Sportsman's Warehouse Holdings, Inc. (SPWH) Q4 2014 Earnings Report, Transcript and Summary

Greetings and welcome to the Sportsman's Warehouse Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host Rachel Schacter of ICR. Thank you, Rachel. You may now begin.

Thank you. Good afternoon, everyone. With me on the call is John Schaefer, President and Chief Executive Officer; and Kevan Talbot, Chief Financial Officer. 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 our 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 in the Company's 10-Q for the first fiscal quarter filed with the SEC on June 11, 2014. We will also disclose non-GAAP financial measures during today's call. Definitions of such non-GAAP measures as well as reconciliation 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 investors.sportsmanswarehouse.com. Now, I would like to turn the call over to John Schaefer, President and Chief Executive Officer of Sportsman's Warehouse.

Thank you, Rachel. Good afternoon everyone and thank you for joining us today. I will begin by discussing the highlights of fiscal 2014 including our fourth quarter and comments on industry dynamics, discuss the progress we are making against our strategic growth initiatives, and finally go over our priorities for fiscal 2015. Kevan will then go over our financial results in more detail and review our outlook, after which we'll open up the call to your questions. While 2014 was a difficult year from an industry standpoint, we are very pleased with our performance as well as the progress we made against our strategic growth initiatives during the year. We delivered 17% store growth with the opening of eight new stores, including four in an eight week period, all of which were self funded with free cash flow generated from operations. We continue to refine and implement our 30,000 square feet store model. We finalized our store within a store program in the closing area. We made significant strides in our private label initiatives. We implemented a customer loyalty program that has just passed a 500,000 member level. We continue to develop bench strength via our store in department manager and training programs that has currently resulted in 52 of our 55 store managers being hired from within, and we have met each of our financial performance objectives despite unprecedented competition in some of our larger markets and continue the industry headwinds that impacted the firearms and ammunition categories of our business. With respect to the fourth quarter, we are pleased with our fourth quarter results which overall came in within our guidance range. Net sales for the quarter were 185.6 million, reflecting an increase from the prior year of 5.6%. Same store sales declined 5.3% versus the fourth quarter of the prior year, but continue to show sequential quarter-over-quarter improvement. Same store sales excluding the effect of competition in the 10 stores impacted in the fourth quarter declined 2.8%, implying competition had a 250 basis point impact on our same store sales in Q4 which is less than the prior two quarters. Looking more closely at our comparable store sales performance for the quarter, last quarter we discussed two concepts, the first being the reduction in average selling price on both firearms and ammunition in 2014 versus 2013. During the fourth quarter, we continue to see this trend. Specifically, the average selling price in firearms decreased 2.7% during the quarter on unit increases of 8.0%. Consistent with the third quarter, our firearm unit sales trended above the adjusted mix data. On a unit basis in the states in which we operate, we were up 8% in the fourth quarter compared to the prior year versus adjusted mix units in those states being up 6% over the same period of time of the prior year. This fact along with our store growth and the revenue accelerates combined with the growth in our non-hunting and fishing categories shows we are gaining market share. Consistent with the trend we believe is happening with the other national retailers. For us specifically, when looking at the states in which we operate retail stores we have gained the market share in every quarter this year, despite the increase in competition in many of our markets which we believe speaks to our premise of peaceful coexistence with other national retailers. The second issue is weather, with the jet stream moving East in Canada before dropping into the United States, we again saw temperatures significantly above the norm in all of our Western Alaskan stores. This weather pattern contributed to a substantial decrease in non-camouflage active and outerwear in the fourth quarter compared to the same period of the prior year. Unfortunately this trend has continued into the first quarter of fiscal 2015. Despite the headwind of warm weather on our outerwear and base layer clothing categories we continue to gain traction in our camouflage category which we are currently more heavily focused on with our clothing initiatives. While traffic on a same store basis or more specifically customer frequency remained negative, conversion improved year over year once again and the average order size remained the same so our same store sales decline of 5.3% was primarily driven by fewer transactions. We believe that the steady increase in conversion the stable average ticket price despite average selling price decreases in both fire arms and ammunition and the continuing sequential improvement in traffic are illustrative of the strengthening loyalty we are building with the long term multi visit customer we are focused on tracking. Now on to profitability, we have worked diligently on both margin maintenance and operating cost containment. In total for the fourth quarter our gross margin was up over the same period last year by approximately 80 basis points. Once again our loyalty program negatively impacted gross margin by approximately 20 basis points, slightly higher than prior quarters. We are now at a point where we can begin driving marketing programs on the loyalty base and we expect to begin that process in mid-2015. From a product gross margin perspective we were able to maintain and in many cases improve gross margin at the individual product level while also seeing overall margin improvements from positive shifts and sales mix as we continue to focus our efforts inside the four walls on making our stores a one stop shop for our customers. We maintained our promotional discipline and achieved our traffic, conversion, market share and margin objectives without resorting to significantly stepped up promotions that plague many categories of the retail industry during the fourth quarter. Finally our inventory position measured on a per store basis declined 1.4% in the fourth quarter versus 2013, allowing us to not only keep markdowns to reasonable levels but also allowing us to take advantage of any vendor opportunities that arose. As a result of all of this operating income for the quarter was $18.1 million with adjusted earnings per share for the quarter of $0.22. That’s the high end of our guidance and an increase of 22% compared to adjusted earnings per share of $0.18 in the prior year period. Now let’s talk about competition, first let me reiterate how we