Greetings, and welcome to the Sportsman's Warehouse Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Rachel Schacter of ICR. Thank you, Ms. Schacter. You may begin.

Thank you. Good afternoon, everyone. With me on the call is John Schaefer, President and Chief Executive Officer; and Kevan Talbot, Chief Financial Officer. Before we get started, I would like to remind you of the Company's Safe Harbor language. The statements we make today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes statements regarding our expectations about our future results of operations, demand for our products, and growth of our industry. Actual future results may differ materially from those suggested in such statements due to a number of risk and uncertainties, including those described in the Company's 10-K for the year ending January 30, 2016 which we expect to file in the next few days. We will also discuss non-GAAP financial measures during today's call. Definitions of such non-GAAP measures, as well as reconciliation 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 8-K we furnished to the SEC today, which is also available on the Investor Relations section of our website at investors.sportsmanswarehouse.com. Now, I would like to turn the call over to John Schaefer, President and Chief Executive Officer of Sportsman's Warehouse.

Thank you, Rachel. Good afternoon, everyone and thank you for joining us today. I will begin by reviewing the highlights of our fourth quarter and full-year performance, and then discuss our progress on our strategic initiatives and thoughts on the coming fiscal year. Kevan will then go over our financial results in more detail and review our outlook, after which we will open up the call to your questions. We are very pleased to have ended the year with a strong fourth quarter which came in above our guidance and included net sales growth of 14.6%, same-store sales growth of 4%, and adjusted EPS growth of 22.7%. As I look back at our financial performance for the entire fiscal year 2015, I am very proud that we once again delivered on each of the goals that we set for ourselves at the beginning of the year. For the fiscal year, net sales increased 10.6% to $729.9 million, same-store sales increased 1.1%, adjusted net income increased 22.3%, and adjusted EPS increased 22.0% to $0.61. Looking more closely at the fourth quarter, the sequential improvement in the hunting categories that became evident the last two quarters continued into Q4. However, once again, our clothing and footwear business was impacted by the unseasonably warm weather that we have seen in most of our markets. Despite this headwind, as well as the choppy overall retail environment and the challenges facing our niche in particular, we have a number of highlights that made up what we consider to be an outstanding fourth quarter. Building on our track record of delivering against our goals, in Q4 we once again achieved our internal financial performance targets. We accomplished this despite the just mentioned whether headwinds and continued competition in many of our markets, the latter of which…

Thanks John. Good afternoon, everyone. I’ll begin my remarks by providing additional details on some of the accomplishments John highlighted in his comments followed by a review of our fourth quarter and fiscal year 2015 results and then discuss our outlook for fiscal year 2016. My comments today will focus on the adjusted results for the fourth quarter and fiscal year 2015. We have provided these results as well as an explanation of each line item and reconciliation to GAAP net income and earnings per share in our earnings press release which was issued earlier today. As John said, we are pleased with both our fourth quarter and fiscal year 2015 results. These results highlight the success that we've had so far in delivering on important objectives that we set out for our Company when we initiated our store growth strategy including our ability to fund our growth with free cash flow. We have consistently self-funded our growth in recent years, strictly adhering to that goal and we are proud to have accomplished this objective again in fiscal year 2015. Our debt to adjusted EBITDA leverage ratio decreased 20% to just below 2.5 times at the end of fiscal year 2015 from just over 3 times at the end of fiscal year 2014. We accomplish this reduction by increasing our adjusted EBITDA by more than 10% to $73 million in fiscal year 2015 from $66.3 million in fiscal year 2014 through the execution of our growth strategies including the opening of nine additional stores. During fiscal year 2015, we generated enough cash to open those nine stores while also reducing our total debt by approximately 9% from $199.9 million at the end of fiscal year $2014 to $182 million at the end of fiscal year 2015, because we generated free…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And with that the first question is from Seth Sigman of Credit Suisse. Please go ahead.

Thanks, good afternoon guys, a nice quarter. I wanted to first check in on the Q1 guidance. So, comps flat to down low-single-digits. You discussed the $5 million shift from – into Q4, which equates to about 350 basis points of an impact to Q1. If you adjust for that, it seems to imply comps pretty similar to the adjusted comp in Q4 of 2%. But I'm just wondering if you could offer any other commentary on what you've seen from Q4 to Q1, if you're seeing any improvement in the base business?

