Academy Sports + Outdoors released better than expected 1Q23 earnings, coupled with a new $600 mln share repurchase program. This brought the total amount available for repurchase up to $700 mln, which saw the stock close 8.80% higher. This accounts to almost a quarter of ASO’s total float. Academy’s earnings have been bolstered by the American enthusiasm for outdoor activities, sports, and recreation. $ASO beat top and bottom-line estimates for the seventh straight quarter.
ASO’s comparable sales decline of 7.5% may look rough on the surface, it’s important to keep in mind that it lapped incredible comp growth of 39% in the year-earlier quarter. Prior to this quarter ASO had generated positive comparable store sales growth for nine consecutive quarters.
The company also beat a very difficult potential hazard with ASO’s diverse product line and flexible supply chain to mitigate many supply crisis headwinds. ASO’s gross margin expanded by 110 bps to 32.3%, despite facing the extremely hot fierce inflationary pressures on the economy.
Effectively, like their major competitor Dick’s Sporting Goods ($DKS), Academy capitalized on the very tight inventory situation across the sporting goods market by reducing promotions and achieving a higher rate of sales at full prices.
Market Reaction: Academy Sports and Outdoors Inc
NASDAQ: ASO $38.70▲ 3.13 (8.80%)
ASO Q1 2023 Earnings Highlights
- Despite intense inflationary pressures, gross margin remained quite stable, dipping by just 20 bps yr/yr to 35.5%.
- Improving merchandise margins offset higher inventory and e-commerce shipping costs, indicating ASO’s pricing power and consumers’ willingness to absorb higher prices.
- ASO plans to open at least eight new stores this fiscal year, and 80-100 new stores over the next five years. If the company was anticipating a substantial downturn in its business, it would likely put its expansion plans on hold.
- A flood of stimulus money inflated ASO’s results in FY22, skewing yr/yr comparisons for FY23. Comparing its business against FY21 (ending Jan. 30, 2021), which was less impacted by stimulus spending, really underscores ASO’s healthy growth over the past two years.
- At the mid-point of ASO’s FY23 guidance ranges, EPS and revenue are projected to be higher by 50% and 17%, respectively, vs. FY21 levels.
While many companies use the supply chain crisis as an excuse ASO’s solid supply chain management, combined with ongoing momentum in the sports and outdoor retail space has led to the excellent earnings result. Of course, there is a risk that sporting and outdoor companies ASO, DKS, and HIBB have reached their peak and that a return to more normalized growth rates will be source of disappointment for investors. However, there is also the change in consumer trends may become a more permanent occurrence. We shall see and will watch the comps.
That said Academy lowered its full year outlook due to the macroeconomic challenges facing the economy and consumers. Again, this was similar to Dick’s Sporting Goods.
After guiding for FY23 EPS and revenue of $6.70-$7.25 and $6.56-$6.77 billion, respectively, ASO is now targeting EPS and revenue of $6.55-$7.25 and $6.43-$6.63 bln. While the EPS consensus estimate still falls within ASO’s relatively wide guidance range, the new revenue outlook falls short of expectations.
The company also reduced its comparable sales forecast to (6.0)-(3.0)% from (4.0)-(1.0)% as it laps FY22’s very strong comp growth of 18.9%.
The macroeconomic challenges cited by ASO include the same inflationary pressures that are battering all the retailers not just DKS. Target $TGT and Walmart $WMT stocks were smashed after huge misses and warnings. Retail giant Target Corporation reported worse than expected first-quarter earnings missing on major metrics. $TGT shares fell over 26%. Competitor Walmart reported the day before them and also sold off on its earnings miss for its largest single-day percentage decrease since 1987. Target management said fuel and freight costs will be $1 billion higher this year than it had expected, with little sign of their easing throughout 2022.
Retail has been hit by their own rising costs, especially in labor and freight, but they’re also feeling the impact of inflation on the consumer. Today Target issued another warning, just three weeks after their earnings guidance. TGT’s guidance cut and its plans to ramp up markdowns to remove excess inventory, consumers are pulling back on spending for a range of discretionary items. This includes sporting and outdoors-related products, which has been a hot product category over the past couple of years.
Spending that had been earmarked for at-home activities or socially distanced activities, like working out, playing golf, hiking, or fishing, is being diverted to traveling, dining out, or entertainment.
The COVID lockdown change in consumers’ lifestyles brought an accompanying surge in demand for fitness and outdoors products such as bikes, running gear, camping equipment, and grills. The shift does have staying power and ASO is anticipating a more normalized retail environment.
About Academy Sports and Outdoors
Academy Sports + Outdoors went public in October 2020. ASO has now reported massive EPS beats in all of its quarters as a public company. E-commerce has become a big focus for sporting goods retailers since the pandemic began, and ASO is no exception. Over the last two years, E-commerce sales have increased 300%.
ASO’s key categories are outdoor, apparel, footwear, and sports & recreation, which are geared toward outdoor activities. Another benefit is that ASO’s 259 stores are mostly located in warmer weather areas in the southern US, where people can spend more time outdoors through much of the year.
About 40% of ASO’s stores are in Texas (106). Other key states include GA (18), LA (18), AL (15), NC (15), OK (13), and FL (12). ASO timed its IPO just as sales were booming from the pandemic and increased outdoor leisure. The IPO priced at $13, opened at $12.10, and has roughly tripled since then, so the early ride for investors has been a good one!
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