Greetings and welcome to the Sportsman's Warehouse Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Rachel Schacter of ICR.

Thank you. Good afternoon, everyone. With me on the call is John Schaefer, 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 include 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 under the caption risk factors in the Company's 10-K for the year ended January 28, 2017 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 with 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, Chief Executive Officer of Sportsman's Warehouse.

Thank you, Rachel. Good afternoon, everyone and thank you for joining us today. I will begin by reviewing the highlights of our second quarter and then discuss our progress on our strategic initiatives and thoughts on the remainder of the fiscal year. Kevan will then go over our financial results in more detail and review our outlook, after which we will open up the call to your questions. Looking at our second quarter performance. Our topline results were in line with our expectations given the anticipated continued softness in firearm demand as we anniversary difficult comparisons from the Orlando tragedy in June of 2016. Our better than expected bottom line results were driven by stronger gross margins resulting primarily from product mix shift from low margin hunting and shooting sales to higher margin clothing, footwear, and camping sales. For the quarter, net sales grew 0.9% to $191.5 million and same-store sales decreased 9% with fully diluted earnings per share of $0.15. The same-store sales decline of 9% versus the prior year reflects a combination of the following two factors. First, the NICS data, which continued to show slow firearm demand for the second quarter, especially in June and July as a result of the difficult comparisons in the prior year due to the tragic Orlando shooting. Our overall comp decline of 9% was again mostly driven by our hunting and shooting department, which contributed eight of the nine-point comp decline. That said, the July 2017 adjusted NICS data was still the third largest July on record and on a two-year stacks basis, the adjusted NICS data was up approximately 11.2% for the states in which we operate in the second quarter. The two-year stacked increase in our firearms sales during the second quarter was 28%. Despite a short-term decrease in…

Thanks, John. Good afternoon, everyone. I’ll begin my remarks with a review of our second quarter results and then discuss our outlook for the remainder of fiscal year 2017. My comments today will focus on adjusted results. We have provided these results, as well as an explanation of each line item and reconciliation to GAAP net income and earnings per share in our earnings press release, which was issued earlier today. Net sales for the quarter increased 0.9% to $191.5 million from $189.8 million in the second quarter of last year with a same-store sales decrease of 9%. We opened four stores during the second quarter and ended the quarter with 83 stores in 22 states or square footage growth of 12.2% from the end of the second quarter of fiscal year 2016. The four store openings in the second quarter were Yuma, Arizona; Henderson, Nevada; Everett, Washington and Eureka, California. Subsequent to the end of the second quarter, we have opened two additional locations, one in Spokane Valley, Washington and one in Stockton, California that open this morning leaving us with only two additional stores to complete our 2017 planned store openings. We anticipate that these two stores will open during the third quarter. 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 defined as a new competitive entrant into a market within the past 18 months. In the second quarter, excluding the five stores in our comp base that were subject to new competitive openings, our same-store sales decreased 8.3% compared to the second quarter of last year. Our 47 base…

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Seth Sigman of Credit Suisse. Please proceed with your questions.

Thanks a lot. Good afternoon, guys. So my question is around the third quarter guidance, you're guiding to a slight improvement here. It would seem that the second quarter ended perhaps on the weakest note just given the next data, I guess the question is, have you seen any sort of improvement in August that gives you confidence that that you're on this path to improvement even if just modest? Thanks.

Seth, as we’ve look at the guidance, we look at the entire period. So we are aware of the trends, obviously as I’ve trailed in August. We don't speak specifically to specific months, but we're comfortable with that guidance based upon what we have seen in the trends and based upon the activities from last years in the things that we expect to see going forward.

Okay. And then gross margin, obviously very well managed in the quarter despite a lot of competitors talking about promotional activity. Can you maybe help us quantify how much of the improvement was mix versus rate moving up within individual categories? And then just a bigger picture given the gross margin gains, how do you think about perhaps reinvesting some of those gains into price to accelerate market share gains? Thanks.

I'll take the first stab. With respect to your first question, approximately 75 basis point of the 90 basis points increase was due to a mix shift. As you look at our product sales mix, approximately 4% our sales as a percentage – our hunting category as a percentage of sales decreased by 4% this year versus last year. That 4% was shifted to all higher margin categories and by my calculations that's approximately 75 basis points there. So we are benefiting from a gross margin perspective, absolutely with respect to that.

