Academy Sports and Outdoors, Inc. (Academy) reported that second quarter came below Wall Street targets, but same-store sales turned positive for the first time in 11 quarters, boosted by double-digit growth for both Nike and Jordan brands. With the sales strength and more confidence in its tariff-mitigation strategies, the retailer lifted its EPS guidance for the year.

Academy now expects earnings in the range of $5.60 to $6.30, up from previous guidance between $5.45 and $6.25. At the midpoint, EPS guidance was raised to $5.95 from $5.85.Academy also raised the low end of its sales guidance. Sales are now expected in the range of $6 billion from $6.265 billion, up from guidance in the range of $5.97 billion to $6.265 billion.

Shares of Academy nonetheless fell $4.05, or 7.6 percent, to $49.50 Tuesday, September 2, due to the quarter’s shortfall as well as cautious guidance amid continued weakness from its core lower-income customer. Academy officials on an analyst call indicated that its range of comps in the back run from negative 4.0 percent to positive 3.5 percent.

In the Q&A section of the call, company CEO Steve Lawrence said Academy still has confidence that it will be able to build on its positive gains seen in the second quarter, marked by accelerated online growth, stronger contributions from recently-opened stores, and “meaningful double-digit growth” from Nike and Jordan. However, the conservative guidance reflects uncertainty around consumer spending, particularly how consumers will react to even higher prices in the back half.

“The wild card, candidly, is just the consumer health and how they deal with the external macroeconomic environment,” said Lawrence. “We like our strategy, and we feel like it’s gaining momentum, and we expect it to carry forward not only through the remainder of this year, but into the next year.”

Second Quarter Same-Store Sales Inch Up 0.2 Percent
In the quarter, sales rose 3.3 percent to $1.6 billion, slightly below analysts’ consensus target of $1.61 billion.

Same-store sales inched up 0.2 percent, reflecting a gain of 1.5 percent in average retail price, offsetting a 1.4 percent decline in transactions. Comps improved 390 basis points sequentially versus a 3.7 percent decline in the first quarter.

Lawrence said, “These results marked a step-change improvement in performance compared to our Q1 results and were the best comps we’ve posted in many quarters. After a slow start in May, we saw steady improvement with sales running positive the last seven weeks of the quarter.”

Apparel and Footwear Lead Category Performance
By categories, same-store sales were up in all categories except outdoor. On a reported basis, sales were 3.7 percent in apparel, 3.6 percent in footwear, 3.5 percent in sports and recreation, and 2.5 percent in outdoor.  Said Lawrence, “We saw solid results across most of our core categories, such as athletic and outdoor apparel and footwear, sporting goods, hunting, camping, and our backyard businesses.”

A softer area was seasonal categories such as swim, pools, and summer seasonal footwear that saw a slower start during the first half of the quarter due to cool and wet weather. Said Lawrence, “Once we got into late June and July, when it got consistently warm across our footprint, all these businesses rebounded.”

The ammo category also “continues to be tough,” although trends improved versus the first quarter.

“I think that’s a business that goes through ebbs and flows as there’s demand cycles holding more goods out there. Right now, there’s a lot of supply. It’s become more of a price-sensitive business. We’re certainly monitoring and making sure we have the best price on ammo on a daily basis. We’re going to continue to monitor the business,” said Lawrence.

He added, “We’ve had some success with bulk packs as a way to drive higher average unit tickets there. We’re going to continue to work on that. I would say the ammo business, of all the businesses, is probably one of the more challenged businesses.”

Second Quarter Earnings Decline Due to Store Opening Costs
On an adjusted basis, earnings fell 11.6 percent to $131.3 million, or $1.94 a share, from $148.6 million, or $2.03, a year ago, and 20 cents below analysts’ consensus estimate of $2.14.

Net earnings were down 12.1 percent to $125.4 million, or $1.85 a share, from $142.6 million, or $1.95, a year ago. Adjusted earnings exclude equity-based compensation.

Gross margins in the quarter were down two basis points to 36.0 percent from 36.2 percent a year ago. Gains of 40 basis points in merchandise margins were offset by shrink and higher e-commerce shipping costs.

SG&A came in at 25.3 percent of sales, up 150 basis points. The increase was driven by initiatives totaling 160 basis points, comprised of 130 basis points of new store growth, 20 basis points of technology investments, and 10 basis points of depreciation. Over the last 12 months, Academy added 21 new stores, with all the new stores still leveraging expenses, as expected. Excluding costs attributable to growth initiatives, all other costs would have been leveraged by 10 basis points.

Operating income declined 9.3 percent to $172.4 million from $190.1 million a year ago while adjusted EBITDA eroded 8.6 percent to $212.5 million from $232.5 million.

Nike, Jordan Lead Improved Brand Access
One of the highlights of the quarter was double-digit growth coming from both Nike and Jordan brands as the chain continues to secure better overall access to brands.

The Jordan brand was launched at Academy in the back half of April with the introduction of two basketball models. Since then, Jordan’s SKU count has more than tripled, including the addition of cleats and backpacks. Jordan apparel will see an expansion in the back half with categories such as fleece, and Jordan will continue to reach additional doors in the back half. Said Lawrence about Jordan, “We had our biggest weeks of the year during back-to-school as we expected. We expect that to continue, particularly on the footwear side as we move into basketball season. We also think it’s going to be a big gift-giving category for us this year as well for holiday. Really expect that to continue to be a tailwind for us.”

