Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) Q3 2023 Earnings Call Transcript

Sportsman’s Warehouse Holdings, Inc. (NASDAQ:SPWH) Q3 2023 Earnings Call Transcript December 6, 2023

Sportsman’s Warehouse Holdings, Inc. beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.11.

Operator: Greetings, and welcome to the Sportsman’s Warehouse Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Riley Timmer, Vice President of Investor Relations. Thank you. Riley, you may begin.

Riley Timmer: Thank you, operator. Participating with me on the 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. Those are 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: Thank you, Riley, and good afternoon, everyone. It’s an honor to be here, and I’m excited to lead the Sportsman’s Warehouse team as the next CEO. As one of the leading specialty outdoor retailers, I look forward to partnering with our more than 5,000 dedicated associates across the organization for what I believe is a very promising future. The mission of Sportsman’s Warehouse is clear: we provide outstanding gear and exceptional service to inspire outdoor memories. This is the core of who we are as a retailer and one of the key reasons why I chose to join and lead this great company. During my time with the competing large outdoor retailer, I quickly learned that all those who participate in the outdoor share a passion that is unmatched.

When one of our customers walk through our doors, they expect to talk with someone knowledgeable and feel their passion for the outdoors, whether it be hunting, fishing, or camping. As a company who prides itself on having that local, homegrown image and feel, it’s critical that we serve our customers with vigor and passion. We will continue to build on being the outdoor company of choice, not for retail theatrics, but for the value, the deep assortment and the absolute unmatched service we provide. Looking now at our Q3 results. Sales for the quarter came in above our stated expectation, led by our hunting and shooting sports category. However, the difficult microenvironment continues to pressure consumer discretionary spend, creating a continued headwind for the business.

While there were some bright spots in our hunting and fishing categories during the months of August and September, soft sales trends persisted during these two months of Q3. In early October, unfortunate world events resulted in sales improvements in our shooting sports category, which was the key contributor to our beat of expectations. While we are in no doubt faced with some short-term challenges, the careful execution on the key areas of the company has never been more important. It is critical that we carefully navigate and adjust the business to the current environment. Our objective is to further position the business for a successful future. To that end, during the third quarter, we made significant progress on our short-term initiatives.

The team did a great job executing at a high level of success at each of the key areas, which is reflected in our Q3 results. I’m going to be focused along with the team on a successful closeout of the fiscal year. This includes providing customers with a positive holiday shopping experience and further execution on the following areas of the business: inventory management, specifically the reduction of our apparel and footwear inventory; omni-channel and e-commerce; cost reduction and control measures; and capital allocation priorities. During the third quarter, the team took swift action to address each of these areas with meaningful results achieved. First, in regards to inventory management, we made significant progress through a series of promotions and markdowns to reduce our apparel and footwear inventory.

Starting in early Q3, the team laid out a solid plan to move through this inventory during the back half of the year, and I’m pleased with the progress. However, given the tough micro environment and the deep markdowns we are seeing by competitors, we will be more aggressive in Q4 to move this inventory. These aggressive markdowns will put additional pressure on our Q4 gross margins. It is critical to end the year with healthy inventory so we can invest in the right merchandise that appeals to our core customer. I am pleased that during the quarter we reduced our total inventory and paid down our debt by approximately $20 million versus last quarter, improving our total liquidity. We will continue our plans to refine how we manage inventory across our wide range of locations in order to leverage our strengths in omni-channel and keep our deep assortment of brands locally and seasonally relevant.

Our goal is to continue refining our processes, invest in better tools, and build stronger partnerships with our key vendors to improve the overall customer experience and deepen brand loyalty. Second, e-commerce, which once again outpaced the performance of the overall business in the third quarter and continued to comp positive. This is an area where we will continue to improve our capabilities, evolve our programs, and invest strategically. These are all critical pieces to enable us to leverage our omni-channel platform to drive additional sales and serve more customers outside of our geographic areas. Third, in regards to our cost reduction effort, I am proud of the team for how swiftly they reacted to right-size SG&A costs to our current business trends.

