Q4 2025 Sportsman's Warehouse Holdings Inc Earnings Call

Okay.

Hello, everyone and welcome to Sportsman's warehouse fourth quarter and full year 2024 earnings conference call.

Operator: Hello everyone and welcome to Sportsmans Warehouse fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone, and you will hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to participate you will need to press star one one on your telephone you will hear a message of dicing your hand distressed to withdraw your question simply press Star one again please.

Be advised that today's conference is being recorded you can also go to the company's Investor Relations page, where you can find the presentation and follow along.

Operator: You can also go to the company's investor relations page where you can find the presentation and follow along.

Riley Timmer: Now it's my pleasure to turn the call over to the vice president of investor relations, Riley Timmer. The floor is yours. Thank you, operator.

Now, it's my pleasure to turn the call over to the Vice President of Investor Relations relate to either the floor is yours.

Speaker Change: Thank you operator participating on our Q4 and fiscal year end 2020 for our call today is passed down.

Riley Timmer: Participating on our Q4 and fiscal year-end 2024 call today is Paul Stone, our Chief Executive Officer, and Jeff White, our Chief Financial Officer. 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.

Speaker Change: Our Chief Executive Officer, and Jeff White, our Chief Financial Officer, I will now remind everyone of the Companys Safe Harbor language the.

Speaker Change: The statements we make today contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, which include 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 Companys other filings made with the SEC. We will also disclose non-GAAP financial measures during today's call definitions of such non-GAAP.

Riley Timmer: We will also disclose non-GAAP financial measures during today's call.

Riley Timmer: Definitions of such non-GAAP measures as well as reconciliations to the most directly comparable GAAP financial measures are provided as supplemental financial information in our press release included as Exhibit 99-1 to the Form 8-K we furnished to the SEC today, which is also available on the Investor Relations section of our website at sportsmans.com.

Speaker Change: 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 to the SEC today, which is also available on the Investor Relations section of our website at sportswear.

Paul Stone: I will now turn the call over to Paul. Thank you, Riley, and good afternoon, everyone. First, I want to thank the thousands of outfitters across Sportsmans Warehouse, who work every day to provide our customers with great gear and great service. Those two guiding principles remain the foundation of our strategy as we continue to execute and deliver improved top line performance. As we've been sharing each quarter through 2024, phase one of our transformation strategy this past year was centered on resetting and rebuilding the critical fundamentals of great omni-channel retail. That included a reset of over 100 stores to improve sightlines, enhance feature space, showcase end caps with relevant merchandise, and convert the drive aisles into sellable space, all providing a much improved shopping experience for the customer.

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

Paul: Thank you Rami and good afternoon, everyone first I want to thank the thousands of outfitters across Sportsman's warehouse, who work every day to provide our customers with great care and great service.

Paul: These two guiding principles remain the foundation of our strategy as we continue to execute and deliver improved top line performance.

Paul: As we've been sharing each quarter through 2020 for phase one of our transformation strategy. This past year was centered on resetting and rebuilding the critical fundamentals of great Omnichannel retail that included a reset of over 100 stores to improved sightlines enhanced feature space.

Paul: Okay fin caps with relevant merchandise and convert the drop I also into the available space all providing a much improved shopping experience for the customer. Additionally.

Paul Stone: Additionally, we hired a seasoned retail veteran with expertise in turnarounds to lead our marketing e-commerce teams. Under her leadership, we've made a significant shift in marketing platforms to better align with modern shopping behaviors and has already contributed to improved traffic both online and in our stores. Throughout 2024, we carefully managed our inventory and continued to refine our merchandise to meet local and seasonal demands. As a result, we ended the year with both lower and much cleaner inventory versus the prior year, and we generated positive cash flow.

Paul: Additionally, we hired a seasoned retail veteran with expertise in turnarounds to lead our marketing and E. Commerce teams under her leadership, we've made a significant shift in marketing platforms to better align with modern shopping behaviors and has already contributed to improved traffic both online and in our stores.

Throughout 2024, we carefully managed our inventory and continue to refine our merchandise to meet local and seasonal demand as a result, we ended the year with both lower in much cleaner inventory versus the prior year and we generated positive cash flow as I look ahead I believe there is an opportunity to gain greater inventory efficiency.

Paul Stone: As I look ahead, I believe there's an opportunity to gain greater inventory efficiency as we narrow our focus on what the customer values most.

Paul: As we narrow our focus on what the customer values most.

Paul Stone: Jeff Dunn, as our new Chief Merchandising Officer, will lead that charge. Bringing decades of experience, his leadership is making an immediate impact. I'm confident in his ability to execute our merchandising strategy.

Paul: Jeff done as our new Chief merchandising officer will lead that charge, bringing decades of experience. His leadership is making an immediate impact I am confident in his ability to execute our merchandising strategy.

Paul Stone: Throughout my remarks, any comparisons I make to last year will be a comparison to the same 13 weeks and will remove the extra week from fiscal 2023. Now I will highlight the financial progress achieved this year, which again, was phase one of our company transformation and turnaround strategy. Q4 comp sales down 0.5 versus down 12.8 in Q4 last year, Q4 adjusted EBITDA of $15 million versus $5 million in Q4 of last year, reduced our net debt by $27 million. We decreased inventory $13 million versus last year and ended the year with liquidity of $131 million, an increase of $40 million compared to the end of last year.

Paul: Throughout my remarks, any comparisons I make to last year will be a comparison to the same 13 weeks and will remove the extra week from fiscal 2023.

Paul: Now I will highlight the financial progress achieved this year, which again with phase one of our company transformation and turnaround strategy.

Paul: Q4 comp sales down five versus down $12 eight in Q4 last year Q4, adjusted EBITDA of $15 million versus $5 million in Q4 of last year reduced our net debt by $27 million, we decreased inventory 13 million versus last year and ended the year with liquidity of $131 million an increase.

Paul: A $40 million compared to the end of last year.

Paul: As we move through 2024, we federally improved with sales trends each quarter, giving us confidence that the turnaround strategy is gaining traction and helps us on a path for a return to comp store sales growth in 2025.

Paul Stone: As we move through 2024, we steadily improve the sales for each quarter, giving us confidence that the turnaround strategy is gaining traction and has us on a path for a return to comp store sales growth in 2025. In firearms, I'm pleased that once again this quarter, we outpaced the adjusted NICS data, suggesting we outsold the industry. In Q4, the adjusted NICS was down 4.5. However, our firearm unit sales increased mid-single digit. That trend carried into February, where we once again outpaced the adjusted NICS, this time by a double-digit margin. What we are seeing, however, is lower sales dollars from lower average unit price, as the consumer is trading down to more affordable firearms. That said, we will strategically continue to lean into our core firearms, making the necessary adjustments to our assortments and inventory, meeting the customer where they see value, which is critical given the continued pressure on the consumer.

Paul: In firearms I'm pleased that once again this quarter, we outpaced the adjusted mix data, suggesting we outsold the industry in Q4, the adjusted mix was down $4. Five however, our firearm unit sales increased mid single digits that trend carried into February where we once again outpaced the adjusted net this time by double digit margin.

Paul: What we are seeing however is lower sales dollars from lower average unit price as the consumers trading down to more affordable firearms that said, we will strategically continue to lean into our core firearms, making the necessary adjustments to our assortments on inventory meeting the customer where they see value, which is critical given the continued press.

Speaker Change: Sure on the consumer.

Speaker Change: In the quarter, our camping and fishing departments postpone growth with fishing up double digits, we were well prepared for holiday this coupled with our ongoing merchandise and inventory productivity strategy provided our customers with the core goods and promotions. They were looking for as they shop for the holiday.

Paul Stone: In the quarter, our Camping and Fishing Departments both saw growth with fishing up double digits. We were well prepared for holiday. This, coupled with our ongoing merchandise and inventory productivity strategy, provided our customers with the core goods and promotions they were looking for as they shopped for the holiday. With inventory now in a much better position, we can make the necessary strategic buys to support the seasons and have depth in what the customer needs when they shop for their hunting and fishing solutions. Building on 2024's momentum, Ecom-driven sells once again composited, up double digits in the quarter.

Speaker Change: With inventory now in a much better position, we can make the necessary strategic buyers would support the seasons and have depth and what the customer needs when they shop for their hunting and fishing solution.

Speaker Change: Building on 2024, its momentum E com driven sales once again comped positive up double digits in the quarter.

Paul Stone: More effective marketing and an improved user experience for higher traffic and transactions, trends that have carried into 2025. We remain focused on strengthening our omni-channel strategy to enhance the seamless customer experience across our digital channels and our stores.

Speaker Change: More effective marketing and an improved user experience for car traffic and transaction trends that have carried into 2025, we remain focused on strengthening our omnichannel strategy to enhance the seamless customer experience across our digital channels and our stores.

Speaker Change: Looking ahead now to the next phase of our business transformation plan. Our goal in 2025 years to return to the company to same store sales growth improve our gross and overall operating margins and pay down our debt we.

Paul Stone: Looking ahead now to the next phase of our business transformation plan. Our goal in 2025 is to return the company to same-store sales growth, improve our gross and overall operating margins, and pay down our debt. We will get there by simplifying our operations to focus on our core business, hunting and fishing solutions. Going back to our founding in 1986, these two areas are the DNA of Sportsmans Warehouse and continue to be what most of our customers come to us for. Our 2024 consumer research showed that hunting and shooting remain stable categories with consistent demand based on participation rates, and fishing continues to grow steadily, boasting a 10-year CAGR of about 5%.

