Academy Sports & Outdoors, Inc. — Form 10-Q Summary
Period: The filing covers the thirteen and twenty-six weeks ended July 31, 2021, compared with periods ended August 1, 2020. This differs from the request metadata’s “2020 Q2”; the filing itself is for 2021 Q2. Academy operated 259 stores in 16 states and sold through its stores and e-commerce channels.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $1,791.5 million | $1,606.4 million | $3,371.9 million | $2,742.7 million |
| Comparable sales growth | 11.4% | — | 22.8% | — |
| Gross margin | $642.5 million; 35.9% | $496.5 million; 30.9% | $1,206.2 million; 35.8% | $794.4 million; 29.0% |
| Operating income | $254.6 million | $183.8 million | $493.6 million | $197.8 million |
| Net income | $190.5 million | $167.7 million | $368.3 million | $157.7 million |
| Diluted EPS | $1.99 | $2.25 | $3.82 | $2.12 |
Q2 sales increased 11.5% and net income increased 13.6% year over year. The gross-margin expansion reflected higher-margin product mix, higher average unit prices, less promotional activity, inventory-turnover effects and vendor allowances. SG&A rose 24.1% in Q2, including higher equity compensation and advertising; as a share of sales it increased to 21.7% from 19.5%. First-half SG&A was 21.1% of sales, down from 21.8%.
Interest expense declined 48.4% in Q2 to $12.2 million, primarily due to lower debt and the absence of the prior-year ABL draw. Q2 income-tax expense was $50.4 million versus $1.0 million; comparisons are affected by the company’s post-IPO conversion to a taxable corporation. Q2 basic and diluted EPS were lower than the prior-year quarter despite higher net income; the filing reports a higher weighted-average share count following the IPO and related reorganization.
Cash flow, debt and liquidity
- First-half operating cash flow was $405.7 million, down from $773.6 million. The decrease chiefly reflected inventory investment and the prior-year benefit from extended vendor payment terms. First-half capital expenditures were $33.8 million; cash used in financing was $195.7 million.
- Cash and cash equivalents were $553.8 million at July 31, 2021. Merchandise inventory was $1,115.0 million, up from $899.1 million at August 1, 2020.
- Debt principal totaled $699.3 million: $299.3 million on the term loan and $400.0 million of 6.00% notes due 2027. The company had no ABL borrowings and reported $858.4 million of available ABL capacity. It was in compliance with debt covenants.
- In May, the company repaid $99 million of term-loan principal and reduced the LIBOR margin from 5.00% to 3.75%. First-half debt repayments were $100.8 million. Long-term lease liabilities were $1,107.7 million, in addition to debt.
- The company repurchased and retired approximately 3.23 million shares for $100 million in May. A separate $500 million share-repurchase authorization was approved on September 2, after quarter-end; it does not require the company to repurchase shares.
Business developments, outlook and risks
Management attributed growth to comparable-sales gains across merchandise divisions, particularly apparel, footwear and sports and recreation. E-commerce sales declined 0.9% in Q2 and 10.8% year to date, which management associated with customers returning to stores as COVID-19 restrictions eased. E-commerce represented 8.4% of Q2 merchandise sales and 7.9% year to date. The company launched a mobile app in Q2 and continued investing in omnichannel capabilities.
The filing gives no specific sales or earnings guidance. Management expected approximately $90 million of fiscal 2021 capital expenditures and, subject to pandemic effects, expected to open eight to ten stores annually beginning in 2022. Management also expected inventory rebuilding to use cash during the remainder of 2021 and said existing cash, operating cash flow and ABL availability should fund anticipated needs and debt service for at least twelve months.
Key risks include COVID-19 developments and changing consumer demand, supply-chain and freight disruption, merchandise availability and costs, inventory management, competition and promotional pressure, e-commerce execution, labor needs, cybersecurity and information systems, seasonality, and substantial indebtedness. The filing notes that estimates for inventory valuation and asset impairment remain more challenging amid economic and pandemic uncertainty. KKR held approximately 20% of voting power and could exert substantial influence. The company disclosed ordinary-course litigation; in the Sutherland Springs firearm-related suits, the Texas Supreme Court directed dismissal of certain cases, while the outcome of remaining claims was not yet determined.
Unusual items include approximately $24.9 million of non-cash equity-compensation expense and $15.4 million of cash taxes on equity compensation associated with a May vesting event. The company also recorded a $2.2 million loss on early debt retirement. Prior-year comparisons include pandemic-related costs and a $7.8 million debt-repurchase gain.
Investor verification priorities
- Confirm the reporting-period mismatch: the supplied metadata says 2020 Q2, but the filing reports Q2 2021.
- Assess whether exceptional sales and margin performance can persist as pandemic-related demand and comparisons normalize.
- Track inventory growth, vendor-payment timing and operating cash flow as management rebuilds inventory.
- Review the effect of equity-compensation costs, taxes and share-count changes on reported earnings and per-share results.
- Verify debt repayment, ABL availability, lease commitments and the execution and funding of any authorized buybacks.
- Monitor supply-chain, COVID-19 and litigation developments, including resolution of the remaining Sutherland Springs claims.