Academy Sports & Outdoors, Inc. — Form 10-K Summary
Period clarification: The request identifies “2019 Q4,” but the supplied filing is the 10-K for the 52-week fiscal year ended January 30, 2021 (“2020”), with comparisons to the fiscal year ended February 1, 2020 (“2019”). It includes quarterly results, including fourth-quarter figures.
Business context and reporting period
Academy is a U.S. sporting goods and outdoor recreation retailer. At fiscal year-end, it operated 259 stores in 16 states, three distribution centers, and an e-commerce business. Merchandise spans outdoor, sports and recreation, apparel, and footwear. The company completed its IPO in October 2020 and became a public company.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $5.689 billion | $4.830 billion |
| Comparable sales growth | 16.1% | Not stated here |
| Gross margin | $1.734 billion; 30.5% | $1.431 billion; 29.6% |
| Operating income | $420.4 million; 7.4% of sales | $179.4 million; 3.7% of sales |
| Net income | $308.8 million; 5.4% of sales | $120.0 million; 2.5% of sales |
| Net cash from operating activities | $1.012 billion | $263.7 million |
| Capital expenditures | $41.3 million | $62.8 million |
| Adjusted EBITDA (non-GAAP) | $607.0 million | $322.8 million |
E-commerce sales rose 138.3% to approximately $588 million and represented 10.4% of merchandise sales, versus 5.1% in 2019. Adjusted Free Cash Flow, a company-defined non-GAAP measure equal to operating cash flow less investing cash flow, was $978.5 million, compared with $196.9 million.
At January 30, 2021, cash and cash equivalents were $377.6 million. Gross debt was $800 million: $400 million of term debt and $400 million of 6.00% senior secured notes. The company reported no ABL borrowings and $718.8 million of available ABL capacity, subject to borrowing conditions. Reported net leverage was 0.7x. Current assets were $1.415 billion and current liabilities were $1.167 billion.
Material changes versus FY2019
- Sales increased 17.8%, primarily from 16.1% comparable-sales growth; company-reported store additions contributed another $77.7 million.
- Gross margin expanded 90 basis points, principally from less clearance activity and lower markdowns. SG&A rose 4.9% in dollars but declined from 25.9% to 23.1% of sales.
- Operating income increased 134.3% and net income increased 157.2%. Lower interest expense helped; the gain on early debt retirement was smaller than in 2019.
- Operating cash flow rose sharply, supported in part by a $364.4 million increase in accounts payable and lower inventory from strong sell-through. Management expects inventory replenishment in 2021 to use cash.
- The company refinanced in November 2020, replacing approximately $1.431 billion of prior term debt with a $400 million term loan and $400 million of notes, alongside an extended ABL maturity. It also completed IPO share sales; the January/February 2021 secondary offering was by selling stockholders and generated no proceeds for the company.
Fourth quarter: FY2020 Q4 sales were $1.597 billion versus $1.370 billion in FY2019 Q4; operating income was $141.0 million versus $42.2 million, and net income was $91.5 million versus $17.7 million.
Outlook, commentary, risks and unusual items
- Management expected capital expenditures of approximately $80 million for FY2021, about half for corporate, e-commerce and IT programs. It expected to open eight to 10 stores annually starting in 2022. These are stated plans, not formal earnings guidance.
- Management attributed performance to pandemic-related demand for outdoor, fitness and at-home recreation products, as well as merchandising, inventory, and omnichannel initiatives. It cautioned that the contribution of pandemic-driven demand versus business improvements is difficult to isolate.
- COVID-19 created potential risks from renewed restrictions, changing demand, labor availability, supply-chain interruptions and higher freight and operating costs. The company said all stores were fully operational from May 20, 2020; it had drawn and repaid a $500 million ABL borrowing during the year.
- Key risks include consumer spending and preference shifts, intense retail competition, inventory and supplier availability, foreign sourcing and tariffs, cybersecurity and IT disruption, regional concentration in the South, and substantial lease commitments. Operating lease payments totaled $1.983 billion undiscounted, with a weighted-average remaining term of 11 years.
- The filing describes nine Texas lawsuits involving 79 plaintiffs related to a 2016 firearm sale alleged to have involved the 2017 Sutherland Springs shooting. The company disputes the claims; outcomes cannot be determined. It states that ordinary-course claims are reserved and are not expected to have a material effect.
- FY2020 included $17.6 million of COVID-related costs added back in the company’s Adjusted EBITDA reconciliation, $31.6 million of equity compensation expense, and a $12.3 million KKR monitoring-agreement termination fee. GAAP net income also reflects the transition to corporate income-tax status after October 1, 2020; prior periods were largely pass-through for federal tax purposes.
- The company reported effective disclosure controls, but the 10-K did not include management’s assessment or auditor attestation of internal control over financial reporting under the new-public-company transition relief. The auditor issued an unqualified opinion on the financial statements and identified income-tax accounting for the reorganization as a critical audit matter.
Important facts for investors to verify
- Confirm the intended period: this is FY2020, not a 2019 Q4 10-K; use the quarterly table for Q4 comparisons.
- Review the sustainability of comparable-sales and margin gains, including the extent to which pandemic-era demand persists.
- Assess cash-flow quality and 2021 working-capital needs, particularly inventory restocking and the contribution from increased accounts payable.
- Verify debt terms, variable-rate exposure, covenant restrictions, ABL availability and scheduled interest and lease obligations.
- Review the outcome and potential exposure of the Sutherland Springs litigation, and monitor other legal, product-safety and regulatory matters.
- Consider the limitations of company-defined non-GAAP measures and reconcile them to GAAP results; also monitor KKR’s continuing voting control and potential share dilution or sales.