Big Lots, Inc.

Hello everyone and welcome to Sportsman's Warehouse's third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. Please be advised that today's conference is being recorded. I will pass the call over to the Head of Investor Relations, Riley Timmer. Please go ahead.

Thank you, Operator. Participating on our Q3 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 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. First, I want to acknowledge the work being done by our teams all across Sportsman's Warehouse. I'm proud of the collective efforts of our teams, which has enabled us to achieve meaningful progress towards our strategic goals. Their commitment to great gear and great service as we execute our strategy was instrumental in delivering improved top-line performance for the third quarter. When we started this strategic journey early in 2024, we laid out a plan that included the refinement of our merchandising and inventory. This process started with the rationalization and cleanup of SKUs. Last quarter, we strategically expanded our inventory to ensure our stores were stocked with the products our customers wanted most for our two largest seasons, hunting and holiday. We implemented new and targeted promotions and ad campaigns aligned with normal seasonal demand to drive customer traffic and increase transactions. We continue to see a customer that is shopping for value, and we will further refine our marketing efforts and product sale campaigns to align with these consumer behaviors. While total sales were down 5% in the third quarter, we were pleased that our fishing and camping department, along with our gift bar category, which includes optics, electronics, and cutlery, all comp positive for the quarter. with fishing up 13% over last year. We also outpaced the adjusted NICs in Q3 as we continue to lean into firearms and solidify our position as a leader in this category. It's important to note that we were lapping some unique events from last year that impacted our year-over-year comparisons. Jeff will address in greater detail in his prepared remarks. In the three departments where we saw growth, we worked strategically over the last year to meet the needs of our customers and reduce non-performing inventory. This has been part of our ongoing merchandising and inventory productivity strategy to provide our customers with the core goods they are looking for at the right time of year. Strong performance in these three categories underscores the importance of being in stock the entire season, a muscle that we continue to develop as we transform Sportsman's Warehouse. As we deepen the partnership with our key vendors, we are using data and analytics to assist us in being ready for the outdoor season. including key micro-seasons that are geographically unique. Given the current consumer environment and the emphasis on value and promotion-driven shopping, we were more aggressive with our sales driving initiatives, which pressured gross margins this quarter. We also saw pressure from a shift in product mix to more firearms. Additionally, we made a commitment to end each season with clean merchandise, ensuring that our stores remain fresh, highlighting newness, and staying relevant with our customers. While this approach requires a price markdown cadence, it allows us to significantly minimize excess seasonal inventory and reinvest those dollars into our core products. Lastly, we continue to clean up small pockets of localized inventory, which is also impacting gross margins in the fourth quarter. By doing this, we create a more steady and predictable pattern of markdowns as we move through the different seasons. While we expect pressure on gross margins to persist in Q4, we look to grow top line and improve our margins next year. One of our strategic objectives is the continued investment, build-out, and implementation of IT systems and tools. Once in place, these tools will assist in our improvement of overall in-stock, gross margin, and inventory productivity. These investments are a key part of resetting and rebuilding our business fundamentals to enhance our operational effectiveness. As part of our ongoing store reset strategy of great gear, great service, we continue to enhance product displays and provide additional training to our outfitters. The focus on elevated customer experience not only improves satisfaction, but also provides an opportunity to improve sales through better attachment. We continue to see AOV from attachment at an all-time high from the in-store work being done around great service. Econ-driven sales come positive in the quarter as we continue to refine and improve our overall marketing and media mix model to drive incremental sales through the channel. As part of our omnichannel strategy, we continue to test, learn, and understand through data-driven consumer insights the impact of different marketing activities on sales, customer acquisition, and brand awareness. Looking ahead. As we move through the holiday season, we remain optimistic about our growth potential and the strategies in place to achieve our short- and long-term objectives. We will continue to emphasize newness and value as we look to win the balance of the holiday season. To improve our holiday relevancy and capture incremental traffic during the season, we introduced a new omni-channel marketing campaign this year. This campaign highlights great gear that is perfect for gifting or for treating yourself and marks a fresh approach to engaging with our customers during the holidays. Our in-store experience has also been upgraded to reflect the fully integrated campaign, creating a cohesive and exciting shopping experience. We are encouraged by our early holiday sales results, including Black Friday and Cyber Week, where we experienced our highest ever e-com transaction count. This gives us confidence that the new marketing strategies we implemented are showing promise. However, like other retailers, we continue to see a shift in how customers shop. More than ever, our customers are shopping value, and they're willing to wait for the right promotion to make a purchase. As we continue to navigate the balance of the holiday season and complex consumer environment, we'll continue to prioritize traffic driving marketing and product pricing initiatives, exceptional customer service, and prudent inventory management. As I conclude, I want to emphasize the importance of disciplined expense management and reducing total inventory levels to generate positive free cash flow for the year. We will prioritize the pay down of our debt as the primary use of excess cash flow. Maintaining a strong balance sheet is the top priority as we manage the business for improved performance. Thank you. And with that, I'll turn the call over to Jeff to review our financial results in greater detail.

