Academy Sports and Outdoors missed Wall Street’s earnings expectations for the second straight quarter on lower-than-expected sales but Steve Lawrence, CEO, told analysts he remains confident growth will improve in coming quarters as the chain benefits from a focus on newness and value while capitalizing on key selling occasions over the year.

Academy maintained its sales guidance for the year despite the first-quarter shortfall. Shares were down $1.73, or 3.2 percent, Tuesday, to $51.69 on the quarterly miss.

“The customer has clearly demonstrated in the past year a focus on value, newness and episodic shopping around those key moments in the calendar,” said Lawrence on an analyst call. “So, we’re really aligning our assortments, our marketing and all of our promotions around that.”

He noted that Academy on its fourth-quarter analyst call had predicted that the first quarter would be the retailer’s “most challenging” quarter with sequential improvement expected for the second quarter and then further recovery in the back half.

Focus On Newness and Innovation
On newness, Lawrence said Academy continues “to look for emerging and innovative brands to add to our assortment as another way to spark customer interest and drive traffic and sales.”

Several new brands added over the last year, such as Birkenstock in footwear, NordicTrack in fitness, and Burlebo in apparel, are being expanded to more stores in the back half to help drive sales. He also cited Altra trail running shoes and Chaco sandals as other promising arrivals.

L.L. Bean and Bogg Bags are two other newer brands Academy has found success with while Oofos has been introduced to some stores.

Among its private label offerings, McGregor Golf was recently introduced as a brick-and-mortar exclusive for Academy. Initially, the McGregor label will focus on golf balls and club sets, but category expansion is expected in the future, similar to Academy’s Redfield outdoor-themed private-label brand.

In fitness, walking pads, which are treadmills that can be used with standing desks or used as a low-impact, aerobic workout at home, are being expanded to help jumpstart the long-struggling category. The NordicTrack brand will also be expanded to more stores.

Academy will also become the first retailer to offer Assault Fitness, previously an online-only brand, as it seeks to capitalize on CrossFit’s continued popularity. Another focus within fitness is recovery, where Academy is expanding into cold therapy with the introduction of Lifepro and Hyperice. Finally, sports nutrition will receive bigger play with Jocko and Podium among several brands in the category being introduced to Academy’s doors.

Value And Selective Promotions
Addressing value, Academy will continue to emphasize its everyday low-pricing model. Said Lawrence, “We have a clearly defined everyday value leadership on key private and national brand items. You’ll see these items heavily featured in marketing and prominently positioned and signaged in our stores and on our website.”

He said Academy will also employ selective promotions “to take advantage of customers’ episodic shopping patterns and drive traffic during the key milestones of the calendar.”

Academy is planning “very aggressive pushes” during key selling events, starting in the second quarter with focuses around Father’s Day, Fourth of July, the kickoff of back to school, and football season. Said Lawrence, “A strong slate of promotions focused on this time period with an emphasis on key summer categories such as grilling, patio furniture, pools and fishing will help ensure we win the driveway decision.” 

Improving Outdoor, Apparel and Footwear Performance
Another reason Lawrence is confident on the pickup in sales starting in the second quarter is some recovery being seen in the first quarter,

He noted that the outdoor category, including the firearms business, comped positive for the second consecutive quarter after having been a “drag on the business” since 2022. Both the apparel and footwear businesses also showed sequential improvement in the first quarter versus the fourth quarter and are “moving in the right direction.”

Academy’s e-commerce business delivered positive growth for the second straight quarter. Academy’s new stores are also seeing improved productivity and several programs, including the chain’s first-ever rewards program and the introduction of same-day delivery, are expected to help drive growth in the back half.

Asked about Academy’s confidence in reaching its sales guidance for the year, Lawrence noted that Academy’s first quarter is traditionally a slower period with the company not doing a “big Easter business” and many key outdoor activities not taking place. He added that the 13-week back-to-school period remains a “very big time period for us” and many of the planned promotions as well as the launch of several new programs are expected to capitalize on expected traffic opportunity at that time. He said, “Our belief is where going to see that inflection during that time period.”

Same-Store Sales Decline 5.7 Percent in First Quarter
In the first quarter ended May 4, sales declined 1.4 percent to $1.36 billion, short of analysts’ consensus estimate was $1.37 billion and below Academy’s internal plans. Comps were down 5.7 percent against a 7.3 percent decline a year ago. Comp ticket size decreased 1 percent while comp transactions fell 5 percent.

“As we expected, our customers are being challenged by the macroeconomic environment,” said Lawrence. “Inflation is keeping prices at elevated levels while personal savings have been depleted, causing our customers to be tight with their discretionary spending.”

A bright spot was e-commerce, which posted an 8 percent sales gain in the quarter, increasing to 9 percent of sales versus 8.2 percent last year. BOPIS (buy-online, pickup-in-store) and ship-from-store represented more than 80 percent of dot.com sales, benefiting from Academy’s investments in omnichannel areas.

Outdoor Paces Category Performance
By product division, the hard goods side of the business performed best. The strongest category within hard goods remains Outdoor, which ran a 2 percent increase. Camping continues to deliver “significant” gains, driven by Stanley and Yeti. The hunt & fish business slowed after a strong fourth quarter but are expected to improve as activities pick up. Lawrence said, “The hunting and fishing categories remain key differentiators for us, and both businesses are in the best inventory position we’ve been in over the past four years, which sets us up well heading into the summer months for fishing and in the fall for hunting season.”