With the Nike brand, Academy has secured the strong-selling Vomero 18 running shoe as well as the Vomero Plus. Said Lawrence, “We have the P6000 out there that’s doing very well. We’ve got 270s out in almost every door at this point, and those aren’t cheap shoes. Those are $165, $180 shoes in a lot of cases, doing very well for us. We feel really good about that. On the apparel side, we’ve got things like the Phoenix Fleece, which in the past we’d have had limited access to. We now have in more doors. It’s less about exclusivity for us. It’s more about having a higher-end product more broadly distributed throughout the chain, and that is working for us.”

Lawrence added, “I think Nike is very happy with the partnership and what we’ve managed to do there.”

Beyond Jordan, Academy also added Converse and HydroJug to its selling floors this year as part of a broader push to bring excitement for existing customers and attract new customers. Said Lawrence, “We’ve seen strong results from these launches and have plans to extend each of these brands out into more doors. At the same time, we’ve also been expanding other brands that are already in our assortment and limited doors out to more doors in the chain. The examples of this would be BURLEBO, Ninja, and Birkenstock, all of which performed well this past quarter.”

Lawrence also said Waggle, an upstart golf lifestyle brand, has done “very well” since being introduced at the chain.

“We continue to get access to brands,” said Lawrence. “We continue to have dialogues with brands that we want to have access to. I think that the way we launched Jordan definitely helps our case as we make it to get access to those brands.”

Online Growth Accelerates
Other highlights in the quarter include online sales accelerating to 18 percent growth in the quarter from 10 percent in the first quarter, led by improved online conversion and average order value. Said Lawrence, “The team has taken a back-to-basics approach with a focus on streamlining site navigation and functionality, improving order fulfillment options and speed, and offering a greatly expanded and versatile assortment.”

Academy’s stores opened during 2022 and 2023, now in Academy’s comp base, improved from low-single digits comps to mid-single digits. Lawrence said, “Our belief has been that as we see the base business improve, the new store comps would improve commensurately, and that is exactly what we saw happen this quarter.”

Academy ended the quarter with 306 stores, with plans to open up a total of 20 to 25 locations in 2025.

Lawrence also noted that Academy completed the rollout of RFID handheld scanners during Q2 with Nike, Jordan, Brooks, Adidas, Under Armour, Columbia, Levi’s and Puma now on a weekly count cycle to have their physical inventories updated. Said Lawrence, “These brands collectively account for roughly 25 percent of our annual sales, and we continue to see improved in-stock and sales increases as a result of this rollout. Our new handhelds also continue to pay dividends to help stores save the sale on items that for whatever reason may not have been in stock in that specific store on a given day.”

Market Share Gains
Lawrence cited several data points indicating that Academy continues to gain market share in the challenging marketplace, including Placer.ai data showing strong double-digit growth in foot traffic and share gains from households making more than $100,000 a year. Traffic share in the middle-income consumer, whose households make $50,000 to $100,000 a year, was flat while Academy continues to see traffic erosion in the lower-income cohorts that make less than $50,000 a year, although the pace of those declines was less than Q1.

Lawrence also pointed to Circana data showing Academy is seeing ”meaningful share gains across almost all of our key businesses, such as apparel, footwear, sporting goods, fishing, and outdoor cooking,” as well as “solid growth” for Academy seen when analyzing background checks for firearms purchases.

“To summarize, in looking at all this data, it tells us that customers are gravitating to our diversified assortment and that our value proposition is resonating with them, all of which resulted in a comp sales increase and solid market share gains during the quarter,” said Lawrence. “We would attribute a lot of the momentum we’re starting to build in the business to the solid progress we’ve continued to make against our long-term objectives and goals.”

Tariff Cost Pressures
Lawrence also noted that Academy was able to keep its gross margin rate essentially flat in the quarter despite tariff pressures. He said Academy has undertaken multiple tactics to offset tariff costs, including partnering with factories and vendors to absorb a portion of the incremental expense, working with overseas partners to ship country of origin, adjusting unit buys where needed, pulling in additional inventory from brands that had available goods in domestic warehouses, and utilizing pricing optimization tools to help drive higher average unit retails.

Inventory per store is elevated, with units per store up 4.6 percent and dollars per store up 8.2 percent. Academy purposely pulled forward domestic inventory receipts at pre-tariff prices with the majority of the inventory being evergreen products, such as bicycles or free weights, not expected to face markdown pressures.

“As all of you know, this has remained a fluid situation over the summer,” said Lawrence. “At this point, we believe that we have the strategies in place that should mostly offset the impacts of tariffs to our business throughout the remainder of this year, while still being able to serve customers by delivering a strong value proposition on all of their sports and outdoor needs.”

Lawrence added that average unit retail (AUR) was up low-to mid-single digits in the quarter, with some prices climbing in the summer and more price increases expected in the back half. He said, “We feel pretty good about our ability to mitigate the tariffs so far through all the different levers that we’ve pulled. It really is now going to be up to the consumer to see how they react to some of the higher prices that they can experience in the back half of the year. We think we still have a pretty good value proposition out there, and we like where we stand.”

Image courtesy Academy Sports and Outdoors, Inc.