Sportsman's Warehouse Holdings, Inc. (SPWH) Q1 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Sportsman’s Warehouse First Quarter 2020 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 Caitlin Howe of Investor Relations. Thank you. Please begin.

Thank you. With me on the call today is Jon Barker, Chief Executive Officer; and Robert Julian, Chief Financial Officer of Sportsman’s Warehouse. 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 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 February 1, 2020 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 would also like to note that today’s materials include an earnings conference call PowerPoint presentation, which is available at sportsmans.com in the Investor Relations section of the website. You can utilize the steps to follow along with today’s prepared remarks. I would like to turn the call over to Jon Barker, Chief Executive Officer of Sportsman’s Warehouse. Jon?

Thank you, Caitlin. Good afternoon, everyone and thank you for joining us today. I hope you and your families are safe and healthy during these challenging times. I will begin my remarks by addressing the COVID-19 situation as it pertains to Sportsman’s Warehouse. I will then discuss key metrics from the first quarter and will also provide updates on our omni-channel growth strategy. Robert will then provide a summary of our Q1 2020 financial results as well as some commentary on full year 2020. Finally, we will open up the call for questions. I am now on Slide 4 of the investor presentation and will address the COVID-19 situation. While the last few months have been challenging for many retailers, we have been fortunate to keep the majority of our stores open throughout the crisis. I could not be prouder of the Sportsman’s Warehouse team in navigating both the global pandemic and the search in our business during this time. While remaining open, we have taken many steps to help protect the health and safety of our associates, customers, and their families, including additional cleaning and sanitizing, plastic barriers at registers, and face masks for associates. We have also leveraged our e-commerce capabilities like ship-to-home and BOPUS and using our own platform recently launched curbside pickup, which allows us to serve customers while limiting person to person contact. With respect to COVID-19’s impact on our supply chain, we did see some interruption in Q1 with products sourced from China, primarily related to camping and fishing. As China related interruption has largely subsided, however, the disruption to our supply chain due to COVID-19 has continued into the second quarter within certain pockets of our business. This disruption has been compounded by surging demand, creating shortages in firearms ammunition and fishing. Our merchandising and demand planning teams continue to do an exceptional job of working with our vendors help limit the disruption. While we have seen significant increases in sales to-date, there is tremendous uncertainty and variability in the economic environment. Therefore, we will not be providing forward guidance today. Given the uncertainty surrounding COVID-19, we will continue to invest in our frontline associates and their safety. Additionally, we will remain financially disciplined as we limit discretionary expenses, reduce our debt load, and preserve our liquidity to effectively navigate these uncertain times. I am now on Slide 5. The surge in demand resulted in very favorable financial results in the first quarter of 2020. Net sales were $247 million, an increase of 42% year-over-year. We believe the exceptional demand to date is been driven by multiple factors, including the COVID-19 situation, the exit of competitors and our core categories, and the current election cycle. However, parsing out the exact contribution of each factor is not possible. Same-store sales for Q1 increased 28.6%. Firearms and ammunition were up 65% and 