For the sake of good sportsmanship, let's be glad that The Sportsman's Guide (NASDAQ:SGDE) is pulling out of a proposed secondary offering of 2.5 million shares.
I'm not trying to be mean-spirited, and I don't want to deny a company its fiscal right to tap the equity market for capital. It's just that this is the last company that should be cranking up the stock-certificate-printing machine.
Over the past couple of years, the outdoor-gear specialist has been playing it loose when it comes to the granting of stock options. As Jim Mueller pointed out last month, the company's greedy proposals left it with just 4.7 million shares outstanding tied to enough stock options to dilute the company by 43%.
To make matters worse -- and the transfer of wealth from shareholders to insiders complete -- the company had also been buying back shares before filing for the secondary offering last month.
Bill Mann called the company out on the contradiction. Buying back shares while printing new ones is a pointless practice to begin with. Adding insult by having the company earmark so many new shares for itself through excessive options-granting borders on the ridiculous.
This isn't exactly a hot sector. Peers like Cabela's (NYSE:CAB) and Gander Mountain (NASDAQ:GMTN) went public last year and are trading lower today than they were back then. That's why when The Sportsman's Guide pulled its proposed stock offering this morning, blaming unfavorable market conditions, you have to believe it. Let's just hope it also means that a bit of clarity is seeping into the company.
The Sportsman's Guide also posted a minor tweak to its recent financials. Until now, the company's loyalty program -- which allowed shoppers to buy into its Buyer's Club in exchange for discounts throughout the year -- was accounted for as its members discounted their purchases. But after discussing the matter with the SEC, The Sportsman's Guide will treat the $29.95 purchases as a refundable service. In other words, that $29.95 will be recorded as revenue in four equal installments throughout the year. It's not a material adjustment when you look at the year as a whole, but it will make a difference on a quarterly basis.
The new approach to counting beans is the least of The Sportsman's Guide's concerns. This is certainly an interesting company. It has nearly doubled since being selected two years ago in our Motley Fool Hidden Gems newsletter. The problem is that all of that growth took place shortly after the stock was recommended. Lately, it hasn't been faring as well. It's not just that the thrifty are running off to Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) for their camping supplies: Quality outfits such as Dick's Sporting Goods (NYSE:DKS) are gaining market share in the selling of camping and hunting equipment.
The Sportsman's Guide has a lot to prove. This is a good start.
Some more campfire reading:
- Check out the current stocks that our Hidden Gems team is tracking. We'll give you a 30-day free trial subscription.
- Excessive stock options can sink even a well-run company.
- Take it from Bill Mann -- greed knows no bounds.
Longtime Fool contributor Rick Munarriz respects the great outdoors while fancying the air conditioning inside. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
