Academy Sports + Outdoors saw fourth-quarter sales come in below plan due in part to weakness in the hunt category, but strength in apparel and footwear as well as lower freight costs helped earnings easily top analyst targets. Officials also gave an upbeat outlook for 2023 due to improved inventory content, healthy demand across most categories and the benefit of its value positioning in a more-challenged economic climate.
“As we begin fiscal 2023, we anticipate that consumers will remain pressured and mindful of their spending due to the current economy with versus a backdrop our market position as a value leader is more important than ever,” said Ken Hicks, chairman, president and chief executive officer. “We appeal to a wide demographic of consumers with our everyday value proposition and broad assortment of good, better, best national and private brands to meet our customers’ needs of having fun at an affordable price.
He added that while Academy “faced pressure from the uncertain macroeconomic environment” as well as challenging year-ago comparisons in the holiday quarter, “our team effectively executed against our strategic plan, and as a result, we delivered solid earnings generated and returned a significant amount of free cash flow, grew market share and created value for our stakeholders.”
In late-afternoon trading on Thursday, shares of Academy were up $4.49, or 7.5 percent, to $64.40.
Q4 Comps Decline 5.1 Percent
In the quarter that ended January 28, sales slid 3.4 percent to $1.75 billion, falling short Wall Street’s consensus estimate of $1.81 billion. When compared to the fourth quarter of 2019, sales increased by 27.4 percent. Sales were lower than planned due to fewer transactions. Overall transactions were down 6.4 percent while average ticket size increased 1.3 percent.
Comparable sales declined 5.1 percent year over year but were up 27 percent versus the 2019 fourth quarter. Comp trends were similar to the third quarter of 2022 when comps were up 30 percent versus 2019.
E-commerce sales grew 1.4 percent compared to the prior year’s quarter and 100.0 percent compared to the fourth quarter of 2019.
Steve Lawrence, EVP and chief merchandising officer, said Academy saw the traffic patterns return to a more-normalized pre-COVID holiday season. He said, “We did not get the same pull-forward of demand in November that we’ve seen in the past couple of years when there’s scarcity of supply in the market across many key categories. Improved inventory levels across most retailers allowed customers to wait later in the calendar to take advantage of the deals they anticipated would be out there.”
Black Friday marked Academy’s highest sales day ever and Cyber Monday delivered “strong” results. The seasonal “lull” in holiday shopper activity arrived in early December before traffic picked up in the last week leading up to Christmas. Said Lawrence, “Overall, while the holiday season had its challenges, we’re pleased that we held on to the majority of the gains we’ve made in the past couple of years. “
Footwear And Apparel Lead Q4 Comp Performance
By category, Footwear and Apparel segments grew sales while Outdoors and Sports & Recreation experienced declines.
Footwear was up 2.8 percent year-over-year, driven by strength in Nike, Brooks and Skechers, as well as new brands like Hey Dude. Lawrence said, “We also continue to benefit from more controlled distribution by some of our key vendor partners as it allows us to get access to more products while also driving consumers to our stores.”
Apparel sales increased 1.8 percent over the year-ago quarter. The growth benefited from having a “much better” inventory position across cold-weather seasonal categories from key brands such as Nike and Carhart. The chain’s private label apparel offerings, including BCG, Magellan, Freely, and R.O.W., also saw gains. Said Lawrence, “These brands are packed with value and continue to be growth engines for us.”
Sports & Recreation sales were down 7.2 percent in the quarter as strength in sporting goods, or team sports, was offset by continued softness in “surge categories” such as bikes and fitness equipment that benefited consumers confined to home during the earlier stages of the pandemic.
Outdoor segment sales were down 9.3 percent. Lawrence said the hunt business remained Academy’s “biggest challenge” within its Outdoor segment and was the biggest factor in the overall sales shortfall. Sales in the hunt category were down 7 percent year-over-year but up 15 percent versus 2019.
Overall, while overall sales were down year over year, the rate of decline improved versus the third quarter.
Q4 Gross Margins Improve 40 Basis Points
Gross margins in the quarter were 32.8 percent, up 50 basis points year-over-year as a reduction in freight costs and a sales mix shift toward higher-margin soft goods categories offset more promotional activity. Gross margins improved 580 basis points versus 2019.
Merchandise margin was down 110 basis points versus last year, in line with plans. Said Lawrence, “Knowing that this year was going to be a return to a more normalized promotional holiday, we strategically layered in discounts around key time periods to help drive traffic and provide great value offerings to our customers while maintaining strong profitability.”
Fourth-quarter merchandise margins were up 490 basis points versus 2019. Said Lawrence, “We continue to attribute the majority of the gross margin gain versus 2019 to the hard work teams have done over the past couple of years around improving buying and planning and allocation disciplines and processes.”
SG&A expense in the quarter was reduced to 21.1 percent of sales from 21.3 percent a year ago.
For the fourth quarter, net income on a reported basis increased 11.2 percent to $157.7 million, or $1.97 a share, from $141.8 million, or $1.57, a year ago. Adjusted net income, which excludes the impact of certain non-cash and extraordinary items, advanced 12.5 percent to $163.5 million, or $2.04, easily surpassing Wall Street’s consensus estimate of $1.81.
For the year, sales decreased 5.6 percent to $6.40 billion and comparable sales decreased 6.4 percent. When compared to fiscal 2019, sales jumped 32.4 percent. Michael Mullican, EVP and CFO, said on the call, “We maintained or gained market share in all product divisions for the full year and our market share is well above 2019 levels.”