90% respectively, while NICS checks were up 56% for the quarter. Our sales increased significantly exceeded the NICS checks, which gives us confidence that we are not only growing sales, but we are continuing to take market share in our core categories. Additionally, during the Q1 surge in demand, many customers entered our stores or ordered from our website for the very first time. This gives us the opportunity to expose newcomers to Sportsman’s Warehouse brand and to our extensive product offering. We believe this bodes well for developing repeat customers by reengaging across new categories, building our loyalty program and customer database, and ultimately growing our business. In contrast to firearms and ammunition, apparel and footwear were down materially in the first quarter. During the height of the COVID-19 crisis in Q1, customers for what I referred to as questing. They were far less likely to browse the store and as a result we did not experience traditional sales mix across categories. The combination of surging demand for firearms and ammunition and soft sales in apparel and footwear materially impacted our gross margins in Q1, which Robert will discuss in greater detail during his prepared remarks. Turning now to Slide 6, the tools and capabilities we have built over the last 2.5 years, along with our extensive assortment, enabled us to capitalize on the increased online traffic during Q1. Before the crisis, we were already seeing robust adoption of our e-commerce platform, including BOPUS and ship-to-home. As the crisis created the need for social distancing and required people to stay-at-home, customers embraced these services even more, accelerating our online penetration. Sportsmans.com saw a massive surge in demand during the quarter with our e-commerce channel sales growing over 200% year-over-year. During the first quarter, we also completed the rollout of ship-from-store, and we are now utilizing our stores as fulfillment nodes for orders placed online. We have made great progress, but we must continue to invest on our capabilities to remain relevant in the increasingly e-commerce driven retail environment. With respect to our physical store footprint, we have opened 3 new Sportsman’s Warehouse stores year-to-date, including 2 prior Field & Stream stores located in Crescent Springs, Kentucky; and Kalamazoo, Michigan. Additionally, we closed a store in Milpitas, California during Q1. In a typical year, Sportsman’s warehouse will open 8 to 12 new stores as we are all aware this year is not typical. With recent permitting and construction delays, our store expansion strategy has been impacted. We now expect to open 5 to 7 total new stores in fiscal year 2020. Turning to Slide 7, in summary, we couldn’t be more excited with the momentum in our core business coming out of Q1. In the near-term, we view the upcoming election cycle as a potential catalyst for our business. Furthermore, we believe COVID-19 is changing consumer behavior and motivating people to spend more time outdoors. Our products did exceptionally well in an environment in which consumers are spending more time fishing, camping, hiking and hunting. We will continue to work with our vendors to ensure we have our stores and websites stocked with the products our customers demand. In the medium-term, there is significant uncertainty in the economic environment and we are monitoring this evolving situation very closely. In the long-term, we believe we are uniquely positioned to capitalize on market share opportunities and changing consumer behavior to become a larger and more profitable company. With these factors at the backdrop, we continue to make progress on our growth initiatives, including enhancing our online platform and expanding our store footprint. We look forward to speaking to you again in early September when we report our second quarter results. With that, I will turn the call over to Robert to discuss our financial results.

