Academy Sports + Outdoors Sustains Profit Momentum Amid Headwinds
With a strong foundation and business model in place, Academy Sports + Outdoors grew its profits in the fourth quarter amid a sales decline.
The Katy, Texas-based retailer reported Thursday that its net income rose 9 percent to $157.65 million in the fourth quarter ended Jan. 28 from $141.77 million in the year-ago period. On a diluted share basis, net income rose to $1.97 per share, from $1.57 in the year-ago period.
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Between the profit rise, healthy cash flow and bullish attitude on store openings, Wall Street was impressed, sending the stock price up 8.4 percent to $62.30 by the closing bell Thursday.
Net sales decreased 3.4 percent to $1.75 billion and comparable sales declined 5.1 percent. Sales were impacted by 6.4 percent fewer transactions, partially offset by a 1.3 percent increase in average ticket size. When compared to the fourth quarter of 2019, net sales increased 27.4 percent.
Steve Lawrence, Academy’s executive vice president and chief merchandising officer, told WWD that while overall sales were down, apparel and footwear saw gains. “We were in a much better position going into Christmas with better inventory,” in those categories, Lawrence said. Fleece, outerwear, footwear including cleats and canvas basketball shoes were leading sellers. Standout brands included Brooks, Skechers, Hey Dude and Nike. Outside soft goods, another best seller was Yeti, which sells mugs, coolers, water bottles, jugs and totes. Outdoor cooking products also sold well.
Lawrence said the company’s biggest sales drop was in hunting, specifically firearms and ammo, while kayaks, bicycles and fitness products also fell short. “Apparel was one of the better performers in last quarter and we expect it to be a growth engine,” said Lawrence.
“For Academy, 2022 was a year that was both rewarding and challenging,” said Ken Hicks, chairman, president and chief executive officer, in a statement. “The company accomplished many of the strategic goals we set at the beginning of the year to build a strong foundation for the future, including opening nine new stores.”
Hicks said 13 to 15 new stores will open in 2023.
According to Lawrence, most of the openings will be in the back half of the year though a unit will open in Lafayette, Indiana, at the end of the first quarter. The expansion for the most part involves bolstering business in states and markets where Academy already has stores, though last year, the company entered Virginia and West Virginia for the first time with new stores.
Lawrence told WWD that the company has been actively updating existing stores, typically with new carpeting and fixturing as well as adding floor concepts seen in recent store openings such as the Reel Bar in the fishing department, and Yeti shops. Academy stores are typically around 70,000 square feet.
The chief merchant also said that Academy has been actively “localizing” how its stores are merchandised. For example, as the company opens stores beyond its Southern concentration, in colder climates, it stocks those stores with heavier weight outerwear and snow toys. Academy’s northernmost stores are in Illinois and Indiana. The company operates 268 stores across 18 states.
“While our business faced pressures from the uncertain macro-economic environment throughout the year, our team effectively executed against our strategic plan, and as a result, we delivered solid earnings, generated and returned a significant amount of free cash flow, and created value for our stakeholders, even though we did not meet our sales expectations,” said Hicks. “Our focus in 2023 will be investing for growth by opening new stores, building a more powerful omnichannel business, strengthening our current store base, and leveraging and scaling our supply chain.”
Hicks also stressed that the company has been providing increased value to shareholders through share buybacks, dividends and reducing debt.
During the conference call, the topic of CEO succession came up. “I am having fun,” said Hicks. “Our board has taken a very thoughtful approach to succession planning. I envision being associated with Academy for some time to come and would like to be a part of it for the future. What that will exactly be, we’ll see but right now, I am having fun.”
Projecting strong optimism for the future, Hicks said, “Our view of the industry is still very bullish. It’s very fragmented. Nobody has a significant share; from that degree, it’s open.” He said the sports and outdoor categories should not be considered discretionary, suggesting that regardless of macro headwinds, and consumers currently being financially challenged, “Kids are still going to play baseball. Families will still go camping and spend time on the patio,” where they might barbecue. He said Academy fits in by supporting the nation’s interest in hobbies, sports, staying healthy, and by providing value to consumers.
Michael Mullican, executive vice president and chief financial officer, said, “Academy’s operational and financial transformation continues to deliver solid financial results. For the second consecutive year, the company delivered gross margins greater than 34 percent and operating margin above 13 percent. Since the beginning of 2021, we have returned over $1.1 billion to our stakeholders through stock buybacks, dividend payments and debt reduction. In 2023, our goal is to accelerate sales and profit growth through new store openings, omnichannel expansion and increasing the productivity of existing stores, all while generating significant free cash flow.”
For all of 2022, the company reported sales of $6.4 billion, a decline from $6.77 billion in 2021. Net income was $628 million, compared to $671.4 million in 2021.
For fiscal 2023, the company expects sales between $6.5 billion to $6.7 billion; comparable sales from down 2 percent to up 1 percent, and net income from $535 million to $595 million.
Academy has schedule its two-day investor meeting for April 3 and 4, in Katy.
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