Good day, everyone, and welcome to Sportsman's Warehouse Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Vice President of Strategic Programs and Investor Relations, Riley Timmer. Please proceed.

Thank you, operator. Participating on our Q4 and full year 2025 call today is Paul Stone, our Chief Executive Officer; and Jennifer Fall Jung, our Chief Financial Officer. I will now take a moment and 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 8-K 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 dedicated outfitters across the country. Every day, they deliver on our promise of great gear and great service, strengthening our connection with customers and supporting the progress to transform Sportsman's Warehouse. I'm pleased with our fourth quarter and full year results, which exceeded our revised expectations. While the first half of Q4 reflected a more pressured promotional environment, we turned our sales trends positive in the back half of the quarter, which contributed to our better-than-expected results. We also delivered positive same-store sales growth in each of the first 3 quarters of 2025, resulting in a 1% growth for the year. This is our first year of positive comps since 2020 and a meaningful milestone in our turnaround. This progress reflects disciplined execution of the 3-year strategy we launched in late 2024. While there's more work ahead, we are encouraged by the traction across many areas of the business. For several weeks prior and through the first week of December, sales softened, driven by external factors, including the government shutdown and weaker-than-expected Black Friday and Cyber Week performance. We moved quickly to adjust our holiday strategy with a more promotional cadence to meet a value-driven consumer. These actions helped reverse trends with sales turning positive in December with strength coming into January, February and March. While we are encouraged by these improving trends, we remain measured as the U.S. consumer remains under pressure. Within the quarter, performance across our core pursuits was strong. Hunting and shooting sports grew more than 5% with firearm units again outperforming adjusted NICS checks, indicating continued market share gains. We also believe January demand benefited from external event-driven factors accelerating our personal protection category. Throughout 2025, we strengthened our position…

Thank you, Paul, and good afternoon, everyone. For the full year 2025, we delivered net sales and comparable store sales growth of 1%. We are encouraged by how the year finished with results exceeding our revised guidance following Q3. Importantly, this marks our first year of positive comparable store sales growth since 2020. Adjusted EBITDA for the year was $27.5 million. While modestly below prior year, this result exceeded our revised expectations, driven by stronger-than-expected sales in the fourth quarter. A key focus throughout the year was disciplined inventory management. We ended 2025 with inventory down $29.1 million or 8.5% year-over-year. We are pleased with the quality and composition of our inventory and believe we are well positioned to support growth in our key categories while continuing to improve productivity and turns. We ended the year with net debt of $90 million, a reduction of 6.1% versus the prior year and total liquidity of $107.8 million. We also generated positive free cash flow, reflecting improved operating discipline and improved working capital efficiency. Turning to full year department performance. Fishing remained our strongest growth driver in 2025, increasing 10.3% for the year and nearly 18% on a 2-year stack basis. This performance reflects more precise inventory timing, improved locally relevant assortments and continued strength in participation trends. We see this as a category with ongoing opportunity for both growth and share gains. Hunting and Shooting Sports increased 4.4% for the year, driven by improved in-stock levels in core firearms and ammunition, better alignment of inventory with key hunting seasons and continued traction in personal protection, including less-lethal alternatives. Our other categories declined for the year, reflecting pressure on discretionary spending. Importantly, we maintained inventory discipline in these areas with inventory reductions exceeding sales declines, supporting improved efficiency and margin structure over…

[Operator Instructions] It comes from Matt Koranda with ROTH Capital.

I wanted to start out with the near-term demand trends that you highlighted. I know you mentioned sort of a shift that you saw at the end of December that carried through. And I think you said in the prepared remarks, all the way through March. Does that mean we're effectively comping positive in the first quarter to date? And maybe just how you think about the category strength. I would assume it's still kind of the usual suspects in terms of firearms, ammunition, personal protection that's doing well, but maybe just unpack category strength as well for us.

Yes. Matt, this is Jennifer. Thanks for the question. Yes, what we made in our prepared remarks is that we were seeing the trends that really started in January continue through February and March, where you just called it as really strong growth coming from firearms and ammunition. And as we know and as you know, our industry tends to be really influenced by external events. And we think there's some tailwinds right now going on because of what is kind of going on externally. So yes, we feel good about the quarter. We gave guidance of a negative 1% to a positive 2% on the year, but we feel like we're coming out strong in Q1.

Okay. Understood. And then maybe just for the EBITDA improvement that you're embedding in the guidance for the full year. Just wanted to hear how to think about the building blocks there because obviously, the comp guide is, let's call it, flattish at the midpoint. And I would assume that the mix of categories being more skewed toward firearm, ammunition probably puts a little pressure on gross margin. So where are the building blocks to get to the positive EBITDA outlook despite kind of the flattish top line and maybe a little margin pressure from category mix?

