Q1 2022 Sportsmans Warehouse Holdings Inc Earnings Call
Greetings and welcome to the Sportsman's warehouse first quarter 2022 earnings call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host Riley timber Vice President of Investor Relations 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.
Now remind everyone of the company's safe Harbor language.
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 most recent Form 10-K, and the Companys other filings made with the SEC.
We'll 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, one to the form 8-K, we furnished with the SEC today, which is also available.
On the Investor Relations section of our website at Sportsman's Dot com.
I also like to note that today's materials included in earnings Conference call Powerpoint presentation, which is available at sports and Dot 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 CEO .
Thank you Riley good afternoon to everyone on the call and thank you for taking the time to join us today.
In my remarks today, I will provide an update on our first quarter performance.
Comment on the current trends, we are seeing with our consumers and review a few key element of the growth strategy.
The channel business model. Following my comments, Jeff will provide additional details on our first quarter as well as discuss our outlook for the second quarter of 2022. Finally, we will open the call up for questions first regarding our Q1 business performance.
We are pleased with our first quarter 2022 result, and finished the quarter at the high end of our sales guidance, while significantly exceeding the top end of our earnings per share guidance I believe that these successes illustrate the fundamental strength of the business underscored by the strategic.
Initiatives in Omnichannel capabilities, we have.
Implemented over the last couple of years.
As many of you know the first quarter comparison versus the prior year is difficult given the large inflow of government funded stimulus money in 2021 relating to the pandemic.
That said same store sales in the quarter performed slightly better than we expected down 11, 6% compared to the first quarter of 2021 <unk>.
Comparing same store sales to pre pandemic in Q1 2019, we were up $38 two in the first quarter of this year.
As we continue to execute on our 2022 strategic growth drivers and leveraging our omni channel platform. We will maintain focus on the following growing our store footprint growing sales generated from the Sportsman's Dot com <unk>.
Leveraging our growing customer data and improving the customer shopping experience by modernizing certain stores in our fleet.
Starting with continued expansion of our retail store footprint during the first quarter. We successfully opened three new stores to our fleet and just last week <unk> four store this year in Riverton, Wyoming, bringing our total store count to 102006.
We remain committed to executing on drawing our store footprint and believe we have developed a strategically unique formula for expanding our geographic reach through our flexible store format.
Both the Riverton, Wyoming, and Stansbury Park, Utah stores that we've opened this year are our new 10000 square foot or less.
Mike can format by leveraging this new format, we were able to enter these smaller markets, where there was an underserved consumer tailoring our men's assortment of products to reflect local needs.
It's important to note that although early the Stansbury Park store has performed better than our initial expectations, giving us additional confidence to take the smaller store concept to carefully considered markets across the U S.
As communicated prior we are on track to open 10, new stores. This year ending fiscal 2022 with a total of 132 stores in 30 states.
As we look to the future our real estate team continues to actively review over 100 different target markets.
Porting the opportunity to reach 300 plus stores in the coming years.
Now turning to growing sales generated for Sportsman's Dot com, we continued to leverage Sportsman's dot com as a way to increase our reach to consumers outside our geographic area utilizing both our digital marketing efforts and our third party FFL partnership program during.
During the first quarter, our e-commerce business increased approximately two 5% as compared to Q1 2021.
This increase was driven by strong sales from our apparel footwear and ammunition categories.
Respective to the ammunition category, we continue to see improved in stock position within certain ammunition types.
This improvement has allowed us to leverage our omnichannel capabilities to serve customers online for specific ammunition skus for the first time since mid 2020.
As the industry improved supply and all ammunition categories over time, we will be prepared to capitalize on the demand to the broad reach of our stores and online at Sportsman's Dot com.
As a key area of focus we look to further increase traffic and sales on Sportsman's Dot com and we will continue to expand our online assortment.
Rising our large vendor base and improve drop ship capabilities.
These capabilities allow us to acquire and retain customers through increased assortment with limited investments in inventory.
Over the past two years, we've invested in the omnichannel inventory capabilities, allowing us to leverage the inventory of all stores, our distribution center and drop ship partners during.
