Academy Sports + Outdoors, Inc reported its ninth consecutive quarter of positive comparable sales, including double-digit increases for the last six quarters. Third-quarter results topped expectations, and Academy Sports lifted its outlook for the third time this year.
“One year ago, we hosted our first earnings call as a public company,” said Ken Hicks, chairman, president and CEO, on an analyst call. “Since that time, we’ve improved our balance sheet and made tremendous progress against our key business priorities of building a stronger omnichannel business, enhancing the customer shopping experience in-store and online, improving our merchandise planning and allocation capabilities, increasing targeted marketing and strengthening our supply chain. These efforts have resulted in enormous success in 2021, and we believe there is much more to come as we continue to improve our merchandise processes, develop new capabilities, and open new stores to drive growth and profits.”
Hicks said the growth came in the face of numerous challenges, including supply chain constraints, transportation bottlenecks and two severe storms in its markets. Said Hicks, “Consumer demand was strong across all of our major product categories as our customers are still centered on making healthy, lasting lifestyle changes and having fun experiences with friends and family. We are well-positioned to meet their needs with our broad and diverse assortment of high-quality value products and leading brands.”
Q3 Sales Climb 18.1 Percent
In the quarter ended October 30, sales reached $1.59 billion, up 18.1 percent year over year and ahead 39.1 percent to the 2019 third quarter. Wall Street’s consensus estimate has been $1.49 billion. Transactions, average ticket size and selling prices all grew compared to last year.
“The quarter included a robust back to school season in August, and broad-based growth in September and October, led by apparel, field, team sports and athletic footwear sales,” said Hicks.
The period marked the fourth consecutive quarter all four of Academy’s merchandising divisions achieved positive sales growth. Each of Academy’s product divisions and regions grew more than 20 percent compared to Q220 and market share was gained in each of its four product divisions across the entire footprint.
Michael Mullican, EVP and CFO, said Academy’s two-year growth rate has been relatively consistent throughout the entire year.
“Our business remains strong even with less stimulus dollars in the market, fewer travel and dining restrictions and more retail competition compared to last year,” said Mullican. “We believe there’s been a lasting shift with consumer spending in the sports and outdoor sector. This puts the Academy in good position to grow and increase market share because we have the products, brands and value customers are looking for.”
Mullican said customers are shopping more frequently across more categories and spending more than pre-pandemic. As a result, transaction count and ticket size continue to grow across existing, new and reactivated customer segments and overall transaction growth was significantly higher in the third quarter than average ticket. Mullican added, “We are seeing the benefits of our targeted customer outreach such as direct marketing, higher Academy credit card adoption and improved website personalization.”
E-Commerce Sales Expand 26 Percent
E-commerce sales in the quarter grew 25.9 percent year over year and 146.6 percent compared to the third quarter of 2019. Academy’s online penetration rate increased to 8 percent from 7.5 percent in Q320 and 4.5 percent in Q319.
Mullican said buy-online, pick-up in-store remains a significant portion of omnichannel sales and continue to be seen as a “competitive differentiator” for Academy. He said, “Based on current projections full year 2021, omnichannel sales are expected to be strong compared to 2020. This growth is expected to continue into 2022 as we expand our store footprint with 8-to-10 in new stores, which will complement our growing omnichannel business.”
Hicks said Academy is especially pleased by the early traction of the Academy app, which is now available to both Apple and Android users. He said, “We feel the customer will further leverage this new feature over the holiday selling season.”
Gross Margins Benefits From Fewer Promotions
Gross margins improved 250 basis points to 35.2 percent. This growth was primarily driven by higher merchandise margins resulting from effective pricing and promotions management, a favorable product mix shift and fewer clearance sales.
Hicks said margins benefited from a “tempered” overall promotional climate. He added, “Like most retailers, we saw an increase in freight costs, but were able to absorb the majority of them with higher merchandise margins while maintaining our everyday value proposition for our customers.”
SG&A expenses were 21.6 percent of sales, a 500 basis point decrease. Compared to the third quarter of 2020, adjusted SG&A, which excludes certain initial public offering costs, leveraged 230 basis points, primarily attributable to workforce management, marketing cost efficiencies and leveraging expenses from comparable sales growth.
On a reported basis, net income in the third quarter grew 170 percent to $161.3 million, or $1.72, compared to $59.6 million, or 74 cents, a year ago.
Pro-forma adjusted net income, which excludes the impact of certain non-cash and extraordinary items, increased 122.6 percent to $164.1 million, or $1.75. Results were well ahead of Wall Street’s consensus estimate on an adjusted basis of $1.11.
Apparel Paces Category Gains
Elaborating on top-line growth, Steve Lawrence, EVP and chief merchandising officer, said “probably the greatest enabler” of Academy’s strong growth is its ability to get back in-stock on product.
Academy started the quarter with inventory up 24 percent versus last year and ended the quarter with inventories up 22 percent despite the revenue gains to support holiday selling. Said Lawrence, “More importantly, the content and overall quality of this inventory is much more balanced versus last year heading into our peak weeks. We’re back in stock in most categories and we believe that we’re well positioned to take advantage of the fourth quarter holiday traffic.”
By category, apparel and footwear once again saw the highest growth in the quarter. Apparel led the way, up 25 percent versus 2020 and 24 percent for 2019. Footwear was up 17 percent versus 2020 and 25 percent over 2019.
