• Coon Rapids, Minnesota on August 2, 2018
• Milpitas, California on August 16, 2018
Individual stores are aggregated into one operating and reportable segment.
Fiscal Year
We operate using a 52/53 week fiscal year ending on the Saturday closest to January 31. Fiscal years 2018, 2017
and 2016 ended on February 2, 2019, February 3, 2018, and January 28, 2017, respectively. Fiscal years 2018 and 2016
contained 52 weeks of operations. Fiscal year 2017 contained 53 weeks of operations.
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 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 to be included 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
opening or acquisition by us. We have historically excluded e-Commerce from our calculation of same store sales,
However, beginning with fiscal year 2017 and for subsequent periods, same store sales results will include our e-
commerce sales. For fiscal years consisting of 53 weeks, such as fiscal year 2017, 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
39
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:
•
•
•
•
•
•
•
•
•
changes or anticipated changes to regulations related to some of the products we sell;
consumer preferences, buying trends and overall economic trends;
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;
changes in our product mix; and
changes in pricing and average ticket sales.
Opening new stores is also an important part of our growth strategy. For fiscal year 2018 we opened 5 stores and
plan to open 3 locations in fiscal year 2019. While our target is to grow square footage at a rate of greater than 5%
annually, we expect we will grow our square footage approximately 3% for fiscal year 2019 as we continue to shift some
of our cash use to reducing our debt balance.
For our new locations, we measure our investment by reviewing the new store’s four-wall Adjusted EBITDA margin
and pre-tax return on invested capital (“ROIC”). We target a minimum 10% four-wall Adjusted EBITDA margin and a
minimum ROIC of 50% excluding initial inventory costs (or 20% including initial inventory cost) for the first full twelve
months of operation for a new store. The 52 new stores that we have opened since 2010 and that have been open for a full
twelve months (excluding the 10 acquired stores) have achieved an average four-wall Adjusted EBITDA margin of 12.0%
and an average ROIC of 63.3% excluding initial inventory cost (and 24.6% including initial inventory cost) during their
first full twelve months of operations. Four-wall Adjusted EBITDA means, for any period, a particular store’s Adjusted
EBITDA, excluding any allocations of corporate selling, general and administrative expenses allocated to that store. Four-
wall Adjusted EBITDA margin means, for any period, a store’s four-wall Adjusted EBITDA divided by that store’s net
sales. For a definition of Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of net income to Adjusted
EBITDA, see “—Non-GAAP Measures.” ROIC means a store’s four-wall Adjusted EBITDA for a given period divided by
our initial cash investment in the store. We calculate ROIC both including and excluding the initial inventory cost.
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 will be:
•
•
•
•
increasing our total gross square footage by opening new stores;
continuing to increase and improve same store sales in our existing markets;
increasing customer visits to our stores and improving our conversion rate through focused marketing efforts
and continually high standards of customer service;
increasing the average ticket sale per customer; and
40
•
expanding our e-commerce platform.
Gross Margin
Gross profit is 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 clothing and footwear, increasing foot traffic within our stores, 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 profit. 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. We believe that the overall growth of our business will allow us to generally
maintain or increase our gross margins, because increased merchandise volumes will enable us to maintain our strong
relationships with our vendors.
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.
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.
We expect that our selling, general and administrative expenses will increase in future periods due to our
continuing growth and expansion of employee benefits. In fiscal year 2018, 58 of our stores were impacted by minimum
wage increases that increased our selling, general and administrative expenses during fiscal year 2018.
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, pre-opening expenses, and other gains, losses, and expenses that we do
not believe are indicative of our ongoing expenses. In evaluating our business, we use Adjusted EBITDA and Adjusted
EBITDA margin as an additional measurement tool for purposes of business decision-making, including evaluating store
performance, developing budgets and managing expenditures. See “—Non-GAAP Measures.”
41
The following table summarizes key components of our results of operations as a percentage of net sales for the
periods indicated (prior year numbers have been revised):
Results of Operations
Percentage of net sales:
Net sales
Cost of goods sold
Gross profit
Selling, general, and administrative expenses
Income from operations
Interest expense
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA
Fiscal Year Ended
February 2,
February 3,
January 28,
2019
2018
2017
100.0%
66.4
33.6
28.4
5.2
1.6
3.6
0.8
2.8%
8.1%
100.0%
66.2
33.8
28.1
5.7
1.7
4.0
1.9
2.1%
9.0%
100.0%
66.3
33.7
26.0
7.7
1.7
6.0
2.3
3.7%
11.0%
The following table shows our sales during the periods presented by department:
Department
Camping
Clothing
Fishing
Footwear
Hunting and Shooting
Optics, Electronics,
Accessories, and Other
Product Offerings
Backpacks, camp essentials, canoes and
kayaks, coolers, outdoor cooking equipment,
sleeping bags, tents and tools
Camouflage, jackets, hats, outerwear,
sportswear, technical gear and work wear
Bait, electronics, fishing rods, flotation
items, fly fishing, lines, lures, reels, tackle
and small boats
Hiking boots, socks, sport sandals, technical
footwear, trail shoes, casual shoes, waders
and work boots
Ammunition, archery items, ATV
accessories, blinds and tree stands, decoys,
firearms, reloading equipment and shooting
gear
Gift items, GPS devices, knives, lighting,
optics (e.g. binoculars), two-way radios, and
other license revenue, net of revenue
discounts
Fiscal Year Ended
February 2,
2019
February 3,
2018
January 28,
2017
14.2%
15.1%
14.6%
8.9%
9.3%
8.7%
10.6%
10.7%
10.0%
7.3%
7.4%
7.1%
48.3%
48.7%
50.9%
10.6%
8.8%
8.7%
Total
100.0%
100.0%
100.0%
42
Fiscal Year 2018 Compared to Fiscal Year 2017
Net Sales. Net sales increased by $39.5 million, or 4.9%, to $849.1 million in fiscal year 2018 compared to $809.7
million in fiscal year 2017. Net sales increased due to $36.8 million in incremental sales from our new stores and stores
not yet included in same store sales, partially offset by $10.6 million in sales from an additional week in fiscal year 2017
that did not occur in fiscal year 2018. Our five new stores opened in fiscal 2018 generated net sales of $16.0 million
during this period. Existing stores that were not included in same store sales generated $20.8 million in additional net
sales in fiscal year 2018 over fiscal year 2017. Our increase in net sales was also positively impacted by a 1.5% increase
in same store sales.
With respect to same store sales, our footwear, fishing, optics, electronics, accessories, and other, and hunting
departments realized an increase in same store sales of 3.3%, 2.6%, 2.4% and 1.8%, respectively. Our camping and
clothing departments incurred decreases in same store sales of 0.6% and 0.4%, respectively. Firearms same store sales
increased by 5.8% and ammunition same store sales decreased by 0.3% during fiscal year 2018 compared to fiscal year
2017. We had increased sales in our hunting category as we are continuing to gain increased market share in firearms.
We experienced a decrease in demand for camping and clothing gear as the fall was warmer than normal and due to the
extensive forest fires seen in the Western United States, which had an impact on several key recreational areas in our
markets. As of February 2, 2019, we had 87 stores included in our same store sales calculation. As fiscal year 2017
contained 53 weeks of operations, we exclude net sales during the 53rd week from our calculation of same store sales.
Gross Profit. Gross profit increased by $11.0 million, or 4.0%, to $284.9 million for fiscal year 2018 from $273.9
million for fiscal year 2017. As a percentage of net sales, gross profit decreased to 33.6% compared to gross profit of
33.8% in the prior year. Gross margin was negatively impacted by increased freight charges and a sales mix change
compared to fiscal year 2017 from our high margin product categories (clothing, fishing and camping) to our lower
margin product categories (hunting and shooting).
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $13.6
million, or 6.0%, to $240.9 million for fiscal year 2018 from $227.3 million for fiscal year 2017. Selling, general and
administrative expenses were 28.4% of net sales in fiscal year 2018 compared to 28.1% of net sales in fiscal year 2017.
A large contributor to the increase in Selling, general, and administrative expenses during fiscal year 2018 relates to $2.6
million of compensation expense for our former Chief Executive Office that was recognized during the first quarter of
fiscal year 2018. We also incurred additional payroll, rent, depreciation and amortization and other operating expenses of
$9.9 million, $4.2 million, $0.5 million and $2.9 million, respectively, during fiscal year 2018 compared to fiscal year
2017, which were caused by the opening of new stores, our planned e-commerce investment, and the impact of
minimum wage increases across most of our stores. These increases were partially offset by decreases of $2.1 million in
pre-opening expenses, $1.7 million of professional fees incurred in connection with our bid for certain inventory and
other assets of Gander Mountain Company in fiscal year 2017, $0.5 million in relation to the write-off of IT related
assets in fiscal year 2017, and $0.9 million in a one-time bonus expense paid to non-executive employees in connection
with the Tax Cuts and Jobs Act (the “Tax Act”) in fiscal year 2017.
Interest Expense. Interest expense decreased by $0.5 million, or 3.9%, to $13.2 million in fiscal year 2018 from
$13.7 million for fiscal year 2017. Interest expense decreased primarily as a result of the refinancing of our credit
facility in May 2018, which resulted in lower interest rates than our prior term loan, combined with a reduction in our
total debt balance during the year. This decrease was partially offset by the write-off of $1.6 million in deferred
financing fees and debt discount associated with our prior term loan.
Income Taxes. We recorded an income tax expense of $7.1 million for fiscal year 2018 compared to income tax
expense of $15.1 million for fiscal year 2017. Our effective tax rate changed from 46.0% in 2017 to 22.9% in 2018
primarily due to the Tax Act enacted on December 22, 2017. For the year ended February 2, 2019, the Company
recorded a discrete net benefit of $1.3M related to Tax Reform. This was a result of certain accounting method changes
and other permitted timing adjustments that were ultimately reflected on the Company’s fiscal 2017 tax return filed in
fiscal 2018 resulting in a net benefit due to changes in the federal tax rates under the Tax Act.
The Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the statutory
corporate tax rate from 35% to 21%. We recognized an additional $2.6 million in tax expense associated with U.S. tax
reform in fiscal year 2017. This amount was primarily comprised of the remeasurement of federal net deferred tax
liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%. In addition to
43
the reduction of the corporate tax rate due to the Tax Act the change in our effective tax rate from fiscal year 2017 to
fiscal year 2018 was impacted by limitations on the deductibility of certain executive compensation and a discrete item
relating to a change in tax depreciation methods filed with the fiscal year 2017 federal tax return in fiscal year 2018 for
specific classes of fixed assets which accelerated taxable depreciation.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provided
guidance on accounting for the tax effects of the Tax Act. Pursuant to SAB 118, we were allowed a measurement period
of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. However,
we did not have any provisional estimates associated with the Tax Act and, therefore, did not record any adjustments
relating to the Tax Act.
