Earnings Call Transcript - SPWH Q1 2020

Operator, Operator

Greetings and welcome to the Sportsman’s Warehouse First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Caitlin Howe of Investor Relations. Thank you. Please begin.

Caitlin Howe, Investor Relations

Thank you. With me on the call today is Jon Barker, Chief Executive Officer; and Robert Julian, Chief Financial Officer of Sportsman’s Warehouse. 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 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 risks and uncertainties, including those described under the caption Risk Factors in the company’s 10-K for the year ended February 1, 2020 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 would also like to note that today’s materials include an earnings conference call PowerPoint presentation, which is available at sportsmans.com in the Investor Relations section of the website. You can utilize the steps to follow along with today’s prepared remarks. I would like to turn the call over to Jon Barker, Chief Executive Officer of Sportsman’s Warehouse. Jon?

Jon Barker, CEO

Thank you, Caitlin. Good afternoon, everyone and thank you for joining us today. I hope you and your families are safe and healthy during these challenging times. I will begin my remarks by addressing the COVID-19 situation as it pertains to Sportsman’s Warehouse. I will then discuss key metrics from the first quarter and will also provide updates on our omni-channel growth strategy. Robert will then provide a summary of our Q1 2020 financial results as well as some commentary on full year 2020. Finally, we will open up the call for questions. I am now on Slide 4 of the investor presentation and will address the COVID-19 situation. While the last few months have been challenging for many retailers, we have been fortunate to keep the majority of our stores open throughout the crisis. I could not be prouder of the Sportsman’s Warehouse team in navigating both the global pandemic and the surge in our business during this time. While remaining open, we have taken many steps to help protect the health and safety of our associates, customers, and their families, including additional cleaning and sanitizing, plastic barriers at registers, and face masks for associates. We have also leveraged our e-commerce capabilities like ship-to-home and BOPUS and using our own platform we recently launched curbside pickup, which allows us to serve customers while limiting person-to-person contact. With respect to COVID-19’s impact on our supply chain, we did see some interruption in Q1 with products sourced from China, primarily related to camping and fishing. As China-related interruption has largely subsided, however, the disruption to our supply chain due to COVID-19 has continued into the second quarter within certain pockets of our business. This disruption has been compounded by surging demand, creating shortages in firearms, ammunition, and fishing supplies. Our merchandising and demand planning teams continue to do an exceptional job of working with our vendors to help limit the disruption. While we have seen significant increases in sales to date, there is tremendous uncertainty and variability in the economic environment. Therefore, we will not be providing forward guidance today. Given the uncertainty surrounding COVID-19, we will continue to invest in our frontline associates and their safety. Additionally, we will remain financially disciplined as we limit discretionary expenses, reduce our debt load, and preserve our liquidity to effectively navigate these uncertain times. I am now on Slide 5. The surge in demand resulted in very favorable financial results in the first quarter of 2020. Net sales were $247 million, an increase of 42% year-over-year. We believe the exceptional demand to date has been driven by multiple factors, including the COVID-19 situation, the exit of competitors in our core categories, and the current election cycle. However, parsing out the exact contribution of each factor is not possible. Same-store sales for Q1 increased 28.6%. Firearms and ammunition were up 65% and 90% respectively, while NICS checks were up 56% for the quarter. Our sales increased significantly exceeded the NICS checks, which gives us confidence that we are not only growing sales, but we are continuing to take market share in our core categories. Additionally, during the Q1 surge in demand, many customers entered our stores or ordered from our website for the very first time. This gives us the opportunity to expose newcomers to Sportsman’s Warehouse brand and to our extensive product offering. We believe this bodes well for developing repeat customers by reengaging across new categories, building our loyalty program and customer database, and ultimately growing our business. In contrast to firearms and ammunition, apparel and footwear were down materially in the first quarter. During the height of the COVID-19 crisis in Q1, customers for what I referred to as 'questing.' They were far less likely to browse the store and as a result, we did not experience traditional sales mix across categories. The combination of surging demand for firearms and ammunition and soft sales in apparel and footwear materially impacted our gross margins in Q1, which Robert will discuss in greater detail during his prepared remarks. Turning now to Slide 6, the tools and capabilities we have built over the last 2.5 years, along with our extensive assortment, enabled us to capitalize on the increased online traffic during Q1. Before the crisis, we were already seeing robust adoption of our e-commerce platform, including BOPUS and ship-to-home. As the crisis created the need for social distancing and required people to stay at home, customers embraced these services even more, accelerating our online penetration. Sportsmans.com saw a massive surge in demand during the quarter with our e-commerce channel sales growing over 200% year-over-year. During the first quarter, we also completed the rollout of ship-from-store, and we are now utilizing our stores as fulfillment nodes for orders placed online. We have made great progress, but we must continue to invest in our capabilities to remain relevant in the increasingly e-commerce driven retail environment. With respect to our physical store footprint, we have opened 3 new Sportsman’s Warehouse stores year-to-date, including 2 prior Field & Stream stores located in Crescent Springs, Kentucky; and Kalamazoo, Michigan. Additionally, we closed a store in Milpitas, California during Q1. In a typical year, Sportsman’s Warehouse will open 8 to 12 new stores as we are all aware this year is not typical. With recent permitting and construction delays, our store expansion strategy has been impacted. We now expect to open 5 to 7 total new stores in fiscal year 2020. Turning to Slide 7, in summary, we couldn’t be more excited with the momentum in our core business coming out of Q1. In the near term, we view the upcoming election cycle as a potential catalyst for our business. Furthermore, we believe COVID-19 is changing consumer behavior and motivating people to spend more time outdoors. Our products did exceptionally well in an environment in which consumers are spending more time fishing, camping, hiking, and hunting. We will continue to work with our vendors to ensure we have our stores and websites stocked with the products our customers demand. In the medium term, there is significant uncertainty in the economic environment and we are monitoring this evolving situation very closely. In the long term, we believe we are uniquely positioned to capitalize on market share opportunities and changing consumer behavior to become a larger and more profitable company. With these factors at the backdrop, we continue to make progress on our growth initiatives, including enhancing our online platform and expanding our store footprint. We look forward to speaking to you again in early September when we report our second quarter results. With that, I will turn the call over to Robert to discuss our financial results.

