John Schaefer - President and CEO Kevan Talbot - CFO Rachel Schacter - ICR.

Seth Sigman - Credit Suisse Stephen Tanal - Goldman Sachs & Co. Peter Benedict - Robert W. Baird & Co. Matt Nemer - Wells Fargo Securities Mark Miller - William Blair & Company Andrew Burns - D.A. Davidson & Co..

Greetings and welcome to the Sportsman's Warehouse First Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host Ms.

Rachel Schacter of ICR. Thank you. Ms. Schacter, you may begin..

Thank you. Good afternoon, everyone. With me on the call is John Schaefer, President and Chief Executive Officer; and Kevan Talbot, Chief Financial Officer. Before we get started, I’d like to remind you of the Company's Safe Harbor language.

The statements we make today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes statements regarding our expectations about our future results of operations, demand for our products and growth of our industry.

Actual future 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 10-K filed with the SEC on April 2, 2015. We will also disclose non-GAAP financial measures during today's call.

Definitions of such non-GAAP measures as well as reconciliation to the most directly comparable GAAP financial measures are provided as supplemental financial information in our press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC today, which is also available on the Investor Relations section of our Web site at investors.sportsmanswarehouse.com.

Now, I’d like to turn the call over to John Schaefer, President and Chief Executive Officer of Sportsman's Warehouse..

we opened two new stores during the first quarter to strong initial results, Spokane, Washington, and Klamath Falls, Oregon. Since then we’ve also opened a new store in Heber City, Utah at the beginning of our second quarter.

We continue to be number one in our peer group on customer service based on a combination of industry sources, illustrating the outstanding performance and dedication of our passionate associates.

As with the fourth quarter, we met each of our financial performance objectives, despite the continued impact of competition in many of our markets and the somewhat more aggressive promotional stands of some competitors, particularly a number of mom-and-pops who discounted firearms fairly aggressively during the quarter.

Ammunition sales were up over the prior year on a same-store basis, which we believe is a positive indicator that stabilization in the firearms category is on its way. Net sales for the quarter increased 9.1% to $144.5 million. Same-store sales declined 0.7% versus the first quarter of the prior year, but continued to show sequential improvement.

Excluding the nine stores that were impacted by competition, our same-store sales were up over 2% in total with the majority of our stores without competition generating positive comps. We believe this is an encouraging sign that normalization of the industry is on its way.

Looking more closely at our comparable store sales performance for the quarter, while we saw a reduction in average selling price on firearms in the first quarter, it was purely from mix shift as customers move toward more mid priced product and vendors increased production of these products.

Specifically, average selling price in firearms decreased 3.3% during the quarter and unit increases of 1.4%. Consistent with the fourth quarter, our firearm unit sales trended above the adjusted mix data.

On a unit basis, in the states in which we operate, and using an April 30 quarter end date to correspond with the next data, we were up 1.2% in the first quarter compared to the prior year versus adjusted mix units in those states being down 1.3% over the same period.

This fact along with the growth in a number of stores and the revenue they generate, as well as the growth in our non-hunting categories shows we are gaining market share consistent with the trend we believe is happening with the other national retailers.

For us specifically, we are looking at the states in which we operate retail stores, we have gained market share in each of the five quarters that we have been a public company, despite the increasing competition in many of our markets which we believe speaks to the customer appeal of our model, as well as our premise of peaceful coexistence with other national retailers.

Traffic on the same-store basis or more specifically customer frequency remains negative of both conversion and average order size improved year-over-year.

While February and March continued the warmer than normal weather pattern and resulted in negative comps in clothing and footwear, we did see the positive impact of this dynamic in our fishing and camping categories. Now on to profitability.

As expected, and in line with our projections, in total for the first quarter, our gross margin decreased 44 basis points over the same period last year mainly as a result of one-time vendor incentives in the first quarter of last year and the incremental impact of our loyalty program this year versus last year when the program was just starting.

