Sportsman's Warehouse Holdings, Inc.

Greetings and welcome to the Sportsman's Warehouse fourth quarter and full year 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. 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 include 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, including those 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 reconciliation for 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 8-K we furnished to the SEC, 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, Riley, and good afternoon, everyone. Let me start by reminding everyone the mission of Sportsman's Warehouse is to provide outstanding gear and exceptional service to inspire outdoor memories. This is the core of our company and what we will continuously lean into as we carefully navigate a tough microeconomic environment. As we reported earlier in the earnings release, the business remained under pressure during the fourth quarter with net sales coming in at the low end of our guided range. However, earnings per share exceeded the top end of our guidance range with both our inventory and debt levels finishing the year better than we expected. We will continue to prioritize the pay down of debt with free cash flow generation as we move through 2024. We view 2024 as a year to reset the organization and return the business to profitability, creating a strong foundation for anticipated profitable growth in 2025. During my first four months, I spent my time visiting stores, getting to know our associates, talking with our customers, and getting to know many of our vendors and their perspectives. I also reviewed the technology and talent needs for the organization. My early assessments confirmed why I chose to join Sportsman's Warehouse and also provided visibility into the opportunities that exist to become the leader in specialty outdoor retail. Our strategy centers on resetting and rebuilding the fundamentals of great retail. which for Sportsman's Warehouse are great gear and exceptional service. While some of our key initiatives are still taking shape, we took several early actions in the areas I mentioned just a moment ago. Given the importance of technology, culture, and operating great stores, we made some leadership changes in these areas, bringing in best-in-class talent for our key roles. We now have an experienced retail team, including veteran outdoor retail professionals who each have a track record of successful execution with organizations like Walmart and Sam's, Target, Academy Sports, and Cabela's. Importantly, I've worked with many of these executives at other high-performing organizations. We speak the same language, know what's expected, and we're already moving very quickly. Other areas where our strategic efforts will be highly focused in 2024 include creating stronger omnichannel capabilities, making improvements to our loyalty program, and precise execution of our digital and traditional marketing strategies. We also see opportunities to better support the customer through the use of technology. By creating and equipping our store associates with improved tools, we will be better prepared to service the customers. Additionally, we are refining our marketing mix model to better understand what resonates with our customer. This allows us to be more productive with our current marketing dollars, to capture more share of the online sales, and further increase our omnichannel customer base. This is another way for us to further streamline and gain greater efficiency within the current organization. Currently, we are reviewing the foundational techniques for marketing, as well as making sure we're building the right tools and capabilities to support our omnichannel efforts. Today, our focus will be on finding the most productive uses of our marketing resources as we continue to improve our capabilities, evolve our programs, invest strategically, and leverage our current omnichannel platform. I also see opportunities to refine and evolve our loyalty program. While over 50% of our sales come through our loyalty members, I believe there's an opportunity to improve the value proposition of the program, drive more engagement with our members through personalization, attract and retain more members, and increase the lifetime value of our existing customers. As I mentioned earlier, part of the reset of 2024 will include investments in needed tools and technology to support our base of stores. We recently partnered with Blue Yonder, a best-in-class supply chain management solution, to develop a comprehensive merchandising assortment and planning software system. With this tool, we will have improved capabilities with inventory management, store planogramming, seasonal and regional auto replenishment, as well as improved in-stock and productivity reporting. This will also help facilitate the expansion of our omnichannel capabilities, which support regional and seasonal customer expectations. The other area of technology investment involves workforce management software. This tool will allow us to efficiently staff our stores and be closer aligned with the peak hours of customer visits. This alignment, along with changes we have made in our store compensation and leadership structure, are important investments as we navigate towards our continuous goal of exceptional service. As we reported, during the fourth quarter, we further reduced our inventory levels and made significant progress to get out of products and brands that simply do not resonate with our core customer. While we made good progress during the fourth quarter, we will continue to closely manage our inventory levels and merch mix. This will ensure we have the right products in the right location at the right time, creating inventory efficiency, which allows us to better service our customers and improve our overall merchandise productivity. Significantly reducing inventory also allowed us to invest in newness and relevant seasonal products as we repaired and bought into our key spring outdoor seasons. We are currently seeing positive trends in camp and fish as we invested in newness and depth going into these early spring seasons. Another piece to our inventory management strategy includes rationalizing our SKUs and refining our overall product assortment. This will allow us to drive the following. Improved inventory productivity and turns, better depth of the key and never-out items, new local and regional product offerings, and improved overall in-stocks and customer shopping experience. Over the last few months, our merchant team has successfully worked through this initiative in a number of product areas. As we navigated through lowering Q4 inventory, we were very purposeful in how we prepared for our key spring seasons, particularly fishing. This is a category where we have a right to win, especially at the local and regional level. For the first time ever, our fishing set was in place by mid-February with depth and critical items. I talked about 2024 being a reset year. Here's what the spring reset meant to the fishing category. First, we rationalized the assortment, removing 40% of the SKUs and 30% of the vendors. Next, we reassorted the category across all regions and stores with local relevance and accuracy. Then, we invested in depth. into key products and our local product offerings. And finally, we reset the sales floor to align our in-store presentation with the new assortment, including better productivity of our end caps and expanded feature space. It's the execution of key initiatives such as this that gives me confidence we are moving the business in the right direction, to once again merchandise and operate great stores. Along with tight inventory management, we expect to maintain both rigor and discipline on our variable SG&A costs. Last year, we eliminated about $25 million of indirect costs out of the business and will continue to manage these efforts carefully. My objective is to first sweat the assets of the business, using 2024 as a reset year to get us back to operating profitably. Regaining our edge of being the best local and convenient choice is what separates Sportsman's Warehouse from the competition. This means having great gear and providing exceptional service in each of our 146 stores every day. I firmly believe we are implementing the right strategies and making the necessary improvements to solidify the foundation of this company to return us to profitability and increase shareholder value. With that, I'll now turn the call over to Jeff.