Thank you, John. I will begin my remarks today with a review of our Q1 2020 financial results. As John mentioned earlier, we are not providing forward guidance at this time. However, I will provide a few parameters for thinking about our expected full year 2020 financial results. Turning now to Slide 9 of the presentation, first quarter 2020 net sales were $246.8 million compared to $174.0 million in the first quarter of 2019, an increase of $72.8 million or 41.8%. Same-store sales increased 28.6% in the quarter led by firearms and ammunition. Starting in April, camping and fishing also rebounded nicely for the quarter increasing over the prior year period by 16.6% and 8.5% respectively on a same-store basis. Q1 2020 gross profit was $74.8 million compared to $54.2 million in the first quarter of 2019, an increase of $20.6 million. Gross margin was 30.3% for the quarter, a decline of 80 basis points versus prior year. This decline can be attributed to several factors. Product and channel mix caused a 250 basis point decline in gross margin due to a higher proportion of revenue coming from firearms and ammunition and more sales volume coming from our e-commerce channel. This was partially offset by higher vendor incentives and improved product margins, which positively impacted gross margin by 120 basis points and 50 basis points respectively. SG&A expense of $75.2 million for Q1 2020 was an increase of $15.7 million or 26.3% compared to the first quarter of 2019. As a percentage of net sales, SG&A decreased approximately 370 basis points to 30.5% for the quarter. During the quarter, we closed 1 store that resulted in a non-cash impairment charge of approximately $1 million in Q1 2020. We incurred additional payroll expense of $6.5 million versus prior year, including $1.1 million of hero pay for our frontline associates. The remaining increase is primarily due to minimum wage increases and new store growth. Rent expense increased approximately $1.6 million primarily due to new store openings. Other operating expenses increased approximately $5.4 million versus prior year. We incurred incremental marketing expense of $2.2 million. Credit card fees increased $1.3 million due to the increase in sales volume and insurance expense increased $0.3 million. Store operating expenses, including utilities, janitorial and security, increased by $0.6 million due to new store openings and additional cleaning performed due to the COVID-19 situation. We incurred $0.4 million of pre-opening expenses and transaction costs associated with the acquisition of 2 Field & Stream stores. Loss for operations was $0.4 million in Q1 2020 compared to a loss of $5.4 million in the prior year period. Interest expense in Q1 2020 was $1.5 million compared to $2.1 million in Q1 of 2019, a reduction of $0.6 million. This improvement is a result of lower total borrowings and lower interest rates. We recorded an income tax benefit of $0.8 million in Q1 2020 compared to a benefit of $2.0 million in Q1 2019. The $1.2 million reduction in this benefit is primarily the result of our improved financial performance year over year. Net loss for the quarter was $1.1 million or $0.3 per diluted share. As compared to a net loss of $5.5 million or $0.13 per diluted share in the prior year this represents a year over year improvement of $0.10 per diluted share. Adjusted net income in Q1 2020 was positive $0.4 million or $0.1 per diluted share compared to adjusted net loss of $5.2 million or negative $0.12 per diluted share in 2019 this represents a year over year improvement of $0.13 per diluted share on an adjusted basis adjusted EBITDA for Q1 20202 was 8.2 million compared to $0.4 million in the prior year period. Turning to Slide 10 I will now comment on our balance sheet and liquidity. Q1 2020 ending inventory was $301 million compared to $291 million at the end of Q1 2019 a $10 million increase. We have added 14 new stores and closed one store during this time period. Inventory is down 9.6% on a per store basis compared to prior year. We incurred $4.8 million of net capital expenditures in the first quarter of 2020 compared to $3.1 million in Q1 2019 an increase of $1.7 million. This increase was due to new store construction and maintenance on our existing stores. First quarter 2020 operating cash flow was $31.3 million versus $3.4 million for Q1 2019. This $27.9 million improvement in operating cash full year over year is primarily due to higher accounts payable associated with increased sales volume. Our liquidity remains strong as we ended the quarter with $118.4 million in net outstanding borrowings on the line of credit compared to $141.6 million at the end of Q1 2019 a reduction of $23.2 million. This reduction was achieved while holding an incremental $20 million of cash on our balance sheet in order to provide maximum flexibility during these uncertain times. At the end of first quarter 2020 we had approximately $60.3 million of availability on the revolving credit facility. The outstanding balance on our term loan was $25.7 million at the end of Q1 2020 compared to $33.7 million at the end of Q1 2019 the reduction of $7.9 million. Our total liquidity including cash on hand at the end of Q1 2020 was $82.4 million compared to $41 million in the prior year. Turning now to Slide 11 of the presentation, as I mentioned previously we will not be providing forward guidance at this time due to the significant uncertainties surrounding the current economic situation. However I would like to provide some data points and commentary on how we are thinking about expected full year 2020 results. Starting with new store growth we anticipate opening a total of 5 to 7 new Sportsman’s Warehouse stores in 2020. With respect to gross margin, we expect a continued higher proportion of revenue to come from firearms and ammunition and a higher volume of sales to be conducted through our e-commerce platform both of these factors will continue to put pressure on gross margin. We expect our fiscal year 2020 effective tax rate to be approximately 27%.fiscal year 2020 interest expense is estimated to be approximately $6.5 million to $7.0 million . Finally, full year 2020 capital expenditures are anticipated to be approximately $23 million to $28 million. It is important to note that the current economic situation is fluid and could change very rapidly therefore we will continue to take a relatively conservative approach to managing our inventory expenses and liquidity in 2020 and beyond. We look forward to updating you on our business and financial results during our next earnings call in early September. With that, I will now turn the call back over to the operator for questions.

