Sportsman's Warehouse Holdings, Inc. 2027 Q2 Earnings Call

Thank you, operator. Participating on our Q2 2026 earnings call today is Paul Stone, our Chief Executive Officer, and Jennifer Fall Jung, our Chief Financial Officer. I will now take a moment and remind everyone of the company's safe harbor language. The statements we make today contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which 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-K and the company's other filings made with the SEC. We will also disclose non-GAAP financial measures during today's call.

Definitions of such non-GAAP measures, as well as reconciliations to the most directly comparable GAAP financial measures, are provided as supplemental financial information in our press release, included as Exhibit 99.1 to the Form 8-K we furnished to the SEC today, which is also available on the investor relations section of our website at sportsmans.com. I will now turn the call over to Paul.

Thank you, Riley, and good afternoon, everyone. Before we begin, I want to recognize our dedicated outfitters across the country. Every day, they deliver on our promise of great gear and great service, strengthening our connection with customers and supporting the progress to transform Sportsman's Warehouse. We were pleased to report same-store sales in the second quarter were essentially flat compared to last year and in line with our expectations. In the quarter, we experienced headwinds as our core customer continues to be pressured by tough macroeconomic conditions, including fuel prices that remain persistently elevated. Despite these pressures, I'm proud of how the team responded with speed and quickly adjusted to meet the customer where they are. We moved with urgency to reinforce our value proposition, which included a more promotional cadence than originally planned to improve performance in our key pursuits.

Our customers are passionate about the outdoors, and they trust Sportsman's Warehouse outfitters for local knowledge and the right advice, backed by a relevant assortment of the name brands they count on. They head out prepared for a successful day on the water or in the field. They are willing to spend on that passion, and we are further positioning ourselves to be the retailer of choice as they gear up for their fall pursuits. Our second quarter sales in our hunting and shooting sports department increased nearly 7% versus last year. This sales growth was led by firearms and ammunition, where demand remained strong, partially influenced by event-driven demand. Sales in our fishing department decreased about 2% in Q2, but are up nearly double digits on a two-year comp stack. Drought conditions negatively impacted our fishing sales in key Western states.

To give you a regional perspective, our Western stores were down mid-single digits, while our Eastern stores were up mid-single digits in the quarter. This headwind pressured our Q2 results, but inventory levels are bought accordingly for the back half, and we continue to see a long-term growth opportunity in this category. Our camping and soft lines departments experienced declines in Q2. As we talked about last quarter, our inventory position in these categories is clean. Our fall assortment is better aligned with the products and brands that support our core pursuits of hunting, fishing, and shooting and personal protection. We are encouraged by the improved August trends in these two departments, and while they have not turned positive, we believe they are moving in the right direction. Close management of inventory remains a key priority, and total inventory is down over $44 million compared to last year.

I am pleased with how the team is managing our flow of merchandise to ensure we are regionally and seasonally relevant and timed to meet the shopper demand. Our core in-stocks are significantly improved, and our category-level inventory is the healthiest it has been in many years. This will remain a focus as we expect to further improve turns and inventory efficiency in the balance of 2026. Our e-commerce business grew nearly 3% in the quarter, led by fishing up 10% and hunting up 6%, and growing faster than our total sales for the ninth consecutive quarter. As a true omni-channel retailer, we see customers shop us both in our stores and online. A better website experience drives traffic and sales into the store, not just online.

Providing the customer with a tailored online assortment and a website that is easy to navigate and shop is an important part of the winning experience, and we continue to make meaningful improvements on both fronts. We are also upgrading our search and shop functionality, which will make it faster and easier for customers to find the right gear for their pursuit. By combining an improved e-commerce solution-based experience with in-store expertise, we believe we can expand gross margins in the hunting and shooting sports department while reinforcing our outdoor authority. We continue to advance the reinvention of our loyalty program, where we see meaningful headroom to grow both total membership and loyalty sales, with rollout on track for early 2027. We are restaging the value proposition itself, not just fine-tuning the program we have.

It is important that we give our best customers a reason to consolidate more of their spend with us. More customers, worth more, retained longer is how we build a recurring higher margin sales base. Just as important, the program turns our shopper data into insight we can act on, putting it in the hands of our merchants and marketers to drive sharper decisions across the business. That work has already identified a repeatable trip driver in our core pursuits. We have built the business case and are executing against it in the back half. Given we are a seasonal business, Q3 and Q4 are the two largest and most important quarters for our business, with Q3 centered around hunting pursuit and Q4 focused on holiday. We believe we are well-positioned with curated assortments and improved seasonal merchandise to ensure localization across our fleet of 147 stores.

We also believe we have built more value into our key holiday gift-giving items with compelling price points for a customer who is shopping carefully this year. Looking ahead, our customer remains under pressure, with elevated fuel costs further constraining their discretionary spending. We remain optimistic about our position in the market and believe we have a differentiated omni-channel model to drive stronger returns across the business. Finally, I want to reiterate my confidence in our back half plan. We do not control the macro. We do control our assortment, our in-stocks, and our channels. On every one of those, we are in a stronger position than we have been in years. Here is why I have that conviction and what the customer is already telling us. First, in-stocks. This key metric on our core products has improved from about 50% two years ago to over 80% today.

The customer can now visit our website or walk into a store and find what they came for. Second, the healthiest inventory we have had in many years. We have spent the last couple years selling down inventory in camping, apparel, footwear, and even firearms, where we did not have the right assortment or were carrying aged merchandise that was tying up much-needed working capital dollars. That sell-down is now largely behind us, providing us the working capital needed to buy into both core products and new products in the categories I just mentioned. That product is now landing, and we believe a much-improved assortment is a back-half tailwind for the business. Third, new and more relevant merchandise. We have a strong assortment for both the hunting and holiday season, including unique gift-giving items.

We have been capital constrained the last two years and now have these volumes in motion and ready for the relevant regions and seasons. Fourth, e-commerce. That business has grown faster than total company sales for nine consecutive quarters, with over 70% of online orders picked up in store. That digital growth converts directly into store traffic. In addition, we reduced debt by $26 million and took over $44 million of inventory out of the business year-over-year, strengthening our balance sheet. Two years of disciplined work by our team. Finally, where our work is furthest along, the customer is responding. Hunting and shooting sports grew nearly 7% in the quarter, and fishing is up nearly double digits on a two-year basis. We believe these actions strengthen our competitive position, allowing us to drive long-term profitable growth and generate free cash flow to further pay down debt.

With that, I'll turn the call over to Jennifer.

Thank you, Paul, and good afternoon, everyone. Net sales for the second quarter were $295.6 million, a 0.6% increase from $293.9 million in the same period last year. Same-store sales in Q2 were essentially flat versus last year. Our performance was driven by 6.7% same-store sales growth in our hunting and shooting sports department, led by increased sales in our firearms and ammunition categories, some additional event-driven demand, and an increase of 1% in our optics, electronics, accessories, and other departments. Our other categories declined in Q2, reflecting continued pressure on the U.S. consumer and drought conditions in the Western U.S., partially offsetting our overall sales growth. Within camping, clothing and footwear, and firearms categories, we strategically began reducing assortment and overall inventory levels over the last couple of years as we look to improve these categories' performance.