define competition, we consider competition to be a national competitor opening a new store within a 30 minute drive time from one of our existing stores that is part of our same store sales base. We do not include stores outside that radius to be competitive as historically competitor stores more than 30 minutes from our stores have had virtually no impact on our store sales. In addition we do not consider our new stores that have been opened less than one year that have a competitor within 30 minutes to be in the competitive store set. We generally know when this dynamic will occur when planning to open a new store and therefore we account for that competitive dynamic in our initial ROIC and budget calculation. Finally we do not include cannibalization from our own stores in our competitive impact group which for the first time in 2014 impacted three of our stores as again we consider the impact of cannibalization on current stores in our ROIC calculations for a new store. So in the fourth quarter we saw the continued presence of competition in 10 or 18% of our stores. Stores facing competition once again performed better than planned during the quarter. Our continued success in competitive markets underscores our premise of peaceful co-existence, but also highlights the unique strengths of our business model and our ability to deliver strong returns on new stores in smaller markets that are proving to be increasingly challenging for many of our larger competitors. We believe we are well positioned to be the single player in those MSAs that can only handle a 30,000-50,000 square foot box and generate 10-15 million in revenue per store will also achieving a return on invested capital of 20% or more. Let me briefly review what those key attributes are that enable us to very profitably operate in these smaller markets, as a reminder we are the largest outdoor specialty retailer in the Western US partially as a result of our flexible store format that allows us to profitably service both small and large MSAs. Our low cost high service approach represents a differentiated approach to servicing the outdoors foreign goods market. We offer everyday low prices for localized and broad merchandize assortment and convenience for our customers. And as I’ve mentioned previously we have outstanding customer service delivered by our passionate store associates. Our commitment to superior customer service has again been verified by independently published customer survey scores and I would like to thank our associates for continuing to do an outstanding job servicing our customers. Looking forward to 2015 we remain focused on our strategic growth initiatives and key priorities which are fivefold. First, capitalizing on the significant white space opportunity for new stores that we see within existing and new markets. We plan to continue to expand our store at unit growth rate of greater than 10% annually for the next several years as we believe there is potential for the Sportsman's Warehouse brand to grow nationally to at least 300 stores over time. As you will note by 2014 new store class, as well as our expectations for our 2015 new store sites we have seen demonstrated success with new stores open in small and large markets like that reinforce our confidence in the 300 plus store potential for the chain. As a significant point of differentiation from our national competitors our low cost model we believe we are the only national player that can profitably service the majority of the metropolitan statistical areas in the U.S that have populations less than 100,000 which is the largest segment of MSAs in the U.S. With the announcement in January of Albany, New Oregon store we have finalized our 2015 store openings at a total of nine new locations representing 16% store growth. All of these openings will be self-funded with our free cash flow. We have already opened a store in the first quarter in Spokane Washington and we expect one additional store to open during our first quarter in Clackamas Falls Oregon. Furthermore we expect to open four stores during our second quarter Heber City, Utah, Show Low Arizona, Fresno California and Williston North Dakota and three stores during our third quarter Albany, Oregon, Flagstaff, Arizona and Sheridan, Colorado. Second, the success of our new fix stream strategy will allow us to open more 30,000 square foot stores as this enables us to hold approximately 70,000 skews the same number as our 42,000 plus square foot stores. As a result of this new fix stream strategy, we have been able to roll out our store within a store initiative on all of our go forward stores in the 30,000 square foot format will become our standard size moving forward. This again provides us with a major opportunity to focus on an achieve our return objectives under 100,000 population MSAs as well as open more neighborhood stores in the those larger MSAs. As a reminder our new stores typically generated track to returns on investment capital over 20% in the first year which includes the cost of our current inventory investment. We consider ROIC as well as four well operating income, frequency of traffic conversion and customer service stores as the key components of stores success not simply the pursued of revenue per square foot and we have delivered against all of these metrics in our new stores. Number three, we also remain focused on enhancing operating margins through increased sales of our private label products while simultaneously expanding our programs in clothing and foot wear with major brands. For fiscal year 2014 sales of private label products increased 40% and represented over 2.6% of net sales, an increase of approximately 70 basis points from fiscal year 2013. We continue to believe there is an opportunity to gradually increase our private label penetration over time while still focusing on being a brand oriented company. Fourth, we are focused on maximizing the potential of our loyalty program and are implementing more effective marketing programs at better utilize the information we are capturing and buying preferences of our loyalty program members. And fifth, we will continue to focus on associate trainee programs to maintain and further improve the great in store customer experience we proud ourselves on delivering also ensuring a pipeline of talent and opportunities for carrier advancement as we continue to grow. In terms of the environment in fiscal 2015 we expect the promotional pricing by competitors to continue to the first half of the year. Our focus will be on a reasonable level of promotions and on generating profitable sales while maintaining margin because we already are the everyday low price provider in our space. Our guidance reflects our expectation and we are yet to see the normalization of fire arms. We expect modest price decreases and ammunition going forward and we have also reflected the impact of the warm weather on our outerwear sales. But most importantly we believe our everyday low price, high quality customer service, broad and relevant merchandize assortment and local shopping convenience continue to be the distinguishing factors that drive our customer value proposition. With that I'll turn the call over to Kevan to discuss our financials.