Robert Julian, CFO

Thank you, Jon. I will begin my remarks today with a review of our Q1 2020 financial results. As Jon mentioned earlier, we are not providing forward guidance at this time. However, I will provide a few parameters for thinking about our expected full year 2020 financial results. Turning now to Slide 9 of the presentation, first quarter 2020 net sales were $246.8 million compared to $174.0 million in the first quarter of 2019, an increase of $72.8 million or 41.8%. Same-store sales increased 28.6% in the quarter led by firearms and ammunition. Starting in April, camping and fishing also rebounded nicely for the quarter increasing over the prior year period by 16.6% and 8.5% respectively on a same-store basis. Q1 2020 gross profit was $74.8 million compared to $54.2 million in the first quarter of 2019, an increase of $20.6 million. Gross margin was 30.3% for the quarter, a decline of 80 basis points versus prior year. This decline can be attributed to several factors. Product and channel mix caused a 250 basis point decline in gross margin due to a higher proportion of revenue coming from firearms and ammunition and more sales volume coming from our e-commerce channel. This was partially offset by higher vendor incentives and improved product margins, which positively impacted gross margin by 120 basis points and 50 basis points respectively. SG&A expense of $75.2 million for Q1 2020 was an increase of $15.7 million or 26.3% compared to the first quarter of 2019. As a percentage of net sales, SG&A decreased approximately 370 basis points to 30.5% for the quarter. During the quarter, we closed 1 store that resulted in a non-cash impairment charge of approximately $1 million in Q1 2020. We incurred additional payroll expense of $6.5 million versus prior year, including $1.1 million of hero pay for our frontline associates. The remaining increase is primarily due to minimum wage increases and new store growth. Rent expense increased approximately $1.6 million primarily due to new store openings. Other operating expenses increased approximately $5.4 million versus prior year. We incurred incremental marketing expense of $2.2 million. Credit card fees increased $1.3 million due to the increase in sales volume and insurance expense increased $0.3 million. Store operating expenses, including utilities, janitorial and security, increased by $0.6 million due to new store openings and additional cleaning performed due to the COVID-19 situation. We incurred $0.4 million of pre-opening expenses and transaction costs associated with the acquisition of 2 Field & Stream stores. Loss for operations was $0.4 million in Q1 2020 compared to a loss of $5.4 million in the prior year period. Interest expense in Q1 2020 was $1.5 million compared to $2.1 million in Q1 of 2019, a reduction of $0.6 million. This improvement is a result of lower total borrowings and lower interest rates. We recorded an income tax benefit of $0.8 million in Q1 2020 compared to a benefit of $2.0 million in Q1 2019. The $1.2 million reduction in this benefit is primarily the result of our improved financial performance year over year. Net loss for the quarter was $1.1 million or $0.3 per diluted share. As compared to a net loss of $5.5 million or $0.13 per diluted share in the prior year, this represents a year-over-year improvement of $0.10 per diluted share. Adjusted net income in Q1 2020 was positive $0.4 million or $0.1 per diluted share compared to adjusted net loss of $5.2 million or negative $0.12 per diluted share in 2019 this represents a year-over-year improvement of $0.13 per diluted share on an adjusted basis. Adjusted EBITDA for Q1 2020 was 8.2 million compared to $0.4 million in the prior year period. Turning