Thank you, Paul, and good afternoon, everyone. I'll begin my remarks today with a review of our third quarter fiscal 2024 financial results, provide additional color on the balance sheet, then cover our updated outlook for fiscal 2024. Net sales for the third quarter of fiscal 2024 were $324.3 million compared to $340.6 million in the third quarter of 2023, a decline of 4.8%. Same-store sales decreased 5.7% compared to the third quarter of 2023. This is the second straight quarter of improved same-store sales trends and an improvement of 320 basis points versus the prior quarter. As Paul mentioned, We lacked event-driven demand during the quarter, primarily from our footwear and apparel clearance and liquidation events last year, as well as the spike in firearms and ammunition demand from the tragic events in Israel leading to the war and social unrest in October. This tough comp led to a decline on a year-over-year basis in these categories. Gross margin for the third quarter was 31.8% versus 30.3% in the prior year comparable period. Gross margins for the quarter came in below where we expected due to category and product mix, as well as from customers shopping and buying more of our value and promotional products. The category mix shift was driven by higher than expected penetration of firearms and ammo in October, which carries a lower overall gross margin. Additionally, we underperformed our expectation in sales and penetration in our apparel and footwear departments, two of our highest margin categories. SG&A expense as a percentage of net sales was 30.8% or $100 million compared with 29.4% or $100.1 million in the third quarter of last year. This is the first quarter where we comp our cost reduction initiatives implemented last year as evident in the smaller year-over-year decline versus previous quarters. That said, payroll, pre-opening, and depreciation expenses were all down on a year-over-year basis. These were offset, however, by the settlement of an outstanding lawsuit in the state of California. Net loss for the third quarter was $0.4 million, or negative one cent per diluted share, compared to net loss of $1.3 million, or four cents per diluted share, in the prior year period. Adjusted net income in the third quarter of 2024 was $1.3 million, or $0.04 per diluted share, compared to adjusted net loss of $0.2 million, or $0.01 per diluted share, in the third quarter of the prior year. Adjusted EBITDA for the third quarter was $16.4 million, compared to $16.2 million in the prior year period. Turning to our balance sheet and liquidity. Third quarter ending inventory increased versus last quarter and was $438.1 million compared to $446.3 million at the end of the third quarter of 2023. On a per store basis, inventory was down 2.5% versus last year's third quarter. In the third quarter, we made strategic investments in our inventory to drive sales in an effort to, one, ensure a solid in-stock position on our core products, Two, add newness in our stores. And three, effectively support the hunting and holiday selling seasons. As expected, this created a seasonal peak for our inventory levels as we ended the third quarter. We are confident that we will end fiscal 2024 with an inventory balance less than $350 million as we continue to execute on our holiday strategy and clean up pockets of unproductive localized inventory across our stores. Regarding liquidity, we ended the third quarter with a total debt balance of $154 million and total liquidity of $151 million. We have approximately $148 million available under our credit facilities for borrowing. We expect the outstanding balance on our line of credit to end the year below $130 million as we continue to reduce inventory and closely manage expenses. Careful management of the balance sheet remains the priority, and although the company is not yet generating profits, we still expect positive free cash flow for the full year 2024. Any excess cash will go directly to that pay down. Turning now to our guidance. As Paul mentioned in his remarks, the underlying business continues to experience persistent pressure from the difficult consumer environment weighing on discretionary spending, which is impacting our sales and gross margins. While I am pleased at how the team has executed thus far during the holiday, given the shift in consumer spending, we will continue to use targeted promotions and value-driving campaigns to improve store traffic and top-line sales. Similar to last quarter, we expect this to weigh on our gross margins in Q4, which is factored into our updated guidance. Now looking at our updated full-year 2024 guidance. We now expect fiscal year 2024 net sales to be in the range of $1.18 billion to $1.2 billion, adjusted EBITDA to be in the range of $23 million to $29 million, and total inventory to be below $350 million. To reiterate, the low end of our adjusted EBITDA range still assumes positive free cash flow for the full year. We also now expect capital expenditures for 2024 to be in the range of $17 to $20 million, primarily consisting of maintenance on our fleet and technology investments relating to merchandising and store productivity. That concludes our prepared remarks today. I will now turn the call back over to the operator to facilitate any questions.