Thank you. [Operator Instructions] Our first questions come from the line of Daniel Hofkin of William Blair. Please proceed with your questions.

Good afternoon, folks. Just wanted to maybe just ask a little bit about sales trends and maybe differences by types of market or anything – additional color that you can share as well as trends over the – you may have said something about the trends over the course of the quarter end since and just sort of how that’s developed. And then if there is anything that suggests what – whether some of the increase in demand and some of the categories that have strengthened recently has been pent-up demand versus more maybe representative of trends we might expect going forward? Thanks very much.

Happy to do it. Hey, Dan, it’s Jon. Hope all is well. Let me give just a little bit of color on what we saw in Q1 from a trend basis and curve. Started off February, the business was right on track with where we expected. We were seeing a nice uptick in some of the categories that others had exited. Following Super Tuesday, we started to see a surge in firearms and ammunition, primarily around our core categories, our core customer. And I attribute that to the fact that the ASP and the actual SKUs we were selling were right in with normal. When COVID-19 started to become a major issue in the country in mid-March, we started to see the types of products change across the business. We saw heavy, heavy demand on personal needs such as water storage, water filtration, generators, dehydrated foods. On the firearms side, we did see a transition to a lower price point firearm mid-month. There were a lot of new firearms buyers in the market for personal protection, and we were able to serve them well having the full extensive assortment that we keep in place. When the stimulus checks came out as the next component, we saw our core customer, core products start to sell again with firearms ASPs increasing and the type of firearm being purchased slightly different returning to the core. We are not providing any update on May’s performance or post first quarter performance. But what I can share with you, it gives us confidence about the long-term as we are seeing a lot of new participants into outdoor activities and not just shooting and hunting, but camping, fishing, and hiking has seen a significant surge across the industry. We are seeing a lot of new customers that we are educating on this products and we are seeing a lot of folks coming into the stores that haven’t fished for decades maybe then all of a sudden are getting back to it. I believe that, that’s an indicator as folks think about how to spend their money, how to spend time with their families. The outdoor is a great way in a cost effective manner to make memories and to stay safe from the social distancing. So, we are very upbeat about what that can bring for us in the long run.

That’s great. And maybe just one quick follow-up obviously with some of the additional civil unrest in the last 1.5 weeks, anything that you can see just in terms of trends or whether you think that’s been an additional factor very recently in terms of people wanting to spend less time in more crowded areas than even before?

Yes. Dan, I think that it’s a good callout. I don’t know how to think about whether it’s a trend or not, but certainly for a few days, we have seen an increase in personal protection equipment being needed, and again kind of returning back to more of a entry level personal protection than a core user of firearms, but again that’s only been a few days. So, I would be uncomfortable indicating that might be a long-term opportunity for the industry at Sportsman's Warehouse.

Understood. Thanks very much. Best of luck.

Thanks Dan.

Thank you our next question is from the line of Seth Sigman of Credit Suisse. Please proceed with your question.

Hey guys thanks for taking my question I appreciate the nice job navigating through what I'm sure was a very dynamic environment. I just want to follow up on one of the last points around new customers coming in and sort of more active activities and things outside of the home. Should we interpret from that that you are seeing a pick up in some of the non firearm categories maybe late April and into May, so if you comment on some of those category trends that would be helpful and then just related to that can we also assume if that's true that in the margin performance could look a little bit different a little bit more favorable into the second quarter, thanks.

Yes Seth good afternoon I will try to hit on the categories and just to be clear we did start to see a pickup in categories outside of the shooting sports in late April and early May. As COVID restrictions started to be reduced across the country, we saw a significant uptick and participation across camping, fishing, and hiking. We expect that will continue throughout the year, and I think that's multiple parts. One is there is uncertainty about the economic situation in the country where some people may be investing less in their vacation and traveling and may be spending more time outdoors with their family. I also think the social distancing effect has happened in the way people are thinking is likely to have more people seeking outdoor activities further away from large masses and groups. Robert I will let you hit on the margin, if you will.

So, Seth on your question about margins, certainly our margin it greatly impacted by sales mix and we talked about 250 basis points of pressure in Q1 due to the much higher proportion of firearms and ammunition in our total revenue. So it is true if our mix would return to more typical or normal levels, you would see an equivalent improvement in our overall gross margin just on mix alone.

