Sportsman's Warehouse stock target cut, retains Buy rating on 2Q earnings

On Wednesday, Sportsman's Warehouse (NASDAQ:SPWH) saw its stock price target reduced by Lake Street Capital Markets, now aiming for $3.00, down from the prior $5.00, while the Buy rating on the stock remains unchanged. The adjustment follows the company’s second-quarter fiscal year 2024 performance, which presented a mixed outcome against analysts' projections amidst a challenging economic landscape and subdued hunting-related sales.

The retailer reported a 9.8% decrease in same-store sales, which was slightly better than the anticipated 11.5% decline. Quarterly revenue reached $288.7 million, surpassing the estimate of $282.3 million. However, gross margins fell to 31.2%, below the expected 32.3% and the consensus of 32.4%. This margin contraction was attributed to widespread weaknesses exacerbated by inflationary pressures on consumers.

Sportsman's Warehouse posted an adjusted loss per share of $0.14, which did not meet the predicted loss of $0.08 and consensus of $0.09. Additionally, adjusted EBITDA came in at $7.4 million, falling short of both the $11.2 million estimate and the $10.3 million consensus.

The company's management has revised its full-year 2024 guidance downwards, now expecting revenue between $1.13 billion and $1.17 billion, compared to the earlier forecast range of $1.15 billion to $1.23 billion.

The company anticipates a need for increased promotional activity, particularly during the upcoming holiday season, which is likely to further pressure margins in the second half of the year. Adjusted EBITDA expectations have been significantly reduced to between $20 million and $35 million from the previous range of $45 million to $65 million. This updated guidance reflects a more conservative outlook for the remainder of the year, with the anticipation that current consumer spending trends will continue.

In response to the current market conditions, Sportsman's Warehouse management has reiterated its decision not to open new stores this year. Instead, the company will focus on allocating capital expenditures toward technology enhancements to boost efficiency.

Despite the lower guidance, management remains confident that, even at the lower end of expectations, the company will generate positive free cash flow, which will be directed towards debt reduction. The report from Lake Street Capital Markets concludes with the reaffirmed Buy rating despite the reduced price target.

In other recent news, Sportsman's Warehouse reported a wider-than-expected loss for the second quarter. The company's loss of $0.16 per share surpassed the projected $0.09 loss. Despite this, revenue was slightly above consensus estimates at $288.7 million, reflecting a 6.7% year-over-year decrease. These developments led to a reduction in full-year guidance, with the company now expecting revenue between $1.13 billion and $1.17 billion.

B.Riley and Baird, two analyst firms, have responded to these results by adjusting their price targets for Sportsman's Warehouse. B.Riley reduced its target from $4.00 to $2.00, while Baird lowered its target to $2.50 from $4.00. Both firms maintain a neutral stance on the company's stock.

Despite facing challenges, Sportsman's Warehouse is taking steps to control expenses and reduce debt using free cash flow. The company ended the quarter with net debt of $152.5 million and total liquidity of $99.9 million. CEO Paul Stone expressed confidence in the company's strategic initiatives, indicating potential for improvement in business operations.

InvestingPro Insights

As Sportsman's Warehouse (NASDAQ:SPWH) navigates through a challenging retail environment, real-time data and analysis become crucial for investors. According to InvestingPro, the company operates with a significant debt burden, which is a critical factor to consider given the current economic pressures. Moreover, the stock has been trading at a low Price/Book multiple of 0.32, which could suggest undervaluation relative to its book value, especially in light of the company's recent performance setbacks.

Investors should note that analysts have revised their earnings downwards for the upcoming period and do not anticipate the company will be profitable this year. The retailer's stock price has also taken a substantial hit over the last year, with a one-year price total return of -55.44%, reflecting investor concerns and market reactions to its financial health. Despite these challenges, the InvestingPro Fair Value estimate stands at $2.43, which could imply potential upside from the previous close of $2.09.

For those looking to delve deeper, there are an additional 10 InvestingPro Tips available for Sportsman's Warehouse, offering a comprehensive analysis of the company's financials and market position. These insights can be found at the dedicated InvestingPro page for SPWH: https://www.investing.com/pro/SPWH.

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