Sportsman’s Warehouse enters Ch. 11 bankruptcy reorganization

Twelve days after announcing plans to liquidate 23 stores following a sale of 15 stores to UFA to satisfy the terms of a bridge loan, Sportsman’s Warehouse did what many insiders told SNEWS® was the most likely scenario – it filed for Ch. 11 bankruptcy protection. (Click here to read our March 20 story, Sportsman’s Warehouse to liquidate 23 stores after UFA nabs 15 stores to satisfy loan.)

In court documents filed with the U.S. Bankruptcy Court, District of Delaware end of day March 20 and recorded March 21 (case No. 09-10990), Sportsman’s Warehouse Holdings reports it has $436,348,000 in assets against $452,160,000 in liabilities. In those same documents, the retailer reported $741,547,000 in sales for fiscal year 2008 (ending October 31, 2008) incurring net operating losses of $24,834,000.

The company states in court documents it currently has 3,245 employees (1,608 classified as full-time, 1,637 classified as part-time). Of those numbers, the documents state that 2,964 employees work directly in retail store locations, while 103 are employed by the Sportsman’s Warehouse distribution center and 178 are employed at the corporate headquarters. The company expects to have approximately 2,500 employees on its payroll with 29 existing operational stores according to the plan.

Sportsman’s Warehouse Holdings was founded in 1999 to acquire Sportsman’s Warehouse Inc and Pacific Flyway Wholesale – each of which filed separate but related Ch. 11 bankruptcy protection documents. Seidler Equity Partners owns 25 percent of Sportsman’s Warehouse Holdings, with the Utgaard family owning the rest. In addition, Sportsman’s Warehouse Holdings owns Minnesota Merchandising Corp., Sportsman’s Warehouse Southwest, and Sportsman’s Aviation LLC – each of which also filed separate Ch. 11 bankruptcy protection documents.

In the court documents, Sportsman’s Warehouse acknowledged, for the first time, the amount of the bridge loan that UFA had provided the company in November 2008 — $30 million. That loan was, in essence, secured against an asset-purchase agreement that allowed UFA to acquire the 15 Sportsman’s Warehouse store in the event, as court documents stipulate, “that the Subscription Agreement did not close by January 10, 2009 and the UFA Bridge Loan was not repaid by February 10, 2009.”

In the court documents, Sportsman’s Warehouse alleges it “is another retailer victim of the worldwide global recession. Prior to its current financial condition, Sportsman’s Warehouse experienced significant growth over the past decade. The largest growth came during fiscal year 2006 and 2007 with the opening of 21 stores during this two-year period. By the end of 2007, however, Sportsman’s Warehouse suffered its first decline in same store sales from a combination of inventory replenishment problems and the commencement of the national economic meltdown.”

In the court documents, of the 30 largest unsecured creditors, the vast majority are hook and bullet companies. However, a few are key players in the outdoor industry, including: Garmin — $1,013,339; Coleman — $980,344; Carhartt — $655,532; Kelty — $634,632; Columbia Sportswear — $627,689; and Johnson Outdoors — $593,335.

The retailer is petitioning the court to allow it to pay up to $5 million to certain vendors it deems as critical to its business, and identified as vendors who will “refuse to deliver material, goods and services without payment of their prepetition claims” or “refuse to deliver materials, goods and services on reasonable credit terms absent payment prepetition claims” or “suffer significant financial hardship such that the Debtors’ non-payment of prepetition claims could negatively impact the Critical Vendor’s business.”

It is also petitioning to allow it to enter into a post petition debtor-in-possession financing agreement with GECC (General Electric Capital Corporation) for a revolving credit facility not to exceed $85 million.

The objectives of the bankruptcy reorganization filing, as stated also in the documents, are to “begin discussions and negotiations to consummate either a sale or plan of reorganization centered on the ongoing operations of a smaller, viable chain of Sportsman’s Warehouse stores.”

SNEWS® View:  Without a detailed look at Sportsman’s Warehouse operations and books, it is impossible to state what caused the meltdown for certain. However, while we can agree current economic climate did little to help Sportsman’s Warehouse, we sincerely doubt that even a majority of the blame can or should be leveled there. If Sportsman’s Warehouse is to continue as a viable entity, then it would do well to look inward for solutions. It has competition – Cabela’s, Bass Pro Shops, Gander Mountain, and now UFA to name but a few. We visited SW stores over the last year and nothing we saw indicated that it was doing anything to differentiate itself from the competition. And, a quick perusal of blogs and chat rooms over the last year appears to point to a store that was losing touch with its customer base and at times even alienating them with disorganized merchandising, out of stock items, and, in some cases, inexperienced staff.

All that said, this bankruptcy filing hurts. On the heels of Joe’s Sports filing (click here to read our March 5 story, Joe’s Sports & Outdoor files for bankruptcy protection), Columbia has now been dinged for a collective $1.5 million in unsecured debt. And for Garmin and Coleman, $1 million with Sportsman’s Warehouse alone isn’t exactly chump change either. Unfortunately, one wonders if this is the last bankruptcy filing we will see from a major outdoor or sporting goods retailer this year? If the beating drums from financial analysts coupled with whispers from insider chat rooms are any indication, we would doubt it.