UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36401

SPORTSMAN’S WAREHOUSE HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	39-1975614
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1475 West 9000 South, Suite A, West Jordan, Utah	84088
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (801) 566-6681

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $.01 par value	SPWH	The Nasdaq Stock Market LLC

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 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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth 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 June 4, 2021, the registrant had 43,831,224 shares of common stock, $0.01 par value per share, outstanding.

SPORTSMAN’S WAREHOUSE HOLDINGS, INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signatures	33

We operate on a fiscal calendar that, in a given fiscal year, consists of the 52- or 53-week period ending on the Saturday closest to January 31st. Our fiscal first quarters ended May 1, 2021 and May 2, 2020 both consisted of 13 weeks and are referred to herein as the first quarter of fiscal year 2021 and the first quarter of fiscal year 2020, respectively. Fiscal year 2021 contains 52 weeks of operations and will end on January 29, 2022. Fiscal year 2020 contained 52 weeks of operations and ended on January 30, 2021.

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 Quarterly Report on Form 10-Q (this “10-Q”) 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-Q 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,” “positioned,” “potential,” “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. The forward-looking statements also include assumptions about our proposed merger with Great Outdoors Group, LLC (“Great Outdoors Group”), a subsidiary of Great American Outdoors Group.

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:

● the potential impact of, and any potential developments related to, the pending merger with Great Outdoors Group, including the risk that the conditions to the consummation of the merger are not satisfied or waived, litigation challenging the merger, the impact on our stock price, business, financial condition and results of operations if the merger is not consummated, and the potential negative impact to our business and employee relationships due to the merger;

● current and future government regulations, in particular regulations relating to the sale of firearms and ammunition, which may impact the supply and demand for our products and our ability to conduct our business;

● the impact of COVID-19 pandemic and measures intended to reduce its spread on our operations;

● our retail-based business model which is impacted by general economic and market conditions and economic, market and financial uncertainties that may cause a decline in consumer spending;

● our concentration of stores in the Western United States which makes us susceptible to adverse conditions in this region, and could affect our sales and cause our operating results to suffer;

● the highly fragmented and competitive industry in which we operate and the potential for increased competition;

● changes in consumer demands, including regional preferences, which we may not be able to identify and respond to in a timely manner; and

● our entrance into new markets or operations in existing markets, which may not be successful.

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 “Part I. Item 1A. Risk Factors,” appearing in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this 10-Q, as such disclosures may be amended, supplemented or superseded from time to time by other reports we file with the

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Securities and Exchange Commission, 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-Q 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-Q 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SPORTSMAN’S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Amounts in Thousands, Except Per Share Data

(unaudited)

	May 1,		January 30,
	2021		2021
Assets
Current assets:
Cash	$	59,719	$	65,525
Accounts receivable, net		574		581
Merchandise inventories		287,077		243,434
Prepaid expenses and other		15,957		15,113
Total current assets		363,327		324,653
Operating lease right of use asset		239,407		235,262
Property and equipment, net		101,364		99,118
Goodwill		1,496		1,496
Definite lived intangibles, net		280		289
Total assets	$	705,874	$	660,818
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	113,045	$	77,441
Accrued expenses		108,116		109,056
Income taxes payable		7,872		4,917
Operating lease liability, current		36,386		36,014
Revolving line of credit		—		—
Current portion of long-term debt, net of discount and debt issuance costs		—		—
Total current liabilities		265,419		227,428
Long-term liabilities:
Long-term debt, net of discount, debt issuance costs, and current portion		—		—
Deferred income taxes		378		434
Operating lease liability, noncurrent		226,220		228,296
Total long-term liabilities		226,598		228,730
Total liabilities		492,017		456,158
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 20,000 shares authorized; 0 shares issued and outstanding		—		—
Common stock, $.01 par value; 100,000 shares authorized; 43,831 and 43,623 shares issued and outstanding, respectively		438		436
Additional paid-in capital		88,560		89,815
Accumulated earnings		124,859		114,409
Total stockholders' equity		213,857		204,660
Total liabilities and stockholders' equity	$	705,874	$	660,818

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SPORTSMAN'S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Amounts in Thousands Except Per Share Data

(unaudited)

	Thirteen Weeks Ended
	May 1,		May 2,
	2021		2020
Net sales	$	326,992	$	246,835
Cost of goods sold		222,945		172,061
Gross profit		104,047		74,774
Selling, general, and administrative expenses		90,419		75,219
Income (loss) from operations		13,628		(445)
Interest expense		226		1,534
Income (loss) before income taxes		13,402		(1,979)
Income tax expense (benefit)		2,952		(849)
Net income (loss)	$	10,450	$	(1,130)
Earnings (loss) per share:
Basic	$	0.24	$	(0.03)
Diluted	$	0.23	$	(0.03)
Weighted average shares outstanding:
Basic		43,690		43,327
Diluted		44,514		43,327

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SPORTSMAN'S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Amounts in Thousands

(unaudited)

For the Thirteen Weeks Ended May 1, 2021 and May 2, 2020
	Common Stock			Restricted nonvoting Common Stock			Additional paid-in- capital		Accumulated (deficit) earnings		Total stockholders' equity
	Shares	Amount		Shares	Amount		Amount		Amount		Amount
Balance at February 1, 2020	43,296	$	433	—	$	—	$	86,806	$	23,029	$	110,268
Vesting of restricted stock units	255		3	—		—		(3)		—		—
Payment of withholdings on restricted stock units	—		—	—		—		(689)		—		(689)
Stock based compensation	—		—	—		—		736		—		736
Net loss	—		—	—		—		—		(1,130)		(1,130)
Balance at May 2, 2020	43,551	$	436	—	$	—	$	86,850	$	21,899	$	109,185
Balance at January 30, 2021	43,623	$	436	—	$	—	$	89,815	$	114,409	$	204,660
Vesting of restricted stock units	208		2	—		—		(2)		—		—
Payment of withholdings on restricted stock units	—		—	—		—		(2,269)		—		(2,269)
Stock based compensation	—		—	—		—		1,016		—		1,016
Net income	—		—	—		—		—		10,450		10,450
Balance at May 1, 2021	43,831	$	438	—	$	—	$	88,560	$	124,859	$	213,857
​ The accompanying notes are an integral part of these condensed consolidated financial statements

