Q2 2025 Sportsman's Warehouse Holdings Inc Earnings Call

This conference is being recorded it is now my pleasure to introduce you to your host Riley Pinner, Vice President of Investor Relations. Thank you Riley you may begin.

Operator: will follow the formal presentation.

Operator: If you require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Riley Pinner: Thank you operator participating on our second quarter call today is Paul Stone, our Chief Executive Officer, and Jeff White, Our Chief Financial Officer, I will now remind everyone of the Companys Safe Harbor language. The statements. We make today contains forward looking statements within the meaning of the private Securities Litigation Reform Act of.

Riley Timmer: It is now my pleasure to introduce you to your host, Riley Timmer, Vice President of Investive Relations.

Operator: Thank you, Riley. You may begin.

Riley Timmer: Thank you, operator. Participating on our second quarter call today is Paul Stone, our Chief Executive Officer, and Jeff White, our Chief Financial Officer.

Paul Stone: I will now remind everyone of the company's safe harbor language. The statements we make today contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes statements regarding expectations about our future results of operations, demand for our products, and growth of our industry. Actual results may differ materially from those suggested in such statements due to a number of risks and uncertainties, including those described in the company's 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 measures, as well as reconciliation for 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 sportsman.com.

Riley Pinner: <unk> 995, which include statements regarding expectations about our future results of operations demand for our products.

Riley Pinner: And growth of our industry actual results may differ materially from those suggested in such statements due to a number of risks and uncertainties, including those described in the company's most recent Form 10-K, and the company's other filings made with the SEC.

Riley Pinner: We will also disclose non-GAAP financial measures during today's call definitions of such non-GAAP measures as well as reconciliation to the most directly comparable GAAP financial measures are provided as supplemental financial information in our press release included as exhibit 99, one to the form 8-K, we furnished to the SEC.

Riley Pinner: You see today, which is also available on the Investor Relations section of our website at Sportsman's Dot Com I will now turn the call over to Paul.

Paul Stone: Thank you Ronnie and good afternoon, everyone since joining sportsman's warehouse in November My primary focus has been on revitalizing the company is a leading specialty retailer our mantra, which forms the foundation of our company and drives our mission is great <unk> and Great service. Initially we concentrated on the grid gerah aspect addressing distressed and slow.

Paul Stone: I will now turn the call over to Paul.

Paul Stone: Thank you, Riley, and good afternoon, everyone. Since joining Sports Since Warehouse in November, my primary focus has been on revitalizing the company as a leading specialty retailer. Our mantra, which forms the foundation of our company and drives our mission, is great gear and great service. Initially, we concentrated on the great gear aspect, addressing distress and slow-moving inventory, phasing out low selling brands, and refining our product equipment. This strategy aimed to free up capital tie down to performing inventory, enabling us to invest in newness and core merchandise that aligns with our business and resonates with our customers.

Paul Stone: Moving inventory phasing out load selling brands and refining our product Assortments. This strategy aimed to free up capital tied to underperforming inventory, enabling us to invest in newness and core merchandise that aligns with our business and resonates with our customers. We will discuss more about the <unk> strategy and our plans to boost sales during this call.

Speaker Change: The supporting foundational element is great service I've spent my entire 35 year career running hold levels of store operations and cannot emphasize enough the importance of service, especially for our unique business. We know customers have a choice when they shop, our competitive difference and the way we win customers will be because of our great service.

Paul Stone: We will discuss more about the great gear strategy and our plans to boost sales during this call. The supporting foundational element is great service.

Paul Stone: I've spent my entire 35-year career running all levels of store operations, and cannot emphasize enough the importance of service, especially for our unique business. We know customers have a choice when they shop; are competitive, different, and the way we win customers will be because of our great service. In the second quarter, we implemented a culture change in all our stores. We now refer to our employees as Outfitters versus simply associates. Many of our talented outfitters are also passionate and outdoor enthusiasts and have a natural affinity with our customers. We want them to share more of their local expertise and experiences rather than focusing on in-store tasks.

Speaker Change: In the second quarter, we implemented a culture change and all of our stores, we now refer to our employees as outfitters versus simply associates.

Speaker Change: Many of our talented outfitters are also passionate outdoor enthusiasts and have a natural affinity with our customers, we want them to share more of their local expertise and experiences rather than focusing on in store tasks.

Speaker Change: We expect them to evaluate the customer outdoor needs an outfit them with merchandise in all departments throughout the store.

Speaker Change: While it May sound simple this change is a significant shift in how our stores have historically operated well.

Paul Stone: We expect them to evaluate the customer outdoor needs and outfit them with merchandise and all departments throughout the store. While it may sound simple, this changes a significant shift in how our stores have historically operated.

Speaker Change: While we are encouraged by the progress we are still in the early innings of our business reset and transformation.

Speaker Change: Turning now to our second quarter results.

Speaker Change: Our sales continue to reflect the challenging microeconomic environment and a consumer who is discretionary spending remains under pressure.

Paul Stone: While we are encouraged by the progress, we are still in the early innings of our business reset and transformation.

Paul Stone: Turning now to our second quarter results. Our cells continue to reflect the challenging microeconomic environment and a consumer whose discretionary spending remains under pressure. That cells for the second quarter were $288.7 million compared to $309.5 million in the prior year, with same-sword cells down 9.8 compared with last year. While comp cells were down each month during Q2, we were encouraged to see improving trends each month as we moved through the quarter. From a same-sword cells by department perspective, all of our departments, with the exception of fishing, were down this quarter. Similar to the last quarter, all departments except fish outpaced the decrease in year-over-year inventory levels.

Speaker Change: Net sales for the second quarter were $288 7 million compared to $309 5 million from the prior year with same store sales down nine eight compared with last year.

Speaker Change: Comp sales were down each month. During Q2, we were encouraged to see improving trends each month as we moved through the quarter.

Speaker Change: From a same store sales by Department perspective.

Speaker Change: All of our departments with the exception of fishing were down this quarter.

Speaker Change: To the last quarter, all departments, except fish outpaced the decrease in year over year inventory levels, and we are executing strategically to in the summer season with clean inventory and each of these departments. This will provide us the open to buy dollars needed to invest in in depth with key vendors, putting us in a much better positioned for the back half of the year.

Paul Stone: And we are executing strategically in the summer season with clean inventory in each of these departments. This will provide us the open-of-buy dollars needed to invest in in-depth with key vendors, putting us in a much better position for the by-calf of the year. Our hunting category was down 13% in the quarter but saw improved month-to-month trends during Q2. Ammunition is one of the key-store traffic drivers with a consumer who is sensitive to price, right down to the price per round. To stay market competitive, we made strategic buys and price for cells to win in this key category.

Speaker Change: Our hunting category was down 13% in the quarter, but saw improved month to month trends. During Q2 ammunition is one of the key store traffic drivers with a consumer who is sensitive to price right down to the price per ounce to stay market competitive we made strategic buys some price ourselves to win in this key category.

Speaker Change: While we believe this will drive sales and traffic this will be a headwind to our ammunition margins in the back half of the year.

Speaker Change: In mid June we made a strategic shift to focus more of our promotional efforts on firearms and ammunition, our two largest categories to drive sales and online traffic.

Paul Stone: While we believe this will drive cells in traffic, this will be a headwind to our ammunition margins in the back half of the year. In mid-June, we made a strategic shift to focus more of our promotional efforts on firearms ammunition, our two largest categories to drive sales and on-line traffic. Given that our customers shopping for value, it was important that we make the necessary adjustments to strategically target and promote hot buys to win on price.