Fiscal Year 2017 Compared to Fiscal Year 2016
Net Sales. Net sales increased by $29.7 million, or 3.8%, to $809.7 million in fiscal year 2017 compared to $780.0
million in fiscal year 2016. Net sales increased due to $72.1 million in incremental sales from our new stores and stores
not yet included in same store sales and $10.6 million in sales from an additional week in fiscal year 2017. Our increase
in net sales was partially offset by a 6.5% decrease in same store sales, including an 11.5% decrease in same store sales
for our hunting department. Our twelve new stores opened in fiscal 2017 generated net sales of $48.6 million during this
period. Existing stores that were not included in same store sales generated $23.6 million in additional net sales in fiscal
year 2017 over fiscal year 2016.
With respect to same store sales, our clothing department realized an increase in same store sales of 1.4%. Our
other 5 departments (camping, fishing, hunting, footwear, and optics, electronics, and accessories) incurred decreases in
same store sales. In particular, we saw decreases of 2.5%, 0.6%, 11.5%, 0.2% and 4.7%, respectively in these
departments. The main contributing factor to the decrease in these departments was a decrease in foot traffic in our
stores, which was a result of a decreased demand in firearms and ammunition. Firearms and ammunitions decreased by
9.4% and 15.8%, respectively, during fiscal year 2017 compared to fiscal year 2016. We experienced a decrease in
demand for firearms and ammunition due in part to the change in the U.S. government administration and anticipated
less regulation being put forward to tighten restrictions on gun ownership. As of February 3, 2018, we had 75 stores
included in our same store sales calculation. As fiscal year 2017 contained 53 weeks of operations, we exclude net sales
during the 53rd week from our calculation of same store sales.
Gross Profit. Gross profit increased by $10.6 million, or 4.0%, to $273.9 million for fiscal year 2017 from $263.2
million for fiscal year 2016. As a percentage of net sales, gross profit increased to 33.8% compared to gross profit of
33.7% in the prior year.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $24.8
million, or 12.2%, to $227.3 million for fiscal year 2017 from $202.5 million for fiscal year 2016. Selling, general and
administrative expenses were 28.1% of net sales in fiscal year 2017 compared to 26.0% of net sales in fiscal year 2016.
Specifically, we incurred additional payroll, rent, depreciation and amortization and other operating expenses of $8.9
million, $5.5 million, $3.7 million and $5.3 million, respectively, during fiscal year 2017 compared to fiscal year 2016,
which were caused by the increase in the number of stores open during the year as compared to the prior year. We also
incurred an additional $1.7 million of professional fees incurred in connection with our bid for certain inventory and
other assets of Gander Mountain Company. Gander Mountain filed for Chapter 11 bankruptcy protection and we
participated in a bankruptcy auction for the assets, but we ultimately chose not to continue in the auction. We also
incurred $0.5 million in relation to the write-off of IT related assets. Additionally, we incurred $0.9 million in a one-time
bonus expense paid to non-executive employees in connection with the Tax Cuts and Jobs Act. These increases were
offset slightly by a reduction in preopening expenses of $0.3 million during fiscal year 2017 compared to fiscal year
2016. Overall selling, general, and administrative expenses were lower on a per-store basis when compared to 2016.
Interest Expense. Interest expense increased by $0.3 million, or 2.5%, to $13.7 million in fiscal year 2017 from
$13.4 million for fiscal year 2016. Interest expense increased primarily as a result of rate increases by the Federal
Reserve that impacted the rate of interest paid on our line of credit and term loan facilities.
Income Taxes. We recorded an income tax expense of $15.1 million for fiscal year 2017 compared to income tax
expense of $17.6 million for fiscal year 2016. Our effective tax rate changed from fiscal year 2016 of 37.3% to 46.0% in
2017 due to the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017. We recognized an additional
44
$2.6 million in tax expense associated with U.S. tax reform. The 2017 effective tax rate before U.S. tax reform
adjustments would have been 39.2%. The increase compared with 2016 is primarily due to tax shortfalls relating to the
vesting of restricted stock units during 2017.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides
guidance on accounting for the tax effects of the Tax Act. SAB 118 provides for a measurement period that may not
extend beyond one year from the Tax Act enactment date for companies to complete the required accounting under ASC
740. In accordance with SAB 118, a company must reflect, as of the end of the accounting period that includes the date
of enactment of the Tax Act, only those income tax effects of the Tax Act for which the accounting under ASC 740 is
complete. To the extent that the company's accounting for certain income tax effects of the Tax Act is incomplete, but
the company is able to determine a reasonable estimate, the company must record a provisional estimate in the financial
statements. If the company cannot determine a provisional estimate, it must continue to apply ASC 740 on the basis of
the provisions of the tax law that were in effect immediately before the enactment of the Tax Act.
Pursuant to SAB 118, the Company is allowed a measurement period of up to one year after the enactment date of the
Tax Act to finalize the recording of the related tax impacts. However, the Company does not have any provisional
estimates associated with the Tax Act and has recorded a tax expense related to the net change in deferred tax assets of
$2,600 for 2017.
Additional information pertaining to the Tax Act can be found in Note 14 to the Consolidated Financial Statements
included in this report
Seasonality
Due to holiday buying patterns and the openings of hunting season across the country, net sales are typically
higher in the third and fourth fiscal quarters than in the first and second fiscal quarters. We also incur additional
expenses in the third and fourth fiscal quarters due to higher 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 one-time expenses related to opening each new retail store, all of 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 clothing 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.
Quarterly Results of Operations
The following table sets forth unaudited financial and operating data for each fiscal quarter of fiscal years 2018
and 2017. This quarterly information has been prepared on a basis consistent with our audited financial statements and
includes all normal recurring adjustments that we consider necessary for a fair presentation of the information shown.
This information should be read in conjunction with “Part II, Item 6. Selected Financial Data” and “Part II, Item 8.
Financial Statements and Supplementary Data” of this 10-K. Our quarterly operating results may fluctuate significantly
as a result of the factors described above and a variety of other factors, and operating results for any fiscal quarter are not
necessarily indicative of results for a full fiscal year.
45
Fiscal Year 2018
Fiscal Year 2017
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
(2)
Third
Quarter
Second
Quarter
First
Quarter
(unaudited)
(in thousands, except per share data, percentages and number of stores)
$
242,683
79,506
16,969
10,629
0.25
$
223,099
77,581
17,511
12,398
0.29
$
203,288
72,277
13,189
6,551
0.15
$
180,059
55,566
(3,557)
(5,828)
(0.14)
$
243,165
79,664
16,581
5,888
0.14
$
218,115
76,963
19,520
9,808
0.23
$
191,493
68,618
14,236
6,554
0.15
$
156,898
48,615
(3,769)
(4,508)
(0.11)
28.6%
9.4%
2.0%
1.3%
26.3%
9.1%
2.1%
1.5%
23.9%
8.5%
1.6%
0.8%
21.2%
6.5%
(0.4)%
(0.7)%
30.0%
9.8%
2.0%
0.7%
26.9%
9.5%
2.4%
1.2%
23.7%
8.5%
1.8%
0.8%
19.4%
6.0%
(0.5)%
(0.6)%
92
92
91
89
87
86
83
79
Net sales
Gross profit
Income (loss) from operations (1)
Net income (loss) (1)
Diluted earnings (loss) per share
As a percentage of full year results:
Net sales
Gross profit
Income (loss) from operations
Net income (loss)
Operating data:
Number of stores open at end of period
(1)
(2)
This line includes $2.6 million of severance paid to our former Chief Executive Officer in the first quarter of 2018. This line includes for the
first quarter of 2017, $1.7 million, of professional fees incurred in connection with our bid for certain inventory and other assets of Gander
Mountain Company. Gander Mountain filed for Chapter 11 bankruptcy protection and we participated in a bankruptcy auction for the assets,
but we ultimately chose not to continue in the auction.
Contains 14 weeks of operations.
Liquidity and Capital Resources
Our primary capital requirements are for seasonal working capital needs and capital expenditures related to
opening new stores. Our sources of liquidity to meet these needs have primarily been borrowings under our revolving
credit facility, operating cash flows and short and long-term debt financings from 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 for at least the next twelve months.
For fiscal year 2018, we incurred approximately $17.2 million in gross capital expenditures. We also received $1.7
million from deemed sale-leaseback transactions. We expect gross capital expenditures between $18.0 million and $23.0
million for fiscal year 2019. We intend to fund these capital expenditures with our operating cash flows 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.
Cash flows from operating, investing and financing activities are shown in the following table:
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows (used in) provided by financing activities
Cash at end of period
Fiscal Year Ended
February 2,
2019
February 3,
2018
$
(in thousands)
32,173 $
(16,252)
(16,143)
1,547
30,775
(32,136)
1,219
1,769
Net cash provided by operating activities was $32.2 million for fiscal year 2018, compared to $30.8 million for
fiscal year 2017. Our net cash provided by operating activities increased primarily due to decreased inventory purchases
as we continue to manage our in-store inventory more efficiently as well as an increase in accounts payable, partially
offset by an increase in net income.
Net cash used in investing activities was $16.3 million for fiscal year 2018 compared to $32.1 million for fiscal
year 2017. The decrease in cash used in investing activities was primarily a result of fewer store openings in fiscal year
2018 where we only opened 5 stores in fiscal year 2018 compared to 12 stores in fiscal year 2017.
46
Net cash used in financing activities was $16.1 million for fiscal year 2018 compared to net cash provided by
financing activities of $1.2 million for fiscal year 2017. The increase in net cash used in financing in fiscal year 2018
compared to the net cash provided by financing activities in fiscal year 2017 is primarily due to the repayment of our
prior term loan in May 2018 from the cash flows we generated and borrowings under our revolving credit facility.
Amended and Restated Credit Facility. On May 23, 2018, we amended and restated our credit agreement with a
consortium of banks led by Wells Fargo Bank, National Association (“Wells Fargo”). The amended credit agreement,
among other things, increased our available borrowing capacity under our revolving credit facility from $150.0 million
to $250.0 million, subject to a borrowing base calculation, and provided for a new $40.0 million term loan. Both the
revolving credit facility and new term loan will mature on May 23, 2023. On May 23, 2018, we borrowed $135.4 million
under the revolving credit facility and used the proceeds from the new term loan and the revolving credit facility to repay
our prior term loan that had an outstanding principal balance of $134.7 million and was scheduled to mature on
December 3, 2020. As of February 2, 2019, we had $151.3 million outstanding under the revolving credit facility, with
$19.3 million available for borrowing and $1.7 million in stand-by commercial letters of credit.