Thank you so much. And as a reminder, to ask a question, simply press star 11 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. One moment for our first question, please. And it comes from the line of Matt Caranda with Roth. Please proceed.

Hey, guys. Good afternoon. Thanks for taking the questions. I'm curious if maybe you could just cover sort of the cadence of comps that you saw during the third quarter by month. It sounds like maybe we leaned in a bit more on promotions wondering what the response was, your customer's response was to that during the quarter, and then maybe just if you can cover what we're seeing quarter to date. I guess your fourth quarter implied comp would suggest down, call it like 5% to 6% year over year. Are we tracking in line with that level that you're guiding to for the fourth quarter? Maybe just a little more color there as well.

Yeah, Matt. Hey, it's Jeff. Thanks for the question. As we look at the comps for Q3, first thing I would say is we saw sequential improvement month over month all through Q3. We were being more promotional in effort to offset some of the tough comps that we had. Q3 is where we lapped the liquidation of apparel and footwear last year, and then the Israel-Hamas war that broke out. So we were proactively trying to address those with being more promotional, but we did see that trend improvement and As we said in our It did surprise us with the performance that we had where we outperformed expectations walking into the month of October specifically. As you look at Q4, the one thing on your comment of the down five to six comps that I think you need to consider is the 53rd week from last year, rolling that over, and then what that does in terms of the comp that it creates. Because you're taking a week of January and moving it into a week comparable against a week of October. So you have a very high revenue week last year versus a low revenue week. So there is just some nuance there on that that I would say go back and look at in your numbers.

Yeah, remind us maybe just I think with the calendar shift, Jeff, the 53rd week last year, I think you had in the past said that contributed something like $15 million, but just help us with the math really quickly if you could.

Yeah, the $15 million was what that one week, the 53rd week contributed. But again, when you're looking that now at a year-over-year comp, you have that an additional week that's falling into a January timeframe, which is a much slower time of year being compared against a week last year in Q4 that was inclusive of an October week, which is a much higher revenue week. So, you know, I would say that as we look at Q4 with those adjustments being made, we're looking at continual sequential improvement in comp store sales through the end of the year.

Yeah, okay. No, that's helpful. And then maybe just, could you guys unpack a little bit more about the new approach to promos that we're talking about? Maybe just a little bit more clarity around what we're doing in terms of everyday value and the gifting that you mentioned earlier. I know like historically, at least over the last about six to 12 months, you guys have highlighted sort of running a promotion that might be around a shooting sports item that drives traffic. And then you work to get attached off of that. Are we still, is that playbook still in place? And this is just layering on top of that, maybe just a little bit more on the promotional sort of posture that we have here.