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SPORTSMAN'S WAREHOUSE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in Thousands

(unaudited)

	Thirteen Weeks Ended
	May 1,		May 2,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	10,450	$	(1,130)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation of property and equipment		5,767		5,326
Amortization of deferred financing fees		66		84
Amortization of definite lived intangible		10		7
Loss on asset dispositions		—		803
Noncash lease expense		1,386		6,076
Deferred income taxes		(56)		2,962
Stock-based compensation		1,016		736
Change in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net		7		323
Operating lease liabilities		(7,235)		(7,321)
Merchandise inventories		(43,643)		(23,298)
Prepaid expenses and other		(910)		(2,270)
Accounts payable		34,128		46,645
Accrued expenses		(7,951)		6,090
Income taxes payable and receivable		2,955		(3,752)
Net cash (used in) provided by operating activities		(4,010)		31,281
Cash flows from investing activities:
Purchase of property and equipment, net of amounts acquired		(5,615)		(4,833)
Acquisition of Field and Stream stores, net of cash acquired		—		(1,024)
Net cash used in investing activities		(5,615)		(5,857)
Cash flows from financing activities:
Net payments on line of credit		—		2,345
Increase in book overdraft, net		6,088		(2,675)
Payment of withholdings on restricted stock units		(2,269)		(689)
Principal payments on long-term debt		—		(4,000)
Net cash provided by (used in) financing activities		3,819		(5,019)
Net change in cash		(5,806)		20,405
Cash at beginning of period		65,525		1,685
Cash at end of period	$	59,719	$	22,090
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	226	$	1,308
Income taxes, net of refunds		53		(59)
Supplemental schedule of noncash activities:
Noncash change in operating lease right of use asset and operating lease liabilities from	$	5,559	$	2,150
remeasurement of existing leases and addition of new leases
Purchases of property and equipment included in accounts payable and accrued expenses	$	4,285	$	661
Payable to seller relating to acquisition of Field and Stream stores	$	—	$	1,024

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SPORTSMAN’S WAREHOUSE HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Amounts reported in thousands, except per share data and store count data

(1) Description of Business and Basis of Presentation

Description of Business

Sportsman’s Warehouse Holdings, Inc. (“Holdings”) and its subsidiaries (collectively, the “Company”) operate retail sporting goods stores. As of May 1, 2021, the Company operated 112 stores in 27 states. The Company also operates an e-commerce platform at www.sportsmans.com. The Company’s stores and website are aggregated into one operating and reportable segment.

Basis of Presentation

The condensed consolidated financial statements included herein are unaudited and have been prepared by management of the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company’s condensed consolidated balance sheet as of January 30, 2021 was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments that are, in the opinion of management, necessary to summarize fairly our condensed consolidated financial statements for the periods presented. All of these adjustments are of a normal recurring nature. The results of the fiscal quarter ended May 1, 2021 are not necessarily indicative of the results to be obtained for the year ending January 29, 2022. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021 filed with the SEC on April 2, 2021 (the “Fiscal 2020 Form 10-K”).

Impact of COVID-19 Pandemic

During March 2020, the World Health Organization declared the rapidly growing coronavirus outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States. Beginning in March 2020, the Company reduced store hours to allow sufficient time to restock its shelves and perform additional cleaning, and the Company also limited the number of customers in its stores at any one time. During the second quarter of fiscal 2020, the Company returned to normal operating hours in each of its stores. The Company may again restrict the operations of its stores and its distribution facility if it deems this appropriate or if recommended or mandated by authorities.

(2) Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to the Company’s Fiscal 2020 Form 10-K. Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Inter-Bank Offered Rate (“LIBOR”) which is being phased out in 2021, to alternate reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. The provisions have impact as contract

8

modifications and other changes occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU. Management will continue its assessment and monitor regulatory developments during the LIBOR transition period.

(3) Revenue Recognition

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 credit for immaterial 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 reward 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.

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 3.5% 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.

Accounting Standards Codification (“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 50% when no escheat liability to relevant jurisdictions exists.

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We offer promotional financing and credit cards issued by a third-party bank that manages and directly extends credit to our customers. We provide a license to our brand and marketing services, and we facilitate credit applications in our stores and online. The banks are the sole owners of the accounts receivable generated under the program and, accordingly, we do not hold any customer receivables related to these programs and act as an agent in the financing transactions with customers. We are eligible to receive a profit share from certain of our banking partners based on the annual performance of their corresponding portfolio, and we receive monthly payments based on forecasts of full-year performance. This is a form of variable consideration. We record such profit share as revenue over time using the most likely amount method, which reflects the amount earned each month when it is determined that the likelihood of a significant revenue reversal is not probable, which is typically monthly. Profit-share payments occur monthly, shortly after the end of each program month.

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. The Company estimates a reserve for sales returns and records 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 May 1, 2021 and January 30, 2021:

	May 1, 2021		January 30, 2021
Right of return assets, which are included in prepaid expenses and other	$	2,004	$	2,940
Estimated gift card contract liability, net of breakage		(21,884)		(22,069)
Estimated loyalty contract liability, net of breakage		(12,630)		(12,131)
Sales return liabilities, which are included in accrued expenses		(2,991)		(4,388)

For the 13 weeks ended May 1, 2021, the Company recognized approximately $381 in gift card breakage and approximately $1,175 in loyalty reward breakage. For the 13 weeks ended May 2, 2020, the Company recognized approximately $276 in gift card breakage and approximately $555 in loyalty reward breakage. For the 13 weeks ended May 1, 2021, the Company recognized revenue of $7,721 relating to contract liabilities that existed at January 30, 2021.

