Insider Buying In a Microcap Retailer – Insider Weekends

  • October 22, 2023

Sportsman’s Warehouse Holdings, Inc. (SPWH): $5.17

Market Cap: $193.28M

Enterprise Value: $409M

Key Insights

  • The post-pandemic decline in consumer spending has left sporting goods retailer Sportsman’s Warehouse is a difficult position with declining same-store-sales and bloated inventory.
  • The company was the target of an acquisition by the parent company of Bass Pro and Cabela’ at a much higher valuation.
  • Mario Gabelli had urged the company to appoint a new director with financial engineering background to the board.
  • A new CEO with industry expertise and experience running large organizations could help with the company’s turnaround.

When reading through the last conference call transcript for Dollar General (DG) in preparation for our C-suite transitions article Dollar General Attempts a Turnaround about the company’s boomerang CEO, I was struck by just how much discussion there was about inventory levels and promotional activity to reduce inventory. Words like same-store-sales decline, high inventory levels, markdowns, promotions and “right size” strike terror into the hearts of investors in retail companies.

These were the exact same words I found in the last conference call transcript of sporting goods retailer Sportsman’s Warehouse Holdings, Inc. (SPWH) when doing research on the crop of insider purchases that made the top 5 list this week. Sportsman’s Warehouse is a microcap retailer of hunting and camping equipment with a market cap of $193 million and an enterprise value of $409 million after including $215.5 million of debt but excluding capital leases.

Sportsman's Warehouse Store

A Failed Deal

Great Outdoors Group, the owner of Bass Pro and Cabela’s, attempted to acquire Sportsman’s Warehouse for $18 per share in a $785 million deal in December 2020 but gave up after a year when the FTC sued to block the deal. Sportsman’s walked away with a $55 million termination fee.

When the deal was announced, Sportsman’s was a very different company with $50 million in net cash on the balance sheet and inventory levels were less than half of what they are right now. The pandemic related surge in spending certainly helped the company’s top line, bottom line and balance sheet.

CEO Retirement

Just like most pandemic beneficiaries who saw a short-term bump in their business, Sportsman’s followed strong sales in the second half of calendar 2020 and early 2021 with revenue decline. At this time, the company has reported revenue declines for seven straight quarters. The wheels really fell off the wagon right before CEO Jon Barker decided to retire earlier this year and step down from the board of directors. The Chairman of the board, Joe Schneider stepped in as interim CEO.

Revenue declined by double digits in each of the last two quarters, same-store-sales declined a whopping 16.1% in fiscal Q2 2023 (ended July 2023) and the company expects the pain to continue the rest of the year. Fiscal Q3 same store sales are expected to decline between 19% and 14%. The company plans to roll out short-term promotions and markdowns to reduce inventory levels, translating into continued losses for the company.

Insider Buying, New Director and New CEO

Given the dismal performance of the company, it was surprising to see Director Steven Sansom pony up $137,828 to purchase 30,000 shares at an average price of $4.59. After starting his career at Merrill Lynch in the early 1990s, Mr. Sansom spent 8 years at Goldman Sachs before starting Steel Grove Capital Advisors in 2021, where he has served as CEO for the last 22 years. Mr. Sansom also founded the energy assets company Center Coast Capital Advisors in November 2007. The company had approximately $4 billion in assets under management when it was acquired by Brookfield Asset Management in February 2018.

Mr. Sansom joined the board two months ago and it is possible that his appointment followed the letter from Mario Gabelli to the board in April 2023 urging them to add a director with a financial engineering background.

Insider buying by new directors is relatively common and I would have ignored this purchase had it not been for the fact that a new CEO is expected to start at Sportsman’s Warehouse next month. Paul Stone starts his tenure as CEO and a member of the board of directors on November 1, 2023. It was encouraging to see that he has industry experience having served as the Chief Retail Officer of Cabela’s. He was recently the President and Chief Operating Officer of Hertz Global Holdings.