Thank you, Paul, and good afternoon, everyone. I'll begin my remarks today with a review of our fourth quarter and full year fiscal 2023 financial results, then cover our liquidity and capital allocation plans, and finally review our outlook for 2024. As Paul mentioned, net sales for the fourth quarter were $370.4 million and came in at the low end of our guided range. This is compared to $379.3 million in the fourth quarter of the prior year. Our net sales remain pressured from a challenging macroeconomic environment and persistently high inflation weighing on our consumer discretionary spending through the holiday season. As a reminder, 2023 was a 53-week year, which resulted in one extra week in the fourth quarter when compared with the prior year. The 53rd week for 2023 contributed $15.4 million of net sales and resulted in an additional $0.06 loss to EPS compared to the prior year's 52-week period. Same-store sales decreased 12.8% in the fourth quarter on a 14-week basis compared with the same time period of fiscal year 2022. Excluding the additional week, same store sales in the fourth quarter were down 12.8%. Looking at comparable sales by department, hunting was the best performing category during the fourth quarter, down 3.9% on a 14-week basis compared with the prior year. This outperformance versus the run rate of the company was driven by items that correlated with holiday gift giving, such as scopes and optics. All other departments were down double digits in the quarter, reflecting the tough macroeconomic environment and underscoring the importance of having the right inventory for the right location and season so we can provide a better overall shopping experience for our customers. During the holiday season, the customer came in specifically for the promotions, with very little attachment to other items in the store, highlighting the continuing inflationary pressure on our core customer base. On our last call, we outlined our strategy to further promote and mark down distressed portions of our apparel and footwear inventory in an effort to end the year in a much healthier position. During the fourth quarter, we successfully executed on this plan, exceeding our goal and ending the year with $354.7 million in inventory, $10 million below our guidance. By reducing inventory nearly $90 million in the quarter, we generated excess cash flow, allowing us to pay down our debt by over $59 million. Gross margin for the fourth quarter was 26.8% versus 32.4% in the prior year period. This decrease was primarily driven by the promotional efforts to move through distressed apparel and footwear inventory, as well as lower gross margins on ammunition. However, while down significantly compared with the prior year, gross margin in the quarter came in better than we expected, as we did not have to be as aggressive as planned with our markdowns to move through the distressed inventory. We estimate that the EPS impact from the gross margin reduction relating to the markdowns was between 30 and 40 cents in the fourth quarter of 2023. As a percentage of net sales, SG&A expense increased to 29% compared to 28.1% in the fourth quarter of the prior year. This increase was primarily due to higher rent and depreciation expense from the addition of 15 new stores open during 2023 and the stores refreshed over the last two years. While SG&A was up as a percentage of sales on a year-over-year basis, SG&A dollars were down 9.8% on a per-store basis versus Q4 of 2022. The most significant year-over-year decrease was in payroll, which was down approximately $3.9 million from last year, or a decrease of 17.4% on a per-store basis. During the back half of 2023, we undertook a comprehensive expense reduction initiative to align our costs with the declining trends of the business. These efforts resulted in approximately $25 million of annualized savings. We expect to continue to realize the benefit of these cost reduction efforts throughout 2024 and will