Sporting goods retailer Sportsman's Warehouse's (NASDAQ:SPWH) third-quarter earnings report showed that fully embracing all aspects of the outdoor recreation market can be a winning combination.

While American Outdoor Brands, Dick's Sporting Goods (NYSE:DKS), and Vista Outdoor are all running away from firearms, Sportsman's Warehouse is deeply embracing them, and it's paying off in higher sales across all of its segments.

Man teaching a boy to shoot a rifle in the woods

Image source: Getty Images.

Across-the-board growth

Sportsman's Warehouse said third-quarter sales rose 8.7% to $242.5 million on a 4.8% increase in comparable-store sales, exceeding even the high end of management's guidance for a range of 1.5% to 4.5% growth for the period. Comps grew in every category of the retailer's operations, helping it record adjusted earnings of $0.25 per share, down $0.01 from the $0.26 per share it posted last year, but in line with analyst expectations.

Fishing was the standout segment in Q3, with sales rising 9%, followed by clothing at 8.3% and camping at 6.8%. While firearms and ammunition brought up the rear with a combined 4.9% gain, it was a healthy increase for an industry that has been in a three-year-long slump.

Firearms especially showed strength, with sales growing 3.9%, supported by an increase in the number of guns sold. The gun industry has been promotional to help lift itself out of the doldrums, and it's beginning to work. FBI data shows the number of criminal background checks performed on gun buyers has been running at double-digit growth rates over last year, even when adjusted for checks on concealed carry permits of existing gun owners. 

The FBI also said it performed nearly 203,000 background checks on Black Friday alone, the second-biggest day it's ever had behind Black Friday 2017. And even then this year only missed being the biggest by around 600 checks. That bodes well for Sportsman's Warehouse's next quarter, too.

An upcoming speed bump

The retailer did say that because Dick's Sporting Goods is distancing itself from firearms and selling the guns it has in inventory at a steep discount to clear out merchandise, it was creating headwinds for Sportsman's Warehouse. 

While President and CEO Jon Barker said he was happy with Sportsman's Warehouse's position in the industry long-term, "There are large competitors currently deemphasizing the hunting and shooting categories, creating short-term sales headwinds, which are reflected in our guidance."

That guidance now calls for the retailer to report full-year sales of $891 million to $901 million compared to its previous outlook of $866 million to $884 million, an increase of 2.4% at the midpoint. That's due to a combination of Sportsman's Warehouse's better third-quarter performance, the acquisition of eight Field & Stream stores from Dick's Sporting Goods, and the effects of Dick's walking away from guns.

However, Sportsman's Warehouse is also forecasting comps to come in between a decline of 2% and an increase of 1% because of the impact Dick's actions are having on the industry. If it's clearing out its merchandise at a discount, its smaller rival will potentially lose out on sales, no matter how disaffected gun buyers are with Dick's actions.

Even so, Sportsman's Warehouse is looking good for the long term because of its embrace of the firearms industry and the categories that line up adjacent to it, such as hunting apparel and camping. That latter segment, though, also got a boost from generator sales due to the California wildfires and the rolling blackouts the state's residents are enduring. 

Positioned for future growth

Sportsman's Warehouse previously announced that its acquisition of the Field & Stream stores indicated a return to its previous expansion program that had been put on hold as it sought to right its business and reduce its debt. As part of that renewed vigor for growth, the retailer said it was opening up a new concept store called Legacy Shooting Center, an indoor archery and shooting range. Its smaller square footage lets Sportsman's Warehouse test out a new format, one that could possibly become a blueprint for future stores.

The sporting goods outlet's third-quarter financial results show that servicing all aspects of the industry will be rewarded by sportsmen and women alike.

Sportsman's Warehouse will likely face some competitive headwinds in the fourth quarter, but with its stock trading at just 11 times estimated earnings and at a fraction of its sales and estimated long-term earnings growth rate, it is a business worth adding to your arsenal.

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