Speaker Change: Given that our customer shopping for value. It was important that we make the necessary adjustments to strategically target and promote hot buys to win on price.

Speaker Change: Our top performing department this quarter with fishing comp sales were up about 6% with relatively consistent growth across all of our regions.

Speaker Change: This growth highlights the importance of having the right merchandise position and ready early in the season and in depth to be successful and capture additional market share. This is the merchandising roadmap we've implemented as we buy into the seasons and all of our departments.

Paul Stone: Our top-performing department at this quarter was Fishing. Comp cells were up about 6% with relatively consistent growth across all of our regions. This growth highlights the importance of having the right merchandise position and ready early in the season and in-depth to be successful and capture additional market share. This is the merchandising roadmap we've implemented as we buy into the seasons in all of our departments. E-com driven cells were up about 3% in the second quarter, driven by cells from our hunting and fishing departments, and comprised 19% of our total cells.

Speaker Change: E Com driven sales were up about 3% in the second quarter, driven by sales from our hunting and fishing departments and COVID-19% of our total sales.

Speaker Change: To reiterate we are in the early innings of this turnaround our building out the necessary tools and skills to successfully transformed this company now.

Speaker Change: Now I'll share some perspective on inventory and merchandising.

Paul Stone: To reiterate, we are in the early endings of this turnaround or building out the necessary tools and skills to successfully transform this company.

Speaker Change: <unk> speaking the first half of the year, we ran inventory too low and did not invest in the right amount of inventory, particularly in our core products. This further pressured ourselves given we did not have the appropriate depth in core items and most of our departments as we move through the back half of 2020 for our stores for the first time in years will be a sort of with new <unk>.

Paul Stone: Now I'll share some perspective on inventory and merchandising. Frankly speaking, the first half of the year, we ran inventory 2.0 and did not invest in the right amount of inventory, particularly in our core products. This further pressured our cells, given we did not have the appropriate depth and core items in most of our departments. As we move through the back half of 2024, our stores for the first time in years will be as sort of with new seasonal merchandise and with depth. Additionally, we are making an incremental $20 million investment into new and core inventory, focused on products for our hunting department, which we believe will help drive additional top-line results.

Speaker Change: No merchandise and with depth. Additionally, we are making an incremental $20 million investment into new and core inventory focused on products for hunting Department, which we believe will help drive additional top line results.

Speaker Change: Turning now to store operations.

Speaker Change: We have completed the reset of our initial set of 87 stores, where we have significantly improved the customer shopping experience, including how we visually showcase for high traffic areas keep in mind. These store upgrades have been accomplished using very little capital resources and have largely used for outfitter labor to accomplish the significant undertaking we're excited.

Paul Stone: Turning now to store operations. We have completed the reset of our initial set of 87 stores, where we have significantly improved the customer shopping experience, including how we visually showcase our high traffic areas. Keep in mind these store upgrades have been accomplished using very little capital resources and have largely used around fit or labor to accomplish the significant undertaking. We are excited to see how our customers respond to these improvements. Further, we have empowered our employees, now referred to as outfitters, with training programs that allow certification across a wide variety of our outdoor products. Our stores are hosting product demos and seminars each weekend during our seasonal peak to teach, train, and allow our customers to touch and fill the great products that we fill.

Speaker Change: To see how our customers respond to these improvements further we have empowered our employees now referred to as outfitters with training programs that allow certification across a wide variety of our outdoor products. Our stores are hosting product demos and seminars each weekend during our seasonal peak to teach train and allow our customers to touch and feel the great products that we sell.

Speaker Change: So with this we emphasize quality products with newness and value that align with key outdoor seasons to drive traffic and increase basket size.

Speaker Change: This allows our customers to develop relationships and gain trust with our outfitters, many of whom participate in or perhaps even experts in certain outdoor activities.

Paul Stone: With this, we emphasize quality products with newness and value that align with key outdoor seasons to drive traffic and increase basket size. This allows our customers to develop relationships and gain trust with our outfitters, many of whom participate and are perhaps even experts in certain outdoor activities.

Speaker Change: This is one of our competitive advantages and we will continue to lean into this as we drive the business forward.

Speaker Change: Now I'll briefly address our Omnichannel marketing strategy. We're excited to welcome Susan Sanderson, who has joined the team to lead our Omnichannel marketing efforts. She is moving quickly to transition us from traditional mass marketing to Omnichannel growth marketing. These efforts will enable us to strengthen our brand and reinforce our competitive advantage and improve the performance.

Paul Stone: This is one of our competitive advantages, and we will continue to lean into this as we drive the business forward.

Speaker Change: <unk> of our marketing investment to have a greater impact on our topline results.

Paul Stone: Many channel growth marketing. These efforts will enable us to strengthen our brand, reinforce our competitive advantage, and improve the performance of our marketing investment to have a greater impact on our top line results. Susan's initial focus has been to unify three disconnected areas into one cohesive on the channel team with a single go-to-market plan. These functions have historically operated independently, resulting in an ineffective model. Under her leadership, the team will now work collectively to create a visually led, full funnel, consumer-driven approach. I'm excited about the direction we're headed as a unified omnichannel team. Susan's next focus is transforming our go-to-market strategy and refining our marketing mix model.

Speaker Change: <unk> initial focus has been to unify three disconnected areas into one cohesive omnichannel team with a single go to market plan. These functions have historically operated independently, resulting in an ineffective model under her leadership. This team will now work collectively to create a digitally led full funnel consumer driven approach I am.

Speaker Change: Cited about the direction, we're headed as a unified omnichannel team.

Speaker Change: <unk> focus is transforming our go to market strategy and refining our marketing mix model, where we're identifying the most effective allocation of marketing resources across various channels and tactics to maximize overall performance and return on investment we are testing and learning to understand the impact of different marketing activities on sales customer acquisition and <unk>.

Paul Stone: We're identifying the most effective allocation of marketing resources across various channels and tactics to maximize overall performance and return on investment. We are testing and learning to understand the impact of different marketing activities on sales, customer acquisition, and brand awareness, enabling us to make informed decisions on how to optimize future marketing strategies and budgets for better results. While we complete some initial testing and are optimistic about the future, an agile test and learn mentality will ensure we make the right move as we lay the groundwork for the forthcoming quarters.

Speaker Change: Rand awareness, enabling us to make informed decision on how to optimize future marketing strategies and budgets for better results. While we've completed some initial testing and are optimistic about the future and agile test and learn mentality will ensure we make right moves as we laid the groundwork forthcoming quarters.

Speaker Change: While we are still in the early innings on both encouraged and optimistic about the progress we are making to reset the company and transform Sportsman's warehouse.

Speaker Change: The foundation is being reestablished and we're moving with speed to turn ourselves to positive comps and return the business to profitability.

Paul Stone: While we are still in the early earnings, I'm both encouraged and optimistic about the progress we are making to reset the company and transform Sportsman's Warehouse. The foundation is being reestablished, and we are moving with speed to turn ourselves to positive comps and return the business to profitability. We continue to take unnecessary non-customer-facing calls out of the business, part of which we will reinvest back into sales-driving initiatives. To reiterate how I began my prepared remarks today, our strategic edge remains as the premier outdoor retailer, providing our customers with great gear and great service. We will continue to focus on the areas of the business we can control and work with urgency to get our top line trends moving in the right direction.

Speaker Change: We continue to take unnecessary non customer facing costs out of the business part of which we will reinvest back into sales driving initiatives.

Speaker Change: To reiterate how I began my prepared remarks today, our strategic edge remains as the premier outdoor retailer, providing our customers with great care and Great service. We will continue to focus on the areas of the business, we can control and work with urgency to get our top line trends moving in the right direction. We're confident in our plan and believe the strategies are in place to achieve our short.