to Slide 10, I will now comment on our balance sheet and liquidity. Q1 2020 ending inventory was $301 million compared to $291 million at the end of Q1 2019, a $10 million increase. We have added 14 new stores and closed one store during this time period. Inventory is down 9.6% on a per store basis compared to prior year. We incurred $4.8 million of net capital expenditures in the first quarter of 2020 compared to $3.1 million in Q1 2019, an increase of $1.7 million. This increase was due to new store construction and maintenance on our existing stores. First quarter 2020 operating cash flow was $31.3 million versus $3.4 million for Q1 2019. This $27.9 million improvement in operating cash flow year-over-year is primarily due to higher accounts payable associated with increased sales volume. Our liquidity remains strong as we ended the quarter with $118.4 million in net outstanding borrowings on the line of credit compared to $141.6 million at the end of Q1 2019, a reduction of $23.2 million. This reduction was achieved while holding an incremental $20 million of cash on our balance sheet in order to provide maximum flexibility during these uncertain times. At the end of the first quarter 2020, we had approximately $60.3 million of availability on the revolving credit facility. The outstanding balance on our term loan was $25.7 million at the end of Q1 2020 compared to $33.7 million at the end of Q1 2019, a reduction of $7.9 million. Our total liquidity including cash on hand at the end of Q1 2020 was $82.4 million compared to $41 million in the prior year. Turning now to Slide 11 of the presentation, as I mentioned previously, we will not be providing forward guidance at this time due to the significant uncertainties surrounding the current economic situation. However, I would like to provide some data points and commentary on how we are thinking about expected full year 2020 results. Starting with new store growth, we anticipate opening a total of 5 to 7 new Sportsman’s Warehouse stores in 2020. With respect to gross margin, we expect a continued higher proportion of revenue to come from firearms and ammunition and a higher volume of sales to be conducted through our e-commerce platform; both of these factors will continue to put pressure on gross margin. We expect our fiscal year 2020 effective tax rate to be approximately 27%.Fiscal year 2020 interest expense is estimated to be approximately $6.5 million to $7.0 million. Finally, full year 2020 capital expenditures are anticipated to be approximately $23 million to $28 million. It is important to note that the current economic situation is fluid and could change very rapidly. Therefore, we will continue to take a relatively conservative approach to managing our inventory expenses and liquidity in 2020 and beyond. We look forward to updating you on our business and financial results during our next earnings call in early September. With that, I will now turn the call back over to the operator for questions.

Operator, Operator

Thank you. Our first questions come from Daniel Hofkin of William Blair. Please proceed with your questions.

Daniel Hofkin, Analyst

Good afternoon, folks. Just wanted to maybe just ask a little bit about sales trends and maybe differences by types of market or anything – additional color that you can share as well as trends over the – you may have said something about the trends over the course of the quarter end since and just sort of how that’s developed. And then if there is anything that suggests what – whether some of the increase in demand and some of the categories that have strengthened recently has been pent-up demand versus more maybe representative of trends we might expect going forward? Thanks very much.