During Q1, we set new levels of performance in this initiative with over 70% of all E com driven revenue being sourced from forward deployed store inventory and through our drop ship partners. In addition, approximately two thirds of all E com driven revenue.
<unk> was picked up in store, providing us with the opportunity to further engage with our consumers.
Turning to leveraging our customer growing database.
Our databases, including our loyalty program co branded credit card and E. Mail database continue to grow we continue to evolve existing and implement new targeted marketing strategies in an effort to maximize retention and increased market share.
A great example of this is in the ammunition category, which I mentioned earlier.
By utilizing targeted marketing campaigns, we can update specific consumer profiles within our database up $3 3 million loyal to consumers in near real time as the inventory becomes available.
As we look to the future we have immense opportunities to leverage these databases.
The increase retention and maximize the lifetime value of our customers.
Turning to our store operations, a refresh and remodel plan for fiscal 2022 is now nine stores. This provides us with store improvement opportunities that strengthen our brand and overall in store experience.
An area, we continue to experience success and are developing further throughout this year is the store within a store concept with some of our key vendor partners.
These concepts include adding end caps to highlight specific brand or dedicating sections of the stores to highlight a more robust offering from our vendor partners. This quarter. We further expanded this concept with an additional ammunition partner.
As we strategically partner with our vendors, we see improved sales results at these stores and with the selected merchandise highlighted <unk>.
Turning to the leadership team I am pleased to welcome two new executives to the leadership team earlier this months Rudy <unk> joined as our new Chief Information officer to lead our technology function.
He brings a high degree of skill and knowledge to Sportsman's and is joining us from a long tenure in the retail industry.
And most recently, we added Sherry Jane Love to the executive team as the senior Vice President of merchandising with nearly 30 years of experience in retail industry. We look forward to her leading our omnichannel merchandising strategies.
Now I want to take a moment to address the larger macro economic environment and its impact on the health of the consumer during the most recent weeks, we've seen indications that a high rate of inflation may be influencing consumer shopping habits.
As an example, and camping, we've seen a softening in demand for higher consideration product such as pellet grills, which we believe is directly correlated to the current inflationary pressures on the consumer.
Although there is inflationary pressure impacting the consumer we believe that our positioning as a value price leader will allow us to capture additional market share of those people seeking to enjoy the benefits of the outdoors.
In closing as we look towards the long term opportunities to capture additional market share within the estimated $70 billion outdoor industry. We will continue to invest in our geographic retail expansion and leverage our omnichannel capabilities and grow our customer databases.
With that said I will turn the call over to Jeff to review, our first quarter 2022 results and discuss our Q2 2022 guidance.
Thank you John I'll begin my remarks today with a review of our first quarter fiscal year 2022 financial results I will then review our outlook for the second quarter of 2022 net sales for the first quarter of fiscal 2022 were $309 5 million compared.
Compared to $327 million in the first quarter of 2021, a decrease of five 3% over the prior year period, but at the high end of our guidance. This decrease was primarily driven by a very tough comparable period as we anniversaried the demand driven by the economic stimulus received last year.
Same store sales decreased 11, 6% in the quarter compared with the same quarter of the prior year. This decrease was primarily driven by lower sales demand across all product categories due to the tough year over year comps, while down versus last year on a same store basis, we did see solid performance in the apparel.
And footwear categories.
First quarter 2022, gross profit was $99 $1 million.
Compared to $104 million in the first quarter of 2021, a decrease of $4 9 million.
Gross margin was 32% for the quarter, an improvement of 20 basis points versus the prior year comparable period.
Higher product margins and favorable mix contributed to the gross margin increase over the prior year period.
These increases were partially offset by higher overall freight costs.
We continue to expect transportation costs to be a headwind to the gross margins during the remainder of 2022.
SG&A expense of $96 1 million for the first quarter of 2022 was an increase of $5 7 million or.
Or six 3% compared to the first quarter of the prior year.
As a percentage of net sales SG&A expense increased to 31% compared to 27, 7% in the first quarter of the prior year. This increase was primarily driven by resuming our normal marketing related activities during the quarter and the timing around our new store openings.