Thanks John, good afternoon everyone. I’ll begin my remarks this afternoon with a review of our fourth quarter and full fiscal year 2014 result and then discuss our outlook for fiscal year 2015. My comments today will focus on the adjusted results that we described in the financial tables in our earnings press release issued today. A reconciliation of GAAP net income and earnings per share to these adjusted numbers is contained in these tables along with an explanation of each adjustment. As John said our top line results came in consistent with our guidance net sales increased in the fourth quarter by 5.6% to $185.6 million from $175.7 million in the fourth quarter of last year. Same stores sales during the quarter decreased by 5.3%. Excluding sales of fire arms and ammunition our same stores sales decreased 3.4% excluding fire arms, ammunition and all shooting related categories including optics, our same stores sales decreased 1.4% which was due to the impact of the warm weather primarily upon our soft goods sale. Turning to our same-store sales by each of our three store groupings, which are: one, base stores; two, new stores or acquired stores that have been in the comp base for two years or less; and three, stores that were subject to competitive openings, which we define as new competitive entrant into a market within the past 18 months. In the fourth quarter excluding the 10 stores in our comp base that were subject to competitive openings, our same-store sales decreased 2.8%. Our 22 base stores saw same-store sales declines of 4.6%. However, our 15 new stores saw same-store sales increase of 0.8%. Our 10 stores that were subject to competitive openings experienced a same-store sales decline of 16.1%, which, as John mentioned, was better than our plan. Gross profit in the quarter was $61.6 million compared to $56.9 million in the fourth quarter of fiscal 2013. Gross profit as a percentage of net sales increased 80 basis points to 33.2% from the 32.4% in the corresponding period from last year. The increase in gross margin, gross profit as a percentage of net sales was driven by sales mix from our continuing strategic initiatives. As John mentioned, our loyalty program negatively impacted gross margin by approximately 20 basis points as we continue to experience success in the adoption of the program. The associated rewards for these transactions impacted gross margin more in the fourth quarter this year than in the fourth quarter last year when we were just launching our loyalty program. During the quarter, our loyalty patrons increased by greater than 28% to approximately 475,000 members and subsequent to our fiscal year end as John mentioned, our loyalty program has grown to greater than 500,000 members a great milestone. Our loyalty program experienced it's one year anniversary during the fourth quarter and we continue to expect growth in the program across our customer base generating more frequent customer visits over time and higher average ticket along with the benefits that come from these metrics. Adjusted SG&A expenses for the quarter were $43.5 million compared to $40.5 million in the fourth quarter of fiscal year 2013. As a percentage of sales, adjusted SG&A expenses increased to 23.4% from 23% in the corresponding quarter of 2013 primarily as a result of increased payroll rent and other operating expenses from the new store locations. Adjusted income from operations for the quarter increased 10.7% to $18.1 million as compared to income from operations of $16.4 million in the fourth quarter of fiscal year 2013. The year-over-year increase was driven by higher gross margins partially offset by the increased SG&A as a result of the factors I just described. Our net interest expense in the fourth quarter of 2014 was $9 million compared to $5.6 million of interest expense in the fourth quarter of 2013. Included in our fourth quarter interest expense is $0.2 million of cash interest savings as a result of our previously announced refinancing of our term loan facility. In