Sportsman's Warehouse achieves 2.2% same-store sales growth in Q3, but warns of challenging consumer environment ahead

Thank you for standing by. Welcome to the Sportsman's Warehouse third quarter 2025 earnings conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Riley Timmer, Investor Relations. Please go ahead, sir.

Thank you, operator. Participating on our Q3 call today is Paul Stone, our Chief Executive Officer, and Jennifer Faul-Young, 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 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 our website 10K 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 our website 8K we furnish with the SEC today, which is also available on the Investor Relations section of our website at our website. 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 dedicated outfitters across the country. Each day they deliver on our promise of great gear and exceptional service and. Their commitment continues to help drive our momentum. Turning now to our third quarter results, I'm encouraged by the solid progress our team continues to make as we execute. Against our transformation strategy. Despite a tough consumer environment and the impact of prolonged government shutdown, we delivered our third consecutive quarter of positive same store sales growth. Same store sales grew 2.2% versus last year. With broad based strength in our core categories of hunting and shooting sports as well as fishing, our firearms business once again outperformed. Adjusted NICS checks extended our market share gains for yet another quarter while adjusting NICS checks declined. Our firearm unit sales increased despite the election driven headwinds from Q3 last year. Underscoring the continued focus and improvements on a curated assortment with depth in key products, strong in stocks and seasonal readiness with inventory. Our enhanced marketing efforts and our outfitter led in store experience in ammunition sales. Demand remains strong, growing nearly 2% in Q3. Our Everyday Low Price strategy on core calibers complemented by healthier in stocks and bulk ammunition strategy continue to resonate with customers. With average unit retail up in the low single digits, we are seeing sustained engagement from customers as we lean in further to drive the areas of our business. Looking now at our key categories, we drove meaningful growth across several strategically important departments. Hunting and shooting sports increased 5% supported by strong inventory levels with relevant local assortments heading into our peak fall season. Fishing delivered exceptional growth of 14% reflecting broad participation in the category and strong execution from our teams. Apparel grew about a percent and a half with particular strength in technical outdoor wear that supports our solution selling approach. Camping, however, remained challenged. Sales declined versus last year reflecting the highly discretionary nature of this category. This is a category where we continue to refine and curate the assortment to complement the pursuits that drive customers into our stores. In fact, inventory in this category was down more than sales, highlighting greater efficiency with our inventory and investments in our key sales and traffic driving categories. E Commerce was another bright spot, delivering growth of 8% in the quarter. Both ship to home and buy online pickup and store perform well. With bopis continuing to drive traffic and improve conversion in our stores, our digital first marketing efforts are supporting higher engagement and customer acquisition across all channels. The improvements we're seeing across the business remain tied to the strategic priorities guiding our transformation. Inventory Precision we meaningfully reduced inventory from Q2 to Q3 while supporting Peak seasonal demand, demonstrating improved planning, forecasting and allocation disciplines. Importantly, we paid down debt during the quarter and remain on track to finish the year with lower total inventory than last year and positive free cash flow. Our focus on faster turning regionally relevant assortments continues to drive both margin and working capital efficiency. Local Relevance Aligning our merchandise and marketing to local outdoor pursuits continue to drive measurable results. We are expanding targeted marketing, community partnerships and in store educational events that reinforce our position as the local authority for outdoor enthusiasts. Personal Protection this category continued to resonate strongly with customers with strength across both lethal and non lethal solutions. Berna and Taser remain strong growth drivers and the try before you buy model in our archery lanes and enclosed pods is differentiating our store experience in meaningful ways. We added Berna in additional stores during Q3 and now have live demos available in 116 of our 147 stores across the country. We are committed to building on this momentum as we further position Sportsman's Warehouse as the authority in personal protection. Brand awareness Q3 marked an important milestone in our brand awareness journey. Our adventure, like a local campaign and digital first go to market strategy has proven to resonate with customers. As we noted, highest year to date engagement deepened our loyalty subscribers and strengthened brand affinity. Using our new First Party Data insights. This now gives us the foundation to strengthen retention and customer value through the transformation of our Explore Rewards program. Focused on increasing average order value transactions per customer and long term customer value, Q4 will be dedicated to roadmapping an enterprise level 2026 customer acquisition strategy that reduces reliance on promotion and shifts the business towards more sustainable, profitable growth. In early November we were pleased to open our newest store in Surprise, Arizona, our 11th location in the state. Arizona is a market we know very well with several of our top performing stores already operating in the region. This new location features a unique personal protection focused format, the first of its kind in our fleet designed to meet the needs of the customer seeking both lethal and non lethal solutions. This will be our only planned store opening for both 2025 and 2026, reflecting our disciplined approach to growth and our commitment to investing where we see the greatest opportunity for long term returns. I'll now provide a little color in the current market conditions, creating headwinds on the business. Starting in mid October, we started to see a slowdown in our positive sales trends which we believe was partially driven by external disruptions from a prolonged government shutdown impacting consumer confidence. This has made for a challenging start to Q4 and while still early in the quarter, we believe it's prudent to take a conservative approach to the balance of the year. With the US consumer under pressure and a very promotional retail landscape, we are navigating the environment carefully and maintaining disciplined control over variable cost and inventory productivity. Given these dynamics, we are taking a cautious view of the fourth quarter. Though we remain confident that our strategic priorities and ability adjust with speed will support modest sales growth for the full year, we remain confident in our ability to finish the year with lower inventory than last year, generate positive free cash flow and a lower debt balance. I'll now turn the call over to Jennifer.