We also experienced higher payroll and rent expense due to the 13, new stores in operation versus last year.
Income from operations was $3 million in the first quarter of 2022 compared to $13 6 million in the prior year period, a decrease of $10 6 million.
Net income for the first quarter was $2 million or <unk> <unk> per diluted share as compared to net income of $10 5 million or 23 per diluted share in the prior year period.
Adjusted net income in the first quarter of 2022 was $2 2 million or <unk> <unk> per diluted share compared to adjusted net income of $12 5 million or 28 per diluted share in the first quarter of the prior year.
Adjusted EBITDA for the first quarter of 2022 was $12 9 million compared.
Compared to $23 $5 million in the prior year period.
Turning to our balance sheet and liquidity.
First quarter 2022, ending inventory was $436 4 million.
Compared to $386 6 million at the end of 2021, an increase of $49 $8 million.
Given the supply chain challenges over the last couple of years. It was important that organizationally, we invest in the right inventory to support our customers.
Over the last two quarters, we have strategically increased inventory for the upcoming summer camping and fishing seasons, as well as providing certain geographies with sufficient inventory levels to capture seasonal sales demand.
We also felt it prudent given the rising inflationary pressures to opportunistically invest in additional inventory during the quarter, making these investments gives us confidence that we are well positioned to handle our current sales demand. So we can best serve our customers.
First quarter 2022 cash used in operating activities was $16 $8 million versus cash used in operating activities of $4 million for the first quarter of 2021.
This increase in our cash outflows from operating activities was primarily the result of the strategic buildup of inventory.
Our liquidity continues to be strong as we ended the first quarter of 2022 with $98 $5 million borrowed on our line of credit, which was primarily related to the inventory investments noted.
Our cash balance remains strong ending the quarter with $57 7 million in cash.
We are pleased to report that we have successfully amended our current credit agreement, which governs our revolving line of credit or.
Our borrowing capacity was increased to $350 million from the previous $250 million capacity and we were able to obtain favorable market terms given the financial strength of the company.
We remain confident that our strong balance sheet, good liquidity and ability to generate positive cash flows strategically positions us to expand our store reach take advantage of potential M&A opportunities and execute on our plan to return capital to our shareholders.
As a reminder, as part of our long term capital allocation plan. The board authorized a share repurchase of up to $75 million, we will begin.
<unk> executing on this plan during Q2 with an update on the planned progress scheduled for our next earnings call.
Turning now to our guidance starting with our net sales outlook, we estimate second quarter net sales to be in the range of $330 million to $350 million.
Same store sales in the second quarter of 2022 are anticipated to be in the range of down 16% to down 10%.
Adjusted EPS for the second quarter of 2022 is expected to be in the range of 22 to <unk> 30 per diluted share.
This guidance takes into consideration the trends in consumer behavior, and overall macroeconomic pressures that were mentioned earlier in the call by John .
To give you some additional perspectives on the full year.
We reiterate our plan to open 10, new stores in 2022 with the remaining six stores opening in the back half of the year.
Even though we expect to continue to see inflationary pressures and record high transportation costs, we still feel confident in our ability to achieve our target of high single digit adjusted EBITDA margins through disciplined management of our expenses and execution of our 2022 strategic initiatives.
Finally, we continue to expect our 2022 capital expenditures to be approximately 48% to $55 million as we further expand our store footprint refresh our existing fleet and invest in technology.
That concludes our prepared remarks for today with that I will now turn the call back over to the operator to facilitate any questions.
Okay.
And at this time, we will be conducting a question and answer session.
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One moment, please while we pull for questions.
And our first question comes from the line of Mark Smith with Lake Street capital markets.
Please proceed with your question.
Hi, guys.
First question for me is just anything to call out.
Cadence of sales during the quarter can you just talk about how sales kind of trended throughout the quarter.
Yes, Mark this is Jeff nice to talk with you just to give you some color on the quarter I would say that as we as we went through the winter season, we saw very strong sales in particular cold weather categories ice fishing et cetera had.
Had very good performance.
