Greetings and welcome to Sportsman's Warehouse Fourth Quarter and Full-Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . Please note this conference is being recorded. I will now turn the conference over to Riley Timmer, Vice President of Investor Relations and Corporate Development. Thank you. You may begin.

Thank you, operator. With me on the call today is Jon Barker, Chief Executive Officer, and Jeff White, Chief Financial Officer of Sportsman's Warehouse. First, by way of introduction, I'm Riley Timmer, and I am the new Vice President of IR and Corporate Development. It's a pleasure to be on this call today. And I look forward to developing relationships with each of our analysts and our current and prospective shareholders. Going forward, I will be your primary point of contact for all investor related inquiries. I will now remind everyone 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 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 most recent Form 10-K 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 financial 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. Finally, 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 this deck as a reference with today's prepared remarks. I will now turn the call over to Jon Barker, our Chief Executive Officer.

Thank you. And it's great to have you on the team Riley. Good afternoon to everyone on the call and thank you for taking the time to join us today. It's good to be back on our normal operating and communication routine with our analysts and investors. In my remarks today, I will provide a brief update since our last earnings call in December of 2020. In addition, we will provide an overview of our fourth quarter and full-year 2021 performance highlighted by our beat to consensus on both top and bottom line results. Then I will review a few key elements of the growth strategy for our omnichannel business model. Following my comments, Jeff will provide additional details on our fourth quarter and full-year results, as well as discuss our outlook for the first quarter of 2022. Finally, we will open up the call for questions. As a backdrop to our business growth, when we entered the pandemic in early 2020, we operated 102 stores with 2019 revenues of approximately $886 million. Our ecom-driven revenue exiting 2019 was less than 7% of sales. During the two-year period since then, we have opened an additional 20 stores, increasing our square footage by approximately 16% as well as making significant capability enhancements to our omnichannel platform, which supported the growth of ecom sales driven penetration to approximately 15% of fiscal 2020 revenue of $1.5 billion. The increase in consumer participation and changes in the competitiveness landscape continue to be very favorable for Sportsman's Warehouse. Several of our closest competitors have either exited or dramatically reduced their firearms and ammunition categories over the past two years. In addition to the competitive shifts, our omnichannel execution and the increase in outdoor participation has provided us with market share gains evidenced through our top…

Thank you, Jon. I'll begin my remarks today with a review of our fourth quarter and full-year fiscal 2021 results. I will then review our outlook for the first quarter of 2022. Net sales for the fourth quarter of fiscal 2021 were $416.3 million compared to $438.2 million in the fourth quarter of 2020, a decrease of 5% over the prior-year period. The decrease was primarily driven by a tough comparable period as we anniversaried the events of January 6, 2021, which drove increased firearms and ammunition sales across the business. Same store sales decreased 10.8% in the quarter compared with the same quarter of the prior year. This decrease was primarily driven by a decrease in firearms and ammunition sales of 23.1% and 26% respectively. These decreases were partially offset by increases in our footwear and apparel categories of 17.2% and 2.7%, respectively, over the comparable quarter. Fourth quarter 2021 gross profit was $136.6 million compared to $142 million in the fourth quarter of 2020, a decrease of $5.4 million. Gross margin was 32.8% for the quarter, an improvement of 40 basis points versus the prior-year fourth quarter period. Product margins and favorable mix contributed approximately 200 basis points to the gross margin improvement over the prior-year period, which was partially offset by higher overall freight costs. SG&A expense of $113.4 million for the fourth quarter of 2021 was an increase of $10.8 million or 10.5% compared to the fourth quarter of the prior year. As a percentage of net sales, SG&A expense increased to 27.2% compared to the 23.4% in the fourth quarter of the prior year. This increase was primarily driven by retention bonuses paid to key employees of $2.5 million and costs associated with the terminated merger of $3.3 million, both of which are non-recurring expenses.…

. Our first question is from Mark Smith with Lake Street Capital Markets.

First question for me. Can you just give us your thoughts on gross profit margin? Big picture, as we shift back to maybe a more normal sales mix of firearms and ammunition, the impact that might have on gross profit?

Mark, this is Jeff. As we looked at Q4, I would tell you that we saw a very healthy return to a normalized sales mix, evidenced by the increase in absolute gross margin percentage that we saw. As we think about going into the future, we see a very healthy trend in that sales mix to your point, going with less centered on firearms and ammo and more centered on our other categories, reverting back to our historical trends of business.

You guys had called out some obvious labor pressure. Any other places that you're seeing maybe inflationary pressure, whether it be on gross profit margin or on SG&A?

We're still seeing pressures from a freight perspective as we think about 2022. Those pressures, we expect to continue through Q2, call it, and then we get into a much easier comp in the back half of the year. Other than that, as you look at SG&A, I would call out that, last year, we did not have certain types of marketing turned on. So as we think about 2022 and we go back into a normal promotionary environment, those types of marketing, we'll be turning back on throughout the year.

I just want to ask about current sales trends as we're seeing consumers with inflationary pressure, some inventory come back in certain categories. Anything you guys can call out, even as we look at the last two months so far in this quarter, on changes in consumer behavior with gas prices or anything else that are worth calling out?