Speaker Change: And long term objectives.

Speaker Change: As I conclude I want to emphasize the importance of managing the business to generate positive free cash flow for the full year as we do this we will prioritize the paydown of our debt as the primary use of our excess cash flow maintaining a strong balance sheet is a top priority as we manage the business for successful turnaround with that I'll now turn the call over to Jeff.

Paul Stone: We are confident in our plan and believe the strategies are in place to achieve our short- and long-term objective.

Paul Stone: As I conclude, I want to emphasize the importance of managing the business to generate positive free cash flow for the full year. As we do this, we will prioritize to pay down of our debt as the primary use of our excess cash flow, maintaining a strong balance sheet as the top priority as we manage the business for successful turnaround.

Jeff White: Thank you Paul and good afternoon, everyone I'll begin my remarks today with a review of our second quarter 2020 for fiscal results then cover our liquidity balance sheet and capital allocation strategy and finally provide additional context around our updated outlook for 2024 as Paul mentioned net sales for the second quarter were 288.

Jeff White: With that, I'll now turn the call over to Jeff.

Jeff White: Thank you, Paul, and good afternoon, everyone. I'll begin my remarks today with a review of our second quarter 2024 fiscal results, then cover our liquidity, balance sheet, and capital allocation strategy, and finally provide additional context around our updated outlook for 2024. As Paul mentioned, net sales for the second quarter were $288.7 million compared to $309.5 million in the second quarter of the prior year. Sales came in below our expectations as our business remained pressure from a challenging macroeconomic environment, which continues to weigh on consumer discretionary spending. Same-store sales decreased 9.8% in the second quarter, compared with the same time period of fiscal year 2023.

Jeff White: $7 million compared to $309 5 million in the second quarter of the prior year sales came in below our expectations as our business remained pressured from a challenging macroeconomic environment, which continues to weigh on consumer discretionary spending.

Jeff White: Same store sales decreased nine 8% in the second quarter compared to the same time period of fiscal year 2023. This represents an improvement of 380 basis points versus Q1 2024, we are optimistic that as we continue to execute our strategic plan. We will further improve sales and see better month over month comps as we move through the balance.

Jeff White: This represents an improvement of 380 basis points versus Q1 2024. We are optimistic that, as we continue to execute our strategic plan, we will further improve sales and see better month-over-month comps as we move through the balance of fiscal 2024.

Jeff White: For fiscal 2024, our most difficult comp will be the month of October where we lap the impacts from the Israel Hamas War.

Jeff White: Gross margin for the second quarter was 31, 2% versus 32, 6% in the prior year period. This reduction as a percentage of sales was largely driven by increased costs associated with shrink as we revamped our methodology in the quarter to better align our accounts with higher velocity Skus and count more frequently in order to ensure.

Jeff White: Our most difficult comp will be the month of October, where we lap the impacts from the Israel Hamas war. Gross margins for the second quarter was 31.2% versus 32.6% in the prior year period. This reduction as a percentage of sales was largely driven by increased costs associated with shrink as we revamped our methodology in the quarter to better align our counts with higher velocity skews and count more frequently in order to ensure better inventory accuracy as we focus on utilizing every dollar of inventory. We expect that shrink will continue to be a headwind in the back half of 2024 with the methodology improvements.

Jeff White: Sure better inventory accuracy as we focus on utilizing every dollar of inventory, we expect that shrink will continue to be a headwind in the back half of 2024 with these methodology improvements. Additionally in an effort to end the summer season with clean inventory, we markdown seasonal goods, primarily in the apparel and camping departments and we're pleased.

Jeff White: With the results of these efforts.

Jeff White: Additionally, in an effort to end the summer season with clean inventory, we marked down seasonal goods primarily in the apparel and camping departments and were pleased with the results of these efforts. As a percentage of net sales, SDNA expense was 32.7% compared to 33.1% in the second quarter of the prior year. In absolute dollars, SDNA was down $8 million year over year, which includes expenses from six additional stores, reflecting our cost-cutting and expense management efforts implemented during the second quarter of last year. We continue to closely manage overall payroll expenses, with that line item down $5.7 million compared to the prior year's second quarter.

As a percentage of net sales SG&A expense was 32, 7% compared to 33, 1% in the second quarter of the prior year in absolute dollars SG&A was down $8 million year over year, which includes expenses from six additional stores, reflecting our cost cutting and expense management efforts implemented during the second quarter of last year.

Jeff White: Here, we continue to closely manage overall payroll expenses with that line item down $5 $7 million compared with the prior year second quarter on a per store basis SG&A dollars in Q2 were down 12, 9% versus Q2 of 2023.

Jeff White: We will continue to look for areas of the business, where we can reduce expenses simplified the business and drive top line growth.

Jeff White: On a per-store basis, SDNA dollars in Q2 were down 12.9% versus Q2 of 2023. We will continue to look for areas of the business where we can reduce expenses, simplify the business, and drive top line growth.

Jeff White: Net loss for the second quarter of fiscal 2024 was $5 9 million or negative <unk> 16 per diluted share compared with a net loss of $3 3 million or negative <unk> <unk> per diluted share in the second quarter of the prior year adjust.

Jeff White: Net loss for the second quarter of fiscal 2024 was $5.9 million, or negative $16 per diluted share, compared with a net loss of $3.3 million, or negative $9 per diluted share, in the second quarter of the prior year. Adjusted net loss in the second quarter was $5.3 million, or negative $14 per diluted share, compared with adjusted net loss of $1.6 million, or negative $4 per diluted share, in the second quarter of the prior year. Adjusted EBITDA for the second quarter was $7.4 million compared with adjusted EBITDA of $10.9 million in the second quarter of 2023.

Jeff White: Adjusted net loss in the second quarter was $5 3 million or negative <unk> 14 per diluted share compared with adjusted net loss of $1 6 million or negative <unk> <unk> per diluted share in the second quarter of the prior year adjusted.

Jeff White: Adjusted EBITDA for the second quarter was $7 4 million compared with adjusted EBITDA of $10 9 million in the second quarter of 2023, I will now take a minute and review our balance sheet cash flows and liquidity as of the end of the second quarter of 2024.

Jeff White: Total inventory at the end of the second quarter was $363 4 million compared to $457 2 million at the end of the second quarter of 2023, a decrease of $93 8 million or 23, 8% on a per store basis.

Jeff White: I will now take a minute and review our balance sheet, cash flows, and liquidity as of the end of the second quarter of 2024. Total inventory at the end of the second quarter was $363.4 million compared to $457.2 million at the end of the second quarter of 2023. A decrease of $93.8 million or 23.8% on a per store basis. This is also down approximately $28 million from the end of Q1 2024. We expect to quickly increase our inventory during Q3 to ensure that we have the death and core items and make a strategic investment in inventory of approximately $20 million into certain products that resonate with our customers to drive incremental top line, particularly around the holiday shopping season.

Jeff White: This is also down approximately $28 million from the end of Q1 2024.

Jeff White: We expect to quickly increase our inventory during Q3 to ensure that we have the depth in core items and make a strategic investment in inventory of approximately $20 million into certain products that resonate with our customers to drive incremental top line, particularly around the holiday shopping season.

Jeff White: As Paul mentioned in his prepared remarks. It is critical that we have our depth in our core products like certain firearms and key ammo calibers and in our high volume seasonal merchandise to ensure our customer has a positive shopping experience.

