Q4 2019 Earnings Call
[music].
Greetings and welcome to the sports men's Wearhouse fourth quarter 2019 earnings conference call.
As time, all participants are in listen only mode.
Three questions and answers National Baltimore presentation.
If anyone should acquire operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
And I turn the conference over to your host Rachel Schacter, Oh I see our thank you you may begin.
Thank you with me on the call is Jon Parker, Chief Executive Officer, and Robert Julian Chief Financial Officer before we get started I would like to remind you become de safe Harbor language. It seems to make today will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, which includes statements regarding.
Our expectation about our future results of operations demand for our products and growth for industry.
Actual future results may differ materially from those two Justin in such statements due to a number of risks and uncertainties, including those described under the caption risk factors and the company's 10-K for the year ended February 2nd 2019, and the company's other filings made with US he see we've.
Also disclose Nongaap financial measures during today's call definitions of such non-GAAP measures as well as reconciliations to the most directly comparable GAAP financial measures are provided a supplemental financial information in our press release included as exhibit 99.1 to the form 8-K, we.
Furnished to the FCC today, which is also available on the Investor Relations section of our web site at investors that's fortunes dot com.
I would also like to know that today's materials, including earnings conference call present teacher, and which is also available at sports in Soc, Tom in the Investor Relations section of our website you can utilize the steps to follow along with today's prepared remarks, now I'd like to turn the call over to John Burkart, Chief Executive Officer.
<unk> of its fortunes warehouse.
Thank you Rachel good afternoon, everyone and thank you for joining us today.
Oh, you your family friends and colleagues are all well everyday it seems that cobot 19 reached a new milestones as such I'll begin my remarks by addressing the cold and 19 situation as it pertains to sports men's wearhouse.
I will then review the highlights of our fourth quarter and full year 2019 performance.
Can discuss key trends, we're seeing in our business.
I will also provide updates on our omni channel growth strategy.
Robert will then review our Q4 fiscal year 2019 financial results in more detail and provide a framework for how we are approaching Q1 and all your twentytwenty.
Finally, we will open up the call for questions.
I'm now on slide four of the presentation and will address the cobot 19 pandemic.
First and most importantly, our efforts are focused on protecting the health and safety of our associates customers and their families.
To this end we have instituted several changes to our store operations, including reduced store hours to allow for sufficient time to restock and perform additional cleaning limiting the number of customers in our stores at any one time to assist in social distancing protocols and leveraging our E com.
First capabilities like ship to home BOPUS and now curbside pickup.
As you're aware the situation remains fluid and we're closely monitoring new developments.
I want to share with you the business impacts we've seen so far with respect to our supply chain. We've seen some interruption out of China were primarily related to camping and fishing products.
We've not yet seen a significant financial impact due to these supply chain disruptions.
We're working closely with our vendors to limit this disruption, but we may not be able to fully mitigated its impact.
On the demand side, there are significant uncertainty on the duration and near term impact as it relates to weather stores will be able to remain open during this pandemic.
However, we are confident that everything we've done over the past few years has positions fortunes warehouse to capture significant market share in the long term.
Yeah.
Due to this unprecedented situation, we are not issuing guidance for either Q1 or fiscal year 2020 at this time, but I do want to share a few key points and trends.
Our business returned to normal uneven accelerated starting in early January as key competitors exited or de emphasize the firearms and ammunition categories.
We've experienced further acceleration of sales into Q1 2020.
We believe this is driven by fewer competitors in Greece increased demand from cobot 19 uncertainty and the current election cycle.
Although parsing out the exact contribution of each is not possible.
Well, we've seen significant increases in sales in the first quarter. So far this is likely not sustainable in the long term.
It goes in 19 pandemic May result in more store closings due to government regulations.
Substantial decrease in store traffic due to social distancing or a significant disruption in our supply chain.
But rest assured we're actively working on contingency plans and our managing our capital expenses and liquidity with great discipline given these uncertainties.
Now on slide five I'll review, our fourth quarter results, which exceeded the high end of our updated sales guidance and met the high end of our updated EPS guidance.
For the quarter net sales were $258 million or an increase of 6.4% compared to prior year. The sales growth was primarily driven primarily by three factors.
First we experienced strong firearm and ammunition sales in January 2nd we added 11, new stores during 2019, including eight field in stream stores acquired at the end up Q3, and third we've seen significant growth in sales generated by our website sportsmen dot com.
While same store sales decreased 4.8% in the fourth quarter. This performance was better than our out then our updated outlook.
Not only did business trends normalize in January they exceeded our updated expectations when Walmart completed the exit of certain ammunition categories and other competitors promotional behavior returned to normal we experienced market share gains now key categories of firearms and ammunition.