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 our obligations under the revolving credit facility are secured
by a lien on substantially all of Holdings’ tangible and intangible assets and the tangible and intangible assets of all of
our subsidiaries, including a pledge of all capital stock of each of our 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. In addition, the credit agreement contains provisions that enable Wells Fargo to require
us to maintain a lock-box, or similar arrangement, for the collection of all receipts.
Borrowings under the revolving credit facility bear interest based on either, at our option, the base rate or LIBOR,
in each case plus an applicable margin. The base rate is the higher of (1) Wells Fargo’s prime rate, (2) the federal funds
rate (as defined in the credit agreement) plus 0.50% and (3) the one-month LIBOR (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 0.75% per year for base rate loans and from 1.25% to 1.75% per year for LIBOR
loans. The weighted average interest rate on the amount outstanding under the revolving credit facility as of February 2,
2019 was 4.18%.
Interest on the revolving credit facility or base rate loans is payable monthly in arrears and interest on LIBOR
loans is payable based on the LIBOR interest period selected by us, which can be 7, 30, 60 or 90 days. All amounts that
are not paid when due under our revolving credit facility, or base rate loans, will accrue interest at the rate otherwise
applicable plus 2.00% until such amounts are paid in full.
Our new term loan was issued at a price of 100% of the $40.0 million aggregate principal amount and has a
maturity date of May 23, 2023. The new term loan will bear interest at a rate of LIBOR plus 5.75%. The new term loan
requires quarterly principal payments of $2.0 million which began on November 1, 2018 and continues up to and
including May 23, 2023, at which time the remaining balance is due in full. Each of the subsidiaries of Holdings is a
borrower under the revolving credit facility and the new term loan, Holdings guarantees all obligations under the
revolving credit facility and new term loan. All obligations under the revolving credit facility and new term loan are
secured by a lien on substantially all of Holdings’ tangible and intangible assets and the tangible and intangible assets of
all of Holdings’ subsidiaries, including a pledge of all capital stock of each of the Holdings’ subsidiaries. The lien
securing the obligations under the revolving credit facility and new term loan is a first priority lien as to certain liquid
assets, including cash, accounts receivable, deposit accounts and inventory. In addition, our credit agreement contains
provisions that enable Wells Fargo to require us to maintain a lock-box, or similar arrangement, for the collection of all
receipts. As of February 2, 2019, the balance remaining on our term loan was $36 million.
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.
The credit agreement governing our revolving credit facility and new term loan 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
47
property and to undergo certain fundamental changes, including certain mergers, liquidations and consolidations. The
credit agreement also contains customary events of default. As of February 2, 2019, we were in compliance with all
covenants under the revolving credit facility.
Prior Term Loan. Prior to May 23, 2018, we had a $160.0 million senior secured term loan facility with a
financial institution. The term loan was issued at a price of 99% of the aggregate principal amount and had a maturity
date of December 3, 2020. The term loan required quarterly principal payments of $0.4 million payable on the last
business day of each fiscal quarter continuing up to and including October 30, 2020, with the final installment payment
consisting of the remaining unpaid balance due on December 3, 2020.
The prior term loan bore interest at a rate per annum equal to the one-, two-, three-, or six-month LIBOR (or, the
nine- or 12-month LIBOR), as defined in the term loan agreement, at our election, which could not be less than 1.25%,
plus an applicable margin of 6.25%.
On May 23, 2018, we repaid the term loan in full with proceeds from our revolving credit facility and new term
loan.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with 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
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.
Our significant accounting policies are discussed in Note 2 of the Notes to our consolidated financial statements.
We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our
reported financial results.
Revenue Recognition
Accounting Standard Codification Topic 606 (“Topic 606”) has required changes to how our revenue is
recognized. Updates to our accounting policies have been made as part of the adoption of this new standard. The changes
to our accounting policies and procedures under the new standard have most significantly impacted the method that we
use to record breakage for gift cards and loyalty reward points associated with the our loyalty reward programs. The new
breakage calculations for these items apply assumptions allowable under Topic 606, which require judgments. In
applying these new assumptions, and in the application of Topic 606, we have determined that the updated accounting
policies, to ensure compliance under Topic 606, continue to be critical accounting policies.
Revenue recognition accounting policy
We operate solely as an outdoor retailer, which includes both retail stores and an e-commerce platform, that
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, we implicitly enter into a contract with customers to deliver merchandise inventory at the point of sale.
Collectability is reasonably assured since we only extend immaterial credit purchases to certain municipalities.
Substantially all of our revenue is for single performance obligations for the following distinct items:
•
•
Retail store sales
E-commerce sales
48
•
Gift cards and loyalty reward program
For performance obligations related to retail store and e-commerce sales contracts, we typically transfer 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. We do 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 our 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 we expect 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 our 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. If actual results in the future vary from our estimates, we adjust 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 our loyalty reward program. Cash received
from the sale of gift cards is recorded as a contract liability in accrued expenses, and we recognize 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 3.0% when no escheat liability to relevant jurisdictions
exists. We do not sell or provide gift cards that carry expiration dates. We recognized revenue for the breakage of loyalty
reward points as revenue in proportion to the pattern of customer redemption of the points by applying a historical
breakage rate of 30% when no escheat liability to relevant jurisdictions exists.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-
producing transaction, that are collected by us from a customer, are excluded from revenue.
Sales returns
We estimate a reserve for sales returns and record 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.
Inventory Valuation
Inventory is measured at the lower of cost or net realizable value. Cost is determined using the weighted average
cost method. We estimate a provision for inventory shrinkage based on our historical inventory accuracy rates as
determined by periodic cycle counts. The allowance for damaged goods from returns is based upon our historical
experience. We also adjust inventory for obsolete or slow moving inventory based on inventory productivity reports and
by specific identification of obsolete or slow moving inventory. Had our estimated inventory reserves been lower or
higher by 10% as of February 2, 2019, our cost of sales would have been correspondingly lower or higher by
approximately $0.7 million.
Valuation of Long-Lived Assets
We review our long-lived assets with definite lives for impairment whenever events or changes in circumstances
may indicate that the carrying value of an asset may not be recoverable. We use an estimate of the future undiscounted
net cash flows of the related asset or group of assets over their remaining useful lives in measuring whether the assets are
recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
49
recognized for the amount by which the carrying amount exceeds the estimated fair value of the asset. Impairment of
long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent of other
groups of assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less the
estimated costs to sell. No impairment charge to long-lived assets was recorded during the fiscal year ended February 2,
2019 or February 3, 2018.
We are not party to any off balance sheet arrangements.
Off Balance Sheet Arrangements
Non-GAAP 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 income plus interest expense, income tax expense,
depreciation and amortization, stock-based compensation expense, pre-opening expenses, and other gains/losses, and
expenses that we do not believe are indicative of our ongoing expenses. Adjusted EBITDA excludes pre-opening
expenses because we do not believe these expenses are indicative of the underlying operating performance of our stores.
The amount and timing of pre-opening expenses are dependent on, among other things, the size of new stores opened
and the number of new stores opened during any given period. Adjusted EBITDA margin means, 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 consolidated income statement 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;
• 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.
For a reconciliation of net income, the most directly comparable financial measure presented in accordance with
GAAP, to Adjusted EBITDA, see “Item 6. Selected Financial Data” included elsewhere in this 10-K.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 to our consolidated financial statements
included elsewhere in this 10-K. Under the Jumpstart Our Business Startup Act, “emerging growth companies”
50
(“EGCs”) can delay adopting new or revised accounting standards until such time as those standards apply to private
companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting
standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies
that are not EGCs.
We will continue to be an EGC for a period up to the end of the fifth fiscal year after our initial public offering,
which is February 2, 2020. We could cease to be an EGC earlier than this five-year period if our total annual gross
revenues equal or exceed $1 billion in a fiscal year, if we issue more than $1 billion in non-convertible debt over a three-
year period or if we become a “large accelerated filer” (which requires, among other things, the market value of our
common stock held by non-affiliates to be at least $700 million as of the last business day of our second fiscal quarter of
any fiscal year). For further information, see Part I, Item 1A. “Risk Factors—We are an EGC within the meaning of the
JOBS Act and we cannot be certain if the reduced reporting requirements applicable to EGCs will make our common
stock less attractive to investors.”
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and are not required to provide the information under this item.
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
53
54
55
56
57
58
52
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Sportsman’s Warehouse Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Sportsman’s Warehouse Holdings, Inc.