“Both of these businesses surged in August, driven by a back to school timing which normalized across our footprint versus the delayed starts from last year,” said Lawrence. “We were well prepared and came into the quarter with healthy inventory positions with most of our key brand partners such as Nike, Adidas and North Face, which set us up for double-digit comps in each of these brands. Our private brands in apparel and footwear such as BCG, Magellan Outdoors and Freely also grew by double digits.”
Carried by the momentum in soft goods, August saw the largest increase in the quarter. In September and October, the license business began to accelerate as college and pro football kicked off. While still positive, comps softened slightly in September as last year’s later back to school was anniversaried. In October, sales accelerated again, driven by fleece and outerwear sales as cooler weather arrived.
Team Sports Enjoys Double-Digit Growth
On the hard goods side, sports & recreation sales were up 8 percent versus 2020 and grew 46 percent versus 2019.
The team sports business benefited from the return of back to school with double-digit comp increases across all major sports, including football, baseball and soccer as participation rates increased in youth sports across markets.
Outdoor was up 18 percent to 2020 and 59 percent versus 2019. Camping and field businesses both generated double-digit growth, driven by increased interest in outdoor activities, coupled with improved in-stocks. Double-digit comps were seen in many of Academy’s key national brands in hard goods, including Yeti, Wilson and Rawlings, as well as key private brands such as Magellan Outdoors.
Among newer product initiatives, Academy’s exclusive new apparel collection featuring Whataburger and its Magellan Outdoors brand launched in the third quarter and sold out quickly.
For the fourth quarter, an apparel range under Paramount’s Yellowstone show is being introduced. Said Lawrence, ”This is one of the hottest shows on TV and customer demand for this product is high.”
On the hardgoods side, early tests of the sale of outdoor pizza ovens have shown promise.
On the marketing front, Lawrence said Academy continues to refine and improve the overall effectiveness of its marketing spend through more targeted messaging. He said, “This is yielding higher conversion rates, which is driving top-line sales while improving our overall marketing productivity.”
Margin Drivers
Elaborating on the 250 basis point improvement in margins, Lawrence said four factors are enabling Academy to elevate merchandise margin growth. First, Academy continues to refine its allocation strategies, which are driving better localization efforts and improving inventory productivity to support higher AURs (average unit retails) through better regular price selling.
Second, the stronger sell-throughs at regular price, when coupled with markdown optimization efforts, has helped reduce the amount of goods sold on clearance along with driving higher AURs and better margins on the clearance sales.
Margins are also benefiting as many brands continue to tighten their distribution strategies. Lawrence said, “As a preferred partner, this leads us well positioned to capture the increased demand for categories, therefore, gaining market share along with attracting new customers to our brand.”
Finally, a less promotional overall marketplace overall is allowing Academy to scale back discounts during high-traffic time periods such as back to school. The higher AURs and gross margin is helping Academy offset rising product shipping costs.
“We believe that many of the factors that have driven sales growth and margin improvements in the first three quarters of the year will continue to carry forward and allow us to keep our momentum going into the fourth quarter,” said Lawrence. “Consumer demand for the sports and outdoor categories remains elevated. We see this continuing forward in the fourth quarter and beyond.”
Inventory ended the quarter ahead 22.4 percent higher than the prior-year quarter and up 18.9 percent from last quarter.
“This is our strongest inventory position in two years and a testament to the entire Academy team working together to keep product flowing despite the challenging environment,” stated Mullican. “The supply chain is benefiting from Academy’s status as a preferred vendor partner, our extensive interface and broad and diverse product assortment, our improved planning capabilities, our valuable partnerships with ports of Houston and Savannah, and a strong financial position and flexibility.”
The company raised its fiscal 2021 guidance based on the strong third-quarter performance, dynamic consumer trends and current visibility.
The new guidance calls for:
- Net sales in the range of $6,675 to $6,740 million, representing a gain of 18 percent against 2020 and 39 percent against 2019;
- Comparable sales in the range of 17.0 percent to 18.0 percent. On a two-year basis, this represents comp growth of 33 percent to 34 percent. The guidance compares to a comp gain of 16.1 percent in 2020 and a decline of 0.7 percent in 2019;
- Income before taxes in the range of $814 to $827 million, representing a gain of 142 percent against 2020 and 567 percent against 2019;
- Net income in the range of $638 to $647 million, representing a gain of 108 percent against 2020 and 435 percent against 2019;
- Reported EPS in the range of $6.75 to $6.85, representing a gain of 79 percent against 2020 and 325 percent against 2019; and
- Non-GAAP EPS in the range of $7.21 to $7.31, representing a gain of 90 percent against 2020 and 612 percent against 2019.
Under its prior guidance, sales were expected in the range of $6,465 to $6,620 million. Comparable sales were expected to climb in the range of 14.0 percent and 17.0 percent. Reported and non-GAAP EPS was projected to range from $5.45 to $5.80.
Hicks said, “From a customer perspective, our stores and e-commerce platform are prepared for holiday shoppers. We’ve improved the in-store shopping experience, making it more fun and engaging and easier to shop with more local tailored products and the appropriate staffing levels. We’ve also added features and functionality to our website and mobile app to create faster, more-seamless transactions, conversion and customer satisfaction. We’re pleased with the results of the quarter thus far, but there’s still a tremendous amount of business to be done over the next several weeks.”
Photo courtesy Academy Sports + Outdoors