Also sales generated from our website increased 90% during the holiday season versus prior year.
This strong growth was driven by our expansive online assortment and scale, which provides us with the opportunity to bring products to market that no one else can deliver.
We're also seeing a significant increase in BOPUS orders and have made nice progress on rolling out ship from store for all relevant categories.
This.
Capability enables us to reduce shipping time to customers maximized customer choices online and successfully manage our long tail inventories.
Finally, our geographic reach is further enhance.
Our growing base of federal firearms license partners, which expanded to over 300 during the quarter when combined with our store footprint. We're now able to reached 90% of the U.S. population within a 45 minute drive.
Operating expenses for the quarter were slightly higher than anticipated due to additional marketing spend around the holiday season, and the new store openings. In addition, we de leveraged in operating expenses due to reduced sales during the three weeks leading up to Christmas.
Adjusted earnings per share were 21 cents for the fourth quarter, which met the high end of our updated guidance for full year 2019, net sales were $886 million or an increase of 4.4% and adjusting adjusted earnings per share were 47 cents.
Turning now to slide six we're committed to this industry and we'll continue to grow online and expand our physical store footprint.
While our national competitors are de emphasizing and or exiting firearms and ammunition.
We ended 2019 with 103 sports since warehouse stores and 27 States, we've already announced five new stores for 2020 and today, we are announcing two additional new stores for 2020.
Included in the seven total new stores there are two field stream locations located in Crescent Springs, Kentucky, and Kalamazoo, Michigan.
This brings us to a total of 10 field in stream stores acquired in 2019 and 2020.
As part of the seven new stores now announced we also secured two previous Gander stores, one and partner, Colorado that is already open and another which is a brand new announcement today and market, Michigan, which is planned to open this summer.
The second newest store announcement today is the planned opening of our first of all format concept shop, that's approximately 7500 square feet, which is located in Laramie Wyoming.
If successful this smaller store format could offer additional opportunities to penetrate underserved markets that couldn't support a larger format store.
We view this concept as an advantage over our national competitors, who build larger stores at higher costs.
In addition to the new sports men's Wearhouse stores. We recently opened our first indoor range and retail facility in West Jordan, Utah. This new retail concept and indoor range is branded legacy shooting center.
In summary is found on slide seven we're closely monitoring the cobot 19 situation in real time to protect the health and wellbeing of our associates, but we cannot only predict its impact on our business.
Notwithstanding notwithstanding kobin 19, we're very pleased with the momentum our core business as we begin fiscal 2020, and we remain focused on our growth initiatives.
Importantly, long term, we are uniquely positioned to capitalize on market share opportunities given our growing brand expanding store base and enhanced reached through E commerce.
We expect to report on Q1 2020 results in June.
With that I'll turn the call over to Robert to discuss our financial results in more detail.
Thank you John.
I'll begin my remarks today with a review of our fourth quarter in fiscal year 2019 results.
Followed by a few remarks about fiscal year 2020.
Most of the financial figures discussed on todays call are reported on a USGIF basis.
In the instances, where we report non-GAAP financial measures, we have reconciled the non-GAAP measures to the corresponding GAAP measures in our earnings press release, which was issued earlier today.
Turning to slide eight of the Powerpoint presentation fourth quarter 2019, net sales for $258.2 million compared to 242.7 million in the fourth quarter of 2018.
An increase of $15.5 million or 6.4%.
Same store sales decreased 4.8% in the quarter compared to our updated guidance range of negative 6% to negative 7%.
The most challenging product categories in Q4 were clothing camping and footwear.
However, our sales performance rebounded nicely starting in early January led by ammunition and firearms.
Same store sales of ammunition, and firearms increased 17.6% and 10.0% respectively in the month of January.
Overall same store sales growth in January was positive 1.7%.
Q4, 2019, gross profit was $85.0 million compared to 79.5 million in the fourth quarter of 2018.
An increase of $5.5 million or 6.9%.
Gross margin was relatively flat for the quarter at 32.9% versus 32.8% in their prior year period.
Product margin improved 80 basis points, primarily due to the discount we received on the inventory acquired in the acquisition of eight field and stream stores in Q3.
Gross margin was negatively impacted by 80 basis points in the quarter due to reduced vendor incentives at us as a result of lower total purchases.
SGN expensive $71.8 million for Q4, 2019 was an increase of $3.9 million or 14.9% compared to the fourth quarter of 2018.
We incurred additional payroll expense of $3.1 million, primarily due to minimum wage and benefit increases plus new store growth.
Rent expense increased approximately $2.8 million, primarily due to new store openings.