(and subsidiaries) (the Company) as of February 2, 2019 and February 3, 2018, the related consolidated statements of
income, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended February 2,
2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2019
and February 3, 2018, and the results of its operations and its cash flows for each of the years in the three-year period
ended February 2, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Salt Lake City, Utah
March 29, 2019
53
SPORTSMAN’S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands, Except Per Share Data
Assets
Current assets:
Cash
Accounts receivable, net
Merchandise inventories
Prepaid expenses and other
Total current assets
Property and equipment, net
Deferred income taxes
Definite lived intangibles, net
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Revolving line of credit
Current portion of long-term debt, net of discount and debt issuance costs
Current portion of deferred rent
Total current liabilities
Long-term liabilities:
Long-term debt, net of discount, debt issuance costs, and current portion
Deferred rent, noncurrent
Total long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
February 2,
2019
February 3,
2018
$
$
$
1,547
249
276,600
15,174
293,570
92,084
2,997
246
388,897
24,953
56,384
1,838
144,306
7,915
5,270
240,666
27,717
41,854
69,571
310,237
1,769
319
270,594
8,073
280,755
94,035
4,595
276
379,661
36,788
50,602
2,586
59,992
990
4,593
155,551
132,349
41,963
174,312
329,863
Preferred stock, $.01 par value; 20,000 shares authorized; 0 shares issued and outstanding
Common stock, $.01 par value; 100,000 shares authorized; 42,978 and 42,617 shares
issued and outstanding, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
—
—
430
84,671
(6,441)
78,660
388,897
$
426
82,197
(32,825)
49,798
379,661
See accompanying notes to the consolidated financial statements
54
SPORTSMAN’S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Amounts in Thousands, Except Per Share Data
Net sales
Cost of goods sold
Gross profit
Selling, general, and administrative expenses
Income from operations
Interest expense
Income before income taxes
Income tax expense
Net income
Income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
February 2,
2019
849,129 $
564,199
284,930
Fiscal Year Ended
February 3,
2018
809,671 $
535,811
273,860
January 28,
2017
779,956
516,726
263,230
$
240,911
44,019
(13,206)
30,813
7,063
23,750 $
227,292
46,568
(13,738)
32,830
15,088
17,742 $
202,543
60,687
(13,402)
47,285
17,616
29,669
0.55 $
0.55 $
0.42 $
0.42 $
0.70
0.70
42,878
42,979
42,496
42,522
42,187
42,485
$
$
$
See accompanying notes to the consolidated financial statements
55
SPORTSMAN’S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Amounts in Thousands
Common Stock
Restricted nonvoting
common stock
Additional
paid-in-
capital
Accumulated
deficit
Total
stockholders'
(deficit)equity
Shares Amount Shares Amount Amount Amount
Amount
Balance at January 30, 2016
Vesting of restricted stock units
Payment of withholdings on restricted stock units
Issuance of common stock for cash per employee
stock purchase plan
Stock based compensation
Net income
Balance at January 28, 2017
Vesting of restricted stock units
Payment of withholdings on restricted stock units
Issuance of common stock for cash per employee
stock purchase plan
Stock based compensation
Net income
Balance at February 3, 2018
Impact of change for ASC 606 adoption
Vesting of restricted stock units
Payment of withholdings on restricted stock units
Issuance of common stock for cash per employee
stock purchase plan
Stock based compensation
Net income
Balance at February 2, 2019
42,004 $ 420
2
—
207
—
58
—
—
—
—
—
42,269 $ 422
3
—
260
—
88
—
—
1
—
—
42,617 $ 426
—
3
—
—
275
—
86
—
—
1
—
—
42,978 $ 430
— $
—
—
—
—
—
— $
—
—
—
—
—
— $
—
—
—
—
—
—
— $
— $ 77,757 $ (80,236) $
—
—
(2)
(1,228)
—
—
433
3,186
—
—
—
29,669
—
—
—
— $ 80,146 $ (50,567) $
—
—
(3)
(635)
—
—
395
2,294
—
—
—
17,742
—
—
—
— $ 82,197 $ (32,825) $
—
—
—
2,634
—
—
—
(3)
(703)
(2,059)
—
(1,228)
433
3,186
29,669
30,001
—
(635)
396
2,294
17,742
49,798
2,634
—
(703)
351
2,829
—
—
—
—
— $ 84,671 $
—
—
23,750
(6,441) $
352
2,829
23,750
78,660
See accompanying notes to the consolidated financial statements
56
SPORTSMAN’S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
Fifty-two/Fifty-three Weeks Ended
February 3
2018
January 28,
2017
February 2
2019
Cash flows from operating activities:
Net Income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment
Amortization and write-off of discount on debt and deferred financing fees
Amortization of definite lived intangible
Change in deferred rent
Loss on asset dispositions
Deferred income taxes
Excess tax benefits from stock-based compensation arrangements
Stock-based compensation
Change in operating assets and liabilities:
Accounts receivable, net
Merchandise inventories
Prepaid expenses and other
Accounts payable
Accrued expenses
Income taxes payable and receivable
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Purchase of intangible asset
Proceeds from deemed sale-leaseback transactions
Proceeds from sale of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net borrowings on line of credit
Increase in book overdraft
Proceeds from issuance of common stock per employee stock purchase plan
Payment of withholdings on restricted stock units
Borrowings on term loan
Payment of deferred financing costs
Principal payments on long-term debt
Net cash (used in) provided by financing activities
Net change in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized
Income taxes, net of refunds
Supplemental schedule of noncash investing activities:
$
23,750 $
17,742 $ 29,669
17,961
2,043
289
568
30
714
—
2,829
70
(6,006)
(5,339)
(11,726)
7,739
(749)
32,173
(17,936)
(259)
1,717
226
(16,252)
15,864
708
1,842
8,098
516
502
—
2,294
92
(24,305)
(681)
7,536
(1,040)
1,607
30,775
(41,172)
—
9,022
14
(32,136)
12,169
1,122
1,805
6,307
—
167
(449)
3,186
58
(28,495)
(1,064)
(15,530)
6,888
(351)
15,482
(39,417)
—
11,923
—
(27,494)
84,314
353
351
(703)
40,000
(1,331)
(139,127)
(16,143)
(222)
1,769
1,547 $
(980)
4,589
396
(635)
—
(551)
(1,600)
1,219
(142)
1,911
1,769 $
35,709
(1,827)
433
(1,228)
—
—
(21,273)
11,814
(198)
2,109
1,911
13,240
7,094
13,532
12,839
11,965
18,444
$
$
Purchases of property and equipment included in accounts payable and accrued expenses
$
1,189
1,142
5,972
See accompanying notes to the consolidated financial statements
57
SPORTSMAN’S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Dollars in Thousands, except per share amounts
(1) Nature of Business
Description of Business
Sportsman’s Warehouse Holdings, Inc. (“Holdings”), a Delaware Corporation, and subsidiaries (collectively, the
“Company”) operate retail sporting goods stores. As of February 2, 2019, the Company operated 92 stores in 23 states.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) and include the accounts of its four wholly owned subsidiaries, Sportsman’s
Warehouse, Inc. (“Sportsman’s Warehouse”), Pacific Flyway Wholesale, LLC (“Pacific Flyway”), Sportsman’s
Warehouse Southwest, Inc., and Minnesota Merchandising Corporation. All intercompany transactions and accounts
have been eliminated in consolidation.
Fiscal Year
The Company operates using a 52/53 week fiscal year ending on the Saturday closest to January 31. Fiscal year
2018 ended February 2, 2019 and contained 52 weeks of operation. Fiscal year 2017 ended February 3, 2018 and
contained 53 weeks of operations. Fiscal year 2016 ended January 28, 2017 and contained 52 weeks of operations.
Seasonality
The Company’s business is generally seasonal, with a significant portion of total sales occurring during the third
and fourth quarters of the fiscal year.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Segment Reporting
The Company operates solely as a sporting goods retailer whose Chief Operating Decision Maker (“CODM”) is
the Chief Executive Officer. The CODM reviews financial information presented on a consolidated and individual store
and cost center basis, for purposes of allocating resources and evaluating financial performance. The Company’s stores
typically have similar square footage and offer essentially the same general product mix. The Company’s core customer
demographic remains similar chainwide, as does the Company’s process for the procurement and marketing of its
product mix. Furthermore, the Company distributes its product mix chainwide from a single distribution center. Given
that the stores have the same economic characteristics, the individual stores are aggregated into one single operating and
reportable segment.
Cash
The Company considers cash on hand in stores and highly liquid investments with an initial maturity of three
months or less as cash. Checks issued pending bank clearance that result in overdraft balances for accounting purposes
are classified as accrued expenses in the accompanying consolidated balance sheets.
58
In accordance with the terms of a financing agreement (Note 7), the Company maintains depository accounts with
two banks in a lock-box or similar arrangement. Deposits into these accounts are used to reduce the outstanding balance
on the line of credit as soon as the respective bank allows the funds to be transferred to the financing company. At
February 2, 2019 and February 3, 2018, the combined balance in these accounts were $7,035 and $6,629, respectively.
Accordingly, these amounts have been classified as a reduction in the line of credit as if the transfers had occurred on
February 2, 2019 and February 3, 2018, respectively.
Accounts Receivable
The Company offers credit terms on the sale of products to certain government and corporate retail customers and
requires no collateral from these customers. The Company performs ongoing credit evaluations of its customers’
financial condition and maintains an allowance for doubtful accounts receivable based upon historical experience and a
specific review of accounts receivable at the end of each period. Actual bad debts may differ from these estimates and
the difference could be significant. At February 2, 2019 and February 3, 2018, the Company had no allowance for
doubtful accounts receivable.
Merchandise Inventories
The Company measures its inventory at the lower of cost or net realizable value. Cost is determined using the
weighted average cost method. The Company estimates a provision for inventory shrinkage based on its historical
inventory accuracy rates as determined by periodic cycle counts. The Company also adjusts inventory for obsolete, slow
moving, or damaged inventory based on inventory activity thresholds and by specific identification of slow moving or
obsolete inventory. The inventory write downs for shrinkage, damaged, or obsolescence totaled $7,012 and $7,139 at
February 2, 2019 and February 3, 2018, respectively.
Property and Equipment
Property and equipment are recorded at cost. Leasehold improvements primarily include the cost of improvements
funded by landlord incentives or allowances. Maintenance, repairs, minor renewals, and betterments are expensed as
incurred. Major renewals and betterments are capitalized. Upon retirement or disposal of assets, the cost and
accumulated depreciation and amortization are eliminated from the respective accounts and the related gains or losses
are credited or charged to earnings.
Depreciation and amortization of property and equipment is computed using the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the useful lives of
the improvements or the term of the lease. Furniture, fixtures, and equipment, are depreciated over useful lives ranging
from 3 to 10 years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets with definite lives for impairment whenever events or changes in
circumstances may indicate that the carrying value of an asset may not be recoverable. The Company uses an estimate of
the future undiscounted net cash flows of the related asset or group of assets over their remaining useful lives in
measuring whether the assets are recoverable. If the carrying amount of an asset exceeds its estimated future cash flows,
an impairment charge is recognized for the amount by which the carrying amount exceeds the estimated fair value of the
asset. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are
independent of other groups of assets. Assets to be disposed of are reported at the lower of the carrying amount or fair
value, less the estimated costs to sell. No impairment charge to long-lived assets was recorded during the fiscal years
ended February 2, 2019, February 3, 2018, and January 28, 2017.
Prepaid Expenses and Other
Prepaid expenses and other primarily consists of prepaid expenses, vendor rebates receivable, vendor advertising
receivables and miscellaneous deposits.
59
Revenue Recognition
The Company adopted Accounting Standard Codification (“ASC”) Topic 606 on February 4, 2018, using the
modified retrospective approach to all open contracts, with the cumulative effect of adopting the new standard being
recognized in retained earnings at February 4, 2018. Therefore, the prior periods comparative information has not been
adjusted and continues to be reported under Topic 605. The adoption of Topic 606 resulted in an increase in prepaid
expenses and other assets of $1,054 for the recognition of the right of return assets; an increase in accrued expenses
relating to the sales return liability of $1,054 for the recognition of the sales return liability on a gross basis; a decrease in
accrued expenses of $3,521 relating to the breakage of loyalty rewards and gift cards in order to adjust the breakage
pattern of the loyalty program and gift cards to match the usage; a decrease of $884 in deferred tax assets relating to the
tax impact of the entries recorded for the gift card and loyalty program liabilities; and a decrease in accumulated deficit
of $2,634 as a cumulative effect of the adoption.