Speaker Change: We will get there by simplifying our operations to focus on our core business hunting and fishing solutions going back to our founding in 1986. These two areas are the DNA of Sportsman's warehouse and continue to be what most of our customers come to export.

Speaker Change: Our 2020 for consumer research showed the hunting and shooting remained stable category with consistent demand based on participation rates and fishing continues to grow steadily posting a 10 year CAGR of about 5%.

Paul Stone: These are robust businesses with plenty of room for us to grow, and there's a unique role we can play in the market. We have the skill to offer competitive pricing and the community connections to be the local hub for hunting and fishing. We can out-assort the local independents and out-local the big box competitors.

Speaker Change: These are robust businesses with plenty of room for us to grow and there is a unique role we can play in the market. We have the scale to offer competitive pricing and the community connections to be the local hub for hunting and fishing.

Speaker Change: We can now start the local independents and out local the big box competitors.

Paul Stone: We have defined four strategic initiatives for 2025 to leverage and enhance this competitive advantage. Number one, be narrow and deep in hunting and fishing to improve our in stock level in the 20% of key products that draft 80% of the business. We do this by improving our merchandising efforts to win the seasons at a local level within hunt and fish. Over the past several years, we've tried to be everything to everyone, rather than focusing on the core hunting and fishing items that drive the majority of our business. This spread our inventory dollars too thin, resulting in out-of-stocks in the items that matter, continually disappointing our customers.

Speaker Change: We have defined four strategic initiatives for 2025 to leverage and enhance its competitive advantage.

Speaker Change: Number one be narrow and deep in hunting and fishing to improve our in stock levels in the 20% of key products that drive 80% of the business.

Speaker Change: We do this by improving our merchandising efforts to win the season's at a local level within hunt and fish over the past several years, we've tried to be everything to everyone rather than focusing on the core hunting and fishing items that drive the majority of our business this spread or inventory dollars too thin, resulting in out of stocks and the items that matter continually disappointing our <unk>.

Speaker Change: Customers going forward, we've narrowed our assortment focus to be deepen the items that matter most to our customers and our performance on the same or less inventory dollars. We've already missed sales and disappoint the customer by being late to key hunting and fishing season, including critical micro seasons, we've made the necessary adjustments and technology investments to extort and merch.

Paul Stone: Going forward, we've narrowed our assortment, focused to be deep in the items that matter most to our customers, and our performance on the same or less inventory dollars. We have already missed sales and disappointed the customer by being late to key hunting and fishing seasons, including critical micro-seasons. We've made the necessary adjustments and technology investments to assort and merchandise to the store geography and be seasonally ready by both occasion and species. We are already seeing the benefits of fishing where we are copying double digits by being ready and regionally right from the start of spring fish.

Speaker Change: <unk> to the store geography, and be seasonally ready by both Acacia and species, we are already seeing the benefits in fishing, where we're comping double digits by being ready and regionally right from the start of the spring fish.

Paul Stone: Two, lean into local. We do this by leveraging our talented store outfitters who have the local connections in the community and the local knowledge our customers seek. We will also leverage our outfitters as local influencers, sharing their stories and content to connect with local customers. On the merch side of local, we will provide an improved offering of local brands and products, hyper-focused on the needs of that market. Each store now has a merchandising voice to help ensure local product needs are met. For example, our Alaska market is unique to all other regions with its local needs.

Speaker Change: To lean into local.

Speaker Change: We do this by leveraging our talented store outfitters, who have the local connections in the community and the local knowledge of our customers seek we will also leverage our outfitters have local influencers sharing their stories and content to connect with local customers on the merchant side of local we will provide an improved offering of local brands and products hyper focused on the need for that.

Speaker Change: Each store now has a merchandising voice to help ensure local product needs are met.

Speaker Change: For example, our Alaska market is unique to all other regions with its local needs. Historically, we've not provided the local autonomy to successfully merchandize flow stores. This year, we're already set for spring with local brands and products that the customer expects when shopping our stores.

Paul Stone: Historically, we have not provided the local autonomy to successfully merchandise those stores. This year, we're already set for spring with local brands and products that the customer expects when shopping our stores.

Speaker Change: Number three become the authority and personal protection.

Paul Stone: Number three, become the authority and personal protection. Personal protection, a 365 day a year occasion has sizable growth potential. Today, personal protection is already near 25% of our total sales, with a narrow focus on firearms and ammunition. If you look at the statistics, 72% of U.S. firearm owners cite protection as the primary reason for ownership. This part of our business also appeals to a broader demographic than hunting and fishing, providing opportunity to attract a new type of customer. We are building key product depth with important personal protection partners such as SIG, Springfield, and Glock, names and brands that resonate with our customer.

Speaker Change: Arsenal protection, a 365 day irritation is sizable growth potential today personal protection is already near 25% of our total sales with a narrow focus on firearms and ammunition. If you look at the statistics, 72% of U S. Firearm owners site protection as the primary reason for ownership.

Speaker Change: As part of our business also appeals to a broader demographic than hunting and fishing, providing opportunity to attract a new type of customer.

Speaker Change: We are building key product depth with important personal protection partners, such as Fig, Springfield, and Glock names and brands that resonate with our customer.

Paul Stone: Additionally, range shooting, which is a part of our personal protection business, brings customers in regularly for firearms and ammunition. We have deepened our relationships with a few select vendors to ensure we are always in stock in key items for range shooting. Finally, we signed an exclusive store-in-store partnership agreement with Burna Less Lethal. We believe this is an incremental purchase and complement for the current firearm owner and a less intimidating option for those who are not comfortable owning or carrying a gun. With our already established stores and website, we believe we can drive additional sales by leveraging our marketing platforms and Burna's strong base of influencers.

Speaker Change: Additionally range shooting, which is a part of our personal protection business brings customers and regularly for firearms and ammunition, we have deepened our relationships with a few select vendors to ensure we are always in stock in key items for range shooting.

Speaker Change: Finally, we signed an exclusive store in store partnership agreement with burn and less lethal. We believe this is an incremental purchase and complement for the current firearm owner and a less intimidating option for those who are not comfortable owning or carrying a gun.

Speaker Change: With our already established stores and website. We believe we can drive additional sales by leveraging our marketing platforms and burn a strong base of Influencers.

Speaker Change: Four strengthen our brand awareness the core of our business strategy has positioned sportsman's warehouse with the go to destination for local hunting and fishing solutions. Currently our brand awareness was very low in our trade areas to address. This we are executing a focused plan to expand brand awareness drive traffic and reengage.

Paul Stone: Four, strengthen our brand awareness. The core of our business strategy is positioning Sportsmans Warehouse as the go-to destination for local hunting and fishing solutions. Currently, our brand awareness is very low in our trade areas. To address this, we are executing a focused plan to expand brand awareness, drive traffic, and re-engage our core customers. We have significant upside potential in our trade areas, and it starts with ensuring customers know we are there and what we stand for. This starts with redefining our brand equity and launching a new omnichannel brand campaign to ensure we stand out in the marketplace.

Speaker Change: Our core customers, we have significant upside potential in our trade areas and it starts with ensuring customers know we are there and what we stand for.

Speaker Change: This starts with redefining our brand equity and launching a new Omnichannel brand campaign to ensure we stand out in the marketplace.

Paul Stone: We are also building a robust content marketing capability and rolling out an integrated grassroots program that aligns local sales planning with community activation. Finally, we are implementing an omnichannel selling approach centered on big bet promotions to capture customer demand. Through this strategy, we will strengthen our brand presence, increase transactions, and reclaim share in our core markets.

Speaker Change: We are also building a robust content marketing capability and rolling out an integrated grassroots program that aligns local sales planning with community. Activations. Finally, we are implementing an omnichannel selling approach centered on big bad promotions to capture customer demand.

Speaker Change: Through this strategy, we will strengthen our brand presence increased transactions and reclaim share in our core market setting underneath the four strategic initiatives is the continued strengthening of our infrastructure. For example, we're in the early phases of operating Blue Yonder. This will assist in our improved management of inventory as we define the <unk>.

Paul Stone: Sitting underneath these four strategic initiatives is the continued strengthening of our infrastructure. For example, we're in the early phases of operating Bullionder. This will assist in our improved management of inventory as we define the tools and processes to formalize our approach to seizing and locally relevant merchandise. I am confident in both our plan for 2025 and the team's ability to execute with speed. We hold a unique position in the outdoor market and believe through these major initiatives, we will return Sportsmans to sales growth, improve our gross margin, and further pay down our debt.

Speaker Change: <unk> and processes to formalize our approach to seasonally and locally relevant merchandise I am confident in both our plan for 2025 and the team's ability to execute with speed, we hold a unique position in the outdoor market and believe through these major initiatives, we will return sportsman's to sales growth improve our gross margin.

And further pay down our debt.

Jeffrey White: With that, I'll now turn the call over to Jeff. Thank you, Paul, and good afternoon, everyone. I'll begin my remarks today with a review of our fourth quarter and full fiscal year 2024 financial results, then cover our liquidity and capital allocation plans, and finally review our fiscal outlook for fiscal 2025. Net sales for the fourth quarter was $340.4 million and came in at the high end of our guided range. This is compared to $370.4 million in the fourth quarter of the prior year, which included a 53rd week. This extra week for 2023 contributed $27.1 million of net sales.