From a product gross margin perspective, we were able to maintain and in some cases continue to improve gross margin at the individual product level, while adhering to our normal promotional calendar. This allowed us to achieve our traffic, conversion, market share, and margin objectives while sticking to our customary promotional discipline.

And we were pleased in the quarter with a clean inventory position. Our inventory measured on a per store basis declined 6% year-over-year.

Operating income for the quarter was $1.2 million with a loss per share for the quarter of $0.03 at the high-end of our guidance and an improvement over the adjusted loss per share of $0.05 in the prior year period.

Looking at competition, in the first quarter we saw the presence of competition within the last 18 months in nine stores or 16% of our store base. Stores facing competition once again performed better than planned during the quarter.

Our first quarter store openings in both the larger market of Spokane with the metropolitan service area over 470,000 and the small market of Klamath Falls with an MSA under 70,000 illustrates our broad demographic appeal and ability to be successful in markets with varying population levels.

We will continue to target these types of markets as either a neighborhood store or single market destination each of which can generate our four wall EBITDA objectives and the return on invested capital of 20% or more.

This dual strategy allows us to effectively compete with our national competitors and larger MSAs while also being able to access markets that are not conducive to the typical prototype of the large national players.

This makes the smaller MSAs particularly attractive to us given our flexible store format, our low-cost, high service approach, our everyday low prices, convenient location and localized assortment. And as I mentioned previously, we have outstanding customer service delivered by our passionate store associates.

Looking ahead, we remain focused on our strategic growth initiatives and key priorities. Number one, we remain focused on capitalizing on the significant wide space opportunity for new stores that we see within existing and new markets at a unit growth rate of greater than 10% annually for the next few years.

With the opening earlier this month of our Heber city, Utah store we are making progress towards achieving our goal of nine new locations representing 16% store growth in 2015. We expect that all of these openings will be funded with our free cash flow.

In addition to Heber city, Utah, we expect to open Show Low, Arizona, Fresno, California, and Williston, North Dakota in the second quarter and three stores during our third quarter, Albany, Oregon, Flagstaff, Arizona, and Sheridan, Colorado.

Second, our improved fixturing strategy has been rolled out to all of our stores and continues to provide a major opportunity to focus on and achieve our return objectives in the under 100,000 population MSAs, as well as open more neighborhood stores in those larger MSAs as evidenced by our 2015 store class.

Third, another priority is enhancing operating margins through increased sales of our private label products, while simultaneously expanding our programs in clothing and footwear with major brands.

For the first quarter of fiscal 2015, sales of private label products increased 22.3% and represented over 2.1% of net sales, an increase of approximately 23 basis points when compared to the first quarter of fiscal year 2014.

Fourth, we are focused on maximizing the potential of our loyalty program and are implementing more effective marketing programs that better utilize the information we are capturing and the buying purposes of our loyalty program members.

We are in the early stages of this initiative and expect to begin seeing the benefits of these programs in the back half of the year.

And number five, we will continue to focus on associated training programs to maintain and further improve the great in-store customer experience we brought ourselves on delivering as best reflected in our customer service goals I mentioned earlier.

With respect to the remainder of 2015, we anticipate the competitive promotional environment will subside and return to more historical levels as we move through the second half of the year.

Given we are the everyday low priced provider already; our priorities will be to continue our normal promotional cadence and to generate profitable sales while maintaining margin. As a result, our guidance continues to reflect our expectation that same-store sales trends should improve as we move through the year.

We remain excited about our business in fiscal 2015 and the many opportunities that we have to expand the brand and grow the company. With that, I'll turn the call over to Kevan to discuss our financials..

one, base stores; two, new stores or acquired stores that have been in the comp base for two years or less; and three, stores that were subject to competitive openings, which we define as the new competitive entrants into a market within the past 18 months.

In the first quarter excluding the nine stores in our comp base that were subject to competitive openings, our same-store sales increased 2.3% compared to the first quarter of last year. Our 24 base stores saw same-store sales increases of 0.5% in the first quarter compared to the first quarter of last year.