Jeff White: As Paul mentioned in his prepared remarks, it is critical that we have our depth and our core products like certain firearms and key ammo calibers and in our high volume seasonal merchandise to ensure our customer has a positive shopping experience. We also have certain stores that are running too lean on inventory, which we believe is a factor influencing our soft year-over-year sales. With depths and core products and having the right assortment of new merchandise, we believe we will start to see improvements in comp sales in the back half of 2024. While we plan to make these inventory investments in Q3 and early Q4, we expect a clean sell-through of merchandise, ending the year with total inventory between $335 and $350 million.

Jeff White: We also have certain stores that are running too lean on inventory, which we believe is a factor influencing our soft year over year sales with depth in core products and having the right assortment of new merchandise. We believe we will start to see improvement in comp sales in the back half of 2024.

Jeff White: While we plan to make these inventory investments in Q3 and early Q4, we expect to clean sell through of merchandise ending the year with total inventory between $335 $350 million.

Jeff White: In regards to liquidity, we ended the second quarter with a total debt balance of $155 $1 million and total liquidity of approximately $100 million.

Jeff White: In regards to liquidity, we ended the second quarter with the total debt balance of $155.1 million and total liquidity of approximately $100 million. While the company is not yet generating profits, we expect positive free cash flow for the full year 2024, which will go directly to pay down debt. We were pleased to partner with Pathlight Capital in Wells Fargo to secure a $45 million term loan, bolstering our balance sheet and overall liquidity. This will allow us the flexibility needed to strategically invest in inventory and further execute our ongoing reset of the business. We remain confident in the strength of the balance sheet and our strong vendor support.

Jeff White: While the company has not yet generating profit, we expect positive free cash flow for the full year 2024, which will go directly to pay down debt.

Jeff White: We were pleased to partner with path like capital and Wells Fargo to secure a $45 million term loan bolstering our balance sheet and overall liquidity. This will allow us the flexibility needed to strategically invest in inventory and further execute our ongoing reset of the business. We remain confident in the strength of the balance sheet and our strong vendor.

Jeff White: <unk> our capital allocation strategy continues to prioritize the paydown of debt as our primary use of excess cash.

Jeff White: Turning now to our guidance given the persistent macroeconomic pressures weighing on consumer discretionary spend we are taking a more cautious view on the back half of 2024 and are providing an update to our full year guidance. We now estimate the following we believe fiscal 2024 net sales will now be in the range of $1 3 billion.

Jeff White: Our capital allocation strategy continues to prioritize the pay down of debt as our primary use of excess cash.

Jeff White: Turning now to our guidance. Given the persistent macroeconomic pressures weighing on consumer discretionary spend, we are taking a more cautious view on the back half of 2024 and are providing an update to our full-year guidance. We now estimate the following. We believe fiscal 2024 net sales will now be in the range of $1.13 billion to $1.17 billion. We expect adjusted EBITDA for fiscal 2024 to be in the range of $20 million to $35 million, which is the low end; still yields positive free cash flow. And finally, we continue to expect CAPEX for 2024 to be between $20 and $25 million relating to technology investments to improve store service and merchandising productivity, as well as our normal store maintenance.

Jeff White: To one $1 7 billion.

Jeff White: We expect adjusted EBITDA for fiscal 2020 for it to be in the range of $20 million to $35 million, which.

Jeff White: Which at the low end DAU yields positive free cash flow and finally, we continue to expect Capex for 2024 to be between 20 and $25 million.

Jeff White: Relating to technology investments to improve store service and merchandising productivity as well as our normal store maintenance.

Jeff White: Again to reiterate my earlier comments, even at the low end of our range, we expect to generate positive free cash flow during 2024, which will be used to pay down our debt.

Jeff White: Again, to reiterate my earlier comments, even at the low end of our range, we expect to generate positive free cash flow during 2024, which will be used to pay down our debt.

Speaker Change: That concludes our prepared remarks today I will now turn the call back to the operator to facilitate questions.

Speaker Change: Thank you.

Speaker Change: Will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: That concludes our prepared remarks today. I will now turn the call back to the operator to facilitate questions.

Operator: Thank you.

Speaker Change: And Kevin will indicate your line is in the question queue.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Kevin: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.

Kevin: One moment, please while we poll for questions.

Speaker Change: Thank you our.

Brian <unk>: First question comes from the line of Brian <unk> with Craig Hallum Capital Group. Please proceed with your question.

Brian <unk>: Hey, good afternoon guys.

Ryan Sigdahl: Thank you. Our first question comes from the line of Ryan Shigal with Craig Howell and Capitol Group. Please proceed with your question. Good afternoon, guys. I want to start with shrink.

Brian <unk>: Hi.

Brian <unk>: I want to start with shrink I guess this is the first time I've heard you guys call that out I think really ever.

Speaker Change: Different relative to a lot of other retailers.

Speaker Change: Can you walk through exactly what is it an accounting nuance, where you're changing your methodology a little bit or.

Jeff White: I guess this is the first time I've heard you guys call that all I think really ever, which is different relative to a lot of other retailers. Can you ask you exactly what is it an accounting nuance where you're changing your methodology a little bit, or are you actually getting fast? and actual shrink that a lot of the retailers are having. Then we'll follow up quick on. Yeah.

Speaker Change: Are you actually having fast and.

Speaker Change: Actual shrink that a lot of other retailers, who are having final follow up quick one.

Jeff White: Yeah, Hey, Ryan it's Jeff Good question I would call it an accounting slash operational change as we move through the quarter and we are reducing inventory there came to light a need to focus on inventory accuracy. So we looked at the methodology underlying our cycle counts increased cycle counts in areas of the business with higher velocity skus.

Jeff White: Hey, Ryan. It's Jeff. Good question. I would call it an accounting slash operational change as we move through the quarter, and we were reducing inventory. There came to light a need to focus on inventory accuracy. So we looked at the methodology underlying our cycle counts, increased cycle counts in areas of the business with higher velocity skews to make sure that we had better inventory accuracy as we keep managing inventory closer and closer to the dollar and leveraging that asset more and more. The need to have accurate quantity on hand has become very apparent. So it's been a change in our methodology.

Jeff White: To make sure that we had better inventory accuracy as we keep managing inventory closer and closer to the dollar and leveraging that asset more and more the need to have accurate quantity on hand has become very apparent. So it's been a change in our methodology as we think about the go forward, we're going to continue to work on the methodology in the back half of the.

Jeff White: In my prepared remarks, I talked about the impact in the back half.

Jeff White: As we think about, you know, the go forward. We're going to continue to work on the methodology in the back half of the year. That's in my prepared remarks. I talked about the impact in the back half, but it was, again, to reframe. I would say it's more operational slash accounting methodology change. Then how you framed it up and increased. That's the reason that out the door. Makes sense.

Jeff White: But it was again to reframe I would say, it's more operational slash accounting methodology change then how you framed it up and increasing SaaS out the door.

Speaker Change: Makes sense.

Speaker Change: Just on the discounting.

Speaker Change: And maybe that's just me.

Speaker Change: It seemed like you guys are discounting quite a bit of fishing is wall kind of end of season, I guess is that what we should.

Speaker Change: Expect going forward as kind of a fresh new inventory.

Ryan Sigdahl: Let's just on the discounting, and maybe that's just me, but it seemed like you guys are discounting quite a bit of fishing as well. Kind of end of season. I guess that what we should expect going forward is kind of fresh new inventory, but still kind of heavy discounting at the end of the season to make sure you're clean going into the next season, or is that just kind of a refinement. I was going forward to try and balance the inventory and sell it through in a more normal fashion. Yeah.

Speaker Change: Okay.