John's remarks, as we got towards the end of the quarter. The weather started to warm up across the country and we entered more into the summer vacation season that is when we started seeing some initial slowdown in the consumer behavior, which is trended into the beginning weeks of what we've seen in Q2 and that that was the reason.
For the the cautionary remarks that John gave it in during his part of the conversation.
Okay.
Anything to call out on whether and I know you guys don't typically talk much about weather.
Did we see later whether there.
That may be impacted sales.
Mark It's John .
<unk> actually we continue to see cold weather in the west, especially it snowed here in Utah at several inches on Saturday and Monday, and the ice fishing season was extended later than I think I've ever seen certainly in the industry. So we are still optimistic that as the weather changed week changes we will see.
An improved trend.
In outdoor the ability for people to participate outdoor of course, we do believe that the macro inflationary impacts are also a consideration that we need to be thoughtful as we.
We navigate the next quarter.
Okay.
Then without seeing a huge year for segment data any particular segments to call out that are doing well or any maybe that are underperforming and I know you called out pellet grills for instance on the call, but any segments, maybe that are worth calling out that are doing well or poorly.
Yes, Mark a couple of things to call out for you. We have seen obviously very good performance from the ammunition category.
Coming back in stock as we came out of last year and being able to offer that product to the consumer we have seen very healthy demand for that and that has continued.
As we sit here today, a couple of other call outs that we've made note of is what John mentioned really good performance in our apparel and footwear categories. I think that you know kind of speaks to where the consumer is thinking about participating but seeing that those good results out of there with something that we are very.
Pleased through during Q1, and Mark I'll add on the firearms segment of the business. We have seen some headwinds on the personal protection products, specifically to handguns and personal protection shotguns. Alternatively, we are seeing very healthy performance in our hunting and bolt action rifle business.
Thanks, Mike.
I'll jump back in the queue framework. Thank you. Thank.
Thank you Mark.
Our next question comes from the line of Ryan <unk> with Craig Hallum. Please proceed with your question.
Good afternoon, John Jeff I appreciate you taking our questions.
Happy to.
I'm curious since you mentioned inflation starting to take a toll on the consumer curious if you could break that down a little bit more between you know traffic trends versus just downsizing kind of between the good better best Assortments or I guess, where you're seeing more of that that change in consumer behavior recently here.
Yeah. Ryan This is Jeff good to talk with you to start off I think the biggest trend in consumer behavior that we're seeing is a pullback from high consideration items. So as we think about the business you can break it down into some of those hard goods that are high consideration versus the consumable items that we have in our business, we're still seeing very good trends in ita.
<unk> set our consumable that can be anything from food to fishing base to ammunition. So obviously there is still a consumer that's participating in coming in and picking up those consumables, but on some of the higher considerations. We mentioned pellet grills there could be some high price point kayaks anything that is really towards the top.
And at the price range, where the consumer does not have the expendable income those are the categories in areas that were seeing pull back in.
That's good to hear participation is still good for longer term trends I have you broken out or do you break out I guess kind of a breakup between those of consumables versus equipment, I'll say purchases or high consideration items.
We only break that out in our 10-K and give specific numbers as a percentage of overall units sold in the 10-K to give you a little color I would tell you that it is running north of where we ended last year at <unk> as a percentage of unit. So that if you go and look through the 10-K, you should be able to find where we ended last year at we're running north of that.
As we go through Q1.
Helpful.
Switching over inventory since up decently sequentially year over year, how much of that is safety stock versus and kind of say opportunistic ordering as you mentioned Jeff versus.
You know just growing store base and just getting back to normal.
Yeah, that's a really good question and you highlighted some good points there.
The first is the growth of the store base one thing I'd like to highlight is if you look back three years.
We had a very few number of stores in the eastern part of the United States, we have grown that over three times in the last three years. So as you think about the seasonality in the different trends of participation as it comes to the eastern United States. There's obviously different seasons that we are making sure that were inventoried for appropriately in a much larger.
Store base. So as you look at the inventory makeup part of the growth that we've had is ensuring that we have sufficient inventory to capture all of the different seasons that we now participate in from the fishing season in Alaska to the summer or the spring fishing season down in Florida.