Other operating expense increased approximately $2.3 million, primarily due to incremental marketing software supports an audit fees store operating expense, including utilities janitorial and security expenses increased due to new store openings.
We also incurred zero point $5 million of incremental Preopening expenses and transaction costs associated with the field and stream transactions.
As a percentage of net sales SNA increased approximately 200 basis points to 27.8% in the quarter.
Income from operations was $13.2 million in Q4, 2019 compared to 17.0 million in the prior year.
Interest expense in Q4, 2019 was $1.4 million compared to 2.7 million in Q4 of 2018, a reduction of $1.3 million. This improvement as result of lower total borrowings primarily attributable to working capital improvements.
We recorded income tax expense of $2.1 million in Q4, 2019 compared to 3.7 million in Q4 2018.
This $1.3 million reduction is result of several discrete items impacting the Q4 2019 tax provision.
Including R&D tax credits state inventory tax credits and changes in state deferred tax rates.
Net income for the quarter was $9.7 million or 22 cents per share based on a weighted average share count of 43.3 million.
As compared to net income of $10.6 million or 25 cents per share based on a weighted average share count of 43.0 million in 2018.
Adjusted net income was $9.3 million or 21 cents per diluted share based on a diluted weighted average share count of 43.8 million in the fourth quarter 2019.
Compared to adjusted net income of $10.6 million are 25 cents per diluted share based on a diluted weighted average share kind of 43.1 million in 2018.
Adjusted EBITDA for the fourth quarter, 2019 was $19.6 million compared to 22.00 million in the prior year period.
Turning to slide nine I will not comment on our full year 2019 results.
Fiscal year 2019, net sales were $886.4 million compared to 849.1 million in 2018.
An increase of $37.3 million or 4.4%.
Same store sales decreases 0.9% in fiscal year 2019.
This compares to our updated full year guidance of negative 1.3% to negative 1.7% for the year.
We ended the fiscal year with 103 stores operating in 27 states.
Total square footage grew 13.6% in fiscal year 2019 compared to 2018.
Full year 2019, gross profit was to $96.6 million compared to 284.9 million in 2018, an increase of $11.7 million or 4.1%.
Gross margin was relatively flat at 33.5% versus 33.6% in the prior year period.
Product margin improved 30 basis points for the year, primarily due to the discount we received on the inventory purchased into Q3 acquisition of eight field and screen stores.
Gross margin was negatively impacted by 40 basis points for the year due to reduce vendor incentives as a result of lower total purchases.
SGN expensive to $63.2 million for fiscal year, 2019 was an increase of $22.3 million or 9.2% compared to 2018.
We incurred additional payroll expense of $8.3 million, primarily due to minimum wage and benefit increases plus new store growth.
Rent expense increased $5.8 million, primarily due to new store openings.
Other operating expense increased approximately $5.6 million, primarily due to incremental marketing software supports an audit fees.
Store operating expense increased due to new store openings.
We incurred $1.4 million of incremental Preopening expenses in transaction cost associated with associated with the acquired build a stream stores.
Depreciation expense increased $1.1 million into 2019 compared to prior year.
As a percentage of net sales SDMA increase approximately 130 basis points to 29.7%.
Income from operations was $33.5 million for fiscal year 2019, compared to 44.0 million in the prior period.
Interest expense for fiscal year, 2019 was $8.0 million compared to 13.2 million in 2018, our reduction of $5.2 million.
This improvement as a result of lower total borrowings primarily attributable to inventory reduction in other working capital improvements.
We recorded income tax expense of $5.3 million for fiscal year 2019, compared to 7.1 million in 2018.
The year over year reduction is primarily attributable to the discrete Q4 tax benefits addressed in my earlier remarks.
Net income for fiscal year, 2019 was $20.2 million or 47 cents per share based on a weighted average share count of 43.2 million.
As compared to net income of 23.7 million or 55 cents per share based on a weighted average share count of 42.9 million in 2018.
Adjusted net income was $20.6 million or 47 cents per share based on a diluted weighted average share count of 43.5 million in fiscal year 2019.
Compared to adjusted net income of $25.9 million or 60 cents per share based on a diluted weighted average share kind of 43.0 million in 2018.
Adjusted EBITDA for fiscal year, 2019 was $59.0 million compared to 68.5 million in the prior year.
Turning now to slide 10 in our balance sheet.
Fiscal year 2019, ending inventory was $276 million compared to 277 million at the end of last year, a $1 million reduction.
This result was achieved despite adding 11 new stores in 2019.
On a per store basis inventory was down 11.0% compared to prior year.
We incurred $7.5 million of capital expenditures in the fourth quarter of 2019 compared to 2.7 million in Q4, 2018, an increase of $4.8 million.