Jon Barker, CEO

Happy to do it. Hey, Dan, it’s Jon. Hope all is well. Let me give just a little bit of color on what we saw in Q1 from a trend basis and curve. Started off in February, the business was right on track with where we expected. We were seeing a nice uptick in some of the categories that others had exited. Following Super Tuesday, we started to see a surge in firearms and ammunition, primarily around our core categories, our core customer. And I attribute that to the fact that the ASP and the actual SKUs we were selling were right in with normal. When COVID-19 started to become a major issue in the country in mid-March, we started to see the types of products change across the business. We saw heavy, heavy demand on personal needs such as water storage, water filtration, generators, and dehydrated foods. On the firearms side, we did see a transition to a lower price point firearm mid-month. There were a lot of new firearms buyers in the market for personal protection, and we were able to serve them well having the full extensive assortment that we keep in place. When the stimulus checks came out as the next component, we saw our core customer and core products start to sell again with firearms ASPs increasing and the type of firearm being purchased slightly different returning to the core. We are not providing any update on May’s performance or post first quarter performance. But what I can share with you is it gives us confidence about the long-term as we are seeing a lot of new participants into outdoor activities and not just shooting and hunting, but camping, fishing, and hiking has seen a significant surge across the industry. We are seeing a lot of new customers that we are educating on these products and we are seeing a lot of folks coming into the stores that haven’t fished for decades, maybe then all of a sudden are getting back to it. I believe that, that’s an indicator as folks think about how to spend their money, how to spend time with their families. The outdoor is a great way in a cost-effective manner to make memories and to stay safe from the social distancing. So, we are very upbeat about what that can bring for us in the long run.

Daniel Hofkin, Analyst

That’s great. And maybe just one quick follow-up, obviously with some of the additional civil unrest in the last 1.5 weeks, anything that you can see just in terms of trends or whether you think that’s been an additional factor very recently in terms of people wanting to spend less time in more crowded areas than even before?

Jon Barker, CEO

Yes. Dan, I think that it’s a good callout. I don’t know how to think about whether it’s a trend or not, but certainly for a few days, we have seen an increase in personal protection equipment being needed, and again kind of returning back to more of an entry level personal protection than a core user of firearms, but again that’s only been a few days. So, I would be uncomfortable indicating that might be a long-term opportunity for the industry at Sportsman’s Warehouse.

Daniel Hofkin, Analyst

Understood. Thanks very much. Best of luck.

Jon Barker, CEO

Thanks Dan.

Operator, Operator

Thank you. Our next question is from the line of Seth Sigman of Credit Suisse. Please proceed with your question.

Seth Sigman, Analyst

Hey guys, thanks for taking my question. I appreciate the nice job navigating through what I'm sure was a very dynamic environment. I just want to follow up on one of the last points around new customers coming in and sort of more active activities and things outside of the home. Should we interpret from that that you are seeing a pickup in some of the non-firearm categories maybe late April and into May? If you could comment on some of those category trends, that would be helpful and then just related to that can we also assume if that's true that in the margin performance could look a little bit different, a little bit more favorable into the second quarter? Thanks.

Jon Barker, CEO

Yes, Seth. Good afternoon. I will try to hit on the categories and just to be clear we did start to see a pickup in categories outside of the shooting sports in late April and early May. As COVID restrictions started to be reduced across the country, we saw a significant uptick in participation across camping, fishing, and hiking. We expect that will continue throughout the year, and I think that's for multiple parts. One is there is uncertainty about the economic situation in the country where some people may be investing less in their vacation and traveling and may be spending more time outdoors with their family. I also think the social distancing effect has happened in the way people are thinking is likely to have more people seeking outdoor activities further away from large masses and groups. Robert, I will let you hit on the margin, if you will.

Robert Julian, CFO

So, Seth, on your question about margins, certainly our margin was greatly impacted by sales mix and we talked about 250 basis points of pressure in Q1 due to the much higher proportion of firearms and ammunition in our total revenue. So, it is true if our mix would return to more typical or normal levels, you would see an equivalent improvement in our overall gross margin just on mix alone.

Seth Sigman, Analyst

Got it. Okay, and then can you just follow up on the promotional activity in the industry? What are you seeing competitively and related to that, I think you had one competitor that was expected to fully exit the category in a significant number of stores this year. I think they got part of the way through, but maybe defer that into next year. Can you comment on that? Does that have any impact in your view? Let me know, thanks.

