Hello, everyone, and welcome to the Sportsman's Warehouse First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please note this event is being recorded. Now it's my pleasure to turn the call over to the Vice President of Investor Relations, Riley Timmer.

Thank you, operator. Participating on our Q1 2025 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 10Ks 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 90 nine-one 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. Before we begin, I want to recognize our team of passionate outfitters across the country. Every day, they deliver on our promise of great gear and exceptional service. This remains the cornerstone of our strategy as we continue to execute our turnaround plan to transform Sportsman's Warehouse for sustained profitability and growth. On our last call, we outlined the next phase of our business transformation, focused on returning to same store sales growth and improving operating margins. Rebuilding our foundation as a leading outdoor retailer hinges on disciplined execution across four key areas. One, inventory precision, ensuring we win the seasons by being narrow and deep in hunting and fishing to improve our in stock levels in the 20% of key products that drive 80% of ourselves. Two, local relevance, empowering our talented store outfitters to leverage their deep expertise and community connections to deliver the hyper local knowledge our customers appreciate. Three, personal protection. Establishing Sportsman's Warehouse as the authority in personal and situational safety. And four, brand awareness. Reinvigorating our brand and engaging customers to establish our position as the most convenient, trusted destination for outdoor gear and expertise. I'm proud of how our team executed against these key initiatives in Q1, delivering our first positive year-over-year sales comp in nearly four years. Despite ongoing consumer macroeconomic pressures and a later start to the spring selling season, first quarter sales were up 2% compared to last year. Notably, again this quarter, our firearms unit sales significantly outpaced the adjusted NICS data, suggesting we outsold the industry and continue to capture market share. Although the adjusted NICS declined 5.4% in Q1, our firearm unit sales increased nearly 7% over last year. While firearm customers continue to trade down, AUR for Q1 decreased…

Thank you, Paul, and good afternoon, everyone. I'll begin my remarks today with a review of our financial results for the first quarter of fiscal 2025, followed by an update on our balance sheet, inventory strategy, tariffs and finally, review of our full year outlook for 2025. Net sales for the first quarter were $249.1 million a 2% increase from $244.2 million in the same period last year. This marks a strong start to the year and reflects continued momentum from our improved Q4 performance. Our positive comp sales underscore the early success of our strategic initiatives, specifically improved in stock levels across core categories and our refined omnichannel marketing strategy, which is driving more targeted customer engagement. Gross margin for the quarter was 30.4%, up 20 basis points from 30.2% a year ago. This expansion was largely driven by favorable mix and rate improvements in our Fishing business, which carries a higher gross margin profile. That said, this gain was offset by increased freight expense tied to our strategic inventory pull forward in anticipation of higher tariffs and changes to international trade policy and to ensure we were fully stocked for the key spring and summer selling seasons. This action resulted in an estimated 50 basis point drag on margin in the quarter, an intentional trade off that positions us to deliver better full price sell through during peak selling seasons. SG&A expenses were $95.3 million or 38.2% of net sales versus 38.6% in the prior year. This improvement in SG&A leverage reflects our continued focus on expense discipline, simplification of the business and higher sales productivity. As we move through the year, we will continue to aggressively manage controllable expenses while investing in customer facing areas that directly drive omnichannel traffic and conversion. Net loss for the first…

Thank you so much. And it comes from the line of Ryan Sigdahl with Craig Hallum Capital Group.

I want to start with comp trends. Very nice to see that positive comp overall for the quarter, first one in four years. And curious if you could break that down by month and then also if you could extend that into May what you've seen?

Thanks for joining us today. So as we broke down Q1, saw good trends in February. We had an ad shift that really moved demand from March into April. So March versus an LY comp was a little pressured by just some of the change in ad that we had, but April was really strong. Happy with the performance in April and that shift that we made to move the ads more in line with Easter and the start of summer. And then the trend, I'd say, has stayed strong as we've moved into May into the warmer weather into the strong fishing season. So happy with the trends that we've seen thus far in May.

Are you willing to say if that's positive when you say strong in May?

