10-Q: Academy Sports and Outdoors Reports Second Quarter 2024 Results with Slight Sales Decline

Academy Sports and Outdoors reported a slight decrease in net sales for the second quarter of 2024, alongside a comparable sales decline, but managed to improve gross margin.

Summary

• Academy Sports and Outdoors reported a net sales decrease of 2.2% for the second quarter of 2024, totaling $1,548.98 million, compared to $1,583.08 million in the same period last year.
• Comparable sales decreased by 6.9%, driven by a 7.4% decrease in transactions, partially offset by a 0.5% increase in average ticket.
• The company's gross margin increased to 36.1% from 35.6% in the prior year, primarily due to product cost management and lower transportation costs.
• Selling, general, and administrative expenses increased by 4.6% to $368.64 million, representing 23.8% of net sales, up from 22.3% in the prior year.
• Net income for the quarter was $142.59 million, a decrease from $157.08 million in the same period last year.
• The company repurchased 1,809,856 shares of its common stock for $98.8 million during the quarter.
• E-commerce sales accounted for 9.7% of total merchandise sales, compared to 9.4% in the prior year.
• For the first six months of 2024, net sales decreased by 1.8% to $2,913.2 million, compared to $2,966.69 million in the same period last year.
• Comparable sales for the first six months of 2024 decreased by 6.4%, driven by a 6.1% decrease in transactions.
• The company's gross margin for the first six months of 2024 increased slightly to 34.8% from 34.7% in the prior year.
• Net income for the first six months of 2024 was $219.05 million, a decrease from $251.05 million in the same period last year.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects like improved gross margin, but the overall sentiment is negative due to declining sales and net income. The company is facing headwinds from macroeconomic conditions and increased competition.

Positives

• Gross margin improved in both the second quarter and the first six months of 2024 due to product cost management and lower transportation costs.
• The company continues to expand its e-commerce presence, with e-commerce sales representing 9.7% of merchandise sales in the second quarter of 2024.
• The company has been actively repurchasing shares, indicating confidence in its future prospects.
• The company received a full refund of anti-dumping and countervailing duties in August 2024, which will be recorded as cash in the next quarter.

Negatives

• Net sales decreased in both the second quarter and the first six months of 2024.
• Comparable sales declined significantly in both the second quarter and the first six months of 2024.
• Selling, general, and administrative expenses increased as a percentage of net sales.
• Net income decreased in both the second quarter and the first six months of 2024.
• A temporary reduction in outbound shipments at the Georgia distribution center and severe weather events negatively impacted sales.

Risks

• The company faces risks related to overall economic conditions and consumer discretionary spending.
• The company's performance is subject to fluctuations in consumer tastes and preferences.
• The company is exposed to risks associated with its reliance on internationally manufactured merchandise.
• The company faces intense competition in the sporting goods and outdoor recreation retail industries.
• The company's operations are subject to risks associated with disruptions in its supply chain.
• The company's results are subject to quarterly and seasonal fluctuations.
• The company is exposed to risks related to severe weather events and other disasters.
• The company faces risks related to attracting and retaining quality team members.
• The company's performance is subject to fluctuations in merchandise costs and availability.
• The company is exposed to payment-related risks.
• The company faces risks related to inventory shrink.
• The company's ability to protect its intellectual property is a risk.
• The company's level of indebtedness and related debt service payments are a risk.
• The company's variable rate indebtedness subjects it to interest rate risk.
• The company's stock price is volatile and may decline.

Future Outlook

The company expects capital expenditures for fiscal year 2024 to be between $175 million and $225 million, with a focus on new stores, corporate, e-commerce, and information technology programs, and updates for existing stores and distribution centers.

Management Comments

• Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures.
• Management also uses Adjusted EBIT as a performance target to establish and award discretionary annual incentive compensation.
• Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

Industry Context

The sporting goods and outdoor recreation retail industry is highly competitive, and Academy Sports and Outdoors faces challenges from both national and regional players. The company's performance is also influenced by macroeconomic conditions and consumer spending patterns. The company is investing in its omnichannel capabilities to compete effectively in the evolving retail landscape.

Comparison to Industry Standards

• Comparable sales declines of 6.9% in the second quarter and 6.4% for the first six months of 2024 indicate a challenging retail environment, but are not uncommon in the current economic climate.
• Dick's Sporting Goods, a major competitor, reported a 2.3% increase in comparable sales in their most recent quarter, suggesting that Academy's performance is lagging behind some of its peers.
• Other retailers in the sector, such as Bass Pro Shops and Cabela's, do not publicly report comparable sales, making direct comparisons difficult.
• Academy's gross margin improvement to 36.1% in the second quarter is a positive sign, but it is important to compare this to industry benchmarks to assess its competitiveness.
• The company's investment in new stores and technology aligns with industry trends, but the impact on sales and profitability will need to be monitored.
• The company's share repurchase program is a common practice among public companies, but its effectiveness in boosting shareholder value will depend on the company's overall performance.

Legal Proceedings

• In May and December 2023, U.S. Customs and Border Protection (CBP) notified the company that it owed additional duties relating to certain products that it imported from China.
• In January 2024, the company requested a changed circumstances review of CBP's determination by the U.S. Department of Commerce (DOC).
• In April 2024, the DOC made a determination in the company's favor, and in May 2024, instructed CBP to begin the process of issuing refunds.
• In August 2024, the company received a full refund of the anti-dumping and countervailing duties.

Stakeholder Impact

• Shareholders may be concerned about the decline in sales and net income, but may be encouraged by the share repurchase program and improved gross margin.
• Employees may be affected by the company's performance and any potential changes in staffing or compensation.
• Customers may be impacted by the company's product offerings and pricing strategies.
• Suppliers may be affected by the company's inventory management and purchasing decisions.
• Creditors may be concerned about the company's debt levels and ability to repay its obligations.

Next Steps

• The company will continue to execute its new store opening growth plans.
• The company will continue to invest in expanding and enhancing its omnichannel capabilities.
• The company will continue to monitor and manage its inventory levels.
• The company will continue to assess the impact of macroeconomic conditions on its business.
• The company will continue to evaluate its capital expenditure plans.

Key Dates

Keywords

sporting goods, outdoor recreation, retail, e-commerce, net sales, comparable sales, gross margin, inventory, share repurchase, omnichannel