Got it okay and then can you just follow up on the promotional activity in the industry what are you seeing competitively and related to that I think you had one competitor that was expected to fully exit the category in a significant number of stores this year I think they got part of the way through but maybe defer that into next year we comment on that does that have any impact in your view let me know thanks.

Yes I am happy to do so promotional activity during Q1 and into May has been limited some certainly some activities were already pre planned by our competition and even Sportsman's Warehouse and we have maintained that cadence but from a margin standpoint the promotional activity has been very limited and helped margins on a per department per category basis.

The other question is about the competitor I think you're probably

Probably representing Dick's sporting goods they had announced I believe its early March or late February they were going to exit 440 more hunting lounges which we knew there was a potential for that to happen when they announced it we certainly are we are interested to see how they might execute on that from an inventory reduction standpoint and whether that would lead to promotional activity immediately after they announced that we went right into a COVID situation which I suspect helped move some of that inventory out of those hunting lounges within even a few weeks before they shut down because of COVID I think on the earnings call this week they may have mentioned the plan is still in place to exit the 440 but may be delayed for some amount of time as they navigate through the re opening of their stores and just the time it will take to make that transition so we expect that still to happen and provide again more market opportunities for Sportsman's Warehouse in a hunting and shooting sports.

Got it alright thanks guys good luck.

Thanks.

Thank you our next question is from the line of Ryan Sigdahl of Craig-Hallum. Please proceed with your questions.

Good afternoon guys and congrats on the strong quarter.

Thanks Ryan

Maybe just to start you mentioned higher vendor incentives benefited gross margin in the quarter just curious I guess what was different this quarter with their particular categories was it volume driven etcetera.

Yes go ahead.

While some of it is just a function on volume most of vendor incentives are tied to purchase orders sent in our sales activity. So certainly just on a volume basis alone there is you would seen in a permanent and we work very closely about vendors in this relationships and to be able to support the marketing activities that we do in advertising and so on. It is to benefit in our benefit and so. Our marketing team and purchasing team them working closely with these vendors the work for that we can partner and growth both of our businesses together and the volume is just driven more absolute dollars of incentive.

Got it, then just on e-commerce really strong quarter there mentioned with the headwind to gross margin, I guess it is more or less OpEx needed for the e-commence said differently can compare kind of EBITDA margin of in-store sales versus e-commerce?

Yes, Ryan, let me I can provide some color on that. If you think about the work content that’s require throughout supply chain t to full fill any e-come order versus store order there is more work content required, the difference is some of the work content falls on the last mall delivery on the parcel carrier USPS. So when we thing about the cost structure and the unit economics but in e-come order versus a store order it’s not a black and white situation. If you think about any unite economics of an e-come order that line pick in store or shift to store there effectively the same as a store unit economics. The difference is when you start shipping that directly to the home that does for pressure on gross margin because of the transportation packing related to that item, that is not inherent in a buy online pick and store order. So that will put pressure on gross margins, we did see a significant uptick in the percentage of e-comm orders that we are shipped to home during the COVID pandemic as customers are staying at home and not shopping the stores. I suspect that over time we will continue to see an uptick in that percentage of shipped home as we have been introduced a thousand new customers across the country to sportsmen’s over the next few months that are our side of our store regions. So it’s a nice opportunity for us to engage new consumers and grow the business but it will have some margin pressure as it’s related to transportation expense.

Got it. One last one for me turn it over. Inventory down 10% on it’s per store basis, I guess how do you feel by category or other? You noted guns ammo strength are there certain categories that you which you had more and you said primarily a function of just demand or other any other supply chain constrains out there? Thanks and good luck.