Other than that I would tell you that as we thought about inflation. There are things that we had the opportunity to purchase right now where we knew that there are price increases coming down the line and we may have gone out and build some safety stock in those to try to offset some of the inflationary pressures that the entire retail industry is going through.
Only.
Then just moving over to private label I'm curious what the penetration was if you can call that out in the quarter and then if there any places where you're seeing that gain better traction versus maybe others, where it's a priority or focus going forward.
Yeah, Ryan its John just a couple of things, we don't give the exact number.
In the Q, but I can tell you. We are we've seen some improvement overtime as I stated in the past, we're between 3% and 4% on average of our product is either exclusive mean, it's only available at sportsman's, whereas private label, meaning it's one of our brands and we have designed and developed we see a path to high single digits, we did see some.
Proven in Q1, specifically around our clothing category as we look at the performance of our entry level camouflage.
Camouflage clothing through rustic ridge, we saw nice improvements there.
Good on the good better best profile.
Profile of product and then our Premier brand kill it camouflaged in outdoor where we saw significant improvement in sales of that product over the last quarter compared to prior year again, driven by the investment that team has made into product design and unique features and benefits that are not found in other products for outdoor aware of it.
At the same price point. So those are two areas within the clothing category that have shown very very nice trends upward in our sales.
Thanks, Good luck guys.
Thank you Ronnie.
Our next question comes from the line of Scott <unk> with Arc five capital. Please proceed with your question.
Great. Thanks, guys just has to be joining you.
Wanted to talk about traffic.
Transactions versus ticket.
I think I heard anything about that and if you have any thoughts on that as the <unk>.
Kind of the transactions kind of maintain themselves in a down comps, mostly due to ticket how should we think about that.
Yeah. It's a good question Scott, we don't specifically released those numbers, obviously, we do track them in a very detailed manner. We do not put that out publicly I would tell you that.
On the trends of what we're seeing the decrease in same store sales.
Combination of traffic and Dana combination of ticket combined I would tell you that the decline in traffic.
Is closely correlated to the decline in same store sales that we put out but I'm being cautious here is we've never put those numbers out into a public forum.
Okay great.
And then thinking about the merchandise.
The one more short term one I want to go a little bit longer thinking.
Thinking about the inventory levels and the fact that you kind of said to the.
Hi high priced items are the ones who are struggling with.
People who've been covering we're talking about clearance activities you know how should we think that.
With you guys with the inventory you're carrying if the consumer continues to decelerate here.
You can kind of frame that for us if you would.
Yes.
Yes, Scott this is Jeff I would tell you that as we sit here today. There is nothing that would cause us to think that we would need to be more aggressive in our normal clearance and promotional pattern that we have planned out for this current year, we're not seeing any of our competitors in the market aggressively discount items that we compete with them in.
And we're not forecasting that to occur so as I think about our promotional cadence I don't think it's any different than what we've had historically now I would caution you that for the last two years are just our promotional cadence has almost been nonexistent. So what you may view as a more aggressive promotional cadence. This year is more in line.
With what we've done as a business historically on the inventory front and those items that are higher consideration I.
I would tell you that as a company we are keenly aware of the decrease or what declines in demand. We may have and we are actively monitoring those inventory levels and scenarios to make sure that we're not over is it over inventoried and need to do some sort of mapped clearance or discount to clear out of those items.
Perfect and then my last one is a little bit more longer term.
Obviously, new to the story I saw the strategic acquisitions. They were up on the slide and I was wondering maybe if you could again frame that a little bit are you thinking mom and pop or are you thinking like smaller chains.
Talk to us about that and like maybe you've done this before so we can take it offline, but do you have and I'd love to hear a little bit more.
Yes, Scott This is John Nice speaking with you just high level on the M&A.
We are actively looking at our three verticals of potential acquisition could.
It could be e-commerce and in adjacent or a content based business that would support sportsman's could be retail that again would be adjacent that could be an existing retailer or an independent or a mom and pop as you referenced and certainly on the brand building or private label.
Purchased half go a few years ago that that's a product line that we'll be launching.
