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Academy Sports + Outdoors: Inventory ‘Not at Optimal Levels’

Academy Sports + Outdoors ended the second quarter with the highest quarterly earnings in company history, and confidence in its inventory for back-to-school, fall sports and holiday.

In a Nutshell: “Our inventory position at the end of the quarter was up 24 percent compared to last year. There’s been a lot of discussion about inventory availability and supply chain constraints. We’ve been working diligently with all of our vendor partners to ensure merchandise flow and allocations,” Ken Hicks, chairman, president and CEO, told analysts during a conference call. “Given our strong relationship with suppliers, such as Nike, Adidas and Under Armour, we are in a position of efficient supply right now, and while there will be challenges, we believe we have a good line of sight on what to expect over the next few months.”

Hicks believes the company is in a position of being in the right place at the right time as the leader in the sports and outdoors category when consumer spending is shifting to the estimated $100 billion space. “People are making lasting lifestyle changes focused on health and wellness, sharing outdoor experiences and nesting at home in their backyard oasis,” he said.

Working from home has prompted customers to shop for “more casual work attire,” he continued. “We believe all these trends will continue for the foreseeable future and that our broad assortment of quality and value products positions us as an excellent option for consumers to meet all of their needs.”

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According to Steve Lawrence, executive vice president and chief merchandising officer, Academy’s inventory is “improving in terms of overall level and content,” despite “numerous disruptions to the supply chain.”

While the supply chain will remain a challenge, Lawrence believes that Academy remains well positioned for the back half. “We ended the quarter with our inventory up 24 percent to last year versus starting the quarter at plus 7 percent last year. While we’re still not at optimal levels across all areas, we’re fully back in stock,” he said, noting that many of the categories—such as fitness, fishing, bikes, apparel, and footwear—have seen strong demand.

Apparel sales were up 19 percent in the quarter, or up 37 percent when compared to 2019, while footwear sales rose 15 percent and up 27 percent versus two years ago, Lawrence said.

“Apparel and footwear were once again our two strongest divisions during the quarter,” Lawrence said. The two divisions were also the stars in the first quarter as well, although the company had to shift gears quickly to secure merchandise for the summer months. It had started the first quarter with inventories down 10 percent year-over-year. That’s a contrast to where it is now, beginning the third quarter with inventory up 24 percent.

“One common theme across both of these divisions was the strength we saw in our youth apparel and footwear businesses. Both of these categories outperformed and I believe this demonstrates the continued strengthening of our position with young families, particularly in our newer markets,” Lawrence said.

National brands such as Nike, Adidas, Under Armour, Columbia and The North Face all performed well at Academy, which helped improve inventory. “The partnerships with our key national brands are only getting stronger, which is helping us stay in stock while also delivering new, innovative offerings that our customers love,” Lawrence said. In addition, the company saw momentum with its private brands business, which outperformed the total company comp. Academy expects private brands to continue to be the “sales drivers for us in the back half of the year,” he noted. The return of youth sports fueled gains in the retailer’s team sports business.

A less promotional marketplace also allowed the company to reduce discounts during high traffic time periods, he said.

Net Sales: Net sales for the three months ended July 31 rose 12 percent to $1.79 billion from $1.161 billion, and were up 44.8 percent when compared with the same 2019 pre-pandemic quarter. The company said comparable sales grew 11.4 percent on top of the year-ago growth of 27 percent, representing its eighth consecutive quarter of positive comps.

Academy said e-commerce sales slipped 0.9 percent after growing 210.3 percent last year but were up 207.2 percent versus 2019.

During the call, Michael Mullican, executive vice president and chief financial officer, said “buy online, pickup in store” sales exceeded 50 percent of e-commerce sales during the quarter and “continues to be a very effective and profitable way for us to transact with our customers.” Stores are becoming more productive and profitable as the company drives deeper engagement with customers by “having the right products to stock at the right price at the right time,” he added.

Sales growth was driven by strength in the sporting goods and outdoor recreation market, improving in-stocks and strong consumer demand. Sales were strong in apparel and footwear, field, fitness and team sports.

Inventories were $1.1 billion, an increase of 24.0 percent versus the prior year and up 3.2 percent compared with the first quarter of Fiscal 2021. In addition, gross margin rose 29.4 percent to $642.5 million, representing the “highest quarterly gross profit in the company’s history,” it said. The gross-margin gain was due to stronger merchandise margins from a favorable product mix shift, higher average unit retails and less promotional activity.

For the six months, net sales were up 23 percent to $3.37 billion from $2.74 billion. Comparable sales rose 22.8 percent.

Earnings: Net income rose 14 percent to $190.5 million, or $1.99 a diluted share, from $1.67.7 million, or $2.25, in the same year-ago quarter. On an adjusted basis, diluted earnings per share (EPS) was $2.34.

For fiscal 2021, the company guided diluted EPS in the range of $5.45 to $5.80 on a net sales range of $6.47 billion to $6.62 billion. Comparable sales were forecasted to range up 14 percent to 17 percent.

For the six months, net income more than doubled to $368.3 million, or $3.82 a diluted share, from $157.7 million, or $2.12, in the comparable period last year.

CEO’s Take: “The third quarter is off to a very strong start, driven by a robust back-to-school and sports season, as we are prepared and in-stock on the most popular items, including backpacks, use apparel, footwear, and team sports equipment. With the fall sports season kicking off, our licensed apparel business is also experiencing a very good start to the quarter,” Hicks said. “Academy is entering a growth phase and the team has focused on maintaining this positive momentum, while retaining the gains achieved over the last year. Market and consumer trends remain strong and we are in a favorable position to capitalize on a tremendous opportunity. Our goal remains the same: to be the best sports and outdoors retailer in the country.”

“We feel very confident in the long-term durability of the business. We see people continue to come back with the things that they started both before and during the pandemic,” he added.