In addition, our 15 new stores saw same-store sales increase of 5.8%. Finally, our nine stores that were subject to competitive openings experienced a same-store sales decline of 13.5% in the first quarter compared to the first quarter of last year, which as John mentioned, was better than our plan.

Gross profit in the quarter was $43.2 million compared to $40.1 million in the first quarter of fiscal year 2014. Gross profit as a percentage of net sales decreased approximately 40 basis points to 29.9% from the 30.3% in the corresponding period from the last fiscal year.

The decrease in gross profit as a percentage of net sales was primarily driven by a decrease in the amount of vendor incentives during the period compared to the same period of the prior fiscal year. As John mentioned, our loyalty program also negatively impacted gross margin as we continue to experience success in the adoption of the program.

The associated rewards from these transactions impacted gross margin more in the first quarter this fiscal year than in the first quarter last fiscal year when we were first launching our loyalty program.

During the quarter, our loyalty patrons increased by more than 18% to approximately 550,000 members, compared to the same period in the prior fiscal year.

We continue to expect growth in the program across our customer base generating more frequent customer visits over time and higher average ticket along with the benefits that come with these metrics. SG&A expenses for the quarter were $41.9 million compared to adjusted SG&A expenses of $38.1 million in the first quarter of fiscal year 2014.

As a percentage of sales, adjusted SG&A expenses increased to 29% from 28.8% in the corresponding fiscal quarter of 2014 primarily as a result of increased legal expenses associated with ongoing litigation.

Income from operations for the quarter was $1.2 million as compared to adjusted income from operations of $1.9 million in the first quarter of fiscal year 2014. The year-over-year decrease was driven by lower gross margins and the increased SG&A as a result of the factors I just described.

Our net interest expense in the first quarter of fiscal year 2015 was $3.5 million compared to $5.3 million of interest expense in the first quarter of fiscal year 2014.

Our average borrowings decreased over the prior year period primarily due to the use of our IPO proceeds to pay down the term loan during the first quarter of fiscal year 2014 and the lowering of the interest rate on our term loan as a result of the refinancing of our term loan during the fourth quarter of fiscal year 2014.

For the quarter, our effective tax rate was 38.5%.

Net loss for the quarter was $1.4 million or a loss per share of $0.03 based on 41.9 million diluted weighted average shares outstanding as compared to adjusted net loss of $2 million or a loss per share of $0.05 based on 41.5 million adjusted diluted weighted average shares outstanding in the first quarter of fiscal year 2014.

Adjusted EBITDA for the first quarter of fiscal year 2015 was $5.4 million compared to adjusted EBITDA of $6.8 million in the prior year period. Ending inventory was $216.7 million as compared to $202.3 million in inventory as of the end of the first quarter of fiscal year 2014.

On a per store basis, inventory decreased by 6% as we continue to focus on having the right product at the right place at the right time. As we enter the second quarter, we are very pleased with the quantity and quality of our inventory.

Turning to our outlook, we anticipate continued promotion by mom-and-pops and some national players through the second quarter of fiscal year 2015. As John mentioned, looking at the back half of the year, we expect the promotional and pricing environment to begin to normalize.

As a result, our outlook includes second quarter revenue to be in the range of $167 million to $172 million. Same-store sales of negative 1% to positive 1% compared to the second quarter of last fiscal year and earnings per diluted share of $0.11 to $0.13 on a weighted average of approximately 42.3 million estimated common shares outstanding.

For the full-year fiscal -- full fiscal year 2015, we are reiterating our outlook initially provided with our 2014 year-end release.

We continue to expect revenue of $720 million to $740 million, same-store sales of negative 1% to positive 2%, and earnings per diluted share of $0.56 to $0.63 on a weighted average of approximately 42.3 million estimated common shares outstanding.

We ended the quarter with $58.8 million in outstanding borrowings and $61.9 million in borrowing availability under our credit facility. During the first quarter, we incurred approximately $8.9 million in capital expenditures.