Seth, I think taking margin in terms of pricing promotion and playing this race to the bottom that some others appear to be accepting is not in our DNA. If you look at the facts, the facts are pretty clear. Mix has gone up 11% on a two-year stack basis. Our unit sales have gone up 28%. We are in the use category strongly not in the protection category. And to cut price on firearms to try to stimulate artificial growth in a period of time that both is not a high purchase time of year and it’s just before a high purchase time of year in the September, October timeframe with hunting. Simply doesn't make sense, people don't want to buy, they're not going to buy. That said on the ammunition side, I've talked for a number of months on how we believe that the promotional type target shooting, loads on the ammunition side are overpriced. The vendors, we have consistently said need to lower their price on those high volume categories, whether it would be the [556 or the 223] or things like that. They have yet to do so, which is actually quite shocking to me. And I think if we do any promotions, it maybe in the ammunition side because it is clear that while changes in firearms are usually matched after a period of time by changes in ammunition. That change has not occurred yet and it's simply because the customer is saying the price is too high. So we may give back some margin on the ammunition side, but I see absolutely no reason to give it back on the firearm side.

Okay. Thanks for that. Nice job, navigating tough environment.

Our next question is from Peter Benedict of Robert W. Baird. Please proceed with your question.

Hi, guys. Yes just related to kind of the promotional environment and John, how are you thinking about demand pull forward in the market firearms? I mean clearly, it sounds like you're doing the promotions, but others are – so that's kind of my first question. And then my second one, is really more around inventory and the accounts payable, the payables ratio down big, just curious you guys are taking advantage of the early pay discounts or what's driving that? Thank you.

Sure. We haven't seen any indication of demand pull forward. What we're seeing is the same stuff we saw a couple of years ago where the independents are trying to create cash and that's been going on for a while now. When they start doing promotions and when our competitors start doing promotions that they're bringing their price down to our everyday price. So the demand – we haven't seen any instances in terms of unit demand or in the types of products being purchased on the firearms side that would lead us to believe that there's any pull forward going on, on the firearms side. We don't have the issues that some people have, where they have to promote because of the Gander closing. We only have three stores that were impacted by Gander and frankly all three of those stores are just fine. We're not in the Midwest, where other competitors are probably seeing a larger impact from those liquidation sales and are being forced to promote their way down to compete with that.

Peter, with respect to your second question, yes, you're exactly right. We are seeing quite a bit of opportunities for early pay discounts and particularly with the increased availability that came with the increase in our line of credit. We are taking advantage of these and so that's what you're seeing there with respect to the accounts payable. We're making that up through terms discounts and early pay discounts and we are taking advantage of those items.

Okay, great. And just one follow-up, if I could. How are trends in the camping category? Can you give us maybe what the comps were in 2Q for that and what kind of trends you're seeing there? Thank you.

Camping was down 3.7% on a same-store sales basis during the quarter. Access early on in the year was a bit of an issue with the high snowpack in the West. We have had a little bit of fire certainly not to the extent that we had last year, but that also limited the access and limited the sales in the camping department. Overall, we're still pleased with where we are in the camping department and expect good things as we continue to go forward with the rest of the year.

Okay, great. Thanks guys.

Our next question is from Andrew Burns of D.A. Davidson and Company. Please proceed with your question.

Thanks. Good afternoon and congratulations on year-to-date performance. Just curious, since we've heard from a lot of brand vendors as well as other sporting goods retailers, there is a lot of different sort of point of view about the current environment. How is it different in today versus what you thought it would be at the start of this correction and start of the year? Is it materially sort of on plan or has there been any surprises that have come up? Thanks.

We're not surprised Andrew. We saw this coming with the Orlando tragedy and the run up to the election, so we knew this would be a tough year. I think we were a little surprised at how the fourth quarter ended last year, which gives us a certain amount of confidence for the fourth quarter this year. But I think by the fact that we're hitting our sales numbers and we're hitting our same-store sales numbers and firearms are doing exactly what we thought. We're somewhat lucky in that. We're in a high used part of the country as opposed to a use/protection part of the country. So we have a little more stabilization. That doesn't mean we're not going to see the down cycles when you have those big upticks. But also allows us to be pretty confident when we look at the environment and the stable nature of our customer base to not really be surprised a whole lot. And I would say, other than the fact that I think the vendors have waited too long to price the high used promotional type loads properly. That's really I think everything else as we expected.

Okay, thanks. And then just a quick one in terms of footwear and apparel. Good performance in the quarter. Clearly, those are smaller categories for you, but they're probably most at risk for online promotional activity and online competition. Once you anniversary the inventory benefit here later this year, do you think you can continue to grow those categories? What’s the outlook there?

As we've factored into our guidance for the remainder of the year, we are coming up on the anniversary of the inventory position in the third quarter. We have seen and expect good trends out of both of these categories albeit coming down slightly from where they are. So I would say for the remainder of the year slight increases in both of those categories or what is our expectation and what is built into our guidance.

Okay, thanks and good luck. End of Q&A

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

We want to thank everyone for joining us today and we will hopefully talk to all of you soon. Thank you very much. Have a nice day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.