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

Jeff: Thank you Paul and good afternoon, everyone I'll begin my remarks today with a review of our fourth quarter and full fiscal year 2024 financial results, then cover our liquidity and capital allocation plans and finally review our fiscal outlook for fiscal 2025.

Jeff: Net sales for the fourth quarter was $344 million and came in at the high end of our guided range. This is compared to $374 million in the fourth quarter of the prior year, which included a 50 <unk> week. This extra week for 2023 contributed $27 1 million of net sales when comparing the same <unk>.

Jeffrey White: When comparing the same 13 weeks last year to the 13 weeks this year, our net sales declined 0.9% in the fourth quarter. Adjusted for the 53rd week year, same store sales decreased 0.5% in the fourth quarter compared with the fourth quarter of last year. This is the third consecutive quarter of improved same store sales trends and a 520 basis point improvement over last quarter. We were pleased to see month-to-month trend improvements as we progressed through Q4, with positive sales comps in both December and January. Looking at same store sales by department, fishing, as it has been all year, was the best performing category during the fourth quarter, up 10.3% on a 13 week comparable basis.

Jeff: Weeks last year to the 13 weeks this year, our net sales declined 9% in the fourth quarter.

Jeff: Adjusted for the 50 <unk> week year same store sales decreased <unk>, 5% in the fourth quarter compared with the fourth quarter of last year.

Jeff: This is the third consecutive quarter of improved same store sales trends and a 520 basis point improvement over last quarter.

Jeff: We were pleased to see month to month trend improvements as we progressed through Q4 with positive sales comps in both December and January.

Jeff: Looking at same store sales by department fishing as it has been all year with the best performing category during the fourth quarter up 10, 3% on a 13 week comparable basis.

Jeffrey White: This is a department where we made significant improvements to our end stocks, rationalized our SKUs, and at the same time lowered our total department inventory. Camping was up 5.2% in the quarter, driven by improved seasonal readiness in this category. Footwear and apparel comps were down in Q4, however, we were still lapping tough comps from the prior year's clearance and liquidation events. With inventory in these categories being down almost double what their sales declines were in Q4, we are confident in the health and productivity of these categories as we move into 2025. The hunting and shooting sports department was down 1.7 year over year.

Jeff: This is a department, where we made significant improvements to our in stocks rationalize our skus and at the same time lowered our total department inventory.

Jeff: <unk> was up five 2% in the quarter driven by improved seasonal readiness in this category.

Jeff: Footwear and apparel comps were down in Q4, However, we were still lapping tough comps from the prior year's clearance and liquidation events.

Jeff: With inventory in these categories being down almost double what their sales declines were in Q4, we are confident in the health and productivity of these categories as we move into 2025.

Speaker Change: The hunting and shooting sports Department was down one seven year over year. However, as Paul mentioned the number of firearm units sold increased mid single digits for the quarter.

Jeffrey White: However, as Paul mentioned, the number of firearm units sold increased mid-single digits for the quarter. Given the pressure on discretionary spending, we are seeing a trade down to lower priced firearms, which is pressuring our sales dollars in the category. While there is currently a trade down happening in firearms with lower average unit value, we do see average order value remaining at an all time high as we continue to place emphasis in our stores to add on and attachment items. Gross margin for the fourth quarter was 30.4% versus 26.8% in the prior year period. This 360 basis point improvement was primarily due to improvements in our apparel and footwear departments versus last year's clearance events, which pressured gross margin significantly.

Speaker Change: Given the pressure on discretionary spending we are seeing a trade down to lower priced firearms, which is pressuring our sales dollars in the category.

Speaker Change: While there is currently a trade down happening in firearms with lower average unit value. We do see average order value remaining at an all time high as we continue to place emphasis in our stores to add on hand attachment items.

Speaker Change: Gross margin for the fourth quarter was 34% versus 26, 8% in the prior year period.

Speaker Change: This 360 basis point improvement was primarily due to improvements in our apparel and footwear departments versus last years clearance events, which pressured gross margin significantly.

Speaker Change: As a percentage of net sales SG&A expense increased to 29, 4% compared to 29% in the fourth quarter of the prior year.

Jeffrey White: As a percentage of net sales, SG&A expense increased to 29.4% compared to 29% in the fourth quarter of the prior year. While SG&A was up as a percentage of sales on a year-over-year basis, SG&A dollars were down 6.8% or $7.3 million compared with last year. The most significant year-over-year decrease was in payroll, which was down approximately $2.4 million from last year and our other operating expenses, which were down $1.8 million. Net loss for the fourth quarter was $8.7 million or negative $0.23 per diluted share compared with net loss of $8.7 million or $0.23 per diluted share in the fourth quarter of the prior year.

Speaker Change: While SG&A was up as a percentage of sales on a year over year basis.

Speaker Change: SG&A dollars were down six 8% or $7 3 million compared with last year the.

Speaker Change: The most significant year over year decrease was in payroll, which was down approximately $2 $4 million from last year and our other operating expenses, which were down $1 8 million.

Speaker Change: Net loss for the fourth quarter was $8 7 million or negative <unk> 23 per diluted share compared with net loss of $8 7 million or 23 per diluted share in the fourth quarter of the prior year.

Jeffrey White: During Q4, a $10.1 million valuation allowance related to our deferred tax assets was created, which put us in a net loss position. This non-cash allowance does not affect the overall profitability of the company and has been excluded from adjusted net income. Adjusted net income in the fourth quarter was $1.6 million or $0.04 per diluted share compared with adjusted net loss of $7.5 million or negative $0.20 per diluted share in the fourth quarter of the prior year. Adjusted EBITDA for the fourth quarter was $14.6 million compared with adjusted EBITDA of $5.3 million in the fourth quarter of 2023, a nearly 300% increase in profitability.

Speaker Change: During Q4 at $10 $1 million valuation allowance related to our deferred tax assets, what's created which put us in a net loss position. This noncash allowance does not affect the overall profitability of the company and has been excluded from adjusted net income.

Adjusted net income in the fourth quarter was $1 6 million or <unk> <unk> per diluted share compared with adjusted net loss of $7 5 million or negative <unk> 20 per diluted share in the fourth quarter of the prior year.

Speaker Change: Adjusted EBITDA for the fourth quarter was $14 6 million compared with adjusted EBITDA of $5 3 million in the fourth quarter of 2023, and nearly 300% increase in profitability.

Speaker Change: Shifting now to the full fiscal year.

Jeffrey White: Shifting now to the full fiscal year. For the full year 2024, we finished with sales of approximately $1.2 billion and adjusted EPS of negative 53 cents per diluted share. We continue to pull costs out of the business to align with our sales trends, ending the year with operating expenses $20 million lower than the prior year. Turning to our balance sheet and liquidity as of the end of 2024, for full year 2024, ending inventory was $342 million compared to $354.7 million at the end of 2023, a decrease of $12.7 million and better than what we expected when we reported Q3 earnings.

Speaker Change: For the full year 2024, we finished with sales of approximately $1 2 billion and adjusted EPS of negative <unk> 53 per diluted share.

Speaker Change: We continued to pull costs out of the business to align with our sales trends ending the year with operating expenses $20 million lower than the prior year.

Speaker Change: Turning to our balance sheet and liquidity as of the end of 2024 for.

Speaker Change: For full year 2024, ending inventory was $342 million compared to $354 7 million at the end of 2023, a decrease of $12 $7 million and better than what we expected when we reported Q3 earnings <unk>.

Jeffrey White: Compared to the end of the third quarter, inventory is down nearly $96.1 million. We successfully moved to our seasonal inventory during the fourth quarter, which facilitated a cleaner and better-than-planned inventory balance and debt paydown at year-end. Inventory management will remain a focus area in 2025. The transition to a narrow and deep inventory strategy, the further rationalization of SKUs and vendors, as well as moving more efficiently in and out of seasons, will improve the productivity of our inventory. An example that gives us confidence in our strategy is the improvements we made in the fishing department. Fishing sales were up double digits in Q4, with lower inventory in that department on a year-over-year basis.

Speaker Change: Compared to the end of the third quarter inventory is down nearly $96 1 million.

Speaker Change: We successfully moved through our seasonal inventory during the fourth quarter, which facilitated a cleaner and better than planned inventory balance and debt paydown at yearend.

Speaker Change: Inventory management will remain a focus area in 2025.

The transition to a narrow and deep inventory strategy to further rationalization of skus and vendors as well as moving more efficiently in and out of seasons will improve the productivity of our inventory.

Speaker Change: An example that gives us confidence in our strategy as the improvements we made in the fishing department fishing sales were up double digits in Q4 with lower inventory in that department on a year over year basis when.

Jeffrey White: When we have the right depth in the right products at the right time of year, we become much more productive with our working capital. For the full year 2024, we incurred approximately $14.6 million of net capital expenditures, primarily related to normal store maintenance and improved infrastructure investments and technology. Total CapEx for the year was about $5 million lower than our expectation. In regards to liquidity, we ended the year with a net debt balance of $98.7 million, generated $19.7 million of free cash flow, and ended with total liquidity of $131.1 million. We used our cash flow generated during the fourth quarter to pay down debt and will continue to emphasize debt pay down as our primary use of free cash flow until we reduce our leverage ratio.