Gross margins in the year were 34.6 percent, down 10 basis points below fiscal 2021 but 500 basis points higher than fiscal 2019. 2022 marked the second consecutive year Academy finished with an annual margin rate above 34 percent with the improvement attributed to “more thoughtful inventory management, systems upgrades and greater localization,” according to Mullican.
Adjusted net income in the year slid 9.9 percent to $645.8 million, or $7.70.
Sales per square foot in 2022 were $340 per foot and operating income per store was $3.2 million. When compared to 2019, sales per square foot increased 29 percent and operating income per square foot has grown by more than 350 percent.
2022 Accomplishments
Hicks said Academy accomplished many of the strategic and operational goals set at the beginning of the year, including opening nine stores, the chain’s first new stores since 2019. The openings included its first locations in Virginia and West Virginia. Hicks said, “We’re pleased with the overall performance of this class of stores. Each opening also provided unique opportunities that we are learning from and leveraging to improve future store openings.”
Omni-channel investments continued with e-commerce sales expanding to 10.7 percent of sales for the year, up 140 basis points year-over-year and reaching its goal of achieving a 10 percent penetration rate a year ahead of schedule. For the full year, approximately half of e-commerce sales were BOPIS (buy online, pick-up in-store) and over 75 percent of e-commerce sales were fulfilled through stores. Academy’s mobile app saw a 180 percent increase in the number of downloads compared to 2021. Said Hicks, “Our omnichannel business is a competitive advantage for us as it utilizes our store base to drive higher sales conversion with healthy margins.”
At the store level, 11 stores were remodeled and other investments were made to elevate engagement. Technology upgrades focused on speeding checkout times and better managing store labor to support more customer-facing interactions.
“We also continue to enhance our product assortment with our preferred vendor partners as well as new ones to ensure we’re in stock with the inventory our customers want, while not losing our focus on value in 2022,” said Hicks. “These efforts led to record customer service scores exceeding last year as strong results.”
Inventories closed the year up 9.5 percent increase. Inventory dollars were up 16.7 percent while units declined 7 percent. The 9.5 percent increase was lower than the 12.8 percent increase seen at the end of the third quarter. Compared to the fourth quarter of 2019, inventory is up 16.7 percent versus the 32.4 percent top-line growth.
“We’re pleased that our teams continue to show strong inventory management discipline,” said Lawrence. He also noted that several categories in the prior year were impacted by the constrained supply chain, but most are back to “healthy” stock levels.
“Beneath the surface, we’re also in a much better place in terms of our inventory content with a much greater emphasis on forward-facing spring categories,” said Lawrence. “The supply chain was still fairly disrupted in Q4 of 21 And, as a result, we did not at the level of spring transitional products that we needed. But the more normalized supply chain is here, we’re entering 2023 with our inventories and a much better place.”
Looking ahead, Academy’s outlook for 2023 calls for:
- Sales in the range of $6.5 billion to $6.7 billion compared with $6.4 billion a year ago, representing a gain of 3.2 percent at the midpoint;
- Comparable sales to be negative 2 percent to positive 1 percent against a decline of 6.4 percent in 2022, representing an improvement of 590 basis points at the midpoint;
- Gross margins in the range of 34.0 percent to 34.4 percent against 34.6 percent in 2022, down 40 basis points at the midpoint;
- GAAP earnings in the range of $535 million to $595 million, against $628 million in 2022, representing a decline of 10.0 percent;
- GAAP earnings per common share, diluted in the range of $6.70 to $7.45 against $7.49 in 2022, representing a decline of 5.6 percent at the midpoint; and
- Adjusted earnings per common share, diluted in the range of $7.00 to $7.75 against $7.70 a year ago, representing a decline of 4.2 percent at the midpoint.
The sales performance is expected to show an improving trend sequentially through the year with the first quarter facing the toughest comparisons against year-ago “surge” categories. The lower expected gross margins reflect likely more promotions during 2023. SG&A expenses are expected to be approximately 100 basis points higher than 2022 due to the 53rd week in 2023 and from investments in new stores, technology to support growth and increased digital marketing.
2023 Optimism
Lawrence said Academy has “several reasons for optimism” for 2023, including the improved inventory content this spring versus year-ago levels as well as increased investments in “hot-trending businesses such as team sports and cleats while also going after categories such as fishing and camping where competitors that continue to pull back.”
Academy is also ”redoubling our focus on value,” according to Lawrence, with an expanded assortment of everyday-value items across categories, coupled with an increased value emphasis in marketing. Among new sales drivers, Academy will be adding Birkenstock to its footwear offerings for the first time; expanding Googan, one of the chain’s most popular fishing baits and equipment brands, into apparel; and rolling out Boog Bag, the popular summer tote bag.
In advertising, digitally-targeted pushes will continue to be expanded while traditional broadcasts and print are being reduced to take advantage of a “much more robust customer data platform.” Said Lawrence, “The combination of better tools, coupled with constantly improving and refining our strategies and tactics on digital marketing, should allow us to continue to improve our overall marketing reach and effectiveness by increasing customer engagement.”
Hicks said priorities for 2023 include expanding the store base in existing and new markets with the opening of 13 to 15 new stores. In March of 2022, the retailer set a goal to add 80 to 100 stores during the next five years. Academy currently has 268 stores across 18 states
Other priorities include continuing to build a more powerful omnichannel business, driving growth from existing stores by improving service and productivity, strengthening merchandising assortment, attracting and engaging customers, and leveraging and scaling its supply chain.
Said Hicks, “These priorities, along with our established differentiated market position built on value assortment and service as well as our strong relationships with key vendors, give us an excellent runway for growth in 2023 and beyond.”
Photo courtesy Academy Sports + Outdoors