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.

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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 the Company’s departments for the 13 weeks ended May 1, 2021 and May 2, 2020, was approximately:

		Thirteen Weeks Ended
		May 1,	May 2,
Department	Product Offerings	2021	2020
Camping	Backpacks, camp essentials, canoes and kayaks, coolers, outdoor cooking equipment, sleeping bags, tents and tools	11.3%	10.2%
Apparel	Camouflage, jackets, hats, outerwear, sportswear, technical gear and work wear	6.4%	4.4%
Fishing	Bait, electronics, fishing rods, flotation items, fly fishing, lines, lures, reels, tackle and small boats	11.5%	10.1%
Footwear	Hiking boots, socks, sport sandals, technical footwear, trail shoes, casual shoes, waders and work boots	6.1%	4.4%
Hunting and Shooting	Ammunition, archery items, ATV accessories, blinds and tree stands, decoys, firearms, reloading equipment and shooting gear	58.6%	65.6%
Optics, Electronics, Accessories, and Other	Gift items, GPS devices, knives, lighting, optics, two-way radios, and other license revenue, net of revenue discounts	6.1%	5.3%
Total		100.0%	100.0%

(4) Property and Equipment

Property and equipment as of May 1, 2021 and January 30, 2021 were as follows:

	May 1,		January 30,
	2021		2021
Furniture, fixtures, and equipment	$	99,318	$	96,085
Leasehold improvements		113,468		112,338
Construction in progress		6,283		2,614
Total property and equipment, gross		219,069		211,037
Less accumulated depreciation and amortization		(117,705)		(111,919)
Total property and equipment, net	$	101,364	$	99,118

(5) Accrued Expenses

Accrued expenses consisted of the following as of May 1, 2021 and January 30, 2021:

	May 1,		January 30,
	2021		2021
Book overdraft	$	19,534	$	13,445
Unearned revenue		39,202		38,454
Accrued payroll and related expenses		18,181		28,453
Sales and use tax payable		7,718		7,317
Accrued construction costs		1,261		339
Other		22,220		21,048
Total accrued expenses	$	108,116	$	109,056

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(6) Leases

At the inception of the lease, the Company’s operating leases have certain lease terms of up to 10 years, which typically includes multiple options for the Company to extend the lease which are not reasonably certain and as such are excluded from the measurement of the right of use asset and liability.

The Company determines whether a contract is or contains a lease at contract inception. As the rate implicit in the lease is not readily determinable in most of the Company’s leases, it uses its incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. The Company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The operating lease asset also includes any fixed lease payments made and includes lease incentives and incurred initial direct costs. Operating lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. The Company’s lease terms may include options to extend or terminate the lease. Additionally, the Company’s leases do not contain any material residual guarantees or material restrictive covenants.

In the 13 weeks ended May 1, 2021, the Company recorded a non-cash increase of $5,559 to the right of use assets and operating lease liabilities resulting from lease remeasurements from the exercise of lease extension options, acquired leases, and new leases added.

In accordance with ASC 842, total lease expense, including common area maintenance (“CAM”), recorded during the 13 weeks ended May 1, 2021 was $18,398. In accordance with ASC 842, total lease expense, including CAM, recorded during the 13 weeks ended May 2, 2020 was $16,547.

In accordance with ASC 842, other information related to leases was as follows:

	Thirteen Weeks Ended
	May 1,		May 2,
	2021		2020
Operating cash flows from operating leases	$	(14,561)	$	(13,464)
Cash paid for amounts included in the measurement of lease liabilities - operating leases		(14,561)		(13,464)
	As of May 1,		As of May 2,
	2021		2020
Right-of-use assets obtained in exchange for new or remeasured operating lease liabilities	$	5,559	$	5,352
Terminated right-of-use assets and liabilities		—		(3,202)
Weighted-average remaining lease term - operating leases		5.96		6.12
Weighted-average discount rate - operating leases		8.39%		8.03%

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In accordance with ASC 842, maturities of operating lease liabilities as of May 1, 2021 were as follows:

	Operating
Year Endings:	Leases
2021 (remainder)	$	44,324
2022		58,207
2023		53,256
2024		44,839
2025		38,279
Thereafter		145,146
Undiscounted cash flows	$	384,051
Reconciliation of lease liabilities:
Present values	$	262,606
Lease liabilities - current		36,386
Lease liabilities - noncurrent		226,220
Lease liabilities - total	$	262,606
Difference between undiscounted and discounted cash flows	$	121,445

(7) Revolving Line of Credit

On May 23, 2018, Sportsman’s Warehouse, Inc. (“SWI”), a wholly owned subsidiary of the Company, as lead 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, restated, supplemented or otherwise modified, the “Amended Credit Agreement”). The Amended Credit Agreement governs the Company’s senior secured revolving credit facility (“Revolving Line of Credit”) and a $40,000 term loan (the “Term Loan”).  The Revolving Line of Credit provides a borrowing capacity of up to $250,000, subject to a borrowing base calculation. The Term Loan was repaid in full during fiscal year 2020.

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 expenses and other.

As of both May 1, 2021, and January 30, 2021, the Company had $0 in outstanding revolving loans under the Revolving Line of Credit. Amounts outstanding are offset on the condensed consolidated balance sheets by amounts in depository accounts under lock-box or similar arrangements, which were $15,678 and $13,553 as of May 1, 2021 and January 30, 2021, respectively. As both of these periods had no remaining balance on the line of credit, these amounts were included in Cash as of May 1, 2021 and January 30, 2021. As of May 1, 2021, the Company had stand-by commercial letters of credit of $1,955 under the terms of the Revolving Line of Credit.

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 the Company to maintain a minimum availability at all times of not less than 10% of the gross borrowing base. The Amended Credit Agreement contains customary events of default. The Revolving Line of Credit matures on May 23, 2023.