Speaker Change: When we have the right depth and the right products at the right time of year, we become much more productive with our working capital.

Speaker Change: For the full year 2024, we incurred approximately $14 6 million of net capital expenditures, primarily related to normal store maintenance and improved infrastructure investments in technology.

Speaker Change: Total capex for the year was about $5 million lower than our expectations.

Speaker Change: In regards to liquidity, we ended the year with a net debt balance of $98 $7 million.

Speaker Change: <unk> $19 $7 million of free cash flow and ended with total liquidity of $131 1 million.

Speaker Change: We used our cash flow generated during the fourth quarter to pay down debt and we will continue to emphasize debt paydown as our primary use of free cash flow until we reduce our leverage ratio.

Speaker Change: Turning now to our guidance starting with our net sales outlook, we estimate fiscal 2025 net sales to be in the range of negative 1% to up three 5% over last year.

Jeffrey White: Turning now to our guidance. Starting with our net sales outlook, we estimate fiscal 2025 net sales to be in the range of negative 1% to up three and a half percent over last year. Through our improvements to core product end stocks and focus on local relevance in our grassroots categories of hunt and fish, we are confident that we can drive same-store sales growth in 2025, even given a tough macroeconomic environment. We expect adjusted EBITDA for fiscal 2025 to be in the range of $33 million to $45 million. We will accomplish this through continued management of our variable expenses and modest improvement in our gross margin.

Speaker Change: Through our improvements to core product in stocks and focus on local relevance in our grass root categories of hunt and fish. We are confident we can drive same store sales growth in 2025, even given the tough macroeconomic environment.

Speaker Change: We expect adjusted EBITDA for fiscal 2025 to be in the range of 33 million to $45 million.

Speaker Change: We will accomplish this through continued management of our variable expenses and modest improvement in our gross margin.

Jeffrey White: We expect CapEx for 2025 to be between 20 and $25 million, primarily relating to technology investments to improve store service and merchandising productivity, as well as our normal store maintenance. Regarding tariffs, given our low penetration and private label and the countries from which we import, we believe our exposure is relatively low and expect only modest gross margin pressure. We will continue, however, to work with our vendors to assess any downstream impact of cost increases from higher overall tariffs. To reiterate, our priority for 2025 is to drive comp store sales growth, improve overall profitability, use excess free cash flow to pay down our debt, decrease our leverage ratio, and invest in needed technology.

Speaker Change: We expect Capex for 2025 to be between 20% and $25 million.

Speaker Change: Merrily relating to technology investments to improve store service and merchandising productivity as well as our normal store maintenance.

Speaker Change: Regarding tariffs given our low penetration in private label and the countries from which we import we believe our exposure is relatively low and expect only modest gross margin pressure.

Speaker Change: We will continue however to work with our vendors to assess any downstream impact of cost increases from higher overall tariffs.

To reiterate our priority for 2025 is to drive comp store sales growth improve overall profitability use excess free cash flow to pay down our debt decrease our leverage ratio and invest in needed technology.

Jeffrey White: That concludes our prepared remarks today.

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

Operator: I will now turn the call back to the operator to facilitate questions. Thank you so much and as a reminder, to ask questions, simply press star 11 on your telephone and wait for your name to be announced.

Speaker Change: Thank you so much and as a reminder to ask a question simply press Star one one on your telephone and wait for your name to be announced.

Operator: To remove yourself, restart 1-1 again.

Speaker Change: Thank you have a multi yourself with star one again.

Matthew Koranda: One moment for our first question. comes from the line of Matt Koranda with Roth Capital, please proceed. Hey, guys, good afternoon. Maybe just it's encouraging to hear that the comps flip positive for the back half of the quarter. And so I'm curious to hear maybe year to date how they trended through February and March. I know you mentioned in the prepared remarks that you outperformed Nick's in February. So were you seeing positive sales in February as well from firearms and ammunition? Maybe just start there.

For our first question.

Speaker Change: Comes from the line of Matt Koranda with Roth Capital. Please proceed.

Matt Koranda: Hey, guys good afternoon.

Speaker Change: Maybe just it's encouraging to hear that.

Speaker Change: Comps flip positive.

Speaker Change: For the.

Speaker Change: The back half of the quarter and so I'm curious to hear.

Speaker Change: Maybe year to date and how they've trended through February and March I know you mentioned in the prepared remarks that you.

Speaker Change: Outperforms mix in February so where are you seeing positive sales in February as well.

Speaker Change: From firearms and ammo.

Speaker Change: And maybe just start there.

Speaker Change: Yes, Matt Thanks for the question this is Jeff.

Jeffrey White: Yeah, Matt, thanks for the question. This is Jeff. As we as we've moved into 25, we're seeing encouraging trends as we continue to focus on the pillars that Paul laid out. So, for the month of February, I would say we are seeing a continuing comp positive from what we saw in January. And then, as we've moved into March, the 1 thing I'll just highlight that's being called out is the shift in holidays. You have Easter falling into April, which caused us to push some of our large ads back into the April, kind of end of March, April timeframe.

Speaker Change: We've moved into 25 were seeing encouraging trends as we continue to focus on the pillars that Paul laid out so for the month of February I would say, we are seeing a continuing comp positive from what we saw in January.

Speaker Change: And then as we moved into March the one thing I'll just highlight that's being called out as the shift in holidays, you have Easter falling into April which caused us to push some of our large add back into the April kind of end of March April timeframe. So I think there is a shift that's occurring there, but we saw really good trends through February.

Jeffrey White: So, I think there's a shift that's occurring there, but we saw really good trends through February. Okay, great. And then maybe just cadence of the year. I know we're, we're talking about a flip to positive comps for the full year. So maybe just Jeff, if you want to kind of walk us through how you're thinking about how the year sets up, it sounds like maybe we're, we're starting out in a positive place in the first quarter. But as we kind of get deeper into the year, how we think about the year ahead. the the comps and then store opening timing maybe just nice to see you get back to some store growth.

Speaker Change: Okay, Great and then maybe just cadence of the year I know, we're we're talking about a flip to positive comps for the full year. So maybe just Jeff if you want to kind of walk us through how you're thinking about how the year sets up it sounds like maybe where we're starting out in a positive place in the first quarter, but as we kind of get deeper into the year, how do we think about.

Speaker Change: Sure.

Speaker Change: The comps and then store opening timing, maybe just nice to see you get back to some store growth.

Jeffrey White: Could you talk about sort of the timing of the one store that you Yeah, it's a great question. To highlight, go back to what I said, I think we're going to see a shift in Q1. With the change in holiday, you have a kickoff to spring a lot later than last year, almost three weeks later than last year. So, I do think Q1 is going to feel the pressure of that later start. But then, as we move into Q2, Q3, there's a big opportunity for us to really win. Again, going back to the strategic pillars that Paul highlighted, as we lean into fishing, lean into hunt, see a lot of upside opportunity in Q3.

Speaker Change: Could you talk about sort of the timing of the one store that you guys plan to open.

Speaker Change: Yes, it's a great question Tyler I go back to what I said I think we're going to see a shift in Q1 with the change in holiday kickoff to spring a lot later than last year almost three weeks later than last year. So I do think Q1's going to feel the pressure of that later start but then as we move into Q2 Q3, there is a big opportunity for us to really.

Speaker Change: When again going back to the the strategic pillars that Paul highlighted as we lean into fishing lean into <unk> see a lot of upside opportunity in Q3, and Q2 and then rounding out Q4 as we just are better with our merchandising. So I think we see more upside Q2, three and four than we do Q1 with just the shift of the holiday.

Jeffrey White: And Q2, and then rounding out Q4, we just are better with our merchandising. So, I think we see more upside Q2, Q3, and Q4 than we do Q1, with just the shift of the holiday.

Jeffrey White: In terms of the new store opening, right now, it's slated for kind of end of Q3, beginning of Q4. We'll keep everyone posted on the exact opening date, but right now I've penciled it kind of end of Q3, beginning of Q4 timeframe. Okay, got it.

Speaker Change: In terms of the new store opening right now its slated for kind of end of Q3, beginning of Q4, we will keep everyone posted on the exact opening date, but right now I'd pencil that kind of end of Q3, beginning of Q4 timeframe.

Speaker Change: Okay got it maybe just one more if I could sneak one in on the balance sheet and free cash flow.

Matthew Koranda: Maybe just one more, if I can sneak one in on the balance sheet and free cash flow, and how the EBITDA projection that we have for this year might convert to free cash flow. Maybe Jeff, if you could just handle sort of how to think about free cash flow conversion from the EBITDA guidance that you gave. It sounds like there's probably some more opportunity from working capital and inventory efficiency. So maybe just help us understand sort of how much opportunity there is there. Thank you. to kind of build out a sort of conversion of free cash flow model.

Speaker Change: How the EBITDA projection that we have for this year might convert to free cash flow.

Speaker Change: Maybe Jeff if you can just handle sort of how to think about free cash flow conversion from the EBITDA guidance that you gave it sounds like there's probably more opportunity from working capital and inventory efficiency. So maybe just help us understand sort of how much opportunity there is there.

Speaker Change: And then kind of build out.

Speaker Change: A conversion of free cash flow models here.

