Academy Sports + Outdoors saw net sales jump 18.1 percent to a third quarter record of $1.59 billion from $1.35 billion in the year-ago period, taking in net income of $161.3 million in the quarter. After raising its full year sales and earnings guidance, the company saw its stock rise as much as 9 percent in trading on Friday.
In a Nutshell: The Texas-based sporting goods and apparel retailer said it now expects earnings of $6.75 per share to $6.85 per share in fiscal 2021, on sales of $6.68 billion to $6.74 billion, with the midpoint of growth pegged at 18 percent. Comparable sales growth is expected at percent to 18 percent, the company said.
Previously, Academy had projected earnings of $5.45 a share to $5.80 a share on sales of $6.47 billion to $6.62 billion, with comparable sales forecasts estimating 14 percent to 17 percent growth.
In particular, projections for net income have doubled since September, with Academy now expecting to take in $638 million in net profit, up from $309 million.
The retailer plans to open eight to 10 stores next year.
CEO Ken Hicks said in an earnings call that each of the company’s four product divisions and regions grew more than 20 percent compared to Q3 2020, adding that the retailer gained market share in each division. Apparel grew 25 percent versus 2020, while footwear jumped 17 percent.
Merchandise inventories were $1.3 billion, an increase of 22.4 percent compared to the prior year quarter.
“We have really good visibility to what’s coming and what’s not coming, and that’s really allowed us to go out and work with other alternative plans to try to make sure we’ve got the inventory to fuel the sales,” said Steve Lawrence, executive vice president and chief merchandising officer at Academy Sports + Outdoors.
Chief financial officer Michael Mullican said that although the supply chain has been tough to navigate, “we’re winning there.”
“But it’s been a street fight, to be quite frank. In the last quarter, we spoke about our ability to move the chips around the table with our diverse vendor base to get products to our customers, the products they want into our stores,” Mullican said. “And we were able to do that not only those strong sales but build our inventory position. That being said, it’s still tough.”
Gross margin improved by 250 basis points to 35.2 percent, with this growth primarily driven by higher merchandise margins resulting from effective pricing and promotions management, a favorable product mix shift and fewer clearance sales.
Hicks delved into the key factors that delivered the gross margin growth, with the first being its refined allocation strategies that have driven better localization efforts, ultimately improving inventory productivity while driving higher average prices through better regular-price selling.
“The stronger sell-through at regular price, when coupled with our markdown optimization strategy, has helped reduce the amount of goods we’re taking to clearance, along with driving higher AURs (average unit retail) and better margins on the clearance we do have,” Hicks said. “We’re operating in a less promotional marketplace. This has allowed us to scale back discounts during high-traffic time periods such as back-to-school or seeing this carry through in the fourth quarter.”
As of the end of the third quarter, Academy’s cash and cash equivalents totaled $401.3 million and the credit facility had no outstanding balance. Adjusted free cash flow was $84.4 million.
Net Sales: For the period, net sales increased 18.1 percent to $1.59 billion, up from $1.35 billion in the third quarter of 2020. When compared to the third quarter of 2019, sales increased 39.1 percent.
Comparable sales were 17.9 percent higher, on top of the 16.5 percent boost last year, making it the ninth consecutive quarter of positive comparable sales.
E-commerce sales grew 25.9 percent compared to the prior-year quarter and rose 146.6 percent on a two-year basis.
Net Earnings: Net income at Academy Sports + Outdoors was $161.3 million compared to $59.6 million in the year-ago period. Diluted earnings per share increased 132.4 percent to $1.72 compared to 74 cents per share last year.
Pro forma adjusted net income, which excludes the impact of certain non-cash and extraordinary items, increased 122.6 percent to $164.1 million. Pro forma diluted earnings per share increased 92.3 percent to $1.75 compared to 91 cents per share.
CEO’s Take: Hicks talked about the brand mix going forward, noting that it has established good relationships with Nike, Under Armour, The North Face and Columbia even as many of these companies are focusing more on DTC.
“In terms of shift between private label and national brands…It’s right around 20 percent private brand, 80 percent national brand. I don’t see the percentage of private brand going down,” Hicks said. “We’ve talked about maybe over time, it settles in longer term and somewhere in that 75 percent-25 percent ratio. I don’t see that changing in terms of an availability perspective. But we’re always going to be talking to new suppliers, looking for new ideas. And if it’s something that fits within our bookends, it makes sense for our customer, we’ll definitely bring it in.”