Speaker Change: E discounting at the end of the season to make sure your clean going into next season or is that just kind of a refinement.

Speaker Change: Going forward to try and balance the inventory and sell it through and more normal fashion, yes.

Speaker Change: Yeah, Hey, Ron Paul I think our big.

Ron Paul: Commitment was as we get to end of season is to ensure that we're not carrying any of our.

Ron Paul: Non go forward goods into the.

Paul Stone: Hey, Ron Paul. I think our big, you know, commitment was as we get into season is to ensure that we're not carrying any of our non-go forward goods into the ladder quarters. So really, that was a strategic enough thing. We wanted to be able to one in fish, probably get out of some things. We know we're not going to go forward with or clean up on some of the sub cats to ensure we're clean. But overall, it was that was the play is the one came to the queue to ensure that we're not carrying any of our non-go forward goods into the ladder quarters.

Ron Paul: The latter quarters, so really that was strategic enough thing we wanted to be able to have one and fish probably get out of some things. We know we're not going to go forward with or clean up on some of the sub cats.

Ron Paul: To ensure we are clean but overall it was that was the play is that when we came to the end of Q2 to ensure that we werent knock on a carry things forward that we knew that we were not going to re plan on.

Paul Stone: So really, that was a strategic enough thing. We wanted to be able to one in fish, probably get out of some things. We know we're not going to go forward with or clean up on some of the sub cats to ensure we're clean. But overall, it was that was the play is the one came to the queue to ensure that we're not carrying any of our non-go forward goods into the ladder quarters. So really, we want to ensure that we are not going to carry things forward that we knew that we were not going to replen on.

Speaker Change: Great. Thanks, guys I'll turn it over to the others.

Ryan: Thanks Ryan.

Speaker Change: Thank you. Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Ryan Sigdahl: Great. Thanks, guys. I'll turn it over to the others. Thanks, Ryan.

Mark Smith: Hi, guys. Just wondering if we can get a little more insight into product mix sounds like all categories. Besides fishing were down can you quantify at all or maybe speak to which categories, maybe had a tougher quarter than others.

Mark Smith: Thank you. Our next question comes from a line of Mark Smith with Lake Street Capital. Please proceed with your question. Hi, guys. Just wondering if we can get a little more insight into, you know, product mix. Sounds like all categories besides fishing. We're down. Can you quantify it all or maybe speak to you, which categories maybe had a tougher quarter than others?

Mark Smith: Yes, Mark Thanks for the question, it's Jeff give you some more color as we look at the apparel and footwear parts of the business still going through the SKU rationalization and reset of that merchandising strategy. So youll see that those were more pressured than other parts of the business as.

Jeff White: Yeah, Mark, thanks for the questions, Jeff. Give you some more color as we look at the apparel and footwear parts of the business. Still going through the skew rationalization of reset of that merchandising strategy. So you'll see that those were more pressured than other parts of the business. As we look at areas of the business, you know, camp performing slow to start off the quarter, but we saw better improvement in campus. We moved to the back end of Q2 and then pressure during the quarter in the ammunition category. I would highlight just as we look at in, you know, peel back the hunt.

As we look at areas of the business camp performing slow to start off the quarter, but we saw better improvement in camp as we move to the back end of Q2, and then pressure during the quarter in the ammunition category I would highlight just as we look at in <unk>.

Mark Smith: Peel back the hunt there was some some degradation in the ammo business in terms of customer attachment and then also as we looked at the market in terms of our pricing we've been proactive about some changes we've made there I am happy with the trends that we're seeing but during the quarter ammo was impactful in the hunt category.

Jeff White: There was some degradation in the ammo business in terms of customer attachment. And then also, as we looked at the market in terms of our pricing. We've been proactive about some changes we've made there. Happy with the trends that we're seeing, but during the quarter, ammo was impactful in the hunt category.

Mark Smith: Okay.

Speaker Change: Wanted to just <unk>.

Speaker Change: Any updates on as we think about kind of loyalty program email credit card I know, it's still early and a lot of this reset.

Paul Stone: Okay, and then what are just any updates on is we think about kind of loyalty program, email, you know, credit card. You know, I know it's still early in a lot of this reset, and you've just got Susan. All but any updates on those kind of products and how you're feeling about any advancements or evolution in those businesses. Yeah, well, evolution is needed. No question, and as we think about it from a time frame, we'll definitely come back on what the timing looks like. But we're extremely optimistic about being able to put our loyalty in a better place. And then I think as we look at our operations team out there from our credit card, we feel there's enormous upside in the partnership with marketing, loyalty, and credit. But early stages, but I think overall we're looking at a whole lot of mark to be able to think of potential upside as we go through next year. And really, you know, the loyalty will take work, but we're going to do the right work, already doing the right work now, and what it should look like future state for us and how we compare with others, not just within the industry, but as we think about retail in general, what that operation look like.

Speaker Change: You've just got Susan all but any updates on those kind of products and how youre feeling about any advancements of our evolution in those businesses.

Speaker Change: Evolutions needed no question and as we think about it from a timeframe will definitely come back on what the timing looks like but we're extremely optimistic about being able to.

Speaker Change: But our loyalty in a better place and then I think as we look at our operations team out there from our credit card that we feel there is.

Speaker Change: Enormous upside and the partnership with marketing loyalty and credit.

Speaker Change: But early stages, but I think overall.

Speaker Change: We're looking at a whole of mark to be able to think of potential upside as we go through.

Speaker Change: Next year and really the loyalty will take work, but we're going to do the right work already doing the right work now and what it should look like future state.

Speaker Change: For us and how we compare with others not just within the industry, but as we think about retail in general what that offering should look like.

Speaker Change: Okay.

Kenneth: And last question from me just I think you guys had said that kind of cadence through the quarter that I think pumps had gotten better through the quarter any additional insights there I'm curious Kenneth <unk>.

Mark Smith: Yeah, and last question for you just I think that you guys had said the kind of cadence through the quarter that I think comps had gotten better through the quarter, and any additional insights there. I'm curious kind of a mix of price versus traffic as you know we're discounting maybe a little bit later in the quarter, you know where you see those traffic improvements, you know any additional insights there would be great. Yeah Mark, great question. You know, to give you a little more color as we think about the trends improving, started the quarter at, you know, double digit down comp, ended the quarter at a single digit down comp. So, good, good improvement through the quarter, so we're happy with the trends. As we think about what that goes into, you know, we're happy with what we're seeing at the start of the quarter at the first month in, but cautious about, as we think about the back after the year, we're anniversary some large liquidation events we have at the anniversary of the Israel Hamas in Q3. So, I think the guidance that we gave is figuring in some caution into the back after the years we start to anniversary some of these significant headwinds.

Speaker Change: Mix of price versus traffic as you.

Speaker Change: We are discounting may be a little bit later in the quarter <unk> seen those traffic improvements any additional insights there would be great. Yes.

Speaker Change: Yes, Mark Great question.

Speaker Change: To give you a little more color as we think about the trends improving started the quarter at <unk>.

Mark Smith: Double digit down comp ended the quarter at a single digit down comp. So good good improvement through the quarter. So we're happy with the trends.

Mark Smith: As we think about what that goes into <unk>, we're happy with what we're seeing at the start of the quarter that the first month end, but cautious about as we think about the back half of the year. We're anniversarying. Some large liquidation events, we have the anniversarying of the Israel Hamas in Q3 so.

Mark Smith: I think the guidance that we gave is figuring in some caution into the back half of the year as we start to anniversary some of these significant headwinds not.