Thank you Paul and good afternoon everyone. We delivered our third consecutive quarter of same store sales growth in Q3 with comps up 2.2% year over year, maintaining our positive trend from the second quarter. Net sales for the quarter were 331.3 million, an increase of 2.2% compared to the prior year. We are pleased to report that the company achieved three consecutive quarters of year over year comp store sales growth. This has been the result of a focused strategy to win the seasons in hunting and fishing and our conviction to lean in heavy to the personal protection category, an area where others in the industry are backing away. Reflective of this focus is the 5.3% growth we achieved in Q3 in our hunting and shooting sports department and the 14.1% increase in fishing which on a two year comp stack is up 17.9%. Additionally, apparel was up 1.4% in the quarter. The combination of this growth was partially offset by decreases in our other departments. Gross margin for the quarter was 32.8%, a 100 basis point improvement versus Q3 last year. This increase was largely driven by improved overall product margins from healthier inventory, lower freight expense due to lower inventory receipts, improved shrink and a higher penetration of sales from our fishing department which has a higher overall gross margin. This increase was partially offset by an outsized mix shift to firearms and ammo which has lower gross margin and a lower penetration in the camping and footwear departments which carry higher margin rates. SG&A expenses were 104.5 million or 31.5% of net sales versus 30.8% in the prior year. This increase was driven by a reinvestment in our customer facing areas of the business including store and support area, labor and digital marketing to drive sales and omni channel traffic. Additionally, SGA was pressured this quarter from about a $3 million of additional non reoccurring add back expenses excluding add back expenses in both years. SGA as a percent of sales was 30.3% versus 30.1%. We will continue to closely manage our variable operating expenses. Net income improved $8,000 or $0.00 per diluted share versus negative $0.01 per diluted share in the third quarter of last year. Adjusted net income in the third quarter was $3 million or $0.08 per diluted share compared with adjusted net income of $1.4 million or $0.04 per diluted share in the 3rd quarter of last year. Adjusted EBITDA for the third quarter grew 13% to $18.6 million compared with adjusted EBITDA of $16.4 million in the third quarter of last year, an improvement of 50 basis points as a percentage of net sales. Now turning to inventory, total inventory at the end of Q3 was $424 million compared to $438.1 million in the same period last year, a decrease of $14.1 million or 3.2%. As anticipated, we also reduced inventory by approximately $20 million compared with Q2. We strategically pulled inventory forward in the first half of the year and into early Q3. This was in an effort to ensure our stores were well prepared and set on time for the fall hunting and fishing seasons and to be ready and on time to support the holiday selling season. Our focus remains to build depth in core items and eliminating the slow moving inventory that doesn't resonate with the customer. It's critical that our inventory is seasonally and regionally relevant, faster churning and supported by predictable customer demand which will produce lower inventory balances. This will continue to be a focused effort for 2026 and provide efficiency in our operating model. Through enhanced buying discipline. Our goal is to be in season earlier, exit earlier and achieve clean sell throughs across the categories which will improve the return on our working capital. Given the improvements in working capital efficiency, we expect to end the year with ending inventory less than $330 million which is $12 million less than prior year on a higher base of sales. In regards to liquidity during the quarter we paid down $13.2 million of debt and ended the quarter with a total debt balance of $181.9 million and total liquidity of $111.9 million. Additionally, in November we drew inventory down by $23 million and paid down an additional $9 million in debt. As we move through the holiday selling season and end of the year, we expect to end the year both free cash flow positive and total debt to be lower than our ending balance last year. Inventory efficiency and tight control of variable expenses remain top priorities as we manage the business prudently through Q4 and into 2026. Finally, let me speak to our update on full year guidance. Starting late in the third quarter and now into Q4, we are seeing accelerated macroeconomic headwinds from a pressured US consumer and what we believe are the prolonged effects of a government shutdown. Given this pressure, we have increased our promotional efforts to maintain inventory efficiency while driving sales which is putting pressures on margins. Additionally, we have increased our digital marketing spend to be more competitive in the marketplace to accelerate omnichannel traffic during this period of high shopper demand. Accordingly, as we recognize and navigate current market conditions, we are revising our full year guidance. For the full fiscal year 2025, we are adjusting our net sales range to be flat or up slightly. Again, this adjustment reflects a tough Q4 environment due to a challenged US consumer. Furthermore, we are adjusting our full year EBITDA guidance due to margin pressure from a very promotional Q4 and lower than anticipated Q4 sales. We now expect adjusted EBITDA to be in the range of $22 million to $26 million. As mentioned earlier, we expect ending inventory to be less than $330 million and we expect our capital expenditures to be less than $25 million for the full year. As we move forward into 2026, we anticipate continued progress around our strategic initiatives with very modest top line growth and a focus on improved profitability through disciplined cost management, inventory efficiency and improved gross margins. I will now turn the call back to the operator to facilitate any questions.