It is a positive comp for May. It continues to be positive for the month of May.

Very good. Then just curious within the stores, are you seeing primarily increased foot traffic or is it due to kind of the inventory assortments and the narrow and deep in certain categories that you're actually getting basket sizes to increase here?

It's a mixture of everything. We're seeing better traffic trends, transaction trends being positive on a year-over-year basis. We're seeing higher basket size from a UPT perspective and higher AOV on the average order value of the basket. So I'd say the strategy, the attachment, what we're doing in terms of in-stocks, it's got the key metrics that we're looking at firing in a direction that we're really pleased with given the tough consumer environment that we're operating in.

I think I would just add transactions continue to build from April as we go into May. And then the e-com performance continues to be, I think, part of the message from just the total omnichannel, which is helping you get an 8% lift in Q1 on that that's driving folks to the stores. So we like the way that looks.

You mentioned Berna, the kind of shop within the shops, less lethal option there. But curious if there's opportunity to lean more into kind of shop within a shop highlight brands. I know there's been a focus to do a little bit more of that, but any way to really emphasize the key brands that you're leaning into in a bigger, better way than you currently are?

Yeah, I would say from a personal protection standpoint, we have the opportunity. We think we just continue to have upside based on what we're seeing from unit performance in firearms and in particular with handguns and what's happened within that sub category over the last few months. We think we have great opportunity from accessory standpoint, work with our partners to really blow out what that looks like to drive the overall basket. And then we do have even as we think about it from shop in shops as we start to build out the personal protection story even greater as we go through the year, the other partners to be able to join along with us as we really tell the story around personal protection. It's not isolated to one subcategory non-lethal from a launch of standpoint, but we can really expand that both from a lethal, from a technical gear and build out a true total, I think story as we think about the overall personal protection there, but a huge opportunity to continue to build upon some of the momentum we have with shop in shops there.

Our next question comes from Mark Smith with Lake Street. Please proceed.

First question for me, just wanted to clarify. It sounds like you pulled forward about $20 million in inventory here in Q1.

Yes. As we stated in our prepared remarks, Mark, we looked at addressing some of the headwinds or uncertainty with tariffs and made a strategic decision to pull forward about $20 million of inventory. As we highlighted, heavy penetration in that pull forward in the hunt category, firearms, ammo, some of the accessories, fish, a lot of fish product was brought in to preempt the spring and summer seasons. And then just a little bit in the camp category as we're looking at the exposure there to make sure that we were in stock on the items that truly matter, have a high turn, know that we can sell. So we looked at it as a very risk free investment and was able to preempt some of the uncertainty that's in the market right now.

And as we think about sales mix, you gave us a breakdown on gross profit margin on things that helped and where you saw some pressure. But did sales mix have a negative impact on gross profit margin here in Q1?

Yes, we did penetrate heavier on the firearm and ammo side than we normally would have, especially with the late start on Easter holiday. Easter felt the latest it's been since 2017 following at the April. So I saw a slow start to the camping season. Hopefully will see trends change as we move into Q2 and are optimistic and confident in where we have the merchandise and what we have in terms of performance there. But I would say that Q1 was pressured by heavy penetration in firearms and ammo. But that's what our strategy is leaning in towards heavy and we're happy with our performance versus the adjusted mix and taking market share in Q1.

Perfect. And last one from me. You talked about, I guess, confidence in lowering inventory year-over-year here by the time we get to the end of the year. I'm curious your thoughts around debt and the balance sheet and your ability to repay some debt this year, knock that down?

I'll start by just saying, Q1 we came in with a pull forward Q2, we're going to continue to see inventory come in, in Q2. We're going to hit our hunt season mark for the first time in a long time to be able to have the in-stock. I feel we missed it last year and to be able to hit the season with the start date we wanted to. I think it gives us an opportunity in Q1, Q2 as we build here, then Q3, Q4 to be completely clean and to be able to run that inventory level down where we've been pushing those inventory dollars into Q3, a quick pullback in Q4 alone. I think we're going have all of Q2 be able to capture the sales from the top side of it and to be able to pull the inventory down at the right appropriate level as we get through Q3 and Q4.

