Academy Sports & Outdoors, Inc. — Form 10-Q Summary
Period clarification: The filing covers the 13 weeks ended April 29, 2023 (fiscal 2023 first quarter), compared with the 13 weeks ended April 30, 2022. This differs from the request metadata’s “2022 Q1” label.
Business context and results
Academy is a sporting goods and outdoor recreation retailer. At quarter-end it operated 269 stores in 18 states, three distribution centers, and an e-commerce business. Stores facilitated approximately 95% of sales, including online orders fulfilled through stores.
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $1.384 billion | $1.468 billion | Down 5.7% |
| Comparable sales | Down 7.3% | Not stated here | Transactions down 6.7%; average ticket down 0.6% |
| Gross margin | $467.1 million; 33.8% | $521.4 million; 35.5% | Down $54.3 million; 170 basis points |
| SG&A | $340.9 million; 24.6% of sales | $315.9 million; 21.5% of sales | Up $25.0 million |
| Operating income | $126.2 million; 9.1% of sales | $205.5 million; 14.0% of sales | Down 38.6% |
| Net income | $94.0 million | $149.8 million | Down 37.3% |
| Diluted EPS | $1.19 | $1.69 | Down 29.6% |
| Adjusted EBITDA (non-GAAP) | $167.6 million | $235.3 million | Down 28.8% |
Cash flow, debt and liquidity
- Operating cash flow was $52.1 million, down from $97.1 million. Capital expenditures were $40.5 million, versus $17.3 million; the filing’s non-GAAP adjusted free cash flow was $11.6 million, versus $79.8 million.
- Cash and cash equivalents were $295.5 million at April 29, 2023. Total debt principal was $594.0 million: $400 million of 6.00% notes and a $194 million term loan bearing a weighted-average 8.60% rate. The ABL revolver had no borrowings and $986.1 million of available capacity.
- Long-term lease liabilities were $1.059 billion; operating lease payments totaled $1.887 billion over the disclosed remaining term. Management said cash and ABL availability should fund requirements for at least 12 months. The company was in compliance with debt covenants.
- Inventory was $1.386 billion, up from $1.324 billion a year earlier. Cash declined by $41.6 million during the quarter.
Material changes and management commentary
- Sales weakness reflected lower comparable sales across divisions, partly offset by $22.9 million in net sales from additional stores. Outdoors sales declined most notably in hunting and fishing; apparel was relatively flat. E-commerce was 8.2% of merchandise sales, versus 9.5%.
- Management attributed the 170-basis-point gross-margin decline mainly to 110 basis points of weaker merchandise margin from increased clearance and promotions and 76 basis points from increased inventory shrink.
- SG&A increased amid lower sales, higher employee compensation (including equity compensation), increased advertising, and costs associated with additional stores. Interest expense rose modestly as higher rates offset the benefit of the December 2022 $100 million term-loan prepayment.
- Effective January 29, 2023, the company changed inventory accounting from LIFO to weighted-average cost, citing improved comparability and representation. The filing says the change had no impact on the prior periods presented.
- The company repurchased 750,010 shares for approximately $50.0 million and paid a $0.09-per-share dividend during the quarter. Approximately $249.4 million remained under the repurchase authorization.
Outlook, risks and contingencies
- The filing provides no specific sales or earnings guidance. Management planned 13–15 new stores in fiscal 2023 and 120–140 over five years, and forecast fiscal 2023 capital expenditures of $200–$250 million.
- Management cited consumer discretionary spending, competition, inventory and demand forecasting, promotional activity, supply-chain and import exposure, labor, e-commerce, weather, and variable interest rates among relevant business risks. It cautioned that quarterly results are seasonal and the first-quarter results are not necessarily indicative of the full year.
- On May 9, 2023, U.S. Customs and Border Protection asserted additional anti-dumping or countervailing duties on certain China-imported products. The company disputes the determination and expects to deposit duties while the matter is pending; the amount is not clearly stated in the filing. Management did not expect a material adverse effect but said the outcome is uncertain.
- Routine lawsuits were not expected to materially affect the company, though outcomes remain uncertain. The filing also disclosed $101.1 million of freight, technology, construction, and other commitments, including $66.0 million payable within 12 months.
Important facts for investors to verify
- Whether comparable-sales trends, transactions, and average ticket improve, and how consumer demand affects each merchandise division.
- Whether promotional pressure and inventory shrink ease, and whether inventory levels and markdowns remain manageable.
- Progress on store openings and the $200–$250 million capital-expenditure plan, alongside the effect of investment on cash generation.
- Cash needs for debt service, leases, repurchases, and dividends; the term loan’s variable-rate exposure; and continued covenant compliance.
- The amount and resolution of the disputed CBP duties, including any additional deposits, accruals, or payments.