Yes, Ryan. Ryan, as you can imagine we feel very good with the forecasting we put in place and our ability to execute against the increasing demand quickly in March, and I think you can see that in our mix, our firearm checks compares and we absolutely gain significant market share during that period. However, with the type of growth we have seen in some of these categories of supply chain is been unable to keep up and it’s not just specific to Sportsman’s Warehouse most of our competitors have a major in firearms and ammunition in and in some camping related categories. And then that is the single largest focus of the demand planning and merchandizing team right now is to get back and start and make sure that we can serve the customers we expect – where we expect so. If you think about the 10% down per store that is not our plan. Plan, we cut slight bit a inventory system last year and as mentioned in my previous calls as we setup this year, we were not expecting additional declines in per inventory – per store inventory. We would like to be in a better spot than we are today. So that is our focus just getting our fall back in line and getting that product down to the stores. But this is in a specific to one category or one vendor. This is the overall supply chain is related outdoor products right now we are seeing significant press.

Yes, I will just add – we did a really nice job last year of reducing inventory revolve actually improving our in-stock performance. We are in a little bit of the different situation now. We have now is demand outstripping supply and we are just trying to chase it a little bit but frankly we are probably doing better than most in staying in front of that but it's a little bit of a different situation now than what’s last year while we were reducing inventory while improving in stock.

Good. If I could sneak one more and actually two just kind of as a follow up on that you mentioned May was plus 75% the industry you guys nicely outperformed in the quarter do you think inventory constraints or is there any reason why I guess you can't perform in line with the industry or better like you have them.

There is no reason why we cannot continue to take market share in firearms in the short term and long term Ryan.

Good. Thanks guys. That’s it for me.

Thank you.

Thank you. Our next question comes from the line of Peter Keith of Piper Sandler. Please proceed with your question.

Hi good afternoon guys great job great results I was hoping you could talk about your competitive positioning certainty the vendor incentive benefit of 120 basis points is intriguing but may be on a big picture basis are you finding that you are getting better product margin and even with all the demand you feel like you may be the first or second in line to get products. Curious how may be your competitors positioning is evolved so far this year with some of those other competitor exits.

Yes I think certainly Peter we we've continued to have great relationships with our vendor base that's always been a core principle over merchandising department as to make sure that we have a collaborative relationship that everybody wins gross sales and profit as some of the competitors have exited that certainly helped us we have grown and I think we have opened 15 stores in the last year there is no one in the outdoor sporting goods market that’s opened 15 stores in the last year I think it's been just the opposite so I would like to believe from the perspective of the vendors that they would tell you that we approach this collaboratively exceptional relationship with the vendors and we want them to grow we want them to be healthy and we want to share together in the profit that is available we're we are heavily focused on improving pricing and our capabilities around that and making sure that we can be as dynamic as possible to changing market conditions.

Okay and for Robert that 120 basis points <0245> get in Q1 can that type of run rate continue sounds like it is lot of driven by collaboration or if sales flow you're not going to get the same type of the benefit.

Yes I think that there's multiple ways that impacts one as we part of that they own <> incentives go towards marketing in Q1 we did market as heavily as we would normally would given the activities and ads or if. Sales would flow it would impact those incentives but I don't think I would be again that as a true run rate but it was a testament to what the team accomplished in Q1 help offset the overall mix margin impact.

Okay good and looking just now with some of the category trends I guess it looks like with the. Camping and fishing finishing positive with the quarter is pretty good spike in demand in April continuing with May but I was hoping you could comment little more specifically on the footwear and clothing is that is something that has inflected positive is there may be less questing more broader shopping in the store.

Yes so we have seen a return to a more normal. Our consumer shopping process where they're not just coming in and grabbing an item and getting out as quickly as possible they are starting to cross shop department so all departments are showing improved trends or started showing improved trend we also reacted pretty quickly to footwear and apparel the week that we started to see what was happening with COIVD-19 and retail potentially getting shut down we started to pull back on our apparel and footwear purchases no having lived through this a downturn in the economic cycle in retail a couple of times that tends to be one of the areas that have a long time in sourcing and you end up with too much inventory we pulled back very quickly we feel good about our apparel and footwear inventory position, when you think about what likely to happen, we feel good about with the functional apparel that we are in, the <> apparel we are in very good spot hiking on the footwear side, it’s showing some really nice trends and well it’s early, we believe that <> nice uptick this year. As people this more about feel to <> I mean out for activities, I think that leads into an opportunity <> boots this summer and into early fall.