I would say, Matt, it is, Paul, October, the same approach we took there as we were going against the firearms ammo, you know, bump that we had as we've gotten into November, December. It's really been promotional around being able to drive people to traffic around gifting, which was an arm we didn't, or lever we didn't have last year as we had less open to buy. So I think strategically, if we looked at it and we planned on it as we came into, spring to ensure that we're able to look at true gifting and to be able to take that into consideration as we get into November and December. So I think a little different look than what we've had in October. What I would tell you, and just to reiterate, I mean, the team's really done a nice job around the attach. And as we've used this from an AOV and attachment standpoint, as we draw people in from the promotion, It seems well exceeded our expectation on what we've been able to do from an attach rate and an AOV to be able to give a total solution to the consumer when they come into the stores. And I think the other component would be just to touch on is we've really looked at marketing completely different since Susan and team has come on to the organization. It's really been focused around, you know, removing the print and be extremely directional and digital. and we're super excited about what that's looked like, the fact that we can measure, you know, our ROAS versus really with no visibility with ROAS on print and what that looks like. So both of those things, I think, come into play, a more digital, you know, focused approach to where we could be extremely targeted on what that looks like and then to be able to play in different channels from a digital standpoint that the company's not played in. So bullish on that. on both of those and what they're doing in particular from an AOV and an attachment.

Okay, very helpful. Maybe just if I could sneak one more in for Jeff on the SG&A side of things. It sounds like we're lapping some of the cost-cutting initiatives that we had from last year. Does that mean that we're sort of winding down on the savings on SG&A on a year-over-year basis? Is there more to come that maybe we see in another sort of round of cost-cutting maybe just help us understand sort of where we have some levers to drive that SG&A line item lower in the fourth quarter?

Yeah, Matt, great question. You know, Paul and I have made the commitment, and we've talked about it in previous calls. As we go through these cost-cutting exercises, in order to meet our great service guarantee to our customers, we need to start investing back into store labor. So we will always be looking for additional cost savings in the organization. there's still more cost savings to be had in various back office type functions of the organization. And we'll keep exploring those. But as we realize those savings, we're going to be investing back into the service component and the customer facing components of the organization. So as you think about go forward, you know, SG&A Q3 and what your models are going to imply for Q4 is kind of steady state as I would think about it.

I agree.

Okay. Makes a lot of sense. I'll leave it there. Thank you.

Thank you. Our next question comes from the line of Anna Glaskin with B. Riley. Please proceed.

Hey, guys. Good evening. Thanks for taking my questions. I guess I'd like to start on gross margin. I know you noted that it came in a little softer than expected in the quarter, but still, you know, a nice expansion year over year. Seems to suggest that, you know, the refined approach to merchandising has reduced the risk of end of season clearance, even though you noted that, you know, it's clearly a priority to end each season clean. Maybe can you speak to that and the extent to which you're seeing that as well?

Yeah, and it's Jeff. Good question. As we looked at Q3, and we called it out a little bit, you know, we outperformed in areas of the business, like the hunt category, specifically firearms and ammo, where in our initial forecast, we did not expect that outperformance. So, when you outperform in that area, the rate that you're going to drive there is going to drive gross margins lower. Also, if you look at our inventory build during Q3, you know, it was a significant build and there was some freight costs of bringing that merchandise in that had a you know, not a large, but it was more significant than what we would have seen in the past impact the gross margin. So, you know, looking at the rate, looking at the mix of the sales, where we are driving the promotions to, it was a targeted approach to drive traffic into the stores. And then just the freight build and getting in stock for the holiday ultimately led to the, you know, less than expected result for gross margins for Q3.

Got it. And then as we turn our eyes to 4Q, similar question, but guidance seems to imply a little bit of a step up in year-over-year expansion and gross margin. As you sit here today, level of confidence based on that inventory build that, you know, you're not going to have to have intense discounting at the end of the quarter?

Yeah, we're very confident in our ability to execute on the guidance we gave to hit end-of-quarter inventory and the guidance we gave for top-line sales and bottom-line profitability. We're addressing what is a distressed consumer market and aggressive holiday season, and we're making the right moves and we're being promotional where we need to in order to make sure we end the year clean and we drive the right traffic into the stores to meet our expectations for the full year. So I would say we have... a lot of confidence in hitting our year-end numbers that we went out with today.

Great. And then just sort of a housekeeping, I believe your exposure to tariffs or direct imports would be limited to private label, which is a low single-digit percent of sales. Is that the case?