connection with this refinancing, we incurred a $5.7 million onetime pre-tax charge, the majority of which was non-cash during the fourth quarter as we wrote off the discount, deferred financing fees and the prepayment penalty associated with the old term loan. Our average borrowing decreased over the prior year period primarily due to the use of our IPO proceeds to pay down the term loan during the first quarter 2014. For the quarter, our effective tax rate was 38.5%, adjusted net income for the quarter was $9.1 million or $0.22 per share based on 42 million diluted weighted average shares outstanding as compared to adjusted net income of $7.4 million or $0.18 per share based on 41.9 million adjusted diluted weighted average shares outstanding in the fourth quarter of fiscal year 2013. Adjusted EBITDA for the fourth quarter fiscal year 2014 was $21.6 million compared to adjusted EBITDA of $19.3 million in the prior year period. Looking at our fiscal year 2014 results, for the full fiscal year we grew our store base by 17% with the opening of 8 new stores and increased net sales by 2.6% to $660 million from $643.2 million in fiscal year 2013. Same-store sales decreased by 8.4% primary as a result of the decline in demand of firearms and ammunition. Excluding sales of firearms and ammunition, our same-store sales decreased 2.5% for the year. Adjusted income from operations was $51.1 million as compared to $60 million in fiscal year 2013. Adjusted net income in fiscal year 2014 was $21.1 million compared to adjusted net income of 26.8 million in fiscal year 2013. Adjusted diluted earnings per share in fiscal year 2014 was $0.50 based on 42 million diluted weighted average shares outstanding compared to adjusted diluted earnings per share of $0.64 in fiscal year 2013 based on 42 million adjusted diluted weighted average shares outstanding. For the full fiscal year 2014, adjusted EBITDA was $66.3 million compared to $70.7 million in fiscal year 2013. As of January 31, 2015 the end of our fiscal year, ending inventory was $185.9 million as compared to $161.3 million in inventory as of the end of fiscal year 2013. On a per store basis inventory decreased by 1.4% as we continue to focus on having the right product at the right place at the right time. As we enter the first quarter we are very pleased with the quantity and quality of our inventory. Turning to our outlook, we expect to see continued price headwinds with increased promotions by mom and pops and some national players as well as small price decreases in some calibers of ammunition as supply continues to move towards meeting demand. We also expect to see the same unit pricing dynamic persistent in the first half of 2015 and as a result our outlook includes first quarter revenue to be in the range of $140-145 million, same store sales in the range of negative 3% to flat compared to the first quarter of last year and loss per diluted share of $0.04 to $0.03 on weighted average of approximately 42 million estimated common shares outstanding. For the full year fiscal year 2015 we expect revenue of $720-740 million, same store sales in the range of negative1% to positive 2% and earnings per diluted share of $0.56 to $0.63 on a weighted average of approximately 42.3 million estimated common shares outstanding. We ended the year with $41.9 million in outstanding borrowings and $73.2 million in borrowing availability under our credit facility. As it relates to capital expenditures we anticipate incurring possibly $30-35 million in capital expenditures in fiscal year 2015 which will include the nine stores in our 2015 class of stores as well as work on our [2016] new stores along with continued investments in IT infrastructure and our distribution center operation. We expect that this growth will be funded with our free cash flow and we do not anticipate any additional debt financing to be able to carry out our growth strategy. And with that I will now turn the call back over to the operator as we open up the call for questions.

