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 10-Ks 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 our sales. 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 8% compared with last year. We've engineered our assortment to capture demand for value-priced firearms and refined our accessory mix to drive basket growth and higher attachment rates. We also achieved positive sales comps in Q1 in most core categories, including firearms, clothing and footwear, and ammunition, which was up 3%, and especially fishing, which was up 11%. Importantly, fishing was the first category we addressed through our new merchandising strategy, and the two-year comp stack growth of 12.3% validates that when we get the right product in the right place at the right time and market it in the right channel, the results follow. While camping sales were down, we believe this was largely due to the later spring and the timing of Easter. We are well positioned from an inventory standpoint with strong in-stocks in our key departments. In fact, sales were up while inventory was down in many core categories as we continue to adapt and refine our assortment to meet the changing needs of the customer. We continue to build out bench strength in our merchandising group to further align our merch refinement strategy to the needs of the customer. Our e-commerce business also posted a positive comp, up 8% over last year and outpacing the overall business. This growth is being fueled by our new digital-first marketing strategy and an improved omnichannel customer experience, which is delivering higher engagement and transaction growth. The improvement across our business was primarily driven by improved in-stocks on the key items, including depth in our top sellers, on-time readiness within store merchandising and e-commerce channels for the early spring seasons, particularly with fishing and a strategic shift to everyday low price on core ammo calibers and other consumables, where we saw a 12% increase in ammo unit sales during the quarter. I'm especially encouraged by our seasonal readiness and how far we've come in localizing our merchandise assortments and geo-targeting our marketing messages. For example, in markets like Alaska, where we were historically late to key seasons, we are now better aligned with local expectations and it is showing in our results. We are also seeing positive customer feedback, which we believe is largely driven by our improved in-stock performance and the service provided by our store outfitters. Early in Q1, we made proactive decisions with select vendors to pull forward spring and summer inventory in categories impacted by tariffs, particularly in fishing and camping. While this temporarily elevated our inventory levels, it ensures we are well stocked on our key goods heading into these peak selling seasons. We'll continue to apply this approach in Q2 to ensure we're prepared for the critical hunting and holiday seasons. Importantly, we continue to anticipate ending the year with lower total inventory than last year and generating positive free cash flow. Jeff will speak more to this in his remarks. On the personal protection front, we are making significant progress to stand as the authority. We recently launched the Safety Outpost on our website, a curated experience focused on home defense and situational awareness. This signals our commitment to a major growth category that others have largely ignored, but our customers increasingly expect us to lead. To underscore our commitment, we recently launched a month-long campaign with Springfield, one of our top firearm brands in the personal protection space. In early May, we soft launched the less lethal side of our personal protection strategy with our partner Verna. Eleven stores now feature full shop-in-shops, and 40 additional locations have smaller tailored assortments. All locations offer live-fire demonstration capabilities that from our test pilot result in significant conversion versus without trial. The early results are encouraging, and we see significant upside as we build out this program. This quarter, we're also launching a new omnichannel brand campaign designed to reignite brand relevance and reestablish Sportsman's Warehouse as the preferred destination for hunting, fishing, and sports shooting adventures, where great gear and great service meet trusted local expertise. Local is our competitive advantage, brought to life by passionate outfitters and the communities they serve. Supported by our trade area and customer insights, this campaign is designed to integrate all marketing channels and reflects the strategic foundation of our turnaround and brand evolution. It's built to reengage former customers, build relationships with new ones, and earn loyalty in a fragmented and competitive market. Despite the ongoing consumer macroeconomic challenges, I remain confident in our strategic plan and the team's ability to execute. Our unique competitive advantage lies in our ability to out-local big boxes and out-sort small specialty retailers, delivering a compelling mix of value, quality, selection, and locally centric personalized service. We are staying disciplined, managing what we can control, variable costs, inventory levels, and merchandise margins. As we execute on our strategic initiatives, we are confident that this will translate into continued sales growth, improved operating margin, and further debt reduction in 2025. With that, I'll now turn the call over to Jeff.

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 quarter of fiscal 2025 was $21.3 million or negative $0.56 per diluted share compared with a net loss of $18.1 million or negative $0.48 per diluted share in the first quarter of the prior year. Adjusted net loss in the first quarter was $15.6 million or negative $0.41 per diluted share compared with adjusted net loss of $17.8 million or negative $0.47 per diluted share in the first quarter of the prior year. Adjusted EBITDA for the first quarter was negative $9 million compared with adjusted EBITDA of negative $8.7 million in the first quarter of 2024. As we head into the stronger selling quarters, we expect to generate positive EBITDA in the second half and full-year improvement. Turning now to tariffs and inventory. Total inventory at the end of Q1 was $412.3 million, up from $391.6 million in the same period last year. This increase reflects a strategic decision to pull forward approximately $20 million of inventory ahead of rising tariffs and to ensure we are fully prepared for the spring and summer seasons. This was not an across-the-board build. We focused on buying to core items, high-turning products, and seasonally relevant merchandising categories like ammunition, fishing, camping, and personal protection, areas where customer demand is more predictable and where being in stock matters most to our customers. We believe this was a low-risk investment given that these are high-turning products. We will also continue to look for low-risk inventory investment opportunities as we navigate the changing tariff environment. During the quarter, accounts payable increased disproportionately from the pull forward of inventory, resulting in a higher than planned balance. We expect that this will normalize in the second quarter. We also made meaningful progress reducing SKU count and eliminating underperforming vendors. Compared to last year, we've reduced total active SKUs by approximately 20%, helping us simplify the assortment, improve inventory terms, and drive margin improvement over time. This is a simplification and efficiency strategy we will continue to pursue throughout 2025. Looking ahead, we continue to expect to end the year with less total inventory than 2024, while maintaining the right products in the right stores at the right time. Our buying discipline has improved, and we are much better positioned to flex into peak periods. With a focus on SKU reduction, we are confident that we can drive sales, increase churn, and use less working capital. In regards to liquidity, we ended the first quarter with a debt balance of $166 million and total liquidity of $122.1 million. Our liquidity position remains strong, and we continue to actively manage working capital to ensure flexibility as we navigate through the year. Inventory efficiency and tight control of variable expenses will remain top priorities. As we move through 2025, we remain committed to generating positive free cash flow and using excess cash to reduce debt and strengthen the balance sheet. Finally, let me speak to our full year guidance. We continue to focus our efforts on executing our strategic plan for 2025 and closely managing our variable expenses. Despite the macroeconomic headwinds and downward pressure from tariffs, we are reiterating our guidance for the full year. We continue to expect fiscal 2025 net sales to range between down 1% to up 3.5% compared to 2024. Adjusted EBITDA to be between $33 million and $45 million driven by modest gross margin improvement and disciplined expense management and capital expenditures between $20 million and $25 million primarily relating to technology investments to improve store service and merchandising productivity as well as our normal store maintenance. In summary, we are executing with urgency and discipline. We are seeing early validation of our strategy in the form of improved comp trends and better inventory execution. We remain focused on generating positive free cash flow for the year and returning Sportsman's Warehouse to consistent sustainable growth. That concludes our prepared remarks today. I will now turn the call back to the operator to facilitate questions.

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 sizes 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-commerce 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 subcategory over the last few months. We think we have great opportunity from an 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 and have a high turn, know that we can sell. So we looked at it as a very risk-free investment and were 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 falling in April. So I saw a slow start to the camping season. Hopefully, we 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 towards heavily, 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 about 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. 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 to 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 debt paydown. 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 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 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 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 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 goods 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 to 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 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 have the goods and the product that the customers are attracted to and at the 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.