As of May 1, 2021, the Revolving Line of Credit had $520 in deferred financing fees and as of January 30, 2021, the Revolving Line of Credit had $583 in deferred financing fees. During the 13 weeks ended May 1, 2021, the Company recognized $63 of non-cash interest expense with respect to the amortization of deferred financing fees. During the 13 weeks ended May 2, 2020, the Company recognized $66 of non-cash interest expense with respect to the amortization of deferred financing fees.

For the 13 weeks ended May 1, 2021, gross borrowings under the Revolving Line of Credit were $357,478. For the 13 weeks ended May 2, 2020 gross borrowing under the Revolving Line of Credit were $274,959. For the 13 weeks ended May 1, 2021, gross paydowns under the Revolving Line of Credit were $357,640. For the 13 weeks ended May 2, 2020, gross paydowns under the Revolving Line of Credit were $266,798.

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Restricted Net Assets

The provisions of 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 condensed consolidated balance sheet as of May 1, 2021, from being used to pay any dividends without prior written consent from the financial institutions party to the Company’s Revolving Line of Credit.

(8) Income Taxes

The Company recognized an income tax expense of $2,952 in the 13 weeks ended May 1, 2021 and an income tax benefit of $849 in the 13 weeks ended May 2, 2020. The Company’s effective tax rate for the 13 weeks ended May 1, 2021 and May 2, 2020 was 22.0% and 42.9%, respectively. The Company’s effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions.

(9) 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 income per common share:

	Thirteen Weeks Ended
		May 1,		May 2,
		2021		2020
Net income (loss)	$	10,450	$	(1,130)
Weighted-average shares of common stock outstanding:
Basic		43,690		43,327
Dilutive effect of common stock equivalents		824		—
Diluted		44,514		43,327
Basic earnings (loss) per share	$	0.24	$	(0.03)
Diluted earnings (loss) per share	$	0.23	$	(0.03)
Restricted stock units considered anti-dilutive and excluded in the calculation		1		6

(10) Stock-Based Compensation

Stock-Based Compensation

During the 13 weeks ended May 1, 2021 the Company recognized total stock-based compensation expense of $1,016. During the 13 weeks ended May 2, 2020 the Company recognized total stock-based compensation expense of $736. Compensation expense related to the Company's stock-based payment awards is recognized in selling, general, and administrative expenses in the condensed consolidated statements of operations.

Employee Stock Plans

As of May 1, 2021, the number of shares available for awards under the 2019 Performance Incentive Plan (the “2019 Plan”) was 2,202. As of May 1, 2021, there were 1,267 unvested stock awards outstanding under the 2019 Plan. As of January 30, 2021, due to the pending merger with the Great Outdoors Group, the Company has discontinued the ESPP program in accordance with the plan document.

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Employee Stock Purchase Plan

The Company also has an Employee Stock Purchase Plan (“ESPP”) that was approved by shareholders in fiscal year 2015, under which 800 shares of common stock have been authorized. For the 13 weeks ended May 1, 2021, no shares were issued under the ESPP and, as of May 1, 2021, the number of shares available for issuance was 374.

Nonvested Performance-Based Stock Awards

During the 13 weeks ended May 1, 2021, the Company did not issue any nonvested performance-based stock awards.

During the 13 weeks ended May 2, 2020, the Company issued 198 nonvested performance-based stock awards to employees at a weighted average grant date fair value of $5.63 per share. The nonvested performance-based stock awards issued to employees vest in full on the third anniversary of the grant date. The number of shares issued is contingent on management achieving fiscal year 2020, 2021, and 2022 performance targets for total revenue growth and adjusted EPS. If minimum threshold performance targets are not achieved, no shares will vest. Based on the performance conditions met for fiscal year 2020, 396 shares were issued, which was the maximum number of shares subject to the award. Vesting of the shares earned are subject to the employees’ continued employment with the Company.

The following table sets forth the rollforward of outstanding nonvested performance-based stock awards (per share amounts are not in thousands):

		Weighted
		average
		grant-date
	Shares	fair value
Balance at January 30, 2021	624	$	5.13
Grants	—		—
Forfeitures	(13)		5.63
Vested	(22)		4.91
Balance at May 1, 2021	589	$	5.13
		Weighted
		average
		grant-date
	Shares	fair value
Balance at February 1, 2020	250	$	3.66
Grants	198		5.63
Forfeitures	—		—
Vested	—		—
Balance at May 2, 2020	448	$	4.53

Nonvested Stock Unit Awards

During the 13 weeks ended May 1, 2021, the Company issued 221 nonvested stock units to employees of the Company at an average value of $17.27 per share. 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 13 weeks ended May 2, 2020, the Company issued 382 nonvested stock units to employees of the Company at an average value of $5.63 per share. 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.

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The following table sets forth the rollforward of outstanding nonvested stock units (per share amounts are not in thousands):

		Weighted
		average
		grant-date
	Shares	fair value
Balance at January 30, 2021	779	$	5.19
Grants	221		17.27
Forfeitures	(18)		7.33
Vested	(303)		5.05
Balance at May 1, 2021	679	$	9.15
		Weighted
		average
		grant-date
	Shares	fair value
Balance at February 1, 2020	744	$	4.32
Grants	382		5.63
Forfeitures	(5)		4.89
Vested	(258)		4.36
Balance at May 2, 2020	863	$	4.90

(11) Commitments and Contingencies

Legal Matters

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.

Parsons v. Colt’s Manufacturing Company, 2:19-cv-01189-APG-EJY – On July 2, 2019 the estate and family of a victim of the Route 91 Harvest Festival shooting filed litigation against 16 defendants, one of which being a subsidiary of Sportsman’s Warehouse Holdings, Inc., for wrongful death and negligence. The Company believes the plaintiffs’ attempts to re-interpret the federal National Firearms Act and Gun Control Act are improper and intend to vigorously defend ourselves in the matter. No reasonable estimate of the amount of any potential losses or range of potential losses relating to this matter can be determined at this time.