Jon Barker, CEO

Yes, I am happy to do so. Promotional activity during Q1 and into May has been limited. Some certainly, some activities were already pre-planned by our competition and even Sportsman's Warehouse, and we have maintained that cadence, but from a margin standpoint, the promotional activity has been very limited and has helped margins on a per department, per category basis.

Seth Sigman, Analyst

The other question is about the competitor. I think you're probably referencing Dick's Sporting Goods. They had announced I believe it’s early March or late February they were going to exit 440 more hunting lounges, which we knew there was a potential for that to happen when they announced it. We certainly are interested to see how they might execute on that from an inventory reduction standpoint and whether that would lead to promotional activity. Immediately after they announced that we went right into a COVID situation which I suspect helped move some of that inventory out of those hunting lounges within even a few weeks before they shut down because of COVID. I think on the earnings call this week they may have mentioned the plan is still in place to exit the 440, but may be delayed for some amount of time as they navigate through the reopening of their stores and just the time it will take to make that transition. So, we expect that still to happen and provide again more market opportunities for Sportsman's Warehouse in hunting and shooting sports. Got it. All right, thanks guys. Good luck.

Jon Barker, CEO

Thanks.

Operator, Operator

Thank you. Our next question comes from the line of Ryan Sigdahl of Craig-Hallum. Please proceed with your questions.

Ryan Sigdahl, Analyst

Good afternoon guys and congrats on the strong quarter.

Jon Barker, CEO

Thanks, Ryan.

Ryan Sigdahl, Analyst

Maybe just to start, you mentioned higher vendor incentives benefited gross margin in the quarter. Just curious I guess what was different this quarter with their particular categories? Was it volume driven, etcetera?

Jon Barker, CEO

Yes, go ahead.

Robert Julian, CFO

While some of it is just a function on volume, most of our vendor incentives are tied to purchase orders sent in our sales activity. So certainly just on a volume basis alone, there you would see an improvement and we work very closely with our vendors in these relationships and to be able to support the marketing activities that we do in advertising and so on. It is to benefit our mutual growth and so. Our marketing team and purchasing team have been working closely with these vendors to ensure that we can partner and grow both of our businesses together, and the volume is just driven more absolute dollars of incentive.

Ryan Sigdahl, Analyst

Got it. Then just on e-commerce, really strong quarter there mentioned with the headwind to gross margin. I guess is it more or less OpEx needed for the e-commerce? Said differently, can you compare kind of EBITDA margin of in-store sales versus e-commerce?

Jon Barker, CEO

Yes, Ryan, let me I can provide some color on that. If you think about the work content that’s required throughout the supply chain to fulfill any e-commerce order versus store order, there is more work content required. The difference is some of the work content falls on the last mile delivery on the parcel carrier USPS. So, when we think about the cost structure and the unit economics of an e-commerce order versus a store order, it’s not a black and white situation. If you think about the unit economics of an e-commerce order that’s picked in store or shipped to store, they are effectively the same as a store unit economics. The difference is when you start shipping that directly to the home that does exert pressure on gross margin because of the transportation and packing related to that item, that is not inherent in a buy online pick-up in store order. So, that will put pressure on gross margins. We did see a significant uptick in the percentage of e-commerce orders that we shipped to home during the COVID pandemic as customers are staying at home and not shopping in stores. I suspect that over time we will continue to see an uptick in that percentage of shipped home as we have introduced a thousand new customers across the country to Sportsman’s Warehouse. So it’s a nice opportunity for us to engage new consumers and grow the business, but it will have some margin pressure as it’s related to transportation expenses.

Ryan Sigdahl, Analyst

Got it. One last one for me before I turn it over. Inventory down 10% on its per store basis, I guess how do you feel by category or other? You noted guns ammo strength are there certain categories that you wish you had more? And you said primarily a function of just demand or other supply chain constraints out there? Thanks and good luck.