Certainly. And as a reminder, ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. Our first question comes from the line of Ryan Sigdal from Craig Hallam Capital. Your question please.

Hey, good afternoon. I want to start with kind of what you're seeing in recent weeks, Black Friday, Cyber Monday, etc. And if you've seen any improvement and then maybe separately to that, given the cut to the guidance with consumer. You mentioned government shutdown. Curious if those trends have been persistent or if you've seen any improvement now that the government shutdown is no longer great.

Hey Ryan, this is Jennifer. Thanks for the question. Yeah, I think as we spoke about in our guidance, what we saw in the end of October where our trajectory. Turned more negative, we started to see that through November as well. So we didn't necessarily see a pickup from right after the government shut down. So that's really reflected in our guidance for the quarter.

Gotcha. Maybe just throw some help us out for Q4 I guess. How much of this is you guys going to lean into promotions to try and bring customers in versus trying to more hold profitability and manage the margin side.

Yeah, it's a little bit of using the inventory we have to drive sales and to drive foot traffic into the store. But it's also inventory management. There's a seasonal component to our business and we know that we need to exit this inventory when the customer is shopping for it. We don't want to carry aged inventory into 2026. So it's, you know, it's twofold. One, managing our inventory, managing our networking capital and two, using it to help stimulate our sales.

Last one for me just we have Florida second amendment sales tax holiday. Curious if you guys saw any benefit to the business and how you think that trends into the new year as that goes away.

Yeah, not necessarily. That's not one of our larger markets, but no huge impact to us.

Thanks, Jennifer. Good luck, guys.

Thank you.

Thank you. And our next question comes from the line of Anna Klieschian from B. Riley Securities. Your question please.

