Academy Sports & Outdoors, Inc. — Form 10-Q Summary
Reporting period: The supplied filing is for the thirteen and thirty-nine weeks ended October 30, 2021, not 2020 Q3 as stated in the request. Comparisons below are with periods ended October 31, 2020. Academy operated 259 stores in 16 states and sold online.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Year to date 2021 | Year to date 2020 |
|---|---|---|---|---|
| Net sales | $1,592.8 million | $1,349.1 million | $4,964.7 million | $4,091.8 million |
| Comparable sales growth | 17.9% | Not stated here | 21.2% | Not stated here |
| Gross margin | $560.8 million; 35.2% | $440.5 million; 32.7% | $1,767.0 million; 35.6% | $1,235.0 million; 30.2% |
| Operating income | $216.1 million; 13.6% of sales | $81.6 million; 6.0% of sales | $709.7 million; 14.3% of sales | $279.4 million; 6.8% of sales |
| Net income | $161.3 million | $59.6 million | $529.6 million | $217.2 million |
| Diluted EPS | $1.72 | $0.74 | $5.55 | $2.82 |
Q3 net sales rose 18.1%; year-to-date sales rose 21.3%. Management attributed growth to broad-based comparable-sales gains. Q3 e-commerce sales increased 25.9% year over year and were 8.0% of merchandise sales; year-to-date e-commerce sales fell 1.5% and represented 8.0%, versus 9.8% a year earlier. The company said easing pandemic restrictions and greater comfort shopping in stores shifted demand toward in-store purchases.
Margin improvement reflected stronger merchandise margins, higher average selling prices, less promotional and clearance activity, and inventory-turn benefits. Higher ocean freight costs partly offset Q3 gross-margin gains. SG&A fell to 21.6% of sales in Q3 from 26.6%; year to date it was 21.3%, down from 23.4%, despite higher absolute year-to-date expense.
Cash flow, debt, and liquidity
- Year-to-date operating cash flow was $515.1 million, down from $857.2 million. The filing attributes the decline chiefly to inventory investment and the prior-year benefit from extended vendor payment terms.
- Year-to-date investing cash outflow was $58.7 million, including $58.6 million of capital expenditures. Management’s adjusted free cash flow measure was $456.4 million, versus $843.4 million a year earlier.
- Cash and equivalents were $401.3 million at October 30, 2021. The company had no ABL borrowings and reported $982.2 million of available ABL capacity, net of letters of credit.
- Debt principal totaled $698.5 million: a $298.5 million term loan and $400 million of 6.00% senior secured notes, both due in 2027. The balance sheet reported $683.8 million of long-term debt, net, plus $3.0 million of current maturities. The company said it was in compliance with debt covenants.
- Financing cash outflow was $432.7 million, including $345.8 million of share repurchases and $101.5 million of term-loan repayments, partly offset by stock-option exercise proceeds.
Material developments, outlook, and risks
- The company authorized a $500 million share-repurchase program through September 2024. It repurchased and retired 5.7 million shares for $245.8 million in Q3; $254.2 million remained authorized at quarter-end. KKR had no ownership interest after the September secondary offering. Secondary offerings were sales by existing holders; the company received no proceeds.
- A May 2021 ownership-related vesting event generated $24.9 million of non-cash equity-compensation expense and $15.4 million of cash payroll-tax expense year to date. The filing also reports a $2.2 million year-to-date loss on early debt retirement.
- No full-year earnings or sales guidance is provided. Management expected fiscal 2021 capital expenditures of approximately $90 million and, subject to COVID-19 impacts, planned eight to ten new stores annually starting in 2022. It expected to fund near-term needs with cash, operating cash flows, and available ABL capacity.
- Management highlighted supply-chain disruption, higher freight costs, labor availability and wage pressure, inventory availability and the risk of markdowns, inflation and tariffs, competition, consumer spending, COVID-19 developments, e-commerce execution, and substantial indebtedness. Inventory was $1.326 billion, up from $990.0 million at fiscal year-end; management expected further cash use to build inventory.
- COVID-19 workplace vaccination and testing requirements were subject to litigation and a court stay at the filing date. The company warned that implementation could affect staffing and costs. In nine Texas lawsuits related to a 2017 shooting, the Texas Supreme Court directed dismissal of certain claims; the company expected similar claims to be dismissed, but remaining outcomes were unresolved.
- Other ordinary-course lawsuits were not expected by management to materially affect the business. The filing reports $26.2 million of technology, construction, and other contractual commitments, plus $23.1 million of sponsorship and intellectual-property commitments.
Most important facts for investors to verify
- Confirm the reporting period: this filing covers Q3 2021, not Q3 2020.
- Assess whether strong sales and margins persist as pandemic-related demand shifts, promotions, freight costs, and product availability change.
- Track inventory growth and working-capital cash use, as well as the sustainability of operating cash flow.
- Review the impact of share repurchases on cash, share count, and remaining authorization alongside debt repayment and capital spending.
- Monitor supply-chain and labor risks, COVID-19-related requirements, and the status of unresolved legal claims.
- Interpret year-over-year tax and earnings comparisons in light of the October 2020 conversion to a taxable corporation and the filing’s non-GAAP adjustments.