Sportsman's Warehouse Q2 2025 Earnings Call: Contradictions in Inventory Strategy, Tariff Impacts, and Margins

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $293.9M, up 1.8% YOY
• EPS: $-0.18 per diluted share, compared to $-0.16 in the prior year
• Gross Margin: 32%, up 80 bps YOY; ~40 bps drag from freight due to inventory pull-forward

Guidance:

• FY2025 net sales outlook raised at the low end to flat YOY; range now 0% to +3.5%.
• Adjusted EBITDA reiterated at $33M–$45M.
• Capex reiterated at $20M–$25M (tech, store service/merch productivity, maintenance).
• Expect positive free cash flow for FY2025.
• Year-end inventory expected below prior-year level; Q2 was peak; slight sell-down in Q3.
• Debt expected to decline in 2H as EBITDA improves and inventory sells down.
• Modest gross margin improvement assumed; potential tariff-related headwinds considered.

Business Commentary:

* Sales and Market Performance: - Sportsman's Warehouse reported a 1.8% increase in net sales to $393.9 million for Q2 2025, marking their second consecutive quarter of sales growth. - The growth was driven by strong performance in hunting and shooting sports (up 4%) and fishing (up 10.9%), while camping sales declined by 10%. - This sales momentum was supported by strategic localization of merchandise and geotargeted marketing, particularly in regions like Alaska.

• Inventory and Strategic Positioning:
• Total inventory at the end of Q2 was $443.5 million, a significant increase compared to $363.4 million in the same period last year.
• This strategic decision aims to ensure well-timed inventory readiness for key hunting seasons, with a focus on depth in core, seasonally relevant items.

• The company anticipates ending the year with lower inventory levels than the previous year, aligning with their goal of reducing working capital investment.

• Firearms and Ammunition Market Share:

• Despite a decline in adjusted NICS checks by 4.9%, unit sales of firearms at Sportsman's Warehouse increased by more than 4% compared to the previous year.

• This outperformance is attributed to capturing market share due to strategic merchandising and marketing efforts, particularly in aligning with local outdoor pursuits and solution selling.

• Personal Protection Category Expansion:

• Sportsman's Warehouse has expanded the personal protection category, including the launch of TASER and Byrna products, which are resonating with customers.
• This expansion is driven by increasing consumer interest in less lethal and self-defense products, and the company expects significant growth in these segments in the back half of the year.

Sentiment Analysis:

• Same-store sales up 2.1% YOY (second straight positive quarter); e-commerce +3%. Gross margin 32%, up 80 bps. Net loss of $7.1M (-$0.18/share) vs -$5.9M last year. Raised low end of FY25 sales outlook to flat (range up to +3.5%), reiterated EBITDA $33–$45M and capex $20–$25M, expect positive FCF and lower year-end inventory. Management cited macro headwinds and possible tariff-driven margin pressure.

Q&A:

• Question from Anna Glaessgen (B. Riley Securities): What drove the positive comps and how durable is growth as out-of-stock benefits ease into 2026?
  Response: Focus on hunt/shoot, fishing, and personal protection plus better in-stocks drove comps, with momentum continuing into Q3; attachment and inventory mix optimization provide runway.

• Question from Anna Glaessgen (B. Riley Securities): What are the margin puts/takes implied in the back half?
  Response: Mix shift to lower-margin hunt (firearms/ammo), fading fish penetration, and typical Q4 promotions will pressure rate despite underlying improvements.

• Question from Matt Koranda (ROTH Capital Partners): How did demand trend in August and how do you feel about back-half comps?
  Response: August accelerated versus Q2 (strong NICS); Q3 has a tailwind, while Q4 will be an apples-to-apples digital comp.

• Question from Matt Koranda (ROTH Capital Partners): AOV trends and runway for attachment?
  Response: AOV and UPT are at all-time highs; still early in attachment build-out with significant upside as inventory and add-on assortments expand.

• Question from Ryan Sigdahl (Craig-Hallum Capital Group): Are lethal and non-lethal trends linked, and how are you leaning into non-lethal?
  Response: Non-lethal is attracting new customers; expanding Byrna/TASER presence and store count to grow personal protection alongside firearms.

• Question from Ryan Sigdahl (Craig-Hallum Capital Group): Store portfolio strategy vs. new units?
  Response: Prioritize debt paydown and optimizing existing stores; evaluate closures at lease end; defer new-store growth until balance sheet strengthens.

• Question from Justin Kleber (Baird): Break down comps by transactions vs. ticket?
  Response: Both AOV and UPT are up; strong BOPUS (≈70% of online) is driving in-store traffic and transactions.

• Question from Justin Kleber (Baird): How are tariffs affecting pricing and your outlook?
  Response: Vendor collaboration and heavy MAP exposure provide pricing flexibility; tariffs are considered in the guide, and inventory was pulled forward to mitigate.

• Question from Justin Kleber (Baird): Margin mix vs. freight impact in Q2?
  Response: Rate improved across categories except Hunt; mix (more Hunt, less Camping) pressured margin; freight was a ~40 bps headwind; overall improvement came from higher rates.

• Question from Mark Smith (Lake Street Capital Markets): Elevated inventory—how much was timing/pull-forward and are you set for season?
  Response: Deliberate early build in hunt/fish to be in-stock sooner; plan to sell through and finish the year below last year’s inventory.

• Question from Mark Smith (Lake Street Capital Markets): Consumer behavior in Hunt—promo vs. price points?
  Response: EDLP in ammo and unit gains led the category; firearms AUR down ~4% while units up ~4.2%.

• Question from Mark Smith (Lake Street Capital Markets): Opportunity in suppressors/SBR next year?
  Response: Leaning in now with partners to enable direct-ship in Q4 and capture an expected demand spike in 2026, while limiting working-capital burden.