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

I want to welcome everybody to our fireside chat group call here with Sportsman's Warehouse this afternoon. I want to thank everybody for joining. We have Jon Barker, CEO; and Jeff White, CFO, joining us today. We're going to go through, and I will be facilitating questions, asking questions to management and they'll be answering. [Operator Instructions]. But going to start it right off. Jon and Jeff, thank you, guys for being here. For some of the new investors on the call, I think it would be helpful just to understand what Sportsman's Warehouse does, who your customers are, what the industry is, how big its, kind of walk us through the basics of Sportsman's Warehouse.

Great. Thank you, Mark. good morning, everyone. And thanks for taking the time to join Jeff and I this morning on the Lake Street video chat. Little bit of background for those of you who might not be familiar with Sportsman's Warehouse. We are an outdoor sporting goods especially omnichannel retailer. We were started in 1986 in Salt Lake City, Utah. We continue to be based in -- our corporate office is based in Utah. We do have a 122 stores today, spread across 29 states. We operate as far northwest as Fairbanks, Alaska and the southeast to Lady Lake. Our business has been built on outdoor activities with a strong position in the hunting and shooting categories as a foundation for our business dating back to the very beginning. We serve all types of consumers from the entry level, first time, individual to the expert in the categories we serve. The product within our store and our website aligns well with the outdoor activities that we support, which is the hunting and shooting sports, fishing, camping, hiking, snow shooting, anything related to that, including technical apparel, footwear and accessories that support those activities. As we think about where the business has come from and where it is today, again, as a family-started business, went public in 2013, I believe, Jeff, correct me. Over the last few years, we have been the fastest-growing outdoor sporting goods retailer in America opening, I think, on an average of 10 stores a year, complemented by the fact that our investments in our website and our omnichannel platform have started to pay off materially for the organization. Reverting back to, say, 2018, about 2% of our business was coming from the website where we were an $800 million business. As we sit here today, mid-teens of our overall revenue is now being driven by the website, which provides us significant opportunities to continue to grow our reach and acquire customers and retain them outside of our geographic areas. As we think through to the future, our business has growth opportunities, not only on the website, as I referenced a moment ago, but also in continuing to expand our store footprint using our flexible store format. One of the unique differentiators of Sportsman's Warehouse as compared to some of our competitors, such as Bass Pro, Cabela's Scheels our ability to go into a market, evaluate the market demands and participation and size our store relative to those areas while maintaining the financial requirements that each store must meet. Today, we operate stores as small as 7,500 square feet up to 65,000 square feet with the sweet spot of the business starting in that 30,000 square foot range. We are not scared to go above 30,000 and we're certainly not reluctant to go under 30,000 if the market will support it. And I'll give a couple of examples of that. We will open a store in Riverton, Wyoming this year. It is 10,000 square feet. I'm not aware of any other competitor that would be comfortable or successful opening a store in Riverton, Wyoming. We opened last year in Grand Island, Nebraska and while many thought that, that might be a challenge given it was Nebraska, the home of Cabela's, that store has been extremely successful, given its size and layout. As we think about the future, we will continue to expand our geographic reach. Our strategy is to add new stores within roughly 100 miles of existing stores, so that we can leverage the supply chain and marketing of the business to maintain our financial commitments. With that said, if we find an opportunity such as the Lady Lakes, Florida area that we entered into last year, we will certainly evaluate each of those markets uniquely and use a combination of data and our own boots on the ground to make a decision to enter into those markets. As we sit here today, we've announced 7 to 9 -- 7 to 10 new stores for 2022, that is somewhat limited by the time line of the merger agreement termination, given the timing for leases, permitting and construction, 7 to 10 is a range that we think is aggressive but achievable for '22. As we think about the future, there certainly could be more opportunities. Holistically, with 122 stores, 29 states, we see a path to 300 over the long term. We have roughly 100 store locations at any one time in our funnel that we're reviewing. That's, I think, a high-level background on the business, Mark. Certainly happy to fill in any blanks I may have missed.

No, that's helpful. What I'd like to dig into a little bit, and I know that there's a lot that's happened, but maybe walk us through the last 18 months of history. Results during the pandemic, the proposed merger, what happened and kind of where the business is today.

I'm actually going to go back slightly further if you don't mind, Mark. Because if you go back to late 2019, there were several dynamics happening in the outdoor market that I think are relevant to investors to understand. Dick's had announced their exit of certain categories and classes of firearms and ammunition after the Parkland event. Not too far thereafter, Walmart determined they were going to exit a large portion of their ammunition. And in late 2019, we saw significant pressure on pricing in ammunition as Walmart exited that category. We made the decision at that time to hold our margins within reason, and we did see pressure on the top line revenue during 2019. We expect it to enter into 2020 with the ability to use our omnichannel platform, which was fully functional at the beginning of 2020 and gain market share across the shooting sports category as Dick's and Walmart had exited in a material way. At that same point, COVID started to enter into our country, and we saw lumpiness throughout the business with extreme demand cycles in certain classes such as firearms, ammunition, prep-related products, camping, et cetera. As we got into the summer of 2020, we started to see participation in the outdoors increase to a rate we had not seen in years across our country, with camping and fishing activity growing nicely. And our store base moved from less of lumpiness on firearms, ammunition and prep into really strong demand across all outdoor activities. And while we were navigating, some stores being closed and some regulatory requirements where we couldn't sell certain products in certain states, et cetera, we had a fantastic mid and back half of 2020. As we entered into 2021, we were certainly unable to forecast what might be coming down the road. And at the same time, we have just signed an agreement to sell the business to Johnny Morris and the Great American Outdoors Group. As we entered into '21, what we saw was a continued demand across the business in all categories as we put out in our holiday earnings, we saw the business see significant increases. So 2021 ended up being a better year on top line revenue than 2020. And I think we would not have forecasted that at the end of 2020. During that merger agreement, as you might imagine, we did have some limitations on what we were able to execute upon, even though we were operating separately and there was very little conversation within -- or between the 2 parties, given our competitive nature, there was some timing limitations and some expansion limitations. So as we think about some of the key strategic initiatives for the business, such as store growth, I mentioned earlier, was slightly delayed by the merger agreement, which was in place for nearly 1 year. The other one that I think was somewhat delayed is our private label program. With about 3% of our business running through private label, we see an opportunity to grow that to high single digits. We do not see a path to growing at 25% or 30%, like some other retailers, and that is driven by the fact that our store format being smaller on average than the competition does require us to find a good balance between the brands consumers expect and private label fillers. The other thing worth mentioning, as you might imagine, we have built great relationships with vendors for over 30 years, and we were a recipient of those relationships in 2020 through allocation and exclusive product and first to market. The merger agreement, I do believe, has some impact on those relationships as vendors were rational -- or vendors were determining what the outcome would be of the combined entities of Great American Outdoors Group, which it would include Bass Pro, Cabela's and then Sportsman's Warehouse. As we terminated the agreement -- the conversations that we are having or have had to this point with vendors, would indicate we are in a very, very positive place with those vendors to leverage what we -- relationships we have built and they're certainly excited about the fact that Sportsman's Warehouse will continue as a separate and competing operating entity to Bass Pro and Cabela's. So we see that as an opportunity to reinvigorate our allocation and our product, as well as some of the marketing activities that we previously enjoyed with those vendors.

Okay. You talked a lot about shooting sports and the outdoor industry and kind of the changes that we've seen here, pandemic, deep on the police kind of movement, we've seen over the last almost 2 years now, and this is the big question that I constantly get asked, and so I'm going to put it on you guys. And that is, when do we return to normal and really what is normal, especially as we look at the shooting sports industry? Is there a new normal that we fall back to perhaps in 2022, or perhaps beyond?

Yes, Mark, that's a great question. A little bit of context on that. We've seen firearms -- elevated firearms demand prior in this country 2012 election, 2013 Sandy Hook, 2016 election cycles, and then we saw the COVID-firearms demand. And what's unique about the last 2 years, the previous cycles is the fact that the previous cycles were primarily driven by existing firearms owners, who were concerned that certain products were going to be regulated and not available, right? So they were buying their second, third, fourth, fifth, 20th gun, whatever it might be. What we saw during 2020 and 2021 as an influx of first-time buyers, along with the demographic of those buyers that has been -- that is unique. We saw significant uptick in female African-American and Hispanic first-time buyers in '20 and '21. The -- one of the anecdotes that I think is we're sharing, many of those customers bought a firearm from us or another retailer, but actually could not get a box of ammunition, at the same time, they were buying the firearm, which I am -- I guess I'm pleasantly surprised by how many firearms were sold, but I'm somewhat surprised by how many firearms were sold where people could not use them during this period because of the lack of ammunition. And to me, that bodes well for the future. We've got new participants in. I think the NSSF data says that about 21% of first-time buyers will buy a second firearm. And the average firearm ownership by a firearm owner in the U.S. is 5. So we see that as an opportunity to reengage with those customers on their firearm. We provide education services in all of our stores through third parties. There's literally thousands of those classes that run annually within our store format. So we see that as an opportunity to reengage those first-time buyers, educate those first-time buyers, provide accessories, including security, cleaning, optics, and then ultimately, ammunition to start participating in those firearms as upside in the long term. Does that mean the absolute number of firearms sold in 2022 will exceed 2021 or 2020, I would have a hard time predicting that just given the elevated numbers as I'm sure most of you have seen in the adjusted mix. But the reality is, we have an entirely new participant group in the shooting sports that we have an opportunity as an industry and certainly at Sportsman's Warehouse to engage with and continue to have them participate in the sport. So there's a little bit of a trade-off there, Mark. I think gun sales themselves maybe going to see some headwinds. But I think the participation and the opportunity to reengage those customers is immense as we look forward.

Yes, Mark, I want to highlight 1 statistic from the NSSF is that there were 12 million new firearm owners that entered the market in the last 18 months, that is a step function increase in our existing customer base. So if we think about a return to normal and normal being back in 2019, I have a hard time of a return to normal in the firearm and shooting sports industry given the fact that 12 million new participants have entered into this market. And to Jon's point, they have not been able to actively use their purchase for the last 18 to 24 months.

No, it's a good point. We certainly like the industry and the changes that we've seen. Jon, it doesn't seem like it was that long ago. In late 2020 that we were talking about 2021 and you guys have kind of voiced that, hey, we're set up to have really the second best year ever in 2021 and it turns out that 2021 certainly looks like from a sales perspective, could surpass 2020. So we're encouraged by that. We've talked about shooting sports quite a bit. I just want to look because your store -- your stores obviously have other categories besides shooting sports. Where are you seeing growth? Where are some strengths or weaknesses? Can you talk about the other categories within the store and how they're performing?

Yes. It's a good question and a good point, Mark. We have focused a lot on shooting sports. And obviously, we're very committed to that segment of this industry. That customer by far has the highest lifetime value. But what we have been very pleasantly surprised with is the overall growth of other categories in our business. Kind of going back to the walk-through that Jon provided of 2020 and 2021, we saw outdoor participation rates increased to levels that we had never seen historically. There were reports out there, the fishing license sales, hunting license sales were at all-time high. Finding a camping spot out here in the West. If you don't have a reservation right now for 2022, you are not getting a camping spot. And then other reports that we've seen point to highest visitation or visitor rates in our national parks. So as we look at all of those factors combined, and then you look at our sales in other key categories, such as camping, fishing, apparel, footwear, we are seeing an overall uptick and a very positive trend in participation. And as we look towards the future, we do not foresee that that's going to stop. There's a customer base now that has found a new way to recreate. They've made an investment, and they found that they don't have to do their vacation to Europe. They may not need to go to Disney World. They may -- their are ways of vacationing as a family may have changed. And I think there is some stickiness to that change. So we highlighted in our holiday earnings release, without -- if we excluded firearms and ammunitions, our same-store sales were up 2.8% for the holiday season. That is an incredible show of strength in our other key categories. One thing that I think has been missed given the whole COVID environment that we've operated in for 2 years is, a few years ago, we made a conscious decision to look at our merchandising strategy in those other categories, particularly in apparel and footwear. We always want to offer the consumer a variety of entry points into those categories on the price point level, but we have shifted our merchandising strategy to be more geared towards a technical side. And so as we've expanded our vendors and our product offering and those segments of our business, we've seen very healthy increases in those items. And I think that's something that as we look to 2022, we're not foreseeing participation rates dropping, in fact, I think people are going to continue to recreate outdoors. As I think about inflationary pressures, what that does to the consumers ability to spend on more of those elaborate vacations maybe to Europe, it does reduce the expendable income and drive them to find less expensive ways to recreate, which most likely ends up pushing them to the outdoors. So we're very excited. We're happy with where we've come from. We know that there's a lot of room for us to grow, and we're going to continue to look to ways that we can expand our presence in those other categories outside of shooting sports to better serve our customer and capture more market share with that consumer.

Jon, you talked a little bit about store openings and kind of your plans here for this year. Talk about just geographically, your opportunities. Your footprint is largely in the West. Do you feel that there's an opportunity in the South, in the East? Where do you think you can build it? And then if you can just reiterate again kind of your -- how big do you think Sportsman's can be from a store count perspective?

Absolutely, Mark. Our base is in the West and a majority of our stores are going to be West in the Mississippi, but we have ventured outside the west in to the east and the Southeast and seen great success. Again, the model, road map is to find locations within 100 miles of an existing store. You've seen us do that. An example I'll give on that one is we just announced we're going to open on the East side of Cincinnati on East Gate area. That's about 30, 35 miles from the Crescent Springs store and the Crescent Springs store is about 90 miles north of the Lexington store and you get over in the Morgantown from there and then into Pennsylvania. What we've seen, Mark, as we've entered into these new geographic areas, if we get our assortment correct, which we've been very successful in doing to this part, the customer will respond. Customers want the opportunity to get the brands, they want to serve the activities they participate in, in a value-based environment, right? Everybody likes the value and our stores tell the story of it, our pricing tells the story of it. The other piece of it is, I love a destination personally. And look, I like looking at ferris wheels and fishing tanks and those type of things. But I think at the end of the day, our average customer wants to get in, get their flies and go fishing, not walk around for 1.5 hours to try to find their way navigating 0.25 million square foot store. So what we've seen even in places that I was reluctant, and I'll use New York as a reluctant area, I was uncomfortable when we started talking about going into the 2 stores in Central New York. And what I found is there was absolutely an underserved market there, and we've seen those stores be extremely successful. So as I think about the future, I would not exclude parts of the East into our expansion. We've done a really nice job in the Carolinas. We're in West Virginia, Virginia and Kentucky. We'll move into Ohio. We have stores now in Indiana, a couple of them. We've got 3 or 4 in Michigan already opened. Pennsylvania, I think we have 6 stores today. We had zero 3 years ago. So I think it's a testament that's what's possible for us to expand. The Florida market itself, again, the villages Lady Lakes area is one of the fastest-growing areas in America. We went into a Stein Mart box that was closed due to their bankruptcy and the response from the local market has been fantastic. So that leads us to believe there could be other areas, such as Lady Lakes, that we want to think differently about and expand. So again, we serve today all the way from Fairbanks to Lady Lakes, Florida, which is a testament to the merchandising team's ability to localize and -- regionalize and localize that assortment to what the needs are of that customer. So as we think about expansion in a perfect world, we'd been 100 miles away from an existing store. But if an opportunity arises, we will absolutely pursue that opportunity. As we think about store expansion and the opportunity for acquisitions, we are always looking for opportunities where an independent retailer might be ready to retire, where their store assets available, such as I mentioned, with Stein Mart, certainly, we had great success with the 12 Field & Stream. So as we think about the future of store expansion, it is a combination of build from the ground up like we will do in Riverton, Wyoming and Tooele, Utah this year and may include buying stores in a thoughtful way. And when I say that, it's a few stores from an independent dealer at a time to expand our footprint, as we've expanded that footprint, Mark, I think you would probably connect the dots that there's also increased demand on the website in that geographic area that all work in conjunction to rise all boats in that geography. So we use the website as a template where there's demand that we're underserving and then we may move our real estate strategy to that. I'll use San Diego as an example. We have 14 stores today in California with the concentration of those in Northern California. What we've seen from our website, though is significant demand in our products in Southern California. And that has led us to look at Southern California differently than we would have 3 or 4 years ago, and we will open [indiscernible], California, which is the Northeast part of San Diego this year. So those are some of the leading factors that can help us identify markets that historically we may not have seen on our radar.

Mark, as we talked about the expansion of our store base, there's one thing I want to call out for the investors that are on the call is, with this expansion, it is -- it will eventually require us to expand our distribution capabilities. I will give some background on that, that prior to the -- to us entering into the merger agreement with Great American Outdoors Group, we did have plans to open a distribution center more towards the eastern side of the United States. With that merger agreement, those plans were put on hold. As we think about capital outlook for 2022, there was a range that was provided. I want to inform everyone that there is not a distribution center that is in that capital outlay. We may -- we were late to the construction game. So getting a distribution center up and running for 2022 is not in the cards. We will look at a temporary space. You will see us push more inventory out to our stores and use those as many distribution centers. That's part of the omnichannel growth that we have pushed through over the last few years as we are now able to leverage that inventory out in the stores more effectively. But as we think about 2023, we will absolutely need additional distribution space. And you will see us look to center that more towards serving the eastern side of the United States. So I want to make sure everyone is clear that that's not in our 2022 capital outlay. But as we start communicating more future plans, you will see that being communicated. I will highlight, though, that we do not plan on doing an expensive distribution center. We tend to keep it down to rack and heavy machinery. We do not have a lot of leeway into full automation given the breadth and depth of our product assortment. It's hard -- we're shipping anything from a fishing glue to a kayak. So going into a full automation and heavy investments into a distribution center is not in the cards, it is a smaller capital outlay compared to what it could be.

Okay. That's a good point. And that actually leads to the next question that I have and a couple of people in the chat have asked a very similar question. And Jon, I don't think this will be a surprise to you. You guys have a pretty good balance sheet, certainly helped with $55 million breakup fee. You've shown an ability to drive some strong free cash flow. Can you talk about capital allocation and potentially opportunity to return cash to shareholders.

Yes, Mark, let me cover a couple of points on that. So I will tell you that from a management perspective, Jon and I's perspective, managing this business, our goal right now and our focus is to look at ways that we can grow this business, accelerate growth. And Jon has touched on a few of those. Obviously, the models will show that we effectively fund our store growth through cash flow from operations. I don't think that, that is a secret. I think that's something that can easily be calculated. As we look at other opportunities to use the health of our balance sheet, going to some of the points that Jon made, we are going to continue to look at the expansion through strategic acquisitions. And to Jon's point, that could be a regional local mom and pops or that could be a few stores here and there, that could be in the e-commerce field, that could be an e-com pure play, it could be an omnichannel-type retailer. There's a variety of things that we're looking on, and we're just getting that pipeline going again. We had been out of that for well over a year. So we obviously have a variety of lines in the water, and we're looking at the best way that we can leverage our balance sheet while making sure that the acquisitions that we would execute on are accretive to this business or in some form of adjacency. I don't think you'll see us going outside of our core competencies when it comes to potential acquisitions. As we think about capital allocation from Jon and I and a Board perspective, I would tell you that those are active conversations that are occurring as we sit here today. I would phrase this up, though, as we went through 12 months of operating with the Board in a structure where we were working towards the closure of a merger. And so capital allocation strategies were not on the front of the conversations that occurred for the better part of the year. Obviously, the merger terminated in a very expeditious manner. And as we've come out of that, there have been active conversations about the future of this business, how we, as management and the Board view our liquidity and acceptable or comfortable leverage ratio and then how we're going to use that capital to do a combination of grow this business, as well as a potential return of shareholder capital through a variety of means. So I will just -- I'll leave it at, it's an active conversation and it is something that we have been actively discussing since the termination, but it is something that the Board and Jon and I want to make sure we think through thoughtfully to ensure the future health of this business.

That's helpful. It sounds like the focus is really on the business and growth and any excess capital is just stay tuned. And then as we look at inventory, and this is kind of a 2-part question. Inventory was obviously very depleted throughout this kind of surge in strong demand environment. Talk to us about twofold, where your inventory levels are today? And then even specifically, what you're seeing on inventories on firearms and then on ammunition today?

Yes. Let me walk you through -- let's go through a little story through inventory. So we ended 2020 at a very depleted level of inventory. The inventory levels on a per store basis were nowhere near where we wanted them to be, and it showed. If you walked into our stores, you could see the holes on the shelves, you could see that the stores were a little anemic. So what we have done over 2021 is rebuild those inventory levels. And as we sit here today, with the inventory forecast that I gave for the end of the year, that represents a healthier position for stores on a per-store basis. And it puts us at a level where we feel more comfortable with our customer walking in the doors and being able to find the product that they want. Now diving into some of the key things that you mentioned there. On the firearms side, I would tell you that we are very happy with where we are going to end the year at from a firearm in-stock perspective. There are obviously a few firearms here and there. There may be some one-offs that we wish we had. But from a firearm perspective, we're very happy with where we're going to end the year at. On the ammunition front, what we saw through the holiday season was a better return of in-stocks in some categories of ammunition, your Natal rounds, your 556, 223 and then our target handgun ammunition, 9-millimeter, 45 ACP, those types of ammunitions return to a better in-stock to where you could possibly walk into our stores on multiple days during the week and find in stock instead of having to be there, when they were unloading it from the truck and grabbing it off the pallet. So as we look at where we're at, at the end of the year, again, very happy with those types of ammunition, there is still a significant shortage in this country when it comes to certain types of shop and shelves. For those that may do any waterfowl hunting, you would have been hard-pressed this season to find any steel shop in this country. So that is an area that we are still seeing continued weakness. And that's something, as we walk into the upcoming turkey season that we hope we can get in stock and be in stock for this upcoming season. The other area that we are still seeing significant shortages in is premium centerfire rifle ammunition. And that would be used in your long-range target shooting activities and your hunting activities. So as we look towards 2022, we are excited about the opportunity that is ahead when we come back in stock and we approach the hunting season and in a better in-stock position than we were in 2021. One more highlight that I would point out, and I think we mentioned it earlier, but -- we effectively have turned off certain classes of our product, ammunition being the key one from our website in October of 2020, and we're barely turning those items back on to our website. So as we think about 2022 and getting back in stock in ammunition, being able to show our full assortment of ammunition on our website is something that excites Jon and I as we think about the future.

Perfect. And then this next question is partly from a participant on the call. I want to talk about loyalty programs. We've seen a lot of new customers come in over the last year or 2. How is your loyalty program running today? What kind of engagement are you seeing? And what's the potential for repeat customers?

Yes. To walk through the loyalty program, just to put some context to where we came from. We started that program roughly 7 years ago. I would say, at the end of the first year, we had roughly 100,000 people signed up and it was pumping 10% of our revenue for a $700 million business through that loyalty program. As we sit here today, we're sitting on a loyalty file of over 3 million members. And that program, that loyalty customer is representing approximately 50% of our revenue. So it's a very healthy program. What we've introduced in the last couple of years to augment that loyalty program is the -- it's kind of twofold. It's one, our e-mail database, the growth of our e-mail database that we've seen over the last couple of years has been immense. And the ability to leverage that data and to market to those individuals is something that excites us going to the future. I would say that to give some context to 2021, Jon mentioned it, we had effectively turned off certain types of digital marketing due to the fact that we just didn't need to market with the demand far outstripping than supply. So as we look to the future, being able to digitally market to individual, leveraging our e-mail database to connect with that consumer and have some repeat consumers come in, that's something that excites us. The other thing I want to focus on is the credit card program that was launched 2 years ago. We, as a company, have always historically had a co-branded credit card. We have -- that was an old partner. And that program was never anything material, and it never had good lights on it to grow. A couple of years ago, we partnered with Comenity on a co-branded credit card. And when we launched that, we made sure that we looked at the features of that credit card to ensure that it had industry leading benefits for those that signed up. That credit card program launched a little over 2 years ago. And what we've seen in this last year is an over 200% growth in the base of that credit card program. As we think about that growth, I would put -- I would say that, that growth has mainly been organic. That has been through attachment at point of sale through our cashiers selling that. We have put very little marketing or advertising dollars into pushing that program to the extent that we think it could be. So as we think about the future, that program excites us, we're still in its infancy, and we're still becoming accustomed to the credit card industry. And as we get our heads wrapped around what we can do and how we can leverage that to better connect with our customer, we're excited about the growth opportunities that presents.

Okay. Then as we think about growth, Jon, you talked about store growth opportunities, and you guys have been pretty successful at taking over some empty boxes in that strategy. Walk us through just your strategy, how you think about growth in doing it the right way and getting the best ROI? And then as you talked a little bit about potential for acquisitions as you look at e-com, anything like that? Any insight into kind of how you look at valuation or what you would pay on acquisitions?

Let's talk about the organic store growth first, Mark. Everybody is aware, if you've done any construction personally, how expensive it has become to construct new, anything, new buildings, new homes, new retail. So as we look at markets, and I'm going to pick on -- let's pick on the Eastgate store in Cincinnati that will open soon, we can pick on Lady Lakes, Florida at the same time. Both of those stores are Stein Marts that were closed -- pardon me, Stein Marts that were closed during their bankruptcy and they actually have very, very nice stores that kind of fit our general parameters at mid-20,000 to low 30,000 square foot range. As we look at each of those markets and we decide we want to be into a market -- again, let's pick Lady Lakes. And we evaluate the cost to construct a new store in the same general area, what we find as the return on investment tends to be more challenging just because of the cost of construction. So for us to keep our cost structure low, pricing low for customers and to return the investment to profitability for shareholders, we tend to be focused on second generation real estate. Now that's not a hard and fast rule. I am going to use 2 other examples. We're going to open Riverton, Wyoming and Tooele, Utah this year with ground up construction. these are new prototype buildings. they are value engineered steel building with a very nice facade on the front. there are going to be 10,000 square foot stores. So if you think about some of the other retailers with those types square footage, you will be similar in construction, this is somewhat unique, right? It provides us an opportunity to build a store in a square footage we want, but also value engineer it as we look to make sure we hit our hurdles in our return on invested capital. So we will do both where it makes sense. We are not scared to go larger. If we found a market with a 40,000, 50,000, 60,000 square foot store that would support that scale of a store, we will absolutely do that. We did it with 12 Field & Stream over a couple of year period. And I will tell you, every one of those stores has performed exceptionally well, and we've learned a lot from those formats, layouts and sizes that would provide us an opportunity to leverage that experience in others. So that's how we think about the square foot -- the store growth. The same applies in potential independent or local small chain. And when I say small chain, I think of 1 to 5 stores. I have no interest in 5,000 square foot gun shops. Those are just not a model that can provide the full breadth of inventory that a customer needs, and frankly, the full breadth of departments we need to make the financial hurdles. But if we find the right format in that 10,000 to 50,000 square foot stores, we will absolutely pursue that. It could be Stein Mart type business that the stores are closed, could be an operating business like the Field & Stream stores we purchased prior whether it's existing inventory and the staff and the ownership might desire to move on and retire or exit the category. So it has to meet those criteria. And if it doesn't, we're going to pass, and we're going to move on. We do not feel that we need to settle in any way to expand our store footprint. We are thoughtful in every store. It runs through a combination of external data analysis from a SaaS model and our brokers and then it runs through our own internal modeling and then it's boots on the ground. And as we sit here today, I think there's probably lots of real estate being looked at this week and some of those locations in the funnel that I might be interested in. The team is going to come back and say, we don't want to be in this market or we don't want to be in the center for the following reasons. We mark those off and we move on. We do have about 100 locations today that are in our funnel to look at over the coming year, certainly with a path to 300 locations is in the road map over the long term. Again, we'll open 7 to 10 this year. I could see that increasing slightly over time as we have more timing, bandwidth and resources to support that. On the acquisition front, as it relates to any -- and I want to make sure that I don't miscommunicate. As we think about acquisitions, we're not thinking about major purchases. We're thinking about accretive businesses that will provide opportunities through websites, websites in stores, stores only to expand our footprint, maybe enter into new adjacent categories and certainly enter into acquiring new and adjacent customers into the database.

That makes sense. And while we're talking about valuation and things that are attractive to purchase, we certainly think that your stock is currently undervalued and attractively priced down here. This might be the last question, but anything that you think investors are currently missing or not understanding about the Sportsman's Warehouse story today?

It's a good question, Mark. We've covered a lot of topics that I think Jon and I would highlight on this call today. I think this was very informative on how we view the business, the strength where we're at. If I were to give you a two sentence takeaway, we -- this business has fundamentally changed in the last few years. We have come from a point where we were higher levered than we than we are now. We have a very healthy balance sheet. This industry has changed significantly over the last few years. The number of participants has increased materially and our ability to capture that market share has changed significantly over the last few years. We have made business investments and executed on key initiatives in order for us to be successful in capturing and retaining those customers. So as I think about this business and the future prospects, I think the ability for us to continue to engage our customer, capture new market share and grow this business is what's important, as I say here today for the investors to focus on. That, coupled with the overall health of our balance sheet and our ability to execute on strategic initiatives is something that's important to keep in mind.

That's perfect. I think we are, unfortunately, at the end of our time here today. But I want to thank Jon, Jeff, I want to thank you both for taking the time speaking with us today and with investors. I want to thank all those that are participating on the call for your time today. We like the Sportsman's Warehouse story. I think this is a great opportunity and investment at these current levels. So Jon, Jeff, thank you. And with that, we will close our meeting. Thanks.

Thanks, Mark. Thanks, everyone. Have a great day.