The largest driver of changes for the adoption of Topic 606 was the change in the method of estimating breakage
for the Company’s outstanding gift cards and loyalty reward liabilities. Under Topic 605, this breakage was historically
recorded when it was determined that the gift cards or loyalty reward points were not going to be redeemed, which was
after two years for gift cards and 18 months for loyalty reward points. Topic 606, the breakage recognized for the loyalty
reward program and gift cards is now estimated based off of historical breakage percentages, and is recognized in-line
with the expected usage of the loyalty points and gift cards.
The accounts that changed under the adoption of Topic 606 for the condensed consolidated balance sheet as of and
for the fiscal year ended February 2, 2019 have been outlined as follows:
Condensed Consolidated Balance Sheet Changes As Reported
Adjustments
Balances without adoption of Topic 606
Prepaids expenses and other
Accrued expenses
Deferred income taxes
Accumulated deficit
$ 15,174
56,384
2,997
(6,441)
$ (1,496)
2,025
884
(2,634)
$ 13,678
58,409
3,881
(9,075)
Revenue recognition accounting policy
The Company operates solely as an outdoor retailer, which includes both retail stores and an e-commerce
platform, that 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 immaterial credit
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
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.
60
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 our 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 3.0% 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. ASC 606 requires the
Company to allocate the transaction price between the goods and the loyalty reward points based on the relative stand-
alone selling price. The Company recognized revenue for the breakage of loyalty reward points as revenue in proportion
to the pattern of customer redemption of the points by applying a historical breakage rate of 30% when no escheat
liability to relevant jurisdictions exists.
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.
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. We estimate a reserve for
sales returns and record 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 fiscal year ended February 2, 2019:
Right of return assets, which are included in prepaid expenses and other
Estimated contract liabilities, net of breakage
Sales return liabilities, which are included in accrued expenses
February 2, 2019
$ 1,496
(20,298)
2,233
For the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017 the Company recognized
$1,007, $1,337, and $347 in gift card breakage, respectively. For the fiscal years ended February 2, 2019, February 3,
2018, and January 28, 2017, the Company recognized $1,439, $1,022, and $611 in loyalty reward breakage, respectively.
The impact of these adjustments on the statement of cash flow for the year ended February 2, 2019 were recorded in
cash provided by in operating activities.
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.
Practical expedients and policy elections
The Company applies the following practical expedients in its application for Topic 606:
61
• The Company elected to apply the practical expedient, relative to e-commerce sales, which allows an entity
to account for shipping and handling as fulfillment activities, and not 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). Revenue associated with shipping and
handling is not material. The costs associated with fulfillment are recorded in costs of goods sold.
• The Company elected to apply the practical expedient, relative to sales tax collected, which allows an
entity to exclude from its transaction price any amounts collected from customers for all sales (and other
similar) taxes.
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 our departments for the fiscal years ended February 2, 2019, February 3, 2018, and January 28,
2017 were as follows:
Product Offerings
Backpacks, camp essentials, canoes and
kayaks, coolers, outdoor cooking equipment,
sleeping bags, tents and tools
Camouflage, jackets, hats, outerwear,
sportswear, technical gear and work wear
Bait, electronics, fishing rods, flotation
items, fly fishing, lines, lures, reels, tackle
and small boats
Hiking boots, socks, sport sandals, technical
footwear, trail shoes, casual shoes, waders
and work boots
Ammunition, archery items, ATV
accessories, blinds and tree stands, decoys,
firearms, reloading equipment and shooting
gear
Gift items, GPS devices, knives, lighting,
optics (e.g. binoculars), two-way radios, and
other license revenue, net of revenue
discounts
Fiscal Year Ended
February 2,
2019
February 3,
2018
January 28,
2017
14.2%
15.1%
14.6%
8.9%
9.3%
8.7%
10.6%
10.7%
10.0%
7.3%
7.4%
7.1%
48.3%
48.7%
50.9%
10.6%
8.8%
8.7%
100.0%
100.0%
100.0%
Department
Camping
Clothing
Fishing
Footwear
Hunting and Shooting
Optics, Electronics,
Accessories, and Other
Total
Cost of Goods Sold
Cost of goods sold primarily consists of merchandise acquisition costs, including freight-in costs, shipping costs,
terms discounts received from the vendor and vendor allowances and rebates associated directly with merchandise.
Vendor allowances include allowances and rebates received from vendors. The Company records an estimate of earned
allowances based on purchase volumes. These funds are determined for each fiscal year, and the majority is based on
various quantitative contract terms. Amounts expected to be received from vendors relating to purchase of merchandise
inventories are recognized as a reduction of cost of goods sold as the merchandise is sold. Historical program results and
current purchase volumes are reviewed when establishing the estimate for earned allowances.
Shipping and Handling Fees and Costs
All shipping and handling fees billed to customers are recorded as a component of net sales. All costs incurred
related to the shipping and handling of products are recorded in cost of sales.
62
Vendor Allowances
Vendor allowances include price allowances, volume rebates, store opening costs reimbursements, marketing
participation and advertising reimbursements received from vendors under the terms of specific arrangements with
certain vendors. Vendor allowances related to merchandise are recognized as a reduction of the costs of merchandise as
sold. Vendor reimbursements of costs are recorded as a reduction to expense in the period the related cost is incurred
based on actual costs incurred. Any cost reimbursements exceeding expenses incurred are recognized as a reduction of
the cost of merchandise sold. Volume allowances may be estimated based on historical purchases and estimates of
projected purchases.
Operating Leases and Deferred Rent
The Company has various operating lease commitments on its store locations. Certain leases contain rent
escalation clauses that require higher rental payments in later years. Leases may also contain rent holidays, or free rents,
during the lease term. Rent expense is recognized on a straight-line basis over the lease term. Rent expense in excess of
rental payments is recorded as deferred rent on the accompanying consolidated balance sheets.
Tenant Allowances
The Company enters into various types of lease agreements in the operation of its stores, including remodel and
build-to-suit arrangements. Under any type of lease agreement, the Company may receive reimbursement from a
landlord for some of the costs related to occupancy or tenant improvements per lease provisions. These reimbursements
may be referred to as tenant allowances or landlord reimbursements. Reimbursement from a landlord for occupancy or
tenant improvements is treated differently depending on the type of arrangement. Under most of the Company’s lease
agreements, tenant allowances are included within deferred rent on the accompanying consolidated balance sheets. The
deferred rent credit is amortized as rent expense on a straight-line basis over the term of the lease. Landlord
reimbursements from these transactions are included in cash flows from operating activities as a change in deferred rent.
In lease agreements where the Company is the deemed owner of the building during the construction period, a
deemed sale-leaseback of the building occurs when construction is complete and the lease term begins. Under these lease
agreements, as the tenant allowances are received, the value of the Company’s construction-in-progress or leasehold
improvements is reduced accordingly. The proceeds from deemed sale-leaseback transactions are included in cash flows
from investing activities.
Health Insurance
The Company maintains for its employees a partially self-funded health insurance plan. The Company maintains
stop-loss insurance through an insurance company with a $100 per person deductible and aggregate claims limit above a
predetermined threshold. The Company intends to maintain this plan indefinitely. However, the plan may be terminated,
modified, suspended, or discontinued at any time for any reason specified by the Company.
The Company has established reserve amounts based upon claims history and estimates of claims that have been
incurred but not reported (“IBNR”) for this plan. As of February 2, 2019, and February 3, 2018, the Company estimated
the IBNR for this plan to be $900 and $922, respectively. Actual claims may differ from the estimate and such difference
could be significant. These reserves are included in accrued expenses in the accompanying consolidated balance sheets.
Workers Compensation Insurance
The Company maintains for its employees a high-deductible workers compensation plan. The Company maintains
stop-loss insurance through an insurance company with a $150 per claim deductible and aggregate claims limit above a
predetermined threshold. The Company intends to maintain this plan indefinitely. However, the plan may be terminated,
modified, suspended, or discontinued at any time for any reason specified by the Company.
The Company has established reserve amounts based upon claims history and estimates of IBNR for this plan. As
of February 2, 2019, and February 3, 2018, the Company estimated the IBNR for this plan to be $1,045 and $659,
respectively, related to the workers compensation plan. Actual claims may differ from the estimate and such difference
could be significant. These reserves are included in accrued expenses in the accompanying consolidated balance sheets.
63
Advertising
Costs for newspaper, television, radio, and other advertising are expensed in the period in which the advertising
occurs. The Company participates in various advertising and marketing cooperative programs with its vendors, who,
under these programs, reimburse the Company for certain costs incurred. Payments received under these cooperative
programs are recorded as a decrease to expense in the period that the advertising occurred. For the fiscal years ended
February 2, 2019, February 3, 2018, and January 28, 2017, net advertising expenses totaled $8,437, $7,760, and $7,513,
respectively. These amounts are included in selling, general and administrative expenses in the accompanying
consolidated statements of income.
Stock-Based Compensation
Compensation expense is estimated based on grant date fair value on a straight-line basis over the requisite service
or offering period. Costs associated with awards are included in compensation expense as a component of selling,
general, and administrative expenses.
Income Taxes
The Company recognizes a deferred income tax liability or deferred income tax asset for the future tax
consequences attributable to differences between the financial statement basis of existing assets and liabilities and their
respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation
allowance is provided against deferred income tax assets when it is more likely than not that all or some portion of the
deferred income tax assets will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the relevant tax authorities, based on the technical merits of the
position. Interest and potential penalties are accrued related to unrecognized tax benefits in the provision for income
taxes.
Fair Value of Financial Instruments
As of February 2, 2019, and February 3, 2018 the carrying amounts of financial instruments except for long-term
debt approximate fair value because of the general short-term nature of these instruments. The carrying amounts of long-
term variable rate debt approximate fair value as the terms are consistent with market terms for similar debt instruments.
Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock
outstanding, reduced by 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.
Comprehensive Income
The Company has no components of income that would require classification as other comprehensive income for
the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017.
Recently Adopted Accounting Updates
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated
(“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was further clarified and amended in
2015 and 2016 and supersedes most preexisting revenue recognition guidance with a comprehensive new revenue
recognition model. The core principle is that an entity recognizes revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty
64
of revenue and cash flows arising from contracts with customers. The Company adopted this standard on February 4,
2018 using the modified retrospective approach. Further disclosures relative to the adoption of this standard are provided
in the Revenue Recognition section of this Note 2 to the Consolidated Financial Statements.
