Sportsman's Warehouse - Earnings Call - Q4 2025

Executive Summary

• Q4 delivered a clean quarter with revenue of $340.4M, gross margin expansion to 30.4%, adjusted EBITDA of $14.6M, and adjusted EPS of $0.04; same-store sales were down just 0.5% (13-week basis), demonstrating continued trend improvement and outperformance vs adjusted NICS in firearms.
• Results beat Wall Street consensus: revenue by ~$11.7M and EPS by ~$0.10; Q3 also beat on both, while Q2 missed EPS but beat revenue*.
• Management guided FY2025 net sales -1.0% to +3.5%, adjusted EBITDA $33–$45M, and CapEx $20–$25M, with emphasis on “narrow and deep” core hunt/fish assortments, local merchandising, personal protection, and omnichannel execution.
• Balance sheet cleanup was a focus: year-end inventory $342.0M, liquidity $131.1M, and net debt reduced; press release cites net debt $95.9M, while CFO later referenced $98.7M, a small discrepancy to monitor.
• Potential stock reaction catalysts: clear beat vs consensus, gross margin recovery, and FY2025 profitability framework with a single store opening in Surprise, AZ, plus category drivers (personal protection and fishing momentum).

What Went Well and What Went Wrong

What Went Well

• Margin recovery: Q4 gross margin rose 360 bps YoY to 30.4% (from 26.8%), as apparel/footwear clearance pressure subsided and merch margins improved.
• Category performance and share gains: Fishing comps +10.3%, camping +5.2%; firearms units up mid-single digits despite adjusted NICS down 4.5%, suggesting share gains and effective attachment selling.
• Inventory discipline and cash generation: seasonal inventory moved cleanly, year-end inventory $342.0M, liquidity $131.1M; focus on using excess cash flow to reduce debt and improve leverage.

Selected quote: “We expect to see a return to comparable same store sales growth… Our strategic edge is that we have the scale to out-assort the local independents, and out-local the big box competitors.” — Paul Stone, CEO.

What Went Wrong

• Demand still pressured: Q4 net sales down 8.1% YoY due to 53rd week comp; on comparable 13-week basis, net sales down 0.9% and same-store sales down 0.5% (reflecting pressured discretionary spending).
• Mix headwinds: consumer trade-down in firearms lowered average unit price, pressuring sales dollars despite unit outperformance; apparel and footwear comps were down (still lapping last year’s clearance).
• SG&A rate elevated: Q4 SG&A at 29.4% of sales (up vs 29.0% LY) though dollars fell $7.3M; ongoing need to balance service investments with cost control.

Transcript

Operator (participant)

Hello everyone and welcome to Sportsman's 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 one one on your telephone, and you will hear a message advising your hand is raised. To withdraw your question, simply press star one 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. Now, it's my pleasure to turn the call over to the Vice President of Investor Relations, Riley Timmer. The floor is yours.

Riley Timmer (VP of Investor Relations)

Thank you, Operator. 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. We will also disclose non-GAAP financial measures during today's call.

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

Paul Stone (CEO)

Thank you, Riley, 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 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 omnichannel 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. 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 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. 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. 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.

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's 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 a liquidity of $131 million, an increase of $40 million compared to the end of last year.

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 digits. 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. 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 shop for the holiday. With inventory now in a much better position, we can make the necessary strategic buys that 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, e-com driven sales once again comp positive, up double digits in the quarter.

More effective marketing and an improved user experience drove higher 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. 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 Sportsman's 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%. 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. We can out-assort the local independents and out-local the big-box competitors. 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 levels in the 20% of key products that drive 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 have 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. Going forward, we've narrowed our assortment focus 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 comping double digits by being ready and regionally right for the start of spring fish.

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. Historically, we have not provided the local autonomy to successfully merchandise those stores. This year, we are already set for spring with local brands and products that the customer expects when shopping our stores. Number three, become the authority in 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. 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 and key items for range shooting.

Finally, we signed an exclusive store-in-store partnership agreement with Byrna 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 Byrna's strong base of influencers. Four, strengthen our brand awareness. The core of our business strategy is positioning Sportsman's 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. 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-bet promotions that capture customer demand. Through this strategy, we will strengthen our brand presence, increase transactions, and reclaim share in our core markets. Sitting underneath these four strategic initiatives is the continued strengthening of our infrastructure. For example, we are in the early phases of operating Blue Yonder. This will assist in our improved management of inventory as we define the tools 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. With that, I'll now turn the call over to Jeff.