Well, I think as it relates to clothing and footwear it’s trending as it has been for the last couple of quarters. The improvement in firearms and ammunition continues to be strong and when I say it’s following industry trends, we are talking about trends that started in 2010. So we are talking about the industry trends that are in the high single to low-teens kind of growth which we believe is very strong and really kind of relates to a number of things in our outlook for 2016, the first of which being that I think we are going to see more people buying for use which means more hard goods, which means a little bit lower gross margin, but nice sales dollars and good margin dollars overall as those used categories continue to increase. Camping has always been a strong area for us and it’s continued to grow and we see that continuing. So it relates to the first quarter of 2015 that the numbers from the NICS data from December and January were very strong, February was not quite as strong, but I think February is kind of indicative of what’s ahead and that really kind of is what caused us to imply that, some of it had to moved into the Q4.

Got it, okay. And then my follow-up is about the operating margin commentary, which is basically flat for the year, or maybe some slight improvement at the high-end of the sales range. But you discussed the mix having an effect there. Does that mean gross margin is expected to be down this year? And how should we be thinking about whether there is offsets to that?

I’ll let Kevan to find what flat means. What I will tell you is we are increasing margin in virtually every category of the business on an item basis and we have been very prudent in both our buying strategies, our pricing strategies and frankly our promotional strategies. And as we go through the year, we really see that, if we maintain those disciplines, we can offset the difference between what you get in margin in clothing and footwear versus what you get in margin percent in the hunting, camping, and fishing categories. And I think to be to see that change based on the purchasing habits of our customers at least at the start of the year and we have no reason to believe it will change and in fact I think the presidential process through the back half of the year may cause more shifting into the hard goods category. I think we are doing a really nice job being able to structure a process that allows us to keep margins flat. What you mean by that?

So on the operating margin side I think Seth, what we are looking out there as we have made our plans for 2016, we plan for some particularly on the – at the corporate side of things some investments and headcount in our systems area and other administration as well to help us meet the continued growth demands and that’s coming primarily as I mentioned in my comments in the back half of the year. So as we look at the additional payroll dollars that’s going to hit us in the SG&A expense line, our operating margins are going to be flat for the year. We would have hoped to have gained some additional operating margin there from a percentage perspective. But with the flat gross margins that John just described, as well as the increases in payroll we’re guiding to flat operating margins as well.

Thank you. The next question is from Stephen Tanal of Goldman Sachs. Please go ahead.

Okay. Good afternoon. Thanks guys. I guess just to follow up on the last question, are you guys seeing wage pressure at all? Or is this truly just headcount increases?

We’re not seeing any wage pressure. I mean there are a couple of markets that are doing some minimum wage increases. But I think as you found on the city of Seattle there are - the end result is payroll dollars are staying consistent. It's really headcount and it’s really expertise headcount especially in the IT area.

We continue to monitor the legislative environment with respect to wage pressures. And while there is an increased discussion out there of those changes that have been enacted, we have factored those in and they have been very immaterial thus far. But we do continue to monitor that ever-changing landscape and as things get enacted we will reflect that in our guidance accordingly.

All right. Fair enough. And clothing and footwear, I guess the weather pattern from where we're sitting - and we do weight weather by stores, by state, so we are looking at your stores specifically. It didn't look so bad. Is there any reason to think that clothing and footwear weakness, maybe more than just weather, or are you guys pretty confident in that view?

There could be other factors involved. I think there could be the desire of our customers to spend more on the used categories and not so much on the ancillary categories. A couple of years ago, there was a tremendous influx of new camo patterns that I think caused a bump in clothing in 2014 - in late 2013 and 2014. We are not seeing a whole lot of innovation in camo patterns. Under Armour introduced the Ridge Reaper line a couple of years ago, and has – we’ve seen no new introductions of that nature lately. So there could be other factors you know clothing and footwear is a complementary part of our business, not a structural need of our business. So I don't know that our sales or our view on clothing/footwear generally may or may not match the global environment.

Thank you. The next question is from Peter Benedict of Robert W. Baird. Please go ahead.

Hey guys, first question is on the inventory. I know, John, you had mentioned you were comfortable with the inventory position. It's up 17%; a little less than 1% per store. But can you just maybe talk about the complexion of the inventory, and what gives you comfort that you are well positioned as you head into 2016 here?

Sure. The risk categories - if there are risk categories, which we don’t believe they are, because we’re not in the fashion business - would be clothing and footwear. And our inventory position is relatively low in those categories. What we have done in the last part of Q4 - we took advantage of some buying opportunities in the firearms and ammunition categories. And because of those buying opportunities we are able to get either discounts or extended dating terms. We had to take those goods into Q4, and all it’s really done is required us to bring in less than Q1. So it’s really a timing difference and it's a timing difference that is actually to our advantage, so we took advantage of the opportunity.