This increase was primarily associated with the Buildout of our new corporate headquarters and our new legacy shooting Center.
Full year 2019 capital expenditures were $20.9 million compared to $17.9 million in 2018.
Fiscal year 2019, operating cash flow was $77.9 million versus $32.2 million for 2018.
The 45.8 million dollar improvement in operating cash flow year over year is primarily due to a reduction in working capital.
Our liquidity remains strong as we ended the year with $116.1 million in outstanding borrowings on the line of credit.
And approximately $44.3 million availability on the revolving credit facility.
The outstanding balance on our revolving line of credit was $20.2 million lower at the end of 2019 compared to the same period last year.
EBIT, while utilizing this facility to fund the acquisition of eight Newfield and stream stores in Q3 2019.
The outstanding balance on our long term debt was $29.7 million at the end of fiscal year 2019, compared to 35.6 million at year end 2018, a reduction of $5.9 million.
Finally, I'd like to make a few comments on fiscal year 2020.
As John noted in his remarks, we're not providing forward guidance at this time due to uncertainty surrounding the impact of the co bid 19 pandemic.
In the short term, we have certainly experienced unusually high demand for many of our products, including generators dehydrated food water filtration propane first aid supplies firearms and ammunition.
Most of our stores remain open at this time, so that we can provide our customers access to these essential items.
However, we recognize that this situation is fluid it could change very rapidly.
Therefore, we are also actively developing contingency plans and manage our cash inventory expenses and liquidity very closely.
We feel confident that we have sufficient financial flexibility to weather the potential for negative impact to our business in the future due to coven 19.
We will update you again and hope to provide more clarity on our next earnings call in June.
With that I will now turn the call back over to the operator for questions.
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Okay.
First question hears from Brian signal from Craig Hallum. Please go ahead.
Good afternoon, guys and thanks for taking your question.
Got you mentioned significant sales growth quarter to date as.
As was.
Later mentioning a bunch of categories, our Robert we able to quantify what same store sales and E. Commerce performance was covered it in Q1.
Ryan Thanks, Thank you for the question.
What I can say as we've seen unprecedented demand in our stores.
Quarter to date for the products that.
Robert mentioned the last few weeks has caused us to take a lot of actions within our stores to service as many of our loyal customers. We can given the significant demand for those products. We've turned off all of our third party shipping to third party partners to protect customers in our.
Stores, we've limited firearms and ammunition quantities per customer per day to meet those needs.
We've taken.
Some of the product that was ship to home.
Off of our website and made it to ship to store only and in a handful of stores Ryan we're unable to us.
Serve customers directly.
We are using our website to do.
Curbside pickup.
Where necessary so we're not providing exact numbers today, but I. We can tell you that has been unprecedented demand we've seen.
So far quarter to date in certain categories.
Okay.
And then maybe from a supply chain you mentioned some stuff coming from China, but what do you see in from the major gun and ammo manufacturers are organized the different I guess why are you eliminate purchases of those is that a demand or supply issue constraint.
US Ed began as a demand issue primarily now as we look at the supply chain, we have a mix of activity happening across the manufacturers and I'm speaking of the US based manufacturers, we have some manufacturing and distribution facilities that has been impacted by a limitation.
Of.
Operating by government requirements, we've had some factories that are on reduced output due to attendance and we have a few factories that are out putting more than they have in many years as they've ramped up it's really a mix I would tell you a most of our manufacture.
Yours.
Have been able to ramp up production and keep up.
But this is a fluid situation, which we are.
Keeping an eye on the flow of new product in these key categories and again. This is not just firearms and ammunition, but I'll call. It primarily firearms and ammunition is happening in our DC. We've had good attendance in our DC good throughput.
The trucks or are arriving.
With that product and we're re disbursing those out to the store.
So were.
Optimistic that the manufacturers can keep up with this.
Our position and market share that we have already Ryan has given us the ability to work with these vendors for many years they had forecast from us and as we saw demand ramp up we're having top to top conversations on a regular basis to ensure that we can secure as much.
Inventory as possible to service many of the sports fans warehouse loyal customers as we can.
Okay.
In Q.
One more premium that I'll turn it over to be others see acquired four stores from field and stream and Gander out appeared to be had a nice discount, but anything you can share both the terms.
Those deals and then potentially acquire anymore those stores from them.
Yes, so Ryan this is Robert.
The two stores that we acquired the two field and stream stores that we acquired were very similar deals. So the first date.
So we did receive a discount on inventory in this case it was a little bit less than in the previous transaction.
We did acquire the assets of those locations for very little.
Investment.
And so the deal did that transaction was very similar to the first eight.
