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Shares of Sportsman’s Warehouse Holdings (SPWH -1.55%) were down more than 8% at the market open on Thursday. The sharp fall followed a better-than-expected earnings report for the third quarter. However, management offered a weaker outlook than the market expected, which sent the stock tumbling.
The specialty outdoor goods and equipment retailer completely erased those losses by later in the morning, as investors might be starting to focus more on valuation.
For the third quarter, sales fell 10% year over year, accelerating from the decline of 3% in the previous quarter. Sales of $359 million slightly beat analysts’ estimates, but the company cited “lower demand across most product categories” due partly to inflation and other factors.
Specifically, management highlighted lower demand for firearms coming out of the pandemic, when sales were booming. This was partly offset by the recent start of hunting season, which lifted sales of hunting rifles in the quarter.
One piece of good news was an easing in supply chain costs, which caused a slight uptick in gross margin, but this was more than offset by higher operating expenses. As a result, net profit fell to $12.9 million from $21.9 million in the year-ago quarter.
Still, the company has come a long way to improve profitability in recent years. Going into the quarter, trailing-12-month net income was significantly higher than before the pandemic.
SPWH Net Income (TTM) data by YCharts
Management sees fourth-quarter same-store sales falling between 13% and 9% year over year. That was disappointing at first glance, particularly as the company plans to accelerate the growth of the store footprint next year.
From a long-term perspective, there is still a lot to appreciate here. Sportsman’s Warehouse is profitable and expects to deliver an adjusted profit of between $0.98 and $1.08 per share for the full year. That puts the stock’s forward price-to-earnings ratio at 10, which is quite low considering the average stock trades at twice that multiple, and the long-term demand trends for hunting equipment should drive more growth over the next several years.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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