Not including any landlord incentives, we expect to incur additional capital expenditures of approximately $20 million to $25 million during the remainder of fiscal year 2015, which will include our 2015 class of stores, as well as work on our 2016 new stores and continued investments in IT infrastructure and our distribution center operation.

We expect that this growth will be funded with our free cash flow and we do not anticipate any additional debt financing to be able to carry out our growth strategies. And with that, I’ll now turn the call back over to the operator, as we open up the call to questions..

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Seth Sigman from Credit Suisse. Please proceed with your question..

Thanks. Good afternoon, guys. Nice progress in the quarter. I want to talk a little bit about the composition of comps in the quarter. It was nice to see a conversion in average basket up.

If we focus on the traffic side of the equation, which was down overall, with ammo now comping positive, I assume that's a big driver of recurring traffic to the stores.

What categories are still seeing traffic or transactions lag with the rest of the group? And then the second piece of that would be as you look at the Q2 guidance which embeds potentially positive comps, what needs to happen from a category perspective to get you there? Thanks..

Well, I think with the warmer weather we had fewer people coming in for the cold weather gear in February and March. We have seen that that turn in the second quarter and we are seeing improvement in the firearms category, but it isn’t there yet and clearly ammunition is a consumable.

So we get a lot of people coming in for that and we are very pleased with the traffic we had in the unit sales, as well as the dollar sales in the ammunition.

The unit sales in firearms, people are coming in with an intent to buy where in the normal circumstances under our normal traffic, if you will, people would come in a couple of times before they purchase so.

And it bring us to see the normalization of all that going into the second quarter and the rest of the year and the weather is now back to what is as close to normal as you can hope. So I think all that's starting to trend all in basically a prior year or historical perspective..

Okay. That's helpful. And then, you mentioned in expectation that the promotional activity across the industry would start to normalize pass Q2. Can you elaborate on that and does that reflect a change in maybe the inventory situation, or is it just confidence in demand in the category, any color there would be helpful? Thanks..

Well, first of all, I think there is two types of reasons for promotional activity going on. One is traffic drivers and I think the traffic is returning to normal levels for most of the players that I can keep track of. So I think that part of the promotional environment is going to start to subside.

And then to the inventory point it is pretty clear now that finally the mom-and-pops have turned that inventory into cash and as we talked about it in prior quarters, we’re expecting them to turn it into cash in the fourth quarter. They didn’t, they were trying to maintain price, and the first quarter was pretty obviously.

They weren’t going to maintain price and they were trying to get their inventory out of the way. And based on what happened in the back half of the first quarter and what's going on in the second quarter, it appears that their inventories are now back the way, “normal basis” I guess..

Got it. All right. Thanks. Well nice job gaining share despite that promotional activity..

Thanks..

Our next question comes from the line of Matthew Fassler from Goldman Sachs. Please proceed with your question..

Thanks. Good afternoon, guys. Steve Tanal on for Matt. I wanted to focus just a little bit on the gross margin in the quarter.

The sort of, how we think about kind of the promotional backdrop you guys may have participated into some degree versus fewer vendor incentives and whether that was an offset last year and your promotional or perhaps you sort of lost that this year.

I mean, how did that either flow through the quarter?.

Well, as we’ve looked at that, last year the vendors were trying to continue to keep their products flowing. The mom-and-pop channels were flooded and so we experienced lot of opportunistic buys and a lot of other incentives.

But now that the, as John just alluded to the fact that the mom-and-pops channel is starting to unclog those incentives are not as readily available for us. We’ve been able to maintain product gross margins but the dollars, the incentives that they were giving to us in various capacities just were not there. And quite frankly we saw that coming.

We met our expectations with respect for our gross margin. We didn’t think that those incentives were going to repeat themselves. But that is the biggest component of the change in our gross margin year-over-year..

Okay. So it wasn’t as though you guys, I guess to some degree you must have participated in the promotions and I’m wondering how you’re thinking about kind of going forward.

