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Sportsman's Guide Hits Its Stride

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By Matt Richey (TMF Matt)
July 29, 2003

Sportsman's Guide (Nasdaq: SGDE) has now fully turned the corner. A money-losing operation as recently as 2000, the value-priced outdoor-gear cataloguer has now become a lean, mean moneymaking machine.

Last night, the company announced second-quarter financial results that were outstanding in every regard. Sales of $38.0 million were up 8.9% from the year-ago quarter, representing the company's second-fastest quarterly growth rate in the past seven quarters. Driving this growth were strong Internet sales, up by 32.5% year over year. Internet sales, which are more profitable than the company's traditional catalog sales, now comprise 36.5% of Sportsman's Guide's total business.

Thanks largely to these highly profitable Internet sales, Sportsman's Guide was able to achieve higher gross margins and lower relative SG&A costs. That, in turn, led to an incredible 110% improvement in the company's operating profit for the quarter. All told, second earnings came in at $0.10 per share, besting analysts' expectations by two cents and marking year-over-year growth of 96%.

A healthy balance sheet confirmed the quality of these profits. The company's quarterly net income of $0.6 million was matched by a sequential increase in cash of about the same amount. That means free cash flow is tracking net income, which is always a positive sign. Sportsman's Guide ended the quarter with net cash of $11.5 million, or $2.19 per share.

These outstanding results have not escaped the market's notice. Over the past five months, Sportsman's Guide stock has appreciated by some 64% in anticipation of just such a performance. The stock's once screaming value has now turned into a price that's in the vicinity of fair value. At $13 per share, its P/E is 15 -- about right for a good niche retailer growing sales in the mid- to high-single digits.

Sportsman's Guide was highlighted in the inaugural issue of Tom Gardner's Motley Fool Hidden Gems, when the share price was under $10.

At time of publication, Matt Richey had no position in Sportsman's Guide.

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