Jeff White (CFO)

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.

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. This is a department where we made significant improvements to our in-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. 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 margins significantly. 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. 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. 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 $0.53 per diluted share. 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. 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. Compared to the end of the third quarter, inventory is down nearly $96.1 million.

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 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. 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 expectations. 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 paydown as our primary use of free cash flow until we reduce our leverage ratio. Turning now to our guidance. Starting with our net sales outlook, we estimate fiscal 2025 net sales to be in the range of -1% to 3.5% over last year.

Through our improvements to core product in-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-$45 million. We will accomplish this through continued management of our variable expenses and modest improvement in our gross margin. We expect CapEx for 2025 to be between $20 million 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 in 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. That concludes our prepared remarks today. I will now turn the call back to the operator to facilitate questions.

Operator (participant)

Thank you so much. As a reminder, to ask questions, simply press star one one on your telephone and wait for your name to be announced. To remove yourself, press star one one again. One moment for our first question. Comes from the line of Matt Koranda, ROTH Capital. Please proceed.

Matt Koranda (Analyst)

Hey, guys. Good afternoon. Maybe just it's encouraging to hear that the comps flip positive for the back half of the quarter.

I'm curious to hear maybe year-to-date how they've trended through February and March. I know you mentioned in the prepared remarks that you outperformed NICS in February. Were you seeing positive sales in February as well from firearms and ammunition? Maybe just start there.

Jeff White (CFO)

Yeah, Matt. Thanks for the question. This is Jeff. As we've moved into 2025, we're seeing encouraging trends as we continue to focus on the pillars that Paul laid out. For the month of February, I would say we are seeing a continuing comp positive from what we saw in January. As we've moved into March, the one 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.

I think there's a shift that's occurring there, but we saw really good trends through February.

Matt Koranda (Analyst)

Okay, great. Maybe just cadence of the year. I know we're talking about a flip to positive comps for the full year. 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 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 comps and then store opening timing. Maybe just nice to see you get back to some store growth. Could you talk about sort of the timing of the one store that you guys plan to open?

Jeff White (CFO)

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. I do think Q1 is going to feel the pressure of that later start. 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 and Q2, and then rounding out Q4 as we just are better with our merchandising. I think we see more upside Q2, Q3, and Q4 than we do Q1 with just the shift of the holiday. 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'd pencil that kind of end of Q3, beginning of Q4 timeframe.

Matt Koranda (Analyst)

Okay, got it. Maybe just one more if I could 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. Maybe just help us understand sort of how much opportunity there is there as we kind of build out sort of conversion to free cash flow models here.

Jeff White (CFO)

Yeah, 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 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.

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. I think that changes the flow of inventory a little bit. There are going to be different peaks and 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 at.

Paul Stone (CEO)

That was just that, Matt. I think, I mean, we had a huge opportunity around hunt last year.

It felt like this quarter-to-quarter plane as we were looking at working capital, we had it. 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 hunt and then go through the holidays. I think you're spot on. I mean, the efficiency of our inventory is a big North Star here as we think about what we can do and how we're seeing the productivity of the core goods today.

Matt Koranda (Analyst)

Thanks, guys. I'll turn it over to others.

Jeff White (CFO)

Thanks, Matt.

Operator (participant)

Thank you. Our next question is from Anna Glaessgen with B Riley Securities. Please proceed.

Anna Glaessgen (Analyst)

Thanks. Good afternoon, guys. I would love to start on the trade down you noted in firearms.

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've historically gained market share? Is that something we should be contemplating as an opportunity in 2025?

Jeff White (CFO)

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. 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 customer's gravitating towards. 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 what we would attribute to why we outperformed NICS in Q4 and we continue to do so. As we think about that trade down, while the average unit 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. 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.

Anna Glaessgen (Analyst)

Thanks. Going back to the commentary on the call, you noted that there's a really high penetration among gun owners and the broader demand of the category within personal protection.

I think you said something like 72%. Could you give us 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?

Paul Stone (CEO)

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. I think as we look at this going forward, we have a huge opportunity to be able to look at it both from a lethal and a non-lethal standpoint. The relative mix is right at the 25% mark around personal protection, the way that we classify it today. Like I said earlier, it's primarily handguns and the ammunition for the handguns. That represents a disproportionate amount of our business.