We will continue to closely manage the business, look for areas where we can further reduce expenses, and invest only in areas that are value-add and provide a measurable return on investment. I am proud of our employees for how they reacted to these difficult changes and continued providing passionate service to our customers. And fourth, capital allocation priorities. On November 16th, we opened our final store for 2023 in South Tucson, Arizona. As we look forward on new stores, we reviewed our capital allocation priorities and considered the current macroeconomic conditions and its impact on our sales. Given these conditions, we’ve made the decision not to open any new stores during fiscal 2024. However, as I think about the future for our new store growth for Sportsman’s Warehouse, I do see meaningful opportunity and significant white space across the country.

I believe our unique store size flexibility, which allows us to open stores in areas that our competitors simply cannot, provides us with a distinct competitive advantage. This coupled with the significant white space available leaves new store openings as a significant piece of our in-development long-term growth plans. I am truly excited to be part of Sportsman’s Warehouse as we carefully but swiftly adjust, adapt, and refine our business to the current demands of our passionate customer. As I continue my review of the business and the efficiency and effectiveness of our systems, people and internal processes, it’s critical that we have all the foundational pieces firmly in place to successfully support our stores and the customers we serve.

Having spent nearly 28 years in stores and overseeing operations with a Fortune 1 retailer, spending time in our stores, meeting with our associates and customers is critical. We have a unique company and opportunity. I firmly believe we will make the necessary improvements to grow this company and increase shareholder value. On our year-end earnings call in March, I will provide an update to our shareholders and analysts on the short- and long-term strategy for Sportsman’s Warehouse. The foundation of this company is strong and I’m very excited to be here to lead us through our next evolution of growth. With that, I’ll turn the call over to Jeff.

Jeff White: Thank you, Paul. I’ll begin my remarks today with a review of our third quarter fiscal 2023 financial results, then cover our outlook for the fourth quarter of 2023. Net sales for the third quarter of fiscal 2023 were $340.6 million compared to $359.7 million in the third quarter of 2022, a decline of 5.3%. Same store sales decreased 11.4% compared to the third quarter of 2022. In looking at comparable sales by department, our hunting department same store sales were down 10.6% versus last year. Breaking it down further, ammunition comp sales were down 10.6% with firearms down 5.2% in the quarter. While the first two months of Q3 saw pressure from the macroeconomic environment and consumer discretionary spending, sales in early October turned positive in these two categories due to the tragic events that took place in Israel, leading to war and social unrest.

These events led to the majority of our guidance beat on a top- and bottom-line basis for Q3 2023 compared to guidance. Looking now at our other departments. On our last call, we highlighted the need to begin strategically promoting and marking down portions of our apparel and footwear inventory as we move through the second half of this year. I am pleased with our progress. However, we are executing a more aggressive strategy with our promotions during Q4 to ensure that we achieve our planned inventory goals and end the year in a much healthier position. It’s important to note that this is a one-time effort to quickly eliminate non-go-forward brands, styles, and slow-moving inventory that does not resonate with our customer. This will, however, allow us to expand the breadth and depth of the products and brands that our customers are seeking when they shop our stores and websites.

When looking at total apparel sales, we were down slightly at 2.1% versus last year with footwear up 1.8% over the prior year. These were both significantly better than the run rate of the company, given the promotional activity to clear out inventory, but was the main contributor to the 330 basis point decline in gross margins over the prior year. While our fishing department was down 5.8% versus last year on a comparable store basis, trends in this department outpaced our other departments with total fishing sales up 2.7% versus prior year. This is a department where we see future opportunities to capture additional market share and we’ll make strategic investments in inventory going forward. Turning now to our other key items on the P&L.

Gross margin was 30.3% for the third quarter versus 33.6% in the prior year comparable period. Gross margins for the quarter came in as we expected, given the aggressive promotional activity in our apparel and footwear departments as we cleaned up inventory. Lower margins on ammunition compared to last year also contributed to the decline in gross margin as ammo margins have normalized and category inventory is now readily in stock and available. SG&A expense as a percentage of net sales was 29.4% or $100.1 million compared to 28.4% or $102.3 million in the third quarter of last year. While we increased as a percentage of net sales, in absolute dollars, operating expenses were down $2.2 million versus last year, which includes the expenses of 15 additional stores in our fleet.