All of the Gander began to are now we referenced the gander as facilities that were gander, they weren't necessarily a purchase agreement that was more of a real estate opportunity one in Parker, Colorado.
Which on the front range of fantastic fit for US It has a larger store it is open and operating.
The other one I referenced which we are announcing today is Marquette, Michigan that with a gander store that's been closed.
We've come to terms with the landlord and our opening that later in the year and.
Northern Michigan. So those deals are a little different were not acquiring inventory and they were not an asset base more of a real today right, a little Asia and smoke real estate play from a gander thats been exited at some point in the last few months or last couple of years.
Got it got it thanks, guys. Congrats on a solid finished the quarter from quarter to date.
Thanks, Ron.
Your next question is from Peter Keith from Piper Sandler We'd go ahead.
Hi, good afternoon, everyone that thanks for taking my questions.
So John and Robert It sounds like you don't want to give us a quarter todays same store sales, but I guess you did characterized it as on precedent to that I think if we go back.
To.
Certain quarters around late 2012, you guys.
At that time did post same store sales I think of around 40% or higher.
Talking about there there's a new.
Quarter today would be above that level as for unprecedented.
Hi.
Peter Thanks for question.
I don't I don't not familiar with those types of.
Same store growth rates, the 40% that you're referencing I can tell you did have some of the products that.
I mentioned earlier in terms of growth rate some of them are growing double digits. There our product categories that are actually growing in triple digits.
The only reason why were reluctant to give the quarter to date number is just how fluid this situation and it can change very quickly.
We'd be a little bit concerned about over exuberance, I guess I would say.
But we are seeing very very didnt.
It's also wondered reasons, where we're not giving guidance, we can give such a large range for an expectation I mean, if our stores were closed down for the rest of the quarter, we could actually see negative same store sales growth in the quarter. If things continue the way. They are at we can see significant double digit same store.
Sales growth in the quarter. So it's just such a fluid.
Situation, we feel like giving specific quarter to date.
Information might be misleading are not particularly helpful. Yes, it's a much different situation Peter than 2012 or 2013.
Those were specific events, driven or political events were driven to certain categories because of concerns of regulatory.
As a different dynamic in the consumers mine.
We are seeing categories again up double triple digits that we would not have seen in 2012 or 13, they're just not it's not the same.
Need from Rick consumer standpoint, what I can tell you is that.
We are bringing a lot of net new consumers into sports men's wearhouse looking for goods.
Not just firearms and ammunition, but there are a lot of new customers seeking personal protection around hand guns, and ammunition pepper spray and bear sprint.
And we believe that and the long term will be good for the industry in sports as well.
Okay. Thanks that actually does address another question I want to ask brand new quite a new customers.
So it sounds like that's trending pretty well.
Curious how.
The new a credit card offering is participating in this environment are you able to cross sell that and getting up uptick of new applicants.
We are Peter we're we're in the I'll call. It the fourth quarter of the integration of that program into our technology at the point of sale and the website the training on the marketing materials or make we're making good progress the.
Acceptance rate from the provider is exceeding our initial expectations were pleased with performance to the state we are bringing a lot as I said new customers in sports men's wearhouse being introduced to the brand in our consumer our employees and getting a lot of new customers into our overall loyalty data.
So we're pleased with performance we've seen.
To date.
Okay, and maybe lastly, just sort of mixing it all together I think a lot of the categories, you're calling out strength might be on average a little bit lower margin.
It just fair to say, maybe that mix will pressure gross margin quarter today, but as it very simple to say that last year from a gross profit dollar standpoint that the growth is also quite strong.
Yes, so Peter Thats correct.
We are mixing into products fit.
Gross margin is lower than our company average and so we're seeing a mix effect to for that and it could be.
Fairly significant it could be a 100 to 150 basis points pressure.
Gross margin and so.
In some ways. It's if you could wash to some degree on the gross profit line that we can see higher revenue, but sort of similar gross profit dollars.
Had this event not occurred and we had not seen a shift in mix at least into short term, we don't expect that our mix will continue.
At this level of being so heavy in firearms ammunition in the long run but in the short run that is certainly a dynamic we're seeing into Q1 results. So far of Robert if I may add.
We are we have made incredible strides in our organization over the last year getting our inventory held in great shape and as we exited 2019, our clearance event in January on apparel is actually much smaller than had been in prior years, because we were at a healthier sets of inventory. We've also done a great.
Job and partnering with our vendors and make sure terms and first cost of goods are in place and every category and this every department our category. In this company is up individually and margin product margin, so far quarter to date, but the heavy mix into the categories, we referenced and away from say things such as footwear.
In apparel will put pressure on the overall product margin in the short term so really proud of what the team has done over the last year to put us in this position.
