Academy Sports & Outdoors, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended July 30, 2022, compared with the periods ended July 31, 2021. Although the request metadata says 2021 Q2, the filing itself reports 2022 Q2 results. Academy operated 261 stores in 16 states and sold through stores and e-commerce.
Financial performance
| Metric | Q2 2022 | Q2 2021 | 26 weeks 2022 | 26 weeks 2021 |
|---|---|---|---|---|
| Net sales | $1,686.9 million | $1,791.5 million | $3,154.6 million | $3,371.9 million |
| Gross margin | $596.1 million; 35.3% | $642.5 million; 35.9% | $1,117.5 million; 35.4% | $1,206.2 million; 35.8% |
| Operating income | $256.7 million | $254.6 million | $462.2 million | $493.6 million |
| Net income | $188.8 million | $190.5 million | $338.6 million | $368.3 million |
| Diluted EPS | $2.22 | $1.99 | $3.90 | $3.82 |
| Adjusted EBITDA (non-GAAP) | $292.5 million | $324.4 million | $528.7 million | $595.4 million |
| Adjusted diluted EPS (non-GAAP) | $2.30 | $2.34 | $4.01 | $4.22 |
Q2 sales fell 5.8%, including a 6.0% comparable-sales decline; year-to-date sales fell 6.4%, with comparable sales down 6.7%. Fewer transactions were partly offset by higher average tickets. E-commerce sales increased 12.1% in Q2 and 15.0% year to date, reaching 10.0% and 9.8% of merchandise sales, respectively.
Gross margin contracted 60 basis points in Q2 and 40 basis points year to date. Higher inventory overhead and e-commerce shipping costs weighed on margins; Q2 also reflected higher ocean freight and duties. Higher average unit retail supported merchandise margins. SG&A declined in dollars and as a share of sales, partly reflecting lower incentive and equity-compensation costs; this helped Q2 operating income rise slightly despite lower sales. Net income declined year to date, while reported diluted EPS was higher due to fewer weighted-average shares following repurchases. Prior-year results included a $2.2 million debt-retirement loss and substantial vesting-event compensation costs.
Cash flow, balance sheet and capital allocation
- Cash and liquidity: Cash was $399.9 million at July 30, 2022, down from $553.8 million a year earlier. The company reported $980.3 million of available ABL capacity and no ABL borrowings. Management said cash and available borrowing capacity should cover requirements for at least 12 months.
- Cash flow: Year-to-date operating cash flow was $258.4 million, versus $405.7 million. Capital expenditures were $48.1 million; operating cash flow less investing outflows, the company’s non-GAAP Adjusted Free Cash Flow measure, was $210.3 million versus $371.9 million. Cash declined $86.1 million during the period.
- Debt and leases: Principal debt totaled $696.3 million, consisting of a $296.3 million term loan and $400 million of 6.00% senior secured notes, both due in 2027. Long-term debt net of discounts and costs was $683.1 million, plus $3.0 million current maturities. Operating lease liabilities totaled approximately $1.169 billion; disclosed future operating lease payments were $1.856 billion. The ABL facility matures in 2025. The company reported compliance with debt covenants.
- Working capital: Merchandise inventory was $1.305 billion, up from $1.115 billion at July 31, 2021. The company identified inventory turnover, supply-chain disruption and inflation-related costs as areas affecting results.
- Shareholder returns: The company repurchased and retired 7.8 million shares for $288.6 million year to date and paid $12.8 million in dividends. Approximately $500.2 million remained available under its repurchase programs at July 30. A quarterly dividend of $0.075 per share was declared after quarter end.
Outlook, management commentary and risks
The filing does not provide a clear full-year earnings or sales guidance figure. Management expected to open at least nine stores in 2022 and projected fiscal 2022 capital expenditures of approximately $140 million, primarily for technology and e-commerce, new stores and relocations, and existing-store and distribution-center updates.
Management attributed weaker comparable sales partly to the prior-year comparison, which benefited from government stimulus and elevated demand for pandemic-related recreation categories. It described ongoing supply-chain constraints, labor and goods availability challenges, inflation, and higher freight and inventory costs, and said it was ordering earlier, securing transportation capacity and using alternative ports. The filing also cites consumer discretionary spending, inventory management, competition, e-commerce execution, weather, labor, cybersecurity, international sourcing and variable-rate debt as risks. COVID-19 effects and related supply-chain or demand impacts remain uncertain.
Legal claims were described as ordinary-course matters; management did not expect them to have a material effect, though outcomes remain uncertain. The company disclosed $74.8 million of freight, technology, construction and other commitments, including $42.5 million payable within 12 months, and $17.9 million of sponsorship and intellectual-property commitments through 2027. Management identified inventory valuation and impairment analyses as significant estimates subject to uncertainty.
Important facts for investors to verify
- Whether comparable-sales weakness and lower transaction counts persist, and how the prior-year stimulus and pandemic-demand comparison affects subsequent periods.
- Whether elevated inventory can be sold without material markdowns, and whether freight, duties, shipping and inflation continue to pressure gross margin.
- Whether operating cash flow recovers from the year-to-date decline while the company funds inventory, planned capital spending, dividends and substantial share repurchases.
- How repurchases affect per-share results and liquidity, and whether the planned store expansion and approximately $140 million capital-spending program deliver expected returns.
- Interest-rate exposure on variable-rate borrowings, debt-service capacity, lease obligations and continued compliance with financing covenants.
- That non-GAAP Adjusted EBITDA, Adjusted EPS and Adjusted Free Cash Flow are management-defined supplemental measures, not substitutes for GAAP results or unrestricted cash available for discretionary use.