continue to reduce expenses where we believe we can simplify the business. Net loss for the fourth quarter was $8.7 million, or negative 23 cents per diluted share, compared with net income of $11 million, or 29 cents per diluted share, in the fourth quarter of the prior year. Adjusted net loss in the fourth quarter was $7.5 million, or negative 20 cents per diluted share, compared with adjusted net income of $12.7 million, or 33 cents per diluted share, in the fourth quarter of the prior year. Adjusted EBITDA for the fourth quarter was $5.3 million, compared with adjusted EBITDA of $28.2 million in the fourth quarter of 2022. Shifting now to the full fiscal year. For the full year of 2023, we finished with sales of approximately $1.29 billion and adjusted EPS of negative 64 cents per diluted share. For the full year of 2023, we estimate that the earnings per share impact from the clearing of distressed inventory was between 60 and 80 cents. I will now take a minute and review our balance sheet and liquidity as of the end of 2023. Full year 2023 ending inventory was $354.7 million, compared to $399.1 million at the end of 2022, a decrease of $44.4 million, or approximately 20% on a per store basis. Compared to the end of the third quarter, inventory is down nearly $92 million. Successfully moving through our seasonal and distressed inventory during the fourth quarter facilitated the better than planned inventory balance and debt pay down at year end. This was important and provided us the open to buy dollars needed to lean into new merchandise to support our spring and early summer seasons to which we are already seeing success. Inventory management will remain a primary focus as we now expect to move more efficiently in and out of seasons and improve the productivity of our inventory as we continue to rationalize SKUs and vendors. For the full year 2023, we incurred approximately $60 million of net capital expenditures, primarily related to the construction of our 15 new stores and ongoing fleet maintenance. In regards to liquidity, we ended the year with a debt balance of $122.9 million and total liquidity of $91.4 million. We used our cash flow generated during the fourth quarter to pay down debt and will continue to emphasize debt pay down as our primary use of free cash flow until we reduce our leverage ratio. Turning now to our guidance. As we mentioned in the earnings release, we are adjusting our cadence and will now provide annual net sales and adjusted EBITDA guidance, which we will provide an update to quarterly. Our focus will be on longer-term measures, being a great retailer, and returning Sportsman's Warehouse to profitability in 2024. Starting with our net sales outlook, we estimate fiscal 2024 net sales to be in the range of $1.15 billion to $1.23 billion. We expect adjusted EBITDA for fiscal 2024 to be in the range of $45 million to $65 million. We expect CapEx for 2024 to be between $20 and $25 million relating to technology investments to improve store service and merchandising productivity, as well as our normal store maintenance. To reiterate, our priority for 2024 is to use excess free cash flow to pay down our debt, decrease our leverage ratio, and invest in needed technology. As we carefully manage inventory and variable expenses, we believe we can return the business to profitability. That concludes our prepared remarks today. I will now turn the call back over to the operator to facilitate questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. and you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Hi, guys. First question for me is really around margins, kind of what's built into your outlook here in 24. Any additional thoughts you can give us around maybe even SG&A and the $25 million in savings? Any insights you can give us on maybe where that falls for the full year or any additional insights into gross profit margin, maybe improvements over where it came in here in the latter half of the year?