Last quarter, we laid out a plan to reduce and streamline our operating costs. We made significant progress in our cost-cutting efforts, with payroll and other OpEx down $8.4 million versus Q3 of last year. We will continue to execute on our planned expense cuts and manage our other variable expenses very closely to keep costs aligned with the current trends in the business. Net loss for the third quarter was $1.3 million or negative $0.04 per diluted share compared to net income of $12.9 million or $0.33 per diluted share in the prior-year period. Adjusted net loss in the third quarter of 2023 was $0.2 million or negative $0.01 per diluted share compared to adjusted net income of $13.1 million or $0.34 per diluted share in the third quarter of the prior year.

Adjusted EBITDA for the third quarter was $16.2 million or 4.8% of net sales compared to $27.7 million or 7.7% of net sales in the prior-year period. Turning to our balance sheet and liquidity. Third quarter ending inventory was $446.3 million compared to $485.2 million at the end of the third quarter of 2022. On a per-store basis inventory was down 8% versus last year’s third quarter and 2.4% compared with Q2 2023. We are pleased with the progress made to our inventory in Q3 and we’ll continue to reduce our inventory levels through the balance of the year. Our plan as we move through the end of the year is to reduce our on-hand inventory to a level below $375 million. Regarding liquidity, we ended the third quarter with $185.4 million on our $350 million line of credit and $2.9 million of cash on hand.

We have approximately $111 million available under our credit facility for borrowing. We expect the outstanding balance on our line of credit to end the year below $135 million as we continue to reduce inventory and closely manage expenses. With over $45 million of capital invested in our new store and store refreshes this year, our primary focus in terms of capital allocation heading into 2024 will be the paydown on our line of credit. We will continue to prioritize the best use of capital and will provide more details on this when we announce our strategic plan for 2024 on our year-end earnings call in March. Looking at cash flow for the first nine months of 2023. Cash used in operating activities was $16.6 million versus cash provided by operating activities of $14.5 million for the first nine months of 2022.

The increase in our cash outflows was primarily due to additional inventory for our 15 new stores and a net loss in the first nine months of this year compared to net income during the prior-year nine-months period. Turning now to our guidance. The underlying business continues to see pressure from the difficult macroeconomic environment weighing on consumer discretionary spend and our top-line sales. We will continue our efforts to drive both store and online traffic with additional promotional activities planned for the balance of the quarter. I am pleased at how the team has executed thus far during holiday, and we are seeing positive trends in our inventory reduction efforts and debt paydown, and we’ll end 2023 in a much healthier position.

Now focusing on our fourth quarter guidance. We expect net sales to be in the range of $365 million to $390 million. We expect that our more aggressive promotional activities during the fourth quarter will reduce gross margins between 600 basis points to 800 basis points versus the prior year. Same store sales in the fourth quarter are anticipated to be in the range of down 11% to down 6%, and adjusted EPS for the fourth quarter is expected to be in the range of negative $0.35 to negative $0.25 per diluted share, driven primarily by the reduction in gross margin. This reduction in gross margin will be partially offset as we continue to implement our cost saving initiatives throughout the quarter. As a reminder, the fourth quarter of 2023 will include a 53rd week, which we have included in our guidance.

We anticipate this extra week will add between $14 million and $17 million in additional top-line sales and run at an EPS loss of between $0.04 and $0.06. That concludes our prepared remarks today. I will now turn the call back over to the operator to facilitate any questions.

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Ryan Sigdahl with Craig-Hallum. Please proceed with your question.

Ryan Sigdahl: Hey, good afternoon, guys.

Jeff White: Hey, Ryan.

Ryan Sigdahl: Curious on — you mentioned competitors are promoting as well. Curious how much of that is them trying to reduce inventory into the holiday season. Really a temporary kind of reset, or do you think it’s necessary based on the health of the consumer today?

Jeff White: I think it’s two-fold. I do think that out in the industry, out in retail, we see retailers overstocked and moving through inventory, but also if you look at the health of the consumer as we look at the patterns that we’ve seen from our customer coming into the stores, they are seeking the deals and they are buying the deals and then they’re moving on to their next purchase. So, I think all retailers are seeing that in the industry as we sit here today.

Ryan Sigdahl: Quick one and then I have one more. Was ammo and firearms, were they — did they remain positive in November?

