Why does Sportsman’s Warehouse “take the markdowns” before the season ends?

Sportsman’s Warehouse (NASDAQ: SPWH) is reshaping its inventory management strategy by changing the timing of its seasonal markdowns. On the company’s March 2026 earnings call, CFO Jennifer Fall Jung told analysts that the retailer plans to mark down seasonal merchandise while customer demand is still strong, rather than waiting until the season is nearly over.

That timing strategy helped the outdoor gear chain end 2025 with inventory down roughly $29.1 million, or about 8.5% year over year. The company is also delaying the arrival of spring inventory and cutting lower-productivity SKUs, with a stated goal of operating at lower average inventory levels throughout 2026 while still meeting sales targets.

Under U.S. GAAP, inventory is reported on the balance sheet at the lower of cost and net realizable value, often called the LCNRV rule. Net realizable value is the estimated selling price of the inventory minus any costs of completing and selling it. When expected net realizable value drops below the inventory’s original cost, the company must write the inventory down to that lower amount and recognize the loss in the period in which the decline in value occurs.

View a quick tutorial video about the lower-of-cost and net realizable value (LCNRV) rule at this [link] and then answer the following questions.

Note to instructors: This post is assignable in Pearson’s MyLab and has questions that are auto-graded.

Discussion Questions

1. What does the lower of cost and net realizable value (LCNRV) rule require when the expected selling price of inventory drops below its original cost?

2. Sportsman’s Warehouse is choosing to take markdowns earlier rather than later in the season. What trade-offs does this create between short-term gross margin and longer-term inventory health?

3. How does the LCNRV rule reflect the conservatism principle in financial accounting? Why might accounting rules treat potential losses differently from potential gains?

4. Beyond the financial reporting impact, what operational benefits might Sportsman’s Warehouse gain from aggressive markdown timing and tighter overall inventory management?

5. If a retailer chose not to take markdowns and instead kept out-of-season or slow-moving inventory on its balance sheet at original cost, what problems might show up in future accounting periods?