[Operator Instructions]. Thank you and our first question comes from the line of Seth Sigman with Credit Suisse, please proceed with your question.

Just go back to the comments about the promotional activity across the industry clearly it was more aggressive in the fourth quarter. Can you talk a little bit about how you guys were able to navigate that and essentially offset that they’ll take share, grow margins and just generally what are you seeing so far in the first quarter cause I think you did make some mention of that thanks.

Sure, well first of all let me just kind of give you some history on promotions and my perspective to it. I’ve been in retail for almost 25 years, I’ve been in everything from men’s clothing to women’s clothing to electronics, home furnishings, home improvement, team sports and outdoor sports, so I’ve been in a lot of different categories. What I will tell you about promotions as it relates to us is that you need to be very strategic about it and very careful about it. We are the everyday low price leader. So by definition when people who are not everyday price leader put items on sale, they usually come to us or slightly above us. So we don’t have a customer that expects significant promotions. Now if -- that doesn’t mean you shouldn’t do promotions and we do promotions but we do them on a very calendarized basis and a very calculated basis. And with a customer such as ours it is a multi-visit customer, they grow to expect certain events and certain promotions on certain items at certain times of the year and that’s what we do. The rest of the year they expect everyday low price from us and that’s what we give them. So if we were to go out and we almost did but we held off and do a special promotion that is out of the norm so to speak. A couple of bad things can happen, one is you can bring in traffic that expects to never pay retail and once we stop doing those promotions those people go away or two you can start promoting those products of yours that have the highest margin and that can be detrimental to those brands that you’re promoting once those promotions stop. So we’re very careful when we do promotions like that and we kind of shy away from it because frankly our everyday low price strategy allows us to not have to do that. And that’s kind of what happened in the fourth quarter. I mean in the fourth quarter if you recall Thanksgiving started early, then there was this lull right after Black Friday and it was a time when certain categories of retail, not necessarily the categories we operate in but certain categories of retail started promoting and we thought we might have to but in the week before Christmas the floodgates opened and everything was fine. And that really kind of talks more to the buying tendencies of the consumer more than it does about the need for price promotions if you will to that consumer, at least that’s our perspective. In the first quarter, we looked back to the first quarter of 2014 in January when we first saw the firearms take a big dive and many of us including us put firearms on sale in January and February of 2014 and we realized by March and April that didn’t have an impact, so we sideway from doing that in the first quarter of this year and we will instead continue to promote in a meaningful way and a consistent way with what we’ve done in the prior year and work on giving that everyday low price to our consumers. Sorry for the long-winded explanation but that’s...

Thanks for the color, John, if I get follow-up in the firearms and ammo business and some of the supply conditions that you talked about, can you maybe just elaborate on that because that is putting some downward pressure on pricing, I mean, in general when do you expect that to normalize?

I think firearms are normalizing now, we’re seeing vendors and I think partially because all the national competitors are opening new stores so you get that surge in purchases to stock a new store. I think a lot of vendors are seeing that dynamic and are very happy with that dynamic and are now getting at a point where they’re shifting more of their sales to the national players and more away from the mom and pops and the distributors in that as a result that's given them more confidence that they don’t need to promote, so I don’t see a whole lot of firearms promotions coming. The ammunition side, there has been about a 48% increase in the last five years in the ammunition, a lot of it's the Rimfire category but it’s been across the board and at some point that can’t be maintained. I think in the Rimfire category, we’re going to see continued price increases until supply equals demand and I think those are going to stick mainly because that category is now profitable for vendors were in the past. It has either been breakeven or lost leader for our vendors, but in other calibers unless there is something that went out with the green tips scare of few weeks ago in the 556 caliber stuff. I don’t -- I see slight to small price decreases as we moderate toward and equalization between supply and demand through the first half of the year. Now I’ll give you a little more color because I think it’s important -- what all of this means to us and what we’ve been seeing and I am not -- I am speaking for us only, we’re seeing very choppy sales of firearms in the first quarter of 2015 and what that means to us is that means, the bottom is here and we’re starting that slow rise, that doesn’t mean the rise occurs in Q1, doesn’t necessarily mean the rise occurs in Q2. I think our perspective is that the firearms category will turn positive on the same-store sales basis probably in the second half of the year.

Thank you. And our next question comes from the line of Matt Fassler with Goldman Sachs. Please proceed with your question.