Yeah, you're correct. I think it's under 3% would be our direct exposure on our private brands to those tariffs. We've been actively looking and monitoring and finding out ways to reduce any increase in tariffs and the exposure we have there. The other areas of business, obviously, from the branded side, Our manufacturers, we're looking at their supply chains. You know, the one thing I'll call out is we probably do penetrate higher from a branded product perspective and products that are made in the United States than other retailers. But that doesn't mean that we wouldn't be impacted or have to look at different pricing measures as those tariffs come into effect moving into 25. So it's something that we're going to actively monitor. But from a private brand perspective, you're correct in that it's very little exposure there.

Great, thanks. That's it for me. Thank you so much. Our next question comes from the line of Justin Kleber with Baird. Please proceed.

Hey, good afternoon, guys. Thanks for taking the questions. First one, Jeff, just can you put a finer point for us on fourth quarter gross margin based on your response to the SG&A question? And if I look at the midpoint of your EVA dot guide, It seems to imply a 4Q gross margin sub 30%. I just want to make sure I have that math correct.

Yeah, Justin, while we didn't give specific guidance, I would say that if you look at the degradation that we had last year with the clearancing activity, you know, we do not foresee an anniversary of that. So, you can look at what we lost in margin last year during 4Q on the liquidation and clearancing and assume that we are going to gain that back as you think about the Q4 results. Without giving you specifics, that's probably the way that I would guide you on Q4 margin.

Okay. So then maybe I'll ask, going back to the SG&A question, if I carve out the items, you know, I guess on an adjusted basis, right, your SG&A dollars were around 98 million this quarter. And it sounds like you're saying that's the new base that we should be thinking about in 4Q and into 25?

Yeah, 4Q, you know, maybe just a little bit more with holiday and the staffing that we have to do in the store, but back to the previous comment, that's pretty much steady state as we move forward.

Okay, okay. And then, Paul, can you just expand a bit more on the Omnichannel marketing campaign? Is this more top-of-funnel spend to drive brand awareness, or are you more focused on, you know, targeting existing customers? Just any more color on what you're doing and what seems to be working best for you.

Yeah, I think it's clearly bottom and we've got a lot of runway just from an exposure standpoint as we think about it is for us to be able to attack the bottom of the funnel to move up from a search standpoint. I think we truly saw the benefits of it from an e-comm as we went through the holidays and the entire cyber week of the investments being made versus the print component of it. So I would say right now as we look at it, we have a lot of different channels. We're active in social and we've been able to take a couple different ones and even working with affiliates as we think about different programs that gives us more exposure to a big part of our business where We have an opportunity to be able to reinvest what those print dollars would have looked like in the past and be able to put that into work and really work hard for us. But to answer your question originally, I mean, the majority of it is coming in bottom funnel.

Okay. Thanks for the color, guys. Appreciate it. Best of luck over the rest of the holiday.

Thanks, Justin. Thank you. Our next question comes from the line of Ryan Sigdahl with Craig Hallam Capital Group. Please proceed.

Hey, good afternoon, guys.

Hey, Ryan.

I want to focus on hunting. So good to see fishing, girl camping, gift bar. Hunting was one that I think you guys had commented kind of after fishing was the focus area to right size inventory, strategy, store layout, et cetera. Some peers called out some better results in both camp and hunt earlier today. But I guess I was, little spry see that wasn't one of the categories that had growth in the quarter um so can you put a finer point on kind of performance in the quarter um and and where you guys are at from a strategic standpoint in that category i'll let jeff start then then i'll add some comments there yeah on the performance for the quarter we had a big headwind with uh the lapping of the israel hamas specifically in the ammo category you know if if

When you compare that, it was a really big headwind. So from a firearm perspective, we're very pleased with what we performed in Q3. We outperformed the run rate of Nick's for the quarter and continue to do so in the Q4. So we were very pleased actually walking out of Q3 with the performance of the hunt category, knowing the headwind that we were up against. So, you know, I know that others have reported differing results, but knowing the headwind we walked into, we were very pleased with the results. In terms of strategy, I'll let Paul cover kind of where we're at on the merchandise reset and that from a strategic perspective.