They have all categories up and product margin mix is certainly going to be different than we would have ever forecasted going in to Q1.
Yes, I'm glad you brought that up every product category is actually experiencing expansion.
On a rate basis.
Across our portfolio and so we're going to have positive product margin and negative mix and more or less that might be a wash on a rate basis overall.
Okay, that's great detail I appreciate the insights and good luck.
Thanks Peter.
Next question here are some Peter Benedict from Robert W. Baird. Please go ahead.
Hi, guys. Thanks.
As for taking the question.
First question just can you guys remind us what the store staffing model looks like.
At this point for sportsmen, maybe the number of employees for store just how is it generally structured and how are you thinking about that pay plans for the for the employees, where they I guess you have enhance all the stores that are close not many.
But in the event that you have more closed what's what's the thought process there.
Yes, hi level, Peter our stores vary from 15000 square feet actually 2500 square feet now with legacy all the way up to 65000 square feet. So the quantity of associates varies wildly from call it tennis to probably over 60 or 70 in our larger stores, which have a fairly high percentage of.
As employees that are part time help us balance to the demand cycle throughout the weekend the month.
Right now we are evaluating all of the options in front of us on the compensation as you referenced it I believe that some of the government programs are coming to greater clarity for us and that will help us build on develop our.
Execution plan around that.
Okay. That's helpful. Thank you.
I guess my next question would be just talked about liquidity position, the 46 million revised the revolver terms.
I know the availabilities still over 40 million right now I think it was over 70 again those third quarter. So just remind us Robert maybe how that how that how that sets up and the what the covenants are et cetera. Thanks.
Yes, sure and I'm glad you brought that up Peter Bob The current availability, we just reported availability at the end of Q4 2019 and on a normal seasonal basis that would be a low point for us and I can tell you, we're calculating liquidity and availability.
On our line about every day and as of today, our availability would be about $82 million. So that's just normal seasonality and so you saw a little bit of a lower number or kind of a depressed number just on normal seasonality. So our availability assets as we speak as back up.
Two over $80 million so.
Our facility as a revolving line of credit that has a maximum amounts of $250 million.
And then we had a term loan of $40 million that we have been paying down and we mentioned what the balance of that was at the end of 2019 I.
I would say that.
The big.
The structure the debt covenants.
I would describe as covenant lite, there's a series of affirmative covenants and some negative covenants in on the affirmative side, it's very simple things like financial reporting and providing notice of certain events, allowing for the inspections of our books and records compliance with laws and so on.
On the negative covenant side, we're not allowed the to incur additional liens are to make certain types of investments are the close or liquidate stores or our assets are to pay dividends.
And that's pretty much yet.
Relative to the covenants, so so quite light actually.
Okay. That's that's helpful. Thanks, and then I guess my last question just can you talk about the Capex budget for the year I know, you're not giving guidance. So maybe you could give us a sense for what's already committed this year in terms of capital spend.
That would be helpful. Thank you.
Yes, it we I would say that use we should expect sorta normal capital expenditures and this year. It's some of it is associated with the new store growth and so we've already announced seven new stores. There is some basic maintenance capex.
But if you want to consider that committed you know, it's just something that happens naturally and we have some flexibility on that.
Frankly, we've had some deferred maintenance capex and maybe we will choose to.
To defer some in 2020 as we monitor to situation.
But sort of as due to our Capex. This year was about $20 million that that's a normal ish sort of level of capex, we might have a little more than that in 2020, if things progress in up in a positive way or we may cut back on capital, but Thats a general range.
To get to your question if I may for Peter gift to if things were to drastically change because of carbon 19 in our business and we have a we have the ability to significantly ratchet back on capital in that plant.
The stores that were opening are committed to.
Are much lower per unit and capital expense and Stuart currently event, partially because of build stream, partially because of the gander stores were already pretty much physically laid out we would lay them out so.
The maintenance Capex, we have in the plan could be deferred and wouldn't be deferred and our new DC, which is part of this year's capital plan for opening in 2020 would or could be it would open in 21, we would start spending capital in this year those things that we have some flexibility as we would progress and understand whether or not.
Cobot 19 would have a material impact on the economy and on sports as well.
Okay terrific alright, thanks, so much guys. Good luck.
Peter One thing, though I'll mention is.
One of our analysts which will go on named did an analysis recently about.
Total availability in fixed monthly cash expenses and I would say.
It was done pretty well it was pretty accurate in so I would confirm.
That analysis.
Next question here soon Daniel Hofkin from William Blair. Please go ahead.
Good afternoon.
Nice job.
Doing well just.
I wanted to follow up on something earlier and I missed a little bit of calls so I apologize. If this was asked already but.