It appear all at one more thing in <> answer with in the context, the financer <> tough and gross margin. It is likely though even whether might be some improvement in footwear and apparel, I think throughout the year, you should expect the firearms and ammunition will SKU more heavily in our total revenue in apparel and footwear will be in lower proportion of our total revenue going forward in on a full year basis this year.

That’s good. Thank you. One last question for me and treat with the all of the new customers you might be getting is any way <> give us the total loyalty members at quarter ended and how that looks on year-on-year basis?

I don’t have that number in front of me. Let me finish circle back on that one.

Okay. Fair enough. Thanks a lot guys, good luck.

Thank you.

Thank you. Our next questions come from the line of Mark Smith of Lake Street. Please proceed with your questions.

Hi, guys. I wanted to know circle back to the inventory little bit and just what specifically gun and ammo as we can, can you talk about maybe how that flowed during the quarter or there periods in March and April or maybe it was lower then where you ended the quarter and then any kind of what you are seeing in the supply chain from vendors come in May?

So again lets start – let’s go back to what we saw in volume are just <> and this is just on a same store base this firearms and ammunition were 65% and 90% respectively during the period. So you think about from our forecasting inflow we were very optimistic coming into the year but I don’t think anybody here in the business what <> forecast are expect at 65% and 90% on a same store not including the new stores that we put so, we start to see some flow issues kind of third, fourth week of March and we have been working intimately with our vendors to trying to keep the flow moving, it has <> situation where anyone vendor is been perfect and others have been challenged it’s been an overall situation where any one vendor has been perfect and others have been challenged. It’s been an overall situation and not specific to vendors. We have had our own bumps in the road along the way with attendance etcetera in moving products. So I think it kind of started the third week of March, fourth week of March and it continued. I will tell you though it is now branched out as customers are spending more time fishing, camping and hiking. We are seeing other categories in our business and the industry not just specific Sportsman’s that are looking thin. And I am sure Mark, you have probably been in the store and you have noticed some of the terminal tackle and the lures and the rod reel combos, it is very thin. And we are working very hard to restock those shelves both internally and with our vendors.

Okay. And then as we look at some of those very picked over categories, what are you seeing as far as pricing that you are paying for specifically as we look at ammunition and firearms in your ability to pass any price increases on to the customer?

Yes. So again, we have had really good communication with the vendor base on the firearms and ammunition. We historically see a price increase each year early in the year. We have seen some – some additional increases. And I think those increases are related to the fact that factories are working over time. They have had to pay extra pay for COVID. They are doing extra work within their factories. And in our situation we have maintained or improved our margins across the business and kept up with those changes. I do believe it’s important for us as a business and as an industry to ensure that we are providing fair prices to our customers. We will not gauge our consumers in this situation where demand is far outstripping supply but on the other hand we need to make sure if costs of materials or cost of labor cost the product in the manufactures are increasing we balance that with the elasticity of pricing.

Okay, And then I just want to look at the cadence of firearms sales you did a good job kind of walking through what you saw during the quarter but in this maybe just a little different can you give us any insight into maybe where you trended higher than the next data was it pretty flat that delta throughout the quarter or when you saw some competitors that closed their doors where you saw an expansion where you really took market share was there anything else that really led to your gains in market share this quarter.

Yes again Mark I think underlying in the data you would see the personal protection categories where the primary driver of the increase in mix check for the industry meaning a hand guns and personal protection shot guns what we did see that on the cycle that I shared was little higher price point hand gun early in the process then offset by more entry level firearm or shot gun and when the entry level consumer the new consumer came in around in the COVID process that's when personal protection shotguns tended to increase more than handguns again I think there was a little bit of it's my first firearm I need to protect myself what's the safest way to do that and have been certainly a personal protection shot gun it's not as we got into the stimulus checks we saw a nice return to a more normal mix I would tell you it's still a little bit heavier on the hand guns than it was prior last year but the price point has improved the last few days and again I don’t want to call this a trend because I hopefully as a society we are working together to try to limit some of the activity that's been happening this created a few days of uptick it's been more of a return to the entry level personal protection handgun and shotgun.