Yeah, Mark, great question. It's Jeff. Good to hear from you. From a gross margin perspective, as we think about going into 24, I would frame it up as you won't see as aggressive degradation as we saw in 23 as we had to move through the distressed inventory. Our goal really is to, now that we've gotten out of that, to claw back the gross margin losses that we had during 23 on the clearancing of inventory and really get the margin back up to where we've historically run. So as Paul and I have stated on our call, we feel confident that we moved through the brunt of that during Q4 and that we we'll be able to see some margin increases during 20 as we move into 24. In terms of SG&A cuts, I think the best way to think about that is we started that process kind of mid Q3. So Q4, we saw really good execution in expense cuts. Those expense cuts are going to flow into Q1, Q2, and partially into Q3 into 2024. So we're going to continue to see benefits from those expense cuts as we move through a big part of 2024.

And I would just say, I mean, we continue to be focused on being a low-cost operator. And I mean, ultimately, we are a warehouse and we should operate as a warehouse as we just continuously look at ways to be able to take costs out of the business without impacting our stores and our service. And as we reinvest back into exceptional service, we'll have to continue to invest in our stores. But we're going to be, I think, extremely scrappy would be the best way of saying it around being able to keep costs and check and to be able to continue to flow.

Okay. You know, next question for me is, you know, kind of a tough environment here. Any additional insight you can give us on, you know, the consumer environment? And in particular, I'm curious your thoughts around, you know, recent NICS data here in March, you know, and if that maybe some of that weakness kind of applies to you guys as well.

Hey, Mark, I would just say we're not seeing the same decline in NICs that's being reported, and we believe we're leaning into it and taking share as a company. So I know as we saw that come out yesterday and as we look and we kind of gather our data, we feel that we're continuing to be able to grow. And as we think about the business and we see others walking away from the business, we feel we have a huge opportunity to continue to gain share in that part of the business.

In terms of the consumer trends that we saw, you know, during the holiday, we said it in our remarks, but the customer was really focused on promotional activities. We're continuing to see them focused on that and trending downwards towards an entry level or mid-level price point. So we're seeing some pressure that's coming through on our customer and their spending habits in terms of them looking at promotions, but also really gravitating towards that entry and mid-level price point.

Perfect. Last question, I think for me, just as we look at the inventory, really solid improvements there. And maybe this will sound like a weird question given where we came from, but is there a point where your per store inventory, where you cut too much or, you know, give me a feel for kind of your comfort levels around, you know, current inventory.

Mark, we feel good with the inventory position. I think, really good with what the merchant team was able to do in Q4. One, got out of the distressed merchandise, but two, still had an eye on spring and knowing that we missed spring in a big way around fish and camp. So, I mean, they did a really, really nice job of managing the liquidation process, but keeping their eye on what we needed to do for Q1, Q2 as you come into fish and you come into camp. So, I think as we think about it in terms of you know, getting out of some of these XYZ items and then being able to double down and really invest in what the customer wants in the A, B, and C item, we're going to have depth in the product the customers want. And quite frankly, we're going to have feature space like we've never had before as an organization to be able to highlight that great new merchandise that we bring in and be able to open up our stores where if you're going to be able to see features, a more direct line of sight for people to be able to navigate our stores. So I would say the tell that we've pulled out, we feel really good with. And now to be able to double down and invest on those key items, which I think we've lacked in the past of being able to really buy with depth on the key items and to be able to freshen the stores with newness. And we're seeing the newness work. And as we come into spring, the work that the team and the merchant team was able to do in Q4 to keep their eye on Q1, we're liking what we see.

Excellent. Thank you, guys.

Our next question comes from the line of Ryan Sigdahl with Craig Hallam Capital Group. Please proceed with your question.

Hey, good afternoon, Paul, Jeff. Just curious if you have any commentary on year-to-date trends, whether it be sales and or on the margin side?

Yeah, I think where we'd say we, I mean, you come into February and we continue to feel softness from a traffic and just some of the macros that was happening. And then really as we started to get into the back half of March and really what we've seen as we started April as the weather is broke and then going back to my point to be ready for the key categories and both with camp and fish. I think we feel good with it. February felt a little bit like January felt like, quite honestly, and then as we broke and the weather started to break, we started to see the traction that we wanted to see. So we're very happy with what we're seeing, especially in those key categories that spring is really important to. So I would just, I know as we kind of round that out, I don't know if Jeff has anything to add, that we would just look at January and say continued trend of what we saw at the end of the year. And then as we've really built and continue to build into the quarter, that the execution both from the merchants and from the operations to bring the team and bring the stores to life, We're happy with what we're seeing at this point.

Yeah, the only thing I would add to that, Ryan, is on the margin front to your question. As you see better performance out of the camp and fish category, obviously those categories for us are more margin accretive than selling more firearms and ammo. So seeing life in those parts of the business give Paul and I some optimism on where we're heading in terms of the right trend of the business.

Great. Then maybe just wanted to put a finer point on inventory. I guess it's the right way to think about it that absolute inventory dollars are pretty stable here through the year, but it's just a rationalization and optimization of the mix throughout the year.