Jeffrey White: Yeah, well, I'm not providing guidance for an exact number of free cash flow. We feel confident in our ability to continue to generate positive free cash flow by working through our, you know, first is top line profitability, increasing comp store sales, increasing margin, increasing gross margins, and all the way down to operating margin. As we highlighted in the year-end call, there is more efficiency to be had from the inventory line. I think as we continue to work through certain types of metrics inside our inventory and really focusing in on our core in stock and the productivity, there's opportunity there for us to continue to execute on that as we move through the year and really into the year-end period.

Speaker Change: Well I am not providing guidance for an exact number of free cash flow, we feel confident in our ability to continue to generate positive free cash flow by working through our first is top line profitability, increasing comp store sales increasing margin, increasing gross margins and all the way down to operating margin.

Speaker Change: As we highlighted in the year end call. There is more efficiency to be had from the inventory line I think as we continue to work through certain types of metrics and inside our inventory and really focusing in on our core in stock and the productivity.

Speaker Change: There is opportunity there for us to continue to execute on that as we move through the year and really into the year end period.

Paul Stone: One highlight that I will make, and we called it out last year, as we go into these seasons and we make sure that we're seasonally ready, the inventory flow and cadence of inventory is going to be a little bit different than what it's been historically. We can no longer be late to seasons. We need to make sure we're early to seasons. We are in stock and we are ready to go. So, I think that changes the flow of inventory a little bit. So, there's going to be different peaks and valleys as we move throughout the year, but still very confident in how we're going to manage inventory throughout the year and where we will end 2025 at.

Speaker Change: One highlight that I will make and we called it out last year as.

Speaker Change: As we go into the seasons and we make sure that were seasonally ready the inventory flow and cadence of inventory is going to be a little bit different than what it's been historically, we can no longer be late to seasons, we need to make sure. We're early to seasons. We are in stock and we are ready to go. So I think that changes the flow of inventory a little bit so theres going to be different peaks in.

Matt Koranda: Valleys as we move throughout the year, but feel very confident in how we're going to manage inventory throughout the year and where we will end 2025 that I would just add Matt I think I mean, we had a huge opportunity around last year and felt like this quarter to quarter claim.

Paul Stone: That was just sad, Matt. I think, I mean, we had a huge opportunity around Hunt last year. It felt like this quarter-to-quarter playing, you know, as we were looking at working capital, we had it, you know, we had misses there. We have an opportunity as we get into Q3 to ensure that we hit the hunt season and to be able to wind this thing down as we go through. and then go through the holidays. But I think you're spot on. I mean, the efficiency of our inventories is a big North star here, as we think about what we can do and how we're seeing the productivity, the core goods today.

Speaker Change: As we were looking at working capital we added.

Speaker Change: We had missed this there we have an opportunity as we get into Q3 to ensure that we hit the hunt season and the people to wind this thing down as we go through.

Speaker Change: And then go through the holidays, but thank.

Speaker Change: Auto on the efficiency of our inventories.

Speaker Change: It's a big North North Star here as we think about what we can do and how we're seeing the productivity of the core goods today.

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

Matthew Koranda: Thanks, guys.

Operator: I'll turn it over to others. Thanks, Matt. Thank you.

Speaker Change: Thanks, Matt.

Speaker Change: Thank you.

Anna Glaessgen: Our next question is from Anna Glaessgen with B Riley Securities. Please proceed. Thanks. Good afternoon, guys. I would love to start on the trade down you noted in firearms. I understand it's pressuring your average unit price.

Speaker Change: Our next question is from Anna <unk> with B Riley Securities. Please proceed.

Speaker Change: Thanks, Good afternoon guys.

Speaker Change: Would love to start on the trade down you noted in firearms.

Speaker Change: I understand it's pressuring your average unit price, but if you could give a little bit more historical perspective is a trade down environment, an environment in which you have historically gained market share and is that something we should be contemplating as an opportunity in 'twenty five.

Jeffrey White: But if you could give a little bit more historical perspective, is a trade down environment an environment in which you've historically gained market share? And is that something we should be contemplating as an opportunity in 2025? Yeah, and it's a great question. As we've drilled in and really focused in on the in stocks, we have the opportunity to refine our assortment, make sure we're in stock in the right goods, knowing that we're seeing that trade down pattern. You know, our merchant team and the operations team inside the business has proactively been making the adjustment to ensure that we're in stock on what the customers gravitating towards.

Speaker Change: And it's a great question.

Speaker Change: We've drilled in and really focused in on the in stocks, we have the opportunity to refine our assortment and make sure. We're in stock in the right goods, knowing that we're seeing that trade down pattern.

Speaker Change: Our merchant team and the operations team inside the businesses proactively been making the adjustment to ensure that we're in stock on what the what the customers gravitating towards so being able to be in stock in the right place and the right time.

Jeffrey White: So being able to be in stock in the right place in the right time, I think is attributing to the beat that we had on the adjusted NICs. Making sure that we're meeting the customer with the value that they want is, you know, what we would attribute to why we outperform NICs in Q4, and we continue to do so. So, you know, as we think about that trade down, while the average unit of retail is down on the guns, what we're very pleased with is our ability in the store to continue to attach and add additional items to the basket.

Speaker Change: Zinc is attributing to the beat that we had on the adjusted mix, making sure that we're meeting the customer with the value that they want.

Speaker Change: Is what we would attribute to why were why we outperform mix in Q4, and we continue to do so so.

Speaker Change: As we think about that trade down while the average unit retail was down on the guns. What we're very pleased with is our ability in the store to continue to attach and add additional items to the basket. So why we why we have seen a decline in the AUR on the firearm the <unk> on the basket across the.

Jeffrey White: So while we've seen a decline in the AUR on the firearm, the AOV on the basket across the category has stayed relatively flat, if not up as we continue to focus on the attach and the additional units that we're driving in those transactions.

Speaker Change: The category has stayed relatively flat if not up as we continue to focus on the attach and the additional units that were driving in those transactions.

Speaker Change: Thanks Beth.

Jeffrey White: Thanks. And going back to the commentary on the call, you noted that, you know, there's a really high penetration among, you know, gun owners and the broader demand of the category within personal protection. I think you said something like 72%. Could you give some perspective on where your mix within the category stands today and where you see that ahead as you kind of shift the mix to that customer? Yeah, I think primarily, Anna, we look at it today where it is all really focused on handguns and ammunition as we think about what our total subcat of personal protection is.

Speaker Change: Back to the commentary on the call.

Speaker Change: Yes, that's a really high penetration of model.

Speaker Change: Larry.

Speaker Change: Broader demand of the category within personal protection.

Speaker Change: 72%.

Speaker Change: Could you give some perspective on where your mix within the category today.

Speaker Change: Thank you.

Speaker Change: Customer.

Speaker Change: Yes, I think primarily Hana, we look at it today, where it is all.

Speaker Change: Really focused on hand guns and ammunition as we think about what our total sub cat personal protection has been I think as we look at this going forward.

Jeffrey White: And I think as we look at this, you know, going forward, We have a huge opportunity to be able to look at it both from a lethal and a non-lethal standpoint, but the relative mix is, it's right at the 25% mark around personal protection in a way that we classified today. And like I said earlier, it's primarily handguns and the ammunition for the handguns, and that represents a disproportionate amount of our business. And we've really done nothing to be able to stand it up, to isolate it within the site, or to be able to communicate externally to the broader consumer base around personal protection.

Speaker Change: We have a huge opportunity to be able to look at it both from a lethal than a non lethal standpoint, but relatively mixes.

Speaker Change: It's right at the 25% Mark around personal protection in a way that we classified today and like I said earlier, it's primarily.

And guns and ammunition towards the handguns and that represents a.

Speaker Change: Its proportionate amount of our business and we've really done nothing to be able to stand it up to isolated within the site or to be able to communicate externally.

Speaker Change: To the broader consumer base around personal protection so.

Jeffrey White: So, we're very bullish, knowing that this is a 12 month, 365 day year opportunity for us to be able, if we're not in a micro season, growing fish and hunt, that we have an opportunity to be able to tell a story around personal protection. Got it.

Speaker Change: We're very bullish.

Speaker Change: Knowing that this is a 12 month 365 year opportunity for us to be able if we're not in a micro season micro season curling fish and hunt that we have an opportunity to be able to tell a story around personal protection.

Speaker Change: Got it and then just one more if I could.

Anna Glaessgen: And then just one more, if I could, want to go back to Matt's kind of line of questioning around March, you know, from other retailers, we've heard that, you know, tariff news and other headlines, if not directly impacting the categories has broadly impacted the consumer. It seems that you're attributing kind of a slower environment to kind of calendar shifts, rather than a consumer slowdown. So I guess just expanding on that. Have you seen any change in consumer behavior around these headlines? I don't think around the headline of tariffs, we've seen consumer behavior change. On the firearm side, we've mentioned that we're seeing a reduction in the average unit of retail there.

Speaker Change: Wanted to go back to map kind of line of questioning around March from other retailers, we pre bought.

Speaker Change: Tariff.

Speaker Change: And other headlines if not directly impacting the category has broadly impacted the consumer.

Speaker Change: Youre attributing.

Speaker Change: Slower environment to quite a calendar shift rather than humira.

Speaker Change: Humira.

Speaker Change: Slow down so I guess, just expanding on that have you seen any change in consumer behavior around the top line.

Speaker Change: I don't think around the headline of tariffs, we've seen consumer behavior change on the firearm side, we've mentioned that we're seeing a reduction in the average unit retail there and we've been seeing that throughout 2024, So I don't think thats something new to us.