To the degree that obviously you've had extremely strong recent results.
To the degree that that.
Reverses for whatever reason or you have to close more stores can you. In addition to the covenants, which I think you discussed.
Just some of the other expense structure limitations fixed versus variable and then on the flip side.
What in terms of store Labor Hi, you can flex up.
You know if needed thank you.
Yes. So Daniel this is Roberts and I was just making reference to an analysis about what would be considered our fixed cash expenses in into one caveat to that.
Is that analysis does not assume.
Any further actions or any levers that could be pull relative to our payroll or our occupancy expense rents cam and so on.
And then if you include our cash interest and other sort of minimum.
Capital expenditures.
It is accurate data that fixed cash burn is probably $18 million to $20 million a month for us.
Again, with a caveat of us not taking other.
More extreme are further actions.
And so we feel pretty good about our financial flexibility to be able to weather.
The potential for negative impact of Tobin 19 in our business and so there was analysis and analysis. It said, what if you had a shutdown all your stores for some period of time and that would suggest that we have at least four months of liquidity based on that analysis and without taking further actions. However, I would.
Also mentioned recognizing that this could change very quickly the vast majority of our stores are open only a handful of stores have been impacted in many cases governments have identified our business as essential.
And not just because of hand guns and ammunition, there's a whole variety of products that I had mentioned in my prepared comments generators in dehydrated of food and propane and so on.
We feel makes our business essential even in cases, where other.
Companies are being closed.
So I hope that answers your question in terms of the worst case scenario shutting down stores and in kind of how we're viewing that as a potential our possibility.
Yes, Thats very helpful and I guess, maybe on the flip side asset sales or to remain stronger I think you addressed this a little bit earlier, but anything besides staffing or other things on the supply chain basis that you can do.
Hi, if sales order remain above your prior expectations.
Yes, I think we feel like we're in good shape in that regard it's interesting we referred.
Some anecdotal.
The stories about.
Companies, who are hiring during this time, whether its amazon or Wal Mart, and so on and I think that.
It is with regards to staffing it is possible that.
That would be available to us maybe there would be folks should be looking for work.
So on the staffing side I think we feel good on the supply chain side again, I think we feel like things are getting back to normal there might be a little gap in the supply chain chain for the time this the China.
Factories were shut down, but our understanding is that starting to flow again.
Maybe there'll be some issues that supports.
On loading those ships and so on for some period of time, but net net we feel like we would be able to.
Meet our customer needs and have the supply chain flowing and then in enough labor.
To to.
Take advantage in to service our customers.
I can tell you Dan to the point of hiring we had a few rolls were hiring for the DC and with 500 applicants the DC in less than 48 hours.
With no marketing.
Here in Salt Lake and historically that could be weeks of work and marketing and recruiting to get 500 applicants and for our DC. So theres clearly a.
On unemployment.
Ramp up that's happening and we are in need of a few people here and there and we believe we're positioned 12.
To fill those roles.
They become available.
Great very helpful Best of luck.
Brought all of us.
Thanks and Daniel.
Your next question is from Mark Smith from Lake Street Capital markets. Please go ahead.
Hi, guys, sorry, if I missed this but can you.
Quantify or talk more about the impact on gross profit margin from those eight field <unk> stream stores and the the inventory and what you paid for how that impacted the quarter.
Yes, so we talked about the ER, we disclosed at the time that we purchase Jose field and stream stores that we bought the inventory for 88 cents on the dollar.
It had a marginal impact to gross margin in Q3, only because of those stores only operated for a week or two in growth in Q3, we had a full quarters worth of selling that discount and inventory in Q4 and it in had the impact of lifting our.
Our gross margin percent by about 80 basis points in Q4 on a full year basis, which is really basically just Q4 over the full year is the lift was about 30 basis points on the full year.
Okay and to that were recently acquired do you expect have similar type of impact at least on maybe on a dollar dissipate.
For that inventory.
A smaller a little bit of a smaller impact only two stores now instead of eight the discount was more like 8% instead of 12%.
And so as not as large have an impact over especially overall on the on the total gross margin of the business is maybe hard to harder to define.
In into totals.
Okay, and then can you give us can you quantify a little bit more kind of E commerce mix in Q4.
Maybe talk about how that trended in Q1, and then if you can talk at all about it you know maybe what you saw.
Three shutting down some of the online ammo sales and how ammo typically mixes as a percent of recall.
Okay, Hey markets, John I'll give you a high level if I can on that we last time, we disclosed sales from our website at believe is 2017 full year was about 1.7%.
I'm committed to discuss to investors that we would be at 10% of sales in 2021, that's next year.
Not your end, but next year I'm still very confident in that 10%.