Okay, that makes sense. And then moving to the loyalty program, 850,000 members. Now that you've got that built up, have there - any surprises in terms of the complexion of those members? Age, income? I don't know, just trying to think about when - now that you've got this increased visibility into your customer base, what maybe you are learning and how that's going to help guide your marketing strategies for 2016?

I don’t think it’s anything. We haven’t seen any surprises in terms of demographic makeup. What we have been very pleased with is frequency of visits and average ticket of our loyalty customer, and interdepartmental purchasing of our loyalty member. And we see a whole lot of opportunities in enhancing those, we see a whole lot of opportunities in increasing conversion of those loyalty members based on the frequency of the visits versus the buying patterns when they visit. So I think the quality of our loyalty member is probably a little better than we had anticipated and therefore I think the opportunity is a little better than we had anticipated.

Thank you. The next question is from Lee Giordano of Sterne, Agee. Please go ahead.

Thanks. Good evening guys. It sounds like the small store opportunity is – I know it's early, but it's working well here. Can you just update us on your long-term goal there for real estate growth? And does this still look like you can go above 300 stores in the U.S. with a – into the small markets? Thanks.

Well, I think the 300 store number becomes more and more justifiable and easier to validate as we see the opportunities in the small store format. We really haven't talked much about over 300 stores, because 300 stores is a long way away from where we are today, but we get more and more comfortable that that is in fact a very, very real number. As it relates to the small stores as a mix issue, we’ve talked – we’re doing three of 11 this year just under 30%. I don't think it will ever get to the point where it’s the majority of our stores, but as we continue to move forward, if we continue to have the same types of initial results and first-year ROIC and four-wall EBITDA that were getting out of these stores. I certainly see it as a growing factor in our store growth.

Got it. And it sounds like all the stores that you are opening this year on the western half of the U.S., any plans in the future to kind of move towards the eastern half? Thanks.

I think there are all kinds of opportunities along that I-10 Corridor through Louisiana, Mississippi, Alabama into Georgia. I think there are opportunities in the Southeast that are no different than the opportunities we see in the West. As we’ve talked in previous calls, we are exploring all areas of the country. I think in our previous presentations, we have shown slides that show the opportunity in terms of MSA availability in areas of the country and we’ve also said before we’ve targeted, we’re targeting the South. And we’ll continue to do that as we get into 2016. We haven't announced any stores in there, but keep in mind that we started looking at the Slidell, Louisiana area in early 2012 and we opened it in first quarter of 2016. So, it’s very important to us that we understand the market and we know what's going on in the market and we’re very comfortable with the market before we go into, because as we said a number of times, and hammer in Ohio is not the same as a hammer in Arizona and you have to understand what the customer wants, what the customer needs. So that when you open a store, you have credibility and you have the right product. And in fact the largest feedback we’ve gotten in Slidell, there is two comments that have been made. The first comment is finally a store that focuses on hunting, fishing and camping and you guys have everything we need. So I think we’re very pleased with the work we've done there and we are doing that work in the South right now. So whether we open stores in 2017 or 2018 will be a result of what we learn about those markets and that will determine how we approach those markets.

Thank you. Our next question is from Andrew Burns with D.A. Davidson. Please go ahead.

Good afternoon. Two quick ones here. First for Kevan, just curious on the $20 million debt reduction. On that $12 million voluntary portion in first quarter, that's a quarter where you typically burn cash. Just curious if there's any sort of planned sale-leaseback type cash coming in - in the first quarter, or how to think about that the timing of the voluntary portion.

There is not any planned sale-leaseback transaction. We completed all the sale-leaseback transactions in 2016 that was one that we completed in the third quarter and one in the fourth quarter with respect to sale-leaseback transactions there. So, we currently are sitting on about $85 million of availability on the line of credit, as we continue to look out through the year, my cash forecast, we’re still comfortable that we have enough room on the line to grow our business as well as make this voluntary payment. So basically we’re going to be using the line of credit to pay for that.

Okay, thank you. And, John, in a portion of your prepared remarks, one point you mentioned difficult industry conditions. And there's a lot of things that could potentially be pointed to there, whether it's economic, economics, weather economic, retail store traffic competition. From what I heard, it sounds like there's a pretty encouraging hunt-fish-camp trend right now. So I just wanted to maybe pick your brain about what that commentary was about?

Well, when I talk about difficult industry conditions the oil and gas is affecting three of our stores rather substantially as you might have guessed. I think the uncertainty of what's going on in the presidential process is causing some people to hesitate and I think the press that's happened relative to others in our industry is resulting and people wondering what's going on. All of those things combined – tend to cause a prudent person to hesitate and when a prudent person hesitates in our opinion, our prudent person hesitates. They tend to gravitate toward what they are comfortable with and what they are comfortable with is hunting, fishing, and camping in the close they were last year, and that's what I was getting it.

