Sportsman's Warehouse Holdings, Inc. (SPWH) Earnings Call Transcript & Summary

All right. It looks like -- I can see a lot are joined in now. Others can join as they wish. But my name is Ryan Sigdahl. I'm the senior analyst covering Sportsman's Warehouse here at Craig-Hallum. With me, I have CEO, Jon Barker; and Interim CFO, Jeff White. Welcome and thanks for joining us, guys, and all the investors on.

Good morning. Thank you for having us.

Good morning, everyone.

Maybe just to start before we jump into the business. If you guys could give a quick overview on, so you guys had a deal with Great American Outdoors. That deal was terminated. What happened just very high level over the last year?

Sure, Ryan. We've covered a little bit in our press release. As we entered into the agreement in December of 2020, all indicators were that we would get -- garner support from all regulatory agencies to finalize the transaction. It started to become clear to us with the change in the White House and there -- and afterwards the change in the FTC leadership that the tone around business was starting to change in Washington. And throughout the summer, we worked collaboratively with Great American Outdoors Group and the FTC, along with our advisers. And up until the very end, we were optimistic that we had a path forward with the merger. So it was not until a couple of days before we made the announcement that the FTC made it very clear that there was not a path forward for this transaction. All parties, Great American Outdoors and Sportsman's Warehouse and our Board of Directors, determined it was in the best interest at that time to terminate the pending transaction and return to being a separate and -- operating business. So it's an unfortunate event from the perspective of how it turned out. But I think all parties put 110% in. There was a lot of collaboration. We have a lot of respect for Johnny Morris and his team, but we now return to being a separate private company, and we'll get up every day competing against Bass Pro, Cabela's and others like we've always done in the past.

Great. So we'll leave that, and we'll jump into the business. So a lot's changed in the last 2 years. Jon, can you take us through, I guess, a quick update on business trends from kind of right before COVID what was happening, the puts and takes over the last 2 years, and then really where the business stands today as we head into 2022 here?

Yes. Just high level, many of the investors probably know the story, but we have been working for a couple of years prior, call it, '18 and '19, we've been working on a couple of things. One was to get our omnichannel platform into place so that we could grow this business both online and in store, serving customers wherever they were, however they wanted to be served, and leverage all of our inventory and our expertise. So that has been going on in the background. Then in late 2019, as you may be aware, there was -- several of our competitors decided to deemphasize the firearms and ammunition business. And we even had some challenges at holiday of 2019 as Walmart exited inventory and ammunition and dumped that ammunition onto the market. At the same time, DICK'S started to pull back materially. So coming out of '19, we were very optimistic going into '20 that all the efforts we put forth into our omnichannel capabilities and getting our balance sheet in a more comfortable position would allow us to grow in '20 using a combination of our existing stores, organic store growth as well as the website on top of the fact that there are several major competitors that pulled back in areas that we, frankly, have great expertise and vendor relationships. So we were set off to have a great 2020. We were not expecting to go through or foresee the activities that impacted our country and our society: COVID in March; civil unrest late -- or kind of early summer, late spring; and then certainly an election cycle that ended up being much more challenging, I think, than anybody expected. So we saw a lot of lumps in the business starting in March. We saw some stores closed temporarily, depending on the areas we're in. We saw heavy, heavy demand in firearms and ammunition for personal protection. And that -- what was interesting about that for us, Ryan, we started to see markets that historically haven't been quite as 2A proponent or second amendment proponent start to move that way as there was a lack of confidence that the local law enforcement could keep up with the dynamics of what was happening. So we started to see a lot of new first-time buyers come into the business during that spring of 2020. We also started to see certain parts of our camping business grow on the preparation side as folks started to increase water retention, water filtration, generators, dehydrated foods. That part of the business was very strong in that spring. And then we went into, of course, civil unrest in May and June. Firearms and ammunition grew again. But underlying, we started to see some participation rates in outdoors grow nicely. And it was a little unclear exactly how that would play out in the May-June time frame. But as we progressed through the summer, what we saw across the country was increased participation both by first-time participants and reparticipation by previous individuals into all parts of the outdoors. We started seeing camping and fishing grow significantly in mid-summer. License sales were up. And then as we entered into the fall hunting season, we actually saw new records in hunting participation across our country. So it was very -- we were very optimistic in the fall about the core business. We certainly set new records in revenue and earnings during 2020. And as we look to 2021, Ryan, we were very optimistic about 2021, but we were unsure about how many of those participants would continue and how much of the firearms demand we saw in 2020 would continue in 2021. And as we sit here today, from the numbers we put out, I think you can see the participation rates continue to be at all-time records. And firearms and ammunition, while we've had some and will have some headwinds, the baseline is an all-new baseline for the industry. And Sportsman's Warehouse has been able to participate with those new customers through our expansive reach online and in stores, and we're very excited about how that can lead us into the future.