Speaker Change: Now I'll just add to that Mark the one thing and I think the highlight and what the team's been able as we've kind of reintroduce. The outfitter is that our attachment is in a really good place and each month, we saw attachment grow as we were driving folks and through.

Paul Stone: Not to say to them Mark the one thing and I think the highlight and what the team's been able is we've kind of reintroduced the outfitters that our attachment is in a really good place. In each month, we saw attachment grow as we were driving folks in through either promotion or getting out of our goods at the end of the season when we should get out of them. But I mean the team's done a really nice job of being able to attach at what we're looking at as historical rates, so I feel good about that foundational work that's being done to be able to attach at a higher rate. And I think we saw that progress in a big way as we started through the queue and into the queue.

Speaker Change: Either promotional or getting out of our our goods at the end of the season, when we should get out of them, but the team has done a really nice job of being able to attach what were looking at its historical rates. So I feel good about that foundational work, that's being done to be able to attach at a higher rate.

Speaker Change: And I think we saw that progress in a big way as we started through the queue and ended the Q.

Speaker Change: Perfect. Thank you.

Speaker Change: Thank you. Our next question comes from the line of Mark Harmon with RFID capital. Please proceed with your question.

Mark Smith: Perfect, thank you. Thank you.

Mark Harmon: Hey, guys. Thanks for taking my question.

Mark Herman: Our next question comes from the line of Mark Herman with R5 Capital. Please press thanks for taking my question. I have actually the same question as Mark, but I'll ask it a little bit different way. In terms of the cadence and hunting comp, would you pin any of that on either the California tax pre by having seen that come out of the, you know, the West Coast stores or so, or any kind of increasing chatter about, you know, upcoming election political kind of stuff or, you know, hunting season and no, there's anything specific that you can point to that might have caused that?

Speaker Change: Actually the same question as Mark, but I'll ask it a little bit different way.

Mark Harmon: In terms of the cadence in hunting comp would you pin any of that on either the California tax pre buy having seen that come out of the west coast stores, more so or any kind of increasing chatter about upcoming election political kind of stuff or.

Speaker Change: Hunting seasonality or is there anything specific that you can point to that might have caused that.

Speaker Change: Yes, Mark Great question. This is Jeff. So we did see some pull forward demand in the state of California with the 11% tax that went effective at the end of June as I look at the comp the comp trend in the Hunt category, we saw better benefit as we move through July and re I would say re <unk>.

Jeff White: Yeah, Mark, great question.

Jeff White: This is Jeff. So we did see some poll forward demand in the state of California with the 11% tax that went effective at the end of June. As I look at the comp, though, the conference in the hunt category, we saw better benefit as we move through July and re, I would say reinventored our go-to-market approach in terms of pricing, marketing, really focusing in on the hunt category. We saw better conferences. We focused our efforts into those categories through the end of July. So yes, we did see poll forward in California. You know, it's a large state for us, but more so than that, we saw better conference in the hunt category in July, as we really narrowed our focus on the right in stocks and our core items with the right pricing and the right areas.

Speaker Change: <unk> our go to market approach in terms of pricing marketing really focusing in on the hunt category, we saw better comp trends as we focused our efforts into those categories through the end of July. So, yes, we did see pull forward in California.

Speaker Change: It's a large state for us, but more so than that we saw better comp trends in the hunt category in July as we really narrowed our focus on the right in stocks in our core items with the right pricing in the right areas.

Speaker Change: I would just add to that is we saw that run up in June we didn't see a huge pull back like traditionally you would see the month following the run up that I think the work the team did to really stay engaged with the California consumer.

Paul Stone: Yeah, I would just add to that is we saw that run up in June. We didn't see a, a huge pullback, like traditionally, you would see the month following the run up that I think the work the team did to really stay engaged with the California consumer post the increase from a tax standpoint that we worked really hard on. California, a great state for us, will continue to focus on that state. But I think the work that was done that where traditionally you see a huge run up and then you see a huge fall. We felt really good with the performance coming out of that.

Speaker Change: Post.

Speaker Change: The increase from a tax standpoint that we work really hard on California, great State for US will continue to focus on that state.

Speaker Change: But I think the work that was done to where traditionally used to be a huge run up and then you see a huge fall.

Speaker Change: We felt really good with the performance coming out of that and we continue to be able to target in market are California's we'd see different things happening. We just recently had.

Speaker Change: Pull back on the firearm per month that just got pulled back and the way we were able to go out and market that as soon as we got that notification.

Paul Stone: And we continue to be able to target and market our California as we see different things happening.

Paul Stone: We just recently had, you know, a pullback on the one firearm per month. It just got pulled back, and the way we were able to go out and market that as soon as we got that notification is, you know, the team's done a really nice job being able to communicate. So I’d add what Jeff said, but then on top of it say the work that teams going to say in constant communication with that state is different things are happening, regulations coming down, they were able to move. And I think we have a little bit more nimble than what we have in the past.

Speaker Change: The team has done a really nice job being able to communicate so I'd add what Jeff said, but then on top of it to say the work. The team is going to stay in constant communication with that state has different things are happening regulations coming down that we're able to move and I think a little bit more nimble than what we have in the past.

Speaker Change: Okay. Great. Thanks, just a quick follow up any any commentary on the penetration of firearm a servicer warranty programs in the quarter.

Mark Herman: Okay. Great. Thanks.

Jeff White: Just a quick follow-up: any commentary on the penetration of firearms service or warranty programs in the quarter? To, as we look at those programs to Paul's point, in terms of loyalty and the other programs, we're seeing good trends. There's a lot of work to be done. FSP attachment warranty attachment, I would say marked the highest that we've seen it. We're at a good run right there. We continue to push that track. It is one of the KPIs making sure we're informing the customer about the value at proposition that it brings, but we're seeing good traction out of the FSP and warranty programs. Yeah, to start the year and where we finished Q2 just every month, huge improvement and what the team's been able to do to be able.

Speaker Change: As we look at those programs to Paul's point in terms of loyalty and the other programs. We are seeing good trends. There is a lot of work to be done.

Speaker Change: FSP attachment warranty attachment I would say market is the highest that we've seen it.

Speaker Change: Or at a good run rate there we continue to push that track. It is one of the Kpis, making sure we're informing the customer about the value add proposition that it brings but we're seeing good traction out of out of the FSP and warranty programs you have to start the year and where we finished Q2 just every month due to improvement in what the team has been able to do to be able.

Speaker Change: I think we've got a lot of momentum around our FSP program as we go through the back half of the year, we only think that'll improve mark.

Speaker Change: Great. Thank you.

Paul Stone: I think we've got a lot of momentum around our FSP program as we go through the back half of the year. We only think that won't prove more.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question comes from the line of Jeff Kessler with Baird. Please proceed with your question.

Justin Kleber: Great. Thank you.

Justin Klaver: Hey, Good afternoon, guys. This is Justin klaver. Thanks for taking the questions first one for me I was hoping you could.

Justin Kleber: Our next question comes from the line of Justin Keberler with Beard. Please proceed with your question. Hey, good afternoon, guys. It's Justin Kleber. Thanks for taking the questions. First one for me. I was hoping you could maybe just share some color on conversion. Understand traffic is a challenge, but how is conversion trending when customers actually do step inside the store, particularly with the change in the labor model. Paul, you alluded to with more generalist as opposed to traditionally having more, I guess, department specialists. So just any color on conversion, what you're seeing on that front would be helpful.

Justin Klaver: Maybe just share some color on conversion understand traffic is a challenge but.

Speaker Change: How is conversion trending when customers actually do step inside the store, particularly with the change in the labor model.