Okay then last one for me maybe for Robert SG&A levels as you walk through some of that can you just give us any more insight into kind of what you viewed as maybe one time in nature that drove maybe SG&A and dollars a little bit higher and kind of any insight you can give us into the rest of the year and how you think that trends.

Yes so in Q1 we did incur as I mentioned earlier about $1 million of <0248> pay for our front line associates which is certainly one time incremental type expense and the other sort of COVID related are specific unique expenses in Q1. was probably about a $0.5 million between cleaning supplies and other extraordinary items to react to the situation and so we saw a tremendous leverage based on the incremental on the incremental revenue there's also a one time of backed up the closure of the one store which was also about $1 million so those three items there's about $2.5 million worth of sort of usual expense. I would say that going forward you should see excluding the unusual items pretty stable environment you will see a lower SG&A as a percent of revenue as we have our normal seasonality in the higher revenue in the quarters to come for the year.

Okay that's helpful. Thank you.

Thanks Mark.

Thank you our next question is from in the line of Peter Benedict of Baird and Company. Please proceed with your questions.

Alright guys most of mine have been taken here but just a just a couple first on the on the 250 basis points of mix within gross margin was that pretty equal between the categories versus the channel shift or was one of those two more material.

Yes we're estimating that the channel the e-commerce channel makes us roughly 50 basis points to 40 to 50 basis points the mix created by the higher firearms and ammunition it was about 200 basis points.

Hi Robert thank you and then on the 50 basis point of product margin is how much of that is it was what was the sole impact from just the Field and Stream inventory that you guys have been going through. Was that what basically got you the 50 or is that are behind us and not really a factor anymore?

No, that is completely behind us and not a factor at all. It is a continuation of a trend as we had talked about before in our last quarter that we have been seeing improved product margins really across every category. And so that’s been a continuation of that same trend that has nothing to do with the purchase of the Field & Stream inventory at a discount.

Got it. Good. And then just the strategy to – or what’s been the shopping behavior of these new customers, I mean, you obviously had the big surge, are these folks coming back? And then what’s your strategy for, I guess, communicating to them going forward. I know Jon you said you maybe get back to those with the loyalty stats, but are these folks signing up for the loyalty program or are they just kind of coming in getting that firearm and then moving on?

It’s been a mix, Peter. For a few weeks there at the peak of the COVID situation, these customers were coming in and getting their item and getting out fairly quickly. We have now seen more of a normalcy to where consumers on the fishing, hiking and camping categories that are either reengaging or new, they are signing up for the loyalty program. We are starting to help them with their needs using the expertise in the store to fulfill whatever that need is for the outdoors and that’s providing us an opportunity not only to engage the first time but reengage through our database, our e-mail program and our loyalty program. So, again, the couple of weeks ago at COVID were somewhat unique and the way people are shopping we are seeing much more of a return to it now. And as I spend time in the stores interacting with consumers literally, watching people come in and say, I haven’t fished in 10 years, I needed a couple of new combos, I am going drought fishing or bass fishing. It’s been interesting to watch that reengagement from consumers that maybe haven’t been around a while. So, we see that as really nice long-term opportunity for Sportsman’s Warehouse and the overall outdoor industry.

Yes, now, where I – good to hear. Thanks and good luck. Thanks, guys.

Thanks Peter.

There are no further questions at this time. I will now pass the call back over to management for any closing remarks.

Thank you. I want to thank everyone for their time today and a special thanks to all of our associates in our stores, distribution center, care center and our corporate headquarters. We especially appreciate your commitment and perseverance during these extra extraordinary times. Thank you and we will conclude the call.

This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great evening.