Recent Accounting Pronouncements
Lease Accounting
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize
on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with current
accounting principles generally accepted in the United States of America (“GAAP”), the recognition, measurement, and
presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a
finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the
balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. The ASU will take
effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. This ASU can be applied at the beginning of the earliest period presented using the modified retrospective
approach, which includes certain practical expedients that an entity may elect to apply, including an election to use
certain transition relief. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842,
Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting
Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and
instead report the comparative periods under ASC 840.
The Company plans to adopt ASU No. 2016-02 using the modified retrospective approach at the beginning of
the first quarter of fiscal 2019, coinciding with the standard’s effective date. Adoption of the standard will result in the
initial recognition of right-of-use assets of approximately $175 to $195 million and lease liabilities for operating leases
of approximately $205 to $225 million in the first quarter of fiscal 2019. These amounts are based on the present value
of such commitments using the Company’s incremental borrowing rate. The adoption of this standard will have a
material impact on the Company’s consolidated statement of income, stockholders’ equity(deficit) and cash flows, with a
$9.3 million dollar net adjustment recorded to beginning retained earnings in fiscal 2019 due to the acceleration of
recognition of a deferred gain and derecognition of related deferred tax asset the Company was amortizing relating to the
historical sale of owned properties. At the time of adoption, the deferred gain had a remaining amortization period of 7
years. The Company has implemented new lease administration and accounting software. In addition, the Company has
completed its evaluation of the practical expedients offered and enhanced disclosures required in the ASU, as well as
identified arrangements that contain embedded leases, among other activities, to account for this standard upon adoption.
The Company plans to elect the transition package of practical expedients permitted within the new standard which,
among other things, allows it to carryforward the historical lease classification. The Company does not plan to elect the
practical expedient to use hindsight in determining the lease term and in assessing impairment of right-of-use assets. In
accordance with ASU No. 2018-11, the Company will not restate comparative periods in transition to ASC 842 and
instead will report comparative periods under ASC 840.
(3) Secondary Offering
On April 18, 2016, 6,000 shares of common stock were sold in a secondary offering by Seidler Equity Partners
III, L.P. On April 22, 2016, the underwriters of the secondary offering fully exercised the option granted at the time of
the secondary offering to purchase an additional 900 shares of common stock at the secondary offering price of $11.25
per share, less underwriting discounts and commissions, which consisted solely of shares sold by affiliates of Seidler
Equity Partners III, L.P. The Company received no proceeds from the secondary offering or full exercise of the option.
Total expenses incurred related to the secondary offering and the exercise of the option were $143 and are recorded in
selling, general, and administrative expenses in the accompanying consolidated statements of income.
65
(4) Property and Equipment
Property and equipment as of February 2, 2019 and February 3, 2018 are as follows:
Furniture, fixtures, and equipment
Leasehold improvements
Construction in progress
Total property and equipment, gross
Less accumulated depreciation and amortization
Total property and equipment, net
February 3,
February 2,
2019
71,820 $
94,573
1,743
168,136
(76,052)
92,084 $
2018
65,437
84,345
2,434
152,216
(58,181)
94,035
$
$
Depreciation expense was $17,961, $15,864, and $12,169, for the fiscal years ended February 2, 2019, February 3,
2018, and January 28, 2017, respectively.
(5) Definite Lived Intangible Asset
The following table summarizes the definite lived intangible assets:
Amortizing intangible assets:
Non-compete agreement
Domain Name
Total
Amortizing intangible assets:
Non-compete agreement
Total
Amortization
period
Gross carrying
amount
Accumulated
amortization
Net carrying
amount
February 2, 2019
5 years
10 years
$
$
9,063
257
9,320
(9,063)
(11)
(9,074)
-
246
246
Amortization
period
Gross carrying
amount
Accumulated
amortization
Net carrying
amount
February 3, 2018
5 years
$
$
9,063
9,063
(8,787)
(8,787)
276
276
Amortization expense for definite lived intangible asset was $289, $1,842, and $1,805 for the fiscal years ended
February 2, 2019, February 3, 2018, and January 28, 2017.
(6) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following at February 2, 2019 and February 3, 2018:
Book overdraft
Unearned revenue
Accrued payroll and related expenses
Sales and use tax payable
Accrued construction costs
Other
Total Accrued Expenses
(7) Revolving Line of Credit
February 2,
2019
10,297 $
21,836
11,590
4,250
760
7,651
56,384 $
$
$
February 3,
2018
9,944
22,874
8,004
3,277
605
5,898
50,602
The Company has a senior secured revolving credit facility (“Revolving Line of Credit”) with Wells Fargo Bank,
National Association (“Wells Fargo”). On May 23, 2018, Sportsman’s Warehouse, Inc. (“SWI”), a wholly owned
subsidiary of the Company, as borrower, 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,
66
restated, supplemented or otherwise modified, the “Amended Credit Agreement”). The Amended Credit Agreement
amended and restated in its entirety that certain Credit Agreement, dated as of May 28, 2010, by and among SWI, as
borrower, and Wells Fargo, as lender, and the other parties listed on the signature pages thereto.
The Amended Credit Agreement increased the amount available to borrow under the Company’s Revolving Line
of Credit from $150,000 to $250,000, subject to a borrowing base calculation, and provided for a new $40,000 term loan
(the “Term Loan”).
In conjunction with the Amended Credit Agreement, the Company incurred $1,331 of fees paid to various parties
which were capitalized. Fees associated with the Revolving Line of Credit were recorded in prepaid and other assets.
Fees associated with the Term Loan offset the loan balance on the condensed consolidated balance sheet of the
Company.
Each of the subsidiaries of the Company is a borrower under the revolving credit facility, and all obligations under
the revolving credit facility are guaranteed by the Company. All of the Company’s obligations under the revolving credit
facility are secured by a lien on substantially all of the Company’s tangible and intangible assets and the tangible and
intangible assets of all of the Company’s subsidiaries, including a pledge of all capital stock of each of the Company’s
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. In addition, the credit agreement contains
provisions that enable Wells Fargo to require the Company to maintain a lock-box type arrangement for the collection of
all receipts.
As of February 2, 2019, and February 3, 2018, the Company had $151,341 and $66,621, respectively, in
outstanding revolving loans under the Revolving Line of Credit. Amounts outstanding are offset on the consolidated
balance sheets by amounts in depository accounts under lock-box type arrangements, which were $7,035 and $6,629 as
of February 2, 2019 and February 3, 2018, respectively. As of February 2, 2019, the Company had stand-by commercial
letters of credit of $1,705 under the terms of the Revolving Line of Credit.
Borrowings under the Revolving Line of Credit bear interest based on either, at the Company’s option, the base
rate or LIBOR, in each case plus an applicable margin. The base rate is the higher of (1) Wells Fargo’s prime rate, (2)
the federal funds rate (as defined in the credit agreement) plus 0.50% and (3) the one-month LIBOR (as defined in the
Amended 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 0.75% per year for base rate loans and from 1.25%
to 1.75% per year for LIBOR loans. The weighted average interest rate on the amount outstanding under the Revolving
Line of Credit as of February 2, 2019 was 4.18%.
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 Amended 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 Amended Credit Agreement also
requires us to maintain a minimum availability at all times of not less than 10% of the gross borrowing base. The
Amended Credit Agreement also contains customary events of default. The Revolving Line of Credit matures on May
23, 2023.
As of February 2, 2019, and February 3, 2018 the Amended Credit Agreement had $1,085 and $393, respectively
in outstanding deferred financing fees. During the 52 weeks ended February 2, 2019, the Company recognized $195 of
non-cash interest expense with respect to the amortization of deferred financing fees. During the 53 weeks ended
February 3, 2018, the Company recognized $131 of non-cash interest expense with respect to the amortization of
deferred financing fees.
67
As of February 2, 2019, February 3, 2018, and January 28, 2017 gross borrowings under the revolving line of
credit were $1,023,983, $909,180, and $904,518 respectively. As of February 2, 2019, February 3, 2018, and January 28,
2017 gross paydowns under the revolving line of credit were $950,143, $912,792, $870,417, respectively.
(8) Long-Term Debt
Long-term debt consisted of the following as of February 2, 2019 and February 3, 2018:
February 2,
2019
Prior Term Loan
New Term loan
Less discount
Less debt issuance costs
Less current portion, net of discount and debt issuance costs
Long-term portion
Term Loan
$
$
February 3,
2018
135,127
—
(678)
(1,110)
133,339
(990)
132,349
— $
36,000
—
(368)
35,632
(7,915)
27,717 $
On May 23, 2018, the Company entered into the New Term Loan, which was issued at a price of 100% of the
aggregate principal amount of $40,000 and has a maturity date of May 23, 2023.
Also, on May 23, 2018, the Company borrowed $135,400 under the Revolving Line of Credit and used the
proceeds from the Term Loan and the Revolving Line of Credit to repay the Company’s prior term loan with a financial
institution that had an outstanding principal balance of $134,700 and was scheduled to mature on December 3, 2020.
The Term Loan bears interest at a rate of LIBOR plus 5.75%. The effective rate for the New Term Loan as of
February 2, 2019 was 8.16%
All of Sportsman’s Warehouse, Inc.’s obligations under the Term Loan are guaranteed by Holdings, Minnesota
Merchandising Corporation, a wholly owned subsidiary of Holdings, and each of Sportsman’s Warehouse, Inc.’s
subsidiaries.
The Term Loan is secured by a lien on substantially all of the Company’s tangible and intangible assets. The lien
securing the obligations under the Term Loan is a first priority lien as to certain non-liquid assets, including equipment,
intellectual property, proceeds of assets sales and other personal property.
The Term Loan requires quarterly principal payments of $2,000 which began November 1, 2018 and continues
until the loan is paid in full.
The Term Loan contains customary affirmative and negative covenants, including covenants that limit the
Company’s ability to incur, create or assume certain indebtedness, to incur or assume certain liens, to purchase, hold or
acquire certain investments, to declare or make certain dividends and distributions and to engage in certain mergers,
consolidations and asset sales. As of February 2, 2019, the Company was in compliance with all of the covenants of the
Term Loan.
As of February 2, 2019, and February 3, 2018, the Term Loan and prior Term Loan, respectively had an
outstanding balance of $36,000 and $135,127, respectively. The outstanding amounts as of February 2, 2019 and
February 3, 2018 are offset on the consolidated balance sheets by an unamortized discount of $0 and $678, respectively,
and debt issuance costs of $368 and $1,110, respectively.
During fiscal year 2018, the Company recognized $678 and $1,173 of non-cash interest expense with respect to
the amortization of the discount and deferred financing fees. During fiscal year 2017, the Company recognized $199 and
$411 of non-cash interest expense with respect to the amortization of the discount and deferred financing fees on the
prior term loan.
