Sportsman's Warehouse Holdings, Inc.

Greetings and welcome to the Sportsman's Warehouse second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you 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 you to your host, Riley Tinner, Vice President of Investor Relations. Thank you, Riley. You may begin.

Thank you, Operator. Participating on our second quarter 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, 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 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 will now turn the call over to Paul.

Thank you, Riley, and good afternoon, everyone. Since joining Sportsman's Warehouse in November, my primary focus has been on revitalizing the company as a leading specialty retailer. Our mantra? which forms the foundation of our company and drives our mission is great gear and great service. Initially, we concentrated on the great gear aspect, addressing distress and slow moving inventory, phasing out low selling brands, and refining our product assortment. This strategy aimed to free up capital tied to underperforming inventory, enabling us to invest in newness and core merchandise that aligns with our business and resonates with our customers. We will discuss more about the great gear strategy and our plans to boost sales during this call. The supporting foundational element is great service. I've spent my entire 35-year career running all levels of store operations and cannot emphasize enough the importance of service, especially for our unique business. We know customers have a choice when they shop. Our competitive difference and the way we win customers will be because of our great service. In the second quarter, we implemented a culture change in all our stores. We now refer to our employees as outfitters versus simply associates. Many of our talented outfitters are also passionate outdoor enthusiasts and have a natural affinity with our customers. We want them to share more of their local expertise and experiences rather than focusing on in-store tasks. We expect them to evaluate the customer outdoor needs and outfit them with merchandise in all departments throughout the store. While it may sound simple, this changes a significant shift in how our stores have historically operated. While we are encouraged by the progress, we are still in the early innings of our business reset and transformation. Turning now to our second quarter results. Our sales continue to reflect the challenging microeconomic environment and a consumer whose discretionary spending remains under pressure. Net sales for the second quarter were $288.7 million compared to $309.5 million in the prior year, with same-source sales down 9.8 compared with last year. While comp sales were down each month during Q2, we were encouraged to see improving trends each month as we moved through the quarter. From a same-store sales by department perspective, all of our departments, with the exception of fishing, were down this quarter. Similar to the last quarter, all departments except fish outpaced the decrease in year-over-year inventory levels, and we are executing strategically to end the summer season with clean inventory in each of these departments. This will provide us the open-to-buy dollars needed to invest in in-depth with key vendors, putting us in a much better position for the back half of the year. Our hunting category was down 13% in the quarter, but saw improved month-to-month trends during Q2. Ammunition is one of the key store traffic drivers with a consumer who is sensitive to price right down to the price per round. To stay market competitive, we made strategic buys and priced ourselves to win in this key category. While we believe this will drive sales and traffic, This will be a headwind to our ammunition margins in the back half of the year. In mid-June, we made a strategic shift to focus more of our promotional efforts on firearms and ammunition, our two largest categories to drive sales and on-line traffic. Given that our customers are shopping for value, it was important that we make the necessary adjustments to strategically target and promote hot buys to win on price. Our top performing department this quarter was fishing. Comp sales were up about 6% with relatively consistent growth across all of our regions. This growth highlights the importance of having the right merchandise position and ready early in the season and in depth to be successful and capture additional market share. This is the merchandising roadmap we've implemented as we buy into the seasons in all of our departments. Ecom-driven sales were up about 3% in the second quarter, driven by sales from our hunting and fishing departments, and comprised 19% of our total sales. To reiterate, we are in the early innings of this turnaround and are building out the necessary tools and skills to successfully transform this company. Now I'll share some perspective on inventory and merchandising. Frankly speaking, the first half of the year, we ran inventory too low and did not invest in the right amount of inventory, particularly in our core products. This further pressured ourselves given we did not have the appropriate depth and core items in most of our departments. As we move through the back half of 2024, our stores for the first time in years will be assorted with new seasonal merchandise and with depth. Additionally, we are making an incremental $20 million investment into new and core inventory focused on products for our hunting department, which we believe will help drive additional top line results. Turning now to store operations, We have completed the reset of our initial set of 87 stores, where we have significantly improved the customer shopping experience, including how we visually showcase our high-traffic areas. Keep in mind, these store upgrades have been accomplished using very little capital resources and have largely used our outfitter labor to accomplish this significant undertaking. We are excited to see how our customers respond to these improvements. Further, we have empowered our employees, now referred to as outfitters, with training programs that allow certification across a wide variety of our outdoor products. Our stores are hosting product demos and seminars each weekend during our seasonal peak to teach, train, and allow our customers to touch and feel the great products that we sell. With this, we emphasize quality products with newness and value that align with key outdoor seasons to drive traffic and increase basket size. This allows our customers to develop relationships and gain trust with our outfitters, many of whom participate and are perhaps even experts in certain outdoor activities. This is one of our competitive advantages, and we will continue to lean into this as we drive the business forward. Now, I'll briefly address our omnichannel marketing strategy. We're excited to welcome Susan Sanderson, who has joined the team to lead our omnichannel marketing efforts. She's moving quickly to transition us from traditional mass marketing to omnichannel growth marketing. These efforts will enable us to strengthen our brand, reinforce our competitive advantage, and improve the performance of our marketing investment to have a greater impact on our top-line results. Susan's initial focus has been to unify three disconnected areas into one cohesive omnichannel team with a single go-to-market plan. These functions have historically operated independently, resulting in an ineffective model. Under her leadership, this team will now work collectively to create a digitally-led, full-funnel, consumer-driven approach. I'm excited about the direction we're headed as a unified omnichannel team. Susan's next focus is transforming our go-to-market strategy and refining our marketing mix model. We're identifying the most effective allocation of marketing resources across various channels and tactics to maximize overall performance and return on investment. We are testing and learning to understand the impact of different marketing activities on sales, customer acquisition, and brand awareness, enabling us to make informed decisions on how to optimize future marketing strategies and budgets for better results. While we've completed some initial testing and are optimistic about the future, an agile test and learn mentality will ensure we make right moves as we lay the groundwork for the coming quarters. While we are still in the early innings, I'm both encouraged and optimistic about the progress we are making to reset the company and transform Sportsman's Warehouse. The foundation is being reestablished, and we are moving with speed to turn ourselves to positive comps and return the business to profitability. We continue to take unnecessary, non-customer-facing costs out of the business, part of which we will reinvest back into sales-driving initiatives. To reiterate how I began my prepared remarks today, our strategic edge remains as the premier outdoor retailer providing our customers with great gear and great service. We will continue to focus on the areas of the business we can control and work with urgency to get our top line trends moving in the right direction. We're confident in our plan and believe the strategies are in place to achieve our short and long-term objectives. As I conclude, I want to emphasize the importance of managing the business to generate positive free cash flow for the full year. As we do this, we will prioritize the pay down of our debt as the primary use of our excess cash flow. Maintaining a strong balance sheet is the top priority as we manage the business for a successful turnaround. With that, I'll now turn the call over to Jeff.