We did discuss I believe and a couple of sets materials that during the holiday shopping season. This past year as we sell consumer behavior change materially or even in a greater away from us away from stores, we saw web site sales.
Grow over 90% year over year.
Some of that was maturity the web site and the team, but it was also an improved shopping experience and a change in consumer buying behavior.
Okay.
Try to give you some color on what we've seen in Q1, we started out Q1 normal operating plan.
Expecting some nice lift from the exit of the category by Walmart and deemphasizing by others.
We were seeing great trends at the beginning of the quarter and within a few days, we saw such unprecedented run and demand for ammo, we actually had to turn it off from the website.
So if you find any ammo on the website it will probably be unique to a store what we are not shipping any ammunition to home.
We started then limiting ammunition in the stores and I believe today, we're at two boxes maximum per day per person.
Thats.
Still under review as to whether that needs to be pulled back even greater to serve as many customers can so I don't believe that any numbers first of all we're not going to provide breakouts of E. Com that's not in our plan.
To provide that our weather basis, and any data I would provide you mark as anecdotal in Q1.
As likely not a good baseline to consider the numbers just arts.
What I would consider sustainable in any business.
As a growth Johnson.
Okay in the brings up a good point as we look at at the current situation in demand for firearms and ammunition and we compared to 2012.
Into 2013, you. This one seems to be led maybe more so by ammunition, you've recently talked about during holiday season how.
Here's discounting ammunition, that's really like milk in a grocery store for you guys.
As we're seeing high demand for ammunition and traffic and stores are you starting to see what we saw.
Previously kind of the last go around with ammunition people showing up daily or weekly looking for when that truck showed up.
Constantly checking in on the stores looking for new supplies of animal.
Yes, Mark I think that generally I would say that's accurate there are some different dynamics happening now because it cobot 19 work, we're doing social distancing.
In all stores, we're doing appointment based delivery of firearms in certain stores. So there is a all caught a backlog of physical backlog in most near the nearly every store every day. So from a visual it's hard for me to say that aligns our longer or shorter than they were in two days.
Sales in 12 or 13 to your point, though customers are calling daily to find out what ammunition is available and what personal protection firearms, specifically handgun shotguns are available. We are we are dealing with that.
Hundreds and hundreds of call today trying to make sure we serve as many customers as we can so from that perspective, we are trying to manage expectations for our customers. So we don't have every Thursday 200 people waiting on ammo delivery, we are parsing that out in each store to make sure we serve as many.
Customers.
With good service as we can each day.
Okay and then last from go have yeah, I was just kind of say our goal and again.
Our goal is to make sure that in the long run we have consistent flow goods as consistent we can serve as many customers as we can make sure that they become retain customers in the long run manage our pricing in our margin to our everyday low price, which is always been the value proposition of this company.
Okay.
And that works.
Well every day of the year.
In today's environment I'm sure, there's some customers of which we have more ammo and don't understand why we don't have more firearms, arriving daily but behind the scenes. Our goal is to get this flowing every day and keep it flowing everyday.
Okay, and then last one from me just looking for an update do we still just have I believe it was four stores earlier. This week that were kind of permanently closed has there been any change in the last 24 hours or any expectations. As you look at certain geographies over the next couple of days that you expect to be close.
Mark.
It's hard to test to say and I'll give you a couple of examples.
We've had situations, where we've had government.
Authorities coming in shuts down and then two days later government authorities come back and open us up and Thats just happening in Fresno, They shut us down two days ago and now I think this morning, they've come back and said theyre going to allow us to operate.
So we you are right we have call. It a handful of stores to three I think we have three or four stores Mark maybe five that were not operating at all we have two or three or four stores, where we're doing appointment only pick up.
Hey every store is on reduced hours for a couple of reasons. One has to make sure we can clean and restock that store before and after and to make sure we can staff at appropriately.
To your point, though I think we should expect store more stores could close more stores could reopen everyday we have a task force everyday that meets twice a day morning, and night to review the activities by region by County by State by City and as you know every one of these 106 local.
Patients we have now that are operating at unique.
Elements about their approach to retail their approach to essential their approach to firearms and ammunition. So we're navigating a very complex situation right now on I think the teams done a great job of keeping us ahead of that curve.
Okay, great. Thank you for the uptick.
Okay.
This concludes the.
The question and answer session.
During the quarter back over to management for any closing comments.
Thank you I want to thank everyone again for their time today special thanks to all of our hard working 5000, plus sports was warehouse associates, who contributed to our success in 2019, we especially appreciate their dedication and efforts to our start in 2020 and look forward to continuing to serve our customers.
In the coming months in years ahead with that I will close the call. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.