Jeffrey White: And we've been seeing that, you know, throughout 2024. So I don't think that's something new to us. You know, in terms of tariffs, we made some proactive moves, and it's a very small portion of our business from a private brand perspective that has exposure to tariffs. And we pulled forward some receipts earlier in the year to offset that, but we haven't seen a reaction in consumer behavior. I would say more so what we have seen in March is just a timing perspective of some of the biggest ads. If we think about two of our largest ads that we ran, last year, we ran them at the beginning of March and kind of mid-March.

Speaker Change: In terms of tariffs, we made some proactive moves and it's a very small portion of our business from a private brand perspective that has exposure to tariffs and we pulled forward. Some receipts earlier in the year to offset that but we haven't seen a reaction and consumer behavior I would say more so what we have seen in March is.

Speaker Change: Just a timing perspective of some of the biggest ads. If we think about two of our largest ads that we ran last year. We ran them at the beginning of March and kind of mid March. This year, we're running that mid March beginning of April. So there is a significant shift in in some of our biggest ads and we're attributing it to that because those ads now have <unk>.

Paul Stone: This year, we're running them mid-March, beginning of April. So there's a significant shift in some of our biggest ads, and we're attributing it to that, because those ads now have kicked off, and we're confident in the trends that we're seeing. Yeah, and we just used that around both FIG and our spring shooting event, our two huge spring events. And as Easter shifted this year, and really the kickoff of spring and fishing, we shifted both of those events to where they're more towards the back end of the queue, where they would have been the middle of the queue last.

Speaker Change: Dawson and we're confident in the trends that we're seeing yes, we just use that around both <unk> and our spring shooting event.

Speaker Change: Huge spring events and it's <unk>.

Speaker Change: After shifted this year and really the kickoff of spring in fishing.

Speaker Change: We shifted both of those events towards that or more towards the back into the queue, where they would have been the middle to Q plus so as we come into April.

Paul Stone: So as we come into April, you know, we're lining up with these two events in the month of April. We think we'll have some carryover into May, due to some of the state's regulation and with firearms, and what that looks like from a timing or a hold period. So, you know, the shift was strategic around basing everything on Easter.

Speaker Change: We're lining up with these two events in the month of April we think will have some carryover into may to some of the state's regulation with firearms.

Speaker Change: What that looks like from a timing or a hold period. So.

Speaker Change: Shipped was strategic around basing everything on Easter.

Speaker Change: Okay.

Operator: Great, thanks. Thank you.

Speaker Change: Thank you.

Mark Smith: Our next question comes from Mark Smith with Lake Street. Please proceed. Hey guys, I will stay on the theme here of kind of consumer behavior just as you see customers, maybe squeezing the check a little bit on firearms. Are you seeing that in any other segments in businesses as well? And if so, do you feel like you either are or will be, you know, inventoried in the right way to kind of hit that trend? Yeah, Mark, thanks for the question. I would call out one thing that we've kind of adopted is there are certain types of ammunition, you know, going with range type activity, the everyday shooting ammunition that we made some strategic price moves on earlier in the year to make sure that we kind of run at an everyday low price.

Speaker Change: Our next question comes from Mark Smith with Lake Street. Please proceed.

Mark Smith: Hey, guys I will stay on the theme here of kind of consumer behavior.

Mark Smith: You see customers, maybe squeezing the check a little bit on firearms or you've seen that in any other segments and businesses as well.

Mark Smith: And if so do you feel like you either are or will be inventory in the right way to kind of hit that trend.

Mark Smith: Yes.

Mark Smith: Mark Thanks for the question I would call out one thing that we've kind of adopted as there are certain types of ammunition.

Mark Smith: Going with range type activity.

Speaker Change: De shooting ammunition that we made some strategic price moves on earlier in the year to make sure that we kind of run at an everyday low price I think you've got to meet the consumer with the value that they're expecting and you have to stay competitive in the areas that are driving traffic into the store. So we're obviously that's part of it of our consumable business, we're going to continue.

Jeffrey White: I think you've got to meet the consumer with the value that they're expecting, and you have to stay competitive in the areas that are driving traffic into the store. So, obviously, that's part of our consumable business. We're going to continue to look at the consumables as it relates to other categories, whether it be fish, camp, hunt, to ensure that we are competitively priced on items that we know drive traffic, and we have to meet the customer's value or else they will go someplace else. So, as we get them in the door, the offset to that, obviously, is, as I mentioned earlier, doing a really good job building the basket.

Speaker Change: To look at the consumables as it relates to other categories, whether it be fish camp Hunt to ensure that we are competitively priced on items that we know drive traffic and we have to meet the customers' value are up they will go someplace else. So.

Speaker Change: As we get them in the door the offset to that obviously is as I mentioned earlier doing a really good job building. The basket, we've put a lot of work into the stores, making sure. We have the right merchandise. So when we get them in the door, we see a good attach rate and we see a good units per transaction with a high average order value and the transaction I would just add.

Jeffrey White: You know, we put a lot of work into the stores, making sure we have the right merchandise. So, when we get them in the door, we see a good attach rate, and we see a good units per transaction with a high average order value in the transaction. I would just add, Mark, I mean, the work we did on everyday low price on the ammo piece of to ensure that the 9 or 10. Ammo SKUs that drive a disproportionate amount of our overall ammo business is, you know, when we got to EDLP, we were able to see a significant uptick and what the performance looked like there.

Speaker Change: Mark I mean, the work we did on everyday low price.

Speaker Change: BMO piece of to ensure that the nine or 10.

Speaker Change: Ammo Skus that drive a disproportionate amount of our overall ammo business is when we got to <unk>, we were able to see a significant uptick in what the performance looks like there and as we think of.

Jeffrey White: And as we think of fish, I think Your rod and reel combos have been on fire, and that's typically one of the things, I think, when you see a little bit of pressure on the fish, you see the rod and reel uptick, and we've clearly seen that in a big way, and we're positioned well from an inventory standpoint. Okay, and as we think about kind of add-ons and consumables, especially in that kind of back-of-the-house firearms shooting sports segment, you know, any commentary around kind of what you've seen within ammunition, and it sounds like you're seeing good accessory sales, especially as kind of add-ons with a firearm purchase, but any additional insights into what you're seeing outside of guns kind of in the back of the store would be great.

Speaker Change: Fish.

Speaker Change: Thank you.

Speaker Change: Rod and reel combos have been on fire and Thats typically one of the things I think when you see.

Speaker Change: A little bit of pressure on the fish, you speak of Rod and reel uptick and we've clearly seen that in a big way and we're positioned well from an inventory standpoint.

Speaker Change: Okay.

Speaker Change: We think about kind of add ons and consumables, especially in that kind of back of the house firearms shooting sports segment.

Speaker Change: Any commentary around kind of what you've seen within ammunition and it sounds like youre seeing good accessory sales, especially as kind of add ons with a firearm purchase but any additional insights into what you're seeing outside of guns kind of in the back of the store will be Greg.

Speaker Change: Yes, as you think about what we're adding gone it's really focusing on right now it's going to be heavily focused on personal protection. So you are selling a lot of handguns and youre going to be attaching whether it be safety equipment holster.

Jeffrey White: Yeah, as you think about what we're adding on, it's really focusing on, you know, right now, it's going to be heavily focused on personal protection. So you're selling a lot of handguns, and you're going to be attaching whether it be safety equipment, holsters. A large item that we drive on our firearm sales is our firearm service plans. It's a highly accretive margin item that offers an immense amount of value to the customer. So they don't have to worry about dealing with a claim or, you know, a cleaning or a scope mounting on that item. So our outfitters have done a really good job driving that attachment in the stores to ensure that we're providing the customer with incremental value as we as we use those ancillary services.

Speaker Change: A large item that we drive on our firearm sales as our firearm service plans. It is a highly accretive margin item that offers an immense amount of value to the customers. So they don't have to worry about dealing with a claim or a <unk>.

Speaker Change: Cleaning or a scope mounting on that item. So our outfitters have done a really good job driving that attachment in the stores to ensure that we're providing the customer with incremental value as we as we use those ancillary services.

Paul Stone: I think just, I mean, looking at FSPs have been a significant uptick, and I think like Jeff said, the value of it is great, but also as we look at even the Q gun parts and really being able to narrow our focus on rings and bases and some of the basics where I think we've been too wide, we didn't have the depth and the working capital put towards it, it really is giving a greater experience and allowing us to attach where, like I said, we've just been too wide and we stood for nothing versus being able to narrow our focus.

Speaker Change: I think just looking at Fsp's.

Speaker Change: Ben.

Speaker Change: Significant uptick and I think like chips or the value of it is great. But also as we look at even the Q gun parts.

Speaker Change: Really being able to narrow our focus on rings and basis in some of the basics, where I think we've been too wide. We didn't have the depth and the working capital put towards it really is giving a greater experience, allowing us to attach ware.

Speaker Change: Like I said, we've just been too wide and we stood for nothing versus being able to narrow into.

Paul Stone: We've been able to narrow into three key partners around the base and ring and allowing us and our outfitters to be able to go to work to attach and to be able to create a complete package.

Speaker Change: Three key partners around the basin ring, and allowing us in our outfitters to be able to go to work to attach them to be able to create a complete package.

