Sportsman's Warehouse Holdings, Inc.

Greetings and welcome to the Sportsman's Warehouse first quarter 2024 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 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 with 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 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 reconciliations to the most directly comparable GAAP financial measures, are provided as supplemental financial information in our press release, included as Exhibit 991 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 will now turn the call over to Paul.

Thank you, Riley, and good afternoon, everyone. The mission of Sportsman's Warehouse is to provide great gear and exceptional service to inspire outdoor memories. As we outlined on our last call, these are the two key areas of focus as we center our efforts on resetting the business over the next several months. Our first core results continue to reflect the challenging microeconomic environment, which we are carefully navigating as consumer discretionary spending remains under pressure. Net sales for the first quarter were $244 million compared to $267 million in the prior year, with same-store sales down 13.5 compared with last year. During the first quarter, consistent with the adjusted NICS data, our hunting department sales were down about 7% versus the prior year. While we continue to outpace the adjusted NICS on a unit basis and take share, fewer customers purchased firearms and ammunition during the quarter. which was the primary driver of the Q1 decline. As we outlined on our call just a couple months ago, our strategy centers on resetting and rebuilding the fundamentals of great retail operations, which for Sportsman's Warehouse are great gear and exceptional service. From a net sales by department perspective, camping was down approximately 6%, apparel was down approximately 26%, and footwear was down about 28%. While these departments were down in Q1, they outpaced the decrease in year over year inventory levels, which we view as encouraging. Having moved through a significant amount of distressed inventory during the second half of last year, we are now slowly building back inventory in these departments with brand relevance, newness, and depth with key vendors, putting us in a much better position for our key hunting and holiday seasons. Having the right merchandise that resonates with our core customer will continue to be a key strategic driver of our inventory management efforts during 2024. In mid-March, we started to see trends improve in our fishing category, resulting in positive comp sales growth in this department for Q1. Our stores were set early with newness and depth in key seasonal items, positioning us to capture both demand and a greater share of the fishing market. We saw good results with our opening and mid-price point items like rod and reel combos, tackle boxes, and fly fishing. This is a prime example of where the SKU rationalization is working, allowing for depth and the right merch of our core items. We will continue to lean into fishing with relevant purchases and regional merchandising, as Q2 is the highest penetrating quarter for this department. I am proud of how quickly both the merchant and store operations team executed to have us positioned and ready early for the spring fishing season. Similar to the improved assortment and store visual layout enhancements we made in Q1 to our camp and fish departments, we are in the process of implementing similar improvements in the other departments in our stores. We expect to have these efforts completed in time for the key fall selling season. I want to remind everyone that the first quarter is our lowest volume quarter of the year, particularly the months of February and March, given the seasonal nature of our specialty outdoor gear business. Although Q1 is the lowest volume quarter of the year, we were not happy with our results, particularly the trends in our hunting and shooting sports department. Traffic was challenging during the quarter, and we are moving at a high velocity to improve the trends of the business. What we are currently seeing with the consumer is a hunt for newness and value when they shop our stores. We have made significant progress over the last couple months to reset our stores with improved sight lines, end caps presented with high margin and high attachment items, more strategic drive aisles, and improved feature space. We have emphasized products with newness and value that align with key outdoor seasons to highlight these critical selling spaces. Given the Hunter value, we believe that leaning into the warehouse part of the name has never been more important to attract and retain customers. Our messaging for this competitive warehouse advantage will be centered on no frill shopping, quality products at affordable prices, get in easy, find what you need easy, and get outdoors-making memories. And come talk with our local store outfitters, ready to outfit you for your next outdoor adventure. Given this challenging microeconomic environment and the top-line headwinds we are currently facing, it's critical we continue to focus on the areas of the business we have greater control over. We were pleased with our expense management efforts, reducing overall costs by $4.6 million versus the prior year first quarter. By lowering our cost structure, we have positioned ourselves to generate positive free cash flow during the year, even on these reduced comps. Additionally, we are pleased with the overall health of our inventory, with total inventory down about 75 million versus this time last year. We have significantly more newness and relevance in our inventory, which is evident when you visit our stores. Having the right product in the right place in the right amount at the right time are key to winning the upcoming season. We continue to move with speed on our key initiatives to improve Sportsman's Warehouse and return business to profitability. The team is now largely in place with our store operators, all of whom have significant retail experience, implementing best-in-class service models and the process needed for operating great stores. Last month, we relaunched two of our value-add service programs, our firearms service plan and our safeguard warranty program. Each of these provide inherent value to our customers and its margin accretive to the business. We are also further refining our marketing mix model to better understand what resonates with our customers and further expand our omni-channel reach and effectiveness. Our short term emphasis will be focused on leveraging our loyalty platform and total customer database to win back customers we know already shop our stores. With this approach, We can be more efficiently and effectively deploy capital as we carefully execute our digital marketing strategies. In an effort to drive more consumers into our stores, we've implemented more aggressive promotional activities during the second quarter. Our goal is to win the 100 days of summer and give customers a compelling reason to visit and shop our website and stores. For us, the second quarter is highlighted by Memorial Day, Father's Day, and the Fourth of July, which are all high volume periods for our business. We feel good about our store sets, product assortment, and inventory levels of key items as we navigate through these key summer seasons. Although we are dealing with difficult microeconomic headwinds, we remain optimistic about 2024. We are in the early innings, call it the third inning of our reset, and look to see progress as we move through the year. We are positioning ourselves for a relaunch for stores in early fall, setting us up for a successful back half of the year. Our strategic edge remains as the premier local and convenient choice for consumers. We provide a strong mix of value, quality, selection, and service that we know will benefit the customer. Our focus remains on the areas of the business we can control through close management of our variable expenses, inventory levels, and merchandise margins as we work with urgency to get our top line trends moving in the right direction. We are making the necessary investments and improvements in our stores to better convert and capture a greater share of customers' wallet. The strategies are in motion and implementation is well on its way. We are laser focused on providing great gear and exceptional service as we look to grow this company and create value for our shareholders. With that, I'll now turn the call over to Jeff.