Speaker Change: Paul you alluded to it with more generalists as opposed to traditionally having more.

Speaker Change: Department specialists, so just any color on conversion what youre seeing on that front would be helpful.

Paul Stone: Yes, I mean, I guess without getting too far into the weeds.

Paul Stone: Very happy with what we're seeing on the conversion piece and as we look at.

Justin Kleber: Yeah, it's, I mean, I guess without getting too far into the weeds, we're very happy with what we're saying on the conversion piece. And as we look at, you know, our outfitters being more generalist and specialist to allow us to attach, but right now. You know, I think the color hope if I and it is we're in an all time high, we're even higher attaching than we did during, during COVID. And that gives us, you know, I think great optimism as we think about and corrects working with his teams to be able to drive that part of the business and getting great buy-in from our outfit.

Speaker Change: Our outfitters being more general in some specialists to allow us to attach but right now.

Speaker Change: I think the color I would give behind it is where we're at an all time high.

Speaker Change: Even higher attaching than we did.

Speaker Change: During during Covid and that gives us.

Speaker Change: I think great optimism as we think about and correct working with his team to be able to drive that part of the business and.

Speaker Change: Great buy in from our outfitters on what that looks like and as we attach and and we have our suppliers working with us on different attachment ideas suggestions and ability to be able to spit for outfitters to really be able to incent them on the total package itself. So I think not only what the operators are doing what the merchants and Brian in the.

Paul Stone: And we have our suppliers working with us on different attachment ideas, suggestions, and ability to be able to spiff our outfitters to really be able to incent them on the total package itself. So I think not only what the operators are doing with the merchants and Brian and the suppliers are helping us to be able to create really impactful attachment as we get these individuals in. The either through the store or is there coming in to be able to transact to use our only channel to be able to go through the far on purchase plan.

Speaker Change: The suppliers are helping us to be able to create really impactful attachment as we get these individuals.

Speaker Change: Via either through the store or are coming in to be able to transact is for use of our omni channel to be able to go through the firearm purchase plan.

Speaker Change: Got it okay. That's very helpful color. Thanks, and then a question.

Jeff: Jeff on the revised.

Jeff: Guidance, if I just take the change in EBITDA.

Speaker Change: To the change in revenue.

Justin Kleber: Got it.

Justin Kleber: Okay, that's not a very helpful color. Thanks.

Speaker Change: The decremental margins look.

Justin Kleber: And then the question just for you, Jeff, on the revised guidance: I just take the change in EBITDA relative to the change in revenue. If the decriminal margins look, look high, you know, close to 70%. So is that just because you've been cutting expenses for some time, and there just isn't much left that can be taken out of the business. I mean, is that the right read, or is it more related to some of the emotional activity that you alluded to open the back half of the year. Yeah, Justin, great question. I'll give you a little more color.

Speaker Change: High close to 70%.

Speaker Change: Is that just because you have been cutting expenses for some time and it just isn't much left that can be taken out of the business is that the right read or is it more related to the promotional activity that you alluded to over the back half of the year.

Speaker Change: Yes, Justin Great question, I'll give you a little more color. So we'll start with margin as we think about margin.

Speaker Change: We're going into what is our prime season, and hunt season. So Q3 is going to be primarily driven by hunting season.

Jeff White: So we'll start with margin. As we think about margin, you know, we're going into what is our prime season and hunt season. So Q3 is going to be primarily driven by hunt season. Not a lot of high promotional activity there, as that's where we have the right to play. Really more promotional activities as we move into the holiday season, and we're competing with disposable dollars with all retailers. So we'll see promotional activity uptick in Q4 on the expense side. We're always looking for ways to maximize the business. And we're going to continue to look at this, you know, this quarter and go forward on what expenses we can take out in terms of the magnitude.

Speaker Change: Not a lot of high promotional activity there as that's where we have the right to play.

Speaker Change: Really more promotional activity as we move into the holiday season, and we're competing with disposable dollars.

Speaker Change: With all retailers. So we will see promotional activity uptick in Q4 on the expense side, we're always looking for ways to maximize the business and we're going to continue to look this this quarter and go forward on what expenses, we can take out in.

Speaker Change: In terms of the magnitude the quantity that we saw last year, we were able to take a lot out in a very short period of time every dollar that we find now is taking time and it comes as contracts come up for renewal, we're actively working with all of our landlords right now to try to renegotiation rent rates. So the dollars do not comment at.

Jeff White: The quantity that we saw last year, we were able to take a lot out in a very short period of time. Every dollar that we find now is taking time, and it comes as contracts come up for renewal. We're actively working with all of our landlords right now to try to renegotiate some rent rates. So the dollars do not come at the high rate that they did last year. So we do see kind of a leveling out of those expenses, especially as we get to the back half of the year and start to anniversary the expense cuts from the year before.

Speaker Change: The high rate that they did last year. So we do see kind of a leveling out of those expenses, especially as we get into the back half of the year and start to anniversary the expense cuts from the year before so as you think about the guide those are going to be the big things impacting it.

To reiterate we did still guide for positive free cash flow and thats going to be achieved through the ending inventory target as you look at that reduction in adjusted EBITDA and then the ending inventory, we're going to be free cash flow positive through that ending inventory target and making sure that we really leveraged that asset on the <unk>.

Paul Stone: So, as you think about the guide, those are going to be the big things impacting it. You know, to reiterate, we did still guide for positive free cash flow. And that's going to be achieved through the ending inventory target as you look at that reduction in adjusted EBITDA and then the ending inventory. We're going to be free cash flow positive through that ending inventory target and making sure that we really leverage that asset on the balance sheet. Yeah, I would just add, as we think about it from a cost standpoint, the one thing that we just need to keep in mind is we'll continue to find and take ways of costs that are, you know, non customer facing, and the ability to be able to take some of that cost savings and be able to put back the greater experience to help us sell and attach at a higher rate as we think about it in the store.

Speaker Change: Balance sheet.

Speaker Change: I would just add as we think about it from a cost standpoint, the one thing that we just need to keep in mind is we will continue to find the takeaways the costs that are non customer facing and the ability to be able to take some of that cost savings and be able to put back to have a greater experience to help us fill in the attached at a higher rate as we think about it in the stores. So.

Speaker Change: Throw caution there, but we know as we look at around breakeven great service, we're going to continue to invest in the stores.

Speaker Change: Okay and then just your response to my question, Jeff If I could just sneak one more in as we think about the free cash flow generation as we move.

Paul Stone: So I serve caution there, but we know as we look at around great, great service we're going to continue to invest in the stores.

Justin Kleber: Okay, and then just your response to my question, or Jeff, if I could just sneak one more in as we think about the free cash flow generation and as we move into next year, recognizing it's too early to talk about 25, just trying to understand are there still opportunities to squeeze working capital out of the business or further bring down catbacks, or is free cash flow next year more about really just driving EBITDA on less money. Yes, about kind of extracting cash from from inventory or payable. Yeah, that's a great question. I think to answer that we're going to be driving more through EBITDA in terms of cash flow generation next year.

Jeff: Into next year, recognizing it's too early to talk about 25% just trying to understand are there still opportunities to squeeze working capital out of the business are.

Speaker Change: Or further bring down capex.

Speaker Change: Free cash flow next year more about.

Speaker Change: Really just driving EBITDA and less about kind of extracting cash from from from inventory or payables.

Speaker Change: Yes, that's a great question I think to answer that we're going to be driving more through EBITDA in terms of cash flow generation next year as Paul mentioned in his prepared remarks, we took inventory too low and at the end of Q2, you don't want to be walking into what Asia Prime season with inventory levels that we had and we're going to learn from our midst.