Speaker Change: Perfect.

Mark Smith: Perfect. And last one for me, and I apologize if I missed it in the commentary, but e-com, did you guys quantify mix or kind of where, you know, growth within kind of e-com channel in the quarter? And if not, anything you can give or any insights indicating how that business is trending? We didn't quantify specifically. It was an area that comp double digit positive for the quarter. You know, e-comm is trending greater than 17% of the overall business. In terms of categories that we're continuing to seeing growth, I would say for the most part, it was across all categories, but heavily weighted in firearms as well.

Speaker Change: Last one for me and I apologize if I missed it in the commentary but.

Speaker Change: E. Com did you guys quantify mix or kind of where growth within kind of E comm channel in the quarter.

Not anything you can give or any insights indicate how that business is trending.

Speaker Change: And we didn't quantify specifically it was an area that comp double digit positive for the quarter E. Comm is trending greater than 17% of the overall business.

Speaker Change: In terms of Eric categories that we're continuing to see growth I would say for the most part it was across all categories.

Speaker Change: Heavily weighted in firearms as well that is an area, where you can offer an entire SKU catalog and as we've really dialed in our in stocks, making sure again that we're meeting the consumer with the right amount of quantity and that we can satiate demand and be able to to fulfill what the customer wants.

Jeffrey White: That is an area where you can offer an entire SKU catalog. And as we've really dialed in our in stocks, making sure again, that we're meeting the consumer with the right amount of quantity and that we can satiate demand and be able to fulfill what the customer wants. I would say that is where we're seeing opportunity and continued success as we've moved into 2025.

Speaker Change: I'd say that is where we're seeing opportunity and continued success as we've moved into 2025.

Speaker Change: Perfect. Thank you guys.

Mark Smith: Perfect. Thank you, guys. Thank you.

Speaker Change: Thank you.

Ryan Sigdahl: Our next question is from Ryan Sigdahl with Craig Hallam. Please proceed. Hey, good afternoon, guys.

Speaker Change: Our next question is from Ryan <unk> with Craig Hallum. Please proceed.

Ryan: Hey, good afternoon guys.

Jeffrey White: Specifically on tariffs, I guess, what are you So great question, Ryan, we've included some of the The expected cost increase from what we do source from some of the countries that may be impacted from tariffs, I'll just make sure that we understand that's a very small part of the business. You know, it's less than 2% of overall COGS. So there are some private brand stuff that we will land that we've included into our guidance in terms of what we expect from margin hit on in that. You know, the bigger unknown I would just highlight is it's hard to assess every single downstream impact from a tariff that flows through our vendors and ultimately it's going to flow through to the end consumer.

Ryan: Specifically on tariffs I guess, what are you including in your guidance.

Matt Koranda: So great question Ryan we've included.

Ryan: Some of the.

Ryan: Okay.

Ryan: Expected cost increase from what we do source from some other countries that may be impacted from tariffs.

Ryan: I'll just make sure that we understand that's a very small part of the business.

Ryan: Less than 2% of overall Cogs.

So there are some private brand stuff that we will land that we've included into our guidance in terms of what we expect from margin hit.

Ryan: In that.

Ryan: The bigger unknown I would just highlight is it's hard to assess every single downstream impacts from the tariff.

Ryan: Close to our vendors and ultimately it's going to flow through to the end consumer. So that is a process, where we actively are assessing that on a constant basis and working with our vendors to make sure we understand all impacts on their supply chain and how it can flow through ultimately to Sportsman's and then flow to the <unk> what that means for the end consumer I would just add I think we did a good.

Jeffrey White: So, that is a process where we actively are assessing that on a constant basis and working with our vendors to make sure we understand all impacts on their supply chain and how it can flow through ultimately to sportsman's and then flow to the end. What that means for the end consumer.

Paul Stone: I would just add, I think we did a good job of getting ahead of it, in particular in camp and wanting to be ready as we got to April. And we pushed some stuff in December and January as we were monitoring inventory, knowing we could take more in, take it in early. That camp, as we, and with the high product label penetration, that we were able to get those, get the containers in before we were able to fill any, anything from the tariff, which I think got us ahead of the curve this year as we go into.

Ryan: We are getting ahead of it in particular in camp and wanting to be ready if we got to April and we push some stuff in December and January as we were monitoring inventory, knowing we could take more and take it in early.

Ryan: Camp as we and with the high privately.

Ryan: Private label penetration that we were able to get those get the containers and before we were able to fulfill any anything from the tariff, which I think got US ahead of the curve. This year as we go into it.

Ryan: Very good.

Ryan Sigdahl: Very good.

Jeffrey White: One store opening this year, as you evaluate the portfolio, are there any stores that are not four wall positive contributors that could potentially make sense to optimize the store footprint the other way? Yeah, it's a great question. It's one that we've gotten on a frequent basis. I would say that, yes, we do have stores that on a four wall basis are not contributing positive EBITDA, but in totality, the stores that aren't contributing do not amount to a material amount of dollars. So, as you look at your portfolio and you assess trying to exit those leases, there are costs to exit a lease that far exceed what your loss is on an annual basis.

Ryan: One store opening this year.

Speaker Change: As you evaluate the portfolio are there any stores that are not four wall positive contributors that could potentially makes sense to optimize the store footprint the other way.

Speaker Change: Yes, it's a great question and it's one that we've gotten on a frequent basis I would say that yes, we do have stores, but on a four wall basis are not contributing positive EBITDA, but in totality of the stores that aren't contributing do not amount to a material amount of dollars. So.

Speaker Change: As you look at your portfolio and you assess trying to exit those leases there are costs to exit a lease that far out are far exceed what your losses on an annual basis. So.

Jeffrey White: So, you know, Paul and I have gone through that process in 2024. We looked at the ability for us to do that. I would say for the time being, we're putting those stores on life support and you're making sure that you execute on your strategy and see if you can't. Bring them up from there. As we go through lease renewal in the future, we will look at the profitability of stores coming up for renewal and exit stores that may not be profitable or may not be in good locations. If the center has become dilapidated or blighted, some of those areas may call for us to exit that location and choose to relocate or, you know, not kind of absorb the demand into neighboring stores.

Speaker Change: Paul and I have gone through that process in 2024, we looked at the ability for us to do that I would say for the time being we're putting those stores on life support and Youre, making sure that U S.

Execute on your strategy and see if you can't bring them up from there as we go through lease renewals in the future. We will look at the profitability of stores coming up for renewal and exit stores that may not be profitable or may not be in good locations.

Speaker Change: The center has become dilapidated or blighted some of those areas may call for us to exit that location and choose to relocate or.

Speaker Change: Kyle.

Speaker Change: Absorb the demand into neighboring stores. So that is that's a process that's always ongoing.

Jeffrey White: So that is a, that's a process that's always ongoing.

Speaker Change: Last one for me just free cash flow positive.

Ryan Sigdahl: Last one for me, just free cash flow positive. Is that assuming stable inventory? Are you assuming some positive working capital within that state? We will feel comfortable with being able to generate positive free cash flow with stable year-over-year inventory. I will reiterate though, there is opportunity still in inventory in the working capital that we have invested.

Speaker Change: Is that assuming stable inventory or are you assuming some positive working capital within that statement.

Speaker Change: We will feel comfortable with being able to generate positive free cash flow was stable year over year inventory.

Speaker Change: I will reiterate though there is opportunity still in inventory and the working capital that we have invested there.

Speaker Change: Very good thanks, guys. Good luck.

Ryan Sigdahl: Very good. Thanks, guys. Good luck. Thank you.

Speaker Change: Thank you.

Speaker Change: And our last question will be from Justin <unk> from Baird. Please proceed.

Justin Kebler: And our last question will be from Justin Kebler from Baird. Please proceed. Hey, good afternoon, guys. Thanks for taking the questions. Just a few follow ups. First on tariffs.

Speaker Change: Hey, good afternoon, guys. Thanks.

Thanks for taking the questions just a few follow ups first on tariffs.

Jeffrey White: Jeff, could you just frame what percentage of your overall cost of goods are imported, you know, either by you, which we know is very low, or your vendors? And are you guys seeing any of your vendors that import already trying to push through any cost Yeah, Justin, from a private brand brand perspective, and from what we source and ship ourselves, it's less than 2% of COGS. So it's really a small amount. You know, the thing about our industry on the vendor side, we have a lot of domestic manufactured product, if you look at the highest penetration category of our industry.

Speaker Change: Jeff could you just frame what percentage of your overall cost of goods are imported either by.

Speaker Change: Bayou, which we know is very low.

Speaker Change: Your vendors and are you guys seeing any of your vendors that import already China to push through any any cost increases.

Speaker Change: Yes, Justin from a private brand perspective, and from what we source and ship ourselves that's less than 2% of Cogs. So it's really a small amount.

Speaker Change: The thing about our industry on the vendor side, we have a lot of domestic manufactured product. If you look at the highest penetration category of our industry.

Speaker Change: But.

Jeffrey White: But again, what the assessment you have to do is where are they sourcing their goods from? Where do raw materials come from? How do steel and aluminum tariffs start impacting ultimate supply chains? Those are the areas where you can get really detailed. We have not seen significant proactive price increases driven by the call out of tariffs to this point. That's not to say that we won't see that or it couldn't happen, but we have not seen a vendor come to us and make a pronounced statement that we're seeing a significant cost increase on the buying side because of tariffs to this point.

