Shares of Academy Sports + Outdoors rose 9.2 percent Tuesday after the Texas-based retailer reported fourth-quarter earnings that handily topped Wall Street estimates to cap off a record year.

While sales for the current year are expected to decline slightly against tough comparisons, Academy officials were bullish that many favorable conditions developed during the pandemic, including greater interest in sports and outdoor activities and a less promotional climate, would help drive profitable growth in the years ahead

“Academy Sports + Outdoors delivered extraordinary results in 2021,” said Ken Hicks, CEO, on a call with analysts. “We were able to build on the momentum of 2020 and establish a new level of sales and profitability that will be our foundation for future growth.”

Michael Mullican, EVP and CFO, said Academy’s growth is driving market share gains across its geographic footprint.

“These gains are attributable partially to the fact that many of our stores are located in the fastest-growing markets in the United States,” said Mullican. “However, we are also gaining share as a result of our ability to source and replenish inventory more effectively than our competitors, our strong partnership status with major sports apparel and footwear brands, our investment in the outdoors consumer and the impact of certain vendors who have consolidated their wholesale distribution.”

Shares gained $3.34 to $39.53 on the New York Stock Exchange.

In the quarter ended January 29, sales increased 13.2 percent to $1.8 billion, topping Wall Street’s consensus estimate of $1.76 billion. Compared to the fourth quarter of 2019, sales jumped 32.0 percent.

Comparable sales climbed 13.1 percent on top of a 16.1 percent gain in the fourth quarter of 2020. The gains marked 10 consecutive quarters of positive comparable sales with the last seven quarters showing double-digit growth.

E-commerce sales grew 22.7 percent year over year and 97.2 percent compared to the fourth quarter of 2019.

Gross margins improved 110 basis points to 32.3 percent. The gains were primarily driven by higher merchandise margins resulting from a greater mix of regular price sales, higher retail prices and a favorable product mix, which offset higher freight costs.

SG&A expenses were 21.3 percent of sales, down 110 basis points year over year, in part tied to a disciplined approach to expense management.

Pre-tax income jumped 55.0 percent to $188.4 million compared to $121.6 million.

On a reported basis, GAAP earnings climbed 54.9 percent to $141.8 million, or 1.57 a share, from $91.5 million, or 97 cents. Excluding the impact of certain non-cash and extraordinary items, non-GAAP profits advanced 40.9 percent to $145.3 million, or $1.61, easily surpassing Wall Street’s consensus estimate of $1.37.

Full-Year Comps Climb 18.9 Percent
For the year, net sales increased 19.1 percent to a record $6.77 billion. When compared to fiscal 2019, sales increased 40.2 percent. Comparable sales grew 18.9 percent on top of 16.1 percent in fiscal 2020. E-commerce sales increased 6.2 percent compared to 2020 and vaulted 153.1 percent compared to 2019.

Gross margins improved 420 basis points to 34.7 percent. GAAP net income jumped 117.4 percent to $671.4 million, or $7.12, and non-GAAP earnings climbed 129.9 percent to $716.5 million, or $7.60.

At the store level, sales per square foot grew 19 percent in the year to $370 per square foot, which Mullican, said is “higher than our closest competitors.” EBIT grew 130 percent to $3.5 million per store. Mullican said, “One hundred percent of our stores are profitable and accretive to earnings, which gives us great confidence in our growth potential.

Broad Growth Across Categories
All four geographical regions and all four major merchandise divisions – apparel, footwear, sports & recreation and outdoors –had positive growth during the fourth quarter. All merchandise divisions posted double-digit sales growth for the full year.

Hicks said Academy continues to attract and retain a broader and more diverse customer base that discovered Academy during the pandemic.

“Over the past two years, millions of people have purchased home fitness and outdoor equipment such as bikes, pickleball, fishing rods, barbecue grills, or they started hiking or camping,” said Hicks. “We believe that many people made lasting changes to their lifestyle priorities during the pandemic and will continue to enjoy these new activities and hobbies they started for many years to come. They want to have more fun and fun is what we sell. In addition, as consumers get out to our stores and shop us more frequently, we’re benefiting from the compounding effect as they discover and purchase different product categories from us. This behavior leads to more transactions, higher tickets and ultimately record sales. It’s just confirmation that our broad selection, pricing, value offering, and an assortment of top brands and quality private label products is attracting and retaining customers.”

In the fourth quarter, apparel had the largest category increase, up 20 percent while footwear was ahead by 14 percent. On the hardlines side, outdoor grew 10 percent and sports and rec gained 8 percent.

Margin Gains Reflect Elevated Allocation
The 110-point year-over-year margin gains were attributed to improved allocation and localization efforts. Lawrence said a key part of the equation was strategically reducing promotions. Sales accelerated in early November which allowed Academy to pull back on both the number of promotions as well as the depth of the discounts offered during the overall holiday season “and really lean into our everyday value messaging,” said Lawrence.

He added, “With the strong regular price sales around pre-Christmas, coupled with the work we’ve been doing from markdown optimization, we ended the season with less carryover versus the prior years and that translated into fewer clearance markdowns.”

The quarter benefited from both gains in AUR (average unit retail) as well as transaction count “while still presenting a compelling value message to our shoppers,” said Lawrence.

Merchandise inventories at the close of the fiscal year were $1.2 billion, an increase of 18.4 percent compared to the end of fiscal 2020.