Thank you. The next question is from Daniel Hofkin of William Blair. Please go ahead.

Good afternoon guys, nice quarter.

Thanks.

Just maybe if I could follow-up a little bit to the degree you are able to, or comfortable giving this sort of commentary, if you could talk a little bit just about your comp expectations by major categories for 2016. And then just from a longer-term standpoint, if you had a normalized comparison across the board which never happens, but what is a reasonable comp expectation, the next - in a typical year, if you would?

We don't normally talk about that those specifics, the general comment I can make to you is that we see our customer focusing in on the hard goods categories. We see a stronger trend in hunting, firearms, and ammunition relative to a weaker trend in the ancillary categories and those in hunting and fishing and the clothing and footwear categories. So we see a mix differentiation coming, but that's probably as far as we were doing in terms of category comments.

And it sounds like that that even, let's say, if you had normalized weather, it sounds like you feel like, given some of the uncertainty and conservatism out there, that there still might be some of that mix going on?

At this point we see our customers focusing in on items that they can use as opposed to items that they can wear.

Thank you. The next question is from Peter Keith of Piper Jaffray. Please go ahead.

Hey, good afternoon guys. Congrats on wrapping up a solid year overall. Was curious on the competitive openings; just looking back in 2015, it looks like it was running at a slightly over 200 basis point headwind. Just what you see coming out of that competitive horizon with new openings, how should we think about that as an overall headwind for 2016?

We actually expected to decline a little bit from an overall perspective, as of the end of the year we had nine stores in that new competitive grouping. Four of those nine stores are rolling out before the end of the first quarter. There are three new announced competitors, three stores that will be impacted here within the next – in the first half of the year and then one that we were aware of it at the end of the year and there will be I think one more or two more that rolls out by the end of the year. I think by the end of next year that competitive number goes from nine of a base of 55, to 7 of a base of 64. So as a result, we expect the competitive headwinds to decline during 2016.

Okay, good. And Kevan, one clarification question. You plan to pay down $20 million on the term loan. Is that a net debt reduction, or is that just specific to the term-loan overall?

Specific to the term-loan overall net debt because we’re going to be utilizing our line of credit, essentially gets us to a zero on the net debt, but it does save a significantly on the interest rate which I referred to in my comments of almost $1 million.

Okay. And I understand now. And maybe just to follow-on that, could we think about a leverage target of where you might be at year end?

In 2016, our expectations is going to be somewhere just over two, as John indicated our long-term goals are somewhere between 1.5 to 2 times.

Thank you. And our final question comes from Patrick McKeever of MKM Partners. Please go ahead.

Okay. Thank you. Just a question on the firearms piece of your business. And it seems like I mean you saw more of a I guess correlation to some of the mix numbers that we were all looking at that than some of your competitors. So, one of which said that it was more – some of the more recent demand has been more oriented toward handguns, which they don't sell too many of, that kind of thing. My question is really, what do you attribute the outperformance there to, relative to some of your competitors?

Well, I think we were born a hard goods store. We carry – our product offering is good or better than most and certainly better than those of our competitors that dabble in other things, other than hunting, camping and fishing. We’ve seen growth in all categories of firearms in the fourth quarter. I think there is consistent demand in all categories. And we, for some reason I don't know how this is explainable - for some reason we usually correlate relatively well not necessarily on a month-by-month basis, but usually on a quarter-by-quarter basis with the next data, so really that's all I can comment on. I can’t speculate on why the others don't.

Okay. And then a question on - I know we haven't been talking too much about the drought in the West. But looking at some of the - recently, anyway - looking at some of the maps that are out there, it looks like it's still pretty intense in parts of the West, maybe a little less so right now in the Pacific Northwest. But what are you thinking there in terms of the next few months as we move more into spring, especially as it relates to your fishing business?

Well, I think it’s certainly getting wetter, when we talked in previous quarters about lakes and ponds and streams being dry, I think the winter weather especially in Northern California, the Pacific Northwest has certainly changed that the weather in the South has certainly changed that dynamic. The snowpack in the Rocky Mountain areas seems to be certainly adequate. There is a blizzard going on in Colorado right now, which certainly doesn't hurt for the snowmelt in the next month or two. So I'm not going to speculate on what fishing is, but I think the conditions, if you were to look at the conditions that are required for a decent fishing growth, you would say these look like normal conditions. End of Q&A

Thank you. That’s the end of the question-and-answer portion. I would like to turn the conference back over to management for closing remarks.

Well, thanks everybody for chatting with us today and we appreciate you being on the line with us. Have a good one.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.