Yeah, Ryan, from a working capital perspective, I think there's always a little bit more we can squeeze out of inventory. I'm going to beat up the merchant team to always increase turns and be more productive on inventory. So I don't think we see huge cash generation like we did last year in terms of the reduction of inventory, but there is always better efficiency that we can drive and clean up to be had in order to drive more productive inventory across the board. So I know that wasn't a direct answer to your question, but where we ended, we felt comfortable. That's not to say that there's not things we need to clean up, so then we can take those dollars and reinvest back into inventory that we want to have in the store. So it's going to be a continuous process throughout the year, and we're going to continue to work on really driving the productivity of inventory.

Yeah, and I would say we just continue to keep a cadence of being able to get out when we need to get out, and as we start the year, you know, in better position in key categories, That's going to give us legs to be able to turn that merchandise quicker than what we have in the past. I think we've been a little late, and now being able to be proactive to help with our sell-through and our turns.

Good. Last one for me, just some of the AML OEMs, taking price increases, presumably impacting you guys, I guess. Are you able to pass that along to the end consumer? And any commentary kind of on AML margins relative to what we've seen recently here? Thanks. Good luck, guys.

Yeah, Ryan, on the ammo front, I called out that we continue to see pressure on the gross margin line in ammunition, particularly in your range type calibers, your 9mm, your 5.56, your .223. We're seeing pricing pressure out in the retail market. We're seeing retailers take the price point down on those to stay competitive. For us, it really is the milk in the back of the store. So we have to use that as a traffic driver. We need to stay competitive in the market. So while we're seeing Degradation in the margin in those categories because of increased availability and the competitive landscape. I would frame it up. We're not seeing it go back to pre-COVID levels, but it is something that we're keeping our eye on and making sure that we stay competitive in order to use that as a traffic driver.

Our next question comes from the line of Justin Clever with Baird. Please proceed with your question.

Hey, good afternoon, guys. Thanks for taking the questions. Just the first one I had was a follow-up to Mark's gross margin question. You know, of that 300 basis point decline in 23, Jeff, could you size, I guess, the drag specifically related to markdowns and clearance just as we think about the recapture opportunity here in 24?

Yeah, Justin, great question. As we look at the degradation that we called out in the press release, that is all driven by the clearancing of inventory and apparel and footwear that we needed to get out of. So we quantified that. We said that that was relating directly to those clearancing activities. As you think about what opportunity that creates, You know, anticipation in the back half of the year would be not to anniversary a clearance event like that and be able to bring highly productive full margin products to the stores, bring them to life and sell through them in a much better fashion than what we had to do in Q3 and 4 of 2023, where really it was about getting out of the inventory as quickly as possible.

I think the other thing I would just add to it is the technology investment that Jeff mentioned is really As we think about the partnership with Blue Yonder and being able to get ourselves in a much greater position around product assortment, around inventory allocation, these tools are going to be key for us as we think about it to be able to get us to speed with what a retailer should look like as having the tools for the merchants to be much more in tune with what's happening. And I think really puts us in a position as we think about getting a great return on this product that we're investing in from a technology standpoint.

Okay, you know, thanks. I guess maybe I'll ask it more directly. I mean, you talked about returning to gross margin, like historical levels. So if I look at, you know, kind of 2020 through 2022, you were in the upper 32% range. Is there any reason why that's not where you get back to here in 24?

You know, I think the biggest unknown there, Justin, is obviously the health of the customer and that's something we navigate every single day. But as we think about from a merchandise perspective and where we sit today, there are great opportunities for us to move through, have productive inventory, have the right stuff in the right place at the right time. service it right with the store labor and really see some good improvement from a margin point. The other thing I would call out is just, you know, mix. If we go through the year and we see heavy penetration in firearms and ammunition, that obviously is going to weigh on the gross margin line because mix is always going to add in that factor that I can't control if I'm selling a lot of firearms and ammunition, and those are lower margin categories.

Yep, that all makes sense. Thanks for that, Jeff. Next question, Paul, you mentioned this new workforce management system. Just thinking about payroll dollars more holistically or in aggregate, at least at the store level, do you see a need to reinvest back into the business from a store label perspective, or does this system just allow you to be smarter with your existing dollars and kind of how you deploy them at, you know, the peak hours during the day.

