Academy Sports & Outdoors, Inc. — Q3 FY2023 Form 10-Q
Business context and period. The filing covers the 13 and 39 weeks ended October 28, 2023, compared with periods ended October 29, 2022. Academy operated 275 stores in 18 states, three distribution centers and an e-commerce business. It reported results as a sporting goods and outdoor recreation retailer.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 39 weeks 2023 | 39 weeks 2022 |
|---|---|---|---|---|
| Net sales | $1,397.8M | $1,493.9M | $4,364.5M | $4,648.6M |
| Gross margin | $482.6M; 34.5% | $522.5M; 35.0% | $1,513.2M; 34.7% | $1,640.0M; 35.3% |
| Operating income | $136.7M | $179.5M | $473.9M | $641.7M |
| Net income | $100.0M | $131.7M | $351.0M | $470.3M |
| Diluted EPS | $1.31 | $1.62 | $4.51 | $5.54 |
| Operating cash flow | Not separately stated here | Not separately stated here | $301.0M | $309.2M |
Q3 sales declined 6.4%; comparable sales fell 8.0%, reflecting transactions down 8.1% while average ticket was relatively flat. YTD sales declined 6.1% and comparable sales fell 7.6%, with transactions down 7.8%. New stores partly offset the comparable-sales decline. E-commerce represented 9.4% of Q3 merchandise sales and 9.0% YTD.
Q3 gross margin contracted 50 basis points. Higher planned promotions, inventory overhead from slower turnover, lower vendor allowances and increased shrink were partly offset by lower freight costs. YTD gross margin contracted 60 basis points for similar reasons. SG&A rose 0.9% in Q3 and 4.1% YTD; as a share of sales, it increased to 24.7% and 23.8%, respectively, including sales deleverage and spending on stores, technology and other growth initiatives.
Cash, debt and liquidity
- Cash and equivalents were $274.8M at October 28, 2023, down from $337.1M at January 28, 2023. YTD cash decreased $62.3M.
- YTD investing cash use was $150.2M, including $152.0M of capital expenditures, versus $79.8M investing cash use in the prior-year period. YTD financing cash use was $213.2M, including $200.1M in share repurchases and $20.5M in dividends.
- Adjusted free cash flow, a company-defined non-GAAP measure, was $150.9M YTD versus $229.4M. Operating cash flow was $301.0M versus $309.2M.
- Total debt principal was $592.5M: $400.0M of 6.00% secured notes and $192.5M of variable-rate term debt. The term loan’s weighted-average rate was 9.18%. No ABL borrowings were outstanding; available ABL capacity was $988.4M. The company reported compliance with debt covenants.
- Current assets were $1.896B and current liabilities $1.173B. Merchandise inventory was $1.492B, compared with $1.495B a year earlier. Management said cash and ABL availability should cover requirements for at least the next 12 months.
Outlook, commentary and notable items
- No numerical earnings or sales guidance is provided in the supplied filing text. Management planned 14 new store openings in FY2023 and 120–140 over the five fiscal years through 2027. Seven stores had opened YTD through October 28.
- FY2023 capital expenditures were estimated at $175M–$225M, allocated approximately 50% to new stores, 35% to corporate, e-commerce and IT programs, and 15% to existing stores and distribution centers.
- Management cited consumer discretionary spending, competition, inventory management, shrink, supply-chain and merchandise-cost changes, labor, severe weather, technology, and variable-rate debt among relevant risks. It noted that retail results are seasonal and that estimates, including inventory valuation and impairment assessments, are subject to uncertainty.
- Effective January 29, 2023, the company changed inventory accounting from LIFO to weighted-average cost. For the 39 weeks, reported income was $3.5M higher than the pro forma amount under continued LIFO; the change did not alter operating cash flow.
- U.S. Customs and Border Protection asserted that certain China-imported products owed additional anti-dumping or countervailing duties. Academy disputes the determination and deposited duties while contesting it. The ultimate outcome and any additional payment are uncertain; management did not expect a material adverse effect.
- After quarter-end, the board declared a $0.09-per-share dividend and authorized a new $600M repurchase program. Combined availability under the new and existing programs was $699.4M.
Most important facts for investors to verify
- Whether comparable-sales and transaction declines stabilize, and whether new-store growth offsets weaker sales.
- Whether promotional intensity, shrink and slower inventory turnover continue to pressure gross margin.
- Whether planned store investment and FY2023 capital expenditures remain within stated targets and generate expected returns.
- How variable-rate term-loan costs and cash needs evolve, while the company sustains dividends and repurchases.
- The resolution and potential financial exposure of the CBP duty dispute.
- How the inventory accounting change affects comparability when assessing reported results.