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Ahead of the ER: Sportsman Warehouse Holdings Inc.

Sportsman Warehouse Holdings Inc. (SPWH) is set to release earnings this Thursday, August 17 at the close of trading. Investors appear to be pricing in a disappointing earnings release (ER) as Dick’s Sportings Goods (DKS) reported earnings below analyst expectations.

As an investor you should always be concerned when peer competitors report disappointing earnings. But is this loss in shareholder value justified for Sportsman Warehouse Inc.? This would be my second time reviewing SPWH since early March when the shares continued trading lower to $4.00 before rallying over $6.00/share in early June.

Sportsman Warehouse continues to operate in a competitive retail sector which has seen margins reduced in order to win over customers. Convenient online ecommerce alternatives are making it harder to lure customers into stores. This is why the company is maintaining focus on increasing online presence and delivering loyalty programs.

During the company Q1 ER in May, Sportsman Warehouse Inc. released the following outlook for Q2:

“For the second quarter of fiscal year 2017, net sales are expected to be in the range of $189.0 million to $194.0 million based on a same store sales decline in the range of 8.0% to 10.0% compared to the corresponding period of fiscal year 2016. Net income is expected to be in the range of $5.1 million to $6.0 million with diluted earnings per share of $0.12 to $0.14 on a weighted average of approximately 42.8 million estimated common shares outstanding.”

If the company meets their own expectations for revenue on the low end of $189.0 million, revenue for the quarter would be higher than the company’s overall market cap, which currently sits just under $155.0 million. Furthermore if the company can deliver with FY16 targets for adjusted net income between $25.5-29.0 million, adjusted net income would make up 16.4%-18.7% of the company’s overall market cap. SPWH continues to trade with a price to earnings (P/E) of around 6 compared to the likes of DKS at 10.6 and Cabela’s (CAB) at 26.9. For these reasons I see today’s pull back as a buying opportunity.

In March my 12 month target for SPWH was $8.50. My target price for the company remains $8.50 however a rally back to $6.00 with a sharp pull back seems more likely before heading back up.

At the time of writing this article I am long Sportsman Warehouse Holdings Inc.

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