Sportsman's Warehouse CEO Resignation Prompts Downgrade At Baird

Sportsman's Warehouse Holdings Inc SPWH, an outdoor sporting goods retailer, said Wednesday CEO John Schaefer resigned from the company and will be replaced by Jon Barker, the company's president and chief operating officer.

While the transition plan has been known for years, the timing of the move prompted a downgrade.

The Analyst

Baird Equity Research's Peter Benedict downgraded Sportsman's Warehouse's stock from Outperform to Neutral with a price target lowered from $7 to $5.

The Thesis

Barker's resignation was known to investors as his employment contract had roughly a year left, Benedict said in a note. As such, it was reasonable to expect a CEO transition would take place in late 2018 or early 2019, which implies the announcement Wednesday "comes as a bit of a surprise."

Barker's more than 25 years of retail experience with a focus on omni-channel initiatives should reassure the Street the company is in good hands moving, the analyst said. At the same time, it's "more likely than not" that one of the biggest factors from the leadership change will be a "more aggressive" investment approach in expanding the retailer's omni-channel capabilities. While this may be the right move for the long term, it also implies risk to the analyst's already below consensus fiscal 2018 EPS estimate of 60 cents and 2019 EPS estimate of 65 cents.

Bottom line, a bullish stance is no longer appropriate right now as the "market will need to digest near-term investment pressures before turning to the longer-term benefits that should accrue over time," the analyst said.

Price Action

Shares of Sportsman's Warehouse Holdings were trading lower by more than 17 percent Thursday at $3.90.

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