We have 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. We are very bullish knowing that this is a 12-month, 365-day year opportunity for us to be able, if we are not in a micro-season growing fish and hunt, that we have an opportunity to be able to tell a story around personal protection.

Anna Glaessgen (Analyst)

Got it. One more, if I could. I want to go back to Matt's kind of line of questioning around March. From other retailers, we have heard that tariff news and other headlines, if not directly impacting the categories, has broadly impacted the consumer. It seems that you are attributing kind of a slower environment to kind of calendar shifts rather than a consumer slowdown.

I guess just expanding on that, have you seen any change in consumer behavior around these headlines?

Jeff White (CFO)

I don't think around the headline of tariffs, we've seen consumer behavior change. On the firearm side, we'd mentioned that we're seeing a reduction in the average unit of retail there. And we've been seeing that throughout 2024. I don't think that's something new to us. In terms of tariffs, we made some proactive moves. It's a very small portion of our business from a private brand perspective that has exposure to tariffs. We pulled forward some receipts earlier in the year to offset that. 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. This year, we're running them mid-March, beginning of April. There is a significant shift in some of our biggest ads. We're attributing it to that because those ads now have kicked off and we're confident in the trends that we're seeing.

Paul Stone (CEO)

Yeah, and we just shoot that around. Both Fish and our spring shooting event are two huge spring events. 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 in the middle of the queue last. As we come into April, 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. The shift was strategic around basing everything on Easter.

Anna Glaessgen (Analyst)

Great. Thanks.

Operator (participant)

Thank you. Our next question comes from Mark Smith with Lake Street. Please proceed.

Mark Smith (Analyst)

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? If so, do you feel like you either are or will be inventoried in the right way to kind of hit that trend?

Jeff White (CFO)

Yeah. Mark, thanks for the question.

I would call out one thing that we've kind of adopted is there's certain types of ammunition 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. 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. 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.

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 put a lot of work into the stores making sure we have the right merchandise. When we get them in the door, we see a good attach rate and we see good units per transaction with a high average order value in the transaction.

Paul Stone (CEO)

I would just add, Mark, I mean, the work we did on everyday low price on the ammo piece to ensure that the nine or ten ammo SKUs that drive a disproportionate amount of our overall ammo business was when we got to EDLP, we were able to see a significant uptick in what the performance looked like there. As we think of fish, I think rod and reel combos have been on fire.

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. We've clearly seen that in a big way. We're positioned well from an inventory standpoint.

Mark Smith (Analyst)

Okay. As we think about kind of add-ons and consumables, especially in that kind of back-of-the-house firearm shooting sports segment, any commentary around kind of what you've seen within ammunition? It sounds like you're seeing good accessory sales, especially as kind of add-ons with a firearm purchase. Any additional insights into what you're seeing outside of guns kind of in the back of the store would be great.

Jeff White (CFO)

Yeah. As you think about what we're adding on, it's really focusing on right now, it's going to be heavily focused on personal protection.

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. They don't have to worry about dealing with a claim or a cleaning or a scope mounting on that item. 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 use those ancillary services.

Paul Stone (CEO)

I think just, I mean, looking at FSPs have been a significant uptick. I think, like Jeff said, the value of it is great.

Also, as we look at even the key 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 into three key partners around the base and rings and allowing us and our outfitters to be able to go to work to attach and to be able to create a complete package.

Mark Smith (Analyst)

Perfect. Last one for me, and I apologize if I missed it in the commentary, but e-comm, did you guys quantify mix or kind of where growth within kind of e-comm channel in the quarter?

If not, anything you can give or any insights into kind of how that business is trending?

Jeff White (CFO)

Yeah. We did not quantify specifically. It was an area that comped double-digit positive for the quarter. E-comm is trending greater than 17% of the overall business. In terms of categories that we are continuing to see in growth, I would say for the most part, it was across all categories, but heavily weighted in firearms as well. That is an area where you can offer an entire SKU catalog. As we have really dialed in our in-stocks, making sure, again, that we are 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 are seeing opportunity and continued success as we have moved into 2025.

Mark Smith (Analyst)

Perfect. Thank you, guys.

Operator (participant)

Thank you.

Our next question is from Ryan Sigdahl with Craig Hallum. Please proceed.

Ryan Sigdahl (Analyst)

Hey, good afternoon, guys. Specifically on tariffs, I guess, what are you including in your guidance?