Jon Barker, CEO

Yes, Ryan. Ryan, as you can imagine we feel very good with the forecasting we put in place and our ability to execute against the increasing demand quickly in March, and I think you can see that in our mix, our firearm checks compare, and we absolutely gained significant market share during that period. However, with the type of growth we have seen in some of these categories, our supply chain has been unable to keep up, and it’s not just specific to Sportsman’s Warehouse; most of our competitors have a major lag in firearms and ammunition and in some camping related categories. And then that is the single largest focus of the demand planning and merchandising team right now is to get back and start and make sure that we can serve the customers we expect – where we expect so. If you think about the 10% down per store, that is not our plan. Our plan, we cut a slight bit of inventory system last year, and as mentioned in my previous calls, we set up this year; we were not expecting additional declines in per store inventory. We would like to be in a better spot than we are today. So that is our focus – just getting our fall back in line and getting that product down to the stores. But this is in a specific to one category or one vendor. This is the overall supply chain related to outdoor products right now, and we are seeing significant pressure.

Robert Julian, CFO

Yes, I’ll just add – we did a really nice job last year of reducing inventory while actually improving our in-stock performance. We are in a little bit of a different situation now. We have demand outstripping supply and we are just trying to chase it a little bit. But frankly, we are probably doing better than most in staying in front of that. But it's a little bit of a different situation now than last year, while we were reducing inventory while improving in-stock.

Ryan Sigdahl, Analyst

Good. If I could sneak one more and actually two, just kind of as a follow-up on that. You mentioned May was plus 75%, the industry you guys nicely outperformed in the quarter. Do you think inventory constraints or is there any reason why I guess you can't perform in line with the industry or better like you have them?

Robert Julian, CFO

There is no reason why we cannot continue to take market share in firearms in the short term and long term, Ryan.

Ryan Sigdahl, Analyst

Good. Thanks guys. That’s it for me.

Jon Barker, CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Peter Keith of Piper Sandler. Please proceed with your question.

Peter Keith, Analyst

Hi good afternoon guys. Great job, great results. I was hoping you could talk about your competitive positioning. Certainly, the vendor incentive benefit of 120 basis points is intriguing, but maybe on a big picture basis, are you finding that you are getting better product margin and even with all the demand? You feel like you may be the first or second in line to get products? Curious how maybe your competitors' positioning has evolved so far this year with some of those other competitor exits.

Jon Barker, CEO

Yes, I think certainly, Peter, we've continued to have great relationships with our vendor base. That's always been a core principle of our merchandising department, to make sure that we have a collaborative relationship where everybody wins in terms of gross sales and profit. As some of the competitors have exited, that has certainly helped us grow, and I think we have opened 15 stores in the last year. There is no one in the outdoor sporting goods market that’s opened 15 stores in the last year; I think it's been just the opposite. So, I would like to believe from the perspective of the vendors that they would tell you that we approach this collaboratively with an exceptional relationship with the vendors. We want them to grow, we want them to be healthy, and we want to share together in the profit that is available. We are heavily focused on improving pricing and our capabilities around that and making sure that we can be as dynamic as possible to changing market conditions.

Peter Keith, Analyst

Okay, and for Robert, that 120 basis points get in Q1 – can that type of run rate continue? Sounds like it is a lot driven by collaboration. Or if sales flow, you're not going to get the same type of benefit.

Robert Julian, CFO

Yes, I think that there are multiple ways that impacts. One part of that—they own incentives go towards marketing. In Q1, we did market as heavily as we would normally given the activities and ads. If sales would flow, it would impact those incentives, but I don't think I would be again that as a true run rate. But it was a testament to what the team accomplished in Q1 to help offset the overall mix margin impact.

Peter Keith, Analyst

Okay, good, and looking just now with some of the category trends I guess it looks like with the camping and fishing finishing positive with the quarter is pretty good spike in demand in April continuing with May. But I was hoping you could comment a little more specifically on the footwear and clothing. Is that something that has inflected positive? Is there maybe less questing, more broader shopping in the store?

Jon Barker, CEO

Yes, so we have seen a return to a more normal consumer shopping process where they're not just coming in and grabbing an item and getting out as quickly as possible. They are starting to cross shop departments, so all departments are showing improved trends or starting to show improved trends. We also reacted pretty quickly to footwear and apparel the week that we started to see what was happening with COVID-19 and retail potentially getting shut down. We started to pull back on our apparel and footwear purchases. Having lived through this downturn in the economic cycle in retail a couple of times, that tends to be one of the areas that have a long time in sourcing, and you end up with too much inventory. We pulled back very quickly. We feel good about our apparel and footwear inventory position. When you think about what likely to happen, we feel good about with the functional apparel that we are in, and the outdoor apparel we are in is in a very good spot. Hiking on the footwear side is showing some really nice trends as well. It’s early, but we believe that we could see a nice uptick this year. As people think more about spending time outdoors for activities, I think that leads into an opportunity for boots this summer and into early fall.