2021 Accomplishments
Discussing some key accomplishments for 2021, Hicks noted that online, Academy implemented improved search capabilities, increased checkout speed, added more payment options and launched a new mobile app. Investments were also focused on delivering a seamless shopping experience across the mobile app and Academy.com to support store pickup and ship from store. Said Hicks, “Early results of these improvements have driven increased conversion and sales penetration rates.”

Approximately half of its e-commerce sales are buy-online, pick-up in-store (BOPIS) and 75 percent of all e-commerce sales are fulfilled through stores.

At the store level, Academy increased the proportion of customer-facing hours in stores, reset the store layout and improved assortments with more localized products

In marketing, more targeted and relevant messaging is helping drive customer engagement. In merchandising, Academy is benefiting from its positioning as a preferred partner for many brands. Said Hicks, “We were able to offer a wide assortment of their best-selling items for the year.”

Sales of each of Academy’s top three largest national brands grew approximately 25 percent in the year and nine of its top 10 national brands grew double digits. Enhanced merchandise planning and allocation capabilities increased inventory efficiency helped expand gross margin, along with newer markdown optimization tools. Gross margins increased by more than 500 basis points over the last two years. The majority of the margin rate gains are seen as sustainable. Hicks said, “The investments we’ve made in our data-driven learning systems will continue to improve our capabilities in the future for pricing and replenishment.”

Academy also invested in the supply chain to yield “more flexible from stronger relationships with shipping companies” and improve allocation. 

Growth Drivers Going Forward
Looking forward, Lawrence said that while Academy faces near-term headwinds related to inflation, supply chain disruption and lapping stimulus spending early in the year, a number of factors are expected to support continued momentum in the business.

“First, consumer demand for sports and outdoors categories remain strong and all the inventory management supply chain work we’ve done positions us to capitalize on its continued macroeconomic trend,” said Lawrence. “We have better balance and depth in inventory across most categories. Even in the areas where the supply is still somewhat constrained, we’re in a much better position than we were all of last year.”

Lawrence also said customers have “an appetite for new and innovative products,” and Academy has several new launches planned, including two Austin-based apparel companies, Chubbies and Burlebo, as well as the Blackstone outdoor cooking brand. Academy’s Freely brand will be expanding into girls while fishing brands, Googan and Bubba Blade, are extending into fishing rods.

Lawrence said Academy continues to benefit from better access to products as key vendor partners narrow their distribution in the marketplace. The moves also reduce promotional pressure as the retailers losing access to brands tended to be more promotional.

Lawrence said Academy has few concerns that brands might exit Academy with many brands seeking space on Academy’s shelves due to its recent strong performance and upgrades. He said, “We’ve had more and more brands come to us and I’ll tell you our relationship with our key partners like Nike, Under Armour, Adidas, The North Face, and Columbia has never been stronger. We’re really happy where we’re sitting with those guys.”

Lawrence said Academy is positioned well inside the inflationary climate. He said, “Our everyday value price points help active young families stretch their dollars.”

He also said Academy is “still in the middle innings” of tapping the benefits from the overhaul of its buying, planning and allocation processes, localization efforts, and price optimization upgrades that will both support the chain’s value positioning and help preserve the margin gains over the last two years.

Finally, Academy will continue to emphasize more targeted messaging as it migrates from print and broadcast-centric marketing plans to a mix of digital spend. Lawrence said, “This is having a profound impact on our ability to reactivate lapsed customers which drove sales from 2021 and should continue in 2022.”

Hicks said Academy is “starting a new growth phase” with the opening of its first store in two years in April. Academy plans eight new stores in 2022 with a goal of opening 80 to 100 over the next five years

Outlook
Academy’s outlook includes fiscal 2019 comparisons to illustrate the company’s growth expectations post-pandemic and pre-pandemic. For the current year, the retailer expects:

  • Sales in the range of $6,560 million to $6,770 million against $6,773 million in 2021 and $4,830 million in 2019. At the midpoint of the guidance range, sales are expected to be down 1.6 percent to 2021 and jump 38.0 percent in 2019;
  • Comparable sales to be down in the range of 4.0 percent to 1.0 percent. That compares to gains of 18.9 percent in 2021 and a decline of 0.7 percent in 2019. The first quarter faces a year-ago comp of 39 percent comp that was boosted by government stimulus spending;
  • Income before taxes for 2022 in the range of $780 million and $845 million against $860 million in 2021 and $123 million in 2019. At the midpoint of the guidance range, income before taxes are expected to be down 5.5 percent to 2021 and up 560.6 percent in 2019;
  • Net income in the range of $590 million and $640 against $671 million in 2021 and $120 million in 2019. At the midpoint of the guidance range, earnings are expected to decline 8.3 percent year over year and climb 412.5 percent from 2019.
  • GAAP EPS in the range of $6.55 to $7.10 against $7.12 in 2021 and $1.60 in 2019. At the midpoint of its guidance range, EPS are expected to be down 4.1 percent year over year and up 326.6 percent to 2019; and
  • Non-GAAP EPS in the range of $6.70 and $7.25 against $7.60 in 2021 and $1.02 in 2019. At the midpoint of the guidance range, non-GAAP EPS are projected to be down 8.2 percent against 2021 and ahead 583.8 percent against 2019.
  • Diluted weighted average shares outstanding to be 90.5 million, down from 94.3 million in 2021, representing a decline of 4.0 percent.

Photo courtesy Academy Sports + Outdoors