Jeff White: As Paul mentioned in his prepared remarks, we took inventory to low at the end of Q2. You don't want to be walking into what is your prime season with inventory levels that we had, and we're going to learn from our mistakes. We feel confident with our ability to end the year where I'm guiding, given that it's the slowest time frame of the year, but we're going to have to be investing back into the core parts of the business, you know, the 20% that drives the 80 as we move into next year. So I don't see much room in inventory to squeeze out in terms of working capital.

Speaker Change: State, we feel confident with our ability to end the year, where I'm guiding given that it's the slowest timeframe of the year, but we're going to have to be investing back into the core parts of the business. The 20% that drives to 80 as we move into next year. So I don't see much room in inventory to squeeze out in terms of working capital we're going to phone.

Speaker Change: And on Capex make sure that we're spending the dollars that are most needed in the company that have the highest returns. So we will keep managing that but.

Jeff White: We're going to focus in on catbacks. Make sure that we're, you know, spending the dollars that are most needed in the company that have the highest return. So we'll keep managing that. But from a cash flow generation generation, you know, without looking too far into the future, next year's going to be driven off of EBITDA. Okay.

Speaker Change: From a cash flow generation without looking too far into the future next year is going to be driven off of EBITDA.

Speaker Change: Okay. Thanks for all the time guys really appreciate it and best of luck here in <unk>.

Speaker Change: Thank you. Our next question comes from the line of Ana <unk> with Jefferies. Please proceed with your question.

Justin Kleber: Thanks for all the time, guys. I really appreciate it. Best of luck here in through Q.

Anna Klaskin: Thank you. Our next question comes from a line of Anna Klaskin with Jeffries. Please proceed with your question. Okay. Good afternoon, guys. Now let's see Riley. Thanks for taking my questions. I'd like to start on inventory. You know, we're now through the process of cleaning up a lot, and I understand you expect to and the season pretty healthy. But now you're talking about, you know, investing in the open to buy, and I understand you feel that you ended this quarter too light.

Speaker Change: Hey, good afternoon guys.

Ana: Now, let's see rally, but thanks for taking my question I'd like to die.

Ana: Inventory.

Ana: <unk>.

Speaker Change: We are now.

Speaker Change: Through the process of cleaning up a lot and I understand you expect to end the season pretty healthy.

Speaker Change: But now you're talking about investing in the open to buy and I understand you feel that you ended this quarter too light but.

Considering that there is a lot of liquidation last year I just wanted to touch on what are the demand signals or what are you looking for in terms of categories, you're chasing into and also what are the cargo out in place next year.

Anna Klaskin: But considering that there's, you know, a lot of liquidation last year, I just want to touch on, you know, what are the demand signals or what are you looking for in terms of categories you're chasing into. And also, what are the guard rails in place to make sure you don't end up, you know, over your fees in terms of inventory. Yeah. Anna, it's a great question. And to Paul's point, you know, our focus this year, we're re-ended Q2. We wanted to end in clean inventory, and we feel confident in the ability and how we executed.

Speaker Change: Over your skis in terms of inventory.

Speaker Change: Yes.

Speaker Change: <unk> question and to Paul's point, our focus this year, where we ended Q2, we wanted and in clean inventory, we feel confident in the ability and how we executed we felt that we ended very very clean as we walked out of the summer season, what we need to invest back into the core part of the business again to 20% of the Skus that drive 80%.

Jeff White: We feel that we ended very, very clean as we walked out of the summer season. What we need to invest back into is the core part of the business. Again, the 20% of the skews that drive 80% of the sales. As we make the strategic investment and we make, you know, the strategic investment in the back half of the year, that investment is focused on the core skews of the business that drive the majority of the demand. We have not had the ability or been good at investing in the core historically, where we were last year on the liquidation.

Speaker Change: <unk> of the sales as we make these strategic investments and we make.

Speaker Change: This strategic investment in the back half of the year that investment is focused on the core skus of the business that drive the majority of the demand we have not had the ability or been good at investing in the core historically, where we were last year on the liquidation we had zero opened Dubai walking into.

Speaker Change: Our holiday into the hunt season to invest in the core this year, we're in a much different situation, where we can make these strategic investments and have confidence that it drives the business because we have the data that support that they are the core skus that drive that drive the business. Yes. The thing I would add to it is that really for Q4 last year, we did.

Paul Stone: We had zero open to buy; they're walking into holiday into the hunt season to invest in the core. This year, we're in a much different situation where we can make these strategic investments and have confidence that it drives the business because we have the data that support that they are the course skews that drive the, that drive the business.

Speaker Change: Have the opportunity to buy into.

Speaker Change: Really the seasonal holiday goods and it was more around I'll focus was on the liquidation and clearance of merchandise. So we feel comfortable with special buys and newness.

Paul Stone: The thing I would add to it is that really for Q4 last year, we didn't have the opportunity to buy into. It's really the seasonal holiday goods, and it was more around all focus was on the liquidation and clearance of merchandise. So, with a couple of special buys and newness that's going to spring value, and I think the jets' earlier comments, as we come out of hunt—and hunt is our prime—to be able to go and to be in market in Q4 with value items, special buys, newness to allow the customers to see that and to be planned as we get into Q4 and holiday seasons, going to be a point of differentiation that we didn't have last year. And the other thing I would add is we are going to make strategic, you know, investment and inventory around the goods that Jeff mentioned, with the intention of being able to get out of the goods by the end of the year, knowing that we have the right goods in the right place and to invest and put them in the stores. We know that we're going to be able to turn to allow us to be able to get to our inventory level that we're guiding to at the end of the year. So, we feel, I think, confident that the inventory purchase is in the right goods and will be in that core, as we talked about the 80-20, to allow us to be able to make that strategic investment and to be able to turn it by the time we get to close the year.

Jeff: That's going to scream value and I think to Jeff's earlier comments as we come out of Hans and hunted for our prime to be able to go and to be able to be in market in Q4 with.

Speaker Change: Value items special buys newness to allow the customers to see that tend to be planned as we get into Q4 and the holiday season is going to be.

Speaker Change: A point of differentiation that we didn't have last year and the other thing I would add is we are going to make strategic investment in inventory around the goods that.

Speaker Change: That Jeff mentioned with the intention of being able to get out of the goods by the end of the year, knowing that we have the right goods in the right place to invest and put them in the stores. We know that we're going to be able to turn to allow us to be able to get to our inventory level.

Speaker Change: But we're guiding to at the end of the year. So.

Speaker Change: We feel.

I think confident that the inventory purchase is in the right goods and we'll be in that quarter as we talked about the 80 20 to allow us to be able to make that strategic investment and to be able to turn it by the time, we get to close the year.

Speaker Change: Thank you.

Matt <unk>: Our next question comes from the line of Matt <unk>.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Matt Corp: Thank you.

Speaker Change: Apologize.

Operator: Our next question comes from the line of Matt Corp and up. I apologize.

Speaker Change: There are no further questions at this time I would like to pass the call back over to management for any closing comments.

Speaker Change: By way of note, we will be participating both the B Riley and Lake Street conferences in New York City on September 12, and hosting in person 101 meetings. Thank you everyone for joining today's call and I do want to apologize for the technical difficulties. Thank you.

Operator: There are no further questions at this time.

Operator: I'd like to pass the call back over to management for any closing comments. By way of note, we'll be participating in both the B. Rowley and Lake Street conferences in New York City on September 12th and hosting in-person one-on-one meetings.

Operator: Thank you, everyone, for joining today's call, and I do want to apologize for the technical difficulties. Thank you.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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