TMS McCarthy, LP, Etc., Pltf. v. Sportsman’s Warehouse Southwest, Inc. Etc. Et Al., Dfts.- On June 23, 2020 TMS McCarthy, LP filed a complaint against Sportsman’s Warehouse Southwest, Inc., a wholly owned subsidiary of Sportsman’s Warehouse Holdings Inc., claiming the Company wrongfully terminated the lease relating to one of its stores. The Company believes the plaintiffs’ complaint is without merit based on the plain language of the lease at issue and on August 14, 2020 filed a counterclaim for declaratory relief. No reasonable estimate of the amount of any potential losses or range of potential losses relating to this matter can be determined at this time.

(12) Acquisition of Field and Stream Stores

On February 14, 2020, SWI, a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “2020-I Purchase Agreement”) with DICK’s Sporting Goods (“DICK’S”). Pursuant to the 2020-I Purchase Agreement, SWI agreed, subject to certain conditions, to acquire from DICK’S all cash, inventory, furniture, fixtures, and equipment, and certain other assets related to one Field & Stream store located in Kentucky and operated by DICK’S (the “2020-I Acquisition”). The acquisition of the 2020-I Acquisition closed on March 12, 2020 (the “2020-I Closing Date”). On the 2020-I Closing Date, SWI entered into a sublease with DICK’s with respect to the 2020-I Acquisition location. Pursuant to the 2020-I Purchase Agreement and in connection with closing of the acquisition, the parties also entered into a transition services agreement pursuant to which DICK’S provided transition services to the Company for a period of up to 120 days after the 2020-I Closing Date.

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The aggregate consideration paid to DICK’S under the 2020-I Purchase Agreement was $2,139 (the “2020-I Purchase Price”), subject to certain post-closing adjustments set forth in the 2020-I Purchase Agreement. On the 2020-I Closing Date, SWI drew $1,100 under the Revolving Line of Credit to fund a portion of the 2020-I Purchase Price. The remaining approximately $1,000 of consideration owed to DICK’S in connection with the acquisition was paid in June 2020.

On March 6, 2020, SWI, a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “2020-II Purchase Agreement”) with DICK’S. Pursuant to the 2020-II Purchase Agreement, SWI agreed, subject to certain conditions, to acquire from DICK’S all cash, inventory, furniture, fixtures, and equipment, and certain other assets related to one Field & Stream store located in Michigan and operated by DICK’S (the “2020-II Acquisition”). The 2020-II Acquisition closed on May 14, 2020 (the “2020-II Closing Date”). On the 2020-II Closing Date, SWI entered into a sublease with DICK’s with respect to the 2020-II Acquisition. Pursuant to the 2020-II Purchase Agreement and in connection with closing of the acquisition, the parties also entered into a transition services agreement related to the 2020-II Acquisition pursuant to which DICK’S provided transition services to the Company for a period of up to 120 days after the 2020-II Closing Date.

The aggregate consideration paid to DICK’S under the 2020-II Purchase Agreement was $2,411 (the “2020-II Purchase Price”), subject to certain post-closing adjustments set forth in the 2020-II Purchase Agreement. On the 2020-II Closing Date, SWI drew $1,317 under the Revolving Line of Credit to fund a portion of the 2020-II Purchase Price. The remaining approximately $1,100 of consideration owed to DICK’S in connection with the acquisition was paid in August 2020.

On September 16, 2020, SWI, a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “2020-III Purchase Agreement”) with DICK’S. Pursuant to the 2020-III Purchase Agreement, SWI agreed, subject to certain conditions, to acquire from DICK’S all cash, inventory, furniture, fixtures, and equipment, and certain other assets related to two Field & Stream stores located in South Carolina and Pennsylvania and operated by DICK’S (the “2020-III Acquisition”). The 2020-III Acquisition closed on October 8, 2020 (the “2020-III Closing Date”). On the 2020-III Closing Date, SWI entered into a sublease with DICK’s with respect to the locations. Pursuant to the 2020-III Purchase Agreement and in connection with closing of the acquisition, the parties also entered into a transition services agreement pursuant to which DICK’S will provide transition services to the Company for a period of up to 120 days after the 2020-III Closing Date.

The aggregate consideration paid to DICK’S under the 2020-III Purchase Agreement is $2,001, net of rent concessions and deferrals of $2,597 (the “2020-III Purchase Price”), and subject to certain post-closing adjustments set forth in the 2020-III Purchase Agreement. On the 2020-III Closing Date, SWI drew $226 under the Revolving Line of Credit to fund a portion of the 2020-III Purchase Price. The remaining approximately $1,774 of consideration owed to DICK’S in connection with the acquisition was paid in January 2021.

As part of the acquisitions that closed in 2020, the Company incurred legal, accounting, and other due diligence fees that were expensed as incurred. Total fees incurred for the three month ended May 2, 2020 were $29, which were included as a component of selling, general, and administrative expenses.

The acquired locations were in line with the seller’s intention to reduce its footprint in the hunting and firearms business, which resulted in a below fair value purchase price consideration shown in the tables below.

The following table summarizes the 2020-I Purchase Price consideration and related cash outflow at the 2020-I Closing Date:

		March 12, 2020
Cash paid to seller	$	1,075
Payable to seller		1,064
Total purchase price	$	2,139

The net 2020-I Purchase Price of $2,139 has been allocated to identifiable assets acquired based on their respective estimated fair values. No liabilities were assumed as part of the acquisition of the 2020-I Acquired Stores other than the lease obligation. The excess of the fair value over the 2020-I Purchase price of the tangible and intangible assets

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acquired is recorded as a bargain purchase. The following table summarizes the estimated fair value of the identifiable assets acquired and assumed liabilities as of the 2020-I Closing Date:

		March 12, 2020
Cash	$	10
Inventory		2,133
Property, plant, and equipment		892
Operating lease right of use asset		2,070
Operating lease right of use liability		(1,794)
Deferred tax liability		(314)
Bargain purchase		(858)
Total	$	2,139

The following table summarizes the 2020-II Purchase Price consideration and related cash outflow at the 2020-II Closing Date:

		May 14, 2020
Cash paid to seller	$	1,317
Payable to seller		1,094
Total purchase price	$	2,411

The net 2020-II Purchase Price of $2,411 has been allocated to identifiable assets acquired based on their respective estimated fair values. No liabilities were assumed as part of the acquisition of the 2020-II Acquired Stores other than the lease obligation. The excess of the fair value over the 2020-II Purchase Price of the tangible and intangible assets acquired is recorded as a bargain purchase. The following table summarizes the estimated fair value of the identifiable assets acquired and assumed liabilities as of the 2020-II Closing Date:

		May 14, 2020
Cash	$	18
Inventory		2,218
Property, plant, and equipment		375
Operating lease right of use asset		5,605
Operating lease right of use liability		(5,605)
Deferred tax liability		(53)
Bargain purchase		(147)
Total	$	2,411

The following table summarizes the 2020-III Purchase Price consideration and related cash outflow at the 2020-III Closing Date:

		October 8, 2020
Cash paid to seller	$	227
Payable to seller		1,774
Total purchase price	$	2,001

The net 2020-III Purchase Price of $2,001 has been allocated to identifiable assets acquired based on their respective estimated fair values. No liabilities were assumed as part of the acquisition of the 2020-III Acquired Stores other than the lease obligation. The excess of the fair value over the 2020-III Purchase Price of the tangible and intangible assets acquired is recorded as a bargain purchase. The following table summarizes the estimated fair value of the identifiable assets acquired and assumed liabilities as of the 2020-III Closing Date:

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		October 8, 2020
Cash	$	50
Inventory		3,515
Property, plant, and equipment		1,046
Operating lease right of use asset		9,534
Operating lease right of use liability		(10,508)
Deferred tax liability		(423)
Bargain purchase		(1,213)
Total	$	2,001

(13) Merger with Great Outdoors Group

On December 21, 2020, Sportsman’s Warehouse entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Great Outdoors Group, LLC, (“Great Outdoors Group”) and Phoenix Merger Sub I. Inc., (“Merger Subsidiary”). Pursuant to the terms and conditions set forth in the Merger Agreement, Merger Subsidiary will be merged with and into Sportsman’s Warehouse (the “Merger”), with Sportsman’s Warehouse continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of Great Outdoors Group. Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Sportsman’s Warehouse common stock, par value $0.01 per share (the “Shares”) outstanding immediately prior to the Effective Time (other than such Shares held by (i) Great Outdoors Group, Merger Subsidiary, or any other subsidiary of Great Outdoors Group, (ii) Sportsman’s Warehouse or its subsidiaries, as treasury stock or (iii) stockholders of Sportsman’s Warehouse who properly exercised their appraisal rights for such Shares under the Delaware General Corporation Law) will automatically be cancelled and converted into the right to receive $18.00 per Share in cash, without interest and less any applicable withholding taxes.

The Merger Agreement has been unanimously adopted by the board of directors of Sportsman’s Warehouse, and the stockholders of Sportsman’s Warehouse approved the Merger at the special stockholders meeting held on March 23, 2021. Completion of the Merger is subject to the satisfaction of several conditions, including: (i) the expiration or termination of any applicable waiting period (and any extensions thereof) relating to the Merger under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (ii) the absence of any order, injunction, or other judgment by any governmental authority of competent jurisdiction that enjoins or otherwise prohibits the consummation of the Merger; (iii) the accuracy of each party’s representations and warranties (subject to certain qualifications); (iv) each party’s performance in all material respects of its obligations contained in the Merger Agreement; and (v) the absence of a material adverse effect on Sportsman’s Warehouse.

Assuming receipt of required clearance pursuant to the HSR Act and timely satisfaction of other conditions to closing, we currently expect the closing of the Merger to occur in the second half of calendar year 2021.

er

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ITEM 2. 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 “Part I. Item 1A. Risk Factors” in our Fiscal 2020 Form 10-K. Also see “Statement Regarding Forward-Looking Statements” preceding Part I in this 10-Q.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this 10-Q.

Overview

We are an outdoor sporting goods retailer focused on meeting the everyday needs of the seasoned outdoor veteran, the first-time participant and everyone in between. Our mission is to provide outstanding gear and exceptional service to inspire outdoor memories.

Our business was founded in 1986 as a single retail store in Midvale, Utah. Today, we operate 112 stores in 27 states, totaling approximately 4.5 million gross square feet. We list the locations of our stores on our website, www.sportsmans.com. We also operate an e-commerce platform at www.sportsmans.com.

Our stores and our e-commerce platform are aggregated into one operating and reportable segment.

Recent Developments

Proposed Merger with Great Outdoors Group, Inc.

On December 21, 2020, Sportsman’s Warehouse entered into an Agreement and Plan of Merger  (the “Merger Agreement”) with Great Outdoors Group and Phoenix Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of Great Outdoors Group (“Merger Subsidiary”).  Pursuant to the terms and conditions set forth in the Merger Agreement, Merger Subsidiary will be merged with and into Sportsman’s Warehouse, with Sportsman’s Warehouse continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of Great Outdoors Group. Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Sportsman’s Warehouse common stock, par value $0.01 per share (the “Shares”) outstanding immediately prior to the Effective Time (other than such Shares held by (i) Great Outdoors Group, Merger Subsidiary, or any other subsidiary of Great Outdoors Group, (ii) Sportsman’s Warehouse or its subsidiaries, as treasury stock or (iii) stockholders of Sportsman’s Warehouse who properly exercised their appraisal rights for such Shares under the Delaware General Corporation Law) will automatically be cancelled and converted into the right to receive $18.00 per Share in cash, without interest and less any applicable withholding taxes.

