Academy Sports + Outdoors wrapped up its first year-end earnings report as a public company with fourth-quarter sales of $1.6 billion, a 16.6 percent increase from the holiday season prior, while net income in the quarter totaled $91.5 million.
Both were records for the athletic retailer, marking six consecutive quarters of both comparable sales and profit growth, CEO Ken Hicks said in the company earnings call Tuesday.
In a Nutshell: Apparel sales rebounded versus the trend Academy saw in the third quarter, posting a low double-digit increase in the holiday quarter. In the previous quarter, the apparel division saw a low single-digit decrease due to the decline in licensed apparel.
Like the third quarter, Academy pointed to its omnichannel fulfillment channels as a major success driver. Buy online, pick up in store (BOPIS) and curbside pickup drove approximately half of Academy’s total e-commerce sales for both the quarter and the year.
For the year, more than 95 percent of total annual sales involved Academy stores, including ship-from-store, ship-to-store, BOPIS and in-store retail sales.
The omnichannel business has paid off from a profitability standpoint. Gross margin rate in the fourth quarter increased 420 basis points (4.2 percentage points) to 31.2 percent, driven by higher merchandise margins, fewer promotions and a reduction in clearance sales.
“We won’t need those promotions to attract and retain the consumers, and some of our competitors might,” Hicks said in the call. “But I think, quite frankly, it’ll be a while before we see some of the promotional intensity that we had seen in the past [as] there’s less inventory. The consumer is excited and wants our product. There’s not a need to [discount] at this point.”
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Total inventories at year end dropped 10 percent to $990 million from $1.1 billion in 2019, with half of that decrease coming from reduced clearance activity.
Steven Lawrence, executive vice president and chief merchandising officer, acknowledged the “ongoing challenges in the supply chain” related to the shortage of shipping containers and cargo space, but noted that its partnerships both domestically and overseas have allowed the retailer to successfully navigate through all the challenges.
“As a result, we should be in the best inventory position we’ve been in over the past year by the end of the second quarter,” Lawrence said in the call.
For 2021, several of the company’s key businesses that were adversely impacted by the pandemic, including team sports equipment, apparel and footwear, should return to normal this year. Licensed apparel will likely bounce back toward the end of the year, when football season starts.
“We saw that a year ago right around now, all these categories just literally stopped,” Lawrence said. “As a matter of fact, we talked about a couple times we had some categories like cleats where we had a day where we had zero sales. So, as seasons have resumed we’ve definitely seen the team sports business come roaring back to life on a two-year-over-year basis.”
As of the end of fiscal 2020, the company’s cash and cash equivalents totaled $377.6 million, compared to $149.4 million at the end of fiscal 2019. Fiscal 2020 adjusted free cash flow was $978.5 million compared to $196.9 million for fiscal 2019.
On Nov. 6, 2020, Academy issued $400 million of senior secured notes and entered into a new $400 million term loan facility, both of which mature in 2027. The net proceeds from the refinanced $800 million, as well as cash on hand, were used to repay in full outstanding borrowings of $1.43 billion, reducing the company’s debt by $631 million.
For fiscal 2021, Academy is tapering its expectations a bit. Comparable sales are expected to range between a 2 percent loss and a 2 percent gain, well off the 16.1 percent jump in 2020.
And net income in 2021 is expected to range between $265 million and $290 million, marking a 10 percent dip at the midpoint versus 2020, but a gain of 131 percent versus 2019. Diluted earnings range from $2.70 to $2.95 per share, off from the $3.79 per share in 2020.
Net Sales: Fourth-quarter net sales increased 16.6 percent to a record $1.6 billion. Comparable sales increased 16.1 percent, driven by strong consumer demand across all markets and merchandise divisions, particularly sports and recreation.
E-commerce sales grew 60.7 percent, led by an increase in website visits and the continued consumer adoption of new fulfillment methods, such as buy online, pick-up in-store, ship-to-store and curbside pickup.
For the full year, net sales increased 17.8 percent to a record $5.69 billion, while comparable sales increased 16.1 percent. This growth was led by a 138.3 percent increase in e-commerce sales and strong demand in the outdoor and sports and recreation categories. E-commerce penetration for 2020 was 10.4 percent of total sales, doubling the 5.1 percent in 2019.
Net Earnings: Net income for the final quarter was $91.5 million, a 416 percent increase over $17.7 million in the prior year quarter, resulting in diluted earnings per share of 97 cents, compared to 24 cents per share in the prior year quarter.
Pro forma adjusted net income, which excludes the impact of certain non-cash and extraordinary items, was $103.1 million, a 485.8 percent increase over pro forma adjusted net income of $17.6 million in the prior year quarter. Pro forma diluted earnings per share were $1.09, compared to 23 cents per share in the prior year quarter.
In fiscal 2020, net income increased 157.2 percent to $308.8 million, resulting in diluted earnings per share of $3.79, compared to diluted earnings per share of $1.60 the year prior. Fiscal 2020 pro forma adjusted net income was $311.7 million, a 310.7 percent increase over the $75.9 million generated in 2019.
CEO’s Take: Hicks said that Academy expects to remodel 30 of its 259 stores in 2021 by enriching merchandise presentation and applying improved labor management tools. The retailer anticipates opening eight to 10 stores in 2022.
“We are continuing our power merchandising work to improve merchandise planning and allocation capabilities by focusing on greater localization, delivering seasonal replenishment and improving promotional management and presentation in stores,” Hicks said.
He highlighted that another major priority for Academy was “strengthening efficiency and effectiveness of our supply chain by refining processes and systems optimization to increase the efficiency and effectiveness of our distribution centers and logistics.”