Academy Sports + Outdoors significantly lifted its sales and earnings guidance for 2021 after seeing the strong demand for many of its categories during the pandemic only accelerate further in the first quarter of 2021.
Sales reached $1.58 billion, up 39.1 percent over the prior year and ahead of Wall Street’s consensus estimate of $1.51 billion. Comparable sales grew 38.9 percent, beating Wall Street’s consensus target of 32.4 percent growth. Sales grew 46.8 percent compared to the first quarter of 2019.
Net income reached $177.8 million, or $1.84 a share, compared to a loss of $10.0 million, or 14 cents, in Q120. On a Pro-forma basis, earnings were $182.5 million, or $1.89, against $440,000, or 1 cent, a year ago. Adjusted EPS of $1.89 more than doubled Wall Street’s consensus estimate of 83 cents.
On a conference call with analysts, Ken Hicks, chairman, president and CEO, said the performance marked Academy’s seventh consecutive quarter of positive comparable sales and operating profit growth
“We continue to see strong demand across all product categories and geographic regions as we emerge from the pandemic,” said Hicks. “Our customers are coming back more often and shopping more areas of the store. Sports and outdoors remain a meaningful part of their lives.”
Hicks said that though sales benefited from government-issued stimulus checks, a number of other factors are believed to be driving Academy’s business, including:
- Strategic actions initiated by Academy since Hicks took over as CEO in 2018 to increase operational efficiencies and improve margin rates;
- A change in lifestyle that is driving a shift in consumer spending towards sports and outdoors categories, including bikes, camping, fishing, grilling and backyard entertainment;
- Existing customers shopping more often and discovering more products in new categories; and
- The introduction of millions of new customers to Academy over the past year with many of the new customers being more female, younger and more diverse than the chain’s historical base.
“These drivers have not only increased sales but have also led to significant profit growth as the retail best practices we put in place continue to drive margin dollar flow through,” said Hicks.
Vendor Partnerships Paying Off
He also noted Academy continues to benefit from enhancing the overall store experience, including strengthening relationships with partners like Nike, Adidas. Under Armour, The North Face, Columbia and Yeti.
“Together, we are making mutual investments to improve in-store presentation, attracting new customers to their brands, through refined assortments and better storytelling in our stores and on our website, and securing new product lines, and investing in and training sales enthusiasts who love their products,” said Hicks. “We’re doing all these things to offer our customers the best shopping experience for the latest and greatest products from some of the world’s best brands, including our own private label brands.”
The growth in the quarter came despite firearms and ammo sales being lower than expected due to continued inventory challenges compared to Q119. For the second quarter in a row, all of Academy’s four merchandise divisions racked up double-digit comparable sales growth with Team Sports showing a strong recovery starting in the fourth quarter.
Online Sales Face Challenging Comparisons
E-commerce sales declined 21 percent year over year as Academy anniversaried 405 percent growth in Q120 as the pandemic’s arrival caused customers to shift to online purchases, said Michael Mullican, EVP and CFO. Measured against Q119, e-commerce sales grew 300 percent and online penetration expanded to 7.4 percent from 2.8 percent over the two-year period. With BOPIS (buy online, in-store pickup) remaining at about half of total e-commerce sales, online profitability continues to improve as the service reduces overhead and shipping costs.
Mullican said, “In fact, since 2019 the company’s pretax income has increased 767 percent even as our Q1 e-com sales have grown 300 percent, highlighting the fact that we have a profitable omni-channel platform.”
Further investments are planning online to support more of a seamless experience, including improving search, checkout, personalized product recommendations and payment options.
Apparel And Footwear Pace Sales Gains
Steve Lawrence, EVP and chief merchandising officer, said that unlike many of competitors, Academy never closed its stores last year and the quarter’s 38.9 percent comp gain came on top of a 3.1 percent increase in the year-ago quarter.
“The early part of this quarter was negatively impacted by store closures during the winter storms in February,” said Lawrence. “Once we got past the weather disruptions, we saw a strong rebound in March and April, fueled by our merchandise initiatives, pent-up demand, consistently warm temperatures and, of course, government stimulus did not hurt.”
By category, the gains were led by Apparel and Footwear, two of the hardest-hit categories last year as the country went into lockdown measures. Apparel sales were up 80 percent versus 2020 and positive 38 percent versus 2019. Footwear was ahead 58 percent versus 2020 and positive 23 percent versus 2019.
“All our key national brands such as Nike, Adidas, Under Armour, Columbia and The North Face had strong performances based on improving inventory positions and better content,” said Lawrence.
Academy launched two private labels, Freely and Magellan Outdoors Pro, to a “strong start.” Freely is a women’s athleisure brand while Magellan Outdoors Pro is a better tier offering of the Magellan range featuring more technical fabrics and features. The chain’s private label assortments continue to make up about 20 percent of sales and play a key role in reinforcing Academy’s value message and filling in gaps not occupied by national brands while being margin accretive.
Sports & Rec, a segment that saw a surge in sales during the pandemic, posted sales growth of 36 percent and is ahead 59 percent over the two-year span. Team sports showed robust gains for the second straight quarter due to the return of sports being played across markets.
Strong growth was also seen across many of Academy’s Outdoor Recreation categories, such as water sports, outdoor cooking and furniture, as people spent more time outside when the weather warmed up, said Lawrence. Fitness and bikes categories managed to drive single-digit comps despite being up against historic volume levels, and benefited from improved inventory levels. Overall, the Outdoor Recreation division managed a 13 percent increase in the latest quarter and is ahead 61 percent over the last two years. Key drivers were camping and fishing.
Gross Margins Benefit From Fewer Promotions
Gross margins climbed 950 basis points to 35.7 percent and continued to benefit from the less promotional environment. Said Lawrence, “We continue to see strong regular price selling,” The margin improvement reflected a favorable mix shift, higher average unit retails, fewer promotions and less clearance activity. Academy expects a more normalized promotional cadence as the year progresses.
SG&A expenses were 20.5 percent of sales, down 450 basis points year over year and 750 basis points lower than Q119.
Inventories were 7 percent higher than Q120 and 9 percent higher than Q420 despite the strong sales gains and supply chain disruptions being caused by back-ups at ports and container shortages.
“We entered this quarter with inventory down 10 percent so I’m sure you can tell that the merchants, supply chain and stores have done an outstanding job of working through all the challenges to help keep us in stock and set us up for the summer months,” said Lawrence. “The team has worked to ensure that we have a flexible flow of receipts that should allow us to continue to keep up with demand going forward while protecting us against any downside risks.”
The updated outlook for the year calls for comparable sales to climb in the range of 6 percent to 9 percent, up from the previous guidance range of negative 2 percent to positive 2 percent. Compared to fiscal 2019, comps are expected to expand in the range of 22 percent to 25 percent.
EPS is now projected to range from $4.15 to $4.50, up from a range of $2.70 to $2.95 under previous guidance. At the midpoint of the new range, EPS is expected to climb 35 percent higher than fiscal 2020 and 248 percent higher than fiscal 2019.
Photo courtesy Academy Sports