Yeah, and I think, I mean, the one thing that I would add to is as we think about and knowing in particular what the October comp was and the weight that that has, in particular from an ammo and our overall business, that the I think the team's done an extremely nice job of being able to offset that. I will also say I think we took, you know, an opportunity there as we went from promotional to drive people into the stores to really be able to clean up on our firearms, so non-go-forward firearms to be able to help us to be able to pull down our inventory levels to allow us to be able to reinvest back into ammo, which is much greater from a consumable standpoint to be able to drive people to the stores. You know, as we look at it, we're not calling out as a positive comp, but overall from an organization standpoint and the lapping that we had, we felt really good with the performance. Nick's on a strong over-perform on Nick's on the firearms piece of it, and then holding our own from an ammo, allowing us to be able to reinvest back into that inventory to drive trips to the store.

Maybe, Jeff, just a quick clarification question. Firearms are down year over year for you guys, but I think Nick's was plus one in the quarter. So I guess, can you reconcile those two? And then secondly, you guys ran a second amendment focused ad kind of ahead of the election. I guess, did you see, what did you see from a foot traffic conversion standpoint, et cetera? And did you have any OEM support on those discounts and rebates? Thanks.

Yeah, on the NICS perspective, Ryan, one clarification there. So, you know, NICS is a unit basis report out, and our units outperform NICS. So that goes to you're seeing a trade down in price point by the consumer, and that's the pressure consumer environment that we're in. We've been talking about that all year. But on a unit basis, we outperform the NICS substantially for the third quarter. So just to clarify there, sorry, and from the vendor side, you know, I would say that we are seeing better deals come to market, especially in the categories that have slowed down maybe after the election cycle. You're seeing more deals from the firearm and ammo manufacturers. FISH, for us, is a good performer in terms of OEM support and what we're seeing there from the vendor side.

Yeah, and I think we were happy both with Second Amendment. You know, I'll reiterate, you know, we didn't see a run-up with election. I mean, this was an absolute non-event for us from any type of run-up from a firearms or ammo standpoint. We didn't see any spikes in the business as we got to the election, and we liked both how the Second Amendment performed as well as really our first time and being able to engage with our veterans and what the Veterans Day promotional activity looked like and connecting with that consumer that we really haven't paid as much attention to as what we need to. So both of those, I would say, we felt good with what that performance looked like.

Thanks, Paul. Jeff, that's it for me. Good luck, guys.

Thank you. And as a reminder, if you do have a question, simply press star one one to get in the queue. Our last question is from the line of Mark Smith with Lake Street. Please proceed.

Hi, guys. First question for me is really just around consumer behavior. You know, it sounds like at the low end still really need to be promotional to kind of drive transactions. I'm curious if you've seen change in behavior for the higher end customers? You know, has it been similar? Do you need to kind of prompt them to come in and spend? Or have you seen kind of the higher end hold up okay?

I think the one thing I would just say on that, Mark, is just the ability now to be able to target our consumers and as we get much more granular on being able to go out through digital that we have that opportunity to be able to kind of parse that out, future state, on what that's going to look like on how we go to market, both, you know, from a price point standpoint. I would say overall, I know others have reported that they've seen uptick from the higher end consumer. And I mean, that's not something that we have seen, but I think it, in our opinion, we have an opportunity to just be much more precise on the consumers and already The information we have on our consumers is to be a much, much more targeted approach to them, future state, than what we have been in the past, Mark, to be able to communicate with them regularly.

Okay. And then I wanted to dig back in a little bit more on primarily firearms, but it also hits ammo. Maybe your confidence level as we look at Q4 on being able to outperform NICs in that kind of unit-to-unit basis is, And if you do feel like you can outperform Nix, continue to outperform Nix, is it at a big expense to margin within that category? Or do you feel like you can strategically promote product to drive unit sales without hurting margin too much in that category?

Yeah, Mark, that's a good question. Paul mentioned it on one of the previous questions. We've been really pleased with the attachment rate specifically on firearms. Well, while we've been more promotional from a firearm standpoint, the margin degradation is not such that we're not offsetting it or being more accretive with how high the attachment rate has become. We've become really good at making sure we get that additional purchase when someone's coming in for a firearm. We're no longer viewing it just as transactional in nature, meaning they come in, pick up the firearm, we send them out the door. It's more of a solution type selling thing where we're selling them

all the ancillary goods that go with that firearm and making sure we get additional margin accretive items attached to just the firearm you know i think the dot-com performance from a firearm standpoint and just the investment we continue to make in dot-com and knowing that that's ultimately going to drive the majority of those firearm purchases to the stores to allow us to be able to capture the attach and the aov is something that we think gives us a competitive advantage and allows our our outfitters in the stores to really do their jobs and to be able to serve the customers and attach and to grow the AOV. So pleased with what the teams have been able to do from an econ standpoint to be able to drive those firearms to the stores and allow us to be able to give the total solution to the consumer.