I’d assume the vendor incentives are no longer there and maybe the promotional comments are also kind of about your stance as it relates to the overall category? Is that fair?.

Not really. We’re not doing anything out of the ordinary in promotions this year that we didn’t do last year. The incentives we achieved last year were one time rebates based on inventory purchases to help certain vendors move product through their channel while the mom-and-pop channel was clogged. We knew those were onetime rebates.

We took them as one time rebates. We knew they wouldn’t occur this year. As it relates to the normal ongoing flow of our business, we have done absolutely nothing different in terms of margin or promotional cadence of promotional strategies this year than we did last year..

Got it. That’s helpful.

The vendor incentives that they continue into 2Q, or is it really just the 1Q kind of …?.

It was 1Q in 2014, and they haven’t occurred since..

Got it. And then just lastly, on the trade down that’s happening at firearms, that’s affecting the selling prices there.

Is that a bigger headwind than the mix between handguns and long guns, how are you thinking about that?.

No, it’s the normal -- its getting back to a normal mix of shotguns versus handguns versus MSRs versus bolt-action rifles. And what I would say to you is that the trends are back to the historical mix that you would have seen in the 2009 through mid 2012 period.

Beginning in that last half of 2012, into 2013 and the hangover from that we saw a mix shift up toward more expensive price, product and more MSR type product. And now we’re seeing that over the last couple of quarters make its way back down to what I would consider normal movement..

Got it. Thanks..

Our next question comes from the line of Peter Benedict from Robert W. Baird. Please proceed with your question..

Hi, guys. Just turning back the SG&A has done a nice job kind of managing that so far.

Is there a level of comp or total sales growth that we should think about that you need to leverage SG&A going forward? And related to that, have you seen any evidence of kind of wage inflation start to come through, as you’re hiring folks to the new stores?.

The analysis that we’ve done in our models, its somewhere in that 1% to 2% comp range where we can start to leverage our SG&A and that’s been pretty consistent there.

I have not seen any wage inflation as we’ve looked at that, that’s kind of indicated the biggest contributor to the increase in SG&A was our legal expenses, so we’ve really not seen much wage inflation there..

Okay. That’s helpful. Thanks. Kevan, and then just follow-up on the prior question on the gross margin. So it sounds like some of the incentives kind of fall off.

As we look out over the balance of the year, should we be expecting gross margin to be more on par with where it was last year? Could it be up? What's the view on gross margin as we look over the balance of the year?.

As we have looked at our gross margin, we don’t provide specific guidance on a quarter-by-quarter basis, but we have spoken to the fact that we expect gross margin for the year to be flat with last year. We’re consistently maintaining that guidance. We’ve not changed that guidance at all.

So by implied nature it’s got to be up a little bit to make up for the short fall in the first quarter. So, flat to slightly up over the remainder of the year would be our expectations for gross margins..

All right, perfect. That’s helpful. Thank you..

Our next question comes from the line of Matt Nemer from Wells Fargo. Please proceed with your question..

Good afternoon everyone. First, I wanted to ask about the gun ASP mix shift. When do you think we anniversary that or we kind of get back to a normal level. Is that something that persist for a couple of more quarters? Do we see that kind of bleed into 2016? Love to get your thoughts on that..

I think our position has always been that, the second half of our fiscal year and what do you want to call that late June or early July has really been where we see based on the patterns the inflection point.

And I’d think as we sit here today, I think we still see that as probably the late June, July second half of our fiscal in the second half of the calendar year kind of a dynamic getting that mix down to where its been at its historical points and seeing some average selling prices that are either consistent with the prior year or hopefully slightly above, we’ll see..

Matt, it really started to show itself the average selling price in the third quarter of last year. So, as we start to anniversary that impact in last third quarter we don’t expect it to decrease much significant beyond that. So, last half of the year as John indicated really is when we expect that to kind of normalize and average out..