Hey, good afternoon, guys. I'd like to touch on the marketing spend commentary in Q4. Understanding the headwinds that you're seeing from the consumer and the government shutdown impacting sentiment, I guess. What are your thoughts on elevating marketing when the consumer seems to be responding to more external. Headwinds? And what are you expecting in terms of that marketing efficiency in the quarter? Thanks.

Hey, Anna, this is Jennifer. Thanks for the question. So the way we're really thinking about it is twofold. First off, you know, as we look across, excuse me, the competitive landscape, it is highly promotional and highly marketed out there. So it's really, you know, for us to be competitive in the marketplace, we feel we need to spend. We did go up against print last year in the month of November, which we did not have. This year we've turned more to a digital marketing and email. But that's really kind of what's been working for us. And so we have a lot of great deals out there right now and we're going to start leaning in heavier into firearms and ammo. And so we need to tell our customer that's what they come to us for. So we need to communicate that to it.

Got it. And then turning to camp, could you give us what the comp was in the quarter and then bigger picture, I guess. What do you think needs to happen for that department to perform more consistently? Thanks.

Thanks. Yeah, for camp, as you know, Q2 was tough on camp. Q3 has been tough on camp. So we've been expecting that. That being said, their inventory trend is below their sales trend on the quarter. They were down high single digits. From a same store sales perspective. But yeah, their inventory is down double digits. So we're managing it. We know we have an area of opportunity there and from an assortment standpoint and so that's definitely something we'll be focused on right now and in 2026. I think the other thing just on that, Anna, that's one of the biggest categories we hit from a GMROI (Gross Margin Return on Inventory) standpoint as we were evaluating where to redeploy working capital dollars. So as we were pulling back an inventory at the same time to be able to reinvest back into fish and to hunt and shoot that that department took the biggest hit as far as being able to pull back on our inventory versus the other categories.

Great. Thanks, guys.

Thanks, Dan.

Thank you. And our next question comes from the line of Mark Smith from Lake Street. Your question, please.

Hi, guys. First, I wanted to ask just about. Kind of the promotional environment in particular around Black Friday. Jennifer, you just talked about how you guys didn't have print this year. It seems like, and correct me if I'm wrong, that you weren't as promotional as we historically think about kind of door busters and print ads. Was this purposeful and I'm curious your thoughts around the impact on your outlook for Q4 purely around kind of Black Friday weekend?

Yeah. Great question. Hey, Mark, thanks for the question. For Black Friday, we were definitely promotional, but you called it out. We didn't necessarily go out with door busters like a lot of our competitors were. Right now, during the month of December, we're reimplementing some of those door busters because it's still a high traffic area. So that's where we were a little bit different. But if you looked across our box, we were very promotional. A lot of it was in store signage in terms of what our big deals were, and we kept a lot of them on for maybe a couple weeks versus being turning them constantly like some of our competitors were. So we're writing that and changing our strategy in the month of December to go after what our customer wants and to continue to drive foot traffic to the stores. I think looking year to year, promotion. To promotion, much heavier this year on the total promotion, the door buster. We look at that, we'll continue to look. At that, on what that means and what it means to the customer markets as we think about it. But as we look at it now and then, we think we have some Runway over the next few weeks to be able to light up promotions actually starting tomorrow to be able to help us in a different time frame, but at the same time be able to be super aggressive promotionally to be able to drive traffic that's needed.

Okay. And then as we think about kind of inventory by category, and I don't know how much you can share with us on this, you just talked about camping down kind of double digits. I'm curious. As we think about. And the inventory looks good, you know, down, down year over year, but you know, if there's certain categories where maybe you're a little heavier and as we see, you know, maybe more promotions or marketing spend here over the next 30 plus days, you know, should this, we expect this to be really heavy in kind of that hunt shoot category or is it maybe more widespread as we think about inventory that you want to move through here?