Yep, you nailed it. I think that's the back part is, I mean, today the way we're doing it is it's extremely manual versus being able to have the ability to look at it and to be able to truly forecast to where we can go four to six weeks out based on what we're seeing on trends and to be able to ensure we've got the people at the right times and on the right days. We think Thursday through Sunday the importance of all hands on deck and an 11 to 2 customer we have, which is unique to retail versus a drive time. consumer that you have, it really allows us to be able to, one, I think, take time away from any type of administrative work you're doing. And we reinvest those hours back into being able to service the customer. So there are ways that we think as we went to market within the stores and looking at how we're incenting our employee base and our store managers to ensure that they're selling product. and giving them the opportunity to be able to make more and to be able to drive top line at the same time. So I think as we think about reinvesting more in stores, it's more about having generalists in stores to be able to help the consumer and to be able to incent them the right way about growing profitable sales and profitable top line as we look at it. So that's a long way of saying I'm super excited to be able to get workforce management to where we can get less administrative work and things being done and more opportunity for folks to be out there on the floor and being able to engage and give exceptional service to the consumer.

Great. Last question for me would be just your view, Paul, on the store fleet. Obviously, a lot of growth and new openings, you know, when demand was surging kind of, you know, post-pandemic initially. Is there any need from your standpoint or perspective to clean up the portfolio a at all, or is that not really in the cards?

I mean, great retailers are always monitoring your entire fleet. And I think at any time that we look at it and say, you're going to have a list of stores that you're looking at, but our main goal would be to be able to nurse them back to health and get them in a good position. I think to turn that I see this as an opportunity for us, you know, as we get the gear right, we get the service right for the consumer, that we put ourselves back in a potential to be able to grow. And that there's always grooming. As a great retailer, you're always going to look at other things that don't make sense. But, I mean, us looking at it and going, hey, we're looking to pull stores out of our fleet. That's not the case. We want to be able to be productive in all of our stores. And for us, the merchants, the operators, our visual team, to ensure we're doing everything. We do have stores that are not performing at the level we need to be able to get them back in the shape that we need. But ultimately, I would just flip that and say we want to be able to get the balance sheet in a great position this year as we pay down debt and then we generate free cash flow and then put ourselves in a position in 25 and then in particular in 26 to where we can go and start growing.

All right, guys.

Well, thanks for the time and best of luck. Thank you. Thanks, Justin.

Our next question comes from the line of Anna Glasgen with B Reilly Securities. Please proceed with your question.

Hi. Good afternoon. Thanks for taking my question. Thanks for the detail on camp and fish. Really helpful putting that in perspective. Just wanted to clarify noted positive trends in the categories. like year-over-year positive growth or just sequential improvement from the most recent quarter?

From what we're seeing right now in the market, it's year-over-year growth, and it really goes back to what Paul talked about, If we think back to last year, not only was the season late because of the weather, but we also were not in a position to invest in the right goods and have them in the right place in the right time. This year, we were setting those areas of the business much earlier, as soon as January and February. So not only have we beat the seasons, we were the first to market in it. The stores are in great shape, a good in-stock position. So we've really set ourselves up for the trends that we're seeing. And we're seeing the fruits of the labor right now as we sit here today.

I would say the other thing just on that, Anna, is we're just we're really seeing positive results around newness and depth. And that, you know, the most important thing on the newness and depth is we're getting an opportunity to be more local, more regional. And the team did a great job as they went in particular in fish and said, how can we hit the mark in the different geographies? and be able to get more local than what we've been. And we had taken our eye off the ball there. So I think the exciting thing for the consumer and what the stores are seeing out there today is that as the team worked in at the back end of Q4, they were able to keep their eye on the local regional component and you're getting to see that. And I think the other thing that I would add to it is we've got a lot more space. As we went through the inventory reduction process, we really were strategic on being able to open up space and feature space where we needed to open it up. And the line of sight for our features on our ends and for our dry valves to be able to bring those items out and bring them to life in the store, much, much different than what we've ever had in the past. So I think being able to be really productive with every square foot of the store, we're excited about what that looks like. At this point, we've touched just about every area as we finish out March and resetting and being able to open up the stores and give us the additional feature space we needed to so we can showcase the newness.

Great. Thanks for that. Turning to apparel and footwear, you've been clear about clearing some of that distressed inventory and the need to reset that category. What do you think is the appropriate timeline to think about when you'll be presenting a fully reset assortment in those categories?

