Baird has adjusted its outlook on Sportsman's Warehouse (NASDAQ: NASDAQ:SPWH), reducing the price target to $2.50 from $4.00, yet maintaining a Neutral rating on the stock.
The firm noted that the company's recent sales were marginally above consensus estimates but did not meet internal expectations. The shortfall was primarily due to a weaker gross margin, which resulted in an approximately 28% miss in adjusted EBITDA.
The report from Baird indicated that Sportsman's Warehouse's customer base continues to face economic pressures and high levels of promotional activity are anticipated to persist throughout the second half of the fiscal year 2024.
Consequently, the company has revised its sales and adjusted EBITDA guidance downward by roughly 3% and 50%, respectively.
Despite the challenges, Baird acknowledged that Sportsman's Warehouse management is acting with determination to restructure the business and enhance operations. This includes a focused effort to control expenses and use free cash flow to reduce debt. However, due to the uncertainty surrounding the timing of a potential increase in sales, the firm has chosen to remain neutral on the stock.
In other recent news, Sportsman's Warehouse reported a wider-than-expected loss for the second quarter, with a loss of $0.16 per share, significantly more than the $0.09 loss analysts had projected.
The company's revenue was slightly above the consensus estimate at $288.7 million, despite a 6.7% year-over-year decrease. The decline was attributed to lower demand across most product categories and decreased store traffic due to inflationary pressures on discretionary spending.
In response to these developments, the company has cut its full-year guidance, now expecting revenue between $1.13 billion and $1.17 billion, lower than analysts' expectations of $1.18 billion.
The adjusted EBITDA is forecasted to be between $20 million and $35 million. Despite these challenges, CEO Paul Stone expressed confidence in the company's strategic initiatives and their potential to improve the business.
The company ended the quarter with net debt of $152.5 million and total liquidity of $99.9 million. Sportsman's Warehouse anticipates generating positive free cash flow for the full year, which it plans to use to pay down debt.
InvestingPro Insights
As Sportsman's Warehouse (NASDAQ:SPWH) navigates through its fiscal challenges, InvestingPro data presents a broader financial perspective. With a market cap of $78.89 million and a negative P/E ratio of -2.44, the company's financial health reflects its operational difficulties. The Price/Book ratio, as of the last twelve months, stands at 0.32, suggesting that the stock is trading at a low valuation relative to its book value. This could be of interest to value investors looking for potential opportunities.
InvestingPro Tips highlight that Sportsman's Warehouse is operating with a significant debt burden, which aligns with Baird's concerns regarding the company's need to manage expenses and reduce debt. Additionally, the company does not pay a dividend, which might be a consideration for income-focused investors. For those interested in a deeper dive into the company's prospects, there are 10 additional InvestingPro Tips available, offering a comprehensive analysis of Sportsman's Warehouse's financial outlook.
Understanding the full scope of the company's financial health is crucial for investors, and these insights from InvestingPro can provide a more detailed perspective on Sportsman's Warehouse's current market position and future potential.
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