SPWH

• Customer & Macro Environment: Core customers face pressure from persistently elevated fuel prices, constraining discretionary spending. However, passion-driven pursuits (hunting/shooting) remain resilient, with consumers prioritizing consumables like ammo and lures over durable goods.
• Inventory & Assortment Cleanup: Total inventory is down over $44 million (10%) year-over-year to $399 million. The company has largely completed SKU reductions in camping, apparel, and footwear, resulting in the healthiest inventory position in years and freeing up working capital.
• Product Strategy: Shifted focus toward core pursuits (hunting, fishing, shooting, personal protection). New, curated assortments are landing for fall, aligning better with seasonal demand and regional needs. In-stocks on core products have improved from ~50% two years ago to over 80% today.
• E-commerce & Omnichannel: E-commerce grew nearly 3%, outpacing total sales for the ninth consecutive quarter. Over 70% of online orders are picked up in-store, driving foot traffic. Investments in website search and navigation aim to improve conversion and attach rates.
• Loyalty Program: Reinvention of the loyalty program is on track for early 2027 rollout. The goal is to consolidate customer spend, leverage shopper data for sharper merchandising decisions, and build a recurring, higher-margin sales base.
• Financial Discipline: Reduced debt by $26 million. Gross margin expanded 50 basis points to 32.5%, supported by disciplined inventory management, reduced freight costs, and a one-time tariff refund which was reinvested into consumer value/promotions.

• Full-Year Net Sales: Reiterated guidance for fiscal 2026 net sales to range between down 1% to up 2% compared to the prior year.
• Adjusted EBITDA: Guidance remains between $30 million and $36 million, driven by expected gross margin improvements, continued expense management, and disciplined inventory efficiency.
• Capital Expenditures: Expected between $20 million and $25 million, primarily allocated to technology investments to enhance store service/merchandising productivity and general store maintenance.
• Outlook: Management maintains confidence in the back-half plan, citing improved inventory health, relevant assortments, and strong positioning in core categories, despite persistent macroeconomic headwinds like high fuel costs.

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 were essentially flat. The Hunting and Shooting Sports department drove growth with a 6.7% same-store sales increase, led by firearms (up 8%) and ammunition (up nearly 11%). This segment contributed significantly to the top-line growth despite carrying lower overall margins. Conversely, the Fishing department declined approximately 2% in Q2 due to drought conditions in key western states, though it remains up nearly double digits on a two-year comp basis. Camping, Clothing, and Footwear categories experienced declines, reflecting ongoing inventory cleanup efforts and consumer pressure; however, these segments are showing improved trends as of August.

• Macroeconomic Headwinds: Persistently elevated fuel prices continue to pressure consumer discretionary spending, particularly affecting non-core categories like camping and apparel.
• Weather Dependency: Drought conditions in western U.S. states negatively impacted fishing sales, highlighting vulnerability to environmental factors.
• Competitive Promotional Pressure: The competitive landscape is highly discounted, forcing the company to adopt a heavier promotional cadence than originally planned to retain market share, which may compress margins.
• Consumer Behavior Shifts: Evidence of trade-down behavior in durable goods (e.g., rods and reels moving to basic models) indicates sensitivity to price and potential long-term shifts in purchasing power.

Q: Analyst asked about comfort levels with camping/soft line inventories and confidence in H2 performance given consumer pressure.

A: CFO confirmed inventory levels are 'very clean' after a year-plus of SKU reduction. CEO added that August trends show significant improvement in camp/apparel due to timely buys and removal of aged stock. They expect the new, curated assortment to drive sales, marking the first time they can be 'clean in season' while hitting next season with relevant product.

Q: Analyst requested details on the IEPA tariff refund benefit and where it was invested.

A: CFO stated the private label mix is only 3%, making the refund nominal but helpful. It was strategically used to offset discounting in a tough value environment, particularly penetrating firearms/ammo categories to maintain volume when other categories lagged due to weather or softness.

Q: Analyst asked about consumer behavioral changes regarding elevated gas prices and August trends.

A: CFO noted high penetration in consumables (ammo/lures) and slight trade-down in durable fishing gear, but stable Average Order Value (AOV). CEO highlighted optimism for H2 based on improved August trends in camp/apparel, attributing this to resolved supply chain delays and better alignment of merchandise with actual outdoor pursuits.

Q: Analyst inquired if heavy promotional cadence will persist in H2 and if camping/apparel will inflect positive in FY2026.

A: CFO expects promotions to continue due to likely sustained high fuel prices, though less intense in core hunting/shooting categories. CEO expressed high confidence that camping will turn flat-to-positive in Q3/Q4 and apparel will follow in Q4, driven by fresh assortments and cleared-out legacy inventory.

Q: Analyst asked about e-commerce attachment rates during in-store pickup and store closure plans.

A: CFO explained that firearm pickups require visiting the back of the store, offering an opportunity to leverage the 'racetrack' for add-ons. She emphasized that improving the e-commerce search/experience is key to lifting attach rates. Regarding closures, one store closes Jan 31, another is near agreement, and negotiations continue for others.