I mean, it's flowing today. And I mentioned that we'd reset every part of the store. That was really through the gondolas and as we think of camp, fish, and hunt. And then right now we're in the process of resetting, setting up the shops that we have, and that you're going to see spring colors in a much better place. Ultimately, as we come into really our peak, as we get into fall, and you see our fall season, and then we go into the holidays with that buying team, really being able to lean into it. You're going to start to see it as you get into spring and summer, but you're really going to be able to see the impact as we get into fall.

Great. Thanks.

The next question comes from the line of Mark Herman with R5 Capital, please proceed with your question.

Hey, guys. Thanks for taking my question. You gave out some numbers about the phishing SKUs and vendor rationalizations. I just want to clarify, those were before you added back any depth of product. Is that right? And kind of what is the permanent change in the SKUs and vendors look like in both phishing and the overall business, if you can kind of quantify that?

No, I think it's at the same time. I mean, you're going through the rationalization process, but as you're putting your buy in, the team did a really good job of being able to get out in front from a clearance standpoint and get out of the old distressed goods, even in fish. And then as we came back, we were able to go, and you can see in the stores today, with much, much greater depth. So I think they both go hand in hand, the distressed inventory moving out, and then us being able to really, really go into depth on those key items and the investment that we were able to see. And that's inclusive of us bringing in, as we talked about that SKU assortment and rationalization, that's inclusive of being able to be more regional and local as we made those buys as well.

Yeah, Mark, this is Jeff. As we think about, as we moved through the inventory last year, in totality across the business, we've removed roughly about 20% of our SKU assortment and vendor assortment out, you know, in totality across the business. what that does is allow us to go deeper and more meaningful with key vendors that resonate with our customer. And that's what's really driving, you know, that's what drove the efforts behind the scenes is making sure, again, back to the right goods, the right place for the right seasons with the right vendors. And that's what has changed about how we think about the business going forward.

And I think the energy and the feedback that we're receiving from our partner and supplier community on the strategy and being able to be very targeted on the approach And buying in the depth, it's been welcomed, and it allows us to be able to manage the product. And regionally, as we've restructured our field organization to align from a geography standpoint, it's given us the opportunity, I think, to really double down.

So in apparel and footwear, given the discounting, would you say that the non-go-forward brands and styles would also be maybe somewhat in that 20% range? kind of long-term for those two categories or how much of the fourth quarter discounting is permanently?

Yeah, a lot higher than that for apparel and footwear, Mark. That's why we had to specifically call those out last year. If you notice, we haven't called out some of the other categories because we've been able to get out of those vendors without having it be materially impactful to the business. Apparel and footwear was much, much higher than that, which is why the call out last year was necessary to make because it was going to be very significant for the overall profitability of the business.

Okay, great. Just one last thing. We haven't heard about private label in a while. You know, have your goals changed at all for that? And have you thought about focusing even more there, just given the consumer trade-down comments you made today?

Yeah, I think it's always top of mind. And as we look at it as a management team, we want to ensure we do this right. And you know, it takes a team and it takes processes to be able to truly build out the private label. You'll see that improve this year. But I think as we look at it overall, we need to be thoughtful. We need to be extremely strategic. And most importantly, I think the team here, we've seen what great private label looks like within our industry. And we've also seen what private label should never look like within our the categories which we serve and the consumer we serve. So if we're going to put our name, and we are, and we're going to put Sportsman's Warehouse on it, we have to ensure that we have the quality and standards and expectation we need. It's front of mind for us. We want to make sure as we go through this journey with private label that we're doing it right, that we do not lose credibility with the consumer, and they can look back and go, man, this is true quality gear that you're getting here. So I would tell you it's front of mind. And as we think about the build-out over a period of time, we've just got to be really thoughtful and strategic. But you will start to see it. I'm really pleased with some of the things that we're working on right now. And you're going to see the back half of the year that you're going to have. But ultimately, I mean, we are a house of brands. Our consumer, you know, depends on that. But we do think that we can mix and that we have an opportunity and a right to win to be able to bring a quality private label to market.

Great, thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Paul Stone for any closing comments.

Thank you for joining the call today, and thank you to all the passionate employees around the country for your commitment to sportsman's warehouse together. We look forward to providing our customers with great gear and exceptional service. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.