Okay. That’s very helpful. And then, turning at the loyalty program impact on gross margin. When does that also start to level out or is that, am I not thinking about that the right way.

Is that sort of getting stronger as more people adopt and use the program?.

I would expect it to kind of level out towards the end of the year first part of next year. The impact this quarter versus the first quarter of last year, we went from 18 basis points last year to 25 basis points this year, so it’s the seven basis point impact. That’s smaller than it was in the fourth quarter.

I would expect that incremental impact to continue to decrease. But as we continue to grow our program and we get adoption of the program by our consumers we’re excited that it’s growing this well and that we’re having this kind of an impact.

But I would expect it to normalize towards the end of the year really about the two year anniversary point at the time that we launched the program..

Just to add a little color on that. I think we’re seeing what most people who implement an effective loyalty program see and that you’re seeing customer frequency, you’re seeing average selling price, you’re seeing items per order. All those things are significantly better.

So, I think as we go through the next two quarters, we’ll probably do even more to encourage people to join the loyalty program and while that may have a small impact on margin for a couple of quarters, the long-term benefits are absolutely clear. I think and I think that’s reiterated by anybody who has a successful loyalty program.

So, again as Kevan says, I think probably we’re going to see more moderation and some comparability on a state basis probably Q4 and into Q1 of next year..

Okay. That’s helpful.

And then just lastly, anything change in terms of the competitive store count outlook now that a lot of your competitors have announced those stores for 2016?.

No, there has been no recent announcements that have impacted the anticipated competitive impact for the rest of 2015 or even 2016 that we’re aware of..

Okay, great. Thanks so much..

Our next question comes from the line of Mark Miller from William Blair. Please proceed with your question..

Hi. Good afternoon everyone. Could you frame the shift from the second quarter to the second half, basically looking for flat EPS at the midpoint in 2Q and then higher teens second half versus second half last year.

What are the, obviously stronger comps but beyond that what are the key things that lead to the acceleration, whether its comparison issues or things sequentially that are getting better..

I think one of the big impacts -- obviously the biggest impact is with that you’ve alluded to already with respect to stronger comps in the second half of the year.

As we entered the third and fourth quarter of last year, because of the warmer weather that we experienced, our margins on the clothing and soft good side of the business were not as strong as we anticipated. Our expectation is that we’re going to have a normal weather pattern there and return to better margins in those.

So that is a significant impact there with respect to the clothing. Obviously that’s going to impact the mix as well, which will have an overall shift in the gross margin and that’s really where you get the biggest drop through to the bottom line is through the gross margin and the mix area..

Okay. Kevan, I wanted to make sure I understood when you talked about the legal expenses.

Does that pertain to the suite that came out, out of two months ago, two and half months ago or is that something different and is that material?.

That is the suite that we’re referring to. We recorded the accrual in the fourth quarter. The trial occurred during our first quarter and so we had the legal expenses associated with that. The number was approximately $0.5 million in legal expenses associate with that. There will be some ongoing legal expenses associated with that.

Although we don’t believe it will be quite to that magnitude. We are in the process of appealing and filing motions with the court. It will not be as costly as the actual trial itself. But there will be some ongoing expenses associated with that litigation..

All right. And then, I know its early still, but for 2016 as you’re reviewing potential sites. Do you have a sense whether the store development may shift a little bit more towards smaller MSAs a balanced more neighborhood stores. I mean how are you thinking in aggregate. I guess the returns can't be exactly the same.

I would assume one group is trending a little bit better than the other..

Yes, I think as you look at the number of MSAs available particularly in the West and in the South and South East where we’re located. It makes sense to start looking at opportunities in the smaller markets. So while we don’t have our 2016 class defined in total yet, there are a number of markets we’re looking at.

So I don’t know exactly how it will finally hash itself out. I would say the mix will be relatively similar to 2015 with a slight moment toward to the opportunities in the smaller markets..

All right. That’s helpful. Keep up the good work. Thanks..

