Sportsman's Warehouse Holdings, Inc.

Greetings and welcome to the Sportsman's Warehouse third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And as a reminder, this conference call is being recorded. And it is now my pleasure to introduce to you Riley Timmer, VP of IR. Thank you, Riley. You may begin.

Thank you, operator. With me on the call today is John Barker, Chief Executive Officer, and Jeff White, Chief Financial Officer of Sportsman's Warehouse. I will now remind everyone of the company's safe harbor language. The statements we make today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes statements regarding our expectations about our future results of operations, demand for our products, and growth of our industry. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties, including those described under the caption risk factors in the company's most recent Form 10-K and the company's other filings made with the SEC. We will also disclose non-GAAP 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 as supplemental financial information in our press release, included as Exhibit 99.1 to the Form 8K we furnished to the SEC today, which is also available on the Investor Relations section of our website at sportsmans.com. I would also like to note that today's materials include an earnings conference called PowerPoint Presentation, which is also available at sportsman.com in the Investor Relations section of the website. You can utilize this deck as a reference with today's prepared remarks. I will now turn the call over to John, our CEO.

Thank you, Riley. Good afternoon, everyone, and thank you for joining us today. I'll begin by reviewing the highlights of our third quarter performance, comment on the current trends we are seeing with our consumers, and review key elements of the growth strategy for our omni-channel business model. Following my comments, Jeff will provide additional details on our third quarter results, as well as discuss our outlook for the fourth quarter and full year 2022. Finally, we will open up the call for questions. Turning first to our performance. We were pleased with our third quarter results, with net sales in line with guidance and EPS above the high end of our estimate. These results reflect our discipline efforts and efficient management of the business as we carefully navigate the challenging macroeconomic environment. Similar to prior quarters, on our call today, we will provide comparisons to our 2019 results to highlight the strength of the business and market share gains achieved. In the third quarter, same-store sales performed in line with our guidance down 15% compared to the third quarter of 2021. When comparing to the third quarter of 2019, same-store sales were up 19.5%. Looking now at our key departments, during the last couple of years, event-driven cycles have elevated sales levels in our hunting and shooting sports department, especially in personal protection firearms. While elevated over pre-pandemic levels, Personal protection firearms sales have softened greater than the overall business, putting pressure on the top line when compared with last year. Offsetting the downward trend in personal protection firearms during the quarter, our hunting rifle category continued to perform well, driven by seasonal demand and our geographic expansion into the eastern markets. To enhance customer acquisition and retention and keep our competitive advantage, We carry an industry-leading assortment of firearms with a focus of expanding our exclusive partnerships and offerings. The customer response to these unique products continues to be positive, proving our right to win with exclusive products. To further leverage our extensive offering and leading industry position, we maintain over 500 federal firearms license dealer partnerships across the U.S. allowing us to serve over 95% of our country's population. Comparing our hunting and shooting sports department to 2019, it increased nearly 33%. This increase reflects both increased participation and additional market share capture. Ammunition sales remained strong during the quarter as we saw continued improvement with both our in-stock position and assortment. We experienced positive trends on both rimfire and handgun ammo as supply and demand has stabilized in these two key areas. On hunting rifle ammunition, an important element of Q3 seasonal demand, inventory levels improved over the prior year, allowing us to service our customers significantly better than the prior year. During the back half of the quarter, we started to see improvements in shot shell supply. While the domestic manufacturing and supply of shot shells has improved, and the recent progress is encouraging, there is still progress to be made before we reach healthy in-stock levels. Comparing ammunition sales to 2019, we were up 30.5% in the third quarter. With industry-leading assortment and expertise, we remain confident in our positioning within our hunting and shooting sports department and look to capture additional market share given the shift over the last two years to greater outdoor participation, including 16-plus million first-time firearm owners. Moving on to other areas of the business, our apparel and footwear departments continue to outperform in relation to the overall performance of the business. Our improved in-store and online assortment, expanded vendor base, and omni-channel capabilities provide customers greater opportunities to find the merchandise they are looking for. This quarter, we saw strong results in both women's and men's outerwear. While it's a small portion of the business, this is an emerging growth category in both branded and private label. Comparing our results to 2019, apparel is up 21% and footwear is up 17%. During the quarter, we launched a new technical camouflage pattern within our acrylic and premium hunting brand. Early indicators suggest a greater level of penetration from the sales of this new product, which carries a higher overall gross margin. Also launched during Q3 was our first private brand hunting boot from Rustic Ridge. This new boot with an improved overall margin is seeing strong sell-through both online and in stores. Our private brands offer fill-in products such as these, which are resonating with our customers. They also provide features and benefits that are similar to our core hunting brands while at a lower price point. These two examples support the strategic roadmap to reach our 2025 target of 7 to 9% private brand penetration. Turning now to our omnichannel development. Our e-commerce driven business continues to grow and outpace the overall company with strong performance again during the third quarter. With total penetration now in the mid to high teens, our e-commerce driven sales increased 3.7% over Q3 of last year. This was primarily driven by strong sales from ammunition, apparel, and scopes and optics. The investments made in technology over the last few years allow us to leverage our existing store footprint and inventory to better service our customer. We are utilizing more effective targeted marketing and digital ad campaigns to leverage our growing customer databases and maximize the lifetime value of these customers. Our omnichannel platform continues to provide increased leverage on our inventory. The platform's ability to utilize existing store inventory, as well as our rapidly growing dropship network, allows us to better service our customers with increased product assortment, while at the same time minimizing the capital investment required. During the third quarter, over 70% of our online sales were serviced with inventory from our stores or through dropship partners. These capabilities provide us with greater confidence in achieving our 2025 target of 25% e-com penetration. Turning now to real estate. During the third quarter, we opened three new stores. We also opened our final two stores of the year during the month of November. This now brings the number of new stores opened in 2022 to nine total, for a total of 131 stores in 30 states. Our unique approach to new store development using our flexible store format provides us the opportunity to reach consumers in all markets. The size of box for the nine new stores opened during 2022 ranges from approximately 9,000 square feet to nearly 40,000 square feet. This is a strategic advantage that is unmatched by our competition. I'm proud of the team for successfully managing supply chain constraints, construction delays, and other external factors to successfully open nine new stores during this year. As we look ahead, our funnel of real estate remains robust. and we are moving with discipline and rigor to accelerate the growth of our store footprint. Our funnel, as we sit here today, is well over 100 locations, and we see a path to our target of 190 to 210 total stores in the fleet by the end of fiscal 2025. We expect continued expansion into states such as Florida and California, with new stores planned in underpenetrated areas of the Midwest, including the state of Wisconsin. Regarding the fourth quarter, we are pleased with the underlying strength of the core sportsman's business as we continue to make progress on our key growth strategies. While we continue to face tough macroeconomic consumer headwinds, we feel confident about our competitive positioning and the investments made over the last few years to successfully serve our customers. While we have a long way to go in the season, early Q4 indicators are positive. including Black Friday being the single largest day in customer visits and sales in the history of the company, suggesting that the holiday selling season is off to a good start. I will now turn the call over to Jeff to review our third quarter results and discuss our Q4 and full year 2022 guidance.