That's great. Maybe digging into competition first before kind of breaking out the business, but you mentioned Walmart, DICK'S, Ganders and other one. But any change that you've seen from those companies or others? And then how do you look at Cabela's and Bass Pro? Any change on kind of their new store openings, consolidation, rationalization, et cetera? And then versus the mom and pops, kind of how well you guys are positioned?

That's a great question, Ryan. We've seen a continued but gradual pullback from Walmart in their firearms and ammunition categories. Certain stores and certain regions have less. It's unclear whether that's a strategic decision to pull back or if that's related to their inability to get inventory through the supply chain. As you can imagine, this industry is very sensitive to positioning of brands as it relates to firearms and ammunition. And when you take a stand against the industry and then you need the industry's support, it may not always be there. So it's hard for me to tell whether or not Walmart has continued to pull back and what we're seeing in stores is related to strategic or supply chain. DICK'S, the same thing. We've actually seen DICK'S continue to pull back. They do have firearms and ammunition in certain stores. We're also seeing them pull back in some fishing categories as they focus on their team sports, their golf. And I think they have a new test bed they're currently operating in a couple of stores. So that to us is an indicator that they continue to pull back. Gander Mountain and Camping World formally came out in the fall of 2021 and have exited all hunting, shooting, fishing and apparel in their business. And while we don't overlap with them in too many areas, of geographic areas, that's certainly market share that we believe is available for us to gain over time as they've exited that business. So those 3 major players have continued or now fully exited our key categories. Your second question was around the independents and mom and pops. There are a lot of independents in this country. There's about 50,000 Type 1 FFLs that are independent dealers. These range from a small mom-and-pop shop that have a few hundred square feet to some regional 3-, 5-, 10-store chains. And they really run the gamut. Some of them are exceptional in what they do and very good at it, but many of them are lacking in their capabilities or supply chain. So from our perspective, as we go into a new market, look at new markets, we're always focused on the competition and having conversations at times with those independents that might be there on whether or not there could be an acquisition opportunity in those markets. So we see the independents pretty healthy right now. We're always keeping an eye on them. This can be very cyclical for them. They tend to be only focused or primarily focused on firearms and ammunition. And when the firearms business slows down, they don't have the cash flow to necessarily support what they've built during the boom cycle because they may not be in fishing or camping, apparel or footwear. So they continue to be competition. We keep a close eye on them. We do expect they'll have a more challenging period in front of them than a full-breadth assortment retailer such as Sportsman's Warehouse.

What about Cabela's, Bass Pro? So Cabela's was opening stores right next to you guys' new markets for a number of years. They were merged with Bass Pro. Then the rationalization, consolidation seemed to start happening? What have you seen more recently from them?

Yes. Since the acquisition was completed in 2017, we had not seen -- I don't believe a single store open. We saw a handful closed where there was geographic overlap or very close proximity. The first store since the acquisition opened this fall in Morgantown, West Virginia. And so that store is in proximity to us. And it's a fine store, and they're good competitors. I don't -- I'm not aware of any other stores that they've announced for 2022 and beyond. This is an area where we really see our model as a differentiator to Bass Pro, Cabela's, Scheels or even Academy. We can go into markets, Ryan, and serve markets small to large and even submarkets and larger MSAs with our flexible store format. We have stores that are 7,500 square feet in River -- I'm sorry, Laramie, Wyoming; 65,000 square feet in Anchorage, Alaska. And as we look at every new market to go into, we start with our baseline of about 30,000 square foot store, and we will increase that square footage. If population density, the participation and the competitive nature of the market would support a larger store, we will do that. On the other hand, if the market's small or maybe geographically, we are using travel times as our differentiator, we can go down to a small store. We're going to open a store, for instance, in Riverton, Wyoming, this year. We've announced that it's about a 10,000 square foot store. There are no competitors that I'm aware of that can go to Riverton, Wyoming and be successful with their 4-wall EBITDA and ROIC numbers that we can with a 10,000 square foot store. On the other side of it, we'll go to east side of Cincinnati. We've announced that. That's a major market. And we're going into a submarket there with a larger store where, again, the population is underserved, there's high participation rates, the travel times make sense and be able to put up a larger store in the east side of Cincinnati.

You talked through new store economics. How do you think about 4-wall EBITDA margins, ROIC payback periods, with/without inventory? And then also how you think about -- you mentioned 2 new markets, but how you think about going into new markets, whether it's M&A, whether it's greenfield, whether it's taking over an existing building, taking -- building a new from scratch ground-up building, et cetera?

Yes, Ryan, good question. I'll walk you through kind of the new store economics. As we look at new stores, the capital required to open a new store, you can think of it as $2 million to $2.5 million in construction. For those who have not been in one of our stores, we take a very basic approach. We are not a retail theater-type environment. So we do stick true to the warehouse name. You will see us with concrete floors, open ceilings, basic fixturing. So the capital required to open those is very minimal. Now the $2 million to $2.5 million is obviously going to vary between our 7,500 square foot model to our 50,000 square foot model. There is not really an economy of scale there, so you don't drastically reduce the cost when you do a 7,500. There are still basic fixturing, and that cost is really towards the $2 million range. And then as we look at inventory, again, depending on the size of the store and the market, we'll put about $2 million to $2.5 million of inventory into a new store. So overall investment to open a store for us is $4 million to $5 million. As we look at the profitability metrics and ROIC for those new stores, we target a 10% 4-wall adjusted EBITDA metric and a 20% ROIC upon maturity. And we look at that maturity time frame as being 18 to 24 months. Obviously, those stores are going to perform under those metrics in the first few months as we get acquainted with the market and we put a little more money into local marketing and advertising. But those are the metrics that we target as we go into new stores. And I would tell you that as we look at geographical regions and travel times, et cetera, those are the base metrics that we look at for all of our locations. So whether it be at Riverton, Wyoming or a small-format store in a small population or to Jon's point, Cincinnati in the larger market, it doesn't matter, the geographical region. We're looking at those key financial metrics as kind of our benchmarks for new store openings.

You're at 122 stores, I believe, today; target, 300-plus. How comfortable are you with kind of that pipeline and visibility to that?

Yes. As I sit here today, Ryan, we have -- our path to 300, we have a road map to that. I have about 100 locations right now in the funnel that I'm looking at. Of course, those take -- some of those will fall out over time just because of the lack of real estate availability. But as we think about this year's store openings in the investor deck, which is 7 to 10, to be frank of the investors, we would have liked to have more time to prepare real estate for 2022. With the termination of the agreement the first week of December, we were a little behind on our lease negotiations, permitting and construction. And I'm sure everybody is aware of how challenging construction time lines could be for materials. So there's certainly a funnel to do greater than 7 to 10 in '22. We will be limited due to leases, permitting and construction. As I think about the future, we do have an ability to think differently about that number. And certainly, behind the scenes, we are working diligently on that funnel. In a perfect world, we'd like to stay within 100 miles of an existing store so that we can leverage the organic marketing and the supply chain. Where it makes sense, we will branch out from that 100-mile marker, such as we did in Central Florida. If we find a market that is extremely interesting from the data, the science and the art of our visits, we will take a position there, and we did that in Florida. And I think you'll see that as an opportunity for us to continue to grow in those ways. So there's a lot of opportunity. We'll grow to 30 stores -- sorry, 30 states this year with the first store in Ohio. And as you can imagine, there's a lot of locations in our funnel when you think about 10,000 to 65,000 square feet, where it could make sense. As I think about the construction, I think it is important to point out to investors that historically, most of our construction, and when I say historically, over the last 5 years, has been second-generation real estate, whether that's a Toys R Us, an hhgregg, Staples, et cetera. That continues to be a focus for us, but we will not exclude greenfield construction where it makes sense. We have 2 of the 5 that we've announced this year, our greenfield, one in Riverton, Wyoming and one Tooele, Utah. So it's a combination of we'll go into the market, look for real estate. If there's good second-generation real estate that makes sense within our financial criteria, we will do that. We've got a couple of Stein Mart buildings as examples, the one in Central Florida and east side of Cincinnati that were, frankly, very well constructed and good placement. And that tends sometimes to be a more economical path than the greenfield ground up.

And you mentioned kind of the base store economics. Those have been in place for years now. Can you just at least talk directionally, I guess, your comfort in those metrics or what you're seeing from some of these recent store openings relative to those metrics? Because I think a better participation, competitors leaving, just the opportunity being better. But I guess, are you seeing that? Are you more confident or maybe not?

Well, I would tell you that recent trends have shown that with those being our base metrics, we have stores that are performing significantly better than that. And as I sit here today, we do not have a single store that is mature that is not meeting those thresholds. And I think that is a good point to make given the strength of our business and strength of the overall industry, is that we are making those metrics on all of our stores, and we are greatly exceeding that in a lot of locations with the ability to push revenue through some of these larger stores that we have. So while we set that as a base metric, I would tell you that we are exceeding that in some markets, and we do not have a single location that is mature right now that is not meeting those thresholds.

Good. So new store, current stores are performing well, new store expansion opportunity, e-commerce kind of the next segue, omnichannel opportunity. Jon, I know a big emphasis since you've gone there of kind of investing and growing that low single-digit percent of sales a few years ago, now we're in the mid-teens. I guess talk through those investments, where you're at in that cycle. Really, what -- where can that go over the next, pick your time period, the next several years as a percent of revenue? And then the last point on that, can you talk through some of the constraints around -- and the moat around your business of in-store with guns and ammo and just the challenges of selling those online?

Sure, Ryan. First of all, when we started this journey in 2018 on the e-comm, we were running about 2% of our business, which is about $880 million at that time, was driven from the website. And we set out on a path to establish a base and a foundation of omnichannel capabilities as well as a front-end website to support customers being able to shop, again, anytime, anywhere for anything, right? So we've worked hard on that. And to be fair, as we entered into '20, we were prepared to start taking advantage of it. And I think it got caught up a little bit in all the noise of COVID of all the efforts that had happened in the background in that investment to get ready. On the other hand, we were able to leverage it faster than we expected. And frankly, it was part of the success we had in 2020 and continue to have today. So as we sit here, in the business, mid-teens of a $1.5 billion business is now being driven from the website versus 2% of $880 million only a few years ago. As I think about where that could go, we don't get the exact population coverage, but I think it's safe to say that less than 50% of the U.S. population is within a reasonable drive time of a Sportsman's Warehouse. So if you think about our ability to grow our customer acquisition, and therefore, ultimately, our retention through the website on the U.S. population, it is immense. So what can it be? It will continue to grow. We're not prepared to give a percentage today. But I can tell you, there is a lot of opportunity in front of us. I'll point to a couple of things. We've had digital marketing effectively turned off from our business starting in mid-2020 to the -- until the third quarter of 2021. So we are building those capabilities internally and starting to leverage our learnings and third parties to help grow our acquisition outside of our region. We have turned off all ammunition and our entire third-party FFL program from the website in October of 2020 and just recently started to turn that back on as assortment came back into place. And as you think about regulated products, Ryan, such as firearms and ammunition, all firearms sold in this country new must be transferred at a FFL-authorized dealer. So you cannot ship those to anybody's home. You cannot ship them to a business unless it's an FFL. So what we've done is we partnered with a limited number of dealers throughout the country to expand our reach, call it, between 400 and 500 partners right now today where you can order firearms from our website. It will ship to that dealer in your area where you will go in, complete the regulatory background and compliance checks before you can take that firearm home. So what that allows us to do is take the immense assortment that we have available through our vendor relationships and the capabilities on our website to reach customers throughout the country. And it's literally all 50 states, including Hawaii at this point. We are just starting to turn that back on. So if you go to the website today, you might find some firearms are not available, some firearms are. That's all part of the model. There are certain firearms that we will absolutely control and want to only service in our stores because of their limited availability or maybe the margin profile. But for the majority of that mid-price point, highly available firearm, you will be able to buy that on Sportsman's Warehouse -- I'm sorry, on sportsmans.com and complete the transaction at your local dealer. We likely won't grow that significantly. Our intent is not to have a dealer on every quarter that we partner with, but it is to make sure that customers have a reasonable drive time to pick up their firearm. Ammunition is slightly different, Ryan. Depending on the state in which you live, the ammunition process can be completely different. Certainly in Wyoming or Utah, we can ship weekly ammunition to your home with some requirements around signature required at delivery. States such as California require that transaction to be completed inside of a store with a background check, and state to state that differs. Again, one of the powerful things of our business as a moat to online-only competitors is you have to complete that transaction. Whether it's firearms in all states or ammunition in the state of California, you have to complete the transaction there. It takes some number of minutes even with the best technology to get the background check. And during that time, you're going to have the opportunity for our salespeople to upsell you on other related products or to shop the store and increase your basket at the time of completion. So as we think about California, for instance, we have 14 stores today operating, and we've announced...

15.

We've announced one more already. So we're excited about that. And you'll continue to see us look for opportunities given our immense capabilities in compliance, technology and training to leverage those against the competition. As I think about other potential competitors in the market, this is not an easy business to enter into from a starting point. If you want to go into the state of California to become an FFL dealer and build out that technology, that is not a small undertaking and it's not one that I would encourage people to take lightly. We are successful at it because we put many, many years of effort and resources towards becoming and maintaining our high compliance rate with the states, local municipalities and, of course, the ATF.

Ryan, one thing that excites me about what we've done with our omnichannel capabilities over the last few years is, if I think back to when I first joined the company 5 years ago, we were fulfilling -- any e-commerce order that came in, we were fulfilling out of our DC in Salt Lake City. So if you think about the ability of us fulfilling that order, we had to ship something to the East Coast from Salt Lake City, it was a very inefficient process. And what we have been able to do over these last years is start to leverage the inventory across our entire channel. So we've turned each one of our stores into mini-distribution centers to where we're able to leverage that inventory. So if we have an e-commerce order that is on the East Coast, that order may be fulfilled from one of our Eastern-located stores, reducing transit time, reducing the costs associated with that. And there's an opportunity there to drive that customer into the store by offering a more expedited pickup time. We could ship it to you in 2 or 3 days or you could pick it up in an hour or 2 in the store. And I think having that capability and making that offering to our customer and then being able to have the tremendous growth we've had and advancement due to COVID over the last years in rolling out those processes really excites me about the future of our business. It allows us to leverage the entire balance of inventory to fulfill e-commerce orders instead of purely just the inventory that we have sitting in our Salt Lake-located DC.

How do you think about distribution center capacity? Where you guys are at today, what you might need over the next several years, and then also maybe going with that, better leveraging store warehouse space?

That's a great question. Some investors may remember that I talked about opening a distribution center in 2021, and that certainly was our plan. And we paused that plan as we entered into the merger agreement with Great American Outdoor Group given their available space. At the same time, what we started to leverage in a greater way was the store base space when we started to move more inventory into the stores, less than the distribution centers. And what we saw from that was an improved leverage of that inventory and less space requirements in the DC. So while we grew nicely in 2021, we effectively did it within the same distribution space. Now we took on a little bit of square footage seasonally to store safes and kayaks and some bulky stuff. But frankly, we -- that was minimal compared to the business. So as I think about 2022, it is very likely we'll have some seasonal space for bulk merchandise in 2023 that we should expect a new distribution center to be open for the company to support the continued growth. And I always like to make sure that investors understand, our distribution centers tend to be light on capital versus some particular retailers who might have apparel or small -- only small goods that have high automation and robotics. Given the breadth of our products from a fishing hook to a kayak or a 1,200-pound safe, you find our DCs to be mainly rack, powered industrial trucks or fork trucks and some conveyance. So the capital investment tends to be more limited than other retailers that investors may be comparing us to.

Good. Maybe in the last few minutes, I want to kind of bring it all together, I guess, from a stock investment financial standpoint. But it sounds like a lot of good tailwinds for the business, a little bit of headwinds on the gun side just given the unsustainable demand levels we were at last year, this past year. But how do you think about kind of growth and, I guess, where we're at in the -- outside of guns, all the other categories? How confident are you that we can grow kind of from this space? Or I guess are you seeing participation moderate in any way? Any general thoughts?

Yes. That's great question. Outside of -- excluding guns, I'm glad you put the caveat in there because I think we're going to have headwinds as we look at the firearms space in the future, particularly. Obviously, January has some headwinds, and I think those headwinds will continue. Outside of the firearms and ammunition categories, we are seeing very healthy increases in all of our business. And you can look at what we've put out. The investors can look at our most recent investor presentation and our 10-Qs to see that if we look at certain categories, such as camping, clothing, footwear, fishing, those categories have seen very healthy increases in 2020. Those increases continued into 2021, and we are continuing to see that customer participate. There's been a lot of reports out in 2021 that shows the participation rates in the outdoor industry are the highest that they've ever been. License sales, fishing and hunting are the highest they've ever been. These customers have made an investment into their -- into a hobby, and I think that this investment is going to continue as we look into the future. And those participation rates are going to continue. Our consumer has found a new way to recreate. They found that they do not have to go to Disneyland. They don't have to travel on a plane. They can go to the outdoors and find some space that they can recreate in. And I think we are well positioned in what we've executed on in the last couple of years to capture those participation. We've made a conscious effort to broaden our product offering in the various other categories outside the shooting sports. We, as a company, will always be committed to the shooting sports industry. That customer to us has the highest lifetime value. But what we've done in the last couple of years is expand our assortment into those other categories so we can serve a variety of consumers, and we can weather any downturns that we may see in the cyclicality of the firearms and ammunition business.

I'm going to -- I want to add one thing, Jeff. I think you hit it perfectly. The firearms demand in '20 and '21 is not like anything we've ever seen as an industry. We've had upticks in firearms before as we go through election cycles. But we've never had 12 million first-time gun buyers in 18 months enter. Historically, when you go through an election cycle, the runup of firearms tends to be by individuals who already own one firearm, and they're afraid that the firearm they haven't bought yet is going to go away because of potential regulatory. This is not the situation we went in. I'm not saying it wasn't some of that. It was election in the end of the year, but most -- a majority of it was participation in outdoor activities: hunting, shooting sports or personal protection. So as I think about that customer entering into the industry over 18 months, 12 million new customers, I'm actually very optimistic about the future of the firearms and ammunition industry. It doesn't mean we won't have some headwinds in firearms. But if you think about those individuals who bought their firearms, they've effectively had limited availability to use them because there's been no ammunition. Can you imagine buying a new pickup truck but not being able to get fuel for it? It's kind of what our customer has gone through for almost 2 years. They have not been able to buy ammunition for their handgun. They have not been able to buy ammunition for their shotgun. Try to go duck hunting right now and find steel shot in this country, it's almost impossible. So I'm optimistic that as the supply chain for ammunition improves over the coming months that we will likely see an offset to what I think are some of the headwinds from the onetime event. So again, am I optimistic? Absolutely. Do I think we'll comp firearms every month, every quarter as a country? Unlikely.

Yes. And Jon, I can attest to the ammo as I tried to buy some this fall, and it was impossible. So very true. Can you remind us just how much your business is guns? I think of 15%, 20%, is that a reasonable ballpark?

Yes. That is what we've stated historically, is in that 15% to 20% range. As we think about the business for the last 2 years, I would tell you, it was elevated, above that, what we've run historically. As we see -- as we look to the future, I would think that we return more to the historical numbers and come down from the elevated level that we were at in '20 and '21.

And then how's the market share? Are you guys still taking market share on the gun side even if the industry is moderating a bit?

Yes. We've always looked at it in our market share gains as our comparisons to the adjusted NICS data. For the investors, the NICS is the background checks that are run in the country. The adjusted NICS is a number that is put out there that takes out some of the lumpiness in the NICS data, which may include concealed carry background checks. So we've historically always compared our market share as beating adjusted NICS. We have not released an updated view of that. I would say high level, we have continued the pattern of beating adjusted NICS as we sit here today.

And then, Jeff, margin profile of guns relative to other categories?

The margin profile on guns is lower. I would say that the -- you're looking at mid-teens to low 20s on average margin in the firearm sales. And then as we look at ammunition, I would say, historically, that has run mid-20s to upper 20s. We have obviously seen tremendous gains in margin ammunition over the last 2 years to the point that in some types of ammunition, it is accretive to our overall gross margin. I do not see that as sustainable going into the future. I think at some point, it does come back down. But given the lack of supply that we have in the market right now, as we've discussed, I don't know what the exact time frame is. I cannot speak to the time frame that, that maybe comes back down.

Yes. So you should see -- even if guns moderate, you should see actually favorable margin mix just relative to the rest of the business. Jeff, you put out kind of long-term, medium-term targets. Can you just quickly, for investors that have not seen those, just talk through kind of how you think about same-store sales, new store growth, what that means for overall revenue growth and then margin profile of the business, just at a high level?

Yes. Yes, as I put out those growth targets, I would tell you that Jon and I got together, and we discussed what are the long-term targets for this company, and to phrase that for the investors, that is looking at probably a 5- to 7-year target. Obviously, 300 stores was one of those points. As we look at the profitability of the business, the adjusted EBITDA in the mid- to high single digits, it is a good marker for how we think about operating this business. And then same-store sales growth, obviously, we are going to have some tough comps coming out of 2 years where we have seen same-store sales growth on a 2-year CAGR of 30-plus percent. That is unsustainable. So I think in the near term, there may be some tough comps. In our recent investor deck, we noted that for the 8 weeks same-store sales were down 6%. As we think about the single -- low to single-digit same-store sales growth, we view that as the way that we acquire customers, the retention of the customer and capturing their additional spend. And then kind of the headwinds that we see operating the business into the near term is I think we're going to continue to see pressure on our margin profile from freight. As we look at the freight situation in this country, we have a severe shortage of truck drivers. And as we continue to move freight to our various stores, I think that is going to continue to put pressure on our gross margin profile. If we look at international freight, 18 months ago, we were paying $4,000 for a 40-foot container coming from China. As we sit here today, we're paying roughly $20,000. I do think in the future, that comes back down. I don't think we ever return to $4,000 for that container. But I do think we'd come down from the $20,000 that we're seeing currently. As we look at those pressures, the company is going to continue to look at ways to offset that pressure to our gross margin. We will continue to adjust pricing where we can. We have always considered ourselves, one of our key competitive advantages to be a low-cost leader. So we'll look at pricing on a SKU-by-SKU basis, and I can say that we're doing that actively as we sit here today. And we'll adjust where we feel there's elasticity and the consumer can absorb that with us still being that low-cost leader. And then we'll look at different ways to move freight around this country to kind of offset those headwinds that we're seeing. As we look at gross margin profile going into the future, I would say, historically, we've seen this company has always run in that 33.5%, 33.7% gross margin profile. I would say that, that is probably a good indicator of where we see this in the future as we make adjustments to account for the margin pressures that we've seen for the last couple of years.