Robert Julian, CFO

It appears all at one more thing in the context of consumer demand and gross margin. It is likely though, even whether there might be some improvement in footwear and apparel, I think throughout the year, you should expect the firearms and ammunition will skew more heavily in our total revenue, and apparel and footwear will be in lower proportion of our total revenue going forward on a full year basis this year.

Peter Keith, Analyst

That’s good. Thank you. One last question for me and treat with all of the new customers you might be getting. Is there any way to give us the total loyalty members at quarter end and how that looks on a year-on-year basis?

Jon Barker, CEO

I don’t have that number in front of me. Let me finish and circle back on that one.

Peter Keith, Analyst

Okay. Fair enough. Thanks a lot guys. Good luck.

Jon Barker, CEO

Thank you.

Operator, Operator

Thank you. Our next questions come from the line of Mark Smith of Lake Street. Please proceed with your questions.

Mark Smith, Analyst

Hi, guys. I wanted to circle back to the inventory a little bit and just what specifically gun and ammo. Can you talk about maybe how that flowed during the quarter or there were periods in March and April or maybe it was lower than where you ended the quarter? And then any kind of what you are seeing in the supply chain from vendors come in May?

Jon Barker, CEO

So again let's start – let’s go back to what we saw in volume. This is just on a same-store basis, firearms and ammunition were 65% and 90%, respectively during the period. So, you think about from our forecasting in flow; we were very optimistic coming into the year, but I don’t think anybody here in the business predicted the forecasts for 65% and 90% on a same-store basis— not including the new stores that we put. So, we started to see some flow issues kind of third, fourth week of March and we have been working intimately with our vendors to try to keep the flow moving. It’s been a situation where any one vendor has been perfect and others have been challenged. It’s been an overall situation and not specific to vendors. We have had our own bumps in the road along the way with attendance, etcetera, in moving products. So I think it kind of started the third week of March, fourth week of March, and it continued. I will tell you, though, it has branched out as customers are spending more time fishing, camping and hiking. We are seeing other categories in our business and the industry, not just specific to Sportsman’s Warehouse that are looking thin. And I am sure Mark, you have probably been in the store and you have noticed some of the terminal tackle and the lures and the rod reel combos are very thin. And we are working very hard to restock those shelves both internally and with our vendors.

Mark Smith, Analyst

Okay. And then as we look at some of those very picked over categories, what are you seeing as far as pricing that you are paying for specifically as we look at ammunition and firearms in your ability to pass any price increases on to the customer?

Jon Barker, CEO

Yes. So again, we have had really good communication with the vendor base on the firearms and ammunition. We historically see a price increase each year early in the year. We have seen some additional increases, and I think those increases are related to the fact that factories are working overtime. They have had to pay extra for COVID. They are doing extra work within their factories. And in our situation, we have maintained or improved our margins across the business and kept up with those changes. I do believe it’s important for us as a business and as an industry to ensure that we are providing fair prices to our customers. We will not gouge our consumers in this situation where demand is far outstripping supply. But on the other hand, we need to make sure if costs of materials or cost of labor are increasing, we balance that with the elasticity of pricing.

Mark Smith, Analyst

Okay, and then I just want to look at the cadence of firearms sales. You did a good job kind of walking through what you saw during the quarter, but in this maybe just a little different. Can you give us any insight into maybe where you trended higher than the next data? Was it pretty flat that delta throughout the quarter? Or when you saw some competitors that closed their doors, was where you saw an expansion where you really took market share? Was there anything else that really led to your gains in market share this quarter?