As I think about the components driving consumer behavior, certainly, the largest one that all retail is experiencing right now is the comp of the nearly $2 trillion of the stimulus last year. It's really hard for me to parse out how much inflationary pressures including cost of fuel are contributing to those pressures in the consumer. The way I like to think about it is, for our business and the industry we're in, the stimulus checks are a short-term impactor from last year. And while fuel costs and inflation will certainly have an impact on disposable income for our consumer, we actually believe and are confident that our industry is able to weather those changes better than most. As folks have more limited available income, they're more likely to stay close to home, can't fish, hike, hunt, and participate in the shooting sports than they may be traveling to a destination for a week's vacation at the beach.

Our next question is from Ryan Sigdahl with Craig-Hallum Capital Group.

Congrats on the business success over the last year, two years. Jon, want to piggyback off that last question. So agree that you guys are better positioned than much of retail in this inflationary and the various macroconditions going on right now. But can you also talk just relative to your specific competitors in your categories, how your everyday value focus could potentially also position you better?

Our business has always been based on a value proposition of convenience and everyday low pricing. You've never seen Sportsman's Warehouse drive demand through significant promotion. We certainly have a cadence of promotion around the holidays. So, as our customers think about how far their dollar will go in supporting activities with their family and friends, Sportsman's Warehouse is always on the top of mind. As you think about the changes in consumer behavior and everybody's desire to spend more time in the outdoors and less time in a mall or a destination shopping experience, the Sportsman's Warehouse layout and store components certainly provide a greater opportunity for those customers to save money and get in and get out to the outdoors versus spending hours shopping in a large destination.

Then just moving over to e-commerce, how much was – maybe I missed it, if you gave it, but how much was shipped from your DC in Salt Lake versus your local stores of your ecommerce sales? And then, secondly, any plans to build out a new distribution center potentially in the eastern part of the US or other part?

Ryan, we haven't provided the percentage of sales by source. What I can tell you, over the last year, we've dramatically increased the percentage of ecom sales that are coming from store inventory versus our distribution center. And as we think about the future, our dropship capabilities, expanding on those dropship capabilities, as well as leveraging the store inventory from our 122 stores, can help to move and turn our inventory faster and also expand the availability for the consumer online. As we think about distribution space requirements, we will not open a permanent distribution center in 2022. But I'm currently evaluating the modeling around a permanent distribution center that would open at some point in 2023. As we finalize that modeling, we will be able to provide additional details around the sizing and the timing as well as estimated capital for that new distribution center.

I know you're not giving full-year guidance, but reasonable at least directionally to say that comps get easier throughout the year, that Q1 is the high watermark potentially from a tough year-over-year standpoint?

Yeah, you're correct in your thinking. Q1 is the toughest comp that we have for the full year just due to the stimulus that we're anniversarying as of March 15. To Jon's point, that was $2 trillion that entered the market. The consumer last year was given a huge influx of expendable income. While we're seeing promising trends thus far this year, that is not as significant as we expected, which is evidenced in the guidance given. The comps do get much easier as we progress throughout the year and the impact of the stimulus lessen.

. And we do have a follow-up question from Mark Smith at Lake Street Capital Markets.

I just wanted to ask – and Jon, you talked about it on the call a little bit – just these refurbished stores, you said the emphasis really isn't ROI. But can you talk a little bit about ROI, what kind of returns you're getting, maybe what kind of traffic trends you're seeing at these refurbished stores?

Mark, as we think about refurbishing stores, our primary focus is ensuring that our stores stay up to date. And what I mean by that is, some of these stores that we have in our fleet have been around 20 plus years and they've performed extremely well in sales and profit. But, over time, they start to lose a little bit of their luster just as they've aged. So last year, we set out on a path to start refurbing the oldest stores first. We completed 19. And the ROI, while I can't give you the exact numbers, we are seeing encouraging trends in customer traffic within those stores and basket size. Part of that is a change in layout in how we are displaying some merchandise, change in sightlines within those stores, how we're thinking about checkout, the use of technology in those stores, both social and merchandise based. And it is starting to show a nice trend in returning an investment on those upgrades. As we think about 2022, we currently have plans to do seven additional stores and our expectation would be to do some number of stores each and every year going forward.

A similar question, can you give any similar metrics just as we think about new stores? Obviously, it sounds like the kind of smaller format is doing well with your plans to move forward with more of those. But as we think about new stores, how have they been performing and maybe what kind of return metrics you're seeing out of the gate on new stores?

Mark, we've maintained our discipline on the financial expectations to be returned from each new store. That's a 10% four-wall EBITDA and 20% ROIC including inventory at maturity, which has been about 18 to 24 months. We've also said in the past, and we continue to say, and very proud, we don't have a single store in our entire fleet today that isn't hitting those hurdles upon maturity. The new stores that we opened last year, Mark, are performing ahead of plan and we're very, very pleased with the performance. I referenced in my remarks, the Lady Lake, Florida store, and that was a little bit outside of our geographic area. As you know, our plan is historically to stay about 100 miles from an existing store to leverage supply chain and marketing capabilities. As we entered into that market being a very fast growing market, we immediately saw significant response from the local community as it being underserved. And we set out on a path to look at the entire state of Florida. And then, within a couple of months, we've already signed two more leases to enter Florida during 2022. And we will continue to evaluate other locations in that area as we see not only participation in the outdoor, but a moving population to the state of Florida.

We have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing comments.

Thank you. I want to thank you for joining the conversation today. And thank you to all of our dedicated employees around the country for their commitment to making Sportsman's Warehouse the leading company in the outdoor industry. Together, we look forward to continuing to serve our customers. Thank you very much.

Thank you. This does conclude today's conference. You may disconnect at this time. And thank you for your participation.