The Merger Agreement has been unanimously adopted by the board of directors of Sportsman’s Warehouse, and the stockholders of Sportsman’s Warehouse approved the Merger at the special stockholders meeting held on March 23, 2021. Completion of the Merger is subject to the satisfaction of several conditions, including: (i) the expiration or termination of any applicable waiting period (and any extensions thereof) relating to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (ii) the absence of any order, injunction, or other judgment by any governmental authority of competent jurisdiction that enjoins or otherwise prohibits the consummation of the Merger; (iii) the accuracy of each party’s representations and warranties (subject to certain qualifications); (iv) each party’s performance in all material respects of its obligations contained in the Merger Agreement; and (v) the absence of a material adverse effect on Sportsman’s Warehouse.

Assuming receipt of required clearance pursuant to the HSR Act and timely satisfaction of other conditions to closing, we currently expect the closing of the Merger to occur in the second half of calendar year 2021. For more information on the Merger, see “Part I. Item 1. Business—Proposed Merger with Great Outdoor Groups, Inc.” and “Part I. Item 1A. Risk Factors—Risks Related to the Proposed Merger” in the Fiscal 2020 Form 10-K

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Update on Impact of COVID-19 Pandemic

Since mid-March of 2020 through the end of the first quarter 2021, the Company has experienced a significant increase in sales. A larger than normal portion of those sales has come from certain product categories, particularly firearms and ammunition.

The increased demand we have experienced since mid-March 2020 resulted in our net sales increasing by 32.5% to $327.0 million during the first quarter of 2021 compared to the first quarter of 2020. Further, our same store sales increased 24.1% during the first quarter of 2021 compared to the corresponding period of fiscal 2020. Gross profit increased to $104.0 million during the first quarter of 2021 compared to $74.8 million for the corresponding period of fiscal year 2020. As a percentage of net sales, gross profit increased to 31.8% for the first quarter of fiscal 2021 compared to 30.3% for the corresponding period of fiscal year 2020. As of the filing of this 10-Q, all of our 112 stores are open with no significant restrictions or limitations on their operations. In early fiscal year 2020, we were required to temporarily close four of our stores and significantly limit operations at eight other locations as a result of local and state regulations related to the COVID-19 pandemic. We have taken many actions and made numerous policy changes to adjust our operations in an effort to limit the spread of COVID-19, including requiring masks to be worn at our facilities, installing plastic barriers in stores, additional store and distribution center cleanings and implementing social distancing requirements, among others. Despite our efforts, we may be required to further restrict the operations of our stores and our distribution center if we deem this necessary or if recommended or mandated by authorities.

In addition, with respect to our supply chain, we continue to see some interruption with various vendors as a result of restrictions or limitations on their operations due to the pandemic. While our increase in sales shows a significant demand for firearms and ammunition during the pandemic that we believe is outpacing supply, we do not believe supply chain disruptions resulting from restrictions and limitations on supplier operations caused by the pandemic are resulting in significantly less supply and we are working closely with our vendors to limit such disruption.

While we have experienced increased sales, especially in our hunting and shooting category, since the beginning of the COVID-19 pandemic, we cannot predict the future impact on us of the COVID-19 outbreak. For instance, the impact of the pandemic on the general economy could impact consumer behavior and dampen discretionary spending. The future impact of the COVID-19 pandemic will depend on a number of future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread and severity of the COVID-19 outbreak, the resurgence of COVID-19, the effects of the outbreak on our customers and vendors and the remedial actions and stimulus measures adopted by local and federal governments.

For more detailed information on the potential impact of COVID-19 to our business, we refer you to Item 1A, Risk Factors, “The novel coronavirus (COVID-19) pandemic, efforts to mitigate or disrupt the pandemic and the related weak, or weakening of, economic or other negative conditions, have impacted our business, and could result in a material adverse effect on our operations, liquidity, financial condition and financial results.” in our Fiscal 2020 Form 10-K.

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 exclude sales from stores that were closed during the period from our same store sales calculation. We include net sales from e-commerce in our calculation of same store sales. Some of our competitors and

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other retailers may calculate same store 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:

● the impact of the COVID-19 pandemic;

● 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 and acquiring store locations is also an important part of our growth strategy. While our target is to grow square footage at a rate of greater than 8%-10% annually, we may deviate from this target if attractive opportunities are presented to open stores or acquire new store locations outside of our target growth rate.

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 include:

● increasing our total gross square footage by opening new stores or acquiring new store locations;

● continuing to increase 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

● expanding our omni-channel capabilities.

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 apparel and footwear, increasing foot traffic within our stores and traffic to our website, 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 margin. 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.

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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. Furthermore, 12 of our current stores are being impacted by minimum wage increases in fiscal year 2021 that have and will continue to drive up our selling, general, and administrative costs during fiscal year 2021.

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.”

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Results of Operations

The following table summarizes key components of our results of operations as a percentage of net sales for the periods indicated:

	Thirteen Weeks Ended
	May 1,	May 2,
	2021	2020
Percentage of net sales:
Net sales	100.0%	100.0%
Cost of goods sold	68.2	69.7
Gross profit	31.8	30.3
Selling, general, and administrative expenses	27.7	30.5
Income (loss) from operations	4.1	(0.2)
Interest expense	0.1	0.6
Income (loss) before income taxes	4.0	(0.8)
Income tax expense (benefit)	0.9	(0.3)
Net income (loss)	3.1%	(0.5)%
Adjusted EBITDA	7.2%	3.3%

The following table shows our sales during the periods presented by department:

		Thirteen Weeks Ended
		May 1,	May 2,
Department	Product Offerings	2021	2020
Camping	Backpacks, camp essentials, canoes and kayaks, coolers, outdoor cooking equipment, sleeping bags, tents and tools	11.3%	10.2%
Apparel	Camouflage, jackets, hats, outerwear, sportswear, technical gear and work wear	6.4%	4.4%
Fishing	Bait, electronics, fishing rods, flotation items, fly fishing, lines, lures, reels, tackle and small boats	11.5%	10.1%
Footwear	Hiking boots, socks, sport sandals, technical footwear, trail shoes, casual shoes, waders and work boots	6.1%	4.4%
Hunting and Shooting	Ammunition, archery items, ATV accessories, blinds and tree stands, decoys, firearms, reloading equipment and shooting gear	58.6%	65.6%
Optics, Electronics, Accessories, and Other	Gift items, GPS devices, knives, lighting, optics, two-way radios, and other license revenue, net of revenue discounts	6.1%	5.3%
Total		100.0%	100.0%