Jeff White: Are you saying — so we saw a nice lift in October from the unfortunate events in Israel. The event-driven demand cycles, as we see them today, are much shorter-lived. So, I would say that that was a short-lived event-driven demand cycle that we saw really benefit October. And then, we’ve returned back to normal consumer behavior in November.

Ryan Sigdahl: Good. Last one for me. Just on the store opening, how much flexibility do you have with none plan in 2024, but did that trigger any one-time terminations of leases and other costs? And are you able to hold any of those locations, basically deferring them until 2025 or later?

Jeff White: As we think about the no new store openings in ’24, we didn’t exit out of any leases that we were in for 2024. We just chose not to execute on signing leases for 2024. So, our pipeline that we have is currently working on the 2025 opening schedule. We were able to keep the deals that we had going working and able to extend them into a 2025 timeline.

Ryan Sigdahl: Great to hear. Thanks, Jeff. Welcome, Paul. Thanks.

Operator: Thank you. Our next question is from Eric Wold with B. Riley Securities. Please proceed with your question.

Eric Wold: Thanks. Good afternoon, everybody. I guess first just kind of a couple follow-up questions on the kind of new store opening or no new store opening guidance for ’24 I guess. Will the decision to kind of restart kind of development and kind of openings in ’25, is that driven solely by your comfort with a balance sheet sometime during ’24, or do you actually need to see sales and margins improve from current trends before you want to open additional store? Here’s another way, are store opening returns still attractive to you at current operating levels?

Paul Stone: Hey Eric, it’s Paul. Yeah, thanks for the question. I think, as we looked at it and we’ve had the discussions over the last 30 or 40 days and trying to build out what the ’24 pipeline looks like, I think we looked at it two-fold. One, the opportunity to pay down debt being a huge focus for the organization. And two, I think us really working on the fundamentals and the details of retail as we continue to move through the inventory and the distressed inventory and to really put focus on with our buying team and being regional and aligning with where we need to be. So, I think it gives us two-fold the opportunity. One, to work on the fundamentals, at the same time, working behind the scenes on real estate for ’25 because we truly think that it’s a competitive advantage we have.

It’s to be able to be in these small markets and open stores. But I think for us, it gives us the opportunity to sell down the distress, get in a much better position from an inventory level with new inventory and buying deep on the 80-20 principle that we have here while we’re working to be able to pay down debt.

Eric Wold: Got it. I guess, I still have one last question there. I mean, is opening a store in the current levels still mature and attractive, or would you actually want to see things improve?

Jeff White: Yeah, Eric, this is Jeff. I’ll tell you that, as we look at the real estate market and the competitiveness in the market, there is a — we’re at an all-time low in terms of retail space availability. So, there are deals being done out there in the market where a few years ago we would have been able to find an attractive location and those deals now are not hitting the hurdles that we expect out of our new stores in terms of productivity. So, for me, focusing on new store productivity, hitting those minimum thresholds of 10% four-wall EBITDA and 20% ROIC is key to our real estate strategy. And as I look at the space and our plan going forward, focusing on those return metrics is going to be key into our real estate strategy.

Eric Wold: Thank you. That’s helpful. And then, without any new stores next year, I guess excluding — if you start building towards the end of year for a store to open ’25, excluding that just what is kind of the CapEx plans for next year? Are you still doing any remodels, upgrades, what kind of maintenance?

Jeff White: Yeah, we’ll have to do normal maintenance. And if you look into the script, I gave a range of what we spent on new stores this year. We’ve invested more than $45 million in new stores and refreshes this year. And then, if you bump that up against the CapEx guidance that I’ve given, that’ll give you kind of an understanding of what normal maintenance CapEx looks like in a year. We’re going to have to maintain the fleet next year. But in terms of big amounts invested in refreshes and new stores, I don’t think you’ll see that coming through the pipeline.

Paul Stone: I do think there’ll be a piece from a technology standpoint as we look at us being able to invest and continue our investment as far as merchandising, planograms, how we operate the stores, and then just for ease for the customer that these are things that we’ll have to invest in. I would just add that to the everyday, day in and day out, CapEx that you would typically have.