68
Restricted Net Assets
The provisions of the Term Loan and 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 consolidated balance sheet as of
February 2, 2019, from being used to pay any dividends without prior written consent from the financial institutions
party to the Company’s Term Loan and Revolving Line of Credit.
(9) Sale Leaseback Transactions
During the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017, the Company
completed deemed sale-leaseback transactions of the land and buildings associated with one, four, and four store
locations, respectively. In each of the related lease agreements for these store locations, the Company was required to
pay all construction costs directly with the right of reimbursement up to a pre-determined tenant allowance. Also, the
Company indemnified the landlords with respect to costs arising from third-party damage arising from the acts or
omission of employees, sub-lessees, assignees, agent, and/or contractors arising during construction. As a result, and,
based on appropriate accounting guidance, the Company was deemed the owner of the land and building during the
construction period. The deemed sale occurred when the construction of the assets was complete and the lease terms
began. At the time of sale, any assets, up to the value of each pre-determined tenant allowance, were written off the
Company’s books, and any remaining amounts were considered leasehold improvements. The total value of tenant
allowances received under these transactions during fiscal years 2018, 2017, and 2016 was $1,717, $9,022, and $11,923
respectively.
(10) Common Stock
Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or
dissolution, are entitled to receive all assets available for distribution to stockholders on a proportional basis with the
restricted nonvoting common stockholders. The holders have no preemptive or other subscription rights, and there are no
redemption or sinking fund provisions with respect to such shares.
(11) 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 common share:
February 2,
2019
23,750 $
$
Fiscal Year Ended
February 3,
2018
17,742 $
January 28,
2017
29,669
42,878
101
42,979
42,496
26
42,522
42,187
298
42,485
0.70
0.70
—
Net Income
Weighted-average shares of common stock outstanding:
Basic
Dilutive effect of common stock equivalents
Diluted
Basic income per share
Diluted income per share
Restricted stock units considered anti-dilutive and excluded in the calculation
$
$
0.55 $
0.55 $
56
0.42 $
0.42 $
191
69
(12) Stock-Based Compensation
Stock-Based Compensation
The Company recognized total stock-based compensation expense, including expense relating to the employee
stock purchase plan, of $2,826, $2,294, and $3,186, during fiscal years 2018, 2017, and 2016, respectively.
Compensation expense related to the Company's stock-based payment awards is recognized in selling, general, and
administrative expenses in the consolidated statements of income. As of February 2, 2019, and February 3, 2018,
respectively, the Company had $2,692 and $3,963 remaining in unrecognized compensation costs, respectively.
Employee Stock Plans
As of February 2, 2019, the number of shares available for awards under the 2013 Performance Incentive Plan
(the “2013 Plan”) was 422. As of February 2, 2019, there were 505 awards outstanding under the 2013 Plan. All shares
granted during the current year were newly issued shares. All subsequent awards were, and all future awards are
expected to be, granted under the 2013 Plan.
Nonvested Restricted Stock Awards
During the fiscal years 2018 and 2017, the Company did not issue any nonvested restricted stock awards to
employees.
The following table sets forth the rollforward of outstanding nonvested stock awards (per share amounts are not
in thousands):
Balance at February 3, 2018
Grants
Forfeitures
Vested
Balance at February 2, 2019
Balance at January 28, 2017
Grants
Forfeitures
Vested
Balance at February 3, 2018
Weighted
average
grant-date
fair value
Shares
108 $
—
2
80
26 $
11.25
—
11.25
11.25
11.25
Weighted
average
grant-date
fair value
Shares
162 $
—
—
54
108 $
11.25
—
—
11.25
11.25
Nonvested Performance-Based Stock Awards
During fiscal year 2018, the Company issued 163 nonvested performance-based stock awards to employees at a
weighted average grant date fair value of $4.91 per share. The nonvested performance-based stock awards issued to
employees vest at the end of three years. The number of shares issued is contingent on management achieving a fiscal
year 2018 performance target for same store sales and gross margin. Based on the performance conditions met for 2018,
the finalized granted awards were 36 as presented in the table below.
During fiscal year 2017 the Company did not issue any nonvested performance-based stock awards to
employees.
70
The following table sets forth the rollforward of outstanding nonvested performance-based stock awards (per
share amounts are not in thousands):
Balance at February 3, 2018
Grants
Forfeitures
Vested
Balance at February 2, 2019
Balance at January 28, 2017
Grants
Forfeitures
Vested
Balance at February 3, 2018
Nonvested Stock Unit Awards
Weighted
average
grant-date
fair value
Shares
49 $
36
5
46
34 $
11.25
4.91
5.36
11.25
6.07
Weighted
average
grant-date
fair value
Shares
73 $
—
—
24
49 $
11.25
—
—
11.25
11.25
During the fiscal year 2018, the Company issued 330 nonvested stock units to employees of the Company and
independent members of the Board of Directors at a weighted average grant date fair value of $4.89 per share. The
shares issued to the independent members of the Board of Directors vest over 12 months with one twelfth vesting each
month from the grant date. The shares issued to employees of the Company vest over a three year period with one third
of the shares vesting on each grant date anniversary.
During the fiscal year 2017, the Company issued 456 nonvested stock units to employees of the Company and
independent members of the Board of Directors at a weighted average grant date fair value of $5.09 per share. The
shares issued to the independent members of the Board of Directors vest over 12 months with one twelfth vesting each
month from the grant date. The shares issued to employees of the Company vest over a three year period with one third
of the shares vesting on each grant date anniversary.
The following table sets forth the rollforward of outstanding nonvested stock units:
Balance at February 3, 2018
Grants
Forfeitures
Vested
Balance at February 2, 2019
Balance at January 28, 2017
Grants
Forfeitures
Vested
Balance at February 3, 2018
71
Weighted
average
grant-date
fair value
5.15
4.89
4.91
5.23
4.92
Weighted
average
grant-date
fair value
7.17
5.09
7.06
6.87
5.15
Shares
419 $
330
8
300
441 $
Shares
301 $
456
1
337
419 $
As of February 2, 2019, and February 3, 2018, the weighted average grant date fair value of the outstanding
shares was $4.92 and $5.15, respectively.
(13) Employee Stock Purchase Plan
In June 2015, the Company’s stockholders approved the Sportsman’s Warehouse Holdings, Inc. Employee Stock
Purchase Plan (“ESPP”), which provides for the granting of up to 800 shares of the Company’s common stock to eligible
employees. The ESPP period is semi-annual and allows participants to purchase the Company’s stock at 85% of the
lower of (i) the market value per share of the common stock on the first day of the offering period or (ii) the market
value per share of the common stock on the purchase date. The first plan period began on January 1, 2016. Stock-based
compensation expense related to the ESPP in fiscal year 2018, 2017, and 2016 was $143, $160, and $165, respectively.
The Company uses the Black-Scholes model to estimate the fair value of shares to be issued as of the grant date
using the following weighted average assumptions:
Risk-free interest rate
Expected life (in years)
Expected volatility
Dividend yield
(14) Income Taxes
Fiscal Year Ended Fiscal Year Ended
February 2, 2019 February 3, 2018
1.53%
0.5
45.3%
—
2.56%
0.5
32.2%
—
For the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017, the income tax provision
consisted of the following:
February
2,
2019
February
3,
2018
January
28,
2017
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income tax provision
$ 4,630 $ 12,718 $ 14,919
2,530
17,449
1,868
14,586
1,719
6,349
598
116
714
164
3
167
$ 7,063 $ 15,088 $ 17,616
780
(278)
502
The provision for income taxes differs from the amounts computed by applying the federal statutory rate as
follows for the following periods:
Federal statutory rate
State tax, net of federal benefit
Permanent items
Other items
Tax reform adjustment
Effective income tax rate
February 2,
2019
February 3,
2018
January 28,
2017
21.0 %
4.1
2.5
(0.4)
(4.3)
22.9 %
33.7 %
3.8
2.0
(0.2)
6.7
46.0 %
35 %
3.6
(0.4)
(0.9)
—
37.3 %
72
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at February 2, 2019 and February 3, 2018, respectively, are presented below:
February 2,
2019
February 3,
2018
Deferred tax assets:
Accrued liabilities
Deferred rent
Intangible asset
Inventories
Sales return reserve
Capital loss carryforward
Stock-based compensation
Loyalty program
Total gross deferred tax assets
Deferred tax liabilities:
Depreciation
Prepaid expenses
Gift card escheatment
Total gross deferred tax liabilities
Net deferred tax asset
$
453 $
11,835
1,374
1,940
185
39
290
2,191
18,307 $
369
11,703
1,456
1,906
175
41
304
1,374
17,328
(14,670) $
(553)
(87)
(15,310) $
2,997 $
(11,999)
(603)
(131)
(12,733)
4,595
$
$
$
$
On December 22, 2017 the U.S. Government enacted comprehensive tax legislation commonly referred to as the
Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to existing U.S. tax laws that
impact the Company. Most notably, the Tax Act reduced the U.S. Federal corporate tax rate from 35 percent to 21
percent effective January 1, 2018. The Tax Act also provides for the acceleration of depreciation for certain assets placed
in service after September 27, 2017. The Tax Act also established prospective changes beginning in 2018 including the
limitations on the deductibility of certain executive compensation and interest expense. The Company does not expect
these limitations to have a significant impact on our consolidated financial statements.
As a result of the Tax Act, the Company recorded a discrete net tax expense of $2,153 in the period ending
February 3, 2018. The primary components of this tax expense include $2,600 for the revaluation of U.S deferred tax
assets and liabilities at the new corporate tax rate of 21 percent, offset by a tax benefit of $447 due to the reduction in
effective rate based on the time of enactment of the tax law and our fiscal year-end.
Pursuant to SAB 118, the Company is was allowed a measurement period of up to one year after the enactment
date of the Tax Act to finalize the recording of the related tax impacts. However, the Company did not have any
provisional estimates associated with the Tax Act and therefore, did not record any adjustments relating to the Tax Act.
For the year ended February 2, 2019, the Company recorded a discrete net benefit of $1.3M related to Tax
Reform. This was a result of certain accounting method changes and other permitted timing adjustments that were
ultimately reflected on the Company’s fiscal 2017 tax return filed in fiscal 2018 resulting in a net benefit due to changes
in the federal tax rates under the Tax Act.
Deferred tax assets have resulted primarily from the Company’s future deductible temporary differences. In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The Company’s ability to realize its deferred tax assets
depends upon the generation of sufficient future taxable income as well as the ability to use historical taxable income to
allow for the utilization of its deductible temporary differences.