Okay. And then just looking at holiday season and as that applies to Q4, It seems like you guys feel pretty confident at this point in the guidance that you gave, especially the inventory guidance on being able to get that down. Maybe if you can tell us whether historically or today, at this point in the quarter, are you 70% towards your goal? It seems like last year there was more catch-up on promotions and trying to clear out inventory later through December. Do you feel like you're further along in the quarter so far on kind of getting to your your guidance numbers?

Yeah, you know mark great question in terms of sales. We're tracking a the current quarter sales model versus how 2019 was modeled. It's the same shortened holiday season. You know, we have five less selling days this quarter for the holiday than we did last year. So I would say we are happy with our progress versus that model. We are exceeding that model, but there's still a lot of sales left to occur. You know, these last two weeks, we're 14 days from Christmas Eve right now. So you're down to your last 14 selling days. There are some big days between now and Christmas. And we need to make sure that we're focused on achieving our sales targets. We're confident that we have the ability, that we have the right inventory, the right in stocks, the stores and our outfitters are ready to serve the customers and get the goods out the door. But there's still some work to be done in terms of the size of revenue left for the quarter.

Yeah, I think that's, I would just add, that's our biggest concern is that, you know, as we think about December and January, we've got, you know, we're very, I think, opportunistic on being able to close out. But at the same time, I don't think we're in a position where we're chasing the inventory in January and into December as last year as we looked at. And I'm I'm proud of the team and the work that's been done to ensure that we have the core goods that we're going to need, the right merchandise as we get into January to where you're just not putting yourself in a position where it's completely clearance liquidation, that you're allowed to be able to get the consumer really what they want as they come out as well. So I think Jeff said it well. There's a big lift in front of us the next 14 days, and we don't want to get in front of our skis too much, but I think ultimately we think the position we're in from an inventory standpoint will allow us to be able to serve the customers the way we need to in January without having to be in a heavy clearance liquidation mode to be able to get that down, that inventory level down by the end of the queue.

Okay. And the last one for me is just any additional thoughts around new stores. I think you guys said you expect to do one this next year. Can you give us any insight into timing and then As you look at this new store, will this be one where you're testing and trying new things, or will we see maybe more of a traditional format in a new store opening?

Yeah, Mark, the new store timing next year will be kind of in the late Q2, early Q3 timeframe in terms of opening. It'll be a standard 30,000-square-foot box. We'll incorporate what we've learned over the last year in terms of visual merchandising, store layout, sight lines, cleanliness, you know, departmental sizes into that layout. But I would not say that you're going to see a drastic change. We're not going to test or look at trying something completely different from what our core, you know, store footprint is. It's in an area of the country where we have a lot of other, it's in Arizona. So it's a state that we know, we know what the consumer wants. We have the brand presence. So I think the go-to-market strategy there is pretty set in terms of how we're looking at that.

Yeah, I mean, there's an opportunity to lean into, and I think test and learn as we really focus on personal protection and what that looks like. And it's one of our best states for personal protection, you know, as well as probably one of our toughest states from a fish. So as we lean into it and look at it, I mean, there'd be other cases where we could say we could really test, learn, and we'll do that in some of our existing fleet. But I mean, this is a heavy, heavy personal protection and one of our best performing states that we'll be adding another store to.

Excellent. Thank you, guys.

Thank you. As I see no further questions in the queue, I will turn it back to Paul for closing remarks.

Thank you, Operator. By way of note, we will be participating in the Roth Capital Deer Valley Conference this Thursday and we'll be at the ICR Conference in Orlando in mid-January where we will host in-person one-on-one and group meetings. Thank you for everyone for joining today's call.

And thank you everyone for participating in today's conference. You may now disconnect.