Speaker Change: Again.

Speaker Change: The assessment you have to do is what where are they sourcing their goods from where the raw materials come from.

Speaker Change: How do steel and aluminum tariffs start impacting ultimate supply chain. Those are the areas, where you can get really detailed we have not seen significant proactive.

Speaker Change: Price increases.

Speaker Change: Driven by the callout of tariffs to this point, that's not to say that we won't see that or couldnt happen, but we have not seen a vendor come to us and make a pronounced statement that we're seeing a significant cost increase on the buying side because of tariffs to this point.

Speaker Change: Perfect. That's very helpful. And then a follow up on the E Com business you mentioned.

Justin Kebler: Perfect. No, that's very helpful.

Jeffrey White: And then follow up on the e-com business you've been just over 17% penetration. How is the... The mix of that business fulfilled, you know, by the store today versus being shifted. from from D.C. and then just any color and how the profit model for the Omni business. may be involved here over the past few years. Yeah, so in terms of what's fulfilled from the store, over 75% of our e-com demand business is fulfilled at a location, meaning it's a buy online, pick up in store item. So that is something that's truly unique about our business is the e-com and store footprint truly work as an omni-channel platform.

Speaker Change: Just over 17% penetration how is the.

Speaker Change: The mix of that business fulfilled by the store today versus being shift.

Speaker Change: From from D. C. And then just any color on how the profit model for the omni business as well.

Speaker Change: Has maybe evolved here over the past few years.

Speaker Change: Yes.

So in terms of what's fulfilled from the store.

Speaker Change: Over 75% of our E comm demand business is fulfilled at a location, meaning get the buy online pickup in store items. So that is something that's truly unique about our business is the E com and store footprint truly work as an omnichannel platform.

Jeffrey White: As we look at the data, we won't say it publicly, but I can tell you that the amount of profitability driven from the e-commerce channel that impacts the store. So the amount of profitability that's driven into the store because of those buy online, pick up in store items is significant. So it is a very unique business model where we truly do have an omni-channel platform where the e-com channel supports the stores and the stores support the e-com channel, and they work cohesively together to drive profitability. So really happy with the progress that's made there and how just integral it's become into the business.

Speaker Change: As we look at the data we haven't we won't say it publicly but I can tell you that the amount of profitability driven from the E Commerce channel that impacts the store so the amount of profitability thats driven into the store because of those buy online pickup in store items is significant so it is a very unique business model where.

Speaker Change: We truly do have an omnichannel platform, where the E com channel support the stores in the store support the E Com channel and they work cohesively together to drive profitability, So really happy with with the progress that's made there and how just integral it's become into the business.

Paul Stone: Yeah, I mean, a large percentage of all of our firearm sales start online. And then I think, as Jeff said, this is a true omni-channel experience. I think the moat that we have is the ability to have that high of a percentage to be able to come into the store and us to be in a position with our outfitters to create a true experience and not be transactional as we go through it. But to really be able to surprise delight and to be able to help upsell the needs that they're looking forward to go with the merchandise are coming to the store for.

Speaker Change: A large percentage of of all of our firearm sales start online and then I think as Jeff.

Speaker Change: This is a true omnichannel experience I think the moat that we have an ability to have that higher percentage to be able to come into the store and us to be in a position with our outfitters to Cree.

Speaker Change: Create a true experience and.

Speaker Change: And not be transactional as we go through it but to really be able to surprise and delight and to be able to help sell the needs that they are looking forward to go with.

Speaker Change: The merchandise or coming to the store I think we'll continue to lean on and foot traffic driver first store and it gives us the ability to be able to increase <unk>.

Justin Kebler: So, I think we'll continue to lean on it. It's a traffic driver for a store and it gives us the ability to be able to increase AOV and UPT. Yep, no, that makes sense, Paul. Thank you for that.

And <unk>.

Speaker Change: Yes, it makes sense Paul Thank you for that and last question just.

Jeffrey White: And last question just on The Gross Margin Outlook, Jeff, I don't know if you could put a finer point on what modest means. It seems like to me the midpoint of guidance. would imply something, you know, closer to 100 basis points of expansion. To me, that's more than modest. So just. Hoping you can maybe fact check my math on that and give us a maybe a more detail on how much gross margin expansion you're expecting in 25. Yeah, Justin, while I haven't provided gross margin guidance, I will tell you that as we lean into our pillars into what Paul talked about, making sure that we're in stock on our core goods in fish and hunt is overall accretive to gross margin.

Speaker Change: Non.

Speaker Change: The gross margin outlook, Jeff I don't know if you could put a finer point on what modest means.

Speaker Change: It seems like to me the midpoint of guidance would imply something closer to 100 basis points of expansion to.

Speaker Change: To me Thats more than modest so just.

Speaker Change: Hoping you can maybe fact check my math on that.

Speaker Change: And give us a.

Speaker Change: More detail on how much gross margin expansion, you're expecting in 'twenty five.

Speaker Change: Yes, Justin why haven't provided gross margin guidance I will tell you that as we lean into our pillars and to what Paul talked about making sure that we're in stock on our core goods inefficient Hunt is overall accretive to gross margins. So our focus this year on just ensuring that we're in stock and our core goods.

Jeffrey White: So our focus this year on just ensuring that we're in stock in our core goods, and it's really a small percentage of SKUs that drive a large percentage of revenue, ensuring that we have those and we have the productivity driven by those. There is upside potential in just selling those goods because of one, I mean, one, you don't have to mark it down as frequent because it's a core good. There's less seasonality to it. Two, you're selling it all year round. There are items that you're never out. You always have them in stock. So there's really low seasonality.

Speaker Change: And it's really a small percentage of skus that drive a large percentage of revenue ensuring that we have those and we have the productivity driven by those there is upside potential in just selling those goods because of one I mean, one you don't have to market down as frequent because it's a core good there is less seasonality to it too you are selling it.

Speaker Change: All year round or items that you are never out you always have them in stock. So there is really low seasonality you have less markdowns on the backend.

Jeffrey White: You have less markdowns on the back end. And then in the items where we are seasonal, we have created a much cleaner in and out cycle to where we know that we're in seasons and out of seasons quickly, and we don't have to bear the burden of carrying those goods and taking significant markdowns. So I framed that all up. While I'm not giving guidance, there's a lot of opportunity just in going back to the basics of Sportsmans Warehouse and ensuring these in stocks that provides the upside potential you're talking about. I think the improved productivity, if we think about that and the focus on the core, is significant for us.

Speaker Change: And then in the items, where we are seasonal we have created a much cleaner in and out cycle to where we know that we're in season and out of season as quickly and we don't have to bear the burden of carrying those goods and taking significant markdowns. So I frame that all up I am not giving guidance. There is a lot of opportunity just in going back to the basics of Sportsman's warehouse and ensure.

Speaker Change: These in stocks that.

Speaker Change: The upside potential you are talking about I think they improved productivity as we think about that and the focus on the quarter, but.

Paul Stone: And then the other component is that we're just going to be methodical about being able to get into season, take the marks when we need to take the marks and be out of that merchandise. And historically, we've held on to it and just, you know, I think cramped would be an understatement. Our working capital to be able to put into the goods that really matter to the customers. So, as important as we're measuring in stock percentages daily on our core goods is to be able to get into a season. Where are we at as we start the season?

Speaker Change: Significant for US and then the other component is that we're just going to be methodical about being able to get into the season.

Speaker Change: Take the marks when we need to take the marks and beyond of that merchandise and historically, we've held onto it.

Speaker Change: <unk>.

Speaker Change: I think cramped would be an understatement, our working capital to be able to put into the goods that really matter to the customer so as important as we're measuring in stock percentages daily on our core goods is to be able to get into a season, where we add as we start the season, where we ought to be able to measure what's fell through looks like be able to hit our strike price.

Justin Kebler: Where are we at to be able to measure what sell through looks like? Be able to hit our strike price and to be able to get out and clean those goods versus carrying it. So, I mean, it's equal to focus on the core to improve returns overall for the organization. And then us looking at getting in the season and truly getting out of the season versus getting in late and carrying it all year. It's a pretty simple matter. All right, guys. Well, thanks for all the perspective. Appreciate it. Best of luck.

Speaker Change: To be able to get down and clean those goods versus carrying it so.

Speaker Change: It's equal focus on the core to improve returns overall for the organization and then us looking at getting into the season and truly getting out of the season versus getting in late and carrying it all year.

Speaker Change: Pretty simple math.

Speaker Change: Hi, guys. Thanks for all the perspective appreciate it best of luck.

Operator: Thanks, Jeff. Thank you.

Speaker Change: Hey, Justin.

Speaker Change: Thank you and with that we conclude our Q&A session I will turn it back to Paul for final remarks.

Paul Stone: And with that, we conclude our Q&A session and I will turn it back to Paul for final remarks. Thank you for joining the call today, and thank you to all our passionate outfitters around the country for their commitment to Sportsmans Warehouse. Together, we look forward to providing our customers with great gear and great service. Thank you. Thank you all for participating in today's program.

Paul: For joining the call today and thank you to all our passionate outfitters around the country for their commitment to Sportsman's warehouse together, we look forward to providing our customers with great care and great service. Thank you.

Paul: Thank you for participating in today's program and you may now disconnect.

Operator: You may now disconnect.

Paul: Okay.

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