Eric Wold: Okay. Final question if I may. I know you mentioned, Jeff, that the aggressive discounting you’ll be doing in the fourth quarter is playing into that 600 basis point to 800 basis point reduction in margins year-over-year. How much of that is kind of one-time from these actions versus maybe structural that needs to continue in the next year?

Jeff White: Eric, that’s a good question. I want to emphasize all of that degradation and margin is relating to this one-time event of us clearing through this inventory We are hitting it very aggressive in the fourth quarter to ensure that we’re clean of it by year-end and we start 2024 in a much better position so we can position Sportsman’s Warehouse for success.

Eric Wold: Perfect. Thank you, guys. Appreciate it.

Operator: Thank you. Our next question is from Mark Smith with Lake Street Capital Markets. Please proceed with your question.

Mark Smith: Hi guys. Just want to follow up a little more in depth on that last question. As we think about the 600 basis point to 800 basis point decline here in Q4 versus 300-plus basis point in Q3, is it really — is it purely just clearing out and finding — getting rid of this excess inventory and apparel and footwear, or how do you compare kind of the holiday Black Friday promotional environment this year versus last year?

Jeff White: Hi, Mark. This is Jeff. That’s a good question. If we look at just the overall holiday environment. I think most retailers are coming out and Sportsman’s included with the issue of driving traffic. So, in order — in effort for us to drive traffic, we’re really focusing on heavily discounting the apparel and footwear, making it known. If you’re subscribed to our advertising campaigns, you’ll see that we’re going to hit it heavily over the next three weeks before Christmas. So, we’re using that as a traffic driver to get people into stores and shopping the other products. So, I’ll frame up again that the 600 basis points to 800 basis points is driven primarily by the reduction in margin in the apparel and footwear that we’re moving through the end of the year.

Mark Smith: Okay. And if you could maybe tell us what percent or how you feel about as of today that you’ve moved through of that inventory and maybe how much it has moved since the end of Q3?

Jeff White: I will say…

Mark Smith: Maybe a different way to look at that is, do you feel like you’ll be done by the end of the year?

Jeff White: We’ve moved through a very good portion of the inventory in Q3. What we have left to move through in Q4 is items that we have to take deeper discounts on, which makes the margin impact more significant than it did in Q3. I was very happy with the team’s execution in Q3 on moving through the clearance apparel and footwear. I’m very pleased with the progress, but the items that we have left over are going to need much deeper discounting in order to move through the remainder of it by the end of the year.

Mark Smith: Okay. And then I think you guys may be called out a little bit within the ammunition category, some margin pressure. Can you walk us through maybe anything that’s going on, just as we look specifically at that? Is that just inventory being back fully stocked and need to move some of that? Or any additional insights into the ammo space would be great.

Jeff White: Yeah, I think the big driver on the margin degradation there is just the supply being fully back in stock. We saw a little bump in ammo during October with some of the demand-driven events, but that was really focused on very specific types of ammunition. Holistically, across the ammo category, we are in a well in-stock position. The manufacturers are pumping it out, and the industry is very well in-stock. So, we’re seeing the pressures from that across the board.

Mark Smith: Okay. And then, Jeff, I think you said — I think you quantified kind of an inventory goal at the end of the year at $375 million. Correct me if I’m wrong. And then, talk about kind of your comfort level of getting there?

Jeff White: Yeah, you’re correct, Mark. It was $375 million. It was somewhere below $375 million if we get specific. I am very comfortable with us hitting that target and achieving that target. There is nothing more important as we think about our year-end strategy than moving through inventory, getting it into a healthy position and getting productivity out of that inventory as we move into 2024. So, as we sit here today, I’m very confident in hitting that target.

Mark Smith: Okay. And the last one for me. Just as we think about cost cutting, SG&A, you guys have done a good job thus far. Maybe just talk about where you’re at in this total program? Are we kind of middle innings, or are we still early? Or if you worked through a lot of this cost cutting so far?

Paul Stone: Hey, Mark. It’s Paul. I’ll take that. As we kind of made this assessment and the work has been done early on as far as efficiency and productivity gains that I think will continue, I mean, to push to simplify the business. And I think as we continue to simplify the business both for the employees, whether they be in the stores, distribution centers here at corporate, that we have an opportunity clearly to continue the momentum that we have from an SG&A. But I think our message is really around simplification of the business. So, we’re going to continue to work at that. So, I would just kind of sum it up by saying we’re not — we think we have a lot of room to go here. And the fact of the matter is that we just want to simplify the business both for the employee and the customer.