Thirteen Weeks Ended May 1, 2021 Compared to Thirteen Weeks Ended May 2, 2020

Net Sales. Net sales increased by $80.2 million, or 32.5%, to $327.0 million during the 13 weeks ended May 1, 2021 compared to $246.8 million in the corresponding period of fiscal year 2020. Our net sales increased due to a variety of reasons including; increased participation in outdoor activities, increased demand through our e-commerce platform, and demand driven by the change in consumer behavior associated with the COVID-19 pandemic. Stores that have been open for less than 12 months and were, therefore, not included in our same store sales, contributed $23.0 million to net sales. Same store sales increased by 24.1% for the 13 weeks ended May 1, 2021 compared to the comparable 13 week period of fiscal year 2020, primarily driven by increases in all of our departments.

All of our departments had increases in net sales for the 13 weeks ended May 1, 2021 compared to the corresponding period in fiscal year 2020, led by our hunting and shooting department with an increase in net sales of $29.5 million, or 18.2%. Our fishing, camping, apparel, footwear and optics, electronics, and accessories departments saw increases of $12.4 million, $11.7 million, $10.3 million, $9.0 million and $6.7 million, respectively, in the first quarter of fiscal year 2021 compared to the comparable 13-week period of fiscal year 2020 due to increased traffic within our stores and

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online. Within hunting, our firearm category saw an increase of $19.6 million or 28.4% and our ammunition category saw a decrease of $3.8 million or 6.5%, in the first quarter of fiscal year 2021 compared to the comparable 13-week period of fiscal year 2020. The decrease seen in the ammunition category is due to the lack of supply in the market as a result of supply chain disruptions caused by the COVID-19 pandemid and demand that is outpacing manufacturing capacity.

Each of our departments also had increases in same store sales, for the 13 weeks ended May 1, 2021. Our clothing, footwear, optics, electronics, and accessories, fishing, camping, and hunting departments had increases of 85.4%, 73.0%, 46.7%, 40.3%, 39.1% and 9.6%, respectively, for the first quarter of fiscal year 2021 compared to the comparable 13-week period of fiscal year 2020. We saw a substantial increase in same store sales for our clothing and footwear departments because of a significant change in consumer behavior as it relates to the purchasing of clothing and footwear in during the first quarter of 2021 compared to the first quarter of 2020. As of May 1, 2021, we had 105 stores included in our same store sales calculation.

Gross Profit. Gross profit increased to $104.0 million during the 13 weeks ended May 1, 2021 compared to $74.8 million for the corresponding period of fiscal year 2020 primarily as a result of increased sales. As a percentage of net sales, gross profit increased to 31.8% for the 13 weeks ended May 1, 2021, compared to 30.3% for the corresponding period of fiscal year 2020 due to a higher portion of our sales coming from our clothing and footwear categories, which tend to have better margins. Gross margin also increased due to volume incentives, and other adjustments. We expect a continued higher than normal proportion of revenue to come from firearms and ammunition, and a higher volume of sales to be conducted through our e-commerce platform. Both of these factors will continue to put downward pressure on gross margin which may be partially offset by improved product margins and increased sales in higher margin categories such as clothing and footwear.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased by $15.2 million, or 20.2%, to $90.4 million during the 13 weeks ended May 1, 2021 from $75.2 million for the comparable 13-week period of fiscal year 2020. This increase was primarily due to an increase in our payroll expense of $10.2 million, which was the result of opening 7 new stores since the end of the first quarter of fiscal year 2020, and minimum wage increases impacting 12 of our stores in fiscal year 2021. We also had increases in acquisition costs of $2.8 million due to costs relating to the pending merger with Great Outdoors Group, as well as increases in rent and other selling, general and administrative costs of $1.8 million, and $0.9 million, respectively, during the 13 weeks ended May 1, 2021 primarily related to the opening of 7 new stores since May 2, 2020. These increases were partially offset by a reduction in depreciation and pre-opening expenses of $0.4 million and $0.2 million, respectively, during the 13 weeks ended May 1, 2021. As a percentage of net sales, selling, general, and administrative expenses decreased to 27.8% of net sales in the first quarter of fiscal year 2021, compared to 30.5% of net sales in the first quarter of fiscal year 2020, primarily as a result of the significant increase in net sales we experienced in the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020.

Interest Expense. Interest expense decreased by $1.3 million, or 85.3%, to $0.2 million during the 13 weeks ended May 1, 2021 from $1.5 million for the comparable 13-week period of fiscal year 2020. Interest expense decreased primarily as a result of no debt balance during the first quarter of fiscal year 2021 compared to the first quarter of fiscal year 2020. The interest expense recorded during the 13 weeks ended May 1, 2021 consists of fees charged on the unused portion of our line of credit.

Income Taxes. We recognized income tax expense of $3.0 million compared to an income tax benefit of $0.8 million during the 13 weeks ended May 1, 2021 and May 2, 2020, respectively. Our effective tax rate for the 13 weeks ended May 1, 2021 and May 2, 2020 was 22.0% and 42.9%, respectively. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions.

Seasonality

Due to the openings of hunting season across the country and consumers’ holiday buying patterns, 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 sales volume and increased staffing in our stores. While we typically would expect our net sales to continue to reflect this seasonal pattern, we may not recognize higher sales

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volume in the third and fourth fiscal quarters of fiscal year 2021 because of the significant spike in sales as a result of the increased demand during the COVID-19 pandemic and other factors noted above.

The timing of our new retail store openings also may have an impact on our quarterly results. First, we incur certain non-recurring expenses related to opening each new retail store, which are expensed as they