Sportsman's Warehouse Holdings, Inc. Q1 FY2026 earnings call

- Strategic Transformation & Core Focus * The company's ongoing transformation is centered on strengthening its leadership position in core outdoor pursuits: hunting, fishing, shooting sports, and personal protection, which form the core of the company's brand identity * The company intentionally reduced inventory and eliminated low gross margin return on investment (GMROI), slow-moving SKUs from camping and softlines to free up working capital for high-priority core categories, with newly aligned core-aligned products for summer now arriving in stores * Key strategic initiatives include enhanced solution selling, improved e-commerce experiences, a reinvented loyalty program, and targeted brand partnerships

- Merchandising & Customer Experience Initiatives * Meaningful website updates were launched to improve the online fishing shopping experience, with early results driving strong e-commerce growth for the category; the company is currently refining the fly fishing shopping experience, a high-importance segment for the company's store footprint * The company entered a partnership with leading hunting/fishing lifestyle brand Field & Stream, collaborating with top fishing influencers to create shareable content that drives brand exposure, showcases new products, and increases store/website traffic * A firearm solution bundling strategy was rolled out for top-selling products online: curated bundles pair firearms with complementary accessories (gun safes, hearing/eye protection, service plans) to build confidence for first-time buyers, increase basket size, and expand gross margins for the category, with in-store outfitters providing additional tailored support * The company partnered with Epsilon, a leading loyalty and personalization consultancy, to reinvent its loyalty program, with goals to improve customer retention, increase lifetime value, improve marketing efficiency, drive repeat purchases, and enable more disciplined promotional strategies

- Financial & Operational Management * Gross margin for Q1 2026 was 29.6%, down 80 basis points from 30.4% in Q1 2025, almost entirely due to category mix shift (higher penetration of lower-margin firearms/ammunition and lower sales of higher-margin non-core categories) * SG&A expenses were $93.9 million (36.7% of net sales), down from $95.3 million (38.2% of net sales) YoY, driven by disciplined cost management, lower payroll expense, and decreased depreciation * Total Q1 ending inventory was $387.1 million, a $25.1 million (6.1%) decrease YoY, as part of the company's ongoing inventory efficiency strategy focused on aligning receipt timing with seasonal demand and eliminating slow-moving stock * Net loss for Q1 was $21.8 million ($-0.56 per diluted share), compared to a $21.3 million net loss ($-0.56 per diluted share) YoY; adjusted net loss improved to $15.1 million ($-0.39 per diluted share) from $15.6 million ($-0.41 per diluted share) YoY; adjusted EBITDA improved to -$8.1 million from -$9 million YoY * Debt reduction is the company's top capital allocation priority, with a focus on generating positive free cash flow to pay down debt and strengthen the balance sheet; liquidity remained strong at quarter end, with $116.7 million in total liquidity and a $148.4 million net debt balance

Total Q1 2026 net sales for Sportsman's Warehouse was $256.1 million, a 2.8% increase year-over-year, with same-store sales up 2.1% YoY. 1. Hunting & Shooting Sports: Same-store sales grew 6.3% YoY, and total category sales increased over 7% YoY. This segment represented the largest contributor to overall Q1 growth, driven by event-driven demand from the successful Spring Range Days event, and strong demand for firearms, ammunition, and less-lethal personal protection. 2. Fishing: Same-store sales grew 6% YoY, and is up approximately 17% on a two-year comparable basis. Growth was partially constrained by a softer-than-expected ice fishing season, but the category remains a high-upside core business. 3. Camping & Softlines: Sales declined year-over-year, following the company's intentional strategic reduction of slow-moving, low-margin inventory that did not align with core outdoor pursuits. This category carries higher gross margins than hunting and shooting, so its reduced sales contribution negatively impacted overall company margin. 4. E-commerce: Total e-commerce sales grew over 6% YoY, outperforming in-store performance and highlighting the strength of the company's omni-channel model, as roughly 70-75% of e-commerce orders require in-store pickup that drives additional in-store traffic.

Management maintained (reiterated) its full fiscal 2026 guidance despite ongoing pressure on U.S. discretionary spending and elevated fuel prices: - Full year 2026 net sales is projected to range between -1% to +2% compared to fiscal 2025 - Adjusted EBITDA is projected between $30 million and $36 million, supported by improved gross margin performance, ongoing expense management, and improved inventory discipline - Capital expenditures are projected between $20 million and $25 million, primarily allocated to technology investments to improve store service and merchandising productivity, plus routine store maintenance - The company continues to expect full year 2026 average inventory and end-of-year total inventory to be lower than full year 2025 levels

- Ongoing U.S. consumer macroeconomic pressure and elevated fuel prices are weighing on discretionary consumer spending, particularly impacting non-core categories like camping and softlines - Unfavorable seasonal weather can negatively impact category performance, as seen with the softer-than-expected 2026 Q1 ice fishing season and cold/wet early summer weather that softened initial camping demand - Category mix shift towards lower-margin hunting and shooting sports creates downward pressure on overall company gross margins - Historical underinvestment in e-commerce requires ongoing capital and operational investment to improve customer experience and drive growth

Q: How much of Q1 hunting and shooting sales growth comes from underlying category strength/share gain versus temporary event-driven demand, and what trends are you seeing in May? / A: Event-driven demand boosted March and April sales after the company skipped a February promotional event to focus on profitable growth, leading to strong Q1 outperformance of prior year. Management reports stabilization in May following the event spike, but remains confident in the category's overall performance for Q1 and the upcoming Q2 quarter, with June (the company's largest monthly sales period) supported by Father's Day promotional events. The core category remains healthy and a key driver of overall business performance.

Q: What drove the 80 basis point gross margin decline, and can you share more details on e-commerce growth trends and long-term potential? / A: The vast majority of the margin decline comes from category mix, with the higher penetration of lower-margin firearms/ammunition offsetting smaller margin pressure in other categories from earlier seasonal markdowns. E-commerce growth has been driven by recent improvements to the online fishing experience, and the company is continuing to invest to improve search functionality and the fly fishing shopping experience. Management plans to launch solution-based selling for hunting and firearms ahead of the 2026 hunt season, shifting from historical transactional online sales to pre-curated solutions that reduce in-store outfielder burden and drive higher in-store conversion.

Q: What factors are driving soft camping sales, and what is the company's strategy for the category moving forward? / A: Early camping sales have been soft due to unseasonably cold and wet early summer weather, plus the company's intentional strategic exit from low-value non-core subcategories to reallocate working capital to core hunting, fishing, and shooting categories. Management reports the camping inventory position is currently healthy, with minimal risk of excess aged inventory that has plagued the business in prior years, and the category will continue to operate as a complementary offering for core outdoor customers.

Q: What is driving SG&A leverage, and what factors are behind the expected full year inventory decline? / A: SG&A leverage came primarily from improved payroll efficiency, enabled by smoother inventory flow that allowed better alignment of labor with sales trends; savings from payroll were partially offset by higher bonus accruals not present in the prior year. The full year inventory decline is the result of multiple ongoing efficiency efforts: placing the right inventory in the right locations to improve turnover, taking timely seasonal markdowns (a historical weakness for the company), and reducing exposure to slow-moving tail SKUs in favor of faster-churning core categories to free up working capital.