Yes. So we do feel bullish about our fish category as well. That has been positive comping on a 1-year and a 2-year stack. So we're continuing to put our shoulder against fish, and we have a lot of initiatives that support it. And that with the exception of ice fishing in January, that category has bounced back nicely. So we will have some goodness there with the fish coming into play. That being said, Q1, just based on the penetration of firearms and ammunition, we expect margins to be down year-over-year. And then for the rest of the quarters, margins will be flat to slightly positive, slight improvement. And then with SG&A, a little bit of the same story, do expect slight -- flat to some slight leverage within that range. And that essentially kind of gets you to where our improvement in adjusted EBITDA comes in. Just the one thing to note that Q3 of last year versus Q4 of last year, there was a heavily weight of EBITDA in Q3 versus Q4, but we do think some of the Charlie Kirk effect influenced that. We expect those to be a little more balanced going forward.

If I could sneak just one more in on the way to think about free cash flow this year, especially on, I guess, the inventory front. It sounds like the signal is we see more efficiency opportunity. Just wanted to hear about how you think about inventory balance throughout the year, especially as we're closing the 5 underperforming stores and how maybe there might be opportunity for inventory per store to improve further this year?

Yes. We're definitely -- as part of our go-forward strategy in addition to executing on our -- against our core pillars, we do think there's opportunity to continue to find efficiency in inventory, everything from really about the timing of inventory, making sure that we're getting in similar to what we did in Q3 and Q4 of this year, getting in a little ahead of the season and definitely looking to take the marks before the season is over while the demand is still there. So that's what's really helped our inventory, especially towards Q4 and then how we ended up lean even though we came into the quarter with the first 6 weeks were a little bit tough. So definitely opportunity in inventory. From the stores that we discussed, which is an estimated 5 stores, it might be a few more, it might be a few less. We're still in negotiations on that one. Those we don't expect to close until after the holidays. So you're not going to see a material impact on those. depending on when we actually take action on those, we will transfer inventory and liquidate anything seasonal within the store when those, in fact, do close out.

Matt, I would just add, I think there's been a lot of learning on the inventory front as we went through last year. And I think from a seasonality standpoint, course correcting from '24 to '25, we're probably in seasons a little too early, carried inventory a little too long. So I think as we think of the discipline in the inventory approach this year, really, the rigor is going to be around being able to hit the mark, be able to improve the turns and to look at this improvement in inventory going through the quarters all the way through the year and be much more efficient with how we land the inventory and how we get out of the inventory.

Our next question comes from Anna Glaessgen with B. Riley Securities.

I guess I'd like to follow up on Matt's question about the first quarter here. I guess how should we be thinking about -- it sounds like the tailwinds from the external events are supporting demand offsetting maybe the con of gas inflation and the government shutdowns. How should we be thinking about the potential risk as the conflict extends? Do you think we should layer on an assumption of more consumer headwind if it extends into April, May?

Yes. With the risk, we do think the health of the U.S. consumer is really the risk that we're seeing. Q1, we do have a couple of months behind us, so we're feeling pretty good. But with fuel prices and given where our customer is positioned, that's definitely something we've contemplated in our guide. On the offset of that, the tailwind really is the 250th anniversary of America, which we think resonates well with our customer. And also, if there's anything else from an external event-driven factors, a lot -- we were just looking at all the legislation, both state and federal that's out there, and there's 16 that are on the table right now, some good for our industry, some not so good, but that's just -- that also impacts consumer demand. So there's a lot of variables in there. So we've tried to make sure that as we're thinking about the quarter and the year that we've accounted for that the best we can.

And then a bigger picture question. In the past, we've talked about potentially getting the mix back to pre-COVID, implying a lesser mix from firearms and ammo to help support margin recovery going back to the historical mid- to high single-digit adjusted EBITDA margin. Now we've seen hunt increase in penetration this past year, while, of course, it's great to see the outperformance versus the industry. I guess, how should we be thinking about the hunt penetration over -- in '26 and over the next few years and how that's being contemplated in the margin outlook?

Yes. We've contemplated it in our margin. What we're trying to also do kind of going back to the mix question is, as I mentioned on the first question, continuing to put our shoulder against fish. In addition, we have been working on cleaning up the apparel business. There was a pretty big hangover in that category. And we're finally getting to the point where we're able to bring in some new and exciting brands and kind of get that -- the soft goods business back on track as well. Probably have a little bit more work to do with camp. But as we actually start taking these other categories, the soft goods and camp and gift bar and whatnot and make them more attached to our pursuits, we know that's also going to help get them back on track as well because right now, they're a little bit ancillary and doing their own thing, but it's really aligning everything to hunt, shoot, Personal Protection and fish.