Thanks for that guys, [indiscernible] here. Just following up on the ASPs for firearms, is that -- when you guys talk about that being down are you looking at like-for-like products or is that more reflective of the mix, [it’s been a handgun sort of the stronger] lately?

Well, handgun has been a bit stronger but if you really look at the type of firearms we sell the price points aren't dramatically different. So while there is a change in price that’s due to mix, I am not going to tell you it’s all -- we said it was down 2.7% in the fourth quarter, it's not all due to mix. There is some promotions act that went on. There is some overstocking in certain long rifles, non-MSR long rifles that got moved in the fourth quarter at slightly better pricing, so it’s a combination.

Got it okay and then in terms of the ban that was proposed in first quarter, I guess, I am little bit surprised that it doesn’t seem like it’s had more of an impact. Could you comment on that and whether that was sort of a surge type episode that brought a lot of traffic in the stores or is that not, not what you got saw?

Well, it’s not as big as some have thought it could have been, first of all you’re talking about a small segment of ammunition and basically bullets. And you know what we saw on our stores were some stores in some states there was a huge run on these products, in other stores and other states it was a non-event. The fact that it ended quickly I think had a positive impact on our ammunition sales but not an impact that you would say is something we have to consider next year when we annualize this thing, it was relatively short and it certainly wasn’t across all of our stores.

And our next question comes from the line of Matt Nemer with Wells Fargo Securities. Please proceed with your question.

Just two questions; one, on the weather impact that you’ve talked to I would think that the early spring weather, the warm weather, would probably help some other categories, obviously it impacted outerwear but did you see a positive or are you seeing a positive benefit in fishing and campaigning and some of your other kind of spring [moving] categories? And then just secondly on the loyalty program, you mentioned that some marketing programs are going to start to kick in later this year, can just describe what we should be looking for in those e-mails to loyalty members or special in store events? What sort of programs do you have planned? Thanks.

The weather impact on the spring has clearly had a positive impact on our fishing. Non-ice fishing is clearly significantly greater than ice fishing and while we suffered in the ice fishing categories we have had very good numbers in fishing overall. Camping has always been a good category for us and it continues to be a good category for us. The tradeoff is still in the clothing and footwear, what you're basically trading is high dollar price, heavy outerwear and [pack food] some things like that for low dollar price T-shirts, and shorts and sneakers. So the impact of the weather on Q1 is not the same as the impact of the weather on Q4. But it has caused a change in dynamic, the biggest of which is there is a period of time where you're trying to get rid of your fall outerwear and when it's 60 degrees out you can't price at low enough to sell it and you are stuck with basically no spring goods in your store yet and a bunch of winter clothes that no one wants to buy and that’s the impact of the weather as it relates to a Q1 dynamic as opposed to a Q4 dynamic. On the loyalty program the only thing I can say is yes. We're in the process to finding all those types of activities and all the types of things you want to do to gain enthusiasm from your loyalty members to have been come in more frequently and spend more money. So everything is on the table right now and nothing has been specifically calendarized other than we're going to do most of it in the second half of the fiscal year.

And just a quick follow up. How do you characterize your inventory exposure to the winter product is that kind of still in front of us something that needs to be kind of exited in front of us or you sort of clean there at this point.

I think we're cleaner than we could have been. I think we're very happy with where we sit, that said we don’t sell a lot of fashion items, so the only items we really had to liquidate at to really prices where those items from brands that we knew were going to have new [silhouettes] next year. So we didn’t have to real dramatic, have real dramatic price decreases in the clothing categories. We ended up boxing more than we normally do this time of year and as a result when we get to the time where that stuff sells again they will probably be sold not at full retail and that’s why I think our expectations for margin for the entire year have come down a little bit.

And our next question comes from line of Mark Miller with William Blair. Please proceed with your question.

Just to be clear on the fourth quarter outcome then you came in at the high end of your plans for EPS despite whether particularly that outerwear being unfavorable. So besides the better performance in the stores that have a new competitor in the [street area] help us understand where else you came in stronger than the guidance or was it simply you are appropriately conservative.

I think the number of stores in the areas in which we have mature competition performed very well. I think the categories in camouflage private label in the fishing area and the camping area performed a little better than we had anticipated and frankly the hunting category did not perform as detrimentally I guess is the best word as we had initially anticipated. Ammunition for example is same store positive now and it started at that turn in the fourth quarter and its continued into the first quarter and I think that helped fourth quarter.