Management evaluates the realizability of the deferred tax assets and the need for additional valuation allowances
quarterly. At February 2, 2019, based on current facts and circumstances, management believes that it is more likely than
not that the Company will realize benefit for its deferred tax assets.
As of February 2, 2019, the Company had no unrecognized tax benefits. The Company does not anticipate that
unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date. Federal and
state tax years that remain subject to examination are periods ended February 1, 2014 through February 3, 2018.
73
The Company’s policy is to accrue interest expense, and penalties as appropriate, on estimated unrecognized tax
benefits as a charge to interest expense in the consolidated statements of income. During fiscal year 2017, the Company
accrued interest and penalties of $95. No interest or penalties were accrued for fiscal years 2018 or 2016.
(15) Commitments and Contingencies
Operating Leases
The Company leases its retail store, office space, and warehouse locations under non-cancelable operating leases.
Certain of these leases include tenant allowances that are amortized over the life of the lease. In 2018, 2017 and 2016,
the Company received tenant allowances of $4,405, $10,696, and $16,718, respectively. The Company expects to
receive $2,389 in tenant allowances under leases during fiscal year 2019. Certain leases require the Company to pay
contingent rental amounts based on a percentage of sales, in addition to real estate taxes, insurance, maintenance and
other operating expenses associated with the leased premises. These agreements expire at various dates through July
2030 and generally contain three, five-year renewal options. Rent expense under these leases totaled $54,027, $49,860,
and $37,132, for the fiscal years ended February 2, 2019, February 3, 2018, and January 28, 2017, respectively.
Future minimum lease payments for non-cancelable operating leases by fiscal year, as of February 2, 2019 are as
follows:
Fiscal Year:
2019
2020
2021
2022
2023
Thereafter
Legal Matters
47,551
46,824
43,070
38,160
33,246
74,821
283,672
$
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.
(16) Related-Party Transactions
On August 14, 2009, the Company entered into a reimbursement agreement with Seidler Equity Partners III, L.P.
Under the terms of this agreement, the Company agreed to reimburse Seidler Equity Partners III, L.P. for various out-of-
pocket costs and expenses related to the Company up to a maximum of $150 annually. During the fiscal years ended
February 2, 2019, February 3, 2018, and January 28, 2017, the Company made no significant payments to these related
parties. At February 2, 2019 and February 3, 2018, there were no amounts payable under the terms of this agreement.
(17) Retirement Plan
The Company sponsors a profit sharing plan (the “Plan”) for which Company contributions are based upon wages
paid. As approved by the Board of Directors, the Company makes discretionary contributions to the Plan at rates
determined by management. The Company made contributions of $572, $390, and $351, for the fiscal years ended
February 2, 2019, February 3, 2018, and January 28, 2017, respectively.
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and
15d-15(e) under the Act. Based upon the evaluation, our chief executive officer and chief financial officer concluded that
our disclosure controls and procedures were effective as of February 2, 2019 to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our
chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required
disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act for us. Internal control over financial reporting is a
process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in
accordance with accounting principles generally accepted in the United States of America.
With the participation of our Chief Executive Officer and our Chief Financial Officer, management evaluated the
effectiveness of our internal control over financial reporting as of February 2, 2019, based on the criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that our internal control over financial reporting was
effective as of February 2, 2019.
Exemption from Attestation Report of Independent Registered Public Accounting Firm
This 10-K does not include an attestation report from our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by our registered public accounting
firm pursuant to rules of the SEC that permit emerging growth companies, which we currently are, to provide only
management’s report in this 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the 13 weeks ended February 2, 2019
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
75
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company has adopted a Code of Conduct and Ethics applicable to our employees, directors, and officers. This
Code of Conduct and Ethics is applicable to our principal executive officer, principal financial officer, principal
accounting officer and controller, or persons performing similar functions. The code is available on the Company’s
website at investors.sportsmanswarehouse.com. To the extent required by rules adopted by the SEC and Nasdaq, we
intend to promptly disclose future amendments to certain provisions of the code, or waivers of such provisions granted to
executive officers and directors on our website at investors.sportsmanswarehouse.com.
The remaining information required by this Item 10 will be included in our proxy statement for our 2019 annual
meeting of stockholders (the “Proxy Statement”) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be included in our Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 will be included in our Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 will be included in our Proxy Statement and is incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 will be included in our Proxy Statement and is incorporated herein by
reference.
76
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
PART IV
1.
Financial Statements: The following financial statements are included in Part II, Item 8 of this Annual
Report on Form 10-K.
•
•
•
•
•
•
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – February 2, 2019 and February 3, 2018
Consolidated Statements of Income – Years ended February 2, 2019, February 3, 2018, and January
28, 2017
Consolidated Statements of Stockholders’ Equity (Deficit) – Years ended February 2, 2019, February
3, 2018, and January 28, 2017
Consolidated Statements of Cash Flows – Years ended February 2, 2019, February 3, 2018, and
January 28, 2017
Notes to Consolidated Financial Statements
2.
3.
Financial Statement Schedules
Exhibits: See Item 15(b) below.
(b) Exhibits
Exhibit
Number
Description
3.1
3.2
4.1
Amended and Restated Certificate of Incorporation of Sportsman’s Warehouse Holdings, Inc.
(incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on June
11, 2014).
Amended and Restated Bylaws of Sportsman’s Warehouse Holdings, Inc. (incorporated by reference to
Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on June 11, 2014).
Form of Specimen Common Stock of Sportsman’s Warehouse Holdings, Inc. (incorporated by reference
to Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (Registration
No. 333.1944421) filed on March 24, 2014).
10.1
Amended and Restated Credit Agreement, dated as of May 23, 2018, Sportsman’s Warehouse, Inc., as
Lead Borrower, Wells Fargo Bank, National Association, as Administrative Agents, Collateral Agent, and
Swing Line Lender, and the other parties listed on the signature pages thereto. (incorporated by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 25, 2018).
10.2
Guaranty, dated as of May 23, 2018, by Sportsman’s Warehouse Holdings, Inc., as Guarantor, in favor of
Wells Fargo Retail Finance, LLC, as Administrative Agent and Collateral Agent, and the Credit Parties
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May
25, 2018).
10.3
Security Agreement, dated as of May 23, 2018, by Sportsman’s Warehouse, Inc., Minnesota
Merchandising Corp., Sportsman’s Warehouse Southwest, Inc. and Pacific Flyway, LLC, as Borrowers,
and Sportsman’s Warehouse Holdings, Inc., as Guarantor, in favor of Wells Fargo Retail Finance, LLC, as
Collateral Agent (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q (Registration No. 333-1944421) filed on May 25, 2018).
10.4
Form of Agreement between holders of restricted nonvoting common stock and Sportsman’s Warehouse
Holdings, Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on
Form S-1 (Registration No. 333-1944421) filed on March 7, 2014).
77
Exhibit
Number
10.5*
Sportsman’s Warehouse Holdings, Inc. 2013 Performance Incentive Plan. (incorporated by reference to
Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (Registration No. 333-1944421) filed
on March 7, 2014).
Description
10.6
Sportsman's Warehouse Holdings, Inc. Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 28, 2015).
10.7*
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.8 to the
Company’s Registration Statement on Form S-1 (Registration No. 333-1944421) filed on March 7, 2014).
10.8*
Form of Indemnification Agreement for Directors and Executive Officers (incorporated by reference to
Exhibit 10.9 to the Company’s Registration Statement on Form S-1 (Registration No. 333-1944421) filed
on March 7, 2014).
10.9*
Employment Agreement, dated January 21, 2014, between Sportsman’s Warehouse Holdings, Inc. and
Kevan P. Talbot (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on
Form S-1 (Registration No. 333-1944421) filed on March 7, 2014).
10.10†
Letter Agreement, dated December 6, 2016, between Sportsman’s Warehouse Holdings, Inc. and Kevan
P. Talbot (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
(Registration No. 333-1944421) filed on December 7, 2016.
10.11*
Employment Agreement, May 11, 2018, between Sportsman’s Warehouse Holdings, Inc. and Jon Barker
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May
17, 2018).
21.1**
Subsidiaries of Sportsman’s Warehouse Holdings, Inc.
23.1**
Consent of KPMG LLP.
31.1**
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1***
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as
created by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** XBRL Instance 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.
* Management contract or compensatory plan or arrangement
** Filed herewith
*** Furnished herewith
†
Indicates that certain information contained herein has been omitted and confidentially submitted separately with
the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted
portions.
ITEM 16. Form 10-K Summary
Not Applicable
78
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 29, 2019
Date: March 29, 2019
SPORTSMAN’S WAREHOUSE HOLDINGS, INC.
By:
By:
/s/ Jon Barker
Jon Barker
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kevan P. Talbot
Kevan P. Talbot
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
/s/Jon Barker
Jon Barker
/s/ Kevan P. Talbot
Kevan P. Talbot
/s/ Christopher Eastland
Christopher Eastland
/s/ Kent V. Graham
Kent V. Graham
/s/ Gregory P. Hickey
Gregory P. Hickey
/s/ Joseph P. Schneider
Joseph P. Schneider
/s/ Rich McBee
Rich McBee
/s/ Martha Bejar
Martha Bejar
Title
Chief Executive
Officer and Director
(Principal Executive Officer)
Chief Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
Director
Date
March 29, 2019
March 29, 2019
March 29, 2019
Director
March 29, 2019
Director
March 29, 2019
Director
March 29, 2019
Director
Director
March 29, 2019
March 29, 2019
79
(This page has been left blank intentionally.)
CORPORATE DIRECTORY
Stockholder Information
Board of Directors
Independent Accounting Firm
KPMG, LLP
Salt Lake City, Utah
Listing
Equiniti
PO Box 64945
St, Paul, MN 55164-0945
(651)-450-4064
Annual Meeting
The annual meeting of Stock holders will be
held on May 29, 2019
Corporate Investor
Please direct inquiries to:
ICR. Inc.
Farah Soi/Rachel Schacter
(203) 682-8200
Investors@sportsmanswarehouse.com
Corporate Officers
Jon Barker
President, Chief Executive Officer, and
Director
Kevan P. Talbot
Chief Financial Officer and Secretary
Joseph P. Schneider (2)
Chairman of the Board of Directors and
Retired
Christopher Eastland
Director and Partner at Seidler Equity
Partners
Kent V. Graham (1)(2)
Director and Retired
Gregory P. Hickey (1)(3)
Director and Retired
Jon Barker
Director
Kay Toolson (2)(3)
Director and Retired
Richard McBee (2)(3)
Director and President and CEO of Mitel
Networks Corporation
Martha Bejar (1)(3)
Director and Co-Founder of Red Bison
Advisory Group, LLC
(1) Member of the Nominating and Governance
Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee