Academy Sports and Outdoors, Inc. reported earnings on an adjusted basis declined slightly in the third quarter ended October 29 against difficult year-ago comparisons but topped Wall Street expectations. Same-store sales were down 7.2 percent with overall sales coming in below analyst targets. Sales were up 30.5 percent versus the pre-pandemic 2019 third quarter.
Earnings on an adjusted basis of $1.69 exceeded Wall Street’s consensus estimate of $1.61. Sales of $1.49 billion were below the consensus estimate of $1.55 billion.
Unless otherwise indicated, comparisons are to the same period in the prior fiscal year. Comparisons to 2019 are also provided, where appropriate, to benchmark performance given the impact of the pandemic in 2020 and 2021.
Third Quarter 2022 Results
“The third quarter was challenging for Academy; however, we delivered a good profit performance that, while below last year, was in line with our expectations. Our team continues to execute at a high level in an uncertain environment, delivering results well above pre-pandemic levels on all measures,” stated Ken Hicks, chairman, president and chief executive officer. “Our focus is on our long-term growth opportunities in stores and online through consistent operational excellence, strong financial discipline, and executing our store and omnichannel expansion plans.”
Net sales were $1.49 billion, a decrease of 6.2 percent, compared to $1.59 billion. Comparable sales declined 7.2 percent. The decline in sales was primarily due to fewer transactions compared to last year, mainly from a decline in Hunting sales within the Outdoors division. When compared to the third quarter of 2019, net sales increased 30.5 percent. Additionally, e-commerce sales grew 10.5 percent year-over-year and 173 percent compared to 2019.
Gross margin was $522.5 million, or 35.0 percent of net sales, compared to gross margin of $560.8 million, or 35.2 percent of net sales in the prior-year quarter. The 20 basis point decline was driven primarily by an increase in inventory shrink and e-commerce shipping costs, and was partially offset by an increase in merchandise margins. When compared to 2019, the gross margin rate expanded by 340 basis points.
SG&A expenses were 23.0 percent of sales, a 140 basis point increase, primarily due to fixed cost deleverage from the decline in sales and additional pre-opening expenses driven by the increase in store count.
Pre-tax income was $169.9 million compared to $205.3 million. When compared to the third quarter of 2019, pre-tax income increased by more than 480 percent.
GAAP net income decreased 18.3 percent to $131.7 million compared to $161.3 million. Diluted earnings per share were $1.62, a 5.8 percent decrease compared to $1.72 per share based on a share count of 81.4 million shares compared to 93.8 million at the end of the third quarter of 2021.
Adjusted net income, which excludes the impact of certain non-cash and extraordinary items, was $137.9 million. Adjusted diluted earnings per share were $1.69 compared to $1.75 per share.
Year-To-Date 2022 Results
Net sales decreased 6.4 percent to $4.65 billion, while comparable sales decreased 6.9 percent. Year-to-date sales grew 34.4 percent compared to 2019.
Gross margin was $1.64 billion, or 35.3 percent of net sales, compared to gross margin of $1.77 billion, or 35.6 percent of net sales. When compared to year-to-date 2019, the gross margin rate expanded by 460 basis points.
Pre-tax income was $612.2 million compared to $671.1 million. When compared to year-to-date 2019 results, pre-tax income increased by more than 485 percent.
GAAP net income decreased 11.2 percent to $470.3 million compared to $529.6 million. Diluted earnings per share were $5.54 compared to $5.55 per share.
Adjusted net income, which excludes the impact of certain non-cash and extraordinary items, decreased 14.9 percent to $486.0 million. Adjusted diluted earnings per share were $5.72 compared to $5.98 per share.
Balance Sheet and Capital Allocation Update
At the end of the third quarter, the company’s cash and cash equivalents totaled $318.2 million with no borrowings under the $1.0 billion credit facility. During the quarter, net cash provided by operating activities was $50.8 million.
Merchandise inventories were $1.5 billion, an increase of 12.8 percent compared to the third quarter 2021. When compared to the third quarter of 2019, inventories were 12.3 percent higher in dollars, while units declined by 10.0 percent.
During the third quarter, Academy returned $106.8 million to stockholders through a combination of share repurchases and dividends. The company repurchased 2.2 million shares for $100.8 million and paid a quarterly cash dividend of $0.075 per share, or $6.0 million.
Year-to-date, the company has repurchased 10.0 million shares for $389.4 million and has approximately $400 million remaining under its share repurchase program.
Subsequent to the end of the third quarter, on December 6, 2022, Academy announced that its Board of Directors declared a quarterly cash dividend with respect to the quarter ended October 29, 2022, of $0.075 per share of common stock. The dividend is payable on January 13, 2023, to stockholders of record as of the close of business on December 20, 2022.
New Store Openings
During the third quarter, Academy opened four new stores and has since opened three new stores in the fourth quarter, bringing the total number of stores opened in 2022 to nine, for a total of 268 stores. The company expects to open 80 to 100 stores over the next five years.
“Our year-to-date operating income has now surpassed that of fiscal 2019 and 2020 combined. This is a clear indicator that the operational and organizational improvements made over the past few years have structurally changed the earnings power of the company and positioned us for future growth,” said Michael Mullican, executive vice president and chief financial officer. “As we close out the year, we remain focused on providing our customers with excellent service, broad assortments and value offerings.”
Academy’s updated outlook calls for:
- Sales in the range of $6,430 million and $6,490 million (previously, $6,430 million and $6,630 million);
- Comparable sales in the range of negative 6.0 percent to negative 5.0 percent (previously, negative 6.0 percent to negative 3.0 percent);
- Gross margin rate in the range of 34.0 percent to 34.5 percent (previously, 33.0 percent to 33.5 percent);
- GAAP income before taxes in the range of $790.0 million to $810.0 million (prior, $725.0 million to $805.0 million);
- GAAP earnings per common share, diluted in the range of $7.25 to $7.40 (prior, $6.50 to $7.25);
- Adjusted earnings per common share, diluted in the range of $7.50 to $7.65 (prior, $6.75 to $7.50); and
- Diluted weighted average common shares outstanding in the range of 84.0 million to 84.0 million (prior, 85.0 million to 85.0 million).
Photo courtesy Academy Sports