The Sports and Recreation hard goods segment was down 4 percent in the quarter. Team sports saw a strong performance, led by continued growth in pickleball. Outdoor cooking, a strong category in recent years, was challenged primarily due to a crawfish shortage that suppressed sales across the Gulf region but has recently recovered as people have started preparing for summer outdoor grilling. Lawrence said Academy has “a strong marketing plan for the summer to ensure we grow our market share” in outdoor cooking. He added, “We offer the broadest and most holistic assortment in the marketplace across cooking types and surfaces, spices and rubs, accessories and premium fuels, making it another key differentiator and traffic driver for Academy.”

The most challenged business remains fitness, which is being particularly seeing softness in cardio equipment.

In soft good areas, footwear sales were down 1 percent, representing strong improvement versus the 8.8 percent Q4 decline. Athletic footwear had the strongest performance for the quarter, driven by performance running brands such as Nike, Brooks and New Balance. Casual footwear was the second-best performing footwear category, with strong sales in Birkenstock, Crocs and Skechers, driven by slip-ons.

“We continue to partner with our existing footwear brands to gain expanded access to the innovation pipelines so we can ensure our customers have access to the newest styles,” said Lawrence. “At the same time, we continue to work with relevant brands to gain access to items and categories that are not already part of our current assortment.”

Apparel sales were down 3 percent for the quarter. Within this division, kids and outdoor apparel businesses were top performers. “Strong” results continue to be seen from key national brands such as Nike, Carhart and Levi’s as well as “solid” growth from newer private labels, including Freely and R.O.W. Licensed apparel was the weakest segment within apparel with the category comping against the release of the commemorative Astros World Series jerseys last spring, along with the LSU women’s basketball National Championship. The majority of the licensed apparel business takes place in the back half and improved results are expected with the arrival of college and pro football.

Gross margins Improve 40 Basis Points
Gross margins in the quarter eased 40 basis points to 33.4 percent. Merchandise margins declined 80 basis points basis points primarily due to a higher sales mix of hard goods and more promotional activity versus last year. The decline was partially offset by 40-basis-point improvement in freight costs and 20-basis-point improvement in shrink. Academy said it remains on track to achieve its full year gross margin guidance of 34.3 percent to 34.7 percent.

SG&A expenses increased 130 basis points to 25.9 percent of sales. Of the increase, 30 basis points was due to the decline in sales volume with the remaining 100 basis points due to investments in growth initiatives, including opening new stores, growing omni-channel, scaling and leveraging its customer data platform, and modernizing supply chain.

Earnings on an adjusted basis fell 20.8 percent to $81.6 million, or $1.08 a share, from $103 million, or $1.30, a year ago. Wall Street’s consensus estimate had been $1.24.

Net earnings slid 18.6 percent to $76.5 million, or $1.01 a share, against $94.0 million, or $1.19, the prior year. Adjusted earnings exclude non-cash charges related to equity-based compensation, the write-off of deferred loan costs, and the tax effects of these adjustments.

Inventories remain in line with plan despite the sales shortfall. Inventories overall were down 2 percent year over year. Total inventory units were down 11 percent despite having 15 additional stores compared to the end of Q123. On a per stores basis, inventory units were down 11.5 percent.

Long-Term Priorities
Lawrence elaborated on progress on Academy’s long-term goals set at an Investor Day event last year that saw the retailer set an ambitious plan to expand its store base by 50 percent by 2027.

Store openings, he said, remain Academy’s top growth driver with plans to open 15 to 17 locations this year. New store productivity has also improved. New stores opened in 2022 ran positive comps in the first quarter while stores opened in 2023 are tracking to higher year-one volume levels compared to 2022 store openings. Said Lawrence, “Our expectation is that the 2024 stores will be even stronger.”

A second long-time priority is to expand dot.com penetration to 15 percent of sales. The priority online includes streamlining and elevating the omni-channel shopping experience, offering expanded assortments online, and improving fulfillment speed. Said Lawrence, “We are focused on engaging as many customers as possible across all of our channels because we know an omni-channel shopper is our most valuable customer. They shop more frequently, they spend more per transaction, and are worth three-to-four times more in sales per year than a non-omni-channel customer.”

To further support its omnichannel push, Academy has partnered with DoorDash to offer same-day fulfillment with a focus on one-hour fulfillment. Said Lawrence, “We believe that this added capability will help us reach new customers through the DoorDash app and drive incremental sales.”

Academy will also launch its first-ever loyalty program, called MyAcademy. He said the Academy credit card, which offers 5 percent off every purchase, will remain the retailer’s primary loyalty tool but MyAcademy will help reach customers who don’t qualify for the card or choose not to apply. Perks under the MyAcademy program including 10-percent off the next purchase of up to $200, free shipping on purchases over $25 versus $50 for non-members, personalized offers and a birthday reward.

Finally, scaling its supply chain remains another priority for Academy. A new warehouse management system has gone live at Academy’s Georgia distribution center and is expected to increase productivity and service levels. Its two other distribution centers will eventually be converted to the new system. Said Lawrence, “The implementation is foundational to achieving our new store growth targets.”

2024 Outlook
Academy reiterated its previous sales and net income guidance for fiscal 2024, while updating its EPS forecast to reflect aggressive share repurchase activity completed in the first quarter.

The outlook calls for:

  • Sales in the range of $6.07 billion and $6.35 billion, representing growth in the range of negative 1.5 percent to positive 3.0 percent
  • Comparable-store growth ranging between negative 4.0 percent to positive 1.0 percent
  • Gross margin rate between 34.3 percent and 34.7percent that compares to the 2023 gross margin of 34.3 percent
  • GAAP EPS in the range of $6.05 and $7.05, up from previous guidance between $5.90 and $6.90. In 2023, non-GAAP EPS was $6.96.

Image courtesy Academy Sports + Outdoors