By Thomas J. Ryan
SGB Executive talked with Ken Hicks, chairman, president and CEO at Academy Sports + Outdoors, about the retailer’s record third-quarter sales and earnings in its first report as a public company.
Among the quarter highlights was a 16.2 percent same-store gain, marking its fifth consecutive positive comp quarter as the chain continues to benefit from changes put in place since Hicks took over as CEO in early 2018. The gains were led by strong double-digit growth in bikes, outdoor games, fitness equipment, fishing, camping, and hunting categories benefiting from changing behaviors amid the pandemic. Team sports, which also include golf and tennis, returned to positive territory.
E-commerce sales catapulted 95.9 percent in the quarter and expanded as a percent of sales to 7.5 percent from 4.5 percent in the year-ago quarter. Gross margins improved 110 basis points with the aid of lower markdown rates and clearance volumes. On an adjusted basis, excluding costs stemming from its October IPO, earnings vaulted 188 percent year over year.
Inventories at the quarter’s end were down 19 percent, although Academy officials indicated they were comfortable with inventory levels across most categories to support holiday selling.
Here, Hicks discusses the impact of COVID-19 on its business and how newer initiatives, put in place over the last few years, are positioning the retailer for sustainable growth.
How would you sum up the third quarter? Quite frankly, when you have almost a 17 percent comp increase, everything’s got to work, and just about everything worked. Licensed apparel was soft because teams aren’t playing, and fans can’t go to the games. Backpacks got hurt because there wasn’t a strong back to school. Other than that, our businesses are all doing pretty well.
How much of the performance was due to the pandemic versus your team’s turnaround efforts? We were doing well before the pandemic but, obviously, the pandemic has given us some tailwind. What the pandemic has done is change people’s habits and interests, and that’s where we’re benefiting. Will people keep those changes? Probably not. But we don’t need all the people. If you put in a home gym, you might now need to add to it or you may be looking to upgrade your experience if you started fishing or hiking. If 20 or 30 percent stick with it, that’s a huge increase in those industries that will continue.
Can you talk about your turnaround initiatives put in place over the last few years and how they’re progressing? We’ve made investments in several different areas that are now our focus areas. We invested in omnichannel, improving our site’s search, payment options and just making it download faster. All those things paid off in big dividends over this past year. We made significant investments in our planning and allocation systems that helped us to be able to localize and flow the merchandise, which again paid off big dividends. We started remodeling stores to present the merchandise better to help us be the power merchandiser. And we’ve invested in our people with training, and we gave a pay increase this summer to everyone who worked in the stores and introduced a pay-for-performance program in our DC so that people could make more money to keep our people motivated and interested in what they’re doing.
How has the marketing approach changed? Over the past few years, we’ve made a significant change in how we talk and market to our customers. We used to be all broadcast, either with search or TV. Now it’s more targeted and personalized. If somebody bought a treadmill, we can go back to them and ask them if they’ve thought of purchasing dumbbells or a BOSU ball. If someone purchased a Lew’s fishing rod, we would see if they’re interested in an Abu Garcia fishing real.
Can you elaborate on the changes to the in-store presentation? We used to carry extra inventory stacked to the ceiling, and part of the reason our inventory is down is that we decided not to load the stores, and now they flow better when the stores need it. The second thing we did was to make areas like outdoor cooking or fishing more attractive to the customer. We worked with vendors to place more mannequins and enhance visual presentations. We added a fishing reel bar so that there’s a place where customers can go shopping for fishing reels or spool a reel for them. We’re also working on getting better adjacencies so we put cleats next to team sports and hunting apparel next to the hunting department.
Online growth nearly doubled but still only represented 7.5 percent of sales, well below the rate seen at most other retailers. Is it just taking time for online penetration to catch up? Several factors are going on. Our stores have been open during the pandemic. Others had to close, so their customer had to buy online. Our online contribution this quarter was down from over 11 percent at the prior peak of the pandemic because people were more out and about in the quarter. But it does take time to grow and to get that penetration. We also just, a little over a year ago, put in buy-online, pickup in-store. This past spring, we put in curbside pickup. We just put in ship-to-store, so if there’s something that you want to go pick up in a store – may be a bulky item such as a treadmill or kayak – we’ll ship it to that store so you can pick it up. Our site was not as effective as it should have been, and we’ve improved it a lot, but it takes time for customers to find it and get comfortable buying from it.
What drove the margin improvement? Inventories were cleaner. We weren’t doing as much promotion because people overall aren’t promoting. In some cases, getting merchandise is tough. And we’ve gotten smarter with our planning and allocation system in putting the right merchandise in the right stores. In the future, we anticipate that there will be some promotionality, but there was a negative to the margin mix during the second and third quarters of this year as more sales of big-ticket merchandise and apparel were challenged. Apparel has a higher margin, and we envision going forward that our apparel business will pick up, so we’ll sell more higher-margin merchandise. We also will benefit from our planning and allocation systems that involve the localization that gets the right quantities in the right place at the right time to limit markdowns better.
The Hunt category is one of the few categories seeing shortages because of its recent momentum, but it can be controversial. How does Academy approach the business? We support responsible firearms selling and ownership, and we want to be the most responsible firearms retailer out there. We more than follow all the regulations. We give a locking device with every firearm we sell. We provide discounts on safes and lockboxes. We support training for customers and require background checks on the people that work in the area. We also pay them more so we get our better people there. We don’t sell bump stocks and other controversial items, but we don’t make a big deal out of it. We’re supportive of the business. It’s important to our customers. History has shown to be successful in the sporting goods and outdoors business, you need both. There’s not a history of successful, just pure sporting goods stores.
Nike has gotten attention for scaling back its wholesale distribution. Has it impacted Academy’s business? We have a good relationship with Nike, Adidas and Under Armour. We’re important to them. They are cutting back on the secondary outlets, but they realize they need sports and outdoor retailers to sell their merchandise. They can’t make all their sales direct to the consumer. We also bring customers to them, including the person who comes in the first time to learn about a sport. We’ve got a great relationship with them.
What’s your outlook for the holiday quarter? We see the trends continue. The customer still likes our merchandise and is buying our merchandise. They’re looking for fun and entertainment, and that’s what we provide. We’re pleased.
Are you concerned about 2021 and overlapping 2020’s huge comp gains with a vaccine that’s on the horizon? There are several tailwinds. A lot of activities stopped in March, April and May and depressed team sports, apparel and footwear. All of those have an opportunity as people could be out playing games again. Licensed apparel will have a chance because hopefully, the pro teams and college teams will be back to normal. A normal back-to-school will be a plus. And all those people who picked up new hobbies – a home gym, fishing, hiking, camping – are going to come back and buy at the next level and continue that hobby. And probably with the new administration, a stimulus will be out. But we feel good about where we are now and in the future opportunities we have as a company. It’s a tricky environment, but the good news is that we continue to make progress, and we’ve got a great team in the corporate office and a great team in our stores and distribution centers. They’re the ones that make the difference. They’re the ones that take care of the customer. So we’re not giving up. There’s a Patton quote about not giving up territory you’ve already captured. So we’ve got to work on what is the appropriate number is and make sure that we hit it.
Photo courtesy Academy Sports + Outdoors
