Sportsman's Warehouse Holdings, Inc.

Greetings and welcome to the Sportsman's Warehouse third quarter 2023 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Riley Timmer, Vice President of Investor Relations. Thank you, Riley. You may begin.

Thank you, Operator. Participating with me on the call today is Paul Stone, our Chief Executive Officer, and Jeff White, our Chief Financial Officer. I will now remind everyone of the company's Safe Harbor language. The statements we make today contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes statements regarding expectations about our future results of operations, demand for our products, and growth of our industry. Actual results may differ materially from those suggested in such statements due to a number of risks and uncertainties. Those are described 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 sportsman.com. I will now turn the call over to Paul.

Thank you, Ryleen. Good afternoon, everyone. It's an honor to be here, and I'm excited to lead the Sportsman's Warehouse team as the next CEO. As one of the leading specialty outdoor retailers, I look forward to partnering with our more than 5,000 dedicated associates across the organization for what I believe is a very promising future. The mission of Sportsman's Warehouse is clear. We provide outstanding gear and exceptional service to inspire outdoor memories. This is the core of who we are as a retailer and one of the key reasons why I chose to join and lead this great company. During my time with the competing large outdoor retailer, I quickly learned that all those who participate in the outdoors share a passion that is unmatched. When one of our customers walks through our doors, they expect to talk with someone knowledgeable and build their passion for the outdoors, whether it be hunting, fishing, or camping. As a company who prides itself on having that local, homegrown image and feel, it's critical that we serve our customers with vigor and passion. We will continue to build on being the outdoor company of choice, not for retail theatrics, but for the value, the deep assortment, and the absolute unmatched service we provide. Looking now at our Q3 results, sales for the quarter came in above our stated expectation, led by our hunting and shooting sports category. However, the difficult macro environment continues to pressure consumer discretionary spend, creating a continued headwind for the business. While there were some bright spots in our hunting and fishing categories during the months of August and September, False sales trends persisted during these two months of Q3. In early October, unfortunate world events resulted in sales improvements in our shooting sports category, which was a key contributor to our beat of expectations. While we are no doubt faced with some short-term challenges, the careful execution on the key areas of the company has never been more important. It is critical that we carefully navigate and adjust the business to the current environment. Our objective is to further position the business for a successful future. To that end, during the third quarter, we made significant progress on our short-term initiatives. The team did a great job executing at a high level of success at each of the key areas, which is reflected in our Q3 results. I am going to be focused, along with the team, on a successful closeout of the fiscal year. This includes providing customers with a positive holiday shopping experience and further execution on the following areas of the business. Inventory management, specifically the reduction of our apparel and footwear inventory, omnichannel and e-commerce, cost reduction and control measures, and capital allocation priorities. During the third quarter, the team took swift action to address each of these areas with meaningful results achieved. First, in regards to inventory management, we made significant progress through a series of promotions and markdowns to reduce our apparel and footwear inventories. Starting in early Q3, the team laid out a solid plan to move through this inventory during the back half of the year, and I'm pleased with the progress. However, given the tough micro environment and the deep markdowns we are seeing by competitors, we will be more aggressive in Q4 to move this inventory. These aggressive markdowns will put additional pressure on our Q4 gross margins. It is critical to end the year with healthy inventory so we can invest in the right merchandise that appeals to our core customers. I am pleased that during the quarter we reduced our total inventory and paid down our debt by approximately $20 million versus last quarter, improving our total liquidity. We will continue our plans to refine how we manage inventory across our wide range of locations in order to leverage our strengths in omnichannel and keep our deep assortment of brands locally and seasonally relevant. Our goal is to continue revining our processes, invest in better tools, and build stronger partnerships with our key vendors to improve the overall customer experience and deepen brand loyalty. Second, e-commerce, which once again outpaced the performance of the overall business in the third quarter and continues to come positive. This is an area where we will continue to improve our capabilities, evolve our programs, and invest strategically. These are all critical pieces to enable us to leverage our omnichannel platform to drive additional sales and serve more customers outside of our geographic areas. Third, in regards to our cost reduction efforts, I am proud of the team for how swiftly they reacted to right-size SG&A calls to our current business trends. We will continue to closely manage the business, look for areas where we can further reduce expenses, and invest only in areas that are value-add and provide a measurable return on investment. I am proud of our employees for how they reacted to these difficult changes and continued providing passionate service to our customers. And fourth, capital allocation priorities. On November 16th, we opened our final store for 2023 in South Tucson, Arizona. As we look forward on new stores, we reviewed our capital allocation priorities and considered the current microeconomic conditions and its impact on ourselves. Given these conditions, we've made the decision not to open any new stores during fiscal 2024. However, as I think about the future of our new store growth for Sportsman's Warehouse, I do see meaningful opportunity and significant white space across the country. I believe our unique store size flexibility, which allows us to open stores in areas that our competitors simply cannot, provides us with a distinct competitive advantage. coupled with the significant white space available, leaves new store openings as a significant piece of our in-development long-term growth plans. I am truly excited to be part of Sportsman's Warehouse as we carefully but swiftly adjust, adapt, and refine our business to the current demands of our passionate customers. As I continue my review of the business and the efficiency and effectiveness of our systems, people, and internal processes, it's critical that we have all the foundational pieces firmly in place to successfully support our stores and the customers we serve. Having spent nearly 28 years in stores and overseeing operations with a Fortune 1 retailer, spending time in our stores, meeting with our associates and customers is critical. We have a unique company and opportunity. I firmly believe we will make the necessary improvements to grow this company and increase shareholder value. On our year-end earnings call in March, I will provide an update to our shareholders and analysts on the short and long-term strategy for Sportsman's Warehouse. The foundation of this company is strong, and I'm very excited to be here to lead us through our next evolution of growth. With that, I'll turn the call over to Jeff.