Academy Sports & Outdoors, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2019 Q3, but the supplied filing is for the 13 and 39 weeks ended October 31, 2020, compared with periods ended November 2, 2019. This summary follows the filing.
Business context and reporting period
Academy operated 259 Academy Sports + Outdoors stores in 16 states, three distribution centers and academy.com. The quarter included the company’s October 2020 IPO and reorganization from a pass-through entity to a publicly traded corporation. Results reflect substantial effects from the COVID-19 pandemic.
Key financial metrics
| Metric | 13 weeks ended Oct. 31, 2020 | 13 weeks ended Nov. 2, 2019 | 39 weeks ended Oct. 31, 2020 | 39 weeks ended Nov. 2, 2019 |
|---|---|---|---|---|
| Net sales | $1,349.1 million | $1,145.2 million | $4,091.8 million | $3,459.4 million |
| Gross margin | $440.5 million; 32.7% | $362.4 million; 31.6% | $1,235.0 million; 30.2% | $1,060.6 million; 30.7% |
| Operating income | $81.6 million | $53.2 million | $279.4 million | $137.2 million |
| Net income | $59.6 million | $28.6 million | $217.2 million | $102.3 million |
| Diluted EPS | $0.74 | $0.38 | $2.82 | $1.37 |
| Operating cash flow | Not separately summarized here | Not separately summarized here | $857.2 million | $94.8 million |
Third-quarter comparable sales increased 16.5%; year-to-date comparable sales increased 16.1%. E-commerce sales rose 95.9% in the quarter and 208.6% year to date. E-commerce represented 7.5% and 9.8% of merchandise sales, respectively.
At October 31, 2020, cash and cash equivalents were $869.7 million, total debt was $1,429.7 million, and the company had no ABL borrowings and $844.7 million of available borrowing capacity. Lease liabilities totaled $1,250.8 million, including current and long-term amounts. Capital expenditures were $21.9 million year to date. Reported net cash increased $720.3 million year to date.
Management’s non-GAAP Adjusted EBITDA was $145.7 million for the quarter versus $88.8 million, and $428.6 million year to date versus $245.6 million. These are supplemental measures, not substitutes for GAAP results.
Material changes versus the prior comparable periods
- Quarterly sales rose 17.8%, led by 16.5% comparable-sales growth and contributions from stores opened in the prior-year quarter. Outdoor and sports/recreation categories strengthened; apparel and footwear performance was mixed.
- Quarterly gross margin expanded 110 basis points, primarily from lower clearance activity and markdowns. Year-to-date gross margin contracted 50 basis points, reflecting import freight/duty costs and lower vendor allowances.
- Quarterly SG&A rose $49.7 million in dollars but declined to 26.6% of sales from 27.0%. Year-to-date SG&A rose 3.5% in dollars but fell to 23.4% of sales from 26.7%, reflecting sales leverage and lower spending, partly offset by IPO-related compensation and fees.
- Year-to-date operating cash flow improved sharply, but was supported by working-capital movements, including higher accounts payable. Management said cash flow would be affected in Q4 as inventory was replenished following strong sell-through.
- The year-to-date debt-retirement gain fell to $7.8 million from $42.3 million in the prior-year period, as debt repurchases were smaller.
Outlook, commentary, risks and unusual items
- The filing provides no specific earnings or sales guidance. Management expected fiscal 2020 capital expenditures of approximately $46.6 million and said it expects to open 8–10 stores annually beginning in 2022.
- Management attributed stronger demand in outdoor and recreation categories and e-commerce to pandemic-era consumer behavior, while emphasizing that the duration and effects of COVID-19 remained uncertain. It identified possible resurgence, consumer-spending changes, supply-chain disruption, inventory availability, competition, tariffs and substantial indebtedness among key risks.
- The October IPO generated approximately $184.9 million of net proceeds. A $257.0 million special distribution to pre-IPO members was paid in August. The IPO also triggered approximately $19.9 million of restricted-stock compensation expense, and the KKR monitoring agreement terminated with a $12.3 million termination fee.
- On November 6, 2020, after quarter-end, the company refinanced its prior $1.431 billion term loan using proceeds from $400 million of 6.00% senior secured notes due 2027, a new $400 million term loan due 2027 and cash on hand; it also extended its ABL facility maturity to 2025. The filing describes the refinancing, but does not provide a complete post-transaction cash and debt balance in the supplied text.
- Following the IPO reorganization, the company became subject to federal corporate income tax. The reported periods largely predate this change, so historical effective tax rates are not directly representative of future periods.
- Routine lawsuits and claims were disclosed; management said it did not expect their resolution to materially affect financial position, results or cash flows. The filing also notes contractual commitments and that ultimate legal outcomes cannot be determined.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers Q3 2020, not Q3 2019.
- Assess whether pandemic-driven sales, category mix and e-commerce growth persist, and whether inventory replenishment pressures cash flow or margins.
- Review the refinancing’s full economics, including interest costs, covenants, collateral priorities and post-refinancing liquidity.
- Separate recurring operating performance from IPO-related compensation, the monitoring-agreement termination fee, debt-retirement gains and other adjustments; review non-GAAP reconciliations alongside GAAP results.
- Consider the effect of the new corporate tax status, significant lease obligations, and KKR’s continuing control when evaluating future earnings and governance.