And then looking into 2015 I understood the plan for CapEx to appears to be a little higher than we were thinking is that right that it's come up a little bit and then I guess netting it out to free cash flow I know you said you can fund the store growth but what kind of free cash flow would you are anticipating and how much is that going roughly to that pay down? Thanks.

Yes with respect to the CapEx we are continuing as I mentioned to improve our infrastructure in our distribution center. We've got some project going on there as well as some IT improvements as well that we're planning to do also as we look to 2016 in getting those stores up and going, some of those stores, the CapEx for those stores will fall in 2015 as well. So that includes more than just the nine stores that we're going to open in '15. But it will include the beginning construction periods of our 2016 class. With respect to our free cash flow, our term loan does have a debt requirement that we take 50% of our free cash flow and pay that down as a mandatory pre-payment on our term loan that occurs after fiscal 2015. So that pre-payment will occur in the spring of 2016 once that is done and we expect to be even with these CapEx dollars we expect to be making a debt pay down at that point in time.

So Kevan just to be clear, are you expecting then any meaningful free cash flow in 2015 or you’re staying close to neutral then?

Close to neutral after we have the mandatory pre-payment but it will be positive and there will be a debt pay down in 2016 so.

And our next question come from the line of Peter Keith with Piper Jaffray, please proceed with your question.

I wanted to get into a little bit on the gross margin trend, it was better than we had expected and despite in terms of probably a little bit of a drag from weather would you give us what you think the drag from weather was and was it called and maybe a gross margin basis relative to your expectations.

The comp, the weather patterns were extremely unpredictable particularly in the Western US, we started warm, we got cold and we finished warm, so it’s difficult to estimate that, that being said our best estimate is good as it can be given the weather patterns that were there, is on an impact on the same store sales is somewhere around 50 basis points to a 100 basis points on the same store sales comp. With respect to the gross margin it really is coming in mix, as we’re seeing declines in the hunting department which is our lowest category margin, we’re picking that up in sales dollars and mix dollars in the other categories which come in higher, almost all of that 80 basis point increase in gross margin is a result of mix. So that was very pleasing to us as we saw our initiatives take place even though it was soft from an expectation perspective because of the weather in the soft goods we’re still pleased to see the continued shift in the mix to the higher margin categories.

Okay, very good, and then I want to follow on with that with the private label expansion, I think you’ve been seeing anywhere from 40 to 60 basis points of shift in the mix of private label year on year, I think you said for the full year it may have been up -- was it 70 basis points? I was wondering if that was for the quarter or for the full year, if you didn’t give us a quarter if you could do so.

I don’t have the quarter numbers right in front of me, that is the full year, last year we were just below 2% from a private label perspective. This year we finished at 2.6% so I don’t have the quarter data in front of me, but the full year was 70 basis points.

Okay, so then maybe just a follow on so it looks like there’s now an accelerating shift to private label that has been a fourth quarter even with some of the weather headwinds. Could you just talk a little, [about there’s] some new products that came in or customers is finally getting traction with that, it kind of looks like a curious acceleration.

Well I think there is a shift to the footwear and clothing side of the store that despite the weather the shift is still occurring because it just isn’t as dramatic as it could have potentially been had all things been equal. That said it’s a combination of a number of things. We’re doing the store within the store concept especially with [indiscernible] Columbia and Carhart. It’s really dramatically changed the perception of our store and the perception of our clothing offerings in our store. Private label has been an excellent fill in with our rustic ridge brand, especially in the camo area where Russel exited the business over a year ago now and we’ve kind of filled that price point and it’s done better for us than Russel did for us and we’re working on a mid-level to higher level price point, a camouflage pattern in product line which we tested in the fourth quarter which has so far been exceeding our expectations. So all, I don’t think you can just say it’s private label, although private label’s a big driver, I think you also have to say presentation in our merchandizing of the entire soft goods side and the footwear side is dramatically better than it was a year ago.

Thank you, it appears that there are no other questions in the queue at this time, we’d now like to turn the call back over to management for any closing comment.

Great, well thank you for joining us today, we look forward to speaking with you when we report our first quarter results, thanks very much, have a nice day everybody.

Thank you, this concludes today’s teleconference, you may disconnect your lines at this time, I will thank all of you for your participation.