Jeff White (CFO)

Great question, Ryan. We've included some of 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. It's less than 2% of overall COGS. 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 in that. 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 is going to flow through to the end consumer.

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 Warehouse and then flow to what that means for the end consumer.

Paul Stone (CEO)

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. 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 private label penetration that we were able to get those, get the containers in before we were able to fill anything from the tariff, which I think got us ahead of the curve this year as we go into it.

Ryan Sigdahl (Analyst)

Very good. 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?

Jeff White (CFO)

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.

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. 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. 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 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.

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 not kind of absorb the demand into neighboring stores. That is a process that is always ongoing.

Ryan Sigdahl (Analyst)

Last one for me, just free cash flow positive. Is that assuming stable inventory or are you assuming some positive working capital within that statement?

Paul Stone (CEO)

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 and the working capital that we have invested there.

Ryan Sigdahl (Analyst)

Very good. Thanks, guys. Good luck.

Operator (participant)

Thank you. Our last question would be from Justin Kleber from Baird. Please proceed.

Justin Kleber (Analyst)

Hey, good afternoon, guys. Thanks for taking the questions. Just a few follow-ups.

First, on tariffs, Jeff, could you just frame what percentage of your overall cost of goods are imported either by you, which we know is very low, or your vendors? Are you guys seeing any of your vendors that import already trying to push through any cost increases?

Jeff White (CFO)

Yeah. Justin, from a private brand perspective and from what we source and ship ourselves, it's less than 2% of COGS. It's really a small amount. 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. 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 callout 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.

Justin Kleber (Analyst)

Perfect. No, that's very helpful. Then follow-up on the e-comm business. You mentioned, I think you said, just over 17% penetration. How is the mix of that business fulfilled by the store today versus being shipped from your DC? Just any color on how the profit model for the omni business has maybe evolved here over the past few years.

Jeff White (CFO)

Yeah.

In terms of what's fulfilled from the store, over 75% of our e-comm demand business is fulfilled at a location, meaning it's a buy-online, pick-up-in-store item. That is something that's truly unique about our business, as the e-comm and store footprint truly work as an omni-channel platform. 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 impacts the store. The amount of profitability that's driven into the store because of those buy-online, pick-up-in-store items is significant. It is a very unique business model where we truly do have an omni-channel platform where the e-comm channel supports the stores and the stores support the e-comm channel. They work cohesively together to drive profitability.

Really happy with the progress that's made there and how just integral it's become into the business.

Paul Stone (CEO)

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 for to go with the merchandise they're coming to the store for. I think we'll continue to lean on it.

It's a traffic driver for our store, and it gives us the ability to be able to increase AOV and UPT.

Justin Kleber (Analyst)

That makes sense, Paul. Thank you for that. Last question, just on the gross margin outlook. Jeff, I do not know if you could put a finer point on what modest means. It seems like to me the midpoint of guidance would imply something closer to 100 basis points of expansion. To me, that is more than modest. Just hoping you can maybe fact-check my math on that and give us maybe more detail on how much gross margin expansion you are expecting in 2025.

Jeff White (CFO)

Yeah, Justin, I have not 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 in fish and hunt is overall accretive to gross margin. Our focus this year on just ensuring that we're in stock in our core goods. 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, 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. There's really low seasonality. You have less markdowns on the back end.

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 do not have to bear the burden of carrying those goods and taking significant markdowns. I framed that all up. While I am not giving guidance, there is a lot of opportunity just in going back to the basics of Sportsman's Warehouse and ensuring these in-stocks that provide the upside potential you are talking about.

Paul Stone (CEO)

I think the improved, I mean, productivity, if we think about that and the focus on the core, is significant for us. The other component is that we are 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. Historically, we have held on to it.

I think trapped would be an understatement, our working capital to be able to put into the goods that really matter to the customers. 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? 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? I mean, it's equal to focus on the core to improve returns overall for the organization. Us looking at getting into season and truly getting out of the season versus getting in late and carrying it all year. It's pretty simple math.

Justin Kleber (Analyst)

All right, guys. Thanks for all the perspective. Appreciate it.

Best of luck.

Thanks, Justin.

Operator (participant)

Thank you. With that, we conclude our Q&A session, and I will turn it back to Paul for final remarks.

Paul Stone (CEO)

Thank you for joining the call today. 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 gear and great service. Thank you.

Operator (participant)

Thank you all for participating in today's program. You may now disconnect.