Conclusion

Turnarounds rarely turn around but this situation seems interesting in light of the new director and the new CEO. I expect results to remain under pressure during the next two quarters as the new CEO attempts to reduce inventory, hopefully stop or decelerate new store openings and write down assets before the start of the next fiscal year.

The stock trades for 39 times trailing P/E, 15 times trailing EV/EBITDA and 0.15 times sales.

I look forward to following the company closely to see how it manages to navigate the turnaround and have added it to my internal watchlist.

Welcome to edition 704 of Insider Weekends. Insider buying increased significantly last week with insiders purchasing $160.07 million of stock compared to $51.67 million in the week prior. Selling also increased to $388.11 million compared to $342.74 million in the week prior.

Sell/Buy Ratio: The Insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio for last week dropped to 2.42. In other words, insiders sold more than 2 times as much stock as they purchased. This week, the Sell/Buy ratio was favorable, compared to the prior week when the ratio stood at 6.63.

Notable Insider Buys:

1. Asana, Inc. (ASAN): $18.36

President, CEO, & Chair Dustin A. Moskovitz acquired 627,802 shares of this work management platform, paying $18.27 per share for a total amount of $11.47 million. Mr. Moskovitz increased his stake by 1.34% to 47,537,874 shares with this purchase.

You can view the list of recent insider transactions for Asana, Inc. here.

P/E: -11.92Forward P/E: -73.44Industry P/E: 23.60
P/S: 6.65Price/Book: 12.06EV/EBITDA: -11.91
Market Cap: $4.03BAvg. Daily Volume: 2,602,60652 Week Range: $11.32 – $26.27

2. Summit Therapeutics Inc. (SMMT): $1.85

Chief Operating Officer Manmeet Singh Soni acquired 2,976,190 shares of this biopharmaceutical company, paying $1.68 per share for a total amount of $4.99 million. This was a privately negotiated purchase transaction with the company.

You can view the list of recent insider transactions for Summit Therapeutics Inc. here.

P/E: -1.28Forward P/E: -1.71Industry P/E: 26.70
P/S: 5868.29Price/Book: 10.82EV/EBITDA: -19.18
Market Cap: $1.29BAvg. Daily Volume: 1,050,53552 Week Range: $0.66 – $5.78

3. Delta Air Lines, Inc. (DAL): $32.23

Director David S. Taylor acquired 10,000 shares of this airline, paying $33.09 per share for a total amount of $330,900. Mr. Taylor increased his stake by 133.87% to 17,470 shares with this purchase.

You can view the list of recent insider transactions for Delta Air Lines, Inc. here.

P/E: 6.92Forward P/E: 4.8Industry P/E: 18.35
P/S: 0.36Price/Book: 2.24EV/EBITDA: 5.91
Market Cap: $20.74BAvg. Daily Volume: 8,584,64552 Week Range: $30.98 – $49.81

4. Lamb Weston Holdings, Inc. (LW): $87.5

Director William G. Jurgensen acquired 3,000 shares of this frozen potato products company, paying $84.35 per share for a total amount of $253,050. Mr. Jurgensen increased his stake by 1.88% to 162,835 shares with this purchase.

You can view the list of recent insider transactions for Lamb Weston Holdings, Inc. here.

P/E: 12.59Forward P/E: 13.96Industry P/E: 19.65
P/S: 2.15Price/Book: 8.44EV/EBITDA: 12.45
Market Cap: $12.68BAvg. Daily Volume: 2,199,44852 Week Range: $79.39 – $117.382

5. Sportsman’s Warehouse Holdings, Inc. (SPWH): $5.17

Director Steven W. Sansom acquired 30,000 shares of this outdoor sporting goods retailer, paying $4.59 per share for a total amount of $137,828. 20,000 of these shares were purchased indirectly by Sansom Holdings, LLC and 10,000 of these shares were purchased indirectly by the reporting person’s spouse.

You can view the list of recent insider transactions for Sportsman’s Warehouse Holdings, Inc. here.