Mark Smith: Okay. Thank you.

Operator: Thank you. Our next question is from Mark Herrmann with R5 Capital. Please proceed with your question.

Mark Herrmann: Hey, guys. Thanks for taking my question. Just to dig a little deeper on the promo situation in Q4, and kind of looking back at what happened already, would you say that the activity that you’ve had has been more successful at actually driving new traffic or more at driving attachments for firearms customers who are already coming in store, if you can break that down?

Paul Stone: Yeah. Hey Mark, it’s Paul. I think as we look at it, it’s kind of a mixture of both, but we don’t look at it and say exclusively that it was driving traffic to the store, but I think that the opportunity we had is once we had them in the store with the attractive discounts that was there, that it was able to help on attachment. But I wouldn’t lean if I had to lean more one way, it would be helping us overall from attachments and what it looks like for the items in the basket versus the traffic to the store.

Mark Herrmann: Okay, great. Thanks. And then, kind of looking forward, is there any — can you break down the thought process into, is it geared more towards private label or branded for 4Q? Is it more higher-end versus lower-end goods? And is it limited to apparel and footwear? Are you going to go outside of those areas for the promos?

Paul Stone: Yeah, I think it’s — when the team lined this up and really started at the beginning of Q3 into Q2 and they started this process of cleaning up, it just wasn’t only apparel and footwear. I mean, there was a lot of work done behind the scenes around a lot of different departments from a cleanup, and they moved a lot, lot more. But as we get down to the end here, we have — that’s primarily what we have left and the reason for going deeper to be able to clean up in Q4 and get us to the position we need to be to start the fiscal year clean. I think Jeff said earlier, this is an opportunity. We’ve seen some small wins out there with subcategories where we’ve had really good work from SKU optimization, being able to pull back SKUs, condense where we’re at and get more productivity from less SKUs, and we really like what that looks like.

But I think as we look at this, in most cases, we’re looking at it and saying it’s mostly — it’s not private label that we be looking at it, it’s more name-driven as we think about it.

Mark Herrmann: Okay, good. Thank you. And then just same as kind of Mark’s question and more — another detail. I think you said payroll was down 8.4%. Is that representative of kind of in-store labor if you look at that only? And then, how do you think about how much further that could go before you really start impacting the customer experience that you talked about at the initial part of your presentation today?

Jeff White: Yeah, Mark, that’s a good question. I just want to clarify. I think on a per store — if we were to break down our payroll expense for the quarter, on a per store basis, we were down almost 22% versus prior year. So, we made significant headway in the payroll reduction, right-sizing that line item for what we’re seeing in current business trends. And I will say that that’s where, if we look at the expense cuts, the majority of them were executed on during Q3. As we think about go-forward opportunities, continuing to simplify the business, as Paul stated, I think is front and center in our mind. Whether that be looking at the contracts that we have outstanding, looking at some of our partners in terms of business operations, and then continuing to look at our staffing levels across the organization, not just in the stores, not just the distribution center, but everywhere to make sure that we’re running as efficiently as we can.

Paul Stone: And I think to your earlier point, we want to get ourselves in a position. I think the uniqueness of our brand and really what attracted me to Sportsman’s was the employee base itself and the outfit that connect with the consumer that we have there. And I look at that as a huge opportunity for us to be able to enhance what that experience looks like as we simplify the business. So, I don’t want to put ourselves in a position where we’re, like you said, we’re at critical mass where you’re in a position where you’re hurting yourself more than being able to drive sales. But I think there’s a fine balance there as you look at this, and we’re not going to take sight off of the customer. I think that is going to be the core of all the decisions we make as an organization around the customer.

Mark Herrmann: Great. Thank you.

Operator: Thank you. There are no further questions at this time. I’d like to hand the floor back over to management for any closing comments.

Paul Stone: Thank you for joining the call today, and thank you to all the dedicated employees around the country for their commitment to Sportsman’s Warehouse. Together, we look forward to providing our customers with the best experience and customer service in the outdoor industry. Thank you.

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