And just to clarify, Jeff, on the freight comments. I mean what we've seen just broadly across every industry is those freight headwinds for a while now. So I guess, have you seen an incremental change where it's gotten worse? Or is this just a continuation of what we've been experiencing for the last several quarters and really 2 years, quite frankly?

Yes. I think it's more a continuation of what we've seen, especially in our business over the last 2 quarters. If you kind of look at the margin degradation that we have had over the last 2 or 3 quarters, I think that is kind of how we're viewing a continuation of those freight headwinds.

Good. One last one here just to kind of sum things up. I mean business is going very well. You guys are generating a lot of money, a lot of free cash flow. Balance sheet's in the best shape it's ever been, 3, 4x levered a couple of years ago, net cash position today, very enviable position. So I guess, how do you think about the balance sheet? How do you think about capitalization of this business? Anything at a high level you can share there?

Yes. I would tell you that from a management view, obviously, we know that the 0 leverage that we have right now is not ideal, and there is a healthy level of leverage to have on our balance sheet in order to use our free cash flow and our availability to grow this business. As Jon and I sit here as managers, I would tell you that our focus is using our availability and our cash on hand to grow this business, whether that be organically through new store growth, whether that be through an e-commerce investment, the investment in omnichannel or whether that be through potential strategic acquisitions. And as we talk about acquisitions, we may look at some e-commerce pure-play businesses. We may look at some local mom-and-pop stores like Jon discussed or we may look at a combination of both. So as managers, I think our focus is to grow the business while maintaining a conservative leverage ratio. Jon and I are both conservative individuals. So I think you will see us communicate in the future a target of leverage that we are comfortable with to where we feel we can grow this business but then we can also weather any downturns in this industry. We've both been involved in this industry for a number of years, and we know that the cyclicality does put pressure on the business during those downturns. I would tell you that from a Board perspective, there are active conversations about what the capital allocation strategy is and how we manage a healthy balance sheet along with looking at any potential return of capital to shareholders. So those are active conversations, but there is a balance of growing the business and managing it from the Board perspective. One thing to emphasize there is for the last 12 months, we have operated this business with the assumption that a merger was going to go through. So setting up long-term strategies on capital allocation and leverage strategy was not on the front of our mind. It was obviously focusing on what we had at hand, getting the acquisition. With that being terminated barely over a month ago, we as a management team and in conjunction with the Board are prioritizing how we're viewing the future of this business and what a healthy business looks like going forward.

Great. Look forward to more to come there. I'm going to wrap it up there, aimed for 45 minutes here as I don't want to get too long-winded, but nice job executing, guys, the last several years. And it sounds like a lot of good opportunities going forward. Thank you for everyone else who've joined. Jon, Jeff, thank you, and we'll end it there.

Thank you.

Thanks, Ryan.

Have a great day.

Thanks, everyone.

Bye-bye.