Later this year. So we're looking at all three we are being very disciplined and thoughtful in our M&A consideration as we sit here today.
Ensuring that we understand each of these potential acquisitions and how they might be accretive to the business in the long term.
Especially given some of the recent changes in market conditions.
Great. Thanks, guys I'll yield I appreciate all the answers thanks, Scott Thanks, Scott.
Yeah.
And our next question comes from the line of Eric Wold with B Riley Securities. Please proceed with your question.
Thank you good afternoon, and thanks for taking my question John Jeff.
Two questions kind of follow ons from some of the prior comments when you.
You talked about obviously seen logan weakness or softness in the <unk>.
The higher price categories or products.
<unk> seen those consumers then going to trade down to a lower priced product or just completely kind of avoid that towards this altogether right. Now maybe you can attempt to read that but anything around that.
Tough to read on the initial hey, Eric its John tough to read on the initial first couple of weeks of the season here in May.
But it does appear there is some softness in these higher consideration products. We mentioned a couple of examples earlier, we're being very thoughtful and we think about our discipline around inventory in those products, whether that's drills are personal protection firearms are kayaks. Those are the areas that we're seeing the softness and it'll take us a few more weeks.
In the June before we will be able to understand the trade down.
Trends from the consumer.
Got it and then.
And animal inventories have improved and you see them kind of you know traffic around around that you can call out in terms of the behavior.
The ammo buyers there coming out of the store, maybe purchasing online or are they.
Do you see evidence of stocking up are.
Are they coming in and buying ammo and wont be out are they getting a larger basket of goods, while they're in the store buying gamble.
The baskets about this eric's basket on the animal buyers about the same we are starting to see again, a better fill rate on that ammunition, the promotional target ammunition, whether that'd be for a pistol.
<unk> R 22, rimfire all much improved so we're seeing those customers that have been coming in looking at the shelf on a regular basis actually having the ability to walk out with a couple of boxes, we still have work to do as an industry.
Premium center-fire hunting ammunition and shot shell ammunition is still thin.
In supply and the demand is still extensive.
For that product, we are working with our key partners right now to ensure that we were in better in stock position as we go into hunting season.
And then as we look at shot shell I suspect that one is going to take a little bit longer from all the indicators, we're seeing that we could be at the end of the year or longer before shot shell is where we need where we need to be as an industry. So good trends are really really improved in ammunition.
We've got a couple of categories, we need to tick.
To get in stock as an industry.
And then just final question on that.
Seeing system wide, maybe maybe it varies by category store or maybe not at all but any any restrictions on the amount that you're letting people porcelain enamel right now.
Are there certain reloading components powders and primers that have some limitations, but effectively on the ammunition side that the limits have been removed.
Okay. Thank you both.
Okay.
And our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.
Hi, This is Matt on for Peter Thanks for taking our question.
You mentioned in the prepared remarks that transportation is expected to be a headwind for the rest of the year can you talk about the impact you expect this year maybe versus last year and then maybe also relative to pre Covid and then for a second question was kind of curious about your COVID-19 cohort cohorts that you acquired them are they behaving any differently than <unk>.
Yes, cohorts or is there anything to call out there. Thank you.
Yeah, Matt This is Jeff. Thanks for your question I'll cover the transportation cost as.
As we think about transportation costs, we have seen some decrease in the amount it takes to get a container across disease from from China that has come down recently too I think the last time I checked it public hovering around nine or $10000. So that coming down is something that I think is very good for the overall industry.
If we think about pre COVID-19 on that I don't think we'll ever get back to a level, where it was it was as cheap as it was pre COVID-19, where it was running for a $5000.
In terms of domestic transportation I think we're still seeing a similar trend in cost as what we've seen over the last few quarters as we think about the future of those trends.
But later, we get into the year the easier comp it gets because we're up against those increases last year. So as you think about that moving forward, it's still going to impact our gross margins, but the impact it's going to have versus say Q1 is going to be a little bit less as we get towards into the back half of the year.
Yeah.
Yeah.
And Matt on your second question. This is John regarding the cohorts from from.