Yeah, I'll start with the category perspective. So if you look at category inventory by category, all of the categories that were down in the quarter, they actually have inventory that is more down. So they are doing a great job managing the inventory for those categories that weren't performing. The only two categories that were up was fish, which as we mentioned was very successful in the quarter and then slightly up in hunt, but not much. I think it was like less than 2%. But as we look forward to the coming weeks, we are going to be leaning on the hunt and shoot category to drive sales because that's what we know drives our customer to our store. It's a large portion of our sales and we have the inventory to do so. So that's how we're going to leverage that category. I would just add Mark, at this point we're not worried about inventory. The team's done a great job all year. Where we do have it's in fish and we're running and continue to run strong performance in fish. And then, you know, firearms and ammo is in the best position it's been. And we feel good and have the opportunity, we think here over the next seven weeks to be able to deploy more firearms and AMM from a promotional standpoint, to be able to help drive that traffic. But as we look at inventory, where we're at and where we're working our glide path down, we feel very comfortable even given that the current circum or the current macros we're facing to put inventory in a good position.

Okay, and the last question for me, just, you know, personal protection, it seems like you're seeing some solid results there. I'm curious if you can share any thoughts around kind of the margin profile as we think about Burna Taser lethal, nonlethal. If there's any real difference in that non lethal personal protection margin profile versus maybe traditional carry firearms.

Yeah, personal protection has been great for us and it is one of our strategic pillars. So that'll be a theme you'll continue to hear on calls. From a margin perspective, it is accretive. The non lethal is accretive to the category. Right now it's in at least Berna is in 117 stores. K's are not as many, but we'll continue to evaluate stores to put those in. But it's been a success and we're glad to see it bring in a different Customer base. We think that's one of the values of it. You have a lot of customers coming in and buying it for other members of their family, maybe their wife, maybe their daughters. I had a friend that bought four of them for his entire family. So yeah, it's bringing in people that are just looking for something different that don't necessarily want something that's lethal.

Okay, excellent. Thank you guys.

Thank you.

Thank you. And our next question comes from the line of Matt Karanda from Roth Capital. Your question please.

Hey guys, this is Joseph on for Matt. Just kind of hop into your response on driving traffic for promotions in Hunt and Shoot. Is that the only lever that we have here to pull in terms of returning back to positive comps here? It looks like 3Q was down about 8%. Just anything else that we can pull to return back to those positive comps in Hunt and Shoot.

Okay. Hey Joseph, this is Jen. So our Q3 comp was a positive 2. I'm not sure if I misunderstood your last comment. So we have been positive comping for three consecutive quarters. As we look forward into holiday. We're not leaning strictly on firearms and ammo. That's more of a layer on. I mean holidays are very promotional season anyway so there'll be many promotions throughout the store. That's just something we, we are layering on that we didn't have as upfront in November or as in Q3. Yeah, I think just to answer that, I mean Hunt was up for the Q, you know, north of 5%. Hunt and shoot as we define it was up over 5% for the Q. Clearly that's the traffic drivers along with ammunition that helps to drive it. But also the attachment parts of the business too around optics and the different components and the total solution of of the firearm piece of it, but kind of the milk and bread. It's clearly firearms and ammunition to be able to drive people in. And it really gives our operators the opportunity to be able to attach to increase the AOV and the UPT as well. So I think we use that you've got ammo and like I said, we'll start seeing that tomorrow. Extremely aggressive prices on ammo. Even inventory is in great position. But it'll be a driver to be able to help us to attach increase the overall boxes, AOV and upt.

Got it. And just if you guys could give us any preliminary thoughts on margin expansion just going into fiscal 26. I know this current tougher demand environment sustains. Can we still deliver any margin expansion in the next year?

You know, we haven't quite given guidance on 2026, but what we'll be focused on is really efficient efficiency and profitable growth. You know, we will continue to look at our inventory and make sure that we are getting as much margin accretion out of that as possible. But yeah, we're really focused on 2026, on our profitable sales growth and managing inventory and margins and, you know, continue to look at our cost structure.

Got it. I'll leave it there. Thanks for answering my questions.

Thanks.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Riley Timber for any further remark.

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

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.