Business context and reporting period
Academy Sports & Outdoors, Inc. is a U.S. sporting goods and outdoor recreation retailer. This Form 10-Q covers the 13 weeks ended May 1, 2021; comparisons are with the 13 weeks ended May 2, 2020. The company operated 259 stores in 16 states and sold online. Results are not necessarily indicative of the full fiscal year.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $1,580.3 million | $1,136.3 million |
| Comparable sales growth | 38.9% | Not stated |
| Gross margin | $563.7 million; 35.7% of sales | $297.9 million; 26.2% of sales |
| Operating income | $239.1 million; 15.1% of sales | $14.0 million; 1.2% of sales |
| Net income (loss) | $177.8 million; diluted EPS $1.84 | $(10.0) million; diluted loss per share $(0.14) |
| Cash from operations | $219.2 million | $90.8 million |
| Capital expenditures | $16.8 million | $9.9 million |
| Adjusted EBITDA (non-GAAP) | $271.0 million | $53.3 million |
At May 1, 2021, cash and cash equivalents were $593.3 million and gross debt was $799.0 million: $399.0 million under the Term Loan and $400.0 million of senior secured notes. No ABL borrowings were outstanding; available ABL borrowing capacity was $819.4 million. Current liabilities were $1,239.2 million versus current assets of $1,717.1 million. Adjusted free cash flow, a non-GAAP measure defined as operating cash flow less investing cash flow, was $202.4 million versus $80.8 million.
Material changes versus the prior comparable period
- Sales rose 39.1%, with comparable sales up 38.9% and growth across all merchandise divisions. Apparel and footwear rebounded particularly strongly against pandemic-related weakness in the prior-year quarter.
- Gross margin expanded 950 basis points, mainly from a more favorable merchandise mix, higher average unit retail, and less clearance and promotional activity; higher import freight costs partly offset the improvement.
- SG&A rose 14.3% in dollars but declined as a share of sales from 25.0% to 20.5%, reflecting operating leverage.
- Net interest expense fell 40.7%, principally due to lower debt balances after the 2020 refinancing and the absence of the prior-year precautionary ABL draw.
- E-commerce sales declined 21.0% and were 7.4% of merchandise sales, down from 13.1%, as demand shifted back to stores. E-commerce sales remained 300% above the comparable 2019 period, according to management.
- Operating cash flow improved, but inventory purchases used cash: inventory was $1,080.8 million at quarter-end, up from $990.0 million at January 30, 2021. Management said inventory replenishment was expected to affect operating cash flow for the rest of fiscal 2021.
Outlook, commentary, risks and unusual items
- The filing provides no formal sales or earnings guidance. Management expected fiscal 2021 capital expenditures of approximately $80 million, about half for corporate, e-commerce and IT programs. It expected to open 8–10 stores annually beginning in 2022, subject to business conditions and the pandemic.
- Management cited increased store traffic, easing COVID-19 restrictions, vaccinations, stimulus payments, enhanced unemployment benefits and the return of team sports and in-person education as factors supporting demand. The company also noted ongoing uncertainty about COVID-19 and changing consumer behavior.
- A February 2021 winter storm temporarily closed as many as 125 stores, two distribution centers and the e-commerce platform.
- Key risks include consumer spending and preferences, inventory availability and management, competition, supply-chain and freight disruption, import costs and tariffs, e-commerce execution, labor needs, COVID-19 developments, substantial indebtedness, and KKR’s influence. KKR held 44.6% at May 1; a subsequent offering reduced its ownership to 31.3%.
- After quarter-end, the company repurchased and retired approximately 3.23 million shares for about $100 million; it received no proceeds from the related secondary offering. The ownership-related vesting event generated approximately $24.9 million of non-cash equity compensation expense, $15.4 million of cash tax expense, and accelerated about $8.2 million of cash payments.
- On May 25, 2021, the company used cash to repay $99 million of Term Loan borrowings and reduced the LIBOR margin from 5.00% to 3.75%, leaving $300 million outstanding under that loan.
- Management said it was in compliance with debt covenants at May 1. Routine lawsuits and claims were not expected to have a material effect; the ultimate outcomes remain uncertain. The filing also reports $21.2 million of technology and other contractual commitments and $9.6 million of sponsorship and intellectual-property commitments.
Important facts for investors to verify
- How much of the exceptional comparable-sales and margin growth is sustainable as pandemic-related comparisons normalize and demand shifts between stores and online?
- Whether inventory replenishment, freight costs and supplier constraints affect future margins, working capital and operating cash flow.
- The company’s post-quarter cash, debt and share count after the $100 million repurchase, $99 million loan repayment, and equity-award-related cash costs.
- How the loan repricing and principal reduction affect future interest expense, and whether covenant compliance and ABL availability remain strong.
- Whether the stated $80 million capital expenditure plan and 8–10 annual store-opening ambition remain on track amid economic, pandemic and execution risks.