Yes. Mark, I would just add from a free cash flow standpoint, we feel confident in our ability to generate positive free cash flow. Ultimately, our top priority is applying any excess cash flow generated to a debt pay down. So we'll use the free cash flow we generate by the end of the year in order to pay down debt.

Our next question comes from Matt Koranda with Roth Capital Partners.

I guess just wanted to explore the reiteration on the guide. You mentioned there's still some pressure from tariffs. Maybe can you just talk about what you built in, in terms of like the unmitigated dollar pressure from tariffs that you're seeing or that you expect as of now? I know it's a fluid situation. And then are we taking price to offset some of that unmitigated impact? Or are we offsetting through efficiency actions? Maybe just talk a little bit about what you're doing to sort of mitigate the gross impact of tariffs.

Yes, I think the thing I would say on that Matt, we're constantly assessing it and looking at pricing down to the item SKU level. And this is something that we consistently do and we've got a better cadence than we ever have. And I think we're fluid here, but with the ability to be able to make adjustments and change prices as needed as we go there. And then I think the thing I would just touch on too is that we'll continue to balance the everyday low price, really working on the efficiency of the ammunition. We've seen that from a customer sentiment that we're at an all-time high on Net Promoter Scores. And the pricing action that we've taken, I think, correlates hand in hand with the pricing strategy that we've put on ammunition to be able to drive traffic to the store. And then our opportunity is to continue to work on the attachment piece of it. We like what it looks like from UPT. We're at all-time highs now and continue from an AOV standpoint. But I think it's going to be fluid. We like the actions we took in the first half or first half of Q1 to be able to pull forward any private label that we had, in particular, in camp to mitigate any risk that we had there. But I think, as you said, it's going to constantly be fluid as we navigate this just like everybody else.

Yes, Matt, I'd say on the guide front, we feel confident in the guide that we published barring any drastic reduction in consumer health. That can obviously have a significant impact on the business. But outside of those macroeconomic pressures, we feel confident in the guide and reiterating the guide for the quarter.

Does the pull forward in inventory mean we likely shouldn't expect any real tariff impact to the P&L until probably at least the partway into the third quarter or the fourth quarter of this year, given that we've sort of brought in unburdened inventory?

Yes. I do think it helps prevent or get ahead of the game on some of that, where we feel comfortable from an in-stock perspective that we've brought in enough good to last us through the summer selling season and probably into early fall.

Yes, in particular, Camp and Fish. I mean, Fish, best position we've been in from geo and from a localization standpoint. And the team really got in front of that, Matt, to ensure that we're going to be able to have and be at the pricing we need to and to be able to get through the season in a really clean position. So that's what's in front of us right now and we feel good with the positioning we have there as we go through the first half of the year.

And then maybe just last one, if I could sneak one more in. You mentioned in the release significant outperformance of mix. Is that on a unit basis or dollar basis for the quarter? I guess we'll get a little bit more information in the Q, but any callouts on what's driving that outperformance relative to sort of the industry?

It would be on a unit basis. We're significantly outperforming NICs in the terms of greater than double digit versus what they reported. And I know that the May NICs numbers just came out. I would tell you that that trend has continued into May with us outperforming significantly on a unit basis. As Paul mentioned in his prepared remarks, we are seeing pressure from an AUR perspective, but we're meeting the customer with the value they demand. We've made that strategic move to make sure we're sorted correctly. We got ahead of that. And so we feel very confident in our strategy around making sure we have the goods and the product that the customers are attracted to and price point that they want to buy it at.

And with this, I will conclude our Q and A session and pass it back to Paul Stone for final remarks.

Yes. Thank you for joining the call today and thank you to all of our passionate outfitters around the country for their commitment to Sportsman's Warehouse. Together, we look forward to providing our customers with great care and exceptional service. Thank you.

Thank you. And this concludes our program for today. You may all disconnect. Have a great day, everyone.