P/E: 47Forward P/E: 57.44Industry P/E: 15.01
P/S: 0.15Price/Book: 0.71EV/EBITDA: 14.83
Market Cap: $193.28MAvg. Daily Volume: 699,14852 Week Range: $2.98 – $10.62

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Salesforce, Inc. (CRM): $203.73

Shares of this cloud software company were sold by 4 insiders:

  • Chair and CEO Marc Benioff sold 75,000 shares for $207.58, generating $15.57 million from the sale.
  • Pres/Chief Engineering Officer Srinivas Tallapragada sold 10,000 shares for $205.72, generating $2.06 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • President and CFO Amy E. Weaver sold 2,627 shares for $210.00, generating $551,670 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • Co-Founder and CTO Parker Harris sold 1,250 shares for $206.49, generating $258,113 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Salesforce, Inc. here.

P/E: 127.33Forward P/E: 22.97Industry P/E: 23.60
P/S: 5.99Price/Book: 3.42EV/EBITDA: 26.07
Market Cap: $198.23BAvg. Daily Volume: 4,706,49052 Week Range: $126.34 – $238.22

2. FirstCash Holdings, Inc. (FCFS): $101.77

Director Douglas Richard Rippel sold 108,030 shares of this retail pawnstore operator for $104.21, generating $11.26 million from the sale. These shares were sold indirectly through a trust.

You can view the list of recent insider transactions for FirstCash Holdings, Inc. here.

P/E: 20.39Forward P/E: 14.99Industry P/E: 8.93
P/S: 1.56Price/Book: 2.43EV/EBITDA: 7.53
Market Cap: $4.59BAvg. Daily Volume: 188,62552 Week Range: $82.85 – $106.74

3. Interactive Brokers Group, Inc. (IBKR): $80.19

Shares of this investment brokerage were sold by 2 insiders:

  • Chief Financial Officer Paul Jonathan Brody sold 78,784 shares for $84.77, generating $6.69 million from the sale. These shares were sold indirectly by PJB Holdings LLC.
  • Chief Information Officer Thomas A. J. Frank sold 52,752 shares for $86.07, generating $4.54 million from the sale.

You can view the list of recent insider transactions for Interactive Brokers Group, Inc. here.

P/E: 28.27Forward P/E: 12.81Industry P/E: 8.93
P/S: 7.89Price/Book: 2.51EV/EBITDA: 19.07
Market Cap: $33.42BAvg. Daily Volume: 943,03952 Week Range: $68.23 – $95.59

4. Atlassian Corporation (TEAM): $187.07

Co-CEO, Co-Founder Michael Cannon-Brookes sold 41,205 shares of this software application company, for $194.55, generating $8.02 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for Atlassian Corporation here.

P/E: -98.46Forward P/E: 65.18Industry P/E: 23.60
P/S: 13.67Price/Book: 73.59EV/EBITDA: -252.23
Market Cap: $48.3BAvg. Daily Volume: 1,373,45752 Week Range: $113.855 – $215.77

5. Vertex Pharmaceuticals Incorporated (VRTX): $361.86

Shares of this biotechnology company were sold by 3 insiders:

  • Executive Chairman Jeffrey M. Leiden sold 12,962 shares for $374.00, generating $4.85 million from the sale.
  • EVP and CMO Carmen Bozic sold 5,651 shares for $373.25, generating $2.11 million from the sale.
  • Director Sangeeta N. Bhatia sold 243 shares for $375.00, generating $91,125 from the sale.

You can view the list of recent insider transactions for Vertex Pharmaceuticals Incorporated here.

P/E: 27.94Forward P/E: 22.31Industry P/E: 26.70
P/S: 9.83Price/Book: 6.03EV/EBITDA: 17.92
Market Cap: $93.39BAvg. Daily Volume: 979,34852 Week Range: $282.21 – $375.93

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer:  I hold long positions in Atlassian (TEAM) and Vertex Pharmaceuticals (VRTX). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.