Our next question comes from the line of Andrew Burns from D.A. Davidson. Please proceed with your question..

Thanks. Good afternoon. I was hoping to dive a little bit into your components of the same store sales particularly the competitive entrant in the newly acquired stores, both of which were very strong numbers.

So, on the newly acquired stores, wondering if there is any sort of store upgrade that is still going on that cause that 5.8% comp or is that just relative to the comparisons looked easy. And on the competitive entrant, you -- when the IPO was underway that the first year impact was, it’s going to be 20% to 30%, it continues to get better.

Just any color there on what's driving that? Thanks..

Yes, let me first start on the new store, what we refer to as the new store tailwind. That includes not only the acquired stores but also any new stores as they ramp up to maturity.

It usually takes our stores three to four years to hit maturity in the normal environment granted we’re still getting back to what we referred to as a normal environment but in the normal environment, a first year comp for a new store is typically 8% to 10%.

A second year comp is typically 4% to 6%; it’s that impact as the store reaches maturity that you’re seeing there. So not only does it include the 10 stores that we acquired in 2013 but there’s also new stores that we’ve opened since that point in time that are including that.

And that’s just basically consistent with what we’ve shown that as our stores reach maturity and ramp to maturity they outperform our base stores and again this quarter is no exception. It’s about a 5% difference between our base stores and those new stores that are within that first two years in the comp base.

With respect to the impact that’s there, that number that we’ve given and provided historically is usually that first impact when a store, when a new competitor opens on top of our stores, obviously the more time goes on, the honeymoon if you will wears off and we start to decrease the impact that’s there.

So part of the 13.5% out of our new stores, that decline is due to the fact that some of these stores are approaching 18 months since the new competitor has opened. So a lot of that has to do with the timing and the newness. Not all of those opened just a month ago, some of them are approaching the end of that tale.

So that's -- it's a blended rate, the 13.5%. As John indicated, that is better than what our expectations are as we look at this on a store-by-store basis based upon where each of those stores are in that competitive curve..

That's helpful. Thanks. And then, I think in the prepared remarks, John you mentioned the competitive promotional activity will likely subside as you move into the back half of the year.

And I understand that the dynamics that you outlined on the mom-and-pop discounting, previous to your views in confidence in the idea of national retailers, the promotional activities subsiding there? Thanks..

Well, I can’t really speak to what their promotional strategies ROI, but from my view point, traffic is a very important driver to the sustained growth of the business.

And as traffic patterns begin to normalize, as people come into shop more as you get better comps versus the prior year, I think the traffic numbers will begin to normalize and as a result the need to promote to generate traffic subsides.

We’ve never done that, but I think the inventories of both us and what I can tell of our national competitors have always been really good. So it’s been mainly a traffic incentive, and I think as we get into the second half of the year in the normalization of firearms, traffic will take care of itself for everybody..

Great. Thank you..

Our next question comes from the line of Lee Giordano from Sterne, Agee. Please proceed with your question..

Hi. This is Michael Gunter [ph] on for Lee. Thank you for taking our question.

Could you provide us an update on the private-label business? Do you see similar year-over-year increases in penetration for the next several quarters? And do you have any initiatives in place to sort of increase the pace of that going forward?.

I don’t know that we’re increasing the pace. We are going at a pretty steady pace, but the pace at which we’re going would almost by definition result in continued improvement. We’ve always said the private-label process is a journey and we're going about it in a very defined manner. It’s starting in the clothing area.

It’s mainly starting in the clothing area as it relates to fall, hunting and fall outerwear. So I think as we go through the year, the first quarter there is not a lot of private-label stuff although it’s improved rather dramatically.

Second quarter probably would be the same than in the third and fourth quarter, I think we will see continued sequential improvement..

Thank you..

There are no further questions in queue. I’d like to hand the call back over to management for closing comments..

Great. Well, I appreciate everybody being on the call today. We look forward to speaking with you when we report second quarter results. Thanks everyone for joining us today..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day..