Yes. I would just add, Anna, I think the website experience that I mean, we're really leaning into this year and the opportunity around the bundling component of it where we're not putting that complete burden on the outfit or when they come in to attach at that rate, but to be able to allow the consumer to be able to walk through an easy process to be able to have the complete package and solution that they need and then allow them to have that solution when they get to the store versus putting the complete burden on our outfitter in the store. We like what we're seeing and what we're putting into place with that. And then fish as well. We've started the work with fish. We know we're underpenetrated online with fish, even though we've seen growth over the last couple of years, we think we have a large opportunity to improve what our overall experience looks like online and to be able to allow us to be able to grow that penetration of fish as well. So the growth has really happened from fish. We need to accelerate it this year, and we think there's a huge opportunity for us to do that through investments we make on working online to allow the consumer to have an ease of experience.

It comes from the line of Mark Smith with Lake Street.

Can you walk through a little bit more some of the different headwinds on gross profit margin in Q4? Any additional insights you can give us on kind of how much of the pressure came from mix versus promotional intensity maybe late in the quarter and anything like freight that was an additional headwind?

Yes. It's a combination of mix as well as promotional cadence. We -- as we came out off of our third quarter call, we were still in the midst of having some pretty pressured sales. So as we discussed on that call, we had the inventory, and it was seasonal inventory that we needed to make sure that we were clean up into January. So we did take the opportunity to be more promotional to drive sales as well as to clean up our inventory. So that's definitely a component of it. But in addition to that, with ice fishing not performing, -- it's probably one of our weaker comps for fish was Q4 simply because of ice fishing, there was no ice to fish. So that put pressure on it as well. But that since has come back. That season is behind us. So fish is back on track now. So a little bit of both. But as we look forward, there's not a ton of tariff impact in here. There's some. We know what that is, but I wouldn't say that's putting the pressure necessarily on our margins going forward.

I think, Mark, I mean the big part of it, we had to play a lot of catch-up in the back half. I think we -- November was an extremely challenging month for us as we started December, we were seeing the same thing. And to Jennifer's point, we were going to clean up and lift our commitment to be able to get out of product in season and not carry it forward. We like the way clearance is year-over-year now and the health of the inventory. So we did have to take some steps being promotional at the same time being cognizant of getting out of the seasonal inventory within the season. So I think the slow start that we saw in November and carrying over into the 1st of December caused us to react. And we did that knowing that we wanted to be in a much cleaner position and not have this continuous carryover of inventory.

Okay. And I think, Jennifer, you may have said that you expect Q1 margin to be down a little bit year-over-year. Is that just some continuation post January of some of those same pressures and lack of snow and that's all mix.

Yes, that's a mix. It's heavily penetrated towards firearm and ammunition.

I think that the way you think about it is with the mix, we're seeing a macro effect and February and March being lighter months for fish, not to help you there, then we get into the peak of fish, that helps to outweigh or at least to be able to take a little bit of pressure off of what the mix looks like, but to have February and March in there, especially with some of the temps that we saw on East and in particular, in the Southeast to start the year that we just don't have enough volume in those first couple of months of fish to be able to offset it.

Okay. And then I just wanted to dig in a little bit deeper on some of the store closures. You guys took impairments on 10 stores. It sounds like closing an estimated 5, but it's all going to come after kind of the holiday. Can you just walk us through the thought process, maybe of those 10 stores, how many are losing cash? And if any of these are kind of at the end of lease terms as you close it?

Yes. So we -- I think we've always talked about how -- in general, our fleet is very healthy. If you go store by store, it's good. But really, it came time to take a hard look at those 5 underperforming stores that just don't have a long-term place in our fleet and make some calls on those. So the thought process there is these are long-lasting leases that we have because our leases are unfortunately, 10 years long. So these aren't all 10 years, but they're going out quite a bit. But right now, what we're doing -- and these are actually losing adjusted EBITDA stores. So we're working with some brokers to try to either renegotiate, get a subtenant in there, look at all different options, do a buyout, all of which financially makes sense for us just given where they are within the portfolio. I'd say the others, there's a lot of -- not a lot, but there are a few stores that are going to roll off within the next coming, call it, 18 or 20 -- excuse me, 12 to 24 months anyway. So those -- you really can't do much with landlords when you have that short of a time left on your lease. So those are ones we will -- that we may have impaired, but we will just let run off. And then there are some in there where if we're going to close some of these other stores that we know we want to close, there'll be some sales transfers to their neighboring stores, and that will actually help improve the overall productivity of those stores. So those might actually remain in the fleet.

And as I see no further questions in the queue, I will pass it back to Paul Stone for closing comments.

By way of note, we posted an updated presentation on our Investor Relations website. Thank you for all joining the call today, and thank you to all the passionate outfitters around the country for their commitment to Sportsman's Warehouse. Together, we look forward to providing our customers with great year and exceptional service. Thank you.

And this concludes our conference. Thank you for participating. You may now disconnect.