Covid is as Youre aware specific to the firearms industry and segment of our business. We had about $15 million first time firearms buyers during that two year period, which is the largest uptake of first time buyers in their history.
The industry, we have seen some changes in how those consumers are behaving while many are returning to purchase additional equipment for their firearm or a second or third firearm the percentage of those that absolute number is lower than we would have seen prior to the cole.
And run up our assumption in the data that we're reviewing and receiving from consumers and the industry as some of those first time buyers were focused on personal protection. They filled the need that they felt was appropriate given COVID-19 and some civil unrest activities were happening in the country and may or may.
Not pursue the opportunity to buy a second firearm with that said given the massive amount of first time buyers even at a lower percentage buying a second or third firearm the opportunity for us at Sportsman's warehouse capture.
That second third fourth firearm purchases of minutes and it is something that again, we've shown over time, our ability to gain market share against the adjusted next and our numbers would indicate we continue to do so today.
Great. Thanks, guys.
Thank you.
And our next question comes from the line, though Justin Cleveland with Robert W. Baird.
With your question.
Yeah. Good afternoon, guys. Thanks for taking the questions just wanted to first follow.
A follow up on the comp guide two huge is that the range you guys are living in today or does your guidance embed.
Some incremental deceleration over the balance of the quarter, just given all the macro uncertainty you alluded to.
Yes, that's a great question, Justin and I would tell you that the guidance. We gave takes into consideration the trends that we've seen over the last couple of weeks in the consumer behavior.
Yeah.
Okay and then.
This is a follow up moving down the P&L from an earnings perspective.
Help us understand how youre thinking about gross margin on a year on year basis relative to the.
20 basis points of expansion you delivered here in <unk>.
Yeah to add on to cover that I would tell you that we're going to continue to be focused on gaining back what we lost in gross margins as you think about.
Whereas this company has run historically always historically been in that 33, 5% gross margin range over the last couple of years, we've offset Jonathan Nice focus right now is to continue to leverage our supply chain work on our product margins mix is obviously going to help that but I'm I would say.
As part of the guidance Theres continued improvements along the trends that we've seen in gross margins.
If we then talk through SG&A, obviously in the guidance. There is some figuring in the difference between fixed cost and variable cost I would tell you that obviously there are some things within our cost structure that are fixed in nature and it takes a certain number of people to run the stores utilities rent et cetera, the guidance were taken into consideration.
And everything that we can do from an expense perspective to help offset.
The declines in same stores that were seeing.
That's helpful color Jeff.
Maybe a follow up on margins. If we look at product margins are there any categories that had been supply constrained where those margins are still at levels that you wouldn't consider to be sustainable.
On a normalized basis.
That's a great question.
Obviously, we've seen really healthy improvements in product margins over the last couple of years and I would tell you that I think the category, where we've seen the least improve.
Improvement is in the firearms category I think that that category stay relatively flat even through Covid, we saw a little bump, but that has gone down.
Basically back to where we thought pre COVID-19 on a margin basis. All other categories are performing very well there are certain items within the category that become harder when it comes to fully burdened margin. If you take something like a pellet grill or a kayak large those large items, where you can.
Certainly certain number of our monarch and gainers, obviously those are bearing a higher burden from a freight perspective then.
Painter full of closings or other small items like fishing worse.
Okay. Thanks for that last question, just if you guys ever.
Talked about the mix of firearms, John you mentioned kind of the.
Shotguns in handguns PPE. The MSR is have you ever broken out kind of.
Your mix of firearms kind of within those the separate categories.
Justin we haven't ever broken it out I will tell you that it's the balance of all of that product right from the entry level first time, plinking 22 to the competitive shotgun or buying a $10000 shotgun. It that's how we built this business and it does take a very broad mix of product across.
All categories to be successful in this industry. So we havent historically broke that out and there is no intention at this point to do so.
Okay. That's still helpful. Thank you John and best of luck guys, especially here okay. Thank you. Thanks Justin.
And we have reached the end of the question and answer session I'll now turn the call back over to Jon Barker for closing remarks.
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.
Yeah.
And this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
Okay.
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Okay.
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