Jon Barker, CEO

Yes, again, Mark. I think underlying in the data you would see the personal protection categories where the primary driver of the increase in mix check for the industry meaning handguns and personal protection shotguns. What we did see on the cycle that I shared was a little higher price point handgun early in the process then offset by more entry level firearm or shotgun. And when the entry level consumer, the new consumer came in around in the COVID process, that's when personal protection shotguns tended to increase more than handguns. Again, I think there was a little bit of it's my first firearm. I need to protect myself. What's the safest way to do that? And certainly, a personal protection shotgun is a good option. As we got into the stimulus checks, we saw a nice return to a more normal mix. I would tell you it's still a little bit heavier on the handguns than it was the prior last year, but the price point has improved the last few days. Again, I don’t want to call this a trend because I hopefully as a society we are working together to try to limit some of the activity that's been happening this created a few days of uptick. It's been more of a return to the entry level personal protection handgun and shotgun.

Mark Smith, Analyst

Okay, then last one for me maybe for Robert. SG&A levels, as you walk through some of that, can you just give us any more insight into kind of what you viewed as maybe one time in nature that drove SG&A and dollars a little bit higher, and kind of any insight you can give us into the rest of the year and how you think that trends.

Robert Julian, CFO

Yes. So in Q1, we did incur, as I mentioned earlier, about $1 million of hero pay for our frontline associates, which is certainly a one-time incremental type expense. The other sort of COVID-related are specific unique expenses in Q1 were probably about $0.5 million between cleaning supplies and other extraordinary items to react to the situation. And so we saw a tremendous leverage based on the incremental revenue. There’s also a one-time backup from the closure of the one store which was also about $1 million. So, those three items represented about $2.5 million worth of unusual expenses. I would say that going forward you should see, excluding the unusual items, a pretty stable environment. You will see a lower SG&A as a percent of revenue as we have our normal seasonality in the higher revenue in the quarters to come for the year.

Mark Smith, Analyst

Okay, that's helpful. Thank you.

Jon Barker, CEO

Thanks, Mark.

Operator, Operator

Thank you. Our next question comes from the line of Peter Benedict of Baird and Company. Please proceed with your questions.

Peter Benedict, Analyst

Alright guys, most of mine have been taken here, but just a couple. First on the 250 basis points of mix within gross margin, was that pretty equal between the categories versus the channel shift or was one of those two more material?

Jon Barker, CEO

Yes, we're estimating that the channel the e-commerce channel makes is roughly 50 basis points to 40 to 50 basis points. The mix created by the higher firearms and ammunition was about 200 basis points.

Peter Benedict, Analyst

Hi Robert, thank you. And then on the 50 basis points of product margin, what was the sole impact from just the Field and Stream inventory that you guys have been going through? Was that what basically got you the 50, or is that behind us and not really a factor anymore?

Robert Julian, CFO

No, that is completely behind us and not a factor at all. It is a continuation of a trend as we had talked about before in our last quarter that we have been seeing improved product margins really across every category. And so that’s been a continuation of that same trend that has nothing to do with the purchase of the Field & Stream inventory at a discount.

Peter Benedict, Analyst

Got it. Good. And then just the strategy to – or what’s been the shopping behavior of these new customers. I mean, you obviously had the big surge. Are these folks coming back? And then what’s your strategy for, I guess, communicating to them going forward? I know Jon you said you maybe get back to those with the loyalty stats, but are these folks signing up for the loyalty program or are they just kind of coming in getting that firearm and then moving on?

Jon Barker, CEO

It’s been a mix, Peter. For a few weeks there at the peak of the COVID situation, these customers were coming in and getting their item and getting out fairly quickly. We have now seen more normalcy to where consumers on the fishing, hiking, and camping categories that are either re-engaging or new; they are signing up for the loyalty program. We are starting to help them with their needs using the expertise in the store to fulfill whatever that need is for the outdoors, and that’s providing us an opportunity not only to engage the first time but re-engage through our database, our email program, and our loyalty program. So, again, the couple of weeks during COVID were somewhat unique in the way people are shopping. We are seeing much more of a return to it now. As I spend time in the stores interacting with consumers literally, watching people come in and say, I haven’t fished in 10 years, I needed a couple of new combos, I am going drought fishing or bass fishing. It’s been interesting to watch that re-engagement from consumers that maybe haven’t been around a while. So, we see that as a really nice long-term opportunity for Sportsman’s Warehouse and the overall outdoor industry.

Peter Benedict, Analyst

Yes, now. Good to hear. Thanks and good